Definitive proof that CRA, Fannie and Freddie are not to blame for housing crisis

The amount of loans originated under CRA



Proof that private MBS labels skyrocketed while Fannie and Freddie's dropped:



Agency vs. Private label issuance



Examining the big lie: How the facts of the economic crisis stack up | The Big Picture

JP Hochbaum said:

The amount of loans originated under CRA

View attachment 67184835

Proof that private MBS labels skyrocketed while Fannie and Freddie's dropped:

View attachment 67184836

Agency vs. Private label issuance

View attachment 67184837

Examining the big lie: How the facts of the economic crisis stack up | The Big Picture

Click to expand...

You must look more at fiscal and monetary policy in the 1990's that caused the bubbles beginning with the dot.com one. The money was looking for a haven and the asset class was more or less coincidental.

Yes, there is some monetary policy that was looking for a safe haven. If we had fiscally invested more in jobs and infrastructure there would have been billions and maybe trillions in TSY's to invest in.

One - the Freddie-Fannie backed mortgages were ha led by the government and were under greater pressure to not allow their mortgages to default. Fundamentals were not part of their criteria...whereas most banks had the realities of economic fundamentals to deal with so of course their mortgages went under more often.

As for the second graph, no offense, but the reason for that is obvious. Fannie/Freddie started the trend and after it took off, the private sector ran wild with it.

I am not saying Fannie/Freddie is responsible for the housing boom rocketing out of control. But it was them and HUD - under Bush's moronic low income housing plan (which Congress went along with) which started the whole mess.
Throw in the Fed's low interest rate policy which kept rates FAR too low for FAR too long and you have the making's of the disaster.

Fannie/Freddie were the catalyst for the mess...but after they got it going, the private sector went nuts with it.


If Fannie/Freddie had not existed and had the Fed stayed out of it the housing boom/bust would not have happened, IMO. The government is to blame for starting the mess...NOT the private sector. The latter is to blame for taking it out of control.
And there is no way you can change my mind on this so I will not waste my time debating it.


Good day.

What source/empirical data do you have that shows Fannie and Freddie started this?

From what I remember as a fresh college student at the time was a relatively stable economy.

JP Hochbaum said:

The amount of loans originated under CRA

View attachment 67184835

Proof that private MBS labels skyrocketed while Fannie and Freddie's dropped:

View attachment 67184836

Agency vs. Private label issuance

View attachment 67184837

Examining the big lie: How the facts of the economic crisis stack up | The Big Picture

Click to expand...

Really ? This again ? The left trying to absolve itself from it's own disastrous policies ??? AGAIN ???

Well, ok.....

First THIS....http://www.nber.org/papers/w18609

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

" 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. "


Next, I think it's important to start at the beginning when discussing CRA's monumental impact on the 2008 Financial Crisis because at the root of it all was Clinton's " Fair Lending " initiative.

So basically in the early 90's Clinton and the Democrats created the narrative of " Racist Lenders " and then to give that narrative legitimacy he ordered the Boston FED to release a " study " that supposedly proved that Banks were discriminating based on Color. The study was poorly done and used subjective criteria among other things to arrive ta pre-determined conclusion.

" FDIC economist David Horn in 1997 reviewed that study and, in addition to finding mistakes in the data, concluded that more relevant measures of a borrower’s credit history, such as past delinquencies and whether the borrower met lenders’ credit standards, explained the difference between lending levels to blacks and whites. In fact, 49 of the 70 banks studied did not reject any minority applicants. "

The truth was Banks were not discriminating based on skin color but that didn't matter to Clinton, the Democrat party and numerous Community activist organizations that lobbied the Clinton administration to crack down on these " racist banks ". Thanks to Clinton's misrepresentations, propaganda and demagogy backed with lies, the decades old lending standards used successfully to vet lenders were declared by the Democrat party to be innately racist.

