Carpe Diem

US homeownership rate falls to a 17-year low of 65.3% in Q3 as ‘homeownership bubble’ continues to deflate

The homeownership rate in the U.S. fell in the third quarter of 2012 to 65.3% (seasonally adjusted rate, see chart above), according to data released recently by the Census Bureau.  Compared to the all-time high homeownership rate of 69.2% in 2005, the share of American households owning a home has been trending downward consistently, and has now fallen almost four full percentage points to the current level.  The 65.3% rate in Q3 of this year is the lowest homeownership rate in 17 years, going all the way back to the fourth quarter of 1995 when the rate was 65.1%. 

Comment: The political obsession with homeownership starting in the mid-1990s raised the U.S. homeownership rate from below 64% in 1994 to an artificial level above 69% by 2004, but obviously failed to create a homeownership rate that was sustainable in the long run.  Government housing policies did increase the homeownership rate in the short-run, but in the process turned good renters into bad homeowners, created a housing bubble, waves of foreclosures, and a subsequent housing meltdown and financial crisis.

What changed in the mid-1990s that created the “homeownership bubble”?

That’s when various federal housing policies that were designed to promote greater homeownerhip among low and moderate income households started being implemented, which required looser mortgage lending standards to achieve the goal of a higher homeownership rate. Here’s a description of that shift towards looser lending standards staring in 1995 for low- and moderate income households and for minority households, from James Gwartney’s economic textbook (14th edition, p. 615):

Home ownership is a worthy goal, but it was not pursued directly through transparent budget allocations and subsidies to homebuyers.  Instead, the federal government imposed a complex set of regulations and regulatory mandates that forced various lending institutions to extend more loans to low- and moderate-income households.  To meet these mandates, lenders had to lower their standards.  By the early years of the twenty-first century, it was possible to borrow more (relative to your income) and purchase a house or condo with a lower down payment than was the case a decade earlier.

Responding to earlier congressional legislation, the Department of Housing and Urban Development (HUD) imposed regulations designed to make housing more affordable.  The HUD mandates, adopted in 1995, required Fannie Mae and Freddie Mac to extend a larger share of their loans to low- and moderate-income households.  For example, under the HUD mandates, 40% of new loans financed by Fannie Mae and Freddie Mac in 1996 had to go to borrowers with incomes below the median.  The mandated share was steadily increased to 50% in 2000 and 56% in 2008.  Similar increases were mandated for borrowers with incomes of less than 60% of the median income.  Moreover, in 1999, HUD guidelines required Fannie and Freddie to accept smaller down payments and extend larger loans relative to income.

Modifications to the Community Reinvestment Act (CRA) in 1995 also loosened mortgage-lending standards.  These changes required banks to meet numeric goals based on the low-income and minority population of their service areas when extending mortgage loans.  In order to meet these requirements, many banks, especially those in urban areas, were forced to reduce their lending standards and extend more loans to borrowers who did not meet the conventional credit criteria.

The lower standards resulting from the GSE and CRA regulations reduced lending standard across the board. Lenders could hardly offer low-down-payment loans and larger mortgages relative to housing value on subprime loans without offering similar terms to prime borrowers.  As the regulations tightened, the share of loans extended to subprime borrowers steadily increased.  Measured as a share of mortgages originated during the year, subprime mortgages rose from 4.5% in 1994 to 13.2% in 2000 and 20% in 2005 and 2006.

Bottom Line: The chart helps to illustrates how government policies (monetary, mortgage market, GSEs, CRA, affordable housing, etc.) created an unsustainable “homeownership bubble” that continues to deflate.

Update: See chart below showing the close relationship between the U.S. homeownership rate and house prices (FHFA purchase only index) from 1991 to 2012.  As the homeownership rate was pushed up to historically high and unsustainable levels through federal housing and lending policies, home prices followed to historically high levels that were equally as unsustainable.  The homeownership bubble started to deflate in about 2005, and the deflation of the housing price bubble soon followed.

262 thoughts on “US homeownership rate falls to a 17-year low of 65.3% in Q3 as ‘homeownership bubble’ continues to deflate

  1. “In other words, the chart illustrates how government policies (monetary, mortgage market, GSEs, CRA, affordable housing, etc.) created an unsustainable “homeownership bubble” that continues to deflate.”

    Pure, unadulterated horsecrap.

      • Your reply was cut and pasted from Wallison’s faulty analysis. Let me help you here, Mark:

        “Responding to earlier congressional legislation, (HUD) imposed regulations designed to make housing more affordable. The HUD mandates, adopted in 1995, required Fannie Mae and Freddie Mac to extend a larger share of their loans to low- and moderate-income households. For example, under the HUD mandates, 40% of new loans financed by Fannie Mae and Freddie Mac in 1996 had to go to borrowers with incomes below the median. The mandated share was steadily increased to 50% in 2000 and 56% in 2008. Similar increases were mandated for borrowers with incomes of less than 60% of the median income. Moreover, in 1999, HUD guidelines required Fannie and Freddie to accept smaller down payments and extend larger loans relative to income.”

        Note that the mandate has two features:
        1) it mandates that lower income borrowers be served, based on the MEDIANS for the area in question. At no time does it say these are to be “hard money” loans, nor does it mandate that the loans be given to unqualified buyers with poor credit. The loans must STILL be made to people who qualify on the basis of Fannie and Freddie underwriting standards. These are not mandates to lower standards.
        2) The rule was passed in 1995 for “40% of new loans.” Tell me, Mark: HOW COME THE FORECLOSURE AVALANCHE DIDN’T COMMENCE UNTIL 12 YEARS LATER? If this policy was so reckless, where were all the foreclosures in the late 90s, early to mid 00s? There are none. In fact, GSE foreclosure rates remained benignly low, which is the usual <2%.

        I leave you to muse about the increase that took place in 2008.

        You continue:

        "Modifications to the (CRA) in 1995 also loosened mortgage-lending standards. These changes required banks to meet numeric goals based on the low-income and minority population of their service areas when extending mortgage loans. In order to meet these requirements, many banks, especially those in urban areas, were forced to reduce their lending standards and extend more loans to borrowers who did not meet the conventional credit criteria."

        There are several flaws with this argument. For one, once again, we have the 1995 date, and yet, the foreclosure or delinquency rate hasn't faltered, and wouldn't for years to come. Even so, IN RAW NUMBERS, CRA loans have the lowest default rates out of almost any other class of mortgages TO THIS VERY DAY.

        Let us pay special attention to this line: "These changes required banks to meet numeric goals based on the low-income and minority population of their service areas when extending mortgage loans."

        There is a problem with this thesis: the foreclosure crisis never occurred in "low income and minority population service areas," they occurred in what people in the mortgage industry call the "Sand States," like Florida, Nevada, Arizona and California. Needless to say, the bankrupted, empty hulks of unfinished condos along the Florida coast, and the retirement mini mansions of Henderson Nevada are not exactly the kind of "urban, minority, and low income" areas you're talking about.

        Any news report would have shown you this: invariably, the foreclosure and bank owned signs hang on NEW CONSTRUCTION, not existing homes.

        Take note, Mark: your position slanders low income and minority urbanites, and as Hitler blamed the Jews for "stabbing Germany in the back" you now blame the most powerless people in the United States who you believe were done "special favors" for bankrupting the economy.

        And you sit there wondering why your candidate just got his @ss handed to him.

        You continue:

        "The lower standards resulting from the GSE and CRA regulations reduced lending standard across the board. Lenders could hardly offer low-down-payment loans and larger mortgages relative to housing value on subprime loans without offering similar terms to prime borrowers. As the regulations tightened, the share of loans extended to subprime borrowers steadily increased."

        This is a common canard spread by the Pinto/Wallison lie machine. The idea that NON-GSE affiliated lenders "had" to lower their lending standards to the point of reckless lunacy since the GSEs had modified their standards, is absolute nonsense. First, we would no sooner absolve a hospital lowering their medical standards if they knew another hospital in town was doing the same thing, and second, you make the common fallacy of muddling what the term "SubPrime" means. Wallison attempts to describe this in his dissension from the FCIC findings, but he fails miserably because this pathetic clown doesn't know his @ss from his elbow when it comes to mortgage origination or securtization.

        Lastly: "Measured as a share of mortgages originated during the year, subprime mortgages rose from 4.5% in 1994 to 13.2% in 2000 and 20% in 2005 and 2006."

        In fact, Mark, GSE market share had plummeted by HALF towards the end of 2003, and slid even further in ensuing years.

        In the meantime, GSE loans have a default rate only one fifth of non-agency mortgages, and given the collapse of the economy and the job market, that's damned good underwriting.

        The assualt against the GSEs and CRA is racially and class based. Unfortunately, the REAL foreclosure action was in the middle and upper middle class communities.

        If you wish to refure, by all means, indulge me.

        • “Tell me, Mark: HOW COME THE FORECLOSURE AVALANCHE DIDN’T COMMENCE UNTIL 12 YEARS LATER?” — Max

          The CRA started out fairly modestly, but goals and targets increased by law every year requiring lenders to lower their standards dramatically in order to meet their targets.

          “Over the 17 year period 1992-2008, announced CRA commitments totaled$6 trillion. 94% of these CRA commitments can be traced to 4 banks (Citi,B of A, Wells, and Chase) and other banks they purchased or merged with.

          • “CRA loans have the lowest default rates out of almost any other class of mortgages TO THIS VERY DAY.” — Max

            Complete horseshit. Here is a 2000 report from the Federal Reserve, prepared for the U.S. Senate Banking Committee on CRA loans:

            Federal Reserve Report on The Performance and Profitability of CRA-Related Lending

            Among the findings:

            •Delinquency rates for CRA loans in the home purchase and refinance market are twice that for non-CRA loans.
            •Among all institutions, about 40 percent of CRA special lending programs are not profitable. For large institutions, 58 percent report that their CRA special lending programs are not profitable. This is inconsistent with the safety and soundness requirements of CRA.

          • ROFL!! This piece is from the year 2000! Do you know how LOW the default rate was on conventional conforming loans in those days? Next to nothing! So “doubling” isn’t much of a problem.

            Try this report from 2008:

            http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf

            The report points out that since CRA loans were used in minority neighborhoods where predatory lending is rampant, CRA more than likely PREVENTED many foreclosures since the interest rates and closing costs weren’t so egregious.

          • “The CRA started out fairly modestly, but goals and targets increased by law every year requiring lenders to lower their standards dramatically in order to meet their targets.

            Which means nothing. In fact, the “targets” were quite modest, and again, in sheer loan volume alone, if mortgages originated under CRA guidelines had even an insanely high default rate, say, 25%, it still wouldn’t have amounted to the proverbial fart in a hurricane. It just wasn’t that big a slice of the market. Here’s how you fool yourself:

            “Over the 17 year period 1992-2008, announced CRA commitments totaled$6 trillion. 94% of these CRA commitments can be traced to 4 banks (Citi,B of A, Wells, and Chase) and other banks they purchased or merged with.”

            That’s A SEVENTEEN YEAR PERIOD. Since the highest level of foreclosure incidence is within the first year of ownership (loans after that are dubbed “seasoned’) are you telling me that a mortgage originated in 1995 posed a foreclosure risk TEN YEARS LATER after the homeowner first moved in? Hardly. Of course, loan dollar volumes would accrue over time. But even this amount is nothing in terms of the US housing market.

            By comparison: AIG held insurance derivatives on $3 TRILLION of Sub Prime mortgages, in the short time they were in the business. I will now answer your other points.

            You won’t win this one, I promise. The numbers are not on your side.

          • Max – these fools want to believe what they want and they look for “slices” to support their bias.

            they have absolutely no intent to look for the truth because it would destroy their ideological beliefs.

          • Even efforts after 2001 to press Fannie Mae and Freddie Mac to buy sub-prime loans, as part of the Bush administration’s “Ownership Society,” do not implicate CRA. Those who scapegoat CRA often contend that it was a reckless push for homeownership — by both the Clinton and Bush administrations — that led to the sub-prime crisis. But while homeownership increased significantly during the Clinton years, sub-prime (and also Alt-A) lending was still under 10 percent of mortgage originations when President Bill Clinton left office. President George W. Bush’s further pressure for homeownership, which included substantial pressure on Fannie Mae and Freddie Mac to purchase loans, in particular low-documentation loans, was dubious policy, but cannot be blamed on CRA. In 2006, the height of the sub-prime boom, almost two-thirds of the high-cost loans made were for purposes other than the purchase of a home by an owner-occupant — they were mostly refinancings to extract equity. But even this overstates the case against homeownership. As the Center for Responsible Lending has demonstrated, between 1998 and 2006, only about 9 percent of sub-prime loans went to first-time homebuyers.

            Note also that CRA applies only to banks and savings institutions (“thrifts”). It does not apply to credit unions, independent mortgage companies, or investment banks. And banks and thrifts get credit under CRA only for lending to low- and moderate-income borrowers or in low- and moderate-income census tracts in their assessment areas, broadly the area near their branches which, for large institutions, generally includes entire metropolitan areas. This is critically important to understanding the role of CRA in the current debacle. When CRA was enacted, there were approximately 18,000 banks and thrifts, which made about 70 percent of all home-mortgage loans, and almost all loans were originated by branches and thus were covered by CRA. By 2006, there were 8,700 banks and thrifts, with a market share of about 43 percent. Even adding the share of their CRA-covered subsidiaries (15 percent), this was a marked decline.

          • “That’s A SEVENTEEN YEAR PERIOD. Since the highest level of foreclosure incidence is within the first year of ownership (loans after that are dubbed “seasoned’) are you telling me that a mortgage originated in 1995 posed a foreclosure risk TEN YEARS LATER after the homeowner first moved in? Hardly.” — Max

            What you fail to understand is that the quotas increased year after year starting at about 30 percent of loans in the 1990′s and gradually increasing to 55 percent of total loans by 2007. That means that the greatest number of loans were actually made in the out years.

            These loans had to be made to applicants at or below median income with a large portion, 38 percent, required to be written in “under served communities”.

            As Peter Wallison has pointed out, “Mortgage brokers had to be able to sell their mortgages to someone. They could only produce what those above them in the distribution chain wanted to buy. In other words, they could only respond to demand, not create it themselves. Who wanted these dicey loans? The data shows that the principal buyers were insured banks, government sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac, and the FHA—all government agencies or private companies forced to comply with government mandates about mortgage lending. Almost two-thirds of all the bad mortgages in our financial system, many of which are now defaulting at unprecedented rates, were bought by government agencies or required by government regulations.”

            The lowering of lending standards in order to meet CRA quotas set off a chain of events:

            “The GSEs’ purchases of sub-prime and Alt-A loans affected the rest of the market for these mortgages in two ways. First, it increased the competition for these loans with private-label issuers. Before 2004, private-label issuers–generally investment and commercial banks–specialized in subprime and Alt-A loans because GSEs’ financial advantages, especially their access to cheaper financing, enabled them to box private-label competition out of the conventional market. When the GSEs decided to ramp up their purchases of sub-prime and Alt-A loans to fulfill their affordable housing mission, they began to take market share from the private-label issuers while simultaneously creating greater demand for sub-prime and Alt-A loans among members of the originator community.

            Second, the increased demand from the GSEs and the competition with private-label issuers drove up the value of sub-prime and Alt-A mortgages, reducing the risk premium that had previously suppressed originations. As a result, many more marginally qualified or unqualified applicants for mortgages were accepted. From 2003 to late 2006, conventional loans (including jumbo loans) declined from 78.8 percent to 50.1 percent of all mortgages, while subprime and Alt-A loans increased from 10.1 percent to 32.7 percent. Because GSEpurchases are not included in these numbers, in the years just before the collapse of home prices began, about half of all home loans being made in the United Stateswere non-prime loans. Since these mortgages aggregate more than $2 trillion, this accounts for the weakness in bank assets that is the principal underlying cause of the current financial crisis.

            In a very real sense, the competition from Fannie and Freddie that began in late 2004 caused both the GSEs and the private-label issuers to scrape the bottom of the mortgage barrel. Fannie and Freddie did so in order to demonstrate to Congress their ability to increase support for affordable housing. The private-label issuers did so to maintain their market share against the GSEs’ increased demand for sub-prime and Alt-A products. Thus, the gradual decline in lending standards–beginning with the revised CRA regulations in 1993 and continuing with the GSEs’attempts to show Congress that they were meeting their affordable housing mission–came to dominate mortgage lending in theUnited States.” — The American Spectator

            Get a clue.

          • “That’s A SEVENTEEN YEAR PERIOD. Since the highest level of foreclosure incidence is within the first year of ownership (loans after that are dubbed “seasoned’) are you telling me that a mortgage originated in 1995 posed a foreclosure risk TEN YEARS LATER after the homeowner first moved in? Hardly.”

            I think that you need a lesson in logic. There will be few foreclosures when the price of housing is going up because those that can’t afford the mortgage payments will simply sell and take a profit. The true damage done by a stupid program like the CRA becomes apparent only when the housing market shows a price decline or is stagnant for a few years.

            People need to stop making excuses for what was obviously a terrible program. Markets need to work properly and the sooner government learns that meddling has unintended consequences the better things will be.

          • re: CRA – the goal of CRA was to require banks who took deposits from a neighborhood to make loans to the same neighborhood – something that some think was a right-minded idea and others disagree with but CRA made very few of the sub-prime loans and most if not all of the CRA banks were FDIC.

            the problem here is the dishonest portrayal of CRA relative to the sub-prime issue which involved NOT CRA banks and not FDIC banks but independent and largely unregulated mortgage lenders that were not banks.

            The CRA thing has become an ideological myth that continues despite ample evidence that CRA was but a very small part of the sub-prime loan debacle.

            the fact that people continue the CRA narrative indicates that they are more concerned with how the narrative fits their ideological views than real facts.

          • …the goal of CRA was to require banks who took deposits from a neighborhood to make loans to the same neighborhood – something that some think was a right-minded idea and others disagree with but CRA made very few of the sub-prime loans and most if not all of the CRA banks were FDIC….

            What is ‘right minded’ about making reckless loans to people who have a bad credit history? Depositors expect their money to be returned to them, not to be gambled away by people who have incentives to be reckless.

            And why should the taxpayer have to be on the hook when FDIC has to pay out depositors who have lost money due to lousy landing standards by their banks? Don’t you realize that this is exactly the system that has failed over and over again?

            the problem here is the dishonest portrayal of CRA relative to the sub-prime issue which involved NOT CRA banks and not FDIC banks but independent and largely unregulated mortgage lenders that were not banks.

            No that is not the problem. The problem was that the government did what it has no business doing; meddling with the markets in pursuit of social goals that have some serious unintended consequences down the road. You are seeing the outcome of all of that meddling by the Fed and Congress. If you can’t see that such meddling creates the business cycle and does damage to all those businesses and individuals who do not have a direct line to the bailout mandarins you need to pause and think.

            The CRA thing has become an ideological myth that continues despite ample evidence that CRA was but a very small part of the sub-prime loan debacle. the fact that people continue the CRA narrative indicates that they are more concerned with how the narrative fits their ideological views than real facts.

            But it is not a myth. I have no dog in this fight. I am not an American and I detest both the GOP and Democratic Party equally. When I stand back I see that the CRA created a huge mess not just through lending to people who never should have received the loans in the first place but by making it necessary for the banks to figure out ways to dump those lousy loans through the securitization process that was enabled by the GSEs, the Fed, and the rating agency cartel that was protected from competition by the government.

            Meddling with the markets is never a good idea no matter what the intention is. Bureaucrats are always ultimately driven by political goals. All that is good comes from voluntary transactions between individuals, not government coercion.

          • Most CRA loans were not sub-prime and most did not default as most were made to credit-worthy.

            It’s been well documented that CRA had minimal involvement in the sub-prime issue and that the
            financial industry found new ways to make mortgage loans that were not restricted as loans made with FDIC and CRA banks were.

            The vast, vast majority of sub-prime loans were NOT made in “redline” communities but rather HOT housing and condo markets in places like Florida, California and Arizona.

          • The CRA loans were made to people with bad credit. When the market stopped going up many of those people had to bail out and put a huge amount of pressure on home prices. The simple fact is that the government has no business promoting anything other that individual rights. When it meddles with the markets you see unintended consequences and people get hurt badly.

          • “The CRA loans were made to people with bad credit.”

            WRONG, WRONG, WRONG.

            How much evidence do you need stuck in your face for you to realize CRA WAS NOT A SUBPRIME LENDING PROGRAM.

          • The other point the wingnuts are missing is that no one “forced” CRA on any bank. If a bank did not want to lend into the community where CRA applied, it never had to. No one was forced into doing this business- ever.

          • NOW WE’RE GETTING SOMEWHERE!

            Now then, let’s follow your logic. For your case to be proven, there would have to be a massive amount of property turnover, ostensibly from these people who “can’t afford” their mortgages (even though CRA is not a Sub Prime mortgage product and was designed to stop redlining) who then sold at a profit and perhaps moved elsewhere.

            But there is no EVIDENCE of that.

            But now that you’ve brought the PRICE ISSUE into the conversation, we can now begin the healing process.

            More on this later.

          • No evidence? Do you mean to tell me that the people who had a bad credit history continued to hold on to homes that they could not afford once the market kept going up and there was no way to pull out cash via refinancing? I think that you need to look harder. Between the CRA people and all of the speculators who expected to get rich because CNBC and Time told them that housing could not go down the market took a huge hit that will take many years to recover from.

            As I stated above, you cannot justify using the power of government to force banks to lend money to people with bad credit. Actually, if you look at Article I, Section 8 you do not see anywhere in the Constitution where Congress is allowed to meddle in housing or do 90% of the things that it does today. The fact is that no matter what the intention or how smart the people central planners cannot deal effectively with the complexity of the marketplace. Whenever they meddle someone get hurt and there are many unintended consequences that make most individuals worse off.

            I think that you are clearly smart enough to understand the points being made. The fact that you refuse to deal with the material issues is all about choice, not logic or disagreement about general facts.

          • “No evidence? Do you mean to tell me that the people who had a bad credit history continued to hold on to homes that they could not afford once the market kept going up and there was no way to pull out cash via refinancing?”

            Pull out cash when they put no money down? My, my my, that is amazing.

            Let me tell you something- no one takes out a second loan without the permission of the first lien holder.

            Don’t bring a knife to a gun fight sonny. You’ll get shot.

          • Pull out cash when they put no money down? My, my my, that is amazing. Let me tell you something- no one takes out a second loan without the permission of the first lien holder. Don’t bring a knife to a gun fight sonny. You’ll get shot.

            But that was what happened. When values went up people refinanced and extracted cash. That was not a problem because the mortgages could be packed up and rolled into new paper that could be sold to Europeans, pension plans, and whoever was stupid enough to reach for yield.

            I am amazed just how ignorant people are of what happened and how they think themselves experts even though they failed to see that anything was wrong when the bubble was building.

          • God, are you dense. Now who are you going to hang THIS on, sonny?

            We do know that many people tapped their home equity to cash out, buy themselves toys, and get themselves into all kinds of trouble.

            Are you now telling me this was part of government policy too? People ALREADY owned the houses, so who do we blame for people who took the equity that they built up?

            The lenders who did the second loans that stood behind the first lien were all underwritten, approved and funded by the “free market” you claim to champion.

            Out of all the housing initiatives I’ve seen, I don’t seem to recall one that promoted second liens and cash-out re-fis.

            Have you?

          • God, are you dense. Now who are you going to hang THIS on, sonny? We do know that many people tapped their home equity to cash out, buy themselves toys, and get themselves into all kinds of trouble. Are you now telling me this was part of government policy too?…

            You give a person with a bad credit a mortgage to buy a home. Liquidity enters the market and causes prices to go up. Whenever the homeowner gets in a bit of trouble he goes to a mortgage dealer who tells him that it is possible to extract ‘equity’ out of the home and that it makes sense to go after than new lower rate to make payments easier. The homeowner gets a new loan and has enough cash to pay his mortgage for quite some time. The lender does not care because he has pooled together his paper and sold them to the GSEs or to other bigger lenders who pool them and sell them to institutions that need to reach from yield because rates are falling. The process continues until the market is saturated, credit tightens, or some people begin to take money off the table by selling their speculative investments in the hotter areas. Once it does the bubble bursts and many people get wiped out.

            All credit bubbles end badly. History is very clear on that point. You might want to take notice.

            By the way, in case you have missed it we have an even bigger bubble at this time. The sovereign debt bubble is ready to follow the path of all previous bubbles. Once the panic is over in Europe and Japan and sales of assets stop pushing demand for USD you can expect to see your treasury and currency market follow a similar path to what we just saw in housing.

          • ” As long as house prices kept going up anyone who could not afford their home could simply sell at a nice profit and the lenders would get their money back.”

            until you run out of qualified buyers then you crash.

            lots of talk about Ponzi schemes and in many respects that’s exactly what caused the housing crash.

            more and more people were buying and intending to flip the house for a profit rather than owner-occupy it.

            there were even shows on TV called “flip this house”.

            it was not sustainable .. and .. more important.. it had nothing to do with poor people living in older neighborhoods. It was all about people looking to make money flipping homes… in hot housing markets.

          • until you run out of qualified buyers then you crash.

            No. As long as the markets are going up even unqualified buyers will do. Why do you think that NODOC loans appeared and the institutions went to loans that were more than 100% of the appraised properties? Bubbles have their own logic that does not work for long unless the markets are ‘directed’ by government and government sponsored institutions.

            lots of talk about Ponzi schemes and in many respects that’s exactly what caused the housing crash.

