.
Compiled by Traiger & Hinckley, a New York-based law firm:
. The Community Reinvestment Act: A Welcome Anomaly in the Foreclosure Crisis
. Summary Conclusions:
.
Our study concludes that CRA Banks were substantially less likely than other lenders to make the kinds of risky home purchase loans that helped fuel the foreclosure crisis.....
.
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, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers......
.
.......In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''......
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And as for the assertion that Fannie and Freddie went kaput because they had a portfolio full of bad loans, consider the following:
As of April, Sanders said, the rate of serious delinquencies on loans held by Freddie Mac was 0.81 percent. Fannie Mae's rate of serious delinquencies was 1.15 percent. Those rates compare to market-wide rates of serious delinquency of 1.47 percent for prime mortgages, 8.35 percent for Alt-A mortgages, and 20.74 percent for subprime mortgages.
I will bet that when this all shakes out the government makes a ton of money off of the privatization of these two companies. The same cannot be said for AIG or any of the $700B of crap they are going to buy with the latest bailout.
In 1995, the Clinton administration revised the CRA to increase pressure on banks to make more loans to risky borrowers. In 1997, the first pool of subprime mortgages was securitized (by Bear Stearns!).
The law regulating Fannie Mae and Freddie Mac was rewritten to reduce their capital requirements, meaning they would become riskier.
I hadn't really looked into the CRA much, but now that I read more about it, it would seem it DID have an impact on growing a housing bubble. So did the loosening of GSE capital requirements.
. .....Would more regulation have reduced the number of bad loans made? Most likely, more regulation would have increased the problem......
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Sniglet – The above quote is from the article you linked, of which the author has it exactly backwards IMO.
.
The way I interpret the situation is that the OFHEO / FM's were pressured by various financial institutions and political influences to deviate from existing policy and "regulations". The FM's were operating responsibly until popular pressure compelled the adoption of loosened standards.
.
Also, the initiative relaxing Fannie / Freddie capital requirements from 30% to 20% was implemented in March 2008, a bit late to have been a causative factor of the real estate bubble.
.
Comments
Compiled by Traiger & Hinckley, a New York-based law firm:
.
The Community Reinvestment Act: A Welcome Anomaly in the Foreclosure Crisis
.
Summary Conclusions:
.
Our study concludes that CRA Banks were substantially less likely than other lenders to make the kinds of risky home purchase loans that helped fuel the foreclosure crisis.....
.
An interesting and relevant NYT article is linked below. Mr. Wallison was certainly prophetic -
.
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30, 1999
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, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers......
.
.......In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''......
.
http://knowledge.wpcarey.asu.edu/articl ... cleid=1644
I will bet that when this all shakes out the government makes a ton of money off of the privatization of these two companies. The same cannot be said for AIG or any of the $700B of crap they are going to buy with the latest bailout.
http://capmag.com/article.asp?ID=5316
I hadn't really looked into the CRA much, but now that I read more about it, it would seem it DID have an impact on growing a housing bubble. So did the loosening of GSE capital requirements.
.....Would more regulation have reduced the number of bad loans made? Most likely, more regulation would have increased the problem......
.
Sniglet – The above quote is from the article you linked, of which the author has it exactly backwards IMO.
.
The way I interpret the situation is that the OFHEO / FM's were pressured by various financial institutions and political influences to deviate from existing policy and "regulations". The FM's were operating responsibly until popular pressure compelled the adoption of loosened standards.
.
Also, the initiative relaxing Fannie / Freddie capital requirements from 30% to 20% was implemented in March 2008, a bit late to have been a causative factor of the real estate bubble.
.