One of the biggest problems that caused the mortgage “crisis” was lending money to people who could not afford to pay it back. Fixing that problem required lenders to pay attention to income, credit scores, savings habits and debt ratios. Guess what happens?
If you ran a bank that had zero loan defaults, no foreclosures on the books and none expected, how do you think your institution should be rated? If you’re the FDIC, you issue a needs to improve rating since the bank did not loan out enough money according to standards set by the Community Reinvestment Act.
In other words, this bank is racist since they did not loan money out to borrowers who could not pay it back. Is this not part of the big problem here?
Hat tip to Ed at Hot Air who brings us links to James Pethokoukis’ US News and World Report, Yes, the Community Reinvestment Act Really Did Help Cause the Housing Crisis.
Yet the FDIC has turned up the heat on Petrucelli’s bank [East Bridgewater Savings], giving it an apparently rare “needs to improve rating,” for not making more risky loans under the Community Reinvestment Act. Here is how the FDIC puts it: “There are no apparent financial or legal impediments that would limit the bank’s ability to help meet the credit needs of its assessment area. The FDIC examiners also faulted East Bridgewater “for not advertising and marketing its loan products enough. The bank, which does not have a Web site, offers fixed-rate mortgages.”
Me: How many East Bridgewaters are out there that knuckled under to the pressure and started handing out mortgages to whomever? I am not saying that CRA is the only factor here. There is plenty of blame to go around, regulators, Alan Greenspan, derivatives desks on Wall Street. But to let CRA and its enablers off the hook is ridiculous.
Thomas Sowell is a very bright man with uncommon common sense. A guest on my show only once (he is very tough to nail down), a free market thinker he does a great job of tracing the root cause of the current financial crisis, an even if you are one to believe that “greedy bankers” caused the collapse by eagerly plunging into the sub-prime market, you need to know who encouraged the “greed” and enabled these bankers and mortgage brokers to make loans that in years past would never have been considered. As usual Thomas Sowell touches on the very erosion of America’s soul: a willingness to compromise values and principals in the name of the “greater society”. The results as you will read, were disastrous.
What was lacking in the housing market, they say, was government regulation of the market’s “greed.” That makes great moral melodrama, but it turns the facts upside down.
It was precisely government intervention which turned a thriving industry into a basket case.
An economist specializing in financial markets gave a glimpse of the history of housing markets when he said: “Lending money to American homebuyers had been one of the least risky and most profitable businesses a bank could engage in for nearly a century.” That was what the market was like before the government intervened. Like many government interventions, it began small and later grew.
Take the time to read the entire article. It is short. It is the truth and is an example where the best intentions of governments can go so awry.
There is quite a bit of blame going on concerning the so-called subprime loan crisis. Depending on who you speak with, it’s either the predatory lenders that took advantage of people, or it was the people who signed the contract that clearly stated they were buying into an adjustable rate mortgage, but just didn’t care.
The homeowners in “crisis” were gambling. Since their home value went from $100k to $150k, they spent the extra $50k in equity towards boats, motorcycles and a truck to tow everything around. Since home value are no longer increasing – and in some cases decreasing – everyone seems suprised and shocked that their adjustable rate mortgage rates adjusted; higher.
You can’t legislate stupidity out of people, but we must look at how the federal government and a new generation of activists planted the seed for the problems in 1977, through efforts to force lending institutions into providing high-risk loans. Read more