            Correct. But the funny thing was that as long as prices rose and there was no obvious problem people refused to pay attention. (Which is what you are doing with the pension and sovereign debt bubbles.)

            more and more people were buying and intending to flip the house for a profit rather than owner-occupy it.

            That is still true. And Congress, the Fed, and the GSEs are still encouraging it.

            there were even shows on TV called “flip this house”.

            I think that in Canada we still have such shows.

            it was not sustainable .. and .. more important.. it had nothing to do with poor people living in older neighborhoods. It was all about people looking to make money flipping homes… in hot housing markets.

            But here is where you are wrong. When you have a law that forces banks to inject cash into poor neighbourhoods where people with bad credit histories live those banks will figure out ways to get rid of their risks. They did by securitization. When that became a viable (and profitable) activity the demand for borrowers increased and the Fed had a way to inject liquidity into the system to ‘stimulate’ activity and create a massive bubble. And let us not forget the GSE monopoly, which also wanted a huge piece of the action and could inflate credit because of its implied protection.

            You have a way of glossing over these troublesome details because they do not support your big government narrative. It is ironic that you try to make fun of the military state big government types while you make exactly the same errors on the welfare state side.

          • re: ” When you have a law that forces banks to inject cash into poor neighbourhoods where people with bad credit histories live those banks will figure out ways to get rid of their risks. They did by securitization.”

            they DID … BUT the CRA loans were only 6% of the problem.

            CRA did not cause the crash and the govt was NOT telling the other mortgage companies to take bad credit.

            that’s the lie.

            the govt DID “encourage” /”enable” it but the govt did NOT “force” them to do it EXCEPT for CRA neighborhoods and even then it was voluntary… there were no sanctions other than policies that pertain specifically to CRA neighborhoods.

          • Vangel is under the impression that CRA rules in Brooklyn New York triggered 60% peak to trough home pricing in Henderson, Nevada.

            yes, Vangel, that’s how off the radar you are. It’s THAT stupid.

          • “When you have a law that forces banks to inject cash into poor neighbourhoods where people with bad credit histories live those banks will figure out ways to get rid of their risks.”

            That’s the 11th time you have mischaracterized what CRA is, and once again, despite pointing out that CRA default rates are low, and the highest foreclosure areas are a plane flight’s away from CRA served areas, you STILL CAN’T GET IT OUT OF YOUR HEAD.

            If this isn’t brainwashed, I don’t know what is. Really pathetic stuff.

          • I’ll ask you again: was it government policy to get people to take 2nd loans out, and who did the underwriting on these loans? If they were poor credit risks, believe me, baby, they weren’t getting a second loan from any lender affiliated with the GSEs.

            This is another example of people outside the industry not knowing how things work on the ground.

          • You’re cutting and pasting the same refuted and baseless narrative. WTF would you expect from the American Spectator? You people are told repeatedly you live in your own echo chamber, and it never sinks in.

            There are so many factual errors in the narrative you presented, I would have to spend an entire evening refuting it.

            Again, the authors don’t specify what they mean as a “SubPrime” loan.

            IF THESE MEANS ANY LOAN- ANY MORTGAGE AT ALL- THAT FALLS OUT OF STANDARD CONVENTIONAL GSE UNDERWRITING, THEY’RE TELLING YOU THEY DON’T HAVE A CLUE HOW THE MORTGAGE BUSINESS WORKS, HOW A MORTGAGE IS SECURITIZED, HOW IT IS GRADED, AND WHO IT IS SOLD TO.

            Be back later with more, but you people just blindly sell yourselves on this. Read ONE boook, like “The Big Short” or former Lehman trader Larry McDonald’s “Collosal Failure of Common Sense” and you’ll understand the mechanics behind this. It’s just too damned easy to cut and paste this crap from websites. You don’t know the business, and you don’t know mortgages.

          • The other point the wingnuts are missing is that no one “forced” CRA on any bank. If a bank did not want to lend into the community where CRA applied, it never had to. No one was forced into doing this business- ever.

            No one can possibly be this clueless…can they?

          • Schmuck: YOU’RE the clueless one. None of the Sub prime lenders I mentioned, including New Centurty, Long Beach, Novastar, Household ever wrote a CRA mortgage.

            YOU DON’T KNOW HOW THIS INDUSTRY WORKS, AND AGAIN, IF CRA DEFAULT AND DELINQUENCY RATES ARE SO LOW, WHY ARE YOU DENYING THE MATH?

            This is like talking to Karl Rove on election night. You still think Romney took Ohio.

          • The evidence seems to show that someone could be that clueless. I recall watching Congress pound on the banks and threaten them with regulations if they did not lend to poor people in the 1990s. At the time more than a few analysts predicted a terrible final outcome but none of the big government people were willing to listen. Now they are trying to rewrite history.

          • re: poor people

            Condos in Florida and million dollar homes in California are not “poor people”.

          • You had a credit and lending bubble created by out of control leverage.

            Again: these Fannie/Freddie/CRA crybabies STILL have to account for COMMERCIAL real estate following PRECISELY the same boom and bust track with NO government policy inputs.

            Once again: No one forced Harry Macklowe to do this to himself:

            “The four-tower deal, according to Boston Properties, totals approximately $3.949 billion, including $1.4655 billion in cash and the assumption of $2.4735 billion in fixed-rate debt. The sale of the GM Building is expected to close in June and the others shortly after.

            It’s been four months since Mr. Macklowe, aching under billions in debt, put the 50-story, two million-square-foot tower at 767 Fifth Avenue on the sales market through broker Darcy Stacom of CB Richard Ellis. During those months, speculation flourished regarding the possible sales price of arguably the world’s most valuable office tower and the very fate of Mr. Macklowe himself. He had bought the GM Building in 2003 for $1.4 billion from Donald Trump and Conseco Inc. in what was then a record office-building sale.

            Leveraging that property jewel, among other assets and just $50 million of his own money, Mr. Macklowe bought seven Manhattan office towers from Sam Zell’s Equity Office Properties, via the Blackstone Group, in February 2007 for $7 billion. At the time, it seemed a truly triumphant move typical of the gutsy gamlber that was Mr. Macklowe’s reputation in the commercial real estate game.”

          • I agree. But the speculators came in after the Fed and Congress opened up the floodgates and the CRA mortgages had to be dumped via a securitization process that made possible to create a massive bubble without the biggest players taking the type of risks that could wipe them out.

            I do not see how you can justify ever letting government meddle in the markets to promote activities that were not reasonable. (Forcing banks to make loans to poor people is not reasonable. And neither is the security rating system that made a collection of lousy paper AAA rated.)

          • You STILL don’t get it. No matter how often the facts are drilled into your head, you still don’t get it.

            CRA – again- was designed to prevent redlining, and get the predatory lenders who trolled minority communities off people’s backs. It wasn’t a matter of “forcing banks to lend to poor people” it was a matter of seeing to it that these people’s rights were not being abridged by having products that they were denied access to on the basis of where they lived and what their color was. The borrowers were qualified to own the homes they applied for, but before CRA came in, these people were treated like sh&t, and they had little in the way of options THEY ALREADY WERE WELL QUALIFIED TO RECIEVE. Discrimination in lending is a serious offense, and cannot be tolerated.

            And I’ve seen it firsthand.

          • You STILL don’t get it. No matter how often the facts are drilled into your head, you still don’t get it. CRA – again- was designed to prevent redlining, and get the predatory lenders who trolled minority communities off people’s backs….

            It was designed to force banks to lend in poor neighbourhoods to people with lousy credit.

          • “It was designed to force banks to lend in poor neighbourhoods to people with lousy credit”

            No.
            It.
            Was.
            Not.

            Do we have to post the Fed data AGAIN?

          • Do we have to post the Fed data AGAIN?

            The FEDis the institution that never saw the crisis even when the bubble was obvious to most rational analysts. And it is not the data but the interpretation that matters in this case. As I said, as long as a bubble is being blown you can lend to people who never should have received loans without having a bad outcome because rising prices cover all wrongs. The data will not show any problem until after the bubble burst and will not be able to show how all of the liquidity caused the bubble to expand in areas that were not effected by the initial policies.

            Instead of trying to make up stories after the fact I suggest that you look at the people who explained what would happen and why. The cheerleaders who told people to own homes during the bubble have no credibility. If they could not see the bubble or understand why it would end badly why listen to their crappy narratives and excuses after the fact?

          • Excuse me, Sir, but you’re shilly shallying again. The St. Louis Fed has provided the historical DATA. I know you despise facts, numbers, data and stuff, but there it is. It’s one of Jimmy P.’s favorite sources, as well.

            It was not up to the St. Louis Fed to set monetary policy, however. So you are muddling the issue.

          • This YouTube clip is absolute horsecrap. CRA loans have NOTHING to do with the SubPrime mortgage space!!!

            This is great. This is where you get your data from – a 60 second You Tube clip, which doesn’t even back up your argument.

            But the raw data that’s been given to you from impartial sources just washes over you and its ignored. Like talking to furniture.

          • To you everything that does not fit your own personal narrative is “absolute horsecrap”. Even the Fed admitted that CRA loans were not as profitable and had twice the default rates early in the program. That means that the program was not very good for either borrowers or lenders. But what you really miss are the changes that hid the extent of the danger from unclear thinkers and the unobservant. The defaults did not matter once house prices took off because people who did not deserve the loans would still profit by the rising markets. Once the financial institutions figured out that they could take the risk off their books by selling the paper to ‘investors’ or the GSEs the fact that the CRA required ever increasing loan amounts to be made was no longer relevant until AFTER the bubble would break.

            What would happen should have been apparent to you by the late 1990s. Not only were the GSEs providing 97% loan to value mortgages but developers were establishing ‘charities’ to provide the poor with their 3% downpayment. By that time the financial institutions could afford to be reckless because they were able to sell their mortgages to the GSEs and to the investors who were desperate enough for yield that they would buy the mortgage paper that they were packaging and getting the rating agencies to bless.

            The fact that the politicians and bankers created a huge problem was no secret to rational analysts even long before the market burst. Sadly, some people are so ideologically blinded or so ashamed for having missed the obvious bubble that they make up stories to hide from reality.

          • It wasn’t “forcing them to lend to poor people” it was to stop redlining. These were still “Full Doc” loans that had to properly underwritten.

            By the way, the numbers for CRA compliance in loan volume were puny.

          • Same thing. A private institution has every right to reject a bad credit risk. Government forced them to give loans. That made the lenders look for ways out and they found it through the GSEs and securitization process. What followed was a bubble that ended with a catastrophic contraction in the real economy.

          • For the 100th tame- and the RAW DATA backs it up- this is not the case.

            The housing bubble didn’t even begin in earnest until it spiked in 2005 to 2007. Coincidently, this was right after the Net Cap rule was repealed, and that it what sent home prices, FUELED BY NON-AGENCY LOANS, into orbit.
            The sheer loan volume by asset class tells you the story, right in front of you.
            And the same price track correlates perfectly with commercial real estate, so once again, the evidence and the hard data does not back up your story.

            Prejudice and hatred do. That is what this about. Hate for the poor, and hate for minorities, who you are convinced aren’t as “good” as you are, and are not deserving of homes of their own.

            No matter how much data is presented- even from the St. Louis Fed- you’re convinced it’s the “Libs” who did this with their “meddling” and their “policies.”

            Nonsense. Utter nonsense without the slightest bit of factual data to back up your assertions.

          • For the 100th tame- and the RAW DATA backs it up- this is not the case. The housing bubble didn’t even begin in earnest until it spiked in 2005 to 2007….

            Why would you expect any trouble during a housing bubble? As long as house prices kept going up anyone who could not afford their home could simply sell at a nice profit and the lenders would get their money back. That is the way the real world works my friend. A system that is very fragile will seem strong to the casual observers right until it collapses. The fact that the oak in your back yard seems healthy does not mean that its rotting interior will not fail during the next big storm to come along.

            As I pointed out, some people have cited analysts who critiqued the program long before the crisis and pointed out what would happen when the bubble that was being blown up burst. No amount of spin and narrative will change the fact that they were right.

          • Except that bubble was not caused by anything the government did!

            WTF is so hard to understand? Again, tell me how COMMERCIAL real estate correlates perfectly with residential without policy inputs.

            IF THAT IS THE CASE, THE CAUSATIONAL FACTOR MUST LIE ELSEWHERE.

          • The causal factor is credit expansion. As I pointed out above, the CRA helped guide liquidity to the real estate market by ensuring a growing amount of loans over time. The bankers adjusted and shed their risks and once the GSEs got into the act and the Fed could use them as the conduit for their credit expansion the bubble grew not only in the residential markets but in commercial, automobile loans, auto manufacturing, cruise liners, etc., etc., etc. Without the CRA the Fed would have had to find another way to inject liquidity but no other way effects the public as broadly as real estate because most people in the US have homes.

            Why can’t you understand simple economics?

          • ” As I pointed out above, the CRA helped guide liquidity to the real estate market by ensuring a growing amount of loans over time. ”

            MBS was already well a practice before CRA even came into being.

            there was nothing in CRA that told mortgage lenders outside of redlined neighborhoods what to do.

            let’s try to be honest here.

            CRA had virtually ZIP to do with loans outside of redlined neighborhoods – much less a govt “mandate” .

          • MBS was started in 1982 by a genius by the name of Lewis Ranieri.

            We have had low down payment loans since 1956, when mortgage insurance was created.

            We have had Low and No Doc loans for DECADES prior to the crisis.

          • “The causal factor is credit expansion. As I pointed out above, the CRA helped guide liquidity to the real estate market by ensuring a growing amount of loans over time”

            Sir, how much longer do you intend to keep up this nonsense. To put it in terms a six year old could understand, CRA volume made up approximately two potato chips in a 16 oz. bag.

            As I’ve explained many times: ON SHEER LOAN VOLUME ALONE, CRA could not have moved the market! You could triple the default rate and it wouldn’t disturb the rest of the market.

          • Max shouts:

            YOU DON’T KNOW HOW THIS INDUSTRY WORKS, AND AGAIN, IF CRA DEFAULT AND DELINQUENCY RATES ARE SO LOW, WHY ARE YOU DENYING THE MATH?

            OH! You’re such a brute! Your comments are so much more credible when you use all caps.

            Apparently no one but you knows how the industry works. How is that even possible, your Mortgage Majesty?

            Max, get this: You are missing the big picture. Defaults are not the *problem*, they are the *result* of bad government policies. These policies including, CRA, artificially increased demand for houses, based on the bizarre idea that more people should own houses, which greater demand caused housing prices to rise, due to the immutable laws of supply and demand, a commonly understood economic principle.

            Attempted social engineering by government distorted the housing market, resulting in predictable disaster. The number of CRA defaults is a trivial detail in this larger picture, and doesn’t make a good argument for or against anything.

            I don’t know how to make it any clearer for you, your All Knowingness, who has forgotten more than the rest of us will ever know about finance and markets.

          • actually I mostly agree with Ron on this. But your’re gonna find that most business folks totally support housing as the lynchpin of our economy.

            One reason that Romney never revealed what tax breaks he would eliminate is that if he chose the home mortgage deduction – he would have ended up with virtually everyone, including business – opposed.

            When you look at most communities – a very large segment of employment is housing and housing related from appliances to remodeling to carpets to granite countertops.

            CRA was targeted at low/moderate income folks.

            but the housing “boom” was targeted at fancy and expensive homes and condos – and these are the homes that buy “stuff” to put in them.

            and just FYI – the “other” tax break for owner-occupied housing is “imputed rental income”.

          • “Apparently no one but you knows how the industry works. How is that even possible, your Mortgage Majesty?”

            I was a mortgage broker for eight years and had a correspondent relationship with over thirty lenders, including every loan program from Fannie, Freddie, VA, FHA, No-Doc, Low-Doc, Construction, Construction to Permanent, Mixed Use, Small Commercial, even cross collateralized, if that was your pleasure. I was there at the transition from manual underwriting, to the inclusion of credit scoring pioneered by Fair Isaac, to the latest Desktop Origination systems, and the use of predictive credit metrics to analyze and approve or deny loans.

            That’s how I know. And that’s why I laugh at your mischaracterizations. I’ve personally originated hundreds of loans, and of every kind, so yeah, I can wipe the floor with anyone who tries to foist Wallison or Pinto’s BS on me.

            You don’t a thing about risk metrics, underwriting, housing history, NOTHING. So you keep lying to yourself.

            However, if you DO care to want to learn the truth, you have an expert right here who can help you.

          • “The number of CRA defaults is a trivial detail in this larger picture, and doesn’t make a good argument for or against anything.”

            You just shredded your own argument. Thanks for playing.

          • Oh. And the rest of the supply and demand story:

            Eventually, when everyone who could possible own a house did so, when no one could possibly borrow another nickel, and the entire supply of greater fools had run out, the game ended, with the results we can see all around us, including delinquencies and defaults.

          • Max boasts at great length: “I was a mortgage broker for eight years…blah…blah…blah…

            Meh, you can’t begin to imagine how impressive that isnt, you pompous ass.

            You just shredded your own argument. Thanks for playing.

            What? You must have a reading or comprehension problem, as it seems pretty clear you don’t understand my argument.

            However, if you DO care to want to learn the truth, you have an expert right here who can help you.

            LMAO

            Oh boy. That’s a good one. No thanks, Maxie boy, it appears your incredible “expertise” has deprived you of the ability to think. You seem to be missing some pretty basic stuff.

          • You are missing the point my friend. Mortgage brokers either understood what they were doing and getting rich by giving loans to people who never should have received them or were totally ignorant of the underlying reality. In either case they had a ready buyer in the GSEs and some of the larger financial institutions who needed paper to package and sell off. They made money without taking a personal risk. If their profits would eventually cause some people to lose everything that was not their problem because they either knew that their only goal was to make money for themselves or they were too ignorant to understand what they were doing to people who would lose everything. If he was one of the first group and made his money knowingly that is fine because the people who got the loans should have been able to think for themselves. If you recall that was the time that many of us were arguing that the bubble was dangerous and would take many people down when it collapsed while the Larry types were talking up social justice and other nonsense. So it is hard to say that purchasers did not have access to plenty of advice that there was a bubble and plenty of danger in the markets, particularly the ‘hot’ areas where speculators could buy several ‘investment’ properties. If our friend is the second type and was ignorant of the reality that is also fine because he got paid well without having to worry about guilt.

            What gets to me is why the denial now that everything is out in the open and we could see how various government initiatives and Fed actions created the massive bubble in housing that we have yet to recover from. It seems that ignorance is comforting and reality is scary.

          • ” What gets to me is why the denial now that everything is out in the open and we could see how various government initiatives and Fed actions created the massive bubble in housing that we have yet to recover from.”

            govt did incentivize it but at the end, it was not the govt that was holding the bad paper.

            yes..the govt ended up bailing out some, not all, of the people who had the bad paper ….

            and if the govt had not bailed them out, the country would have gone into depression.

            the bigger question is – what would have kept the banks from bundling no-doc, altA mortgages into MBS and sell derivatives associated with them.

            is something that they would do without govt regulations anyhow?

            what would keep them from doing that if not the govt?

          • govt did incentivize it but at the end, it was not the govt that was holding the bad paper.

            Of course it was. The government used the taxpayer to cover the losses from the bad paper that the institutions held.

            yes..the govt ended up bailing out some, not all, of the people who had the bad paper …. and if the govt had not bailed them out, the country would have gone into depression.

            The country is in a depression. If you look at the employment numbers as measured during the Carter era you are looking at close to 23% unemployment. If you use the proper deflator you are looking at negative GDP for most of the past decade. But without letting the market wipe out the malinvestments you are only locking the economy into a death spiral that will lead to a crash of the treasury market and eventual hyperinflation as the USD becomes toilet paper.

            The financial institutions that created the mess should have been allowed to fail. What you needed was a Harding, not a Hoover or FDR.

            the bigger question is – what would have kept the banks from bundling no-doc, altA mortgages into MBS and sell derivatives associated with them. is something that they would do without govt regulations anyhow? what would keep them from doing that if not the govt?

            The market would keep them. They could bundle paper because government protected and mandated rating agencies could collect fees by saying that bad paper was good and by having reckless insurers write insurance on that paper. Without a government backstop on those institutions investors would have to do much better homework because there would be no guaranteed bailout coming.

          • “You are missing the point my friend. Mortgage brokers either understood what they were doing and getting rich by giving loans to people who never should have received them or were totally ignorant of the underlying reality. In either case they had a ready buyer in the GSEs and some of the larger financial institutions who needed paper to package and sell off”

            Once again, DEAD WRONG, because you don’t know how the industry works. Mortgage brokers don’t approve loans- underwriters do, and then the GSE channel has to approve -OR DENY- the loan, based on the parameters submitted.

            Try again.

          • Once again, DEAD WRONG, because you don’t know how the industry works. Mortgage brokers don’t approve loans- underwriters do, and then the GSE channel has to approve -OR DENY- the loan, based on the parameters submitted. Try again.

            Actually, it does not matter whether it is the underwriter, the appraiser, or the broker who is ultimately responsible. They all get rich from the process of making loans, bad or otherwise, and collecting a fee when they sell those loans to the GSEs. That was exactly what was happening in the industry that you claim to be an expert in. You made money because someone figured out how to make as many loans as possible as quickly as possible. Don’t you remember CNBC touting the instant approval, no doc, software that allowed so many companies to give so many loans? In the end it was this devolution of the business that led to all those ‘investment’ properties in Florida and Nevada sitting empty.

            As I pointed out many times above, it took the government’s bad policies and the Fed’s desire to inject a great deal of liquidity into the system that made the housing bubble possible. Without changes to the CRA legislation it would have been a lot harder to create that bubble because the ‘we are helping the poor’ argument would not have been possible. In the end it was not only the poor that took a beating but Congress managed to take down a big chunk of the middle class. From what I saw during your election both the GOP and Democrats are looking for a way to finish the job and take down everyone.

          • ” it took the government’s bad policies and the Fed’s desire to inject a great deal of liquidity into the system that made the housing bubble possible. Without changes to the CRA legislation it would have been a lot harder to create that bubble because the ‘we are helping the poor’ argument would not have been possible.”

            the govt’s “bad” policies that you speak of had been in place for a long time and there was no crash.

            You continue to cite CRA specifically and then everything else without specifics … only as “policies that encourage lending to poor/unqualified”. Provide some specifics to back up this claim.

            The CRA applied ONLY to FDIC-insured banks doing business ONLY in redlined neighborhoods – NOT to condos in Florida or half-million dollar homes in California and Arizona.

            What specific policies FORCED lenders to make bad loans to “poor people” on Florida Condos?

          • The CRA applied ONLY to FDIC-insured banks doing business ONLY in redlined neighborhoods – NOT to condos in Florida or half-million dollar homes in California and Arizona. What specific policies FORCED lenders to make bad loans to “poor people” on Florida Condos?

            I never said that the condos were built because of the CRA. I said that they got built because the industry created instant approvals and no-doc loans of more than 100% of appraised value. The Fed had a lot to do with that. But that does not get the CRA off the hook because it ensured that liquidity would continue to flood into the low end segment of the real estate market and let the institutions take advantage of it.

          • re: “I never said”

            You and Perry and others have continued this narrative that is not the truth.

            and you’re doing it because you disagree with the govt regulating.

            I’ve asked repeatedly for the specifics that you and others have implied as to what exactly the govt “forced” on non CRA lenders and all I get back is disingenuous blather.

          • But that is the point. It is true that the CRA caused a massive amount of damage and provided a way for the Fed to inject liquidity into the real estate market. Without it the extent of the bubble would not have been possible. I have kept asking you to provide a valid justification of any meddling in the free market by the government for years. You have yet to do so. And you have failed to actually read and learn anything.

            As you should know by now I do not put much stock in post hoc narratives. I prefer to pay more attention to the people who could provide an explanation of what was happening and make accurate predictions long before the event happened. That is one of the problems with you and your friend; you take the same arguments as the people who denied that there was a housing bubble and were hyping up the liquidity injections as positive to the economy before reality intervened and we saw a major contraction.

          • 15th time:

            “It is true that the CRA caused a massive amount of damage and provided a way for the Fed to inject liquidity into the real estate market. Without it the extent of the bubble would not have been possible”

            Again- and this is like talking to a rock- CRA was NOT a vehicle to inject liquidity into the housing market, which is something even the most rabid wingnut loons have never suggested. This is a fantasy of yours.

            Even if it were true: ON SHEER LOAN VOLUME ALONE, THERE WAS NOT ENOUGH THERE TO DO THE JOB.

          • re: ” CRA caused a massive amount of damage and provided a way for the Fed to inject liquidity into the real estate market. ”

            only in your own addled minds.

            CRA was but 6% of the problem and only relevant in redlined neighborhoods.

            the housing crash involved 94% that was not in redlined neighborhoods but instead upscale Florida condos and million dollar California homes – which were far, far away from redlined neighborhoods or “poor” people.

            ya’ll live in your own little world like the GOP, listening only to your own narratives that confirm you own anti-govt biases.

          • Peter Wallison manipulated data to falsely blame the GSEs for the meltdown his paymasters created.

            This guy just makes it up as he goes along.

          • re: ” But that does not get the CRA off the hook because it ensured that liquidity would continue to flood into the low end segment of the real estate market and let the institutions take advantage of it.”

            that’s not the truth and you know it.

