[quote=gabe] Shania,



I guess it’s proof that your job simply doesn’t require an understanding of things like subprime. Then again, why should it? As long as you can sell you will do fine.





[/quote]



gabe



You have said the same thing in every post.



brokers are salesmen.

brokers are under-educated.

you have a superior intellect and education then brokers



OK   I get it.



(and there is some truth in 1 and 2 above)



That is all you have brought to the table.



Nothing of any substance except a whining little bicth.



Your boring dude.



(You might want to find out where your anger/jealously/resentment towards brokers/salesmen comes from. Letting these feelings fester is not healthy)   

[quote=Shania Twain] [quote=gabe] Shania,



I guess it’s proof that your job simply doesn’t require an understanding of things like subprime. Then again, why should it? As long as you can sell you will do fine.





[/quote]



gabe



You have said the same thing in every post.



brokers are salesmen.

brokers are under-educated.

you have a superior intellect and education then brokers



OK   I get it.



(and there is some truth in it)



That is all you have brought to the table.



Nothing of any substance except a whining little bicth.



Your boring dude.



(You might want to find out where your anger/jealously/resentment towards brokers/salesmen comes from. Letting these feelings fester is not healthy)   







[/quote]



It’s “you’re”, not ‘your’.



What I find surprising is not how little brokers know in general. That’s true of many professions. What I find surprising is how little they know about the financial world. I mean, you may be salesmen, but supposedly you ‘work in finance’. Yet you mix CRA and subprime as if they are one and the same. Surely some client has asked you what you think about the causes of the crisis, no? Is that what you tell them?

[quote=gabe] [quote=Shania Twain] [quote=gabe] Shania,



I guess it’s proof that your job simply doesn’t require an understanding of things like subprime. Then again, why should it? As long as you can sell you will do fine.





[/quote]



gabe



You have said the same thing in every post.



brokers are salesmen.

brokers are under-educated.

you have a superior intellect and education then brokers



OK   I get it.



(and there is some truth in it)



That is all you have brought to the table.



Nothing of any substance except a whining little bicth.



Your boring dude.



(You might want to find out where your anger/jealously/resentment towards brokers/salesmen comes from. Letting these feelings fester is not healthy)   







[/quote]





What I find surprising is not how little brokers know in general. That’s true of many professions. What I find surprising is how little they know about the financial world. I mean, you may be salesmen, but supposedly you ‘work in finance’. Yet you mix CRA and subprime as if they are one and the same. Surely some client has asked you what you think about the causes of the crisis, no? Is that what you tell them? [/quote]



ok   

so brokers are salemen?

and under eductated?



ur a clueless tool



im done

I don’t know if they are undereducated. Maybe they are perfectly educated for what the job requires.



And in the end it may not make one bit of difference to your job if you understand subprime or not. I may have had the wrong assumption that it did make a difference, but if you are as successful as you claim, I am clearly mistaken.



I know a lot of people in finance that have lost their jobs and some think they might try out ‘wealth management’. But it’s clear they are mistaken if they think the analytical skills they used in their previous jobs are transferrable, or even needed.

In early 1993 President Bill Clinton ordered new regulations for the CRA which would increase access to mortgage credit for inner city and distressed rural communities. The new rules went into effect on January 31, 1995 and featured: requiring strictly numerical assessments to get a satisfactory CRA rating; using federal home-loan data broken down by neighborhood, income group, and race; encouraging community groups to complain when banks were not loaning enough to specified neighborhood, income group, and race; allowing community groups that marketed loans to targeted groups to collect a fee from the banks.



The new rules, during a time when many banks were merging and needed to pass the CRA review process to do so, substantially increased the number and aggregate amount of loans to low- and moderate-income borrowers for home loans, some of which were "risky mortgages. Banks set up CRA departments, a CRA consultant industry was created and new financial-services firms helped banks invest in packaged portfolios of CRA loans to ensure compliance. Established and new community groups began marketing such mortgages. The Senate Banking Committee estimated that as of 2000, as a result of CRA, such groups had received $9.5 billion in services and salaries. As of that time such groups also had received tens of billions of dollars in multi-year commitments from banks, including ACORN Housing $760 million; Boston-based Neighborhood Assistance Corporation of America $3 billion; a New Jersey Citizen Action-led coalition $13 billion; the Massachusetts Affordable Housing Alliance $220 million. The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent.



The CRA was public policy that DROVE the market. To cast a blind eye that obvious econic fact and simply blame “the profit motive” is ludicrous.



