Data prove untrue charges that push for affordable housing caused crisis

[JonLP24]

Source: Miami Herald

WASHINGTON -- As the economy worsens and Election Day approaches, a conservative campaign that blames the global financial crisis on a government push to make housing more affordable to lower-class Americans has taken off on talk radio and e-mail.

Commentators say that's what triggered the stock market meltdown and the freeze on credit. They've specifically targeted the mortgage finance giants Fannie Mae and Freddie Mac, which the federal government seized on Sept. 6, contending that lending to poor and minority Americans caused Fannie's and Freddie's financial problems.

<snip>
Federal Reserve Board data show that:

-More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

-Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

-Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.

Read more: http://www.miamiherald.com/news/politics/AP/story/722379.html

[Cresent City Kid]

1. good read

Even if you want to focus your anger on the borrowers, it takes two to tango. Like the article points out, privte lenders had no compulsion to make these loans. The unregulated practice of packaging the loans and selling them reduced incentive to qualify borrowers properly. They played hot-potato with the loans until everyone got burned.

[trthnd4jstc]

2. From the Article: -Only one of the top 25 subprime lenders in 2006 was directly subject

to the housing law that's being lambasted by conservative critics. Republicans are evil liars.

[antigop]

3. Business Week:Community Reinvestment Act had nothing to do with subprime crisis

http://www.businessweek.com/investing/insights/blog/archives/2008/09/community_reinv.html

Fresh off the false and politicized attack on Fannie Mae and Freddie Mac, today we’re hearing the know-nothings blame the subprime crisis on the Community Reinvestment Act — a 30-year-old law that was actually weakened by the Bush administration just as the worst lending wave began. This is even more ridiculous than blaming Freddie and Fannie.

The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”

Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses, according to a recent study by the law firm Traiger & Hinckley (PDF file here).

Finally, keep in mind that the Bush administration has been weakening CRA enforcement and the law’s reach since the day it took office. The CRA was at its strongest in the 1990s, under the Clinton administration, a period when subprime loans performed quite well. It was only after the Bush administration cut back on CRA enforcement that problems arose, a timing issue which should stop those blaming the law dead in their tracks. The Federal Reserve, too, did nothing but encourage the wild west of lending in recent years. It wasn’t until the middle of 2007 that the Fed decided it was time to crack down on abusive pratices in the subprime lending market. Oops.

Better targets for blame in government circles might be the 2000 law which ensured that credit default swaps would remain unregulated, the SEC’s puzzling 2004 decision to allow the largest brokerage firms to borrow upwards of 30 times their capital and that same agency’s failure to oversee those brokerage firms in subsequent years as many gorged on subprime debt. (Barry Ritholtz had an excellent and more comprehensive survey of how Washington contributed to the crisis in this week’s Barron’s.)

[gratuitous]

4. But that's the problem we're going to fix with $700 billion

Gee, you'd think the fiscally responsible Republicans would know what the problem was, wouldn't you? Instead, they're throwing a whole lot of money -- our money -- at something that wasn't even the cause of the financial "crisis." Now, why in the world would they do that? I think the next beat-to-shit car or pick-up I see with a McCain sticker on it, I'll ask the driver that very question.

I'll probably just get a gun pointed at me for my trouble.

[Kurt_and_Hunter]

5. Good article, but incredibly confusing headline

[DeepModem Mom]

6. K&R

[hay rick]

7. K & R

[IsItJustMe]

8. Thanks for opening my eyes. I was thinking that it was caused by banks recklessly lending money to

people who could not affort the home. I know some of that is going on. I have a friend who bought 30 agrees of land. His payments are 600 a month and he lives of a 700 dollar a month Social Security check.

I do know that the banks were too easy at lending money. But if you think about it, what this article is reporting here makes a hell of a lot more sense than just lending money to home owners.

[IsItJustMe]

9. .

[scarletwoman]

10. Rec'd This is VERY important information to know and disseminate! Thanks for posting this! (nt)

[bronxiteforever]

11. Kick and R for the truth!

[benld74]

12. ANOTHER GOP taling point down the toilet!!!

Ya beat me in posting this information by minutes. I just found it at the link below, while looking at my financial information urls
http://economistsview.typepad.com/

[bluesmail]

13. Gov Ned Gramlich passed away.

"In the subprime market where we badly need supervision a majority of loans were made with no supervision. It is like a city with a murder law but no cops on the beat." He was a Fed Res Gov. He had leukemia.

[bluesmail]

14. Gov Ned Gramlich passed away.

"In the subprime market where we badly need supervision a majority of loans were made with no supervision. It is like a city with a murder law but no cops on the beat." He was a Fed Res Gov. He had leukemia.

[subterranean]

15. The subprime loans alone could not have caused this crisis.

If the problem were simply people defaulting on their loans, the system could handle that. The financial meltdown was caused by investment banks packaging the risky loans into complex securities, selling them to institutional investors around the world, AND selling insurance (credit default swaps) on those securities, thus magnifying the problem many times over.

[Jacobin]

16. Geeze. Did anyone read the comments posted after the article

Fricking right wingers are purposefully ignorant.

[Lochloosa]

17. K/R

[pitohui]

18. yeah somehow it's always the poor family's fault that a rich GOPer has to steal...not

unfortunately the lie is around the world before the truth has its boots on...as usual