            CRA applies to ONLY low-end in CRA redlined neighborhoods – 6% of the sub-prime market and in no way enough in number to cause a national housing crash.

            what specific govt policies caused the national housing crash?

            Why do ya’ll continue this lie?

          • CRA applies to ONLY low-end in CRA redlined neighborhoods – 6% of the sub-prime market and in no way enough in number to cause a national housing crash. </b.

            You need to learn how to read. The CRA forced banks to make loans that they did not want to make. It ensured a growing amount of mortgage lending at the low end of the market and forced the big banks to play if they wanted to be in various markets. The banks did what they do best and figured out a way to shed their risks by selling bad paper to the GSEs as well as gullible investors searching for yield. Once the conduit was established it was possible for the Fed to blow up a huge bubble.

            what specific govt policies caused the national housing crash? Why do ya’ll continue this lie?

            Because it is not a lie. As I pointed out to you many times many people saw the problem and figured out how the government policies were creating a massive bubble that would end badly.

            http://www.youtube.com/watch?v=CJoKwB-JHn8

            http://www.youtube.com/watch?v=826q7RqTEk8&feature=related

            Note that the outcome was perfectly predictable for those who understood how the economy worked. Those individuals who have rejected the Keynesian theories that you worship saw what was going on and figured out what would happen. The problem still remains the same. And it will continue as long as clueless fools like you vote for the clueless politicians in both mainstream parties. On the positive side those who can see reality as it is can make a huge amount of money by betting on a future that they see as inevitable.

          • re: ” The CRA forced banks to make loans that they did not want to make. ”

            Nope. What they said was you can’t do business in a redlined neighborhood if you did not also make loans to qualified people.

            But even if your lie was true – it was 6% of the total sub-prime loans.

            ” As I pointed out to you many times many people saw the problem and figured out how the government policies were creating a massive bubble that would end badly”

            but you have NEVER pointed out SPECIFICS to back up your lies.

            CRA had nothing at all to do with Florida Condos and the like which were 94% of the bad loans.

          • Nope. What they said was you can’t do business in a redlined neighborhood if you did not also make loans to qualified people….

            That is not what the Act said. The problems with the act were evident and exposed in some of the testimony. And long before the crisis came critics explained what was happening and predicted a terrible outcome because of all of the meddling by the government.

            And for the record again, I have written against all of the meddling policies, not just the CRA. And while I am at it, let me remind you that the same thing is happening again; instead of letting the market clear Bush/Obama bailed out the big banks and moved the risks to the taxpayers in the hope that they could revive the housing bubble and save reckless lenders and reckless borrowers. It is ironic that when it came to housing the US chose to follow the path of Japan and when it came to deficit spending it chose the Greek model. I wonder what that could mean for your future economic well being.

          • Larry G: “Nope. What they said was you can’t do business in a redlined neighborhood if you did not also make loans to qualified people…”

            Vangel: “That is not what the Act said. The problems with the act were evident and exposed in some of the testimony.”

            Wrong again, and the link you posted says absolutely nothing of the kind. You’re just spamming the board now, and repeating the same erroneous statements that you’ve been nailed repeatedly on, in black and white.

            Your responses are almost robotic, in that you keep applying attributes to CRA it never had. Either you’re yanking our chains, or you’ve got one hell of a problem with cognitive abilities. If its the latter, I would get that looked into.

          • Max – it’s his ideology. He fervently believes that govt is wrong and should not exist and AEI and CATO stoke these same fires.

            their shtick is simple:

            1. – the concept of govt and regulation is wrong

            2. – show example and example of how govt screws things up

            3. – if you have to lie to make it plausible, so be it.

          • ” On the positive side those who can see reality as it is can make a huge amount of money by betting on a future that they see as inevitable.”

            but you live in a world that is not true guy – on purpose – because if you faced the truth – it would destroy your anti-govt beliefs.

          • but you live in a world that is not true guy – on purpose – because if you faced the truth – it would destroy your anti-govt beliefs.

            Funny how I kept saying that we had a housing bubble when Mark was citing Time magazine and the industry hype and you and your pals were cheering him on.

            Note that we have the same thing with the shale gas nonsense right now. Mark is hyping it up as some great salvation while the data shows very little viable supply and nothing in the way of profit for producers.

          • but what you are saying about CRA is demonstrably false even in the CATO testimony.

            It would be one thing if you laid out in chapter and verse what happened in the meltdown but your ideological beliefs don’t allow you to acknowledge simple, easily verifiable facts from a number of different credible sources and you unerringly ignore them all.

            it’s just plain bizarre.

            You are not alone. There are others. The recent GOP POLL “conspiracy” is an example. People fervently believe what they want to believe and they will not be dissuaded by facts..

            I lay this at the feet of folks like CATO and AEI and others who promote misinformation and disinformation that others will believe even though they are easily shown to be false.

            here is the Act:

            Community Reinvestment Act (CRA)

            The Community Reinvestment Act of 1977 (CRA) provides a framework for financial institutions, state and local governments, and community organizations to jointly promote banking services to all members of a community.

            In a nutshell, the CRA
            Prohibits redlining (denying or increasing the cost of banking to residents of racially defined neighborhoods),

            and

            Encourages efforts to meet the credit needs of all community members, including residents of low- and moderate-income neighborhoods.

            http://www.occ.gov/topics/compliance-bsa/cra/index-cra.html

            94% of the sub-prime loans were NOT for loans in racially-delineated low/moderate income neighborhoods.

            they were for Florida Condos and the like in upscale neighborhood where CRA did not apply at all.

          • but what you are saying about CRA is demonstrably false even in the CATO testimony.

            But your statement is demonstrably false. I have said that the problem with the CRA is that it distorts the market by making banks lend to people that they would not lend to. Instead of bankers using market signals to make loans they would have to follow the wishes of the regulators. The CATO testimony agrees.

            “The “assessment context” provision would create the framework for pervasive credit allocation to politically favored groups. The regulatory agencies would evaluate a bank’s CRA performance in terms of a regulator’s perception of the overall credit and service needs of a community and the performance of other lenders. The 60 percent loan-to-deposit ratio has been dropped, but the regulators would have the authority to set a higher ratio in specific cases. This provision would be the genesis of massive micromanagement by the regulators and massive paperwork by the banks.”

            I have also argued that the act does not care about actual profits or sound decision making but relies on political meeting political goals. Once again CATO agrees.

            “The proposed regulation would override any concern about bank soundness. The regulations proposed in December 1993 had included statements that banks are not expected to make loans that are expected to result in losses, to expand their branching network, or to operate facilities at a loss. These protections are not included in the proposed new regulations.”

            Then there is the political angle. As was pointed out to you in some of the citations before, the act made it easy for the government to enable special interest groups by asking for race based statistics. This allowed the activists to extort cash from the banks who wanted the micromanaging regulators off their backs. The CATO testimony also makes a point about this political angle.

            “Banks should not be required to collect data on the race and gender of the owners of small firms that make loan applications. The CRA does not provide authority for any regulatory decisions based on such data, and the potential use of these data is not defined in the proposed regulations. The potential for abuse in the use of these data is also substantial.”

            The testimony was right because there was a great deal of abuse. Of course, the industry is not run by total idiots. The bankers saw what was happening with the regulators and figured out a way to make a killing without risking much of the way themselves. When the profits were huge as the bubble was growing bigger and bigger they got paid more in a year than many of them could have made in five years of normal activity. At the end, when the bubble burst, the government would step in and cover the bad bets that were left on the books because they could not have been securitized quickly enough. Yes, jobs would be lost and salaries would fall but the good times gains made it worthwhile. The irony was that the bailouts cleared most of the bad paper and the rest was hidden on the balance sheets of subsidiaries. The bankers wound up getting paid even after they had failed.

            What gets to me is how fools like you can still demand more regulations and more bailouts for the reckless borrowers and lenders. For some reason you fail to recognize that much of the turbulence in the market comes from the regulators and their politically based efforts to maintain some imagined ideal equilibrium. But these efforts distort the markets badly and make it difficult to produce the changes that are needed to make things better. The banks are pushing the status quo because they do not want to face the consequences of their bad decisions. As ends in themselves they have no incentive to favour competition and change. This means that thanks to people like you the individuals and institutions who made most of the bad decisions will stay as they were without punishments from markets that demand efficient allocation of resources. It is ironic how those one percenters that you used to complain about are in place because of people like you.

          • ” I have said that the problem with the CRA is that it distorts the market by making banks lend to people that they would not lend to. Instead of bankers using market signals to make loans they would have to follow the wishes of the regulators. The CATO testimony agrees.”

            nope – you said that CRA distorts the ENTIRE mortgage market and that is demonstrably false as even the CATO testimony is limited to ONLY CRA banks.

            what you are doing is basically dishonest.

            It’s what AEI and others have done also but nothing to be proud of.

            CRA did not cause the sub-prime crisis. that’s the honest truth. you refuse to deal with the truth because your anti-govt zealotry will not allow it.

            that’s sad.

          • The stupidity continues. A seamless parade of ignorance, futilely argued.

            “but what you are saying about CRA is demonstrably false even in the CATO testimony.”

            The “CATO testimony is merely a plea for banking interests to get away with murder. And why would you take CATO any more seriously than the rubbish that gets published on THIS site? You think was an unvarnished assessment? You’re that blind?

            “But your statement is demonstrably false. I have said that the problem with the CRA is that it distorts the market by making banks lend to people that they would not lend to. ”

            They weren’t lending to them because of where they lived and the color of their skin. That was the problem that CRA was designed to address.

            Instead of bankers using market signals to make loans they would have to follow the wishes of the regulators. The CATO testimony agrees.”

            Yeah- no doubt.

            ““The “assessment context” provision would create the framework for pervasive credit allocation to politically favored groups.”

            They were not “favored” at all. They were being shut out of their peace of the American Dream.

            “The regulatory agencies would evaluate a bank’s CRA performance in terms of a regulator’s perception of the overall credit and service needs of a community and the performance of other lenders. The 60 percent loan-to-deposit ratio has been dropped, but the regulators would have the authority to set a higher ratio in specific cases. This provision would be the genesis of massive micromanagement by the regulators and massive paperwork by the banks.”

            Given the size and scope of the program, this amounted to nothing. Once again, in raw numbers, you simply refuse to acknowledge what a tiny role this played in the mortgage arena.

            “I have also argued that the act does not care about actual profits or sound decision making but relies on political meeting political goals. Once again CATO agrees.”

            Of course, “CATO agrees.”Who gives a crap what they think?

            “The proposed regulation would override any concern about bank soundness.”

            Nonsense. The eradication of their capital cushions did.

            “The regulations proposed in December 1993 had included statements that banks are not expected to make loans that are expected to result in losses, to expand their branching network, or to operate facilities at a loss. These protections are not included in the proposed new regulations.”

            Again: and I will type this slowly this time so you can understand it: no bank was ever forced to do business in a neighborhood that was a CRA zone. The law merely stated that if you wanted to take money OUT of the community, you had to put a token amount back in. That’s all. You couldn’t leave it high and dry to business development, because under THOSE terms, you can BET Uncle Sam would take a larger role in doing it. Which would you prefer?

            “Then there is the political angle. As was pointed out to you in some of the citations before, the act made it easy for the government to enable special interest groups by asking for race based statistics.”

            EVERY MORTGAGE APPLICATION, REGARDLESS OF ORIGIN, ASKS FOR THE BORROWERS RACE AND NATIONAL ORIGIN, TO CHECK TO SEE IF THEY ARE NOT BEING DISCRIMINATED AGAINST. More ignorance on display.

            “Banks should not be required to collect data on the race and gender of the owners of small firms that make loan applications.”

            Too bad this was going on before the “CATO testimony.” Again, every mortgage app lists this question, right under the signature.

            “The testimony was right because there was a great deal of abuse. ”

            Which of course, you have presented no evidence for whatsoever.

            “Of course, the industry is not run by total idiots.”

            Oh, they’re not, huh? I say they are, given the role they played in blowing up the economy.

            “The bankers saw what was happening with the regulators and figured out a way to make a killing without risking much of the way themselves.”

            More, meandering nonsense.

            “When the profits were huge as the bubble was growing bigger and bigger they got paid more in a year than many of them could have made in five years of normal activity. At the end, when the bubble burst, the government would step in and cover the bad bets that were left on the books because they could not have been securitized quickly enough. Yes, jobs would be lost and salaries would fall but the good times gains made it worthwhile. The irony was that the bailouts cleared most of the bad paper and the rest was hidden on the balance sheets of subsidiaries. The bankers wound up getting paid even after they had failed. ”

            Again, a completely incoherent narrative.

            “What gets to me is how fools like you can still demand more regulations and more bailouts for the reckless borrowers and lenders.”

            No one is advocating anything of the kind on this forum. Are you hallucinating now?

            For some reason you fail to recognize that much of the turbulence in the market comes from the regulators and their politically based efforts to maintain some imagined ideal equilibrium.

            No, it came from abuse by those very lenders who had NO CONNECTION TO ANY GOVERNMENT AGENCY, and whose names have been listed here by me. None of those lenders were regalated. I posted a FRED paper link on this very subject, which of course, you ignored.

            “But these efforts distort the markets badly and make it difficult to produce the changes that are needed to make things better. ”

            Doo dah, doo dah.

          • re: ” why would you take CATO any more seriously than the rubbish that gets published on THIS site?”

            because his anti-govt ideology depends on it.

            once he starts dealing with the truth – the world gets more complicated and he cannot handle that.

          • “I never said that the condos were built because of the CRA. ”

            Really?

            “I said that they got built because the industry created instant approvals and no-doc loans of more than 100% of appraised value. ”

            Totally false, but keep repeating these fables to yourself.

            “The Fed had a lot to do with that. But that does not get the CRA off the hook because it ensured that liquidity would continue to flood into the low end segment of the real estate market and let the institutions take advantage of it.”

            Again: you insist a small mortage program designed to end redlining in urban areas created the foreclosures of retirement developments in Florida. CRA had nothing to do with “liqudity,” BTW, and I don’t know why you keep linking the two things. They’re not connected.

          • Again: you insist a small mortage program designed to end redlining in urban areas created the foreclosures of retirement developments in Florida. CRA had nothing to do with “liqudity,” BTW, and I don’t know why you keep linking the two things. They’re not connected.

            Of course it did. The Act demanded that money be injected in poor areas and demanded that the amounts increased each year. Once that became known much of the risk was removed for the opportunists and they set themselves up to make a killing courtesy of the government’s failed policies. Of course, they set up systems to make sure that when the music stopped they would not be left without seats but even there many of them failed to be disciplined enough and wound up needing a taxpayer bailout.

            The same is happening now but in the treasury markets. When the Basel III Accord changes finally cause the damage that the observant critics have been pointing out expect to see a massive collapse in the government bond markets and the currencies. I think that you need to look at reality, not narrative by people who failed to see the trouble coming.

          • ” Of course it did. The Act demanded that money be injected in poor areas and demanded that the amounts increased each year”

            nope. It said, in the CATO document that 60% of deposits had to be loaned.

            why are you lying?

            You have to lie to support your anti-govt theology?

          • That was the point of CRA- it merely said banks couldn’t keep pulling money OUT of the Community they were profiting in, and leave it high and dry.

            And as I posted before- I think this program was an unqualifed success.

          • And as I posted before- I think this program was an unqualifed success.

            Of course you did. The housing bubble helped you make money. And it took money from the reckless fools who bought homes that they could not afford in the expectation that they would all get out before prices went down.

            The program certainly was a success for me. Thanks to the bubble it helped create, was fairly easy to recognize for anyone familiar with ABCT, I was able to retire more than 10 years ago just after I turned 40 and to live off my investments ever since. I suspect that the next bubble to to be even more profitable after it pops and look forward to another decade or two of nice profits until I have to find another bubble that will provide more profits.

          • “Of course you did. The housing bubble helped you make money. And it took money from the reckless fools who bought homes that they could not afford in the expectation that they would all get out before prices went down.”

            I never wrote a CRA loan in my life, and neither did 98% of the loan officers out there. I never “took money from a reckless fool” because my underwriters would have stopped the loan from being funded.

            You are a profoundly stupid person. A jackass.

          • I never wrote a CRA loan in my life, and neither did 98% of the loan officers out there. I never “took money from a reckless fool” because my underwriters would have stopped the loan from being funded.

            No kidding. You quit before teeth were put into the CRA legislation that changed the way loans had to be made. Shouldn’t you know that if you were in the industry?

          • CRA banks were FDIC banks. FDIC imposes loan standards and capital reserve requirements and that’s why so very few of the sub-prime loans were made by CRA banks.

            that’s the simple truth.

          • No Larry. The truth was that regulators forced banks to lend to people with lousy credit histories. The banks figured out how to shed risk by sticking the GSEs with the bad loans and the GSEs (or bigger banks) simply securitized those loans away by bundling them and getting some idiot insurer to take the risk of default. When government legislation distorts the markets do not be surprised when you have unintended outcomes.

          • ” The truth was that regulators forced banks to lend to people with lousy credit histories”

            show me the rule or law that required that or STFU.

            you are just continuing an ideological lie here…

            you boys simply cannot handle the truth so you just make up things to make yourselves feel better …

            pathetic.

          • It is what it is Larry, not what you think it is. Stop trying to prove to everyone just how stupid you are. You accomplished that a long time ago.

          • nope. It said, in the CATO document that 60% of deposits had to be loaned.

            why are you lying?

            You have to lie to support your anti-govt theology?

            Why can’t you read? I said that it demanded that the banks make loans to people who would not get loans and the amounts would increase. My anti-meddling argument is based on logic and sound theory. So far the argument has proven to be very good because the predictions that have been made have come true. On the other hand most of your beliefs have failed miserably. In your case it is faith that is the driver. Sadly, the destination is misery, poverty, and serfdom.

          • Of course it did. The Act demanded that money be injected in poor areas and demanded that the amounts increased each year.”

            15th time now- there was not enough liquidity in THIS ENTIRE PROGRAM to move the needle, and you’re forgetting one point: loans would have been originated and funded by SOMEONE. As the Traiger report pointed out, it was merely directed to legitimate banking operations who had a presence in CRA neighborhoods instead of the predators. The funding was always there, no matter who originated the loan.

            So much for THAT loontard theory.

            “Once that became known much of the risk was removed for the opportunists and they set themselves up to make a killing courtesy of the government’s failed policies.”

            This statement is completely incoherent.

            You are one weird guy. A trophy.

          • 15th time now- there was not enough liquidity in THIS ENTIRE PROGRAM to move the needle, and you’re forgetting one point: loans would have been originated and funded by SOMEONE. As the Traiger report pointed out, it was merely directed to legitimate banking operations who had a presence in CRA neighborhoods instead of the predators. The funding was always there, no matter who originated the loan.

            No, the loans would not have been made because the borrowers were not sound. Without the extra liquidity prices in those neighbourhoods would have remained stable and stayed in an expected range. But with so much cash going into them prices went up. That helped drive up prices in other areas that had better quality housing and the bubble spread. Eventually the industry figured out how to limit risk by dumping their bad paper to the GSEs or to package it and sell it off at a profit to naive investors searching for yield. The fact that the critics pointed out how the various policies were distorting the market and creating a bubble that would end badly was being ignored by the media and individuals who preferred the hype coming from the industry. In the end they got what they deserved as equity was lost and the economy robbed the reckless of their dreams of an early and comfortable retirement.

          • “No, the loans would not have been made because the borrowers were not sound. Without the extra liquidity prices in those neighbourhoods would have remained stable and stayed in an expected range.”

            Wrong again, troll boy. And CRA areas had the LOWEST peak to trough pricing anyway, so once again, you ignore the data, and continue on your preposterous path that what was little more than a tiny slice of the mortgage market forced prices up in Henderson Nevada.

            The assertion is beyond stupid, and so are your constant references to “liquidity.” Really asinine.

          • This has got to be the stupidest person I have ever encountered on a message board. A pair of pliers can absorb more data than this guy.

            Let’s try it again:

            “Actually, it does not matter whether it is the underwriter, the appraiser, or the broker who is ultimately responsible. They all get rich from the process of making loans, bad or otherwise, and collecting a fee when they sell those loans to the GSEs.”

            DEAD WRONG AGAIN. When the loan is underwritten, it is submitted to one or the other GSE- Fannie or Freddie- if it is rejected, the loan has to be shopped with a non-GSE lender who will take the deal.

            Did you REALLY tell yourself the process just involved writing a bunch of loans and then just selling them to the GSEs regardless of credit quality or underwriting standards? Is that how you thought this worked?

            “That was exactly what was happening in the industry that you claim to be an expert in.”

            I don’t claim to be an expert. I AM AN EXPERT.

            ” Don’t you remember CNBC touting the instant approval, no doc, software that allowed so many companies to give so many loans?”

            The GSEs introduced automated underwriting, to be sure, which lowered costs and provided quick credit decisions. No big deal. The software was NOT used to push bad loans.

            ” In the end it was this devolution of the business that led to all those ‘investment’ properties in Florida and Nevada sitting empty”

            Nonsense.

            :As I pointed out many times above, it took the government’s bad policies and the Fed’s desire to inject a great deal of liquidity into the system that made the housing bubble possible.”

            Wrong again. Especially- for the 100th time now- the GSEs market share was PLUMMETING even as housing prices soared and volume increased. So you can’t hang the meat of the bubble on housing policy.

            “Without changes to the CRA legislation it would have been a lot harder to create that bubble because the ‘we are helping the poor’ argument would not have been possible.”

            14th time now.

            1) CRA was not a SubPrime program
            2) Default and deliquency rates prove that, EVEN TO THIS VERY DAY
            3) The biggest foreclosure areas were a day’s drive from any area that existed under CRA mandates. Again, you are left with the preposterous conclusion that a small mortgage program of insificant volume led to the housing markets in suburban Nevada, Florida, Arizona and California to glow white hot and flame out. This is a new realm of cognitive dissonance, beyond belief.

            ” In the end it was not only the poor that took a beating but Congress managed to take down a big chunk of the middle class. ”

            Wrong again- how many times does the data have to show that those who lost the most money were on the middle and upper end of the market where the price swings were the most magnified?

            “From what I saw during your election both the GOP and Democrats are looking for a way to finish the job and take down everyone”

            Oh, shut up. The GOP blew up the economy, and the biggest joke on you was that the American people, by a wide majority, STILL BLAME BUSH for the economy!

          • DEAD WRONG AGAIN. When the loan is underwritten, it is submitted to one or the other GSE- Fannie or Freddie- if it is rejected, the loan has to be shopped with a non-GSE lender who will take the deal….

            But that is the problem; the GSEs made their money by packaging up mortgages and selling it to ‘investors’ looking for more yield. As long as the bubble kept being expanded there was no risk to anyone providing the loans early in the process. Real estate agents got paid when the sale was made. The appraisers got paid to pad up their reports. The mortgage brokers got paid when they sold their paper to the GSEs or other financial institutions. The rating agencies got paid when they turned a collection of questionable loans into AAA rated paper by using questionable models that were obviously wrong. The GSEs got paid when they sold the packaged loans for less than what they had to pay out to the borrowers. The insurers got paid when they collected premiums that made the transactions possible. Everyone got paid as long as the bubble was kept growing through new injections of liquidity. But when the demand finally slowed the buyers of overpriced homes and the taxpayers got killed. Not that it matters to apologists and opportunists who got paid far more than they could have made in an honest market based system.

          • This man is mentally ill:

            “But that is the problem; the GSEs made their money by packaging up mortgages and selling it to ‘investors’ looking for more yield.”

            No, they “packaged up” mortgages for the purpose of securitizing them so the banks had capital to out and lend again: THIS HAS BEEN IN PLACE FOR DECADES.

            PUT A BATTERY IN THE BELTONE, WILL YA, PAL???

            “Real estate agents got paid when the sale was made. The appraisers got paid to pad up their reports. The mortgage brokers got paid when they sold their paper to the GSEs or other financial institutions. The rating agencies got paid when they turned a collection of questionable loans into AAA rated paper by using questionable models that were obviously wrong.”

            WHICH HAD ZILCH TO DO WITH GSE LOANS. HOW MANY TIMES DOES THE DISTINCTION BETWEEN MORTGAGE ASSET CLASSES HAVE TO BE EXPLAINED TO YOU? If I wanted to trade CMO’s, I was actually FORCED by the order routing system to SWITCH SCREENS from Agency paper to “private label” paper. These credit classes were segregated even under secondary market placements. YOU DONT KNOW WHAT YOU’RE TALKING ABOUT. PERIOD.

            “The GSEs got paid when they sold the packaged loans for less than what they had to pay out to the borrowers.”

            God, are you an idiot for making that statement.

            ” The insurers got paid when they collected premiums that made the transactions possible.”

            They also folded like a house of cards after Bear and Lehman got crushed. Of course, that was their plan all along, right, genius?

            A new realm of political myopia has been opened by this man.

          • No, they “packaged up” mortgages for the purpose of securitizing them so the banks had capital to out and lend again: THIS HAS BEEN IN PLACE FOR DECADES.

            It used to be that mortgages were given to people with good credit who were known by the bankers who made the loans. In the 1990s the rule changes encouraged providing mortgages to people who never would have received mortgages under the prudent lending system.

          • Why can’t you read? I said that it demanded that the banks make loans to people who would not get loans and the amounts would increase. My anti-meddling argument is based on logic and sound theory. So far the argument has proven to be very good because the predictions that have been made have come true. On the other hand most of your beliefs have failed miserably. In your case it is faith that is the driver. Sadly, the destination is misery, poverty, and serfdom”

            Yeah. “Serfdom.” This country has created a swath of the population that is deaf, dumb and blind.