It is equally ludicrious to blame Wall Street and investment banks when what they did was buy up the risky mortgages that became so prevelant in the market place.



Granted, no one intened to lose money, but, to lay blame on capitalism when the real source of the problem was government in the first place indicates to me a fundamental lack of economic understanding.









*****



At its core, CRA helps to overcome market failures in low-income communities. By

fostering competition among banks in serving low-income areas, CRA generates larger volumes

of lending from diverse sources, and adds liquidity to the market, decreasing the risk of each

bank’s loan. Encouraged by the law, banks and thrifts have developed expertise in serving low-

income communities, and they have created innovative products that meet the credit needs of

working families and low-income areas with manageable risks.



*****



At its core, CRA helps to overcome market failures in low-income communities. By

fostering competition among banks in serving low-income areas, CRA generates larger volumes

of lending from diverse sources, and adds liquidity to the market, decreasing the risk of each

bank’s loan. Encouraged by the law, banks and thrifts have developed expertise in serving low-

income communities, and they have created innovative products that meet the credit needs of

working families and low-income areas with manageable risks.



********



Why do you think subprime mortgages went from 1% of all mortgages issued to 12% within THREE years of the Clinton Administration adding new teeth to the CRA (in 1995)???



Maybe, just maybe, the subprime explosion occurred because, as professor Michael Barr says:



"By fostering competition among banks in serving low-income areas, CRA generates larger volumes

of lending from diverse sources, and adds liquidity to the market, decreasingaff the risk of each

bank’s loan. "



*****



Mr Pressman is way off base. I was a bank director when sub prime lending was forced on us by the CRA act. Where did we finally wind up dumping these liabilities (called credits on our balance sheet)? It was the start of the process that eventually led to the mess we have. Every story has a beginning, and the beginning of the sub prime mess is CRA!





********



"The U.S. Department of Housing and Urban Development’s mortgage policies fueled the trend towards issuing risky loans. In 1995, Fannie Mae and Freddie Mac began receiving affordable housing credit for purchasing mortgage bank securities which included loans to low income borrowers. This resulted in the agencies purchasing subprime securities. Subprime mortgage loan originations surged by a whopping 25 percent per year between 1994 and 2003, resulting in a nearly ten-fold increase in the volume of these loans in just nine years. As of November 2007 Fannie Mae a held a total of $55.9 billion of subprime securities and $324.7 billion of Alt-A securities in their portfolios. As of the 2008Q2 Freddie Mac had $190 billion in Alt-A mortgages. Together they have more than half of the $1 trillion of Alt-A mortgages.[82] The growth in the subprime mortgage market, which included B, C and D paper bought by private investors such as hedge funds, fed a housing bubble that later burst."



See http://www.washingtonpost.com/wp-dyn/content/graphic/2008/06/10/GR2008061000059.html



and http://en.wikipedia.org/wiki/Subprime_mortgage_crisis#Government_Policies



Note this was all related to Mr. Clinton’s ingenious changes to the CRA in 1995.



I suggest Mr. Pressman try doing a little research before he writes.





******



Are you kidding? Bear would have never been able to create the first securitization of subprime paper in 1997 if it had not been for the revisions to the CRA that allowed it. That was the nexus of the problem. Sure other stimuli contributed to exacerbate the problem but to obscure the affect of legislation that served a single goal at the great expense of systemic protection we learn nothing.



********



CRA enforcement changed under the Financial Modernization Act, which also allowed the securitization of loans. However, check the above links carefully. Especially compare the Treasury Department FMA CRA impact baseline report:

http://www.treas.gov/press/releases/docs/crareport.pdf

and

http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclos…

In 1993 CRA covered institutions made 65% of all LMI (Low and Moderate Income) loans in the country. In 1998 CRA institutes made 63% of LMI loans. You may remember, no subprime leanding crisis during those years. By 2006, CRA institutions made only 22.7% of LMI loans. Also in 2006, CRA institutions only made 11.7% of all LMI and high cost loans (subprime loans). Guess what we had in 2006? That’s right a subprime mortgage crisis. As noted in both the above studies. CRA institutions are much more likely to make loans to credit worthy borrowers and that the growth in high cost loans (subprime) loans is almost exclusively due to non-CRA institutions.