To enforce his " fair lending " edicts and crackdown on " racist lenders ", Clinton put together the 10 Federal Agency Strong Fair Lending Task Force and issued a 20 page " Policy on Fair lending " that was signed by then-HUD Secretary Henry Cisneros, Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Alan Greenspan, along with the heads of six other financial regulatory agencies.

The document warned financial institutions. "The agencies will not tolerate lending discrimination in any form,". Banks that refused to lower their lending standards were targeted with DOJ, HUD and lawsuits for Plaintiff's Attorneys like Barrack Obama, who prior to becoming a State Senator sued Citi-Bank in Chicago for " discriminatory lending practices.

In 1993, The Riegle Neal Interstate Banking Act was signed by Clinton. It tied a Banks CRA score to their ability to receive Federal approval to merge into other States.

Continued....

How effective was Clinton's fair lending task force AND CRA changes successful ???? According to Janet Reno they were very successful. In 1998 she gave a speech in front of the Community Re-Investment Collation.

03-20-98: REMARKS OF THE HONORABLE JANET RENO TO THE NATIONAL COMMUNITY REINVESTMENT COALITION

" The Community Reinvestment Act has played a critical part in ensuring that lending institutions put some of their capital into underserved areas, especially the inner cities and in minority neighborhoods.

The new Community Reinvestment Act regulations enable lenders to develop customized strategic plans for meeting their obligations under the Act, and many have been developed in partnership with your local organizations.

In this way you are not only helping to rebuild your communities, but you are showing bankers how to be responsible corporate citizens. In short, you can't do it just with capital, you can't do it just with people who care; we can do it together."

It has been my experience in these five years in office that most bankers want to be good and responsible corporate citizens, or they're willing to be if they're nudged in the right direction by vocal, knowledgeable, constructive groups such as the NCRC members and by Justice Department lawyers who care and want to do the right thing.

I have found, and I think and I hope that you have found, that lenders have listened and learned. Bank commitments, as we have noted, have increased within the last four years. The figures are staggering: an 86 percent increase of all bank commitments under the Act since it went into effect more than 20 years ago. ( LOL !! Yea the CRA was so inconsequential )


We want to see equal credit being offered by banks because it is the right thing to do, because the law requires it, because it is good business, because people accept it.

You've noted that since the inception of our fair lending initiative in 1992 the Department has filed and settled 13 major fair lending lawsuits. We are going to continue these efforts under the Acting Assistant Attorney General Bill Lann Lee in every way that we possibly can. We will continue to focus on discrimination in underwriting, the process of evaluating the qualifications of credit applicants. This was the issue in our suits against Shawmut in Boston, Northern Trust Company in Chicago, and First National Bank of Donna Anna in New Mexico. "

-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

Banks and Lenders were of-course forced BY THE GOVERNMENT, to lower their standards and make loans to people that could not pay them back.

Clinton CHANGED the CRA law via his 1995 Home-ownership Strategy AND he sicked 10 different Federal Agencies on Banks under the pretense that Banks were " discriminating " based on Color. How effective was this unprecedented Government intervention into the Free market in boosting Home-ownership rates ?? In 1993, Homeowner-ship rates were 63 %. In 2000 they were 68 %. A 5 % increase.

Under Bush they rose another 1 %.

Clinton's CRA change's were so successful in extending credit to those who couldn't or wouldn't pay it back his own Treasury Secretary, Robert Rubin thought it necessary to congratulate his boss in a memo that was recently found in a Clinton Library Document dump...

Blog: Clinton Library document dump reveals 'subprime bubble' responsibility

"Public disclosure of CRA ratings, together with the changes made by the regulators under your leadership, have significantly contributed to ... financial institutions ... meeting the needs of low- and moderate-income communities and minorities," Rubin gushed. "Since 1993, the number of home mortgage loans to African Americans increased by 58%, to Hispanics by 62% and to low- and moderate-income borrowers by 38%, well above the overall market increase.

"Since 1992, nonprofit community organizations estimate that the private sector has pledged over $1 trillion in loans and investment under CRA."