          • I’m not missing a damn thing. If you haven’t noticed, all you’re doing is regurgitating the same drivel you suckle like mother’s milk, and replying with hard data an d facts.

            Its hard to hang a foreclosure crisis on a mortgage asset class that really doesn’t have too many foreclosures.

            It’s really as simple as that.

          • Come now Max. I believe that Che provided you with a Fed document that showed that CRA loans were not as profitable and more likely to default early in the game when the bubble was young. I explained why you will not see a problem as long as the bubble grew because there were ways even for deadbeats to extract cash or profits by remortgaging or selling. Anyone who understands the mechanics knows that the data will not show a problem until AFTER the bubble bursts.

            That last point was made by the critics who were talking about the bubble while the naive and foolish were questioning their grasp on reality. Well, history shows that the critics were right yet you still hang on to your delusions.

          • “Come now Max. I believe that Che provided you with a Fed document that showed that CRA loans were not as profitable and more likely to default early in the game when the bubble was young”

            God, you ARE stubborn. First, what Che provided was an abstract with no back up data, which I would have liked to have seen. Second, “double the number of foreclosures” sounds like a lot compared to conventional loans, but conventional loan default rates are EXCEPTIONALLY low.

            But you hit on another point that further illuminates your ignorance of the mortgage business.

            Years ago, I read an article in the WSJ about First Union, a bank that was later absorbed. Seems their default rate was TOO low. You see, when underwriting is TOO tight, a bank may be throwing away perfectly good candidates. Their default rate was only 1%. They loosened up to a 2% default level, which sounds egegrious- except for that extra percent, they doubled their performing loan portfolio.

            That’s how it works.

            Secondly, you KEEP going back to CRA, even when I repeatedly keep telling you this was NOT a subprime loan program, and even after the bubble crashed, their default rate is STILL low by comparison, and the foreclosure hot spots in the country were NOWHERE NEAR areas served by CRA!

            Yet, in this display of Pavlovian pathologies, you keep harping on it. The loans performed well. That is all anyone cares about in the mortgage business.

          • The basic mantra that emanates from this (and other) sites is that CRA “forced” the mortgage companies to make bad loans and that caused the meltdown.

            and nothing could be further from the truth.

            but as has been said before – the folks who want to promote the CRA narrative are more interested in implicating the govt rather than mortgage companies
            for the meltdown.

            It follow along with other similar narratives about how the govt is basically incompetent and incapable of working properly.

            they ignore the FDIC completely as if it would “muddy” the purity of the basic anti-govt narrative.

            The FDIC is government regulation that works.

            it has protected millions of depositors and kept the consumer banking system safe and trustworthy.

            If we had had an FDIC-like framework for these other mortgages – we would likely have not had the meltdown because FDIC requires loan standards as well as capital-reserve standards that have worked quite well.

            If the FDIC had not worked – the same anti-govt folks who now try to implicate CRA would be the first to hop on the “kill the FDIC” wagon but strangely enough – they utter not a word about FDIC other than the more virulent who would do away with FDIC simply because it’s govt “interfering” with the “free market”.

          • The basic mantra that emanates from this (and other) sites is that CRA “forced” the mortgage companies to make bad loans and that caused the meltdown. and nothing could be further from the truth.

            But that was what the law demanded. If the banks wanted to be in the mortgage business they had to make a certain volume of loans to inner city areas where the high risk buyers were. That means that if you wanted to be in the mortgage business you had to make such loans. Note that the act supported such loans by reducing the risk for the lenders when it required the GSEs to devote a percentage of their lending to the affordable housing market.

            The bottom line is that Congress did that which it does best. It used the government’s monopoly on power to force institutions that wanted to play in the mortgage markets to make loans to people who were higher risks.

          • re: ” But that was what the law demanded. If the banks wanted to be in the mortgage business they had to make a certain volume of loans to inner city areas where the high risk buyers were”

            but that was 6% of the meltdown mortgages.

            re: ” when it required the GSEs to devote a percentage of their lending to the affordable housing market. ”

            let’s see that rule guy and show me the sanctions the govt would impose if it was not “obeyed”.

            you guys specialize in promoting “plausible” explanations that have zero basis in fact by showing one thing like CRA and then claiming CRA-like rules applied to all mortgages and it’s simply not true.

            the reason you do this is to support your anti-govt theology.

            FDIC is govt. FDIC works fine. If FDIC applied to all mortgage lenders (like it DID to CRA banks) – what would have happened?

            but see.. expanding FDIC would violate your anti-govt beliefs.

            you refuse to deal with facts and realities and continue to “spin” misinformation to suit your ideology.

          • Read the act my friend. Or look at the testimony before the various committees. Note that the 1993 proposals, which included statements that banks would not be expected to make loans that would be expected to create losses, were withdrawn. The subsequent version of the Act, which was passed, did not include those protections for the bank. What it did was create a system of regulatory evaluation that would eventually cause the predicted micromanagement and payoffs to special interest groups in the various ‘communities’.

            You were given citations in the old blog where Dr. Perry used to make his comments before he moved here. But no matter how much material is put before you the act is the same; you are unable or incapable of reading and understanding it. Well, all I can say is go to the Act and read it. Sadly the people who voted on it never seem to have gone through that process. Which is why we got the mess that we now find ourselves in.

          • you have provided no links guy.. you are continuing a false narrative…

            Most of the CRA banks were also FDIC banks with specific rules on loan standards and capital reserves.

            but even then they were 6% of the sub-prime market.

            you have yet to provide anything to substantiate your claim that the non CRA mortgage market was “forced” to make bad loans.

            all of this because you are opposed to ultimately having an FDIC-like regulatory framework on all mortgage banks regardless of whether they are CRA or not.

          • First, we have links above. Second, you can find the Act using Google or any other search engine. Third, you have yet to read any of the material that has been provided to you by Ron, Che, and others. The reports on the GSEs and the CRA that were provided to us, (I forget who gave them), were very convincing. It helped that many of the analysts had made the argument early on in the game long before the bubble became evident to most people. Those analysts were right. Yet you and your pal above keep citing the people who never saw the bubble and were hyping it up even after it was popping.

            Try getting an education that includes economics, logic, mathematics, and ethics. You seem to be short on all fronts.

          • re: ” First, we have links above. Second, you can find the Act using Google or any other search engine. Third, you have yet to read any of the material that has been provided to you by Ron, Che, and others. The reports on the GSEs and the CRA that were provided to us, (I forget who gave them), were very convincing.”

            “convincing” ??? FACTS guy! I don’t want or need some right wing/libertarian “plausible” narrative.

            you guys say the govt FORCED mortgage companies to make bad loans.

            I want to see PROOF of that – in the LAW or RULES.

            ya’ll are doing this little dance that AEI and others having been doing for some time now – which is basically lying by mixing some facts with a lot of supposition and false claims and calling it the truth when in fact what it is is misinformation and disinformation to support your basic premise that the govt directly caused the meltdown with CRA or CRA-like “rules” that applied industry-wide and this is simply not the truth.

            how can I trust ANYTHING you and the others say when you show absolutely no remorse at all in propagating outright lies?

          • FACTS guy! I don’t want or need some right wing/libertarian “plausible” narrative.

            Here you go. It was clear what the policies were doing long before the crash came. What was predicted happened. Those on your side can spin a nice narrative and use data to hide the underlying reality and confuse the cause/effect relationship but the evidence is that the people who used the logic that I provide called the collapse long before it happened.

            http://www.youtube.com/watch?v=CJoKwB-JHn8

            http://www.youtube.com/watch?v=826q7RqTEk8&feature=related

            As the saying goes, you can try to ignore reality but I you can’t escape the consequences of reality.

          • First, we have links above. Second, you can find the Act using Google or any other search engine. Third, you have yet to read any of the material that has been provided to you by Ron, Che, and others. The reports on the GSEs and the CRA that were provided to us, (I forget who gave them), were very convincing. It helped that many of the analysts had made the argument early on in the game long before the bubble became evident to most people. Those analysts were right. Yet you and your pal above keep citing the people who never saw the bubble and were hyping it up even after it was popping. Try getting an education that includes economics, logic, mathematics, and ethics. You seem to be short on all fronts.”

            Nonsense:

            http://www.mcclatchydc.com/2008/10/12/53802/private-sector-loans-not-fannie.html

            http://blogs.reuters.com/bethany-mclean/tag/fannie-mae/

            Lastly, look at subprime loan volume compared to agency on this chart from the St. Louis Fed:

            http://research.stlouisfed.org/publications/mt/20080801/cover.pdf

            GIVE UP ALREADY. YOU LOST.

          • Nonsense:
            http://www.mcclatchydc.com/2008/10/12/53802/private-sector-loans-not-fannie.html http://blogs.reuters.com/bethany-mclean/tag/fannie-mae/

            There is nothing in the Hall and Goldstein narrative that nullifies my argument. And as usual you rely on people who failed to notice the fact that there was a major problem in housing until it was far too late. I prefer those who explained what would happen long before it happened and explained why it would happen by using sound economic theory. (For the record, the Keynesian/neo-Keynesian nonsense does not qualify as sound theory.)

          • “There is nothing in the Hall and Goldstein narrative that nullifies my argument. And as usual you rely on people who failed to notice the fact that there was a major problem in housing until it was far too late. I prefer those who explained what would happen long before it happened and explained why it would happen by using sound economic theory. (For the record, the Keynesian/neo-Keynesian nonsense does not qualify as sound theory.)”

            You don’t HAVE an argument. You’ve lost your mind. Have a great life.

          • “It used to be that mortgages were given to people with good credit who were known by the bankers who made the loans. In the 1990s the rule changes encouraged providing mortgages to people who never would have received mortgages under the prudent lending system.”

            You’re an idiot. I can’t put it any plainer than that. You ignore foreclosure and deliquency data, you ignore pricing data, you ignore geography, and you drone on like a voidoid. You don’t know jack about underwrting, securitization, credit quality, NOTHING. And you come back with heaps of BS which you are obviously making up.

          • “But that was what the law demanded. If the banks wanted to be in the mortgage business they had to make a certain volume of loans to inner city areas where the high risk buyers were. That means that if you wanted to be in the mortgage business you had to make such loans.”

            13th time.

            AGAIN:

            If a mortgage lender wanted to do business IN CERTAIN COMMUNITIES, there was a small percentage of loans, which were NOT RISKY, to show that the bank wasn’t redlining, and was indeed using the deposits IT TOOK FOR THE COMMUNITY BACK TO WORK IN THAT COMMUNITY, instead of exploiting these areas like carpet baggers.

            No bank that did not operate in these areas were EVER forced to make these loans, and indeed, hundreds of lenders did not, and ,mpst particularly, those mortgage banks that never wrote ANY mortgage loans that were driven by Federal guidelines or GSE underwriting standards.

            WAKE UP ALREADY.

          • 13th time. AGAIN: If a mortgage lender wanted to do business IN CERTAIN COMMUNITIES, there was a small percentage of loans, which were NOT RISKY, to show that the bank wasn’t redlining, and was indeed using the deposits IT TOOK FOR THE COMMUNITY BACK TO WORK IN THAT COMMUNITY, instead of exploiting these areas like carpet baggers. No bank that did not operate in these areas were EVER forced to make these loans, and indeed, hundreds of lenders did not, and ,mpst particularly, those mortgage banks that never wrote ANY mortgage loans that were driven by Federal guidelines or GSE underwriting standards. WAKE UP ALREADY.

            This is nonsense. The bankers were ‘evaluated’ by the regulators and were told to put up cash or stop being in the mortgage business. We knew this during the CRA comment period when the objections were first brought up.

            http://www.cato.org/publications/congressional-testimony/repeal-community-reinvestment-act

            As I pointed out above, the critics were clearly right when they predicted that the government’s policies were creating a bubble in housing. Now to be fair, CRA was not the only thing that made the bubble possible. On that front the implicit guarantees to the GSEs and the Fed’s credit expansion policies take a big part of the blame as does the industry’s reliance on shifting lending risk to the taxpayer through the too big to fail assumptions and the processes that allowed easy loans to people who could not survive a period of stale prices.

            I suggest that you take a look at the arguments made by the people who got the story right, not keep perpetuating the excuses of those who were hyping up real estate all the way up as they were unable to spot the bubble or too dishonest to point it out.

          • Excuse me- the Cato article says nothing about a “bubble” and again- 15th time- there wasn’t enough loan volume to push it, and again, the worst of the bubble activity didn’t occur anywhere NEAR a CRA served area.

            You’re playing with yourself. You’re an absolute specimen of someone, for who all the evidence in the world, can’t change their prejudices. A truly pathetic creature.

          • re: the CATO “objection”…

            lord…. o’mighty ….

            it “proves” that CATO objects to any/all govt regulation associated with CRA.

            it even says: ” In general, current regulations require banks to demonstrate that they are reaching out to all segments of the local credit market in a safe and sound manner”

            but someone like Van reads this and gets a totally different meaning from it.

            not one word in there about a “bubble” or a problem with bad loans.

          • Excuse me- the Cato article says nothing about a “bubble” and again- 15th time- there wasn’t enough loan volume to push it, and again, the worst of the bubble activity didn’t occur anywhere NEAR a CRA served area.

            You’re playing with yourself. You’re an absolute specimen of someone, for who all the evidence in the world, can’t change their prejudices. A truly pathetic creature.

            The Cato testimony in 1995 was about the proposed changes to the CRA. The bubble in housing did not really begin to form until after the act was passed. During the mid 1990s the Fed found the tech sector as a good conduit for its credit expansion schemes and helped to create the NASDAQ bubble. The commentary about the bubble can be found in the House subcommittee video that I cited in the responses to Larry. The arguments about the CRA and the implicit guarantees to the GSEs were valid as were the predictions.

            Pay attention to the statement being cited around 2 minutes into this video. The observation that the GSEs were distorting the housing market and were creating an artificial bubble. When prices would fall home owners would lose their equity and the mortgage holders would be wiped out. The prediction was that people who should not take the risk would buy homes when it was not prudent to do so.

          • Your response is utterly incoherent. If you haven’t gotten the point by now, with even Fed data and the other studies thrown at you, your only desire is to be willfully stupid.

            Good luck with that.

          • God, you ARE stubborn.

            I tend to be stubborn about reality and economic facts.

            First, what Che provided was an abstract with no back up data, which I would have liked to have seen.

            The fact was that the foreclosure rates were higher and the loans were not as favourable early in the program when there was no big bubble being blown up to cover up the problems. That tells us a great deal more than you are willing to admit.

            Second, “double the number of foreclosures” sounds like a lot compared to conventional loans, but conventional loan default rates are EXCEPTIONALLY low.

            Nice try but if you have double the murders in Detroit than New York you are still twice as likely to be killed there even if you consider the overall rates in both places low. The important information conveyed in the data is that the CRA loans were a lot riskier and a lot less profitable. Now anyone who understands the market as you claim to knows that the greater risk is not a problem as long as there is a bubble being blown up because bad decisions are made good by a rising tide. But that does not mean that the program had no effect because it guaranteed a huge input of liquidity into the system that would eventually end badly. When it did you ignored the cause.

            But you hit on another point that further illuminates your ignorance of the mortgage business. Years ago, I read an article in the WSJ about First Union, a bank that was later absorbed. Seems their default rate was TOO low. You see, when underwriting is TOO tight, a bank may be throwing away perfectly good candidates. Their default rate was only 1%. They loosened up to a 2% default level, which sounds egegrious- except for that extra percent, they doubled their performing loan portfolio. That’s how it works.

            I am very aware that the Fed’s actions incentivizes risky behaviour. In fact I have argued that for years that the prudent bankers had no chance because it made more sense to make huge salaries for a few years and get a bailout after facing bankruptcy than to keep profits lower by taking less risk and wind up being bought out.

            Secondly, you KEEP going back to CRA, even when I repeatedly keep telling you this was NOT a subprime loan program, and even after the bubble crashed, their default rate is STILL low by comparison, and the foreclosure hot spots in the country were NOWHERE NEAR areas served by CRA!

            I am well aware that the biggest bubbles ended up in places where reckless speculators bought ‘investment’ properties because they could get easy loans without proper documentation. That does not change the fact that it was a bad idea to meddle with the mortgage market in the first place or that the GSEs and Fed need to be shut down.

            Yet, in this display of Pavlovian pathologies, you keep harping on it. The loans performed well. That is all anyone cares about in the mortgage business.

            They did not ‘perform well.’ People who could not afford the loans simply retired the old ones by refinancing. That is not prudent and makes no sense because when the music stops a lot of people can’t find any chairs to sit on.

            Of course as a mortgage pusher you make your money even if the people who you give loans to wind up losing their homes. Like those bankers your incentive is to make as much as you can as quickly as you can and live with the slow times after the contraction. Now you may want to claim that the loans were prudent but the data shows otherwise. In the end the mortgage paper was wiped out and had to be bought by the Fed and the taxpayers to save the institutions that had been suckered into purchasing it. Trillions of new debt wound up being created because of the stupidity that you failed to see.

          • Sir, all you are doing is attempting to wear me out. Your comments belie complete ignorance of the mortgage industry I was a part of for nearly a decade, you are either incapable or willfully unable to parse data, and when you do so, you come to precisely the wrong conclusion and then repeat the same misinformation over and over again. You are a representative specimen.

            Let’s try this again:

            “I tend to be stubborn about The fact was that the foreclosure rates were higher and the loans were not as favourable early in the program when there was no big bubble being blown up to cover up the problems. ”

            Sir, a “higher foreclosure rate” by itself does not foretell an avalance of foreclosures or a housing meltdown. We’ve been through this before, but as always, you leave me to repeat myself: Mortgages have a pallette of risk just as corporate paper does, and the issuer compensates for that in yield. Foreclosure rates for CRA mortgages were well within the range of conventional/conforming loans.

            “Nice try but if you have double the murders in Detroit than New York you are still twice as likely to be killed there even if you consider the overall rates in both places low. ”

            How about a better analogy: let’s take the murder rate for a County with one murder a year and then in one year, TWO murders occur. The rate jumps by double, but it’s not exactly a crime zone. Your argument here is quite lame, and again reflects a lack of knowledge of risk metrics.

            “The important information conveyed in the data is that the CRA loans were a lot riskier and a lot less profitable.”

            They said nothing of the kind. What they said was they had a higher default rate, which in and of itself is not terribly important, and for a PERCENTAGE of lenders they were somewhat less profitable. I’ve got news for you: there were quite a few lenders out there who made CRA a profit center.

            “Now anyone who understands the market as you claim to knows that the greater risk is not a problem as long as there is a bubble being blown up because bad decisions are made good by a rising tide. But that does not mean that the program had no effect because it guaranteed a huge input of liquidity into the system that would eventually end badly. ”

            Which CRA could not have done, because in raw numbers, the dollars weren’t there to push the market that hard. How many times do I have to repeat THAT factoid, and when will you finally accept it? This was not a big program, and compared to the dollars in NON-GSE SubPrime from the mortgage banks I’ve named previously, it doesn’t amount to the proverbial fart in a hurricane.

            ” I am very aware that the Fed’s actions incentivizes risky behaviour. In fact I have argued that for years that the prudent bankers had no chance because it made more sense to make huge salaries for a few years and get a bailout after facing bankruptcy than to keep profits lower by taking less risk and wind up being bought out. ”

            Aside from the fact that this answer has nothing to do with the subject of my statement, this narrative is so off the deep end I wouldn’t no where to begin to refute it. There’s no truth in it. When the mortgage boom was going on, no one thought they would be bailed out if things went wrong. That was Paulson’s idea.

            ” I am well aware that the biggest bubbles ended up in places where reckless speculators bought ‘investment’ properties because they could get easy loans without proper documentation. That does not change the fact that it was a bad idea to meddle with the mortgage market in the first place or that the GSEs and Fed need to be shut down.”

            Really? We should shut down the institutions that never allowed No-Doc investment properties? This is what I mean by the “Big Lie” folks. This is blaming something totally unrelated for a crime they never committed. The kind of loan you are talking about were not originated by Fannie or Freddie. Those are Non agency mortgage products. Another time I have to state the obviousm, which of course, you will immediately proceed to ignore.

            They did not ‘perform well.’

            Oh yes they DID “perform well” and we HAVE THE DATA TO PROVE IT, which has been redundantly provided to you! This is a joke, sir. You are really a poster child for what Barry Ritholtz called a “Cognitive Dissident.” Even when the raw data from impartial sources is shoved under your nose, you simply keep telling the same fable!

            “People who could not afford the loans simply retired the old ones by refinancing. ”

            If they could not afford the intial loans in the first place, and had difficulty making on-time mortgage payments on the initial loan, THEY NEVER WOULD HAVE GOTTEN THE RE-FI THROUGH. Even the biggest screwball lenders I’ve dealt with would freak at a late mortgage payment in a 2 year look back, and you can forget about getting NEAR a Fannie/Freddie product with a credit report like that.

            ” Of course as a mortgage pusher you make your money even if the people who you give loans to wind up losing their homes. ”

            That only happens in the predatory space- not in CRA, and not in GSE backed loans.

            “Now you may want to claim that the loans were prudent but the data shows otherwise.”

            Uh, no sir, the data most certainly DOES NOT SAY OTHERWISE.

            ” In the end the mortgage paper was wiped out and had to be bought by the Fed and the taxpayers to save the institutions that had been suckered into purchasing it. Trillions of new debt wound up being created because of the stupidity that you failed to see.”

            BS.

          • Larry sez:

            “Yip! yip! Yip!”

            Quit humping my leg, little doggy, the grownups are having a disagreement over something you can’t possibly understand.

          • Max has it right. I’m just amused at how ya’ll build these bubbles around yourself and belief what you wish to suit your own biases and ideologies.

            Ya’ll are a lot like the Republicans these days.

            don’t like the polls? no problem, it’s got to be a conspiracy or they all got the turnout data wrong.

            no problem.

            on to the next reality you don’t agree with…..

          • Leave the poor Republicans alone Larry. When it comes to politics they tend to be in just as much denial as the other guys who were promoting the CRA as a way to help the poor but wound up wiping them out when reality intervened.

          • re: the GOP and CRAs.

            the CRAs never were a major part of the housing collapse.

            6% of CRAs were sub-prime.

            yet the GOP and other similar narrative is that CRA caused the problem and it did not.

            that’s a problem with dealing with reality.

            you can believe what you wish but what good is it other
            than to assuage your own beliefs that do not mesh with the realities ?

            that problem has spread to the GOP … on a number of issues… they have their own talking points that emanate from their own right wing echo chamber.

            the only problem is – it’s often not the truth and in the end it bites them in their own butts – the recent election a case in point.

          • The way I see it the GOP was nearly as bad as the Democrats. While it would have cost him support and possibly an election Bush could have stopped the GSEs and turned back the bad CRA legislation. He could easily have done what Ron Paul suggested and stop the bubble in its tracks by removing the implicit guarantee on GSE borrowing. But Bush never did that because the Democrats all jumped on him and portrayed him as evil and anti-poor. Now that the bubble has burst they have destroyed much of the equity held by the poor and added many more poor people to the voting pool.

          • re: Bush – on that we agree.

            re: ” Fewer loans was not an option because there were too many qualified middle income borrowers. So, in order to meet the mandate, standards had to be lowered for low income borrowers.”

            apparently a lot of “qualified” buyers were not because they defaulted.

            what exactly was the “mandate” ? how did it work?

          • re: Bush – on that we agree. re: ” Fewer loans was not an option because there were too many qualified middle income borrowers. So, in order to meet the mandate, standards had to be lowered for low income borrowers.”

            Actually, you are wrong as usual. If there were so many qualified borrowers the industry would not have to invent no-doc loans and give out loans for 105% of the appraised value of the homes. The money was not made in the housing market but in the credit creation market. And when that failed miserably the taxpayer was given the bill by the people in Congress who failed to listen to those that predicted exactly what would happen.

            apparently a lot of “qualified” buyers were not because they defaulted. what exactly was the “mandate” ? how did it work?

            The law forced the banks to lend to inner city neighbourhoods. It worked because the banks figured a way to dump their scary loans to others.

          • Once again, a fable of a narrative replaces the reality:

            “Actually, you are wrong as usual. If there were so many qualified borrowers the industry would not have to invent no-doc loans and give out loans for 105% of the appraised value of the homes. ”

            No-Doc loans have been around for DECADES. They were made to tailor to those who had cash businesses or filed Schedule Cs, or were self employed. There was nothing new here. The 105 LTV were a relative new product. When I was around, you had to have sterling credit and a LOT of verifiable assets if you wanted one. I never saw one being written up myself, and I doubt if they ever took a big slice of the market.

            “The money was not made in the housing market but in the credit creation market. And when that failed miserably the taxpayer was given the bill by the people in Congress who failed to listen to those that predicted exactly what would happen. apparently a lot of “qualified” buyers were not because they defaulted.”

            The overwhelming majority- AGAIN, by a ratio of 5 to 1- were those mortgagees who did NOT have Fannie or Freddie mortgages, and these loans were originated in the 2005-2007 price spike when SubPrime was at it’s zenith in originations.

            “what exactly was the “mandate” ? how did it work? The law forced the banks to lend to inner city neighbourhoods. It worked because the banks figured a way to dump their scary loans to others.”

