mimo2005

Federal Reserve Board data show that:

_ More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

_ Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

_ Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.

The "turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007," the President's Working Group on Financial Markets reported Friday.

McClatchy Washington Bureau | 10/11/2008 | Private sector loans, not Fannie or Freddie, triggered crisis


Why does the Private sector hates America?

RedScott

Anyone that believes that the resent situation was brought on by lax government controls is sadly mistaken. The fact is the Federal Reserve sets interest rates artificially low during the period leading up to any market bust in order to spark economic growth, which always leads to malinvestments. No amount of market regulation is going to stop bad investments during periods of easy credit. What we are witnessing now is the result of the Feds policy.

Economic law kids.

mimo2005

Though fannie and freddie played a role (a small one) in all of this, it was that lack of regulation that really is to blame.
The brokers all knew these people couldn't make their payments, but they did not care. There was a "secret" called the 7:3 ratio. If 7 out of 10 loans were good, the bundle was purchased by a bank almost without question. If there were more bad loans in there, the banks may reject the package.
Are these brokers at fault? You bet. Are the banks at fault for being complicit? You bet


Greed .......

sobeit

part of the problem was all the minority lawsuits. banks and mortgage companies all across the country were forced to make bad loans by the courts. After one such lawsuit in a local town, the banks were forced to make loans and just about every one of them foreclosed within two years. Several of them the new home owners never even made a payment.

mommabear

Here we go.... shifting the blame to to 'them'.

sobeit

in this case the blame falls to the courts for ruling that the loans should be made to individuals who were not qualified. Facts are facts and you cannot ignore them just because the truth seemed to be not politically correct.

mimo2005

Predatory lending is the main problem , people whith limited income , received dozens of credit cards , and got big loans to buy their 1 million dollars house ( arms)

flipper

Thats right. Shame on people not understanding that working at McDonalds means you cant be driving brand new cadillacs and living in half a million dollar homes. How dare they actually have a budget and realize they cannot afford the home themselves. The government should have told them they cannot afford it. So they can run to someone who will sue and say give them a loan anyway. There we go, having people take responsiblity for themselves. We cannot have that.

Oh and just for fun, two people where talking today about buying a house and this is what they said.

broad #1: So we looked at this house, we like it.. its a bit expensive but were gonna go for it.
Girl #2: oh yea?
Girl #1: we can only put down 5%, and this is what we're gonna do, i pay the mortgage he pays the bills.
Girl #2: oh that works. what does your husband do?
Girl #1: hes in the academy (police i presume) so he doesnt make any much yet and i dont make a lot either but this place is soo nice!
Girl #2: oh nice, just have to watch your spending..
Girl #1: yeah we are gonna have about a $1000 month left over after the mortgage but the money will come from somewhere rite??
Girl #2: yea hun.. it will be ok.. i mean my girlfriend was just telling me how its a great time to buy!

But I understand how its the big bad banks fault for lending to people like this.

yustr

You almost had me until you got here. My answer is: when these people can't pay it suddenly becomes the taxpayer's problem...nice business model ya got there.

flipper

You know what though, I don't think the banks should have been bailed out. They got greedy. But we are talking about bailing out people who got greedy too. How many people thought they could make some money by buying a house they knew they couldn't afford by getting a low interest rate, or an interest only loan and then selling it a few years later for a profit. I've known people who tried to do this. Well its a gamble. A lot of people lost. I lost money in the stock market. Should I be refunded all that money? And a bit off topic, but what AIG did sickens me. They should have all that money taken back.

But back on topic. Ok, so you say that was only a select few that tried to profit that way. Ok, I will buy that. That leaves two types of people left. Those that were nieve enought to go to a company who is in business to make money to have the individuals best interest in mind. Or the type who doesn't know how to manage their money. Sadly not much can be done about those who are nieve, lets just hope no one tries to sell them ocean front property in South Dakota. Those that cannot manage their money well enough to figure out what they could afford, maybe since they are relying on the government to buy them the house, the government should just take their paychecks, pay their bills and then give them the left over money for them to spend.

EnglishPaul

So, the banks were not rescued; people lost huge amounts in savings accounts. But worse was the money that suddenly froze in current accounts: within a week cashpoints dispensed no cash, and account cards were only good for scraping ice from windshields.
After the second week, it didn't matter if you had jewlrey to hock, because the shops had no way to get supplies in.

The banks certainly do not deserve to be bailed out. Neither do the stupid individuals that bought what they could never afford.
But this is not a sympathy donation; it is a last attempt to stop the pillars of society from collapsing.
Perhaps it is a better idea for the government to take the pay checks of the finance industry and let them have only pocket money until they have paid back what they squandered.

mommabear

I like that idea!

flipper

You know what, I'm all for that. The stupid CEO's that are still taking millions when the business is failing is just plain greedy. Just like the people who tried to make money off the housing market that are now crying because they took a gamble and lost. Maybe I should go gamble away all my savings at a casino and see if the government will give me the money back if I cry enough.

