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Fannie and Freddie, Subprime, Community Reinvestment Act MYTH
The myth is simple and still paraded by many here:
Fannie and Freddie, the Community Reinvestment Act regulation, which forced poor (botom feeders, worthless fails to society, lazy) and helpless bankers(who have to give billions in bonuses cause there is no talent left) to make loans to ________(add insult).
Subprime Lending and the Community Reinvestment Act
The Community Reinvestment Act (CRA) encourages banks to expand mortgage lending in the communities in which they have branch offices, subject to maintaining overall levels of financial safety and soundness. Some have argued that this regulation forced banks to lower their credit standards and engage in riskier mortgage products in order to extend credit to lower-income individuals, who perhaps should not have received such loans. However, data provided by the Home Mortgage Disclosure Act (HMDA) reveal that loans covered by the CRA accounted for only a fraction of mortgage lending to lower-income borrowers and neighborhoods. This is especially true of higher-priced, or subprime, mortgages. CRA assessment-area lending accounted for only nine percent of higher-priced loans to lower-income borrowers and neighborhoods, while independent mortgage companies accounted for the majority. Further, the subprime share of assessment-area loans made to lower-income borrowers and lower-income neighborhoods was lower than the subprime share for all loans made between 2004 and 2006.
Signed into law in 1977, the Community Reinvestment Act directs federally-insured depository institutions “to help meet the credit needs of the local communities in which they are chartered, consistent with the safe and sound operation of such institutions.” The legislation was based on the principle that institutions accepting deposits from a community have an obligation to reinvest in that community, particularly if it is a lower-income neighborhood. Each CRA regulated lender has an assessment-area around their branch locations. A lender’s CRA performance is gauged in part by the number of loans to lower-income borrowers or borrowers in lower-income neighborhoods relative to total originations within their assessment-area.
In 1980, seventy-one percent of all one-to-four family home mortgages were originated by a deposit-taking bank or thrift. However, over the last several decades, innovations in capital markets enabled companies to raise capital by selling mortgage-backed securities into the secondary market. Without deposits, the CRA did not have the jurisdiction to regulate the new independent mortgage companies.
Independent mortgage companies accounted for the majority of one-to-four family mortgage loans by 1997, the last year that the Department of Housing and Urban Development conducted its Survey of Mortgage Lending Activity. In addition, much of the banks’ share flowed through their mortgage banking subsidiaries, where they are given the option whether or not to include mortgage originations in their CRA evaluations. Combined with the increasing ability of banks to lend outside their local communities, the share of loans made within CRA assessment-areas, has steadily declined over the last 15 years.
There are many causes to the collapse of the housing market and the recent financial turmoil, but the contribution of the CRA appears marginal. While banks did engage in subprime lending in their assessment areas, they did so at a lower rate than the market in general and accounted for only a small fraction of subprime loans to lower-income borrowers and lowerincome neighborhoods. The data suggest that far from being forced into risky corners of the market, the institutions under the scrutiny of the CRA were crowded out by unregulated lenders.
those here that fearmonger (specially those that probably hope that this happens so it destroys economy and potus) about the potential of the comercial real estate market should have known this already (on hindsight at least): what regulation is driving this?
there is no fedecalt act or activity to blame to.
Subprime lending was only part of the issue. One of the main problems is having a huge percentage of all mortgage loans being sold to and managed by federal entities like Fannie and Freddie. Too many eggs and too few baskets along with he fact that Fannie and Freddie knew they could give bad loans with impudence because they can fall back on the government who will print money to save them. Because of this Fannie and Freddie influenced relaxation of qualifications and no down payment loans. Again, this is clearly an issue where the influence of government is a major part of the problem. Divestiture of home mortgages across a wider swath of private banks would lessen the impact of such crashes and avoid undue government influence that gets us in these messes.
The study says the opposite. Lack of regulation, and new mortgage-backed security funding allowed for predatory and unscrupulous tactics to happen under the radar.
Maybe I should have just loled like Motormouth
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Signatures manicured and overthought would indicate a user with far too much time on his hands and I will take no part in preparing said signature.
Fannie and Freddie were not really federal entities. Well technically, they were not part of the federal budget period (slightly different now) and any regulation of them by the previous group at HUD was arguably lax (remember all the failed attempts that we argued about some time ago to reel Fannie and Freddie in?).
