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technoextreme said:
My mother was ranting and raving to me about this 20 minutes ago. She told me twenty years ago it was almost impossible without a friends help to get a credit card. Nowadays my brother and I get them in the mail every other week. My parents also complain about companies trying to persuade them to take out outrageous loans.
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Same in this country - it's not that long ago, probably no more that 20 years ago, when you could be told to come back next month as all the mortgages had already been allocated for this month. The idea that mortgages, loans, HP and other forms of credit are easy to come by is a very recent thing (at least in the UK).


WildCat said:
Darat, it requires banks to make loans to people of all income levels. It was designed to force banks to make loans to people they wouldn't have otherwise given loans to - because they were risky!
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Again I'll ask for the actual evidence that any company was forced to make bad loans.

WildCat said:
Or are you claiming a law was needed to force banks to make low-risk, profitable loans? :confused:
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I'm not claiming anything.
 
Can't possibly be related to the CRA...
The data suggest, then, that there is an urban component to the foreclosure
crisis, but that within urban areas, there is a sharp demarcation between inner city and higher-income neighborhoods.
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Just sheer coincidence that the areas the CRA was designed to force banks to issue loans in are suffering the worst of the crisis?
 
Darat said:
Again I'll ask for the actual evidence that any company was forced to make bad loans.
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Darat, the law doesn't say "you must make bad loans". It says "you must make a certain percentage of your loans in this particular neighborhood regardless of the pool of credit-worth people in that neighborhood".

The result is the same - banks forced to make risky loans.
 
WildCat said:
Darat, the law doesn't say "you must make bad loans". It says "you must make a certain percentage of your loans in this particular neighborhood regardless of the pool of credit-worth people in that neighborhood".

The result is the same - banks forced to make risky loans.
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Repeating your claim in different words isn't actually supporting your claim you know! :)

Again please provide the evidence that shows that banks were forced to make bad loans.
 
To Darats question,

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

In early 1993 President Bill Clinton ordered new regulations for the CRA which would increase access to mortgage credit for inner city and distressed rural communities.[7] The new rules went into effect on January 31, 1995 and featured: requiring strictly numerical assessments to get a satisfactory CRA rating; using federal home-loan data broken down by neighborhood, income group, and race; encouraging community groups to complain when banks were not loaning enough to specified neighborhood, income group, and race; allowing community groups that marketed loans to targeted groups to collect a fee from the banks.[4][6]
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I can tell you from personal experience that is was sooooo easy to get a subprime interest only loan in the mid to late 90s. With a little cash in the bank and a decent credit score, you could buy the house of your dreams or multiple rental properties. I bought 13 houses over a 3 year period (almost lost everything and yes it was my own fault) because it was so easy to get approved, and got way ahead of myself. Banks would see the equity off the first couple houses and then the loans just rolled in. Took a few years to get in the mess and several to get out. FYI-renters suck.

I blame alot of my gray hairs on getting through it and the rest on my kids.:D

Anyway, people that think this all started with deregulation in the last 8 years are living in a bubble. The seeds to the housing mess were planted long ago. Any mortgage underwriter could tell you this has been going on for a long time.
 
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Yes it has been brewing for a long time, but the situation needed two things to knock it over. I have heard MANY interviews with mortgage brokers about the great financial rewards they recieved by creating and packaging junk loans to pile up into mortgage backed securities.

This crash could not have happened if there were not such a huge market for these securities and so little thought on the part of the people buying them that they were based on doomed loans.

While other things have set the scene, it was the accelerated creation of these loans in the past decade or so, based not on government mandate, but on a sincere desire on the part of large foreign institutions to purchase these supposedly low risk financial products.
 
Tailgater said:
To Darats question,

http://en.wikipedia.org/wiki/Community_Reinvestment_Act
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This is not a point I'd trust Wikipedia on especially given its own "neutrality" warning at the top - but even if we just go by that article it also just asserts the same i.e. provides no refernces or cites for that claim:

"The new rules, during a time when many banks were merging and needed to pass the CRA review process to do so, substantially increased the number and aggregate amount of loans to low- and moderate-income borrowers for home loans, some of which were "risky mortgages."[citation needed]​
 
So do you prefer the scenario where a demagogue stirs up outrage in the population just long enough to gain power and outlaw free markets?