            Right- once again, loans made in Brooklyn, New York caused a foreclosure crisis in Nevada, Arizona, California and Florida, and caused the bankruptcy of new mini mansion developments and retirement homes.

            Sick.

          • It’s bad enough we’ve these “deniers” running around but then you have sites like AEI and CD actually continuing to PROMOTE the misinformation.

            I have yet to see any reference to any govt. “RULE” that “forced” the bankers to make sub-prime loans but the idiocy lives on in the hearts and minds of those who want their own reality.

            It spread to the GOP this election. It was comical watching them talk about poll “conspiracies” and ” scheming pollsters” who deliberately miscount votes… on and on….

            the disease has spread….

          • ” The law forced the banks to lend to inner city neighbourhoods. It worked because the banks figured a way to dump their scary loans to others.”

            what a load of horseshit – as usual for you “deniers”.

            The redlined neighborhoods made up 6% of the subprime loans and the banks were NOT required to lend there unless they located branches there and took deposits.

            ya’ll are so bound up in your ideology that you just simple refuse to deal with the truth because it would violate your anti-govt mindsets.

          • “an election Bush could have stopped the GSEs and turned back the bad CRA legislation.”

            12th time.

          • Once again: CRA was for QUALIFIED BORROWERS, not the “poor” who were not being served by lenders in their own communities.

            This is the 10th time this is pointed out to you, but you apparently cannot be taught.

          • Max – with these boys, it’s all about the anti-govt narrative that is paramount.

            the belief is that the govt causes bad stuff to happen all the time including in the markets and so the housing meltdown HAD to be caused by govt because private industry would never do such a dumb thing unless govt “forced” them to.

            After that.. it’s just a matter of arranging things to suit the narrative and God Forbid the facts violate the narrative.

            you may have noticed that the GOP operates this way also these days.

          • I once opined that it was easier to train a dog than to educate a “conservative.” (Use of parentheses is needed because these people are “conservative” the way Rev. Falwell was a “Christian.”)

            If you ever want to train a dog from crapping in the house, simply stick his nose close to the crap, and then slap him on the nose. Do this three times, and the dog will learn to bring you his own leash to do his business.

            I stick THESE guys noses in their own poop, and they STILL don’t learn. Same with Keystone: no benefit to US, just a Canadian pipeline to move product to non-US customers and we get these repeated, sober appraisals about “energy policy.” These people are beyond help.

          • re: “of course they are”

            Nope. The problem with redlining was that the banks would
            not loan in the NEIGHBORHOOD no matter how qualified the
            borrowers might be.

            I cannot believe how ignorant people are of the basic facts. It’s almost if the facts can’t be true because if they are, it destroys the entire premise that the the govt “forced loans to unqualified poor people”.

            People start with that premise and the proceed to arrange their own biases around it in a narrative.

            It’s dumb twice.

            It’s dumb on the face of it to start with. Who wants to live in their own false world? apparently more than a few.

            and it’s dumb the second time because if you really
            don’t know what happened then your “solutions” won’t work either.

            http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf

            but for folks who MUST believe that the govt is evil and cannot do anything right – the false narrative is paramount to bolster their beliefs.

          • I have seen the Traiger Hinckley report, and it is dead on. By providing conventional underwriting to underserved communities, they kept borrowers out of the clutches of the predators, and that means fewer foreclosures.

          • Ignorance Alert!!

            Max says:

            That was the point of CRA- it merely said banks couldn’t keep pulling money OUT of the Community they were profiting in, and leave it high and dry.

            At the risk of wasting more of my time reading another of your economically-challenged responses, and unless you have an anti-fractional banking argument, I’m looking forward to your explanation of how providing checking accounts – in most cases at no charge – to people in a community can be described as “pulling money out of the community”.

          • ” how providing checking accounts – in most cases at no charge – to people in a community can be described as “pulling money out of the community”.”

            are you really this dumb?

            what do you think happened to those deposits? Did they
            go back into the community as investments or did they go elsewhere?

            are you really this dumb?

          • That is the stupidest f%%king remark made on this thread.

            And baby, that’s saying something. You tools fancy yourselves so economically literate, so business wise.

            You’re fools. Completely ignorant fools.

          • “That is the stupidest f%%king remark made on this thread.

            You should try reading your own postings.”

            Coming from someone whose thick as a brick, and can’t see that 28% is higher than 6%, I will take that as a compliment.

          • My comment above lacks a correct “end-ital” tag at the end of the quote. Surely you can figure out what part is quote and what is new comment.

          • re: surely you can

            and surely you can admit that CRA only applied to redlined neighborhoods and that the banks in those neighborhoods were FDIC – UNLIKE the 94% of the mortgage lenders who made subprime loans for things like Florida Condos that not only did not sit in redlined communities but, in fact, were in upscale communities.

            ya’ll are comical on this issue. You sound like the GOP talking about the Polls right before the election.

            pathetic.

          • Sir, your question is so off-the-wall in it’s cluelessness, nothing but gratuitous insult would be suitable for a response.

            Checking accounts? CHECKING ACCOUNTS????

          • re: checking accounts.. yes.. guy.. when you have deposits.. you can loan a percentage of them… that’s called a bank.

            got it?

          • “re: checking accounts.. yes.. guy.. when you have deposits.. you can loan a percentage of them… that’s called a bank.

            got it?”

            God, are you stupid. I mean genuinely stupid. And you troll this site because you think perusing flatters your intellect.

            This is your understanding of modern banking, huh? What do you think Bank of America is: the Bailey Brothers Building and Loan?

            “You’re deposits aren’t in a vault, there in Ed’s house and Wilma’s house”

            No, dumbass, THAT WAS THE POINT, THE PROFITS THEY MADE FROM THE COMMUNITY WERE BEING PUT TO USE EVERYWHERE BUT.

            God, are you dumber than a rock. Just unfathomably stupid, with a total cluelessness about the issue at hand.

          • Uh, sorry Larry, but that question didn’t sound like you- NO bank is obligated to use the deposits it collects in a branch and turn it back to local use- they don’t silo the business that way.

          • As expected, you didn’t answer the question. It’s possible you don’t really understand it.

            Please don’t discuss fractional banking, as everyone here except Larry understands it, and considering what a big deal expert you claim to be, you are expected to be thoroughly familiar with it.

            Again, Maxie, how was money “pulled out of the community” by banks offering checking services?

            Would you say that grocers “continue to pull money out of the community”?

            How is it that those providing goods and services are “pulling money out of the community”?

            Your ignorance of economics is appalling.

          • “As expected, you didn’t answer the question. It’s possible you don’t really understand it.

            Please don’t discuss fractional banking, as everyone here except Larry understands it, and considering what a big deal expert you claim to be, you are expected to be thoroughly familiar with it.

            Again, Maxie, how was money “pulled out of the community” by banks offering checking services?

            Would you say that grocers “continue to pull money out of the community”?

            How is it that those providing goods and services are “pulling money out of the community”?

            Your ignorance of economics is appalling.”

            You’ll never learn what I forgot. YOUR QUESTION ITSELF reveals an infantile perception of even basic business atrributes. Again: just too stupid to answer, so you respond with insults. Unbelievably stupid.

          • Uh, dwarf boy. I don’t take a back seat to ANY 23 year old when it comes to almost ANY subject, so f&ck off with your sophomoric insults.

            Oopsie! You overlooked economics when you made that bold claim.

            I can’t think of anyone else except Larry, who has written so much on this blog – an econ blog – that they have repeatedly demonstrated so little knowledge of.

          • No 23 year old has my experience, and I don’t give a damn how book smart they are. Stupid comment. Let the college boy get a little seasoned.

          • You’ll never learn what I forgot. YOUR QUESTION ITSELF reveals an infantile perception of even basic business atrributes. Again: just too stupid to answer, so you respond with insults. Unbelievably stupid.You’ll never learn what I forgot. YOUR QUESTION ITSELF reveals an infantile perception of even basic business atrributes. Again: just too stupid to answer, so you respond with insults. Unbelievably stupid.

            OK, let’s agree for the moment that I’m unbelievably stupid. Please explain in very simple terms how banks offering checking accounts to people in a community are pulling money out of the community.

            Surely you can do that in the interest of educating me, your non-back-seatedness.

            Did you mean to write “business attributes”, whatever that is, or do you mean economics?

            FYI, I left the mortgage industry in 1990, before the boom commenced…

            Ahh. Then your own experience, which you keep citing as support for something, doesn’t really matter much. What you did or didn’t do prior to 1990 has little bearing on what people in the industry did or didn’t do after 2000.

            Perhaps there were things happening that you had little knowledge of, not being in the business any longer.

          • OK, let’s agree for the moment that I’m unbelievably stupid. Please explain in very simple terms how banks offering checking accounts to people in a community are pulling money out of the community.

            Surely you can do that in the interest of educating me, your non-back-seatedness.

            Did you mean to write “business attributes”, whatever that is, or do you mean economics?

            As you well know, he can’t explain anything. The man is on the same level as Larry and even makes Benny look like a genius once in a while.

            Ahh. Then your own experience, which you keep citing as support for something, doesn’t really matter much. What you did or didn’t do prior to 1990 has little bearing on what people in the industry did or didn’t do after 2000.

            Perhaps there were things happening that you had little knowledge of, not being in the business any longer.

            Come now. That is like saying that the stagecoach driver has no knowledge of what the bus driver has to face. Don’t you know that in the make-believe world where our friend resides once you are in a sector you always know what is going on.

          • “Don’t you know that in the make-believe world where our friend resides once you are in a sector you always know what is going on.”

            Right- someone who was in the business for nearly a decade and originated hundreds of mortgages of every stripe and had 30 lenders in correspondence couldn’t POSSIBLY know more about the mortgage market than a recent college grad who more than likely lives with his parents.

            If your comment doesn’t define stupidity, nothing does.

            Tall amongst yourselves. Stupid trolls.

          • Right- someone who was in the business for nearly a decade and originated hundreds of mortgages of every stripe and had 30 lenders in correspondence couldn’t POSSIBLY know more about the mortgage market than a recent college grad who more than likely lives with his parents.

            First of all, you admitted that you left the business a long time before the major changes were implemented. When you were giving out loans bankers knew their customers and certainly cared about their credit. That all changed about five years after you left and you obviously have no clue just what that meant.

            The fact is that history shows who was right on this issue and who was wrong. The people who pointed out the distortions early on in the game and predicted the eventual outcome were dismissed by people who were ignorant of real world economics before the crash and were ignored after the crash as the self proclaimed ‘experts’ claimed that nobody could have seen it coming. Well, many of us did and wound up profiting from our ability to predict the outcome. And many of you are still clueless and prefer narrative to knowledge and understanding.

            As Ron pointed out, you have no idea what it is that you are talking about. When you are asked to explain a simple statement that you made you find yourself in a corner and resort to name calling. That tells us all we need about your character and your knowledge.

          • “First of all, you admitted that you left the business a long time before the major changes were implemented. When you were giving out loans bankers knew their customers and certainly cared about their credit. That all changed about five years after you left and you obviously have no clue just what that meant.”

            What nonsense.

            There were “no major changes” in the conventional lending space after I left. And don’t hand me that homespum crap about “bankers knowing their lenders.”
            The loan officer filled out the forms, sent the data to a processing center that could have been 10 states away, and everyone waited for the answer. Again, another demonstration of how little you know about the process.

            The only thing that changed in the industry is what came to be known as “SubPrime 2.0″ the mammoth growth of the B &C grade lending space that was to supplant the GSEs in origination and sow the seeds of the debacle, after the rating agencies took this paper and rubber stamped it AAA. Since it WAS rated that way, AIG offered cheap insurance wrappers, taking S&P’s and others words for their safety. Those are the mechanics behind the crisis, not some relatively obscure lending program designed to make certain banks lent investment capital (and not just single family homes) back to the communities they did business in.

            You people will say anything. But facts are stubborn things, and all you have are you prejudices. Stupid, stupid people.

          • What nonsense.

            There were “no major changes” in the conventional lending space after I left. And don’t hand me that homespum crap about “bankers knowing their lenders.”

            But they did make serious changes. And there was no securitization of bad paper being sold to foreign banks as AAA rated securities approved by the rating agencies who applied models that were inappropriate and invalid. When you used to lend poor people with bad credit ratings did not get loans because they lived in bad areas. The regulators did not micromanage the banks and were content with seeing ads in local papers that pointed out that loans were available to minorities with decent credit histories. It was a self regulated system.

            Clearly if you do not know the basics you are way out of touch with what happened. Add that to your ignorance of economics and there is no reason why anyone should take any of your postings seriously.

          • you have never provided anything to show how the govt forced bad lending…

            nothing… it’s all right wing blather…

          • you have never provided anything to show how the govt forced bad lending…

            nothing… it’s all right wing blather…

            You mean other than the Act and the testimony during the comment period?

          • the “testimony” was pure blather… a point of view
            and nothing else.

            you’ve provided NOTHING to back up your claim OTHER than right wing blather…

          • No 23 year old has my experience, and I don’t give a damn how book smart they are. Stupid comment. Let the college boy get a little seasoned.

            Meh, experience may not be as important as you think. For example, all the vast experience you claim has apparently done nothing to advance your understanding of basic economics which, unfortunately for you, is necessary to a meaningful discussion of the effects of government policy on markets – in this case the housing market.

          • Uh, sorry Larry, but that question didn’t sound like you- NO bank is obligated to use the deposits it collects in a branch and turn it back to local use- they don’t silo the business that way.

            Heh. What do you think Larry sounds like? He is enjoying riding on your coattails as he nips at the ankles of the grownups. That allows him to comment without having any argument of his own, or any real understanding of the subject.

          • Come now. That is like saying that the stagecoach driver has no knowledge of what the bus driver has to face. Don’t you know that in the make-believe world where our friend resides once you are in a sector you always know what is going on.

            Heh. Apparently some people think so.

            Is it just me, or does someone else think Mr. Bluster refuses to answer the question about checking accounts and “pulling money out of the community” because he knows the correct answer would destroy that part of his argument for the existence of CRA?

          • Is it just me, or does someone else think Mr. Bluster refuses to answer the question about checking accounts and “pulling money out of the community” because he knows the correct answer would destroy that part of his argument for the existence of CRA?

            It is not you. He cannot answer the question because it would wind up destroying what he considers to be the justification for the CRA, which wound up wiping out many of the people it was supposed to help. Our friend seems to have issues with the idea of unintended consequences, the folly of central planning, and economic reasoning in general. Which is why he is so reliant on name calling. I never thought that I would miss Benny.

          • “It is not you. He cannot answer the question because it would wind up destroying what he considers to be the justification for the CRA, which wound up wiping out many of the people it was supposed to help.”

            Right. With a default rate among the lowest of almost any mortgage underwriting class, it “wiped out” the people who took out the mortgages without foreclosing.

            You must have a lot of brown shirts in your closet. You’re perfect material

          • Right. With a default rate among the lowest of almost any mortgage underwriting class, it “wiped out” the people who took out the mortgages without foreclosing.

            The Fed paper that was cited showed a higher default rate and lower profits in CRA mortgages when prices were stable. During the bubble nobody expects much in the way of defaults because a rising price means that troubled borrowers could sell and pocket the profit after they pay back the loans. If you really were in the business you would know that.

          • “Is it just me, or does someone else think Mr. Bluster refuses to answer the question about checking accounts and “pulling money out of the community” because he knows the correct answer would destroy that part of his argument for the existence of CRA?”

            WTF do checking accounts have to do with community investment, you pathetic @sshole?? ?

          • Right- someone who was in the business for nearly a decade and originated hundreds of mortgages of every stripe and had 30 lenders in correspondence couldn’t POSSIBLY know more about the mortgage market than a recent college grad who more than likely lives with his parents.

            I know, it’s hard to believe, but it appears to be true in this case.

          • No, dumbass, THAT WAS THE POINT, THE PROFITS THEY MADE FROM THE COMMUNITY WERE BEING PUT TO USE EVERYWHERE BUT.

            God, are you dumber than a rock. Just unfathomably stupid, with a total cluelessness about the issue at hand.

            I’m sure Larry is crushed by your low opinion of him, put at least you have gone a little way toward answering my questions.

            May we assume the profits you mention are a result of loans made using the community’s checking deposits? We will assume fractional banking without actually referring to the mechanisms involved, if that’s OK with you.

            If so, let me ask if you this: Did members of the community – who incidentally chose freely to open checking accounts – get anything of value in exchange for the bank’s temporary use of their money?

            By the way, that’s an economics question, so take your time. I know it can be difficult for you.

            Put differently, were these checking accounts mutually beneficial business transactions in which both parties were better off?

            If so, then please explain how money was continually “pulled out of the community”, and who was harmed?

          • re: checking accounts and redlined neighborhoods.

            I’m not a banker nor a mortgage processor and do not pretend to be one.

            Banks that operate in redlined neighborhoods do take in checking and savings and my understanding of the CRA is that it requires banks doing business in said redlined neighborhoods requires them to make loans available to credit worthy people in that neighborhood – rather than have that money go somewhere else.

            You can verify this general approach is a wide variety of sources.

            the branch of a local bank may not actually hold the deposits that go to up the hierarchy to the larger branches of the same bank company but the CRA says that a certain percentage of the deposits from the neighborhood have to be available for loans – to credit worthy people.

            The exact in’s and outs of this are not that important in the context of what Ron and his buddy Van are claiming – that cRA caused the wider sub-prime loan meltdown.

            which is clearly not true – from a wide variety of credible sources despite the right wing narrative …

            and when you ask for references ..what you get is CATO or AEI’s “beliefs”, not good hard data..

            this type of thing has been going on for a few years where the anti-govt zealots have constructed “plausible narratives” to “prove” the govt cause the meltdown INSTEAD of Wall street folks exploiting recent weakening of regulations for banks.

            The whacko twins Ron/Van are so opposed to government in general that any such narrative suits their purposes perfectly.

            this is not the only narrative they like and use by a long shot.

            but the basic premise is always the same – bad bad govt.

            both Ron/Van have expressed the idea that we don’t need government – that people can govern themselves without having a govt.

            they call it “libertarianism”.. I call it dumb and dumber.

            It’s one thing to support Libertarian principles but understand the realities and accept inroads rather than total libertarianism.

            But these boys are virulent… they oppose all and any forms of govt… so the CRA “thing” is just giggles and grins for them anyhow.

            CATO said.. “don’t reform CRA, repeal it” – because it can’t be reformed and it is a bad idea from the start.

            Only CATO and Ron/VAn-type zealots really believe this. Certainly not a majority of Congress or else CRA would be gone.

            their only hope is either revolution or a dictator.

            Short of that – their world is crap.

          • “Banks that operate in redlined neighborhoods do take in checking and savings and my understanding of the CRA is that it requires banks doing business in said redlined neighborhoods requires them to make loans available to credit worthy people in that neighborhood – rather than have that money go somewhere else.”

            Well that is the point- if neighborhood capital was being taken in by these banks, it was the purpose of the CRA to make certain that the resident’s capital was in fact being used in the community, which our wingnut loontards are AGAINST, and quite laughably, claim caused the housing crisis through (cough) “excess liquidity.”

            The internet has a lot of stupid people on it, but rarely have I seen a group with such high minded pretensions of economic knowledge display such wanton idiocy.

          • and yes.. it is entirely reasonable to expect if BOA is taking deposits in a lot of different neighborhoods .. that the actually money goes up the BOA corporate ladder but then loans are made from that corporate ladder back down to those communities – according to how much has been deposited.

            What I’m not clear on is at what neighborhood level did the deposit vs loan numbers have to balance?

            did it have to be per actual neighborhood or per city or region or some other grouping?

            If the law did not actually require loans to go back to the neighborhoods where deposits were actually made – you’d still have a form of redlining.

            The trouble with the dodo brothers is they continue to insist that CRA also applied to Florida Condos and California Villas.


          • b) Purposes. In enacting the Community Reinvestment Act (CRA), the Congress required each appropriate federal financial supervisory agency to assess an institution’s record of helping to meet the credit needs of the local communities in which the institution is chartered, consistent with the safe and sound operation of the institution, and to take this record into account in the agency’s evaluation of an application for a deposit facility by the institution. This part is intended to carry out the purposes of the CRA by:

            (1) Establishing the framework and criteria by which the Federal Deposit Insurance Corporation (FDIC) assesses a bank’s record of helping to meet the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the bank; and

            (2) Providing that the FDIC takes that record into account in considering certain applications.

            (c) Scope–(1) General. Except for certain special purpose banks described in paragraph (c)(3) of this section, this part applies to all insured state nonmember banks, including insured state branches as described in paragraph (c)(2) and any uninsured state branch that results from an acquisition described in section 5(a)(8) of the International Banking Act of 1978 (”

            It’s all here:

            http://www.fdic.gov/regulations/laws/rules/2000-6500.html

            By the way, this program was a relatively modest affair.
            As I mentioned, in raw dollars, this was nothing.

          • BTW, this could also include construction of apartment houses, businesses, retail development. Most banks did in fact do some good business under the program. Improving neighborhoods is good business.

          • This would seem to exclude Arizona retirement home developments.

            [Table of Contents][Previous Page][Next Page][Search]

            2000 – Rules and Regulations

            PART 345—COMMUNITY REINVESTMENT

            Subpart A—General

            345.11 Authority, purposes, and scope.
            345.12 Definitions.

            Subpart B—Standards for Assessing Performance

            345.21 Performance tests, standards, and ratings, in general.
            345.22 Lending test.
            345.23 Investment test.
            345.24 Service test.
            345.25 Community development test for wholesale or limited purpose banks.
            345.26 Small bank performance standards.
            345.27 Strategic plan.
            345.28 Assigned ratings.
            345.29 Effect of CRA performance on applications.

            Subpart C—Records, Reporting, and Disclosure Requirements

            345.41 Assessment area delineation.
            345.42 Data collection, reporting, and disclosure.
            345.43 Content and availability of public file.
            345.44 Public notice by banks.
            345.45 Publication of planned examination schedule.

            Appendix A to Part 345—Ratings

            Appendix B to Part 345—CRA Notice

            Interagency Questions and Answers Regarding Community Reinvestment

            AUTHORITY: 12 U.S.C. 1814–1817, 1819–1820, 1828, 1831u and 2901–2908, 3103–3104, and 3108(a).

            SOURCE: The provisions of this Part 345 appear at 43 Fed. Reg. 47151, October 12, 1978, except as otherwise noted.

            Subpart A—General

            § 345.11 Authority, purposes, and scope.

            (a) Authority and OMB control number–(1) Authority. The authority for this part is 12 U.S.C. 1814–1817, 1819–1820, 1828, 1831u and 2901–2907, 3103–3104, and 3108(a).

            (2) OMB control number. The information collection requirements contained in this part were approved by the Office of Management and Budget under the provisions of 44 U.S.C. 3501 et seq. and have been assigned OMB control number 3064–0092.

            (b) Purposes. In enacting the Community Reinvestment Act (CRA), the Congress required each appropriate federal financial supervisory agency to assess an institution’s record of helping to meet the credit needs of the local communities in which the institution is chartered, consistent with the safe and sound operation of the institution, and to take this record into account in the agency’s evaluation of an application for a deposit facility by the institution. This part is intended to carry out the purposes of the CRA by:

            (1) Establishing the framework and criteria by which the Federal Deposit Insurance Corporation (FDIC) assesses a bank’s record of helping to meet the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the bank; and

            (2) Providing that the FDIC takes that record into account in considering certain applications.

            (c) Scope–(1) General. Except for certain special purpose banks described in paragraph (c)(3) of this section, this part applies to all insured state nonmember banks, including insured state branches as described in paragraph (c)(2) and any uninsured state branch that results from an acquisition described in section 5(a)(8) of the International Banking Act of 1978 (

            12 U.S.C. 3103(a)(8)).

            (2) Insured state branches. Insured state branches are branches of a foreign bank established and operating under the laws of any state, the deposits of which are insured in accordance with the provisions of the Federal Deposit Insurance Act. In the case of insured state branches, references in this part to “main office” mean the principal branch within the United States and the term “branch” or “branches” refers to any insured state branch or branches located within the United States. The “assessment area” of an insured state branch is the community or communities located within the United States served by the branch as described in § 345.41.

            (3) Certain special purpose banks. This part does not apply to special purpose banks that do not perform commercial or retail banking services by granting credit to the public in the ordinary course of business, other than as incident to their specialized operations. These banks include banker’s banks, as defined in 12 U.S.C. 24 (Seventh), and banks that engage only in one or more of the following activities: providing cash management controlled disbursement services or serving as correspondent banks, trust companies, or clearing agents.

            [Codified to 12 C.F.R. § 345.11]

            [Section 345.11 added at 60 Fed. Reg. 22201, May 4, 1995, effective July 1, 1995]

            § 345.12 Definitions.

            For purposes of this part, the following definitions apply:

            (a) Affiliate means any company that controls, is controlled by, or is under common control with another company. The term “control” has the meaning given to that term in

            12 U.S.C. 1841(a)(2), and a company is under common control with another company if both companies are directly or indirectly controlled by the same company.

            (b) Area median income means:

            (1) The median family income for the MSA, if a person or geography is located in an MSA, or for the metropolitan division, if a person or geography is located in an MSA that has been subdivided into metropolitan divisions; or

            (2) The statewide nonmetropolitan median family income, if a person or geography is located outside an MSA.

            (c) Assessment area means a geographic area delineated in accordance with § 345.41.

