Blue Mass Group

Reality-based commentary on politics.

Where are they living now?

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In the early 1990s, there was a burst of a housing bubble that preceded the S&L fiasco.

I’m not surprised that the recent housing bubble — larger than that of the 1980s — resulted in a correspondingly worse result.

Where are all those people who abandoned their homes living now? The hotspot of the foreclosures — southern CA — was expensive in the 1990s. As a new teacher in 1996, it was very difficult to find an apartment.

Then there was a housing boom, and I’m guessing there wasn’t much development of apartment buildings. Rental property is an important part of affordable housing. I can’t recall one new apartment building going up during this decade-long push for home ownership, but from the classified it doesn’t seem there is a shortage of apartments in our area.

The markets are just about to open. I’ve just seen this video, and it makes sense to me.

Maybe I’m biased? I’m about to vote Republican for president for the first time in my life. if it was McCain who had these sorts of links to Fannie/Freddie, Obama supporters would believe everything in this video.

So, I’m asking BMGers to share their critical eye and tell me what you disagree with in the video or, if the financial ties are true, why it doesn’t bother you?  Thanks.

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    • The video is sheer propaganda, typically full of half-truths strung together to mislead the unwary.  I’ve seen other youtubes like that one on other subjects — they’re very slick, but they don’t hold up on careful inspection.

      <

      p>dweir, if that’s your basis for voting for McCain, well … yes, you’re biased.  The CRA nonsense has been debunked so many times by now that anyone who’s still buying it wants to be spun.

    • Both sides put out opinion pieces and cherry-pick facts. So, please feel free to counter.

      <

      p>Stewart starts with:
      So, what do you think the possibilities of a law passed 30 years ago causing the lending problems now? That’s one heck of a law to have that kind of effect.

      <

      p>This is an extremely weak first argument. That’s like saying critics of NCLB are actually blaming the 1965 Elementary and Secondary Education Act.

      <

      p>He quickly recovers and gets us back to the changes made in the 1990s.

      <

      p>The Stewart article then states the obvious about the scope of the CRA as a kicker. But you know, Countrywide — “the nation’s largest mortgage lender” and one of the first to go down when the subprime unravelling began — it’s regulated by CRA.

      <

      p>So, I’m not yet convinced. Stewart links to Gordon who links to Barr’s testimony to support the claim that most subprime loans did not originate in CRA-regualted institutions. But on page 2 of Barr’s testimony:

      <

      p>”Moreover, banks get CRA consideration for both originating and purchasing loans, creating a trading system. Institutions can also get credit under the CRA investment test for purchasing loan securities. The development of this secondary market has increased liquidity and transparency.”

      <

      p>Isn’t this the problem we’re seeing? The trading system was based on overvalued paper.

      <

      p>And then look at Page 2 from Seidman’s testimony on that same day:

      <

      p>”In the 30 years since its enactment, CRA has generated major changes in the manner in which banks and thrifts view and serve low- and moderate-income communities and consumers. Billions, perhaps trillions, of dollars of credit and investment has come into these communities
      spurred, incented, or directed by the Act and collateral laws such as the Home Mortgage Disclosure Act (HMDA),4 various anti-discrimination statutes, and obligations placed on Fannie Mae and Freddie Mac.5″

      <

      p>The digits 4 and 5 refer to footnotes. Look at footnote 5:

      See Joint Center for Housing Studies, “The 25th Anniversary of the Community Reinvestment Act: Access to
      Capital in an Evolving Financial Services System,” March 2002 (at http://www.jchs.harvard.edu/research/crareport.html)
      (“CRA has expanded access to mortgage credit; CRA-regulated lenders originate more home purchase loans to
      lower-income people and communities than they would if CRA did not exist”); Remarks of Eugene A. Ludwig,
      Comptroller of the Currency, July 15, 1997 (at http://www.occ.treas.gov/ftp/release/97-65.txt) (“Since CRA became law
      in 1977, we have witnessed more than $215 billion of loan commitments for low and moderate income lending. . . .
      Since 1993 . . . home mortgage loans to low and moderate income census tracts have risen by 22 percent, more than
      twice as fast as the rate of growth in all home mortgage loans. In the past four years, banks have invested four times
      as much in community development projects as they did in the whole previous thirty years.”); Remarks of Senator
      Levin, quoting Chairman Alan Greenspan, 145 Cong. Rec. S4775-76 (1999) (“CRA has ‘very significantly
      increased the amount of credit in communities’ and the changes have been ‘quite profound.’ In 1997 alone, almost
      2,000 banks and thrifts reported $64 billion in CRA loans, including 525,000 small business loans worth $34 billion;
      213,000 small farm loans worth $11 billion; and 25,000 community development loans totaling $19 billion.”).