*********



Scroll down to the graph named “Primed for Disaster” and look what happens in the mid-90’s. It was used in reference of bank deregulation, but it is very pertinent here because sub-prime lending began before the 1999 bank deregulation. Almost nobody gave sub-prime loans until shortly after Clinton’s regulatory changes. You quote 65% for 1993, but 65% of nothing is still nothing. You’ll notice too that the largest spikes percentage-wise were not after Bush announced the loosening of regulatory requirements in 2004 or Gramm’s inclusion of protections in the 1999 deregulation which took effect in 2000. In fact the sub-prime lending rate leveled off or went down with the protections.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=132x4485795#4486280. It’s not like somebody just thought of the sub-prime idea in the mid-90’s. It had been around for centuries. Nobody did it though, because nobody was effectively forced to until the mid-90’s.

You (as well as Traiger Law) also seem to completely ignore the fact that while CRA-covered institutions were not making (originating) a high percentage of these loans by the late 2000’s, they are effectively buying them from non-CRA-covered mortgage companies (or community groups like Acorn) to satisfy their requirement for CRA credits. This creates a market for the non-CRA-covered companies to sell sub-primes to the covered institutions and encourages more sub-prime loan origination. This is noted in Section II Sub-section B of the following: http://goliath.ecnext.com/coms2/gi_0199-1862983/The-CRA-implications-of-predatory.html. The idea that requiring lending institutions to lend responsibly, but they had better lend or else is like telling your 15 year old boy to go mow the lawn, but you had better not get dirty. It’s a fallacious paradigm.

You also seem to completely downplay the regulatory changes in support of the CRA that allowed the securitization of loans. Institutions like Fannie Mae and Freddie Mac were directed by the Clinton administration to hold more and more loans with less requirement for capital reserves to back them up. As we all know, Fannie and Freddie were among the first to hit the bricks and they bought and owned much of the CRA debt.

I know you didn’t address this, but the authors use of the Fed study on profitability, a nearly 10 year old study (using 1999 data) that was compiled barely after sub-primes really hit the market, much less had a chance to default, is questionable if not completely irrelevant in 2008. There had been no upward adjustment of interest rates, no time for bubble creating or bursting, nothing like that. I suspect that the same study done today would have vastly different results.

The article also fails to realize that many of these sub-prime loans were not just ARMS, but 5 to 10-year interest only loans. This type of loan was introduced in 2000 and by 2005 were close to 30% of the market. These loans would have started to mature to interest+ loans, let’s see…right about a year or two ago. I’ve seen many say that the timing is off since the CRA took effect over 30 years ago. These people almost invariably gloss over the regulatory changes made in the 90’s. Those changes are the crux of the matter.

Now, having said that, I think the CRA was noble and well-intentioned and does have a place in today’s society. Not in it’s current form though. It has to focus on incrementally building credit for those it serves to the point where they have sufficient credit worthiness to make large loans (like home loans) a viable option (in the prime market). After all of the sub-prime lending it has spawned and the pending financial catastrophe that it is causing the economy as a whole, it still has only raised black home ownership from 42% in 1970 to 47.2% more than 37 years later. Of course in 2009 and 2010 that might be lower due to all of the bad mortgages, foreclosures, and bankruptcies that are on the books. Due to the injection of stricter requirements by the Clinton administration and refusal of Congress in 2003 and 2005 to supervise Fannie and Freddie in more stringent fashion, the CRA is now hurting the people it was supposed to protect.

The 1970’s CRA did not cause this. The 1990’s CRA, while not responsible for the whole mess, is definitely a large part and the core of it.



**********



The fact that the crisis occurred five or six years later illustrates the opposite of the point you make. The subprime crisis didn’t happen as a result of bad loans that were originated in 2006. They came as a result of cumulative bad loans originated years before, that had pushed the aggregate prices higher and since the price rise was unsustainable, the underlying assets of the loans (the property) was devalued to a more sustainable level based on sustainable demand. This is what caused the subprime crisis: derivative implosion. One thing that led to this implosion was an unsustainable buying frenzy. One thing that led to this buying frenzy was easy money policy at the Fed, and another thing that led to it was easy qualification made possible by the combination of the CRA and the implicit gov’t guarantee of Fannie/Freddie.

It takes a few years to correct a market distorted by poorly conceived legislation. Just look at the rise in home prices before 77 and after 77. If you create more demand (i.e. expanding the market to buyers who were previously unable to buy because of bad credit/low income/etc.), you see less supply. If there is less supply, people step in to increase that supply to meet the demand(i.e. building/flipping houses). This will eventually equalize, as is obvious to anyone who has the most basic understanding of economics. If, however, that increased demand is unsustainable because it is coming from people who cannot pay (it was) then as soon as they start defaulting, the market will implode.