            (d) Remote service facility (RSF) means an automated, unstaffed banking facility owned or operated by, or operated exclusively for, the bank, such as an automated teller machine, cash dispensing machine, point-of-sale terminal, or other remote electronic facility, at which deposits are received, cash dispersed, or money lent.

            (e) Bank means a state nonmember bank, as that term is defined in section 3(e)(2) of the Federal Deposit Insurance Act, as amended (FDIA) (12 U.S.C. 1813(e)(2)), with federally insured deposits, except as provided in § 345.11(c). The term bank also includes an insured state branch as defined in § 345.11(c).

            (f) Branch means a staffed banking facility authorized as a branch, whether shared or unshared, including, for example, a mini-branch in a grocery store or a branch operated in conjunction with any other local business or non profit organization. The term “branch” only includes a “domestic branch” as that term is defined in section 3(o) of the FDIA (12 U.S.C. 1813(o)).

            (g) Community development means:

            (1) Affordable housing (including multifamily rental housing) for low- or moderate-income individuals;

            (2) Community services targeted to low- or moderate-income individuals;

            (3) Activities that promote economic development by financing businesses or farms that meet the size eligibility standards of the Small Business Administration’s Development Company or Small Business Investment Company programs (13 CFR 121.301) or have gross annual revenues of $1 million or less; or

            (4) Activities that revitalize or stabilize–

            (i) Low-or moderate-income geographies;

            (ii) Designated disaster areas; or

            (iii) Distressed or underserved nonmetropolitan middle-income geographies designated by the Board of Governors of the Federal Reserve System, FDIC, and Office of the Comptroller of the Currency, based on–

            (A) Rates of poverty, unemployment, and population loss; or

            (B) Population size, density, and dispersion. Activities revitalize and stabilize geographies designated based on population size, density, and dispersion if they help to meet essential community needs, including needs of low- and moderate-income individuals; or

            (5) Loans, investments, and services that–

            (i) Support, enable or facilitate projects or activities that meet the “eligible uses” criteria described in Section 2301(c) of the Housing and Economic Recovery Act of 2008 (HERA), Public Law 110–289, 122 Stat. 2654, as amended, and are conducted in designated target areas identified in plans approved by the United States Department of Housing and Urban Development in accordance with the Neighborhood Stabilization Program (NSP);

            (ii) Are provided no later than two years after the last date funds appropriated for the NSP are required to be spent by grantees; and

            (iii) Benefit low-, moderate-, and middle-income individuals and geographies in the bank’s assessment area(s) or areas outside the bank’s assessment area(s) provided the bank has adequately addressed the community development needs of its assessment area(s).

            (h) Community development loan means a loan that:

            (1) Has as its primary purpose community development; and

            (2) Except in the case of a wholesale or limited purpose bank:

            (i) Has not been reported or collected by the bank or an affiliate for consideration in the bank’s assessment as a home mortgage, small business, small farm, or consumer loan, unless it is a multifamily dwelling loan (as described in

            Appendix A to Part 203 of this title); and

            (ii) Benefits the bank’s assessment area(s) or a broader statewide or regional area that includes the bank’s assessment area(s).

            (i) Community development service means a service that:

            (1) Has as its primary purpose community development;

            (2) Is related to the provision of financial services; and

            (3) Has not been considered in the evaluation of the bank’s retail banking services under § 345.24(d).

            (j) Consumer loan means a loan to one or more individuals for household, family, or other personal expenditures. A consumer loan does not include a home mortgage, small business, or small farm loan. Consumer loans include the following categories of loans:

            (1) Motor vehicle loan, which is a consumer loan extended for the purchase of and secured by a motor vehicle;

            (2) Credit card loan, which is a line of credit for household, family, or other personal expenditures that is accessed by a borrower’s use of a “credit card,” as this term is defined in § 226.2 of this title;

            (3) Home equity loan, which is a consumer loan secured by a residence of the borrower;

            (4) Other secured consumer loan, which is a secured consumer loan that is not included in one of the other categories of consumer loans; and

            (5) Other unsecured consumer loan, which is an unsecured consumer loan that is not included in one of the other categories of consumer loans.

            (k) Geography means a census tract delineated by the United States Bureau of the Census in the most recent decennial census.

            (l) Home mortgage loan means a “home improvement loan,” “home purchase loan,” or a “refinancing” as defined in

            § 203.2 of this title.

            (m) Income level includes:

            (1) Low-income, which means an individual income that is less than 50 percent of the area median income or a median family income that is less than 50 percent in the case of a geography.

            (2) Moderate-income, which means an individual income that is at least 50 percent and less than 80 percent of the area median income or a median family income that is at least 50 and less than 80 percent in the case of a geography.

            (3) Middle-income, which means an individual income that is at least 80 percent and less than 120 percent of the area median income or a median family income that is at least 80 and less than 120 percent in the case of a geography.

            (4) Upper-income, which means an individual income that is 120 percent or more of the area median income or a median family income that is 120 percent or more in the case of a geography.

            (n) Limited purpose bank means a bank that offers only a narrow product line (such as credit card or motor vehicle loans) to a regional or broader market and for which a designation as a limited purpose bank is in effect, in accordance with § 345.25(b).

            (o) Loan location. A loan is located as follows:

            (1) A consumer loan is located in the geography where the borrower resides;

            (2) A home mortgage loan is located in the geography where the property to which the loan relates is located; and

            (3) A small business or small farm loan is located in the geography where the main business facility or farm is located or where the loan proceeds otherwise will be applied, as indicated by the borrower.

            (p) Loan production office means a staffed facility, other than a branch, that is open to the public and that provides lending-related services, such as loan information and applications.

            (q) Metropolitan division means a metropolitan division as defined by the Director of the Office of Management and Budget.

            (r) MSA means a metropolitan statistical area as defined by the Director of the Office of Management and Budget.

            (s) Nonmetropolitan area means any area that is not located in an MSA.

            (t) Qualified investment means a lawful investment, deposit, membership share, or grant that has as its primary purpose community development.

            (u)(1) Definition. Small bank means a bank that, as of December 31 of either of the prior two calendar years, had assets of less than $1.160 billion. Intermediate small bank means a small bank with assets of at least $290 million as of December 31 of both of the prior two calendar years and less than $1.160 billion as of December 31 of either of the prior two calendar years.

            (2) Adjustment. The dollar figures in paragraph (u)(1) of this section shall be adjusted annually and published by the FDIC, based on the year-to-year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each twelve-month period ending in November, with rounding to the nearest million.

            (v) Small business loan means a loan included in “loans to small businesses” as defined in the instructions for preparation of the Consolidated Report of Condition and Income.

            (w) Small farm loan means a loan included in “loans to small farms” as defined in the instructions for preparation of the Consolidated Report of Condition and Income.

            (x) Wholesale bank means a bank that is not in the business of extending home mortgage, small business, small farm, or consumer loans to retail customers, and for which a designation as a wholesale bank is in effect, in accordance with § 345.25(b).

            [Codified to 12 C.F.R. § 345.12]

            [Section 345.12 added at 60 Fed. Reg. 22201, May 4, 1995, effective July 1, 1995; amended at 60 Fed. Reg. 66050, December 20, 1995, effective January 1, 1996; 61 Fed. Reg. 21364, May 10, 1996; 69 Fed. Reg. 41187, July 8, 2004; 70 Fed. Reg. 15574, March 28, 2005; 70 Fed. Reg. 44269, August 2, 2005, effective September 1, 2005; 71 Fed. Reg. 78337, December 29, 2006, effective January 1, 2007; 72 Fed. Reg. 72573, December 21, 2007, effective January 1, 2008; 73 Fed. Reg. 78155, December 22, 2008, effective January 1, 2008; 74 Fed. Reg. 68664, December 29, 2009, effective January 1, 2010; 75 Fed. Reg. 82217, December 30, 2010, effective January 1, 2011; amended and republished December 20, 2010, at 75 Fed. Reg. 79278; 76 Fed. Reg. 79531, December 22, 2011, effective January 1, 2012; 76 Fed. Reg. 81789, December 29, 2011, effective January 1, 2012]

            Subpart B—Standards for Assessing Performance

            § 345.21 Performance tests, standards, and ratings, in general.

            (a) Performance tests and standards. The FDIC assesses the CRA performance of a bank in an examination as follows:

            (1) Lending, investment, and service tests. The FDIC applies the lending, investment, and service tests, as provided in §§ 345.22 through 345.24, in evaluating the performance of a bank, except as provided in paragraphs (a)(2), (a)(3), and (a)(4) of this section.

            (2) Community development test for wholesale or limited purpose banks. The FDIC applies the community development test for a wholesale or limited purpose bank, as provided in § 345.25, except as provided in paragraph (a)(4) of this section.

            (3) Small bank performance standards. The FDIC applies the small bank performance standards as provided in § 345.26 in evaluating the performance of a small bank or a bank that was a small bank during the prior calendar year, unless the bank elects to be assessed as provided in paragraphs (a)(1), (a)(2), or (a)(4) of this section. The bank may elect to be assessed as provided in paragraph (a)(1) of this section only if it collects and reports the data required for other banks under § 345.42.

            (4) Strategic plan. The FDIC evaluates the performance of a bank under a strategic plan if the bank submits, and the FDIC approves, a strategic plan as provided in § 345.27.

            (b) Performance context. The FDIC applies the tests and standards in paragraph (a) of this section and also considers whether to approve a proposed strategic plan in the context of:

            (1) Demographic data on median income levels, distribution of household income, nature of housing stock, housing costs, and other relevant data pertaining to a bank’s assessment area(s);

            (2) Any information about lending, investment, and service opportunities in the bank’s assessment area(s) maintained by the bank or obtained from community organizations, state, local, and tribal governments, economic development agencies, or other sources;

            (3) The bank’s product offerings and business strategy as determined from data provided by the bank;

            (4) Institutional capacity and constraints, including the size and financial condition of the bank, the economic climate (national, regional, and local), safety and soundness limitations, and any other factors that significantly affect the bank’s ability to provide lending, investments, or services in its assessment area(s);

            (5) The bank’s past performance and the performance of similarly situated lenders;

            (6) The bank’s public file, as described in § 345.43, and any written comments about the bank’s CRA performance submitted to the bank or the FDIC; and

            (7) Any information deemed relevant by the FDIC.

            (c) Assigned ratings. The FDIC assigns to a bank one of the following four ratings pursuant to § 345.28 and Appendix A of this part: “outstanding”; “satisfactory”; “needs to improve”; or “substantial noncompliance” as provided in

            12 U.S.C. 2906(b)(2). The rating assigned by the FDIC reflects the bank’s record of helping to meet the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the bank.

            (d) Safe and sound operations. This part and the CRA do not require a bank to make loans or investments or to provide services that are inconsistent with safe and sound operations. To the contrary, the FDIC anticipates banks can meet the standards of this part with safe and sound loans, investments, and services on which the banks expect to make a profit. Banks are permitted and encouraged to develop and apply flexible underwriting standards for loans that benefit low- or moderate-income geographies or individuals, only if consistent with safe and sound operations.

            (e) Low-cost education loans provided to low-income borrowers. In assessing and taking into account the record of a bank under this part, the FDIC considers, as a factor, low-cost education loans originated by the bank to borrowers, particularly in its assessment area(s), who have an individual income that is less than 50 percent of the area median income. For purposes of this paragraph, “low-cost education loans” means any education loan, as defined in section 140(a)(7) of the Truth in Lending Act (15 U.S.C. 1650(a)(7)) (including a loan under a state or local education loan program), originated by the bank for a student at an “institution of higher education,” as that term is generally defined in sections 101 and 102 of the Higher Education Act of 1965 (20 U.S.C. 1001 and 1002) and the implementing regulations published by the U.S. Department of Education, with interest rates and fees no greater than those of comparable education loans offered directly by the U.S. Department of Education. Such rates and fees are specified in section 455 of the Higher Education Act of 1965 (20 U.S.C. 1087e).

            (f) Activities in cooperation with minority- or women-owned financial institutions and low-income credit unions. In assessing and taking into account the record of a nonminority-owned and nonwomen-owned bank under this part, the FDIC considers as a factor capital investment, loan participation, and other ventures undertaken by the bank in cooperation with minority- and women-owned financial institutions and low-income credit unions. Such activities must help meet the credit needs of local communities in which the minority- and women-owned financial institutions and low-income credit unions are chartered. To be considered, such activities need not also benefit the bank’s assessment area(s) or the broader statewide or regional area that includes the bank’s assessment area(s).

            [Codified to 12 C.F.R. § 345.21]

            [Section 345.21 added at 60 Fed. Reg. 22202, May 4, 1995, effective July 1, 1995; amended October 4, 2010, effective November 3, 2010, 75 Fed. Reg. 61035]

            § 345.22 Lending test.

            (a) Scope of test. (1) The lending test evaluates a bank’s record of helping to meet the credit needs of its assessment area(s) through its lending activities by considering a bank’s home mortgage, small business, small farm, and community development lending. If consumer lending constitutes a substantial majority of a bank’s business, the FDIC will evaluate the bank’s consumer lending in one or more of the following categories: motor vehicle, credit card, home equity, other secured, and other unsecured loans. In addition, at a bank’s option, the FDIC will evaluate one or more categories of consumer lending, if the bank has collected and maintained, as required in § 345.42(c)(1), the data for each category that the bank elects to have the FDIC evaluate.

            (2) The FDIC considers originations and purchases of loans. The FDIC will also consider any other loan data the bank may choose to provide, including data on loans outstanding, commitments and letters of credit.

            (3) A bank may ask the FDIC to consider loans originated or purchased by consortia in which the bank participates or by third parties in which the bank has invested only if the loans meet the definition of community development loans and only in accordance with paragraph (d) of this section. The FDIC will not consider these loans under any criterion of the lending test except the community development lending criterion.

            (b) Performance criteria. The FDIC evaluates a bank’s lending performance pursuant to the following criteria:

            (1) Lending activity. The number and amount of the bank’s home mortgage, small business, small farm, and consumer loans, if applicable, in the bank’s assessment area(s);

            (2) Geographic distribution. The geographic distribution of the bank’s home mortgage, small business, small farm, and consumer loans, if applicable, based on the loan location, including:

            (i) The proportion of the bank’s lending in the bank’s assessment area(s);

            (ii) The dispersion of lending in the bank’s assessment area(s); and

            (iii) The number and amount of loans in low-, moderate-, middle-, and upper-income geographies in the bank’s assessment area(s);

            (3) Borrower characteristics. The distribution, particularly in the bank’s assessment area(s), of the bank’s home mortgage, small business, small farm, and consumer loans, if applicable, based on borrower characteristics, including the number and amount of:

            (i) Home mortgage loans to low-, moderate-, middle-, and upper-income individuals;

            (ii) Small business and small farm loans to businesses and farms with gross annual revenues of $1 million or less;

            (iii) Small business and small farm loans by loan amount at origination; and

            (iv) Consumer loans, if applicable, to low-, moderate-, middle-, and upper-income individuals;

            (4) Community development lending. The bank’s community development lending, including the number and amount of community development loans, and their complexity and innovativeness; and

            (5) Innovative or flexible lending practices. The bank’s use of innovative or flexible lending practices in a safe and sound manner to address the credit needs of low- or moderate-income individuals or geographies.

            (c) Affiliate lending. (1) At a bank’s option, the FDIC will consider loans by an affiliate of the bank, if the bank provides data on the affiliate’s loans pursuant to § 345.42.

            (2) The FDIC considers affiliate lending subject to the following constraints:

            (i) No affiliate may claim a loan origination or loan purchase if another institution claims the same loan origination or purchase; and

            (ii) If a bank elects to have the FDIC consider loans within a particular lending category made by one or more of the bank’s affiliates in a particular assessment area, the bank shall elect to have the FDIC consider, in accordance with paragraph (c)(1) of this section, all the loans within that lending category in that particular assessment area made by all of the bank’s affiliates.

            (3) The FDIC does not consider affiliate lending in assessing a bank’s performance under paragraph (b)(2)(i) of this section.

            (d) Lending by a consortium or a third party. Community development loans originated or purchased by a consortium in which the bank participates or by a third party in which the bank has invested:

            (1) Will be considered, at the bank’s option, if the bank reports the data pertaining to these loans under § 345.42(b)(2); and

            (2) May be allocated among participants or investors, as they choose, for purposes of the lending test, except that no participant or investor:

            (i) May claim a loan origination or loan purchase if another participant or investor claims the same loan origination or purchase; or

            (ii) May claim loans accounting for more than its percentage share (based on the level of its participation or investment) of the total loans originated by the consortium or third party.

            (e) Lending performance rating. The FDIC rates a bank’s lending performance as provided in Appendix A of this part.

            [Codified to 12 C.F.R. § 345.22]

            [Section 345.22 added at 60 Fed. Reg. 22203, May 4, 1995, effective July 1, 1995]

            § 345.23 Investment test.

            (a) Scope of test. The investment test evaluates a bank’s record of helping to meet the credit needs of its assessment area(s) through qualified investments that benefit its assessment area(s) or a broader statewide or regional area that includes the bank’s assessment area(s).

            (b) Exclusion. Activities considered under the lending or service tests may not be considered under the investment test.

            (c) Affiliate investment. At a bank’s option, the FDIC will consider, in its assessment of a bank’s investment performance, a qualified investment made by an affiliate of the bank, if the qualified investment is not claimed by any other institution.

            (d) Disposition of branch premises. Donating, selling on favorable terms, or making available on a rent-free basis a branch of the bank that is located in a predominantly

            minority neighborhood to a minority depository institution or women’s depository institution (as these terms are defined in 12 U.S.C. 2907(b)) will be considered as a qualified investment.

            (e) Performance criteria. The FDIC evaluates the investment performance of a bank pursuant to the following criteria:

            (1) The dollar amount of qualified investments;

            (2) The innovativeness or complexity of qualified investments;

            (3) The responsiveness of qualified investments to credit and community development needs; and

            (4) The degree to which the qualified investments are not routinely provided by private investors.

            (f) Investment performance rating. The FDIC rates a bank’s investment performance as provided in Appendix A of this part.

            [Codified to 12 C.F.R. § 345.23]

            [Section 345.23 added at 60 Fed. Reg. 22204, May 4, 1995, effective July 1, 1995]

            § 345.24 Service test.

            (a) Scope of test. The service test evaluates a bank’s record of helping to meet the credit needs of its assessment area(s) by analyzing both the availability and effectiveness of a bank’s systems for delivering retail banking services and the extent and innovativeness of its community development services.

            (b) Area(s) benefited. Community development services must benefit a bank’s assessment area(s) or a broader statewide or regional area that includes the bank’s assessment area(s).

            (c) Affiliate service. At a bank’s option, the FDIC will consider, in its assessment of a bank’s service performance, a community development service provided by an affiliate of the bank, if the community development service is not claimed by any other institution.

            (d) Performance criteria–retail banking services. The FDIC evaluates the availability and effectiveness of a bank’s systems for delivering retail banking services, pursuant to the following criteria:

            (1) The current distribution of the bank’s branches among low-, moderate-, middle-, and upper-income geographies;

            (2) In the context of its current distribution of the bank’s branches, the bank’s record of opening and closing branches, particularly branches located in low- or moderate-income geographies or primarily serving low- or moderate-income individuals;

            (3) The availability and effectiveness of alternative systems for delivering retail banking services (e.g., RSFs, RSFs not owned or operated by or exclusively for the bank, banking by telephone or computer, loan production offices, and bank-at-work or bank-by-mail programs) in low- or moderate-income geographies and to low- or moderate-income individuals; and

            (4) The range of services provided in low-, moderate-, middle-, and upper-income geographies and the degree to which the services are tailored to meet the needs of those geographies.

            (e) Performance criteria–community development services. The FDIC evaluates community development services pursuant to the following criteria:

            (1) The extent to which the bank provides community development services; and

            (2) The innovativeness and responsiveness of community development services.

            (f) Service performance rating. The FDIC rates a bank’s service performance as provided in Appendix A of this part.

            [Codified to 12 C.F.R. § 345.24]

            [Section 345.24 added at 60 Fed. Reg. 22204, May 4, 1995, effective July 1, 1995]

            § 345.25 Community development test for wholesale or limited purpose banks.

            (a) Scope of test. The FDIC assesses a wholesale or limited purpose bank’s record of helping to meet the credit needs of its assessment area(s) under the community development

            test through its community development lending, qualified investments, or community development services.

            (b) Designation as a wholesale or limited purpose bank. In order to receive a designation as a wholesale or limited purpose bank, a bank shall file a request, in writing, with the FDIC, at least three months prior to the proposed effective date of the designation. If the FDIC approves the designation, it remains in effect until the bank requests revocation of the designation or until one year after the FDIC notifies the bank that the FDIC has revoked the designation on its own initiative.

            (c) Performance criteria. The FDIC evaluates the community development performance of a wholesale or limited purpose bank pursuant to the following criteria:

            (1) The number and amount of community development loans (including originations and purchases of loans and other community development loan data provided by the bank, such as data on loans outstanding, commitments, and letters of credit), qualified investments, or community development services;

            (2) The use of innovative or complex qualified investments, community development loans, or community development services and the extent to which the investments are not routinely provided by private investors; and

            (3) The bank’s responsiveness to credit and community development needs.

            (d) Indirect activities. At a bank’s option, the FDIC will consider in its community development performance assessment:

            (1) Qualified investments or community development services provided by an affiliate of the bank, if the investments or services are not claimed by any other institution; and

            (2) Community development lending by affiliates, consortia and third parties, subject to the requirements and limitations in § 345.22(c) and (d).

            (e) Benefit to assessment area(s)–(1) Benefit inside assessment area(s). The FDIC considers all qualified investments, community development loans, and community development services that benefit areas within the bank’s assessment area(s) or a broader statewide or regional area that includes the bank’s assessment area(s).

            (2) Benefit outside assessment area(s). The FDIC considers the qualified investments, community development loans, and community development services that benefit areas outside the bank’s assessment area(s), if the bank has adequately addressed the needs of its assessment area(s).

            (f) Community development performance rating. The FDIC rates a bank’s community development performance as provided in Appendix A of this part.

            [Codified to 12 C.F.R. § 345.25]

            [Section 345.25 added at 60 Fed. Reg. 22204, May 4, 1995, effective July 1, 1995]

            § 345.26 Small bank performance standards.

            (a) Performance criteria–(1) Small banks that are not intermediate small banks. The FDIC evaluates the record of a small bank that is not, or that was not during the prior calendar year, an intermediate small bank, of helping to meet the credit needs of its assessment area(s) pursuant to the criteria set forth in paragraph (b) of this section.

            (2) Intermediate small banks. The FDIC evaluates the record of a small bank that is, or that was during the prior calendar year, an intermediate small bank, of helping to meet the credit needs of its assessment area(s) pursuant to the criteria set forth in paragraphs (b) and (c) of this section.

            (b) Lending test. A small bank’s lending performance is evaluated pursuant to the following criteria:

            (1) The bank’s loan-to-deposit ratio, adjusted for seasonal variation, and, as appropriate, other lending-related activities, such as loan originations for sale to the secondary markets, community development loans, or qualified investments;

            (2) The percentage of loans, and, as appropriate, other lending-related activities located in the bank’s assessment area(s);

            (3) The bank’s record of lending to and, as appropriate, engaging in other lending-related activities for borrowers of different income levels and businesses and farms of different sizes;

            (4) The geographic distribution of the bank’s loans; and

            (5) The bank’s record of taking action, if warranted, in response to written complaints about its performance in helping to meet credit needs in its assessment area(s).

            (c) Community development test. An intermediate small bank’s community development performance also is evaluated pursuant to the following criteria:

            (1) The number and amount of community development loans;

            (2) The number and amount of qualified investments;

            (3) The extent to which the bank provides community development services; and

            (4) The bank’s responsiveness through such activities to community development lending, investment, and services needs.

            (d) Small bank performance rating. The FDIC rates the performance of a bank evaluated under this section as provided in appendix A of this part.

            [Codified to 12 C.F.R. § 345.26]

            [Section 345.26 added at 60 Fed. Reg. 22205, May 4, 1995, effective July 1, 1995; amended at 70 Fed. Reg. 44269, August 2, 2005, effective September 1, 2005; 71 Fed. Reg. 78337, December 29, 2006, effective January 1, 2007; 72 Fed. Reg. 72573, December 21, 2007, effective January 1, 2008]

            § 345.27 Strategic plan.

            (a) Alternative election. The FDIC will assess a bank’s record of helping to meet the credit needs of its assessment area(s) under a strategic plan if:

            (1) The bank has submitted the plan to the FDIC as provided for in this section;

            (2) The FDIC has approved the plan;

            (3) The plan is in effect; and

            (4) The bank has been operating under an approved plan for at least one year.

            (b) Data reporting. The FDIC’s approval of a plan does not affect the bank’s obligation, if any, to report data as required by § 345.42.

            (c) Plans in general–(1) Term. A plan may have a term of no more than five years, and any multi-year plan must include annual interim measurable goals under which the FDIC will evaluate the bank’s performance.

            (2) Multiple assessment areas. A bank with more than one assessment area may prepare a single plan for all of its assessment areas or one or more plans for one or more of its assessment areas.

            (3) Treatment of affiliates. Affiliated institutions may prepare a joint plan if the plan provides measurable goals for each institution. Activities may be allocated among institutions at the institutions’ option, provided that the same activities are not considered for more than one institution.