Chode

Well, flipper, just in case you've never had a car or home loan, there's this little thing that lenders are supposed to do called "qualifying" you for the loan. They look at your credit rating, your expenses, and your income and decide whether you can actually make the loan payments or not. If it seems probable that you just can't make the payments responsible lenders don't make the loan. So it actually shouldn't matter if the prospective borrowers have dreams that are bigger than their budgets. A bad loan is still a bad loan, and it's the lender who should be responsible for the decision and the results.

flipper

Community Reinvestment Act




So you don't give poor people loans, you get sued. Great idea there sparky. Ok, now all you people who wish to back talk and try and save your Messiah go for it.

Again, I'm not going to a bank and expecting them to have my best interest in mind. If you truly believe that then maybe you shouldn't be in charge of your money.

Chode

Flipper, have you ever considered using a designated poster when you're not thinking clearly? What an incoherent mess!

Let's go over this again. Your remark that "Again, I'm not going to a bank and expecting them to have my best interest in mind. If you truly believe that then maybe you shouldn't be in charge of your money." really shows how little grasp you have on the concept of what constitutes responsible loan policies.

Look, a loan officer at a bank is spending some money up front with the hope of being repaid with interest when he makes a loan. Even if the loan is secured, as is the case with a mortgage or a car loan, the lending institution stands an excellent chance of loosing money if the borrower defaults. Which is why successful, solvent banks avoid making loans that are likely to go bad. Remember "qualifying the loan"? With me so far?

So let's look at the CRA. Doesn't it seem strange (not to say "illogical") to think that a law passed way back in 1977 would be at the heart of a financial crisis 30 years later? Isn't that a REALLY long gap between cause and effect?

Let me go back to the Wikipedia article you linked to and toss out a couple of quotes: "The Act was intended to reduce discriminatory credit practices against such neighborhoods, a practice known as 'redlining'.[4] The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation."

The actual statistics on CRA loans don't bear out the belief that they are a major contributor to the current credit crunch. Again, from your own link:

However, others dispute the involvement of the CRA in the crisis. In a Bank for International Settlements ("BIS") working paper, economist Luci Ellis concluded that "there is no evidence that the Community Reinvestment Act was responsible for encouraging the subprime lending boom and subsequent housing bust," relying partly on evidence that the housing bust has been a largely exurban event.[59] Others commentators, for example, Daniel Gross of Slate, Tim Westrich of the Center for American Progress,[60] Robert Gordon of the American Prospect,[61] and Aaron Pressman from BusinessWeek,[62] have also concluded that the CRA did not contribute to the current financial crisis.

Some legal and financial experts note that CRA regulated loans tend to be safe and profitable, and that subprime excesses came mainly from institutions not regulated by the CRA. In the February 2008 House hearing, law professor Michael S. Barr, a Treasury Department official under President Clinton,[63][32] stated that a Federal Reserve survey showed that affected institutions considered CRA loans profitable and not overly risky. He noted that approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA. Another 25% to 30% came from only partially CRA regulated bank subsidiaries and affiliates. He stated that institutions fully regulated by CRA made "perhaps" one in four sub-prime loans. Referring to CRA and abuses in the subprime market, Michael Barr stated that in his judgment "the worst and most widespread abuses occurred in the institutions with the least federal oversight".[64] According to Janet L. Yellen, President of the Federal Reserve Bank of San Francisco, independent mortgage companies made "high-priced loans" at more than twice the rate of the banks and thrifts; most CRA loans were responsibly made, and were not the higher-priced loans that have contributed to the current crisis.[65] A 2008 study by Traiger & Hinckley LLP, a law firm that counsels financial institutions on CRA compliance, found that CRA regulated institutions were less likely to make subprime loans, and when they did the interest rates were lower. CRA banks were also half as likely to resell the loans.[66]"

"Assistant professor of law Alan M. White[67] notes that some abuses blamed on the CRA actually occurred because the Housing and Urban Development and Office of Federal Housing Enterprise Oversight under the Bush administration allowed Fannie Mae and Freddie Mac to fulfill their affordable housing goals by buying subprime mortgage-backed securities. These affordable housing goals were motivated by similar aims, but not part of the CRA.[68]

Barney Frank, Democratic member of Congress and chairman of the House Financial Services Committee, called Republican criticism of the Act in light of the nation's housing crisis a veiled attack on the poor that's racially motivated. House Minority Leader John Boehner called Frank's remarks "a lame, desperate attempt to divert Americans' attention away from the Democratic party's obstruction of reforms that would have reined in Fannie Mae and Freddie Mac". [6