To say the CRA caused the subprime crisis is only incorrect because there were other factors. To say the the CRA was bad legislation that helped us down the path we were on is totally correct. Subsidized/affordable housing legislation of any kind increases demand and pushes prices up, which makes it even harder to purchase for people who were having a hard time already. This kind of legislation is intervening and meddlesome, and is enacted by people who just don’t get it.



********



Every one of the articles I posted mention CRA and point to it as the cause of the sub-prime crisis. They may or may not be using it as the primary premise of the article, but they are contained within.



Those are peer-reviewed.



What I just posted are opinion pieces that come from your links. Please provide a link that shows statistics about how CRA did NOT cause the sub-prime crisis.



No one is saying that CRA and the sub-prime crisis are one in the same. No one is saying it is the only thing. But CRA did start us on the road to the sub-prime crisis.



Simple fact. For you not to make those connections shows a lack of understanding of economics and how things work. Everything is connected to incentives. CRA provided the framework for the sub-prime crisis to occur by relaxing lending standards.



Basic game theory: If your competitor MIGHT lend to people who MAY not have qualified under the old rules, what do you do? The Nash equilibrium is to go ahead and lend to those people before your competitor can.



Just the way it is.

Moraen,



Once again, nothing on the CRA required or even promoted lending with 0% down, or without any verification of income. And that’s what drove this crisis (at least at the beginning, since then it has expanded).



If you look at the parts of the country most affected by the mortgage crisis (Las Vegas, Southern CA, FL) you see that poor neighborhoods are not the problem. The problem is that the value of homes collapsed and, guess what, they didn’t collapse in poor neighborhoods because they never rose too much there.



And nothing in the CRA forced investors to buy CDOs or other securitizations.

Meanwhile, I’ve got a bigger problem.



My son, who still believes in Santa, wonders why Santa discriminates against the poor. After all if Santa gives presents to all but we explain how poor children suffer this time of year, then it must be the red one’s fault!



Maybe Santa needs a CRA of his own.

gabe - you are ignoring the fact that it doesn’t matter that CRA did not force those things. It paved the way for it to happen though.



Let me ask you something. Let’s say you have to lend to 20 low-income families to meet your quota as a mortgage broker. You have 19 of them and have verified their income.   You will get fired if you do not get that last loan. You can get that person a loan if you do NOT verify their income. They also have sub-prime credit, but you can get them a loan because the banks have relaxed the standards in order to insure that their competitors don’t get more business. What do you do? Do you lend the money? Keep in mind that you are only the broker and you don’t care what happens afterwards.



You make the loan, do NOT verify income and thus the person gets their dream home. The adjustable rate that you sold them is going to screw them in the long run, especially when the primary wage earner loses his job.



I know though. You are NOT a salesman, so you wouldn’t have to worry about it.

http://www.businessinsider.com/three-ways-the-cra-pushed-countrywide-to-lower-lending-standards-2009-6

[quote=gabe] [quote=LA Broker] [quote=gabe]I’m a bit surprised to see so many here bash Democrats since the historical evidence is pretty strong that the economy does better under Dems. More importantly for this crowd, the stock market tends to do better as well. You can Google this yourself, but here’s one example of many: http://www.usatoday.com/money/perfi/columnist/krantz/2005-12-02-presidents_x.htm I guess there’s a reason why so many here make it clear that this is a sales, not an analytical job. [/quote]

Meanwhile, I’ve got a bigger problem.

My son, who still believes in Santa, wonders why Santa discriminates against the poor. After all if Santa gives presents to all but we explain how poor children suffer this time of year, then it must be the red one’s fault!

Maybe Santa needs a CRA of his own.

[quote=gabe] Meanwhile, I’ve got a bigger problem.



My son, who still believes in Santa, wonders why Santa discriminates against the poor. After all if Santa gives presents to all but we explain how poor children suffer this time of year, then it must be the red one’s fault!



Maybe Santa needs a CRA of his own.[/quote]



I guess that’s why Santa invented the Marine Corps Reserve. Most think it was God.

[quote=Moraen] [quote=gabe] Meanwhile, I’ve got a bigger problem.



My son, who still believes in Santa, wonders why Santa discriminates against the poor. After all if Santa gives presents to all but we explain how poor children suffer this time of year, then it must be the red one’s fault!



Maybe Santa needs a CRA of his own.[/quote]



[/quote]



Want less poor kids?    