            (d) Public-participation in plan development. Before submitting a plan to the FDIC for approval, a bank shall:

            (1) Informally seek suggestions from members of the public in its assessment area(s) covered by the plan while developing the plan;

            (2) Once the bank has developed a plan, formally solicit public comment on the plan for at least 30 days by publishing notice in at least one newspaper of general circulation in each assessment area covered by the plan; and

            (3) During the period of formal public comment, make copies of the plan available for review by the public at no cost at all offices of the bank in any assessment area covered by the plan and provide copies of the plan upon request for a reasonable fee to cover copying and mailing, if applicable.

            (e) Submission of plan. The bank shall submit its plan to the FDIC at least three months prior to the proposed effective date of the plan. The bank shall also submit with its plan a description of its informal efforts to seek suggestions from members of the public, any written public comment received, and, if the plan was revised in light of the comment received, the initial plan as released for public comment.

            (f) Plan content–(1) Measurable goals.(i) A bank shall specify in its plan measurable goals for helping to meet the credit needs of each assessment area covered by the plan, particularly the needs of low- and moderate-income geographies and low- and moderate-income individuals, through lending, investment, and services as appropriate.

            (ii) A bank shall address in its plan all three performance categories and, unless the bank has been designated as a wholesale or limited purpose bank, shall emphasize lending and lending-related activities. Nevertheless, a different emphasis, including a focus on one or more performance categories, may be appropriate if responsive to the characteristics and credit needs of its assessment area(s), considering public comment and the bank’s capacity and constraints, product offerings, and business strategy.

            (2) Confidential information. A bank may submit additional information to the FDIC on a confidential basis, but the goals stated in the plan must be sufficiently specific to enable the public and the FDIC to judge the merits of the plan.

            (3) Satisfactory and outstanding goals. A bank shall specify in its plan measurable goals that constitute “satisfactory” performance. A plan may specify measurable goals that constitute “outstanding” performance. If a bank submits, and the FDIC approves, both “satisfactory” and “outstanding” performance goals, the FDIC will consider the bank eligible for an “outstanding” performance rating.

            (4) Election if satisfactory goals not substantially met. A bank may elect in its plan that, if the bank fails to meet substantially its plan goals for a satisfactory rating, the FDIC will evaluate the bank’s performance under the lending, investment, and service tests, the community development test, or the small bank performance standards, as appropriate.

            (g) Plan approval–(1) Timing. The FDIC will act upon a plan within 60 calendar days after the FDIC receives the complete plan and other material required under paragraph (d) of this section. If the FDIC fails to act within this time period, the plan shall be deemed approved unless the FDIC extends the review period for good cause.

            (2) Public participation. In evaluating the plan’s goals, the FDIC considers the public’s involvement in formulating the plan, written public comment on the plan, and any response by the bank to public comment on the plan.

            (3) Criteria for evaluating plan. The FDIC evaluates a plan’s measurable goals using the following criteria, as appropriate:

            (i) The extent and breadth of lending or lending-related activities, including, as appropriate, the distribution of loans among different geographies, businesses and farms of different sizes, and individuals of different income levels, the extent of community development lending, and the use of innovative or flexible lending practices to address credit needs;

            (ii) The amount and innovativeness, complexity, and responsiveness of the bank’s qualified investments; and

            (iii) The availability and effectiveness of the bank’s systems for delivering retail banking services and the extent and innovativeness of the bank’s community development services.

            (h) Plan amendment. During the term of a plan, a bank may request the FDIC to approve an amendment to the plan on grounds that there has been a material change in circumstances. The bank shall develop an amendment to a previously approved plan in accordance with the public participation requirements of paragraph (d) of this section.

            (i) Plan assessment. The FDIC approves the goals and assesses performance under a plan as provided for in Appendix A of this part.

            [Codified to 12 C.F.R. § 345.27]

            [Section 345.27 added at 60 Fed. Reg. 22205, May 4, 1995, effective July 1, 1995; amended at 60 Fed. Reg. 66050, December 20, 1995, effective January 1, 1996]

            § 345.28 Assigned ratings.

            (a) Ratings in general. Subject to paragraphs (b) and (c) of this section, the FDIC assigns to a bank a rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial noncompliance” based on the bank’s performance under the lending, investment and service tests, the community development test, the small bank performance standards, or an approved strategic plan, as applicable.

            (b) Lending, investment, and service tests. The FDIC assigns a rating for a bank assessed under the lending, investment, and service tests in accordance with the following principles:

            (1) A bank that receives an “outstanding” rating on the lending test receives an assigned rating of at least “satisfactory”;

            (2) A bank that receives an “outstanding” rating on both the service test and the investment test and a rating of at least “high satisfactory” on the lending test receives an assigned rating of “outstanding”; and

            (3) No bank may receive an assigned rating of “satisfactory” or higher unless it receives a rating of at least “low satisfactory” on the lending test.

            (c) Effect of evidence of discriminatory or other illegal credit practices. (1) The FDIC’s evaluation of a bank’s CRA performance is adversely affected by evidence of discriminatory or other illegal credit practices in any geography by the bank or in any assessment area by any affiliate whose loans have been considered as part of the bank’s lending performance. In connection with any type of lending activity described in § 345.22(a), evidence of discriminatory or other credit practices that violate an applicable law, rule, or regulation includes, but is not limited to:

            (i) Discrimination against applicants on a prohibited basis in violation, for example, of the Equal Credit Opportunity Act or the Fair Housing Act;

            (ii) Violations of the Home Ownership and Equity Protection Act;

            (iii) Violations of section 5 of the Federal Trade Commission Act;

            (iv) Violations of section 8 of the Real Estate Settlement Procedures Act; and

            (v) Violations of the Truth in Lending Act provisions regarding a consumer’s right of rescission.

            (2) In determining the effect of evidence of practices described in paragraph (c)(1) of this section on the bank’s assigned rating, the FDIC considers the nature, extent, and strength of the evidence of the practices; the policies and procedures that the bank (or affiliate, as applicable) has in place to prevent the practices; any corrective action that the bank (or affiliate, as applicable) has taken or has committed to take, including voluntary corrective action resulting from self-assessment; and any other relevant information.

            [Codified to 12 C.F.R. § 345.28.]

            [Section 345.28 added at 60 Fed. Reg. 22206, May 4, 1995, effective July 1, 1995; 70 Fed. Reg. 44269, August 2, 2005, effective September 1, 2005]

            § 345.29 Effect of CRA performance on applications.

            (a) CRA performance. Among other factors, the FDIC takes into account the record of performance under the CRA of each applicant bank in considering an application for approval of:

            (1) The establishment of a domestic branch or other facility with the ability to accept deposits;

            (2) The relocation of the bank’s main office or a branch;

            (3) The merger, consolidation, acquisition of assets, or assumption of liabilities; and

            (4) Deposit insurance for a newly chartered financial institution.

            (b) New financial institutions. A newly chartered financial institution shall submit with its application for deposit insurance a description of how it will meet its CRA objectives. The FDIC takes the description into account in considering the application and may deny or condition approval on that basis.

            (c) Interested parties. The FDIC takes into account any views expressed by interested parties that are submitted in accordance with the FDIC’s procedures set forth in

            part 303 of this chapter in considering CRA performance in an application listed in paragraphs (a) and (b) of this section.

            (d) Denial or conditional approval of application. A bank’s record of performance may be the basis for denying or conditioning approval of an application listed in paragraph (a) of this section.

            [Codified to 12 C.F.R. § 345.29]

            [Section 345.29 added at 60 Fed. Reg. 22206, May 4, 1995, effective July 1, 1995]

            Subpart C—Records, Reporting, and Disclosure Requirements

            § 345.41 Assessment area delineation.

            (a) In general. A bank shall delineate one or more assessment areas within which the FDIC evaluates the bank’s record of helping to meet the credit needs of its community. The FDIC does not evaluate the bank’s delineation of its assessment area(s) as a separate performance criterion, but the FDIC reviews the delineation for compliance with the requirements of this section.

            (b) Geographic area(s) for wholesale or limited purpose banks. The assessment area(s) for a wholesale or limited purpose bank must consist generally of one or more MSAs or metropolitan divisions (using the MSA or metropolitan division boundaries that were in effect as of January 1 of the calendar year in which the delineation is made) or one or more contiguous political subdivisions, such as counties, cities, or towns, in which the bank has its main office, branches, and deposit-taking ATM’s.

          • May we assume the profits you mention are a result of loans made using the community’s checking deposits? We will assume fractional banking without actually referring to the mechanisms involved, if that’s OK with you.

            If so, let me ask if you this: Did members of the community – who incidentally chose freely to open checking accounts – get anything of value in exchange for the bank’s temporary use of their money?

            By the way, that’s an economics question, so take your time. I know it can be difficult for you.

            Put differently, were these checking accounts mutually beneficial business transactions in which both parties were better off?

            If so, then please explain how money was continually “pulled out of the community”, and who was harmed?

            You are really a Class A moron. Do you honestly believe that funds that are deposited AT A LOCAL BRANCH means that the banks uses those funds to lend in the self same community where the physical branch is located?

            You’re REALLy that stupid, huh? And you claim to know “economics” and banking? You’re too dumb to run a curbside lemonade stand! What a display of ignorance!!

          • You are really a Class A moron. Do you honestly believe that funds that are deposited AT A LOCAL BRANCH means that the banks uses those funds to lend in the self same community where the physical branch is located?

            You don’t read well. He asked you if the people who put their money into the branches get something out of it? If you say that they prefer not to put the money in because they do not value doing so can you explain why they engage in those actions?

            You’re REALLy that stupid, huh? And you claim to know “economics” and banking? You’re too dumb to run a curbside lemonade stand! What a display of ignorance!!

            Actually, he set you up and showed just how ignorant you really are. Ron knows that whenever there is a voluntary transaction both parties prefer the transaction to the alternatives. If they did not they would not take part in that transaction. People open those accounts because they want to. The banks take deposits because they want to. When both sides engage in a voluntary transaction that means that both sides prefer the transaction to doing nothing or doing something else. There is no need for meddling by government bureaucrats or busybodies because each individual does what s/he wants.

            Now answer the questions or shut up.

          • Mr. “I’m a professional” proves his professionalism with the following professional language:

            WTF do checking accounts have to do with community investment, you pathetic @sshole?? ?

            Oh! Ouch! Ouch!

            You have forgotten, and are now confused. Let me remind you of your original justification for CRA:

            That was the point of CRA- it merely said banks couldn’t keep pulling money OUT of the Community they were profiting in, and leave it high and dry.

            I assumed that you were familiar with banking, so I didn’t think it necessary to explain it to you. I see I was wrong.

            Here’s how Wikipedia describes the CRA. There are no large words, so it shouldn’t be too difficult for you.

            Although the term “checking account” isn’t mentioned, we believe you can understand from the term “commercial bank” and the reference to FDIC that it’s about banks that offer deposit accounts.

            If a commercial bank is “chartered” (use Google if you need help) to do business in a community, we can assume it offers checking accounts. Otherwise, just how is it “pulling money out of the community”?

            Without lending or deposit account services, it’s hard to imagine how a bank can “profit” in a community, and how it can thereby “pull money out of the community”.

            Even Larry got that much right, for God’s sake!

          • Idiot. You were the one who presumed the mere availability of checking accounts was enough of a “Community Investment.” Now you twist it.

            Pathetic little urchin.

            Too bad you didn’t actuall READ the Wiki. Help yourself to some more humiliation:

            “During one of the Congressional hearings addressing the proposed changes in 1995, William A. Niskanen, chair of the Cato Institute, criticized both the 1993 and 1994 sets of proposals for political favoritism in allocating credit, for micromanagement by regulators and for the lack of assurances that banks would not be expected to operate at a loss to achieve CRA compliance. He predicted the proposed changes would be very costly to the economy and the banking system in general. Niskanen believed that the primary long term effect would be an artificial contraction of the banking system. Niskanen recommended Congress repeal the Act.[54]

            Niskanen’s, and other respondents to the proposed changes, voiced their concerns during the public comment & testimony periods in late 1993 through early 1995. In response to the aggregate concerns recorded by then, the Federal financial supervisory agencies (the OCC, FRB, FDIC, and OTS) made further clarifications relating to definition, assessment, ratings and scope; sufficiently resolving many of the issues raised in the process. The agencies jointly reported their final amended regulations for implementing the Community Reinvestment Act in the Federal Register on May 4, 1995. The final amended regulations replaced the existing CRA regulations in their entirety.[55] (See the notes in the “1995″ column of Table I. for the specifics)

            In other words, Congress actually took some of Cato’s criticisms to heart and THEN amended the law. So the Cato piece that keeps referring to CRA was in fact a part of the revised mandate. That’s pretty humiliating!

            That’s what cutting and pasting does to you- it turns you into an unthinking moron.

            Lastly to make your humiliation complete:
            In the same 2007 speech, Federal Reserve Chair Ben Bernanke also noted that, “managers of financial institutions found that these loan portfolios, if properly underwritten and managed, could be profitable” and that the loans “usually did not involve disproportionately higher levels of default”.[4]

            LOL!!

          • re: checking accounts..

            are you aware there are other kinds of “accounts” Ron?

            Have you been in a bank lately to see the different kinds offered?

            it’s not important what kinds of accounts are involved.

            what’s important is that people in the redlined neighborhood put their money in a local bank office and CRA required that bank company to make at least some of that money available back to the community that was keeping their money in the bank – to qualified borrowers with appropriate documentation, not no doc, liars loans or alt A loans.

            The basic unyielding premise of the DODO twins here is that CRA caused the sub-prime meltdown by “forcing” non-FDIC banks to make loans to unqualified people – whether they lived in a redlined neighborhood or not.. even if they lived in a Florida Condo or a California Villa.

            When asked to produce something that substantiates their claim – they provide – not govt documents that detail the actual govt rules – nope… they provide CATO and AEI disinformation/propaganda pieces that make the same claim without every really providing the actual govt rules that required the “forced bad borrowing”.

            all of this so you two can avoid having to admit the truth – that CRA had virtually nothing to do with the wider sub-prime crisis much less that govt “forced” mortgage companies to make bad loans. Unregulated banks were at the heart of the crisis. Had those banks been under a FDIC-like framework it would never have happened.

          • Larry, let this guy pull his own pud. He’s a troll and nothing will keep him out of the self imposed imprisonment of his ignorance.

            The last comment on credit ratings was final proof of the man’s stupidity. He’s 100% ignoramus, and he likes it that way. Hopefully, he won’t breed.

          • Right. With a default rate among the lowest of almost any mortgage underwriting class, it “wiped out” the people who took out the mortgages without foreclosing.

            We have moved on from that point, Mr. bluster, as it’s apparent you wish to keep repeating the same drivel. Now we are asking what you meant by a previous statement about pulling money from the community. It’s real clear that you don’t understand the economics involved. If you do, just explain it plainly, so we all understand the same thing, and then we can move on..

            You must have a lot of brown shirts in your closet. You’re perfect material.

            That’s funny – a fascist like you calling someone a Brown shirt. Do you have any clue about this stuff at all?

            “I’ve forgotten more than you’ll ever learn.” growls Max the Moron.

            LOL

          • “We have moved on from that point, Mr. bluster, as it’s apparent you wish to keep repeating the same drivel.”

            If we’ve “moved on from the point” why was it brought up again? The idea that CRA “ruined” the people it was designed to serve is like saying condoms cause syphylis.
            Yes, you’re that lame.

            “Now we are asking what you meant by a previous statement about pulling money from the community. It’s real clear that you don’t understand the economics involved. If you do, just explain it plainly, so we all understand the same thing, and then we can move on..”

            As I said: criteria is all here, so you educate yourself on your time. http://www.ffiec.gov/cra/default.htm

          • The only thing that changed in the industry is what came to be known as “SubPrime 2.0″ the mammoth growth of the B &C grade lending space that was to supplant the GSEs in origination and sow the seeds of the debacle, after the rating agencies took this paper and rubber stamped it AAA. Since it WAS rated that way, AIG offered cheap insurance wrappers, taking S&P’s and others words for their safety.

            Turns out the rating agencies were right. Most of the bad paper involved very little risk, as that risk has been assumed by taxpayers. What could be safer than that?

          • “Turns out the rating agencies were right. Most of the bad paper involved very little risk, as that risk has been assumed by taxpayers. What could be safer than that?”

            This statement is about as dumb as it gets. Dolt: the paper the credit agencies were rating WERE NOT GSE PAPER. Agency loans ARE NOT RATED, YOU IGNORANT TOOL!

            Once again, a stunning display of ignorance, and bet your bottom dollar this @ss will be back with another stupid comment.

            You know LESS than nothing!

          • You are really a Class A moron. Do you honestly believe that funds that are deposited AT A LOCAL BRANCH means that the banks uses those funds to lend in the self same community where the physical branch is located?

            No, that’s what Larry believes. You did correct him on that point, but he may have missed it in the barraqe of abuse you heaped on him.

            Incidentally I’m still interested in your explanation, in your own words, of how commercial banks are “pulling money out of the community” when they do deposit account business in that community.

            By the way, you have condemned copy-and-pasting by others, so it’s surprising to see you use such an onerous practice yourself.

          • That’s what cutting and pasting does to you- it turns you into an unthinking moron.

            Writes Max the Moron as he continues to cut and paste. You are too funny!

            Idiot. You were the one who presumed the mere availability of checking accounts was enough of a “Community Investment.” Now you twist it.

            No Maxie boy, we didn’t presume anything, and it’s apparent that among your other failings you also have a reading problem. We haven’t even gotten to the question of whether CRA was a good policy, we’re still waiting for your explanation of how a bank can “do business” in a neighborhood and how they can “profit” if they aren’t lending in that neighborhood, and especially how they can continue to “pull money out of the community”. Those are all your words.

            Mr Bluster pasted the following:

            “During one of the Congressional hearings addressing the proposed changes in 1995, William A. Niskanen, chair of the Cato Institute, criticized both the 1993 and 1994 sets of proposals for political favoritism in allocating credit, for micromanagement by regulators and for the lack of assurances that banks would not be expected to operate at a loss to achieve CRA compliance. He predicted the proposed changes would be very costly to the economy and the banking system in general. Niskanen believed that the primary long term effect would be an artificial contraction of the banking system. Niskanen recommended Congress repeal the Act.[54]

            Niskanen’s, and other respondents to the proposed changes, voiced their concerns during the public comment & testimony periods in late 1993 through early 1995. In response to the aggregate concerns recorded by then, the Federal financial supervisory agencies (the OCC, FRB, FDIC, and OTS) made further clarifications relating to definition, assessment, ratings and scope; sufficiently resolving many of the issues raised in the process. The agencies jointly reported their final amended regulations for implementing the Community Reinvestment Act in the Federal Register on May 4, 1995. The final amended regulations replaced the existing CRA regulations in their entirety.[55] (See the notes in the “1995″ column of Table I. for the specifics).”

            Max, You have shown beyond any doubt that incessant cutting and pasting can make you an unthinking moron. No need to continue.

          • Listen, Max, if you misspoke when you made your original comment about “pulling money out of the community”, it’s OK. People make mistakes. Even anal geniuses like you. LOL

            Just say it was a mistake, and we can move on.

          • Max the Mouth types yet another content free comment, and then this:

            As I said: criteria is all here, so you educate yourself on your time. http://www.ffiec.gov/cra/default.htm

            Heh! But Maxie, baby, what happened to your magnanimous offer of expert help?

            However, if you DO care to want to learn the truth, you have an expert right here who can help you.

            You are now going in circles, can no longer remember who you are responding to or the topic at hand, and worst of all can’t answer a very simple question because you *really don’t know the answer*.
            Amazing!

            You are a really pathetic little shit-for-brains. Do you even wonder why no one but me is any longer wasting time responding to your senseless drivel?

            I’ve been rather enjoying the comedy, but it’s wearing thin, so I’m moving on. You may want to continue to post vituperative nonsense on this thread, or perhaps you can have a nice little chat with your butt buddy Larry, but if you plan to discuss anything remotely like actual economics on this economics blog, you will have to actually learn some, and be willing to answer simple questions. You can’t hide behind your silly potty mouth, because other people know right away that you don’t have a clue.

        • “In fact, Mark, GSE market share had plummeted by HALF towards the end of 2003, and slid even further in ensuing years.” — Max

          “The Beltway story of the crisis claims that Congress’s affordable housing mandates had nothing to do with it. But the SEC’s lawsuit shows that Fannie degraded its underwriting standards to increase its market share in subprime loans. According to the SEC suit, for instance, in 2006 Fannie Mae adjusted its widely used automated underwriting system, “Desktop Underwriter.” Fannie did so as part of its “Say Yes” strategy to “provide more ‘approve’ messages . . . for larger volumes of loans with lower FICO [credit] scores and higher LTVs [loan-to-value] than previously permitted.”

          The SEC also shows how Fannie led private lenders into the subprime market. In July 1999, Fannie and Angelo Mozilo’s Countrywide Home Loans entered “an alliance agreement” that included “a reduced documentation loan program called the ‘internet loan,’” later called the “Fast and Easy” loan. As the SEC notes, “by the mid-2000s, other mortgage lenders developed similar reduced documentation loan programs, such as Mortgage Express and PaperSaver—many of which Fannie Mae acquired in ever-increasing volumes.”

          The SEC’s case should embarrass Congress’s Financial Crisis Inquiry Commission … Far from being peripheral to the housing crisis, the SEC lawsuit shows that Fan and Fred were at the very heart of it. Private lenders made many mistakes, but they could never have done as much harm if Fan and Fred weren’t providing tens of billions in taxpayer-subsidized liquidity to lend on easy terms to borrowers who couldn’t pay it back.” — WSJ

          “These suits are important because they demonstrate that Fannie and Freddie “told the world their subprime exposure was substantially smaller than it really was … and mislead the market about the amount of risk on the companies’ books,” said Robert Khuzami, director of the SEC’s Enforcement Division … Fannie and Freddie, starting in 2001, accounted for about half of all outstanding single-family first mortgages. By mid-2008, more than 40 percent of their loans had risky characteristics. It was this unprecedented accumulation of weak and risky mortgages that precipitated the collapse of housing and mortgage markets and the ensuing financial crisis. When the financial crisis hit in full force in 2008, approximately 27 million, or 49 percent, of the nation’s 55 million outstanding single-family first mortgage loans had high-risk characteristics, making them far more likely to default.”Cleaning House: The Financial Crisis and the GSEs

          “If the institutional framework rewards piracy, then piratical organizations will come into existence; and if the institutional framework rewards productive activities then organizations — firms — will come into existence to engage in productive activities.” — Economist Douglass North, 1993 Nobel Prize lecture

        • ” … while homeownership increased significantly during the Clinton years, sub-prime (and also Alt-A) lending was still under 10 percent of mortgage originations when President Bill Clinton left office. President George W. Bush’s further pressure for homeownership, which included substantial pressure on Fannie Mae and Freddie Mac to purchase loans, in particular low-documentation loans, was dubious policy, but cannot be blamed on CRA.” — Max

          This statement reveals just how uninformed you are. The quotas were set by the congress, Bush had nothing to do with them. In fact, Bush tried on multiple occasions to reign in lending by the GSEs and proposed the creation of a new agency to oversee them:

          WASHINGTON, Sept. 10— The Bush administration today recommended the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago.

          Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.

          The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.” — The New York Times

          Bush tried more than 13 times during his presidency to reign in the GSEs: <a href="http://www.youtube.com/watch?v=y56lGWvVsrc&feature=player_embedded&quot;

          It was the Clinton administration that turned the CRA into a bludgeon with which to force banks tp write subprime loans:

          “As HUD secretary from 1997 to 2001, Cuomo pushed government-sponsored Fannie and Freddie to buy more home loans to low-income borrowers with impaired credit, in an attempt to end what he thought was lending discrimination against minorities. By 1999, they had committed $1 trillion in such high-risk loans.

          But Cuomo still was not happy. So in 2000, he hiked their affordable-housing quota to 50%. That meant Fannie and Freddie had to devote fully half their mortgage financing to “underserved” borrowers with unproven or damaged credit. To help them meet that drastic new goal, Cuomo pressured them to relax their lending criteria and invest in subprime loans. He also authorized them to buy subprime securities.

          This isn’t ancient history. The quota Cuomo set in 2000 remained in force through 2004 and beyond. Four years after he required Fannie and Freddie to commit half their lending to support affordable housing, they together commanded almost half the subprime securities market.

          Credit quality suffered while risk soared. By 2005, most of the loans they’d bought had down payments of 3% or less. Many had no down payment at all. By 2008, Fannie and Freddie had drowned in a toxic soup of bad subprime paper.” — IBD

          • As for the derivatives that you whine about, well, it turns out that Clinton’s boys were negligent there too:

            “Clinton seems maddeningly oblivious to his contribution to the financial and economic crisis. It was Clinton who strengthened the nexus between Wall Street and Washington that helped bring the economy down, and Clinton who unleashed Robert Rubin and Larry Summers on the American public. Rubin and Summers, each of whom served stints as Treasury Secretary, aggressively headed off rules to limit borrowing on newfangled derivatives like credit-default swaps—even after the government-supervised unwinding of the Long-Term Capital Management hedge fund in 1998 showed how dangerous these financial instruments could be to the financial system.

