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Podcast for 30 Nov 08
Posted by: Dale Franks on Sunday, November 30, 2008

In this podcast, Bruce and Dale discuss the week's events.

Observations

The direct link to the podcast is here.

The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

As a reminder, if you are an iTunes user, don't forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don't have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 and 2006, they can be accessed through the RSS Archive Feed.
 
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Just a couple of notes on the sub-prime crisis.

8 out 10 sub-prime loans were made by lenders who were not covered by the CRA and the majority of the sub-prime loans made by banks covered by CRA were made by two lenders who decided to bet big on the sub-prime market, WAMU and IndyMac.

Also, Fannie and Freddie only bought about 3% of the sub-prime mortgages sold between 2004 and 2007, with the bulk of those coming in 2007.

These banks just fooled themselves into thinking that the market would make everything okay.

To give you an idea of why I blame the banks, and the not government pressure to make loans to people with less than good credit, I point at the policy of FNMA and FDMC with respect to sub-prime borrowers. Their policy was to give sub-prime borrowers the prime rate plus 1% and if they paid on time for two years, the 1% would go away. Those crazy ballooning ARM’s were not acceptable risk for FNMA ro FDMC, and if lenders had used the kind of terms that FNMA and FDMC found acceptable, we would not be in this mess right now.

These people made a ton of money by making these loans, that’s why they did it. They would not have made nearly as much by offering the kind of terms that Freddie and Fannie offered, so they CHOSE to do bad business for the short term profits.

Interesting date here.
 
Written By: CaptinSarcastic
URL: http://
8 out 10 sub-prime loans were made by lenders who were not covered by the CRA and the majority of the sub-prime loans made by banks covered by CRA were made by two lenders who decided to bet big on the sub-prime market, WAMU and IndyMac.
Link.
Nearly 4 in 10 subprime loans between 2004 and 2007 were made by CRA-covered banks such as Washington Mutual and IndyMac. And that doesn’t include loans made by subprime lenders owned by banks, which were in effect covered by the CRA.
And:
Clinton created a separate department at HUD to police "fair lending" at Fannie and Freddie and also at lenders like Countrywide, which became Fannie’s biggest client. In 1994, Countrywide became the nation’s first mortgage lender to sign with HUD a "Declaration of Fair Lending Principles and Practices."

As a result, Countrywide made more loans to minorities than any other lender — and not surprisingly, was one of the first lenders swamped by loan defaults.
Not to mention:
Subprime loans were the vehicle banks used to satisfy CRA compliance, and Clinton and his regulators encouraged their use. Before Clinton took office, subprimes were virtually unheard of. By the time he left, they made up more than 9% of the market for mortgage originations. Today they’re 20%.
Finally:
Clinton’s regulatory policies led to the creation of this new risk on Wall Street. His CRA amendments created the subprime market, and only after he pressured Fannie and Freddie to socialize the risk and guarantee the profit from the subprime loans did Wall Street get involved in a big way.
BTW - check your claim - 60% non-CRA means 4 in 10 were made by CRA covered banks as originally noted.
 
Written By: McQ
URL: http://www.QandO.net
I think the reason we have two different numbers are that about 30% of the loans were from affiliates of CRA covered institutions, but the affiliates are not covered by CRA, so had no pressure to make loans to satisfy CRA, and did not help their parent institutions satisy any CRA requirements. The percentage of loans made by institutions covered by CRA was under 20%%.
Prepared Testimony of Michael S. Barr Professor of Law, University of Michigan Law School Before the Committee on Financial Services U.S. House of epresentatives Hearing On “The Community Reinvestment Act

More than half of subprime loans were made by independent mortgage companies not subject to comprehensive federal supervision; another 30 percent of such originations were made by affiliates of banks or thrifts, which are not subject to routine examination or supervision, and the remaining 20 percent were made by banks and thrifts.
And that doesn’t include loans made by subprime lenders owned by banks, which were in effect covered by the CRA.
Yes, it would have to include lenders owned by CRA covered banks, but no, lenders owned by CRA banks were not "in effect" covered by CRA.

Here’s the key question, and I am having a heck of a time finding out the answer to this.

If banks had met their CRA requirements, and made more loans, it would prove that they were not making the CRA loans just to satisfy CRA. But since 80% of loans were not subject to CRA anyway, I don’t see how anyone could argue that the CRA requirements compelled the market to make these loans.

Do you see?

On the other hand, I might agree that we could file this under the law of unintended consequences. The results of the early subprime lending were very good, the returns were better than prime loans, and this early lending was spurred by the CRA initiatives. So banks and lenders, seeing a better profit margin, pushed more money into these intruments, and then the mortgages were further fattened for profitability by creating the exploding arms and ninja loans. But these decisions, to make more subprime than the government asked, subprime loans by lenders who were not asked by the government to make subprime loans at, and the structure of these loans are the problem, not the initiative to help people in low income neighborhoods own their homes.

 
Written By: CaptinSarcastic
URL: http://
CaDn39 snywtzliposb, [url=http://jvwjithvdkra.com/]jvwjithvdkra[/url], [link=http://xdfgnxtlclkc.com/]xdfgnxtlclkc[/link], http://fqwgvxwvzzlv.com/
 
Written By: 3
URL: http://tselyuohwmeh.com/

 
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