Frosty wrote:
I think you are being less tthan honest. There was no pressure to make loans to people that didn't qualify. It was noticed by regulators that banks were not making loans to people that lived in areas with a high concentration of minorities. The pressure was to make loans to qualified people that lived in these neighborhoods and to quit red lineing portions of cities by race.
The answer from banks was to make loans and then put a bunch of them together and sell the bundle to someone else. They called them securities. Soon they didn't care if the people qualified or not since they weren't keeping the loans. In fact the people that didnt qualify were charged higher interest rates which meant that they could get more for a bundle high interest loans. Loan originators didn't care because they were paid by the number of loans they made and
the banks didn't care because they were selling the loans. Banks realized the loans they sold were likely to fail so they took out insurance on then which was legal even if they no longer owned the loans. AIG insured most of these loans.
Brooksely Born warned Greenspan and others of this scheme and was ignored so it continued throughout Bush's two terms.
I think you are being less tthan honest. There wa... (
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I don't doubt what you are saying about the derivatives, and in the end what you are saying is true about the loan originators as I have already stated when I said that at some point corporate greed took over, but federal regulators did pressure the banks, they levied heavy fines and sanctions solely based on minority quotas, I am looking for information on it, 6 years ago it was easy to find, now you have to dig a bit deeper. What I am saying is that the federal government involved itself in the lending industry by trying to regulate social justice, this was started by Clinton and then embraced by Bush, do you not recall Bush's promoting home ownership for minorities as a way to create wealth in minority communities? The government got involved, pushed the lending industry to make loans that they would not otherwise make, with time greed overtook prudence and we all know how it ended.
Here is something that I just found..... Remember when I pointed to the republicans trying to look into Freddy and Fanny and the dems shut them down saying that it was nothing more than a r****t witch hunt.... there is plenty of YouTube video on those hearings.... From the LATimes.
"Under Clinton, bank regulators have breathed the first real life into enforcement of the Community Reinvestment Act, a 20-year-old statute meant to combat "redlining" by requiring banks to serve their low-income communities. The administration also has sent a clear message by stiffening enforcement of the fair housing and fair lending laws. The bottom line: Between 1993 and 1997, home loans grew by 72% to b****s and by 45% to Latinos, far faster than the total growth rate.
Lenders also have opened the door wider to minorities because of new initiatives at Fannie Mae and Freddie Mac--the giant federally chartered corporations that play critical, if obscure, roles in the home finance system. Fannie Mae and Freddie Mac buy mortgages from lenders and bundle them into securities; that provides lenders the funds to lend more.
In 1992, Congress mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains. It has aimed extensive advertising campaigns at minorities that explain how to buy a home and opened three dozen local offices to encourage lenders to serve these markets. Most importantly, Fannie Mae has agreed to buy more loans with very low down payments--or with mortgage payments that represent an unusually high percentage of a buyer's income. That's made banks willing to lend to lower-income families they once might have rejected."
http://articles.latimes.com/1999/may/31/news/mn-42807Here is an excerpt from another article.
"The crisis has its roots in the Community Reinvestment Act of 1977, a Carter-era law that purported to prevent "redlining" - denying mortgages to black borrowers - by pressuring banks to make home loans in "low- and moderate-income neighborhoods." Under the act, banks were to be graded on their attentiveness to the "credit needs" of "predominantly minority neighborhoods." The higher a bank's rating, the more likely that regulators would say yes when the bank sought to open a new branch or undertake a merger or acquisition.
But to earn high ratings, banks were forced to make increasingly risky loans to borrowers who wouldn't qualify for a mortgage under normal standards of creditworthiness. The Community Reinvestment Act, made even more stringent during the Clinton administration, trapped lenders in a Catch-22.
"If they comply," wrote Loyola College economist Thomas DiLorenzo, "they know they will have to suffer from more loan defaults. If they don't comply, they face financial penalties . . . which can cost a large corporation like Bank of America billions of dollars."
Banks nationwide thus ended up making more and more subprime loans and agreeing to dangerously lax underwriting standards - no down payment, no verification of income, interest-only payment plans, weak credit history. If they tried to compensate for the higher risks they were taking by charging higher interest rates, they were accused of unfairly steering borrowers into "predatory" loans they couldn't afford.
Trapped in a no-win situation entirely of the government's making, lenders could only hope that home prices would continue to rise, staving off the inevitable collapse. But once the housing bubble burst, there was no escape. Mortgage lenders have been bankrupted, thousands of subprime homeowners have been foreclosed on, and countless would-be borrowers can no longer get credit. The financial fallout has hurt investors around the world. And all of it thanks to the government, which was sure it understood the credit industry better than the free market did, and confidently created the conditions that made disaster unavoidable.
archive.boston.com/bostonglobe/editorial_opinion/oped/articles/2008/03/09/how_government_makes_things_worse/