            After Clinton left office, Rubin and Summers went on to cushy financial-industry gigs—and the unregulated derivatives that they had encouraged “insured” against mortgage-debt defaults seemingly at no cost, creating an illusion that risky mortgage debt wasn’t risky. This misconception fueled unnatural growth in the mortgage market and, in 2008, after everything blew up, it sent companies such as AIG straight into the arms of the U.S. government looking for bailouts. Rubin and Summers gravely harmed our national security, because the financial crisis they helped create has weakened the country. Yet Clinton glides over all of this, saying that even if he had wanted to regulate derivatives, Republicans probably wouldn’t have let him.” — City Journal

            Before you start blowing your mouth off, do a little reading.

          • re: ” Rubin and Summers, each of whom served stints as Treasury Secretary, aggressively headed off rules to limit borrowing on newfangled derivatives like credit-default swaps”

            WHERE in your reference link – http://www.city-journal.org/2010/eon0114ng.html does it mention Rubin and Summers involvement in the issue?

            your narrative here is totally dishonest.

            They are not mentioned at all in the link and Congress is the one to make rules – not Cabinet members.

            your ideology is profoundly ignorant – purposely ignorant – of the simple facts.

          • Your point here is well taken, and I know all about how Arthur Levitt, Robert Rubin and Larry Summers castrated the CFTC and Brooksly Born.

            As far as your last comment, you’ll never learn what I forgot about this matter. Bank on it.

          • “WHERE in your reference link – http://www.city-journal.org/2010/eon0114ng.html does it mention Rubin and Summers involvement in the issue? your narrative here is totally dishonest” — Larry G

            Not even your lefty brethren are buying the bullshit. Read this:

            Clinton Signs the Commodities Futures Modernization Act

            “It was Summers who encouraged Clinton to sign the Commodity Futures Modernization Act, which declared CDOs and CDSs immune to any existing regulatory law and the purview of any regulatory agency.” — The Nation

            In 1998, this tiny group got into the newly-created credit default swap business when JP Morgan Chase came to it with a proposition to transform debt on its books into security packages that could be sold off its books. To make these bank debt packages salable to other institution, they needed credible insurance against default to get Triple-A rating. So the AIG financial product group, seeing no risk of default, sold it in the form of credit default swaps. Soon afterwards, with the support of Treasury Secretary Lawrence Summers (now President’s Obama’s economic advisor), the Commodity Futures Modernization Act was passed, which excluded credit default swaps from being considered a “security” under the jurisdiction of the SEC or any other government agency. This act allowed these swaps to be deployed on a massive scale to convert all kinds of debt, including even subprime mortgages and car loans, into triple A securities and turned AIG’s arm, now headed by Joseph J. Cassano, an aggressive Brooklyn-born alumni of Drexel’s back office operations, into a multi-billion dollar profit center for the insurance behemoth.” — Edward Jay Epstein

            Clintons hands are all over this mess.

          • Sir, again, you’re cutting and pasting utter Bullsh*t from the same worn out discredited narratives and telling ME I don’t know what I’m talking about.

            Bush did nothing to “reign in” (Christ, what a worn out, asinine meme) Fannie and Freddie, and to this day, no one even knows WTF that means anyway. How would you “reign them in?” It was their job to buy loans underwritten to a certain standard. THIS THEY DID, and that underwriting is BORNE OUT of the comparative default rates we see to this DAY.

            If ANYTHING, Bush and his “Ownership Society” crap meant he wasn’t “reigning in” jacksh*t.

            Does this look like a guy whose policy is to “reign in” the housing market?

        • “Your reply was cut and pasted from Wallison’s faulty analysis.” — Max

          Faulty analysis? Wallison has been calling from the begining. Let me help you here:

          “In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

          The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring. …

          In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980′s.

          ‘From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.’ — The New York Times

          1999, Bush was in Texas, where was Barry Ritholtz, who you apparently cut and paste from? Oh, that’s right, he wouldn’t start pretending to be an expert until AFTER the shit hit the fan.

          The New York Post explains how the Democrats and their left-wing “community organizer” cronies teamed up to use the CRA to force banks into making risky loans:

          BARACK’S ‘ORGANIZER’ BUDS PUSHED FOR BAD MORTGAGES

          There may be some big words, but you should be OK.

        • As IBD has noted, “Ritholtz makes it sound as if bankers all woke up one day and decided to abandon traditional underwriting rules and rubberstamp mortgages for anybody who could fog a mirror.”. This was, and is nonsense. The facts that have come out since the crisis are indisputable; the government deliberately and knowingly forced a redirection of credit towards risky politically driven mortgages. And the government was the buyer and backer of most of these bad loans.

          Like Hitler, you’re a moron.

          • this sums it up:

            ” California leads the nation in foreclosures. The state’s foreclosure activity was up 51% from a year ago. These are not CRA communities, they are what were hoped to be surburban bedroom communities east of the major cities (San Diego and L.A.)

            Next up is Florida; The state’s foreclosure activity was still up 68 percent from November 2007. The enormous overbuilding of Condos, and not CRA, is to blame. These weren’t inner city loans to minorities, as Dan Gross pointed out, they were “WCI Communities — builder of highly amenitized condos in Florida (no subprime purchasers welcome there)” WCI filed for bankruptcy in August. “Very few of the tens of thousands of now-surplus condominiums in Miami were conceived to be marketed to subprime borrowers, or minorities—unless you count rich Venezuelans and Colombians as minorities.”

          • The IBD piece- which like the AEI, is a set of lies, only more rabid- is often quoted by wingnuts.

            No banks didn’t just “wake up” their denigration of underwriting standards took place over time, and again, the IBD piece demonstrates total ignorance because a GSE loan is not a “SubPrime” loan. The loans that were given to people who “could fog a mirror” were NOT GSE affiliated. Those were mortgage banks like New Century Financial, Long Beach Mortgage, Novastar, Household Fianance, who NEVER securitized or sold their loans to Fannie or Freddie. Again, this is a subject you cannot cut and paste your way through to understanding.

            Ritholtz’s site has PDFs of internal correspondence from major lenders instructing underwriters how to code mortgages so they would pass for funding- essentially, committing mortgage fraud, a serious offense.

            Also see this report, and just do a search on the word “default.”

            http://www.frbsf.org/publications/community/cra/cra_past_successes_future_opportunities.pdf

          • Max,

            This avalanche of explanation you have provided misses the basic point. While the description of bark on the various trees is fascinating, a larger view of the forest might be more useful.

            First of all, one must ask why it should be the role government to promote home-ownership, or in fact ownership of anything at all. It would seem that a decision to buy a home depends very much on an individual’s unique circumstances and preferences, and can’t be decided by our all knowing, wise benefactors in Washington.

            Then one must acknowledge that must basic of economic laws, that of supply and demand, and realize that each and every government policy to promote home ownership, including CRA, new regs regarding securitization, and transfer of risk from lenders to taxpayers, as well as loose Fed monetary policy and easy access to credit, caused increased demand for housing, which of course caused prices to rise until the level could no longer be sustained, and it all came crashing down.

            The defaults you quibble about are a *result* of the housing crisis not the cause. It doesn’t matter whether poor folks or rich folks defaulted, it was the misguided attempt at social engineering that distorted the market for housing and predictably ended badly.

            You can blame bankers and lenders if you wish, but I think you’ll find they were just reacting to the incentives provided, as we should expect.

          • re: “incentives” caused the crash.

            how long have there been “incentives” and there was no crash ?

          • “Max, This avalanche of explanation you have provided misses the basic point. While the description of bark on the various trees is fascinating, a larger view of the forest might be more useful. First of all, one must ask why it should be the role government to promote home-ownership, or in fact ownership of anything at all.”

            Of course, we should do away with ALL kinds of subsidies, including ones for oil exploration, farm subsidies, etc. etc. right? Of course not, you just want to keep the meddling YOU approve of.

            Let me tell you something about this “policy.” First, there is no question in my mind that if not for the growth of Sub prime, that is, loans made by NON-GSE affiliated lenders and the crawling glacier like effect they had on housing, this crisis never would have happened.

            Recall that AIG provided insurance on over $3 trillion worth of non-agency loans, and these were dubbed “Super Seniors.” I remember them well. Since S&P and Moody’s had labeled this swill as AAA, and AIG provided the insurance wrapper, these were considered SUPERIOR in risk metrics compared to almost every other loan product, hence the title. They were BETTER than mere AAA rated mortgage collateralizations. That’s how effed up things were, and of course, you know we backstopped AIG with your tax dollars. The company, at the end of 2007, was ranked #10 on the Fortune 500. That’s why I know you can’t hang this on housing policy.

            But you know something? The policy worked. In New York City, for example, most people rented, but today, many more own their own homes. Crime is down. The population is less transient, so the communities have stable populations and children who attend the same school system for at least a good portion of their lives, and this has made people stakeholders in their own communities.

            I don’t know how much of this you can attribute to the GSEs and FHAs efforts, but I can tell you, our cities are undergoing a fantastic revival in livability now that more people own.

  2. This is not a bad thing. Glacing on the chart, the U.S. is now back on the historical average.

    Of course, what started this whole mess was a messianic thought of “we got to fix this” back in the 1990s under clinton and we know what that led to.

    Don’t be surprised if Obama starts the next bubble as he struggles to get anything done and talks about a “fair share” for everyone.

    Helicopter Ben (or his successor) would be more than happy to help.

    • The housing bubble was not caused by any government policy.

      I tell you, it’s easy to see how Hitler pulled it off. Just repeat the Big Lie until enough of a critical mass swallow it.

  3. Conclusion: The political obsession with homeownership starting in the mid-1990s raised the homeownership rate from below 64% in 1994 to an artificial level above 69% by 2004, but failed to create a homeownership rate that was sustainable in the long run.

    Yet you have kept cheering attempts to revive the bubble in home ownership and keep promoting every tick up in the housing indicators as a positive.

    • The fact that the housing market is recovering (home sales and home prices increasing) is not inconsistent with a homeownership rate returning to the 64-65% level of the mid-1990s that is probably sustainable. There are more investor-owned houses now being rented out than before. Declining homeownership rates and increased investor-owned houses are happening at the same time, and both trends can be consistent with a housing market in recovery, and with a recovery that is sustainable.

    • Mark does not seem to agree with us. He keeps seeing and has been seeing positives in the housing markets for a very long period of time. You know that he is one of those Kudlow/Pangloss types who has a blind spot for reality when it does not show what he wants to see.

  4. The current rate of 65.4 percent matches the average since 1965, when the Census Bureau began reporting the figures. In typical pendulum fashion it will probably keep sinking until it falls well below the average – overcompensating, if you will, until it’s momentum slows and it settles near the average. Then, the next bubble will set it in motion again…

  5. re: ” Clinton Signs the Commodities Futures Modernization Act “It was Summers who encouraged Clinton to sign the Commodity Futures Modernization Act, which declared CDOs and CDSs immune to any existing regulatory law and the purview of any regulatory agency.” ”

    Wait! Do you mean this was an act that first had to pass both houses of Congress with a majority of GOP and Dems?

    So Summers and Clinton were at the end of the chain?

    and the GOP under Bush chose to not do anything about it either even though they knew it was bad?

  6. “Remarks by Governor Laurence H. Meyer
    Before the 1998 Community Reinvestment Act Conference of the Consumer Bankers Association, Arlington, Virginia
    May 12, 1998

    Community Reinvestment in an Era of Bank Consolidation and Deregulation

    Includes these quotes:

    “To the extent that consolidation continues to make banks healthy competitors for deposits and, especially loans, it helps keep financial activity flowing through institutions that have CRA responsibilities. “

    “Product deregulation and new bank powers, such as the ability to sell insurance, operate discount brokerage businesses, or underwrite certain securities, are sometimes seen as deflecting resources from CRA efforts. Banks will simply move capital and manpower to these new lines of business that appear to demonstrate greater profit potential than does providing small loans in local communities. Of course, a corollary to that proposition is that bank regulators are more concerned about reducing regulatory burden than in ensuring that legislative intent is carried out. On that point I can assure you that this is not the case.

    The Fed governor is telling bankers that consolidation and deregulation in banking is good IF it is tied to CRA promotion and enhancement.

    The governor goes on to say “Credit scoring and automated underwriting have, in fact, been major factors in expanding access to credit for low- and moderate-income households and communities.”

    He follows up with this quote: “New mortgage products, for example, that employ low or no down payments and up to 100 percent loan-to-value ratios are made possible by credit scoring and automated underwriting. And many of the products have received secondary market acceptance.”

    It’s 1998 and a Fed governor is promoting no down payment loans to bankers at a conference on consolidation and the Community Reinvestment Act. Hmm, 10 years later what happened?.

      • Larry, your link from the Fed states “The Federal Reserve Board has found no connection between CRA and the subprime mortgage problems.”

        My link above has the Fed governor promoting “low or no down payments and up to 100 percent loan-to-value ratios”. Further, banking consolidation will be looked at favorably if Community Revinvestment Act efforts are promoted at the resultant mega banks.

        So, the CRA, the Fed and sub-prime lending, along with banking consolidation, are linked in 1998 to the awful slippery slope that ensues.

        What do you think Larry about the Fed governor remarks in 1998? Is he not promoting sub-prime lending as a pre-text for getting mega-bank mergers done at that time, for the good of CRA efforts?

        • re: the Fed promoting home ownership and the CRA.

          The report about the CRA was done AFTER the home mortgage meltdown and found that CRA was largely not involved in it.

          My only objection here is blaming CRA when that is not what happened.

          The blame-CRA folks supposition is that CRA encouraged making CRA loans to folks who could not afford a home.

          That’s ultimately what happened but it was not CRA folks who bought houses they could not afford.

          In many respects it was people who lived far away from redlined neighborhoods that bought 800K homes and condos that THEY could not afford.

          The blame CRA crowd wants to implicate policies to cater to the poor but the facts are that the policies catered to people who were largely not poor but allowed them to buy far more house than they could afford.

          Some of them were speculating – buying homes that they intended to flip for a profit before having to pay the balloon note mortgage.

          Now why would a non-FDIC, non-CRA financial business – not a regular bank – make a loan without job and income documentation -anyhow?

          CRA had nothing to do with it.

          Fannie and Freddie – yes – because they would buy the bad paper and resell it to the big financial banks who
          ultimately got caught holding the bag.

          My view of this is that we cannot believe what we want according to our ideological leanings – we have to want to find the truth – if we are to put in place – regs that
          will prevent this from happening again.

          you could write CRA out of existence and it would not prevent this from happening again because CRA was largely not the problem.

          • Yes, “people who lived far away from redlined neighborhoods bought homes and condos that THEY could not afford”, but that was only possible because of the push to lower lending standards in order to meet complaince with Clinton era CRA quotas. By pushing for lower lending standards and committing the GSEs to the purchase of the resulting dicey loans the social engineers in the Clinton administration set the table and rang the dinner bell for the corrupt actors who were only to happy to join the feast. Grow up.

          • CRA applied ONLY to redlined neighborhoods not the 800K homes and condos in Florida, California and Arizona.

            CRA only applied to banks that too deposits from neighborhoods and did not then provide mortgage loans to the same neighborhoods that they took deposits from.

            It’s one thing to get this wrong from a lack of knowledge. It’s quite another to actually know this is the truth and continue to claim that CRA caused the sub-prime mess.

            I swear you guys live in your own little worlds on this (and other things).

            ” Our analysis found that only six percent of all higher-priced loans were made by CRA-covered lenders to borrowers and neighborhoods targeted by the CRA.”

            Board of Governors of Federal Reserve

          • This narrative is utter nonsense. You’re saying that others were “forced” to write junk loans because of what Fannie and Freddie did.

          • Larry, I agree with the comment from Che below. The descent into sub-prime borrowing was because of the Fed push in support of the CRA. Did you read the 1998 Fed governor remarks above?

            Yes, poor and corrupt mortgage lending practices spread massively, but I think the “connection” between the Fed’s hard push for CRA lending and sub-prime borrowing is irrefutable.

          • did you read this guy: ” Our analysis found that only six percent of all higher-priced loans were made by CRA-covered lenders to borrowers and neighborhoods targeted by the CRA.”

            what do you base your view that it’s “irrefutable” on?

            this must be in you guys genes. you just believe what you wish to believe – no amount of evidence dissuades you.

            CRA did not cause the sub-prime melt-down.

            No credible source affirms that and the evidence is crystal clear – 6% of CRA was sub-prime.

          • Again, faulty logic borne out of an ignorance of underwriting. If CRA was pushing on Sub Prime lending to lower standards, how do you explain their explosive growth, and what gives a SubPrime lender the right to lower standards to recklessness due to competition? (Its not true, but I am posing the question anyway)

          • Larry, I read and acknowledged your link but disagree with the conclusion and I am not generally a Fed basher.

            Please read and remark on my link in return or does it undermine your premise?

          • @citizenB

            did you read the first passage speaking of CRA in the link provided?

            ” The Community Reinvestment Act has contributed to this increase in the availability and affordability of credit. At a minimum, CRA has helped spur the development of new tools and techniques to help serve credit needs that in the past banks were either unable or unwilling to serve. At its best, CRA also has stimulated competition for loans and banking services in low- and moderate-income communities, leading many institutions on a continuing search for techniques to help better understand and mitigate consumer lending risks”

            did you see the qualification? ” CRA also has stimulated competition for loans and banking services in low- and moderate-income communities”

            Florida Condos and 800K California, Arizona, Nevada homes are NOT in low and moderate income communities.

            Have you taken the time to read that CRA applies ONLY to redlined neighborhoods AND that the banks making those loans are FDIC-insured?

            The companies making the sub-prime loans were not FDIC-insured nor were they making loans in redlined neighborhoods.

            If you want me to agree with you about OTHER Fed policies especially those associated with Fannie/Freddie, I would agree with you.

            but I disagree with the narrative that the sub-prime crisis was a result of making loans to poor people in redlined neighborhoods. It’s simply not true.

            Fred and Fannie DID incentivize the sub-prime market by buying mortgages, Jumbos and Alt A that were called “liars” loans because they had no verified income documentation but again – these were not for homes in low/moderate income neighborhoods.

            CRA has been around since 1977 and never changed it’s redline orientation in low and moderate income neighborhoods.

            You simply won’t find CRA loans for Florida condos in upscale communities.

        • Larry, from your most recent quotes:

          “At a minimum, CRA has helped spur the development of new tools and techniques to help serve credit needs that in the past banks were either unable or unwilling to serve.”

          As the Fed governor told the bankers in 1998 “New mortgage products, for example, that employ low or no down payments and up to 100 percent loan-to-value ratios are made possible by credit scoring and automated underwriting. And many of the products have received secondary market acceptance.”

          Yep, at a minimum the Fed encouraged sub-prime and no-prime to spread from CRA lending to the general mortgage market.

          • @citizen B – is that what you consider the connection?

            the “tools” they were speaking of for CRA were not to bundle the mortgages into mortgage backed securities.

            do you know what those “tools” were ?

            is that the “connection” you are speaking of?

      • Like I said- the report states the obvious:

        “The Federal Reserve Board has found no connection between CRA and the subprime mortgage problems. In fact, the Board’s analysis (102 KB PDF)

        found that nearly 60 percent of higher-priced loans went to middle- or higher-income borrowers or neighborhoods, which are not the focus of CRA activity. (Read that again)

        Additionally, about 20 percent of the higher-priced loans that were extended in low- or moderate-income areas, or to low- or moderate-income borrowers, were loans originated by lenders not covered by the CRA.”

    • NOt that a lot of CRA issues occured because the bank CEOs where desirous of making the bank bigger (see MCCOLL on Tom MCCOLL of BofA for an example) They decided to go to a 350 billion commitment to cra when NCNB bought the Old BofA and took its name in 1998. A lot of the CRA commitments were made to silence the opposition to the various bank mergers as the final nationwide consolidation of banks occurred for the 1990s.

      I think you would find that other banks doing the merger dance did the same thing, again to shut up the activists opposing their various mergers.

  7. Can someone kindly inform me of the reason why home prices are going up despite the long-term trend of aligning with the rate of home ownership which is currently decreasing?
    Is it all foreign investments, or something different?
    (please don’t get too complicated with me, I’m on the younger side and not quite as advanced with real estate metric lingo).

  8. re: 1998 – guy – that was a general statement that home ownership should be incentivized.

    If only 6% of sub-prime was CRA – why do you think CRA had a bigger impact?

    don’t go quoting some wingnuts.

  9. Government created the housing bubble.

    Private lending institutions knew they’d be, ultimately, bailed-out, whether they were high-end or low-end loans, which they were through TARP and the Fed buying mortgage securities.

    Government created, and increasingly facilitated, the moral hazard that allowed those lending institutions to make riskier and greater loans.

    Also, it’s wrong to blame the Fed for policies or laws created by Congress, which the Fed must obey.

  10. [email protected] |

    Note that the mandate has two features:
    1) it mandates that lower income borrowers be served, based on the MEDIANS for the area in question. At no time does it say these are to be “hard money” loans, nor does it mandate that the loans be given to unqualified buyers with poor credit. The loans must STILL be made to people who qualify on the basis of Fannie and Freddie underwriting standards. These are not mandates to lower standards.

    Of course they are. If the mandate is to make a higher percentage of loans to lower income people, you must either find more lower income borrowers or make fewer loans. Fewer loans was not an option because there were too many qualified middle income borrowers. So, in order to meet the mandate, standards had to be lowered for low income borrowers.

  11. Something just occured to me:

    Notice how impoverished Southerners vote Republican because they’ve been trained to believe that raising taxes by $38 a month on someone who earns $300,000 a year affects THEIR well being?

    Guess what? The same constituency lives on these boards. From the comments being generated, it appears that NONE of these people own their own homes, ever applied for a mortgage, worked with a loan officer, rounded up the documentation an underwriter needed, held a loan commitment in their hands, or attended a closing.

    They’re renters- they can’t afford a home of their own, and that is what generates the hatred- they think someone poorer, darker skinned and less deserving got by government policy what they could never get on their own.

    Every response shreiks it. No wonder they make these statements about the mortage process- they have no experience of it themselves. It explains everything.

    • OMG, Maxie, you have discovered our secret! You are SUCH a genius.

      LOL

      Please don’t stop posting here, as you are the best source of comic relief since Larry came along.

      Thanks for the chuckle.

      • I’m not kidding- the giveaway was on the other thread about property repairs in the aftermath of Sandy.

        “I never dealt with a contractor” said one.

        You own a house, you bet your @ss YOU’RE GONNA DEAL WITH A CONTRACTOR!

        • I’m not kidding-

          Well, of course you’re not. That’s what makes you so hilariously entertaining.

          I never dealt with a contractor” said one.

          That “one” is 23 years old, and is indeed a renter, but unlike you, has an actual education in economics, and makes worthwhile contributions to discussions on this blog..

          Your ability to leap so nimbly from a comment about experience with contractors to a general conclusion about homeownership of every reader on this blog, indicates you have probably learned logical thinking by watching reruns of CSI, and puts a serious dent in your credibility as a self proclaimed “expert”.

          Thanks again for the laughs, and please keep it coming. You make a great clown.

          • Uh, dwarf boy. I don’t take a back seat to ANY 23 year old when it comes to almost ANY subject, so f&ck off with your sophomoric insults.

            My advice to him AND you, is that if you don’t WTF you’re talking about, and don’t have any real life experience to relate, STFU and have the good sense not to question your betters on such matters.

            Hope I’ve made that clear. Enjoy the laughs.

          • Uh, dwarf boy. I don’t take a back seat to ANY 23 year old when it comes to almost ANY subject, so f&ck off with your sophomoric insults.

            My advice to him AND you, is that if you don’t WTF you’re talking about, and don’t have any real life experience to relate, STFU and have the good sense not to question your betters on such matters.

            Hope I’ve made that clear. Enjoy the laughs.

            I can’t speak for anyone else but I always enjoy it when empty suits write or talk about stuff that they do not understand but think that they do.

            http://www.youtube.com/watch?v=2I0QN-FYkpw

            Of course, after they fail to predict anything they make up excuses for why they failed and will hide in narratives that mean very little. You my friend made money from the real estate bubble because you were in the right place at the right time. That is wonderful for you even though you probably had no real idea why things were working out the way that they did. But what you need to do is to shed your ignorance by learning something. Ron is a very bright guy who has a very good idea about what he is talking about. I have been watching him try to educate Larry for years but Larry’s faith is unshakable in the face of facts and logic and has not done very well. But if you are more open minded and willing to admit that you do not know as much as you think there is hope that you might learn something.

          • “I can’t speak for anyone else but I always enjoy it when empty suits write or talk about stuff that they do not understand but think that they do. ”

            Unfortunately for you, I’m not one of them. I’m a professional, not an idiot whose entire intellectual life rests on Breitbart e-mails.

            “Of course, after they fail to predict anything they make up excuses for why they failed and will hide in narratives that mean very little.”

            Which is one thing YOU’RE no stranger to, as you spit in the face of the evidence placed before you. Your assertions as beyond asinine.

            ” You my friend made money from the real estate bubble because you were in the right place at the right time. ”

            This is the pathetic attempt to minimize the interlocutor when the argument is lost. FYI, I left the mortgage industry in 1990, before the boom commenced, and quite frankly, a great many people owe their “success” to being in the right place at the right time.

            “But what you need to do is to shed your ignorance by learning something.”

            There is nothing you or anyone on this forum who could teach me on thing about the mortgage process, from origination to securitization, least of all you.

            “Ron is a very bright guy who has a very good idea about what he is talking about.”

            Not on this subject.

            ” I have been watching him try to educate Larry for years but Larry’s faith is unshakable in the face of facts and logic and has not done very well.”

            Project much?

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