Interesting questions ⢠Did the 1977 legislation, or any other legislation since, require banks to not verify income or payment history of mortgage applicants? ⢠50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs ? ⢠What about "No Money Down" Mortgages (0% down payments) ? Were they required by the CRA? Fannie? Freddie? ⢠Explain the shift in Loan to value from 80% to 120%: What was it in the Act that changed this traditional lending requirement? ⢠Did any Federal legislation require real estate agents and mortgage writers to use the same corrupt appraisers again and again? How did they manage to always come in at exactly the purchase price, no matter what? ⢠Did the CRA require banks to develop automated underwriting (AU) systems that emphasized speed rather than accuracy in order to process the greatest number of mortgage apps as quickly as possible? ⢠How exactly did legislation force Moody's, S&Ps and Fitch to rate junk paper as Triple AAA? ⢠What about piggy back loans? Were banks required by Congress to lend the first mortgage and do a HELOC for the down payment -- at the same time? ⢠Internal bank memos showed employees how to cheat the system to get poor mortgages prospects approved that shouldn't have been: Titled How to Get an "Iffy" loan approved at JPM Chase. (Was circulating that memo also a FNM/FRE/CRA requirement?) ⢠The four biggest problem areas for housing (by price decreases) are: Phoenix, Arizona; Las Vegas, Nevada; Miami, Florida, and San Diego, California. Explain exactly how these affluent, non-minority regions were impacted by the Community Reinvesment Act ? ⢠Did the GSEs require banks to not check credit scores? Assets? Income? ⢠What was it about the CRA or GSEs that mandated fund managers load up on an investment product that was hard to value, thinly traded, and poorly understood ⢠What was it in the Act that forced banks to make "interest only" loans? Were "Neg Am loans" also part of the legislative requirements also? ⢠Consider this February 2003 speech by Countrywide CEO Angelo Mozlilo at the American Bankers National Real Estate Conference. He advocated zero down payment mortgages -- was that a CRA requirement too, or just a grab for more market share, and bad banking? Yes, there were plenty of deadbeats. They saw the opportunity presented to them to rob the safe and took it.
It shows that there is a shit load of Americans who cannot make logical choices. It also shows there is a shit load of con artists in major businesses.
There was no oversight by the government or the financial industry. Furthermore the real money to be made by investment banks was in the unregulated derivatives, which grew to be larger than the regulated market. The pure idiocy of the financial government overseers were riding a pony which was passed by a large fast horse....which they pretended not to see. There is no excuse whatsoever other than sheer stupidity of leadership. What is even further amazing is that the so called brilliant ivy league schools who are protected from the outside business world never offered studies or formal inquiries into these issues as well. It is unbelievable as to what has happened. Also there were no policy studies with regards to the impacts of legal largesse ease given to FNM, FRE over the years. This is where politics had no connect with financial economics. Obviously, this is incredibly rediculous....particularly when it concerns the biggest asset in each family unit. There is no excuse for sheer stupidity. Intelligence is when one knows how to prevent such incidents..... Any fool can look back at history....... you people are so damn niave, there were plenty of people warning about problems, but the politics of the left won out over financial prudence. It's that simple.
Quote from runningman: please, please read this post: http://bigpicture.typepad.com/comme...derstandin.html "It's telling that, amid all the recent recriminations, even lenders have not fingered CRA. That's because CRA didn't bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA -- or any federal regulator. Law didn't make them lend. The profit motive did." -Robert Gordon, American Prospect -------------------------------------------------------------------------------- Interesting questions ⢠Did the 1977 legislation, or any other legislation since, require banks to not verify income or payment history of mortgage applicants? ⢠50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision; another 30% were made by banks or thrifts which are not subject to routine supervision or examinations. How was this caused by either CRA or GSEs ? The catalyst was Bill Clinton revising CRA in 1995 not 1977, banks were punished if they didn't give loans to subprimes and Fannie was there all along to encourage banks because Fannie would take on the risk, even for institution not covered br CRA like Countrywide. Later in the debacle the initial catalyst lost its importance, HOWEVER by then many people saw a problem and when republicans tried to stop the out of control corruption and lending, they were blocked by the democrats. I think that's the real scandal. To ignore the role of Clinton's catalytic legislation and later attempts by democrats to stop regulation, is plain willfull ignorance.