How's that worked out, historically?
 
Darat said:
This is not a point I'd trust Wikipedia on especially given its own "neutrality" warning at the top - but even if we just go by that article it also just asserts the same i.e. provides no refernces or cites for that claim:

"The new rules, during a time when many banks were merging and needed to pass the CRA review process to do so, substantially increased the number and aggregate amount of loans to low- and moderate-income borrowers for home loans, some of which were "risky mortgages."[citation needed]​
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http://www.ffiec.gov/cra/history.htm

The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound banking operations. It was enacted by the Congress in 1977 (12 U.S.C. 2901) and is implemented by Regulations 12 CFR parts 25, 228, 345, and 563e. (See Regulation)

The CRA requires that each insured depository institution's record in helping meet the credit needs of its entire community be evaluated periodically. That record is taken into account in considering an institution's application for deposit facilities, including mergers and acquisitions. (See CRA Ratings) CRA examinations (see Exam Schedules) are conducted by the federal agencies that are responsible for supervising depository institutions: the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS).
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Tailgater from your own reference:

"The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound banking operations."

That again does not sound as if anyone was being forced to make bad loans.
 
Darat said:
Tailgater from your own reference:

"The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound banking operations."

That again does not sound as if anyone was being forced to make bad loans.
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You are assuming the criteria used for "safe and sound" is a concrete foundation. I would argue giving a loan in a low income neighborhood is a bad premise to begin with.

Also, do you want to be the banker with the bad review on discrimination and lose good business or are you the banker who dishes out the borderline loans to be the "community" banker. The CRA created a no-win situation.
 
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Darat said:
Tailgater from your own reference:

"The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound banking operations."

That again does not sound as if anyone was being forced to make bad loans.
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Big difference between "Bad" and "Higher Risk"
 
Thanks all, I am glad to at leasts ee some sources of data and history this time!

Thanks WC! I am off break soon, will read more later.

Again I am multivariate, I won't say anything has a single cause.
 
Cavemonster said:
Yes it has been brewing for a long time, but the situation needed two things to knock it over. I have heard MANY interviews with mortgage brokers about the great financial rewards they recieved by creating and packaging junk loans to pile up into mortgage backed securities.

This crash could not have happened if there were not such a huge market for these securities and so little thought on the part of the people buying them that they were based on doomed loans.

While other things have set the scene, it was the accelerated creation of these loans in the past decade or so, based not on government mandate, but on a sincere desire on the part of large foreign institutions to purchase these supposedly low risk financial products.
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There was basically outright fraud at several levels.

The property assessments often wildly overstated real estate values.

Unqualified buyers were encouraged to lie on mortgage applications.

These dicey loans were then bundled on Wall Street, stamped with AAA ratings and sold as if they were actually high quality financial instruments.

The best explanation I have seen is this sketch by two British comics done over a year ago:
 
Kestrel said:
There was basically outright fraud at several levels.

The property assessments often wildly overstated real estate values.

Unqualified buyers were encouraged to lie on mortgage applications.

These dicey loans were then bundled on Wall Street, stamped with AAA ratings and sold as if they were actually high quality financial instruments.
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Exactly, and I found that it was the mortgage broker who would take the information given by the buyer and "arrange" the finances to best appeal to things the underwriter would like to see. Many people probably recieved loans they shouldn't have because they looked good on paper. Challenging credit agencies on a derogatory mark while slipping a loan under the carpet is another tactic.
 
Tailgaiter,

What does that have to do with the CRA?
It was clearly highly PROFITABLE for these brokers to arrange these loans. It was profitable for the underwriters to pretend nothing was wrong with them. Why suggest they were forced into it?
 
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