As if threatening Banks with Federal Prosecution want't bad enough, Clinton co-opted the GSEs into his fair lending initiative by first, increasing their quota of risky loans purchased from 30 % in 1993 to 42 % in 1995.

Continued....

From 1993-1999, the Clinton Administration replaced many of Fannie Mae’s key executives, including the CEO, the CEO’s number two, and nearly half the board of directors. One of his appointees was Franklin Raines.

Study Finds 'Extensive' Fraud at Fannie Mae

Study Finds 'Extensive' Fraud at Fannie Mae

Clinton also appointed Jamie Gorelick to Vice chair at Fannie Mae. At a 2000 Banking Conference she lobbied Banks to sell their CRA loans to Fannie Mae, who would then package them into " AAA " MBSs and then sell them off to investment banks.

“Fannie Mae will buy CRA loans from lenders' portfolios; we'll package them into securities; we'll purchase CRA mortgages at the point of origination; and we'll create customized CRA-targeted securities,”

“This expanded approach has improved liquidity in the secondary market for CRA product, and has helped our lenders leverage even more CRA lending. Lenders now have the flexibility to use their own, customized loan products.”

“We will take CRA loans off your hands--we will buy them from your portfolios, or package them into securities--so you have fresh cash to make more CRA loans,” he said. “Some people have assumed we don't buy tough loans. Let me correct that misimpression right now. We want your CRA loans because they help us meet our housing goals.”


In 1997, Clinton appointed Andrew Cuomo as Secretary of Housing and Urban Development. Under Cuomo Fannie and Freddie dove into Sub-prime purchases. He raised their " affordable lending " quota to 50 % and committed them to 2.4 Trillion dollars in Sub-prime purchases over 10 years.

Andrew Cuomo and Fannie and Freddie | Village Voice

Clinton also pushed the GSE into riskier investments late in his second term...

" 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. "

Fannie Mae Eases Credit To Aid Mortgage Lending - NYTimes.com

Under Cuomo Fannie Mae developed a automatic underwriting process with the help of COUNTRYWIDE financial called the Fast and EZ loan. It was the beginning of a Business partnership between Fannie Mae and CountryWide that lasted right up until Fannie and Freddie were declared insolvent in 2008.

Countrywide Loans Sought Favor With Fannie Mae, Report Says - Bloomberg Business

Countrywide Unveils 'Fast & Easy' Loan | Daily Briefing Issues

Fast and Easy Fannie | Econbrowser


In a Fannie Mae foundation report released in 2004 Fannie Mae made clear why it was CountryWide's primary consumer of its Sub-prime loans...

" Countrywide tends to follow the most flexible underwriting criteria permitted under GSE and FHA guidelines.

Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria, Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the GSE programs. …

When necessary—in cases where applicants have no established credit history, for example—Countrywide uses nontraditional credit, a practice now accepted by the GSEs "

So no, not all of the Sub-prime loans came from Banks that were heavily regulated to lower their lending standards by the Clinton administration. Some came from lenders like CountryWide, who is was the LARGEST single originator of Sub-prime loans.

But thanks to Clinton and the Democrats, Country Wide had a guaranteed buyer for their junk loans. Fannie Mae.

So much for your " definitive proof ".....

Fenton said:

Really ? This again ? The left trying to absolve itself from it's own disastrous policies ??? AGAIN ???

Well, ok.....

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

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

" 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. "

Click to expand...