      <

      p>And that’s only the first two pages of these. I’m sure there’s more here. Basically — they credit CRA for resulting in all these loans. But when all these loans result in a HUGE financial mess, it’s not because of CRA?

      <

      p>Here are the testimony URLs:
      http://www.newamerica.net/file…
      http://www.house.gov/apps/list…

      <

      p>If the legislation was put into place with the HOPES that Americans wouldn’t want to profit from it, then legislators were just being stupid. Obviously, everyone wanted to profit — those who received the loans wanted to benefit, those that originated wanted to benefit, and those that backed them did as well.

      <

      p>The legislation was bad because it only regulated the big guys as if they were the only ones motivated by profit or betterment. Foolish.

      <

      p>Now, if you’re going to try to say that McCain did something bad re: Keating, I and McCain will agree. And in this whole complicated mess, McCain’s candor about Keating then and now gives me a glimmer of real hope.

      <

      p>So I don’t understand why you don’t care whose coffers have been fattened — and amazingly so — from Feddie & Frannie. Or who is being advised by them and their ilk. Is it only because there is a (D) after their names?

      <

      p>

      • suggests that McCain doesn’t recognize what the problem is.  He’s proposing to reduce speeding by motorists by increasing parking ticket enforcement.

          • McCain’s proposal misses the threat that is causing panic in all of the equity markets– the credit freeze.  Buying mortgages isn’t going to help that.  It is instead, pandering to people who feel justifiably threatened right now.

            <

            p>The incompatibility of the proposal with the conservative credo is evidence that the only crisis that McCain is worrying about is his crashing numbers.

      • The vast majority of Countrywide’s loans are not regulated by CRA.  As you mentioned in your comment further downthread, CRA is based on an assessment area that basically encompasses places where an institution takes deposits.  That was what the law was designed for — making sure that banks that were taking deposits in particular neighborhoods were also lending in those neighborhoods.  

        <

        p>Much of Countrywide’s lending was done in areas far away from their deposit-taking branches, which means they were not included in their CRA assessment area.  Also, even though Countrywide had a bank charter, a lot of their lending was done outside of the banking regulatory system.  Brokers originated many loans that were sold to Countrywide’s wholesale division (again, unregulated by CRA).  They also kept a mortgage company license (at least in MA), which allowed them to originate loans that were ultimately sold to the bank, but weren’t subject to CRA regulations.

        <

        p>The Jeff Jacobys and Jonah Goldbergs of the world, both of whom are pushing this “CRA is to blame” line in the Boston papers, have no idea what they’re talking about.

        • This is the kind of information I was looking for.

          <

          p>I’m certain I don’t yet understand everything. Certainly something happened in the mid-1990s that led to catastrophic change in the banking industry, specifically with mortgages. I now think CRA is a part of that equation, but not the root cause.

          <

          p>As I’ve read more of the testimony, there still are seeming conflicts. From Seidman page 4:

          <

          p>

          The myriad of other types of organizations, ranging from credit unions through mortgage bankers, securities firms and insurance companies to check
          5 cashers, payday lenders, pawn shops and mortgage brokers, who provide some or all of the same
          types of financial services to some or all of the people and places CRA was designed to assist,
          remain uncovered.

          <

          p>The from Seidman page 6:

          <

          p>

          The strategic plan option has been rarely used,
          in spite of its theoretical utility for institutions with non-traditional business strategies, especially
          internet banks and others with a limited geographic base. The ability to count affiliate loans, which are often subject to far less regulatory supervision and scrutiny than loans made in the bank, toward meeting CRA goals also raises concerns, especially with respect to lending outside
          of a bank’s major assessment areas.

          <

          p>I’m having especial difficulty in squaring Seidman’s last sentence about “lending outside of a bank’s major assessment area” counting towards CRA goals, and your statement that Countrywide’s lending outside of its assessment area wasn’t counted.

          <

          p>And also Barr’s statement:
          “Moreover, banks get CRA consideration for both originating and purchasing loans, creating a trading system. Institutions can also get credit under the CRA investment test for purchasing loan securities. The development of this secondary market has increased liquidity and transparency.”