This is only one study.....there are many others out there that support what I'm saying which is the prevalent school of thought on the issue.
yes, I am sure there are others who support this thought, much like there are many, many people who believe barack obama is not a US citizen, but it is far from the prevalent school of logical, or informed thought.
yes, I am sure there are others who support this thought, much like there are many, many people who believe barack obama is not a US citizen, but it is far from the prevalent school of logical, or informed thought.
from my experience and lets be frank here i played a major roll in feeding the bubble from 2002 to 2007. the vast majority of the subprime loans i funded and the company i worked for funded were for middle to upper middle class people. they were credit challenged yes but were far from poor. these were just stupid schmucks using their home as an ATM. there was no preying on the poor.
furthermore from my experience the people i did deal with who were poor and lived in the ghetto did not want to talk to some fast talking white kid from orange county.
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Only when you have lost everything can you truly accomplish anything.
The market can stay irrational longer than you can stay solvent. -John Maynard Keynes
from my experience and lets be frank here i played a major roll in feeding the bubble from 2002 to 2007. the vast majority of the subprime loans i funded and the company i worked for funded were for middle to upper middle class people. they were credit challenged yes but were far from poor. these were just stupid schmucks using their home as an ATM. there was no preying on the poor.
furthermore from my experience the people i did deal with who were poor and lived in the ghetto did not want to talk to some fast talking white kid from orange county.
eff you....let me guess, now you're selling that you can help people modify their loan with a real sketchy company name that almost makes folk think you work for the government....
eff you....let me guess, now you're selling that you can help people modify their loan with a real sketchy company name that almost makes folk think you work for the government....
jk with the eff you.
ah no. loan mods are a bunch of crap. always will be and always have been. the california state bar and state legislature have really cracked down on loan mod companies.
i am just selling houses now. actually helping sellers with short sales. yes i am now feeding off of the mess i created. i am actually helping my clients, the bank pays my commission, and the buyer gets a good deal. its a win win for everyone.
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Only when you have lost everything can you truly accomplish anything.
The market can stay irrational longer than you can stay solvent. -John Maynard Keynes
Last edited by sugarspunZ; 11-03-2009 at 08:37 PM.
ah no. loan mods are a bunch of crap. always will be and always have been. the california state bar and state legislature have really cracked down on loan mod companies.
i am just selling houses now. actually helping sellers with short sales. yes i am now feeding off of the mess i created. i am actually helping my clients, the bank pays my commission, and the buyer gets a good deal. its a win win for everyone.
Just don't lose yourself. Interestingly, I've heard of folk who are putting sketchy loan mod companies out of business....for good.
Just don't lose yourself. Interestingly, I've heard of folk who are putting sketchy loan mod companies out of business....for good.
that happened once. it aint going to happen again.
yeah the whole loan mod business model is wrong. can it work legitimately? yes but... there are way to many opportunities for greed and there are no checks and balances. i hope they all go out of business.
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Only when you have lost everything can you truly accomplish anything.
The market can stay irrational longer than you can stay solvent. -John Maynard Keynes
from my experience and lets be frank here i played a major roll in feeding the bubble from 2002 to 2007. the vast majority of the subprime loans i funded and the company i worked for funded were for middle to upper middle class people. they were credit challenged yes but were far from poor. these were just stupid schmucks using their home as an ATM. there was no preying on the poor.
furthermore from my experience the people i did deal with who were poor and lived in the ghetto did not want to talk to some fast talking white kid from orange county.
Quote:
Originally Posted by Harvard University
...the contribution of the CRA appears marginal. While banks did engage in subprime lending in their assessment areas, they did so at a lower rate than the market in general and accounted for only a small fraction of subprime loans to lower-income borrowers and lowerincome neighborhoods
did you look at the charts sugar? this is where the broad outlook(macro) of the sumarize data trumps those just one personal experience... they accounted for "your work and collegues work".
His statement that most authorities believe Fannie and Freddie are to blame for the housing crisis is a joke. it is exactly like claiming that the prevailing school of thought is that Barack Obama is not a US citizen; sure there are people who believe it, but they are not credible, or the majority.
But really, not trying to O/T this, so I'll drop it.
did you look at the charts sugar? this is where the broad outlook(macro) of the sumarize data trumps those just one personal experience... they accounted for "your work and collegues work".
Sugar was a broker, he didn't work for a bank if I recall.
did you look at the charts sugar? this is where the broad outlook(macro) of the sumarize data trumps those just one personal experience... they accounted for "your work and collegues work".
i agree with your post. i was just adding my $0.02. in my 5 years of originating loans i personally did ZERO that fell into the CRA category.
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Only when you have lost everything can you truly accomplish anything.
The market can stay irrational longer than you can stay solvent. -John Maynard Keynes
Fannie and Freddie, Subprime, Community Reinvestment Act MYTH