The authors in this "working paper" are actually looking at the wrong loans. I also find it rather telling that this paper never made it past peer review, as it has fatal flaws in it:

First, and most importantly, the paper relies on an identification strategy based on the timing of CRA exams, but their understanding of the CRA exam process is deeply flawed. In the paper, the authors compare the lending behavior of banks with an impending CRA exam (the “treatment banks”) to the lending behavior of banks without an upcoming exam (the “control banks”). They find that banks with a scheduled CRA exam demonstrate “elevated lending” in the three quarters before and the three quarters after the scheduled exam date, and that this elevated lending is somewhat higher in low‐*and moderate‐income tracts (which are CRA‐eligible). They measure elevated lending as a relative increase in the rate at which loan applications are converted to originations, not on the actual amount of loans made. The authors claim that this increased conversion rate, relative to the conversion rate of control banks,is evidence of the banks trying to “do well” on their exam – raising their lending in CRA‐eligible neighborhoods as their exam approaches so that the examiners will give them a higher CRA rating.

The problems with their analysis start with their assumption that the three quarters before and after an onsite CRA examination is conducted are “when incentives to conform to CRA standards are particularly high.”While the CRA exam timeframe might make for a good identification strategy, the six‐quarter window around the scheduled exam date used in this paper rarely corresponds to the actual period that is covered by the CRA exam. In other words, they’re measuring the wrong thing, looking for an effect of CRA over a time period that doesn’t correspond with the timing of the loans that are actually subject to a CRA exam.*

Second, the paper’s claim that “CRA loans” (loans made by treatment banks during the period surrounding the CRA exam date) were riskier is not well supported by the evidence presented. First, the authors themselves find that the “CRA loans” were in no way ex‐ante different than loans made by banks not facing a CRA exam, concluding that there is “no meaningful change in the observable characteristics of loans made by treatment group banks relative to control group banks around the CRA exam.” For example, borrower incomes, FICO scores, loan amounts, and loan‐to‐value ratios are all similar between the treatment and control banks. Moreover, the average FICO score for loans made by banks undergoing a CRA evaluation is 714, well above the FICO score of 640 generally associated with subprime or riskier lending. Indeed, only four percent of the loans in their main CRA sample are “subprime,” suggesting that the loans made by banks undergoing CRA exams were generally high‐quality, low‐risk loans. The authors also don’t find any increased incidence of balloon or interest‐only loans, riskier product features that have subsequently been associated with a higher risk of default. If CRA was driving lenders to make riskier loans, we should see evidence of these looser underwriting standards in the observed FICO score, loan‐to‐value ratio, or loan characteristics.

Your following two posts are just more conspiracy fodder than any kind of evidence of wrongdoing by the CRA program.

JP Hochbaum said:

The authors in this "working paper" are actually looking at the wrong loans. I also find it rather telling that this paper never made it past peer review, as it has fatal flaws in it:

First, and most importantly, the paper relies on an identification strategy based on the timing of CRA exams, but their understanding of the CRA exam process is deeply flawed. In the paper, the authors compare the lending behavior of banks with an impending CRA exam (the “treatment banks”) to the lending behavior of banks without an upcoming exam (the “control banks”). They find that banks with a scheduled CRA exam demonstrate “elevated lending” in the three quarters before and the three quarters after the scheduled exam date, and that this elevated lending is somewhat higher in low‐*and moderate‐income tracts (which are CRA‐eligible). They measure elevated lending as a relative increase in the rate at which loan applications are converted to originations, not on the actual amount of loans made. The authors claim that this increased conversion rate, relative to the conversion rate of control banks,is evidence of the banks trying to “do well” on their exam – raising their lending in CRA‐eligible neighborhoods as their exam approaches so that the examiners will give them a higher CRA rating.

The problems with their analysis start with their assumption that the three quarters before and after an onsite CRA examination is conducted are “when incentives to conform to CRA standards are particularly high.”While the CRA exam timeframe might make for a good identification strategy, the six‐quarter window around the scheduled exam date used in this paper rarely corresponds to the actual period that is covered by the CRA exam. In other words, they’re measuring the wrong thing, looking for an effect of CRA over a time period that doesn’t correspond with the timing of the loans that are actually subject to a CRA exam..

Click to expand...

They're measuring the " wrong thing " ?
Who says ? Someone with an agenda to cover the asses of the Left on a internet forum ?