But everyone knows this. It is the regulators and the law that need to keep the wolves off the sheep. What do you think Treasury borrowings are about. You borrow from the rich to finance the poor who give it back to the rich. But to keep the sham going, you have to leave enough fleece so the sheep don't die from hypothermia.
I have been ranting about the lending to toothless scum for many years. I have been ranting about RE pimps for many years. I have been ranting about ball playing scum and ceo scum making obscene $ for years. You're getting what you allowed to fester up your victimly butts.
They lent money on a lot of assumptions that weren't true. Mainly, that the statements made on the applications were true, and that the higher interest rates on the loans made up for the increased risk of default. And that some of the loans were backed by an implied government promise to guarantee the loans. Wrong and wrong and wrong. Traveler
Good Analysis. I would add Government Regulation is unnecessary altogether so long as the Federal Reserve is put out of business. That way, Lenders and Wallstreet become judicious policeman of their own risk, knowing a bailout is no longer a Vote (or phone call) away. Remember, Wallstreet and Large American Banks own the Federal Reserve System. So when the collective banking community takes the wrong side of a multi-trillion dollar bet, they simply bail themselves out. This is the very definition of a Moral Hazard and our entire financial System is built upon it. Until America destroys the FED, this type of leveraged chicany ending in bailouts - or worse - will continue. Government isn't smart enough to assess the implications of each newly spawn derivative, instrument or asset class. Nor do they have the political will to act against the collective financial community - despite the electorates furious opposition to it. See Fridays Vote. The only hope is to educate America how and why the Banking System is a fraud and confiscates their wealth through inflation and engineered booms/busts (which the public always suffer from, in one form or another).
To answer the topic. Who's at fault? First and foremost, the Federal Reserve and Alan Greenspan. Without cheap, easy and plentiful credit, the housing bubble would not have been possible - banks well-regulated, or not. Point of fact, 1% Fed Funds would have created a bubble in some other sector, if that money didn't pour into housing or the stock market. Then we'd be sitting here, scratching our heads, asking why Congress didn't regulate the auto-loan industry better or why the Government didn't step in and halt the sale of Tulip Bulbs when they traded at $100,000 a pop. Second, Fractional Reserve lending is to blame (read: LEVERAGE) Can someone tell me where a Bank, or banking syndicate, gets the money to leverage Lehman 30-to-1 against its assets? That money is literally created out of thin air or against some retardedly-low reserve ratio that allows for the creation of Trillions to be made at a single keystroke. Without leverage, there is no bubble. Third, the Banks and Rating Agencies. They screwed themselves by writing no doc liar-loans on ARM's to the unemployed or asset-less buyer who - they KNEW - couldn't make those payments once the teaser rates reset. Screw them. Let the burn. Fourth, the Buyer. They were just plain stupid. They didn't do the math, didn't read their contract and didn't plan ahead. Screw them. Fifth. The Government. The buck stops with them as the final regulatory/law making authority in the Country. The Government allowed the Federal Reserve and Banking Community to operate unfettered, creating trillions in wealth overnight then gearing those trillions into tens of trillions more to juice the economy and stock market into oblivion. They are tacit and active accomplices in this gigantic banking scam, as their re-election and endless handouts are financed via the Feds money making power and inflation-tax. Lastly, we're to blame. The Average, everyday, hard-working American. While we're all decent, good-natured, honest folk, we're stupid and naive. We're easily conned and have been for almost 100 years. We're easily fooled and it shows. We need to wake up.