U.S. sues S&P over subprime ratings

Hard Truth said:

You can only call it affirmative action if you can prove banks were required to provide loans to unqualified borrowers. So far, no on e on this thread has been able to show any legislation or regulation that does that. The CRA did require loans to unqualified borrowers, so it was an ant-discriminatory law, not a form of affirmative action.

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iguanaman said:

It would be much more accurate to say
that the banks (and you) are now
using that as an excuse for their predatory behavior. The "aim" of the CRA was to simply outlaw "red-lining" of inner city areas causing borrowers there to be unable to get loans no matter wnat thier qualifications. CRA loans did not modify qualifications. That was later when the banks no longer had to care about qualifications since they intended to sell them off. What does that have to do with the CRA program at all?
Not one bank was forced to make even one subprime loan and I dare you to prove it. Forced means by court order by the way. Don't you think bankers have lawyers either?

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Jack Hays said:

This is my last attempt.


New Study Finds CRA 'Clearly' - Investors.com
news.investors.com › IBD Editorials › Perspective

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Hard Truth said:

This is the abstract for the study referenced in the editorial that Jack Hays linked to.

"Did the Community Reinvestment Act (CRA) Lead to Risky Lending?
Sumit Agarwal, Efraim Benmelech, Nittai Bergman, Amit Seru

NBER Working Paper No. 18609
Issued in December 2012
NBER Program(s): AP CF

Yes, it did. We use exogenous variation in banks’ incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on lending activity. Our empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming."

Did the Community Reinvestment Act (CRA) Lead to Risky Lending?

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Jack Hays said:

I was not able to get the link to post, so I am forced to excerpt.

New Study Finds CRA 'Clearly' Did Lead To Risky Lending

By Paul Sperry
Posted 12/20/2012 06:56 PM ET

Democrats and the media insist the Community Reinvestment Act, the anti-redlining law beefed up by President Clinton, had nothing to do with the subprime mortgage crisis and recession.

But a new study by the respected National Bureau of Economic Research finds, "Yes, it did. We find that adherence to that act led to riskier lending by banks."

Added NBER: "There is a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam. Moreover, the effects are larger for loans made within CRA tracts," or predominantly low-income and minority areas.

To satisfy CRA examiners, "flexible" lending by large banks rose an average 5% and those loans defaulted about 15% more often, the 43-page study found.

The strongest link between CRA lending and defaults took place in the runup to the crisis — 2004 to 2006 — when banks rapidly sold CRA mortgages for securitization by Fannie Mae and Freddie Mac and Wall Street.


Read More At IBD: New Study Blames Community Reinvestment Act For Mortgage Defaults - Investors.com
Follow us: @IBDinvestors on Twitter | InvestorsBusinessDaily on Facebook

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Jack Hays said:

I was not able to get the link to post, so I am forced to excerpt.

New Study Finds CRA 'Clearly' Did Lead To Risky Lending

By Paul Sperry
Posted 12/20/2012 06:56 PM ET

Democrats and the media insist the Community Reinvestment Act, the anti-redlining law beefed up by President Clinton, had nothing to do with the subprime mortgage crisis and recession.

But a new study by the respected National Bureau of Economic Research finds, "Yes, it did. We find that adherence to that act led to riskier lending by banks."

Added NBER: "There is a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam. Moreover, the effects are larger for loans made within CRA tracts," or predominantly low-income and minority areas.

To satisfy CRA examiners, "flexible" lending by large banks rose an average 5% and those loans defaulted about 15% more often, the 43-page study found.

The strongest link between CRA lending and defaults took place in the runup to the crisis — 2004 to 2006 — when banks rapidly sold CRA mortgages for securitization by Fannie Mae and Freddie Mac and Wall Street.


Read More At IBD: New Study Blames Community Reinvestment Act For Mortgage Defaults - Investors.com
Follow us: @IBDinvestors on Twitter | InvestorsBusinessDaily on Facebook

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The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”

Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses, according to a recent study by the law firm Traiger & Hinckley (PDF file here).

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The 1992 affordable housing goals required that, of all mortgages Fannie and Freddie bought in any year, at least 30 percent had to be loans made to borrowers who were at or below the median income in the places where they lived. Over succeeding years, the Department of Housing and Urban Development (HUD) increased this requirement, first to 42 percent in 1995, to 50 percent in 2000, and finally to 55 percent in 2007. It is important to note, accordingly, that this occurred during both Democratic and Republican administrations.

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Fenton said:

LOL !!!

They were mandated, put under a quota system to buy the "crap" in the early 90s, forced to increase the share of the crap in the mid ninetess.