          <

          p>And all top of this, I do not know what would happen if a bank didn’t meet its CRA goals. Is this a serious enough deterrent that banks and thrifts were incentivized to route around it. What impact did changes to the banking industry, such as the Riegel-Neal act of 1994 and the boom of internet technology have? And what about the home-buying frenzy that encouraged buying homes at all-time high prices? The market was irrational, as the market often is — people tend to buy high when prices are rising and sell when they are falling, and they often get burned by this tactic.

          <

          p>Again, thank you for the thoughtful response.  

  2. Most bloggers here have Cognitive dissonance and will not believe anything which flies in the face of their beliefs (Obama and the Democrats are just perfect… all problems in the world originate from George Bush, Republicans and Conservatives). Therefore any data (the video you linked) must be a lie.

    <

    p>Don’t expect any support or genuine responses.

    • The video made sense to me.

      <

      p>But then again, I think Obama will be a terrible president. So, I’m looking for the critical eye that I may not be able to give it myself.

    • I can’t get the damn video to play, but honestly, doesn’t anyone have a BS detector installed?

      <

      p>Here’s reality:  CRA driven loans were both (i) too few in number, relative to the entire market, and (ii) too low in value, to have that much of an impact on the credit markets.

      <

      p>Think about it a minute.  CRA loans are, by definition, made against low-value property in urban areas, to relatively low-income people.  Otherwise, it would be a high income housing initiative.  Most therefore come in in the $100K to $200K range.

      <

      p>At the same time, we had no-money down mortgages being written for $850,000.  By simple arithmetic, you can see that it would take 6 or 7 defaulting CRA borrowers to have the impact of just one defaulting jumbo loan borrower.  And there are more of the latter, which simply overwhelm the impact of the CRA type loans.

      <

      p>Does that mean the CRA loans are a non-factor?  No, but it means that they are one factor among many, and likely dwarfed by others, in particular, the crazy willingness to make jumbo loans without ascertaining the ability to repay.  The craziness was aided an abetted by Republican (esp. Greenspan) aversion to regulation of the financial markets, and Democratic efforts to do the bidding of the former Democratic politicians running Freddie Mac and Fannie Mae, plus the myopia of all of the players in the system.  Plenty of blame to go around the political arena.

      <

      p>Why were lenders crazy enough to make these loans?  Because they thought they had insured against the risk of default by purchasing insurance against default.  When it turned out that the insurance contracts (also called CDSs), everyone in the market suddenly realized that what they thought were low-risk securities are actually super high-risk securities, and are now afraid to lend anything to anyone.

      <

      p>Here is a general hint:  if you find a polemic, or video, that argues that the crisis in the financial markets can be simplified to be viewed as a direct result of either (i) only Reagan and Republican deregulation, or (ii) only Democratic efforts to increase the rate of home ownership, you know that the writer or speaker is a lying politician.

      <

      p>If you want to believe lying politicians, that is your prerogative.  

      • Are they mutually exclusive?

        <

        p>No doubt foreclosures on jumbo mortgages are increasing. But, with housing prices through the roof, there were an awful lot of loans that were jumbo (before the limits were raised earlier this year). We’re talking over $417K, right? That’s a modest home price in southern CA and the east coast, two foreclosure hotspots.

        <

        p>But to the question, are jumbo loans not part of CRA? A definition of CRA loans given by a government report from 2000:

        <

        p>

        Part A uses a definition of “CRA Loans” that comports with the primary focus of the “lending test” portion of CRA performance evaluations. Because of the nature of the regulations that implement the CRA, the definition of a “CRA Loan” differs somewhat according to loan product. In particular, for 1-4 family residential lending, any loan
        made within your banking institution’s local CRA-assessment area(s)(generally those areas where your retail banking offices are located) to a lower-income borrower (regardless of neighborhood income) or in a lower-income neighborhood (regardless of borrower income) is considered a “CRA Loan.”

        <

        p>

        • with an $850K mortgage on their primary residence located in Roxbury.

          <

          p>CRA is a portion of the problem, but in the same sense that the wooden construction of a building is a factor in a fire after the building has been drenched in gasoline and set ablaze.

          • does anyone have the facts? What is the distribution of the loans that have been foreclosed. My suburban town in Central Mass of 6,500 homes has 8 in foreclosure. I’m sure my old neighborhood of Dorchester has slightly more. Anyone have the facts?????

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