Make is easier for their dads and moms to get a job.



That is the answer.



cut taxes, cut govt, cut red tape.



Free market create wealth. period



govt destroys.



the WORST thing that ever happened to low income people was johnson/kennedy wealth transfer give-a-ways.

[quote=Primo] http://www.businessinsider.com/three-ways-the-cra-pushed-countrywide-to-lower-lending-standards-2009-6

WASHINGTON—President Barack Obama and his economic team lashed out at Wall Street, with the president calling bankers “fat cats” who “don’t get it,” in a move that could escalate tensions with the nation’s biggest bankers ahead of a meeting with industry representatives.



Mr. Obama, speaking on the eve of Monday’s meeting with the heads of top banks at the White House, said he would try to persuade bankers to free up more credit to businesses, with the aim of helping boost job growth. But the president also expressed frustration with banks that the government has assisted.



“I did not run for office to be helping out a bunch of fat cat bankers on Wall Street,” Mr. Obama said in an interview to be broadcast on CBS’s “60 Minutes” program Sunday evening, according to excerpts made available ahead of the program.



Mr. president,



Didnt you just rail on banks for lending money to people who could’nt afford it?

Wasnt this irresponsible lending your reason for the meltdown?



Now your whining and wanting to force banks to lend more?

[quote=gabe] [quote=Primo] http://www.businessinsider.com/three-ways-the-cra-pushed-countrywide-to-lower-lending-standards-2009-6

A blog, yes, but one with plenty of data. Rather than repeat what others say, I’ll provide links:



http://www.ritholtz.com/blog/2009/06/cra-thought-experiment/





Here’s a key point:





"I spent a year of my life researching and writing in painstaking details what the actual causes of the crisis were. I put together all of the moving parts as to what the actual causes were — and wrote them up in Bailout Nation, to wit: Irresponsibly ultra-low rates that led to a huge housing boom; a failure by the Fed to supervise non-bank lenders; An abdication of lending standards by both banks and non-banks; Radical deregulation of financial markets; the now discredited belief that markets can self-regulate; a shadow derivative market allowed to operate unlike every other financial product; Compensation schemes that rewarded short term risk taking over long term profitibility; Increases in leverage to the major investment houses from 12-to-1 to 35-to-1; These were the causes of the collapse — not some 1977 legislation."



Those were the causes of the crisis, not the CRA.

[quote=Moraen]



Btw - Housing prices were artificially inflated BECAUSE of the availability of credit, for which the door was opened by the changed to CRA that Clinton signed into law. [/quote]



Yes, availability of credit. But not due to CRA. Due to low rates plus a belief in the market that housing prices simply could not fall.



CRA did not mandate, require, or even promote zero down lending, no income verification, inflated ratings, investors who didn’t due their homework, unwillingness to regulate derivatives, or super low interest rates.

[quote=gabe] A blog, yes, but one with plenty of data. Rather than repeat what others say, I’ll provide links:



http://www.ritholtz.com/blog/2009/06/cra-thought-experiment/





Here’s a key point:





"I spent a year of my life researching and writing in painstaking details what the actual causes of the crisis were. I put together all of the moving parts as to what the actual causes were — and wrote them up in Bailout Nation, to wit: Irresponsibly ultra-low rates that led to a huge housing boom; a failure by the Fed to supervise non-bank lenders; An abdication of lending standards by both banks and non-banks; Radical deregulation of financial markets; the now discredited belief that markets can self-regulate; a shadow derivative market allowed to operate unlike every other financial product; Compensation schemes that rewarded short term risk taking over long term profitibility; Increases in leverage to the major investment houses from 12-to-1 to 35-to-1; These were the causes of the collapse — not some 1977 legislation."



Those were the causes of the crisis, not the CRA.



[/quote]



Provide a link to the research in the form of a paper that was published in a peer-reviewed journal.



CRA paved the way simply due to economic conditions. I’ll say again. Basic game theory. Provide a counter-argument that is effective.

[quote=Moraen]



CRA paved the way simply due to economic conditions. I’ll say again. Basic game theory. Provide a counter-argument that is effective.[/quote]



Basic game theory? The problem with the crisis is that people got interest-only mortgages they couldn’t pay once principal was due. This has nothing to do with the CRA. The CRA never mandated or encouraged making loans to people who only could pay them if housing prices kept rising. Remember, the CRA applies to poor neighborhoods. And there was no property bubble in those neighborhoods.