They owned 66% of the "crap" by the end of 2008 and 80 % of the "crap" was on the books of Govt Financial entities when it all fell apart.

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Hillarious. How could anyone be so ignorant.

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It is clear to anyone who has studied the financial crisis of 2008 that the private sector’s drive for short-term profit was behind it. More than 84 percent of the sub-prime mortgages in 2006 were issued by private lending. These private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year. Out of the top 25 subprime lenders in 2006, only one was subject to the usual mortgage laws and regulations. The nonbank underwriters made more than 12 million subprime mortgages with a value of nearly $2 trillion. The lenders who made these were exempt from federal regulations.

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By the mid 2000s the GSEs were offering no money down ARMS for people with no credit and questionable work history.

Buzz off dude. Grown-ups are discussing inportant issues.

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OpportunityCost said:

FNF owned half the mortgage paper at the end of 2007. Youre going to tell me they had no bad loans? Even you cant be that gullible.

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PeteEU said:

Come on... do you even understand what FnF is? They have ALWAYS owned most the mortgage paper in the US for **** sake. But they never issued those mortgages... Even today they own most mortgages out there.

They were set up to help American's like you and every other right winger (and left winger) on these boards to get their own homes. If it was not for them, then most American's would not own their own homes because they would not be able to meet basic lending rules at the banks.

Banks sell their mortgages to FnF all the time.. and FnF cant say no if the mortgages meet the rules set out by FnF. Most bad subprime mortgages that caused the crisis, never met those rules and hence were never in the FnF system. FnF does not issue mortgages.. banks do. FnF is nothing but a subsidy for American banks... tanking loans of the American banks balance sheets and pumping taxpayer money into the banks.

Now saying that FnF were forced to accept bad subprime mortgages by Congress after the crisis started as part of saving the American banking sector.

Fool Me Twice: Bank of America Plays Hide And Seek Using Fannie Mae - Forbes

Nice deal for Bank of America... gets 73 billion of bad loans off its books and pushes it on the taxpayer..

Add to that, that FnF primary market is the lower and middle class mortgage market, and that it is always these classes that get hit the hardest by an economic crisis, then it is no wonder that FnF were hit by a rising number of bad loans. It is economics 101.

Not my fault that most conservatives live in a parallel universe where the private sector can do no wrong and everything is the fault of the public sector, the poor, blacks, non-Christians, socialists, left wingers and women.. oh and I almost forgot the gays..

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Fannie Mae was created in 1936 during the Great Depression to provide a secondary market to encourage greater use of the innovative long-term, fixed-rate, level-payment, fully amortized mortgages that the newly created Federal housing Administration (FHA) was insuring against loss of principal and interest. The exercise was a success, and this type of innovative mortgage became the standard means of financing the postwar housing boom that raised the homeownership rate from 44 percent in 1940 to 69 percent by 2004.[3]

By the 1970s, the basic purpose of the GSEs had shifted to the role of adding more funds to the housing market by connecting prospective homebuyers with major capital markets. To accomplish this goal, the GSEs use their preferred credit rating to borrow in major financial markets and use the funds raised to acquire residential mortgages from brokers and other mortgage originators, earning profits and covering expenses on the difference in the interest rates earned and paid. The GSEs also package mortgages acquired from originators into "pass through" securities that are collateralized with qualified residential mortgages. Payments of principal and interest made by the homeowners are then "passed through" to the investors holding the securities.

Over much of this period, Fannie Mae and the federal government were minor players in the process. By 1965, the homeownership rate had risen to 63 percent, but Fannie Mae and the other sources of federal mortgage credit support accounted for only 6 percent of outstanding residential mortgages.[4] Savings and loan associations, savings and commercial banks, and life insurance companies accounted for most of the rest.[5]

Fannie Mae was restructured as a federally chartered corporation in 1968, and its shares were sold to the public a year later. Initially, Fannie Mae was limited to investing in residential mortgages insured by the FHA or guaranteed by the Veterans Administration so as to maintain its public purpose of assisting entry-level homebuyers.

A few years after Fannie Mae's "privatization," Congress authorized the creation of another government-sponsored mortgage credit facility, Freddie Mac, as a federally chartered corporation to provide a secondary market for the conventional mortgages written by savings and loans and other lenders and brokers. Over time, the mandates guiding the FNMA and FHLMC were liberalized, and the scope of their activity was expanded substantially to the point that they and the other federal housing finance programs now account for more than half the residential mortgage market in the United States.

