From Clinton to Obongo

[Headholio]

Despite the fact that CRA appears to have increased bank and thrift lending in low- and moderate-income communities, such institutions are not the only ones operating in these areas. In fact, with new and lower-cost sources of funding available from the secondary market through securitization, and with advances in financial technology, subprime lending exploded in the late 1990s, reaching over $600 billion and 20% of all originations by 2005. More than half of subprime loans were made by independent mortgage companies not subject to comprehensive federal supervision; another 30 percent of such originations were made by affiliates of banks or thrifts, which are not subject to routine examination or supervision, and the remaining 20 percent were made by banks and thrifts. Although reasonable people can disagree about how to interpret the evidence, my own judgment is that the worst and most widespread abuses occurred in the institutions with the least federal oversight.
The housing crisis we face today, driven by serious problems in the subprime lending, suggests that our system of home mortgage regulation, including CRA, is seriously deficient. We need to fill what my friend, the late Federal Reserve Board Governor Ned Gramlich aptly termed, "the giant hole in the supervisory safety net." Banks and thrifts are subject to comprehensive federal regulation and supervision; their affiliates far less so; and independent mortgage companies, not at all. Moreover, many market-based systems designed to ensure sound practices in this sector-broker reputational risk, lender oversight of brokers, investor oversight of lenders, rating agency oversight of securitizations, and so on -- simply did not work. Conflicts of interest, lax regulation, and "boom times" covered up the extent of the abuses -- at least for a while, at least for those not directly affected by abusive practices. But no more.

http://financialservices.house.gov/uploadedfiles/061411barr.pdf


http://financialservices.house.gov/uploadedfiles/061411barr.pdf

 

[mrplunkey]

Yeah, let's completely discount the fact that the government created the market in the first place.

With that logic, Steve Jobs didn't play a role in the development of the PC industry because only 5.2% of the PCs shipped worldwide last year were macs.

 

[Headholio]

The government created the sub prime market?

 

[75th]

The government created the sub prime market?

Maybe it "got the ball rolling."

 

[mrplunkey]

Yeah, I'm old fashioned that way.

If an organization invented it, I tend to give them credit for "getting the ball rolling".

 

[Headholio]

Financial Crisis Inquiry Commission:

The Commission concludes the CRA was not a significant factor in subprime lending or the crisis. Many subprime lenders were not subject to the CRA. Research indicates only 6% of the high cost loans - a proxy for subprime loans - had any connection to the law. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law.

http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf

 

[Headholio]

How was it created by the government? Subprime lending is the spawn of greed. No government regulation forced banks to loan 125% loan to value, or to give loans without income verification, or to loan on homes that were never even appraised. It was irresponsible decision making, primarily by the least regulated lenders. The CRA requirements were more stringent than many banks wanted to follow, which is why CRA loans had a lower default rate.

 

[ceo]

but lenders lend based on guidelines. Someone else will buy that loan based on it being written by their guidelines. It ain't those smaller lenders making the loans either. The loans get sold off quick as they're made.

You tell me to go lend money to people based on a set of guidelines that you write and you will pay me xx% to do so and I will go get you what you asked for. Now it's my fault?

 

[jnevin]

HUD became Frannie and Freddie's regulator in '92. In '95, HUD allowed Frannie and Freddie to loosen their guidelines and allow subprime loans to be written. The market really took off in around 200-2001. Clinton allowed it all to happen. A ton of other things happened that made it snowball out of control, but it started with him.

 

[jnevin]

How was it created by the government? Subprime lending is the spawn of greed. No government regulation forced banks to loan 125% loan to value, or to give loans without income verification, or to loan on homes that were never even appraised. It was irresponsible decision making, primarily by the least regulated lenders. The CRA requirements were more stringent than many banks wanted to follow, which is why CRA loans had a lower default rate.

Fannie and Freddie are regulated by HUD. All home loans are, aside from private notes. There are FHA loans available right now that allow you to borrow more than the home is worth.