And You Thought the Housing Crisis Was Over...

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And You Thought the Housing Crisis Was Over...

Postby Bludgeon » Sat Jul 28, 2012 5:01 am

William Tucker wrote:Do you remember that thing about how the banks wouldn't lend to blacks and Hispanics because they were racists? And do you remember how they passed the Community Reinvestment Act so that banks were forced to reduce down payments practically to zero and lend to a lot of people they knew were bad credit risks? And do you remember how Wall Street bundled all these risky subprime mortgages and sold them to investors around the world so that when it became clear that those people weren't going to be able to pay their mortgages banks everywhere were left holding the bag and all five of the Wall Street investment houses either went under or had to be bailed out by the federal government?

And do you remember how, when it was all over, liberals said it was actually the banks' fault for "deceiving" all those people into thinking they could afford to buy homes and that the banks should be punished for it and some of those people be allowed to keep their homes anyway? And do you remember how all this cost the government close to a trillion dollars and put the whole economy in a hole that we really haven't begun to dig ourselves out of yet?

Well, get ready because the whole thing is about to happen again.

Yes, believe it or not, the federal government is now starting another initiative to force banks to lend to low-credit-rated blacks and Hispanics -- not just anybody but specifically blacks and Hispanics -- and is threatening -- and already imposing -- huge punitive fines if they don't. Moreover, this time they're going even further. They're going to take over the credit rating agencies and force them to change their standards to accommodate blacks and Hispanics so that nobody will have any idea who is a bad credit risk and who is not. In so many words, the government is about impose its will on the whole home-lending market and force another round of bad loans so that the banks are going to be looted once again so that even the federal government may not be able to bail them out this time. ... housing-cr

See, the banks are evil because they're 'racist' so they won't give loans to minorities; *and* they're evil because they're racist because they do give loans to minorities. If they don't give the loans, that's prejudice; and if they do give the loans, that's predatory. Get it? They're 'evil'. And if they try to bundle the loans in a way that at least potentially pays for them, that's evil too. The real problem here is that they don't give the loans for free. But if all that free money led to cultural decadence, it would be because the banks are 'evil.'

Somebody please explain to me how this makes sense to the progressive mind.

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Re: And You Thought the Housing Crisis Was Over...

Postby fisticuffs » Sat Jul 28, 2012 8:38 am

Here's my insight. The article you quoted is horseshit. Go read up on what the CRA actually did and compare it to the lies you pasted here.

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Re: And You Thought the Housing Crisis Was Over...

Postby snoqueen » Sat Jul 28, 2012 11:53 am

An analysis by the Federal Reserve Bank showed that the subprime mortgage loan crisis happened because the growing riskiness of subprime loans was not matched by a corresponding increase in their interest rates, along with a simultaneous drop in the market value of the homes:

In principal, the subprime-prime mortgage rate spread (subprime mark-up) should account for
the default risk on subprime loans. As the overall riskiness of subprime loans rose between 2001
and 2006, for a market to experience a sustainable growth the subprime mark-up should have risen
as well. In this paper we show that this was not the case: both the price of risk and and the price-
per-unit-of-risk (subprime mark-up adjusted for differences in borrower and loan characteristics)
declined over time. With the benefit of hindsight we now know that indeed this situation was not
sustainable, and the subprime mortgage market experienced a severe crisis in 2007.
The combination of a large increase in credit availability, easier financing (loosening underwrit-
ing standards in terms of, for example, LTV requirements), lowering price, and deteriorating loan
performance resembles a classic lending boom-bust scenario, in which unsustainable growth leads
to the collapse of the market...

(found at, follow links to the paper by Yuliya Demyanyk and Otto Van Hemert)

The loosening of underwriting standards (LTV requirements means loan to value) happened because the staff making the loan determinations knew they would not be held responsible for the performance of any individual loan due to the fact the loans were immediately being bundled and sold off in groups, not held in-house at individual lending firms.

...the bad performance of the vintage 2006 loans was not confined to a partic-
ular segment of the subprime mortgage market. For example, fixed-rate, adjustable-rate, purchase-
money, cash-out refinancing, low-documentation, and full-documentation loans all showed substan-
tially higher delinquency and foreclosure rates for vintage 2006 loans compared to earlier vintages.
This contrasts a widely-held believe that the subprime mortgage crisis is particular only to the
adjustable-rate or low-documentation mortgages.

In other words, all types of mortgage loans from the year just prior to the bust, not just the types of loans supposedly made to unqualified (minority) buyers, had an unusually large delinquency rate. (see the graphs in the pdf for details) The failure of more loans than statistically expected coincided with a drop in the value of the property securing the loans (that is, the homes), resulting in a collapse of the market.

The authors find the mortgage loan crash overall has traits of a typical boom-bust cycle, and isn't to be blamed on any particular sector of loan customers.

So let's put to rest the idea the whole thing was the fault of certain borrowers and take a larger, more realistic and factually-supported, view.

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Re: And You Thought the Housing Crisis Was Over...

Postby jonnygothispen » Sat Jul 28, 2012 12:22 pm

As I recall, paying off all of the defaulted CRAs and subprimes in November 2008, when the crisis began to peak, would've cost $57 billion. We gave the banks $4.5 trillion mostly in back door bailouts. Neocons focus on the housing crisis when the real reason was deregulation and the Bush administration/Republican congress blocking the feds from imposing new regulatory devices when they saw the crisis coming in 2005.,2933,460044,00.html

The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way. ... -warnings/
...What was so especially damning was these proposals were all stripped from the final Administrative rules by the Bush White House. None required congressional approval or even the president’s signature:

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Re: And You Thought the Housing Crisis Was Over...

Postby Cornbread » Sat Jul 28, 2012 2:23 pm

One would think that our beloved leaders wouldn't do anything so stupid, but then I realized how stupid a thought that would be.

I can see them doing this as since pelosi took over congress, it seems like the leftist democrat party's mission is to get as many people dependent upon government and government agencies as possible, in as many aspects as possible.

"If you got a house, you didn't get that on your own!"

Anyone else remember those congressional hearings where the people that were saying how fannie mae is in trouble, only to be repeatedly called "racist!"?

Blast from the past....

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