Although structured as private companies, both the FNMA and the FHLMC operate with valuable federal privileges that give them a significant competitive advantage over other participants in the housing finance market. In particular, they are exempt from state and local income taxes; more important, they have exclusive access to lines of credit from the U.S. Treasury and the U.S. Federal Reserve System. Under current law, each is permitted to borrow up to $2.25 billion from the Treasury, and the Federal Reserve is authorized to purchase their debt as part of any "open market operation." Although neither of these privileges has ever been requested, the fact that the federal government is authorized to assist these GSEs is interpreted by investors as an implied federal guarantee of their debt, and this interpretation allows them to borrow at interest rates well below those paid by private companies with the best credit ratings and only slightly higher than what the Treasury pays on its own full faith and credit debt.

As quasi-private companies obligated to enrich their shareholders with ever-increasing earnings and dividends, and operating with an implicit federal interest rate subsidy as well as a federal mandate to promote homeownership, Fannie Mae and Freddie Mac had every reason and opportunity to grow rapidly. By the 1980s and early 1990s, they dominated the housing finance market. By parlaying their subsidized borrowing advantage into lower-rate mortgage lending, they gradually pushed life insurance companies and commercial banks out of the less profitable residential mortgage market and squeezed the earnings of the already wobbly savings and loans, which by law could invest only in residential mortgages. While homebuyers benefited from slightly lower borrowing costs, financial markets were put at greater risk as more and more of the housing finance system was concentrated in the hands of two highly leveraged, unsupervised, federally chartered financial institutions.

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PeteEU said:

Horse****. 80+% of the "crap" that caused the crash was not held by Fannie and
Freddie. And that "crap" is most likely your mortgage ... you do realize that right?



Yes you are.

Lest We Forget: Why We Had A Financial Crisis - Forbes



Do you understand... PRIVATE SECTOR..



No you are pushing lies and propaganda from the GOP.. nothing more nothing less.

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PeteEU said:

Come on... do you even understand what
FnF is? They have ALWAYS owned
most the mortgage paper in the US for **** sake. But they never issued those mortgages... Even today they own most mortgages out there.

They were set up to help American's like you and every other right winger (and left winger) on these boards to get their own homes. If it was not for them, then most American's would not own their own homes because they would not be able to meet basic lending rules at the banks.

Banks sell their mortgages to FnF all the time.. and FnF cant say no if the mortgages meet the rules set out by FnF. Most bad subprime mortgages that caused the crisis, never met those rules and hence were never in the FnF system. FnF does not issue mortgages.. banks do. FnF is nothing but a subsidy for American banks... tanking loans of the American banks balance sheets and pumping taxpayer money into the banks.

Now saying that FnF were forced to accept bad subprime mortgages by Congress after the crisis started as part of saving the American banking sector.

Fool Me Twice: Bank of America Plays Hide And Seek Using Fannie Mae - Forbes

Nice deal for Bank of America... gets 73 billion of bad loans off its books and pushes it on the taxpayer..

Add to that, that FnF primary market is the lower and middle class mortgage market, and that it is always these classes that get hit the hardest by an economic crisis, then it is no wonder that FnF were hit by a rising number of bad loans. It is economics 101.

Not my fault that most conservatives live in a parallel universe where the private sector can do no wrong and everything is the fault of the public sector, the poor, blacks, non-Christians, socialists, left wingers and women.. oh and I almost forgot the gays..

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Fenton said:

He's gotten up from the childrens table ...

I sighted facts, others have sighted studies, you sighted the year 2006, and those loans were purchased, bundled up and sold as derivitives by the GSEs.

Do some research, grow the hell up and understand this happened way before Bush's term.

That Clinton pushed for higher quotas and enforced, doubled down on the CRA regulations. HUD pushed the GSEs to offer lower quality loans at a climbimg percentage to their total originations.

The bulk of sub-prime debt was held by the GSEs. You can retrieve that information anywhere...(watch him quote WIKI..)

Where do you get your facts from, a Dr Suess Book ? And what does you not understanding the private sector have anything to do with the Democrat mandated bubble ?

Its not my fault you are without the cognizant means to understand the Sub-prime collapse.

Its not my fault you are part of and beholden to a empty and destructive ideology.

Its not my fault that the truth exposes your agendas lies and misinformation.

Offer up real evidence from an objective source. What were the GSEs and other Govt Financial Agencies total originations of sub-prime debt by the end of 2008?

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Fenton said:

He's gotten up from the childrens table ...

I sighted facts, others have sighted studies, you sighted the year 2006, and those loans were purchased, bundled up and sold as derivitives by the GSEs.