Right. Well its a good thing I posted more than the NBER study, right ?

First, the CRA regulations were changed in the 90s by Clinton. After he got done with it Banks had to actually show they they were offering credit to low income Americans with poor credit.

For one, Banks had their CRA scores written into the 1993 Riegle Neal Interstate Banking Act.

Didnt you notice ? I posted allot more than the NBER study.

Janet Reno credited Clintons CRA changes for the Success of the DoJ crack down on " racist Banks " in 1998.

Clintons Treasury Secretary was so impressed when he said in a newly released memo that the new CRA changes were responsible for over a Trillion dollars in CRA commitments from 1994 to 2000.

The 2008 Subprime mortgage crisis was a DIRECT result of unprecedented Government intervention into the private sector economy under the pretense of " fairness and equity ".

Something the Government has no business doing.

The Clinton administration proclaimed that the decades old lending standards that had kept the Mortgage industry AND the GSEs stable for decades were innately racist.

So, via Executive orders and Regulatory mandates and threats of prosecution Banks were forced to abandon those standards.

The GSEs were corrupted via numerous Clinton appointments and Democrats like James Johnson who in 1993 committed the GSEs to 1 Trillion dollars in Subprime purchases.

After being put under HUD control Clinton appointments like Andrew Cuomo pushed them heavily into Subprime purchases and created a new automatic underwriting process to be used when dealing with lenders like COUNTRYWIDE.

As for the Banks discriminating based on skin color ? If Banks were actually refusing to loan money based on skin color WHY did the Clinton administration force them to lower their standards ?

You gotta give the Democrats credit where credit is due.

They Bankrupted 2 iconic American Financial institutions. Fannie Mae was 70 years old for Christ sake.

Fenton said:

They're measuring the " wrong thing " ?
Who says ? Someone with an agenda to cover the asses of the Left on a internet forum ?

Click to expand...

I don't see it as a left vs right issue, I'm not in kindergarten anymore. I see it as a political issue where ALL politicians wanted to see higher homeownership rates. SO if you want to blame one side, have at it, but I don't blame sides I just post the facts and have years of experience in the housing industry. So not asking you to take my word for it, just to have an objective and logical look at how things unfolded and not relying on conspiracy theories to form a subjective opinion.

The Great Fenton strikes again. I Liked post #9 without even reading it. The CRA just drives some folks CRAzy. Or else it brings their natural lunacy to the surface.

joG said:

You must look more at fiscal and monetary policy in the 1990's that caused the bubbles beginning with the dot.com one. The money was looking for a haven and the asset class was more or less coincidental.

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So are you suggesting that our policies led to too much money pooling in the hands of the few, who then purchased dot.com stocks and ultimately mortgage backed securities as a place to park their excess money, running up the stock market and fueling the creation of CDOs?

imagep said:

So are you suggesting that our policies led to too much money pooling in the hands of the few, who then purchased dot.com stocks and ultimately mortgage backed securities as a place to park their excess money, running up the stock market and fueling the creation of CDOs?

Click to expand...

I wouldn't speak of "the few". Wrong connotations. More function based I would have said. At least as far as the pure financial side is concerned.

Fannie and Freddie bailed out the Banks prior to the 2008 Financial crisis and the FED bailed them out after the 2008 Financial crisis.

The GSEs purchased their subprime loans, bundled them and sold them off as " AAA " securities.

The fed is just continuing the process through Qe

JP Hochbaum said:

I don't see it as a left vs right issue, I'm not in kindergarten anymore. I see it as a political issue where ALL politicians wanted to see higher homeownership rates. SO if you want to blame one side, have at it, but I don't blame sides I just post the facts and have years of experience in the housing industry. So not asking you to take my word for it, just to have an objective and logical look at how things unfolded and not relying on conspiracy theories to form a subjective opinion.

Click to expand...

I see it as a left vs right because at the root of the 2008 crisis is the very substantial agenda of " social and economic justice " via Government mandates.