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Do some research, grow the hell up and understand this happened way before Bush's term.

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That Clinton pushed for higher quotas and enforced, doubled down on the CRA regulations. HUD pushed the GSEs to offer lower quality loans at a climbimg percentage to their total originations.

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The bulk of sub-prime debt was held by the GSEs. You can retrieve that information anywhere...(watch him quote WIKI..)

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Where do you get your facts from, a Dr Suess Book ? And what does you not understanding the private sector have anything to do with the Democrat mandated bubble ?

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Its not my fault you are without the cognizant means to understand the Sub-prime collapse.

Its not my fault you are part of and beholden to a empty and destructive ideology.

Its not my fault that the truth exposes your agendas lies and misinformation.

Offer up real evidence from an objective source. What were the GSEs and other Govt Financial Agencies total originations of sub-prime debt by the end of 2008?

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iguanaman said:

What happened "way before Bush's term"? Certainly not a housing bubble, that happened on Bushs watch while a GOP majority in Congress twiddled their thumbs. Blaming Clinton for something the Congress could have ended in a heartbeat is ludicrous. The fact is that there was no problem until Bush was in office, he did nothing about it and so it is his baby, just like the "Minority Housing Initiative" and the $440 billion in bad loans he sold to Fannie Mae was his baby too.

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PeteEU said:

You have sighted right wing think tanks
who are so deep into to hating Fannie and Freddie that their findings are at best laughable. Funny thing, it was these very same experts that pushed for a deregulation of the banking sector that directly lead to the crisis in the first place.. running from responsibility again I see ..



Oh I know... had Clinton not signed the 96 law, pushed by the GOP and written by the GOP... then the financial crisis would never have been as bad as it has been or maybe even happened. The fact that the barrier between banks and investment banks was shattered and the two allowed to mix drove the whole crisis.



How on earth could Clinton do anything.. the GOP had congress. Running from responsibility again I see.



Again wrong. While GSE's do hold and held sub-prime mortgages... it was kind of why they were formed in the first place, but they did not hold the crap that caused the crisis because this crap would not meet their regulatory standards... go read up on it, you might learn something. Why else did Washington Mutal go belly up... oh yea the sold crap that was so bad that not even Fannie and Freddie were allowed to buy it up.



Attempting to insult me only shows how little you actually have to back up your claims.



Again with the personal insults, and why did you say end of 2008.... odd date since the **** hit the fan in 2007 and bailouts happened in 2007 and early 2008.. and one of the ways to bail out the private sector was to move the crap onto GSE's books.

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PeteEU said:

The US right have been spreading lies since
day one, because they realized it was
their policies that fueled the crisis and made it blow up. If you remember back in 2007-8, the only comments we got from the GOP was about blaming Fannie and Freddie, while all reports showed that the problem children were all in the private sector and that the sub-prime loans that caused the ultimate collapse were sold by predatory private banking institutions like Washington Mutal, Bank of America and so on.... all the banks that were bailed out.

This whole thread is a continuation of the same horse**** that the GOP has spread the last 5 years.. blaming Fannie and Freddie for all the ills of the financial crisis, in an attempt to hide their own complicity in the crisis.

There is no doubt that Fannie and Freddie are in trouble, and the reason are simple... they cater to the lower end of the mortgage market, which of course are people who get hit first in any financial crisis and hence the default rate is higher over time than anyone else. But blaming these 2 institutions for the crisis is beyond idiotic as it gives the private banking sector who caused the crisis a free pass... and that is just wrong.

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iguanaman said:

LOL IBD is not a viable source. They are obviously shilling for the banks. This whole myth was debunked years ago. I can't believe you still aren't in on the joke. Hint: No actual numbers were revealed in that "study" only %. That's because the joke is that CRA loans made up less than 20% of subprime loans. 80% were not subject to CRA (or any other) regulations AT ALL. and that 80% contained the very worst of the predatory loans. CRA loans were much less likely to default because of better terms and income verification.

Fresh off the false and politicized attack on Fannie Mae and Freddie Mac, today we’re hearing the know-nothings blame the subprime crisis on the Community Reinvestment Act — a 30-year-old law that was actually weakened by the Bush administration just as the worst lending wave began. This is even more ridiculous than blaming Freddie and Fannie.


Community Reinvestment Act had nothing to do with subprime crisis - BusinessWeek

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Jack Hays said:

Denial is never healthy or attractive.:no:

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Fenton said:

The GSEs were suppposed to buy up the majority of sub-prime debt and drive us into a economic collapse ?

Really ? News Flash, it was all crap. Sub-prime defaults were not isolated to the "good" sub prime mortgages.

And those laws Clinton signed were pushed by liberal Democrats like Barney Frank and community organizer groups like ACORN.

Yea the Republicans are all about ACORN and Barney Frank.

The securitization of the loans was obviously a bad idea, Clinton could have vetoed all of it, but it fit his redistributive beliefs to the core.

Quotas put under HUD and a increase in CRA regulations can directly be traced back to liberal Democrats, because HUD has always been a Conservative pet project.

No, no it hasn't.

Too bad your attempt at twisting the facts and asigning blame over regulations that institutionalized the sub-prime collapse are being ignored.

More and more people are waking up to the reality that lowering Lending standards through CRA and HUD compliance caused the greatest bubble of all times in terms of losses and economic impact.

New studies are proving the destructive policies under liberal programs were what started and perpetuated the collapse.

You know , the ones you chose to ignore as you offer up the one dimensional explanation of "its Bush's fault.

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Fenton said:

Lol....2007-2008..?

Hillarious.

Fannie and Freddie were begging banks for their sub-prime debt so they could meet their quotas.

Banks that were insured Federally had to meet CRA requirments.

Read the latest study. Argue with it.

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The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”

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iguanaman said:

Over 80% of subprime loans were not CRA qualified and had no regulations at all. If the only subprimes sold were CRA loans there would have been no housing bubble at all. That study fails to mention that. I wonder why?

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iguanaman said:

It's Bush's fault because he was in charge. Why do you deny he was CIC? Why do
you deny the Rep. majorities in both Houses he enjoyed?
Even the great and powerful Barney Franks could not have stopped him if he tried. He even sold $440 Billion in subprime loans to Fannie Mae and not one of them was a CRA loan. In 2004, He used Federal power to keep the ball rolling by stopping the States from regulating the predatory mortgages with their own laws. How much more do you need. He REALLY wanted that housing bubble in the worst way. It was his only hope of any growth in the stagnant economy his policies were causing. Like everything Bush did, it was a complete disaster.

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Fenton said:

"It's Bush's fault, it's Bush's fault..."

Raving liberals and their one dimensional empty accusations.

Your "80%" number ? Where did you get it from ?

And without the CRA and HUD regulatory powers that were pushed through by yoir slimey bunch, these loans would have never seen the light of day.

Truth is out. The Democrats institutionalized the greatest financial crash of all times

Mandated even. And you guys response to thst was to........elect the least competent csndidate in our nations History.

Now an exploding debt, increased unemployment, massive deficit spending, a shrinking economy, and increased dependent class is your an to fix your mess feom the sub-prime collapse.

I think the GSEs wound up with over 60% of all sub-prime debt and Govt financial agencies wound up with and extra 20%.

Who mandated their increased exposure to bad debt ? You want a hint ? It wasn't a Republican.

Your one dimensional blame the bank nonsense doesn't mention Fannies massive buying, bundling and selling of good mixed with bad MBSs...

I wonder why. The GSEs are directly responsible for screwing over millions of investors by doing that. AND bankrupting 100 year old investment bank. But you give them a pass....

Expected.

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http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_conclusions.pdf

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

Nonetheless, we make the following observation about government housing policies
... the government failed to ensure that the philosophy of opportunity was
being matched by the practical realities on the ground. Witness again the failure of
the Federal Reserve and other regulators to rein in irresponsible lending.

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I think the GSEs wound up with over 60% of all sub-prime debt and Govt financial agencies wound up with and extra 20%.

Your one dimensional blame the bank nonsense doesn't mention Fannies massive buying, bundling and selling of good mixed with bad MBSs...

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http://www.fhfa.gov/webfiles/16711/RiskChars9132010.pdf

* Enterprise-acquired mortgages were predominantly fixed-rate loans. Such loans comprised 88 percent of all Enterprise-acquired mortgages originated between 2001 and 2008 and ranged from 79 percent for 2004 originations to 96 percent for 2001 originations.
<snip>

* Roughly 5 percent of Enterprise-acquired fixed-rate mortgages (FRMs) and 10 percent of Enterprise-acquired adjustable-rate mortgages (ARMs) were ever 90-days delinquent at some point before the end of 2009.

* In contrast, roughly 20 percent of FRMs financed with private-label MBS and 30 percent of ARMs financed with private-label MBS were ever 90-days delinquent at some point before year-end 2009. The relatively worse performance of private-label MBS-financed mortgages was consistent across origination years and, within each year, across nearly all groups of loans with similar LTV ratios and FICO scores.

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