Community Reinvestment Act

November 1, 2011 By Fausta

Today’s must-read on the housing crisis

While you’re reading this, keep in mind that the Community Reinvestment Act is still the law:
Smoking-Gun Document Ties Policy To Housing Crisis
Excerpt (emphasis added):

The unusual full-court press was predicated on a Boston Fed study showing mortgage lenders rejecting blacks and Hispanics in greater proportion than whites. The author of the 1992 study, hired by the Clinton White House, claimed it was racial “discrimination.” But it was simply good underwriting.

It took private analysts, as well as at least one FDIC economist, little time to determine the Boston Fed study was terminally flawed. In addition to finding embarrassing mistakes in the data, they concluded that more relevant measures of a borrower’s credit history — such as past delinquencies and whether the borrower met lenders credit standards — explained the gap in lending between whites and blacks, who on average had poorer credit and higher defaults.

The study did not take into account a host of other relevant data factoring into denials, including applicants’ net worth, debt burden and employment record. Other variables, such as the size of down payments and the amount of the loans sought to the value of the property being bought, also were left out of the analysis.

Insanely,

It also failed to consider whether the borrower submitted information that could not be verified, the presence of a cosigner and even the loan amount.

Not surprisingly,

When these missing data were factored in, it became clear that the rejection rates were based on legitimate business decisions, not racism.

Still, the study was used to support a wholesale abandonment of traditional underwriting standards — the root cause of the mortgage crisis.

Now comes the scary part,

And it’s still alive today. Obama is building on the fair-lending infrastructure Clinton put in place.

As IBD first reported in July, Attorney General Eric Holder has launched a witch hunt vs. “racist” banks.

“It’s a more aggressive fair-lending enforcement approach now,” said Washington lawyer Andrew Sandler of Buckley Sandler LLP in a recent interview. “It is well beyond anything we saw during the Clinton administration.”

Go read every word.

27826

January 14, 2010 By Fausta

Oh look, the Dems are raising yet another tax: “financial crisis responsibility fee”

Coming up next, since the economy is not in bad enough straits already, Obama’s populist assault on the finance industry, in the form of a “financial crisis responsibility fee”,
Obama’s Bank Tax Seeks $90 Billion to Repay Bailout

President Obama plans to call on Thursday for taxing about 50 big banks and major financial institutions for at least the next decade to recoup all taxpayer losses from the bailout of Wall Street.

The tax on banks, insurance companies and brokerages with more than $50 billion in assets would start after June 30 and seek to collect $90 billion over 10 years, according to a senior administration official who briefed reporters late Wednesday.

But the levy but would remain in force longer if all losses to the bailout fund, the Troubled Asset Relief Program, are not recovered after a decade.

This is to punish the financial institutions, even when,

the big banks have been objecting that taxpayers actually made money on the bailout loans. Many, including Goldman Sachs and JPMorgan Chase, have repaid their federal funds with interest and the government has also made money in selling the banks’ warrants that it held as collateral.

By the way,

The taxed firms are expected to pay the cost of bailout money that went to General Motors Co. and Chrysler LLC, which are exempt from the tax. The administration official defended the omission by contending that U.S. auto makers collapsed in part because of a financial crisis of the banks’ making.

Sweet for the unions – which are also exempt from the “cadillac tax” on high-cost medical benefit plans. It’s a deal,

The deal would temporarily exempt union health plans from a significant surtax on unusually generous health policies plans, giving union leaders time to negotiate new contracts, according to sources familiar with the talks.

Of course, Chris Dodd, Barney Franks, and Congress’ own Community Reinvestment Act (which is still law and will be expanded) had nothing to do with the financial crisis.

As it turns out,

House Financial Services Chairman Barney Frank “is mounting a new effort to limit executive compensation as Wall Street prepares this month to pay out huge bonuses.” Frank, “said he is looking at levying new taxes or fees on financial firms as well as ways to further empower shareholders to restrict pay.” Frank, “called a hearing for Jan. 22 and said he is not convinced by arguments that restrictions would hurt the industry by forcing well-paid employees to go elsewhere.”

Nice going, Barney.

How’s that for “financial crisis responsibility”?

December 1, 2009 By Fausta

More bad mortgages

Overextend yourself, live well beyond your means and you shall be rewarded:

U.S. steps up pressure on lenders to modify more mortgages
Treasury threatens public shame and monetary penalties

The Obama administration on Monday promised tougher scrutiny of lenders participating in its marquee foreclosure-prevention effort and threatened to penalize companies that don’t do enough to help struggling homeowners.

Force the lenders to make bad mortages by making the Community Reinvestment Act law, and then force them again,

Under the program, eligible homeowners can have their loans modified to reduce their mortgage payments to 31 percent of their income. To qualify for a permanent modification, borrowers must provide extensive documentation and make three consecutive payments to prove they can afford the new loan.

Give it time and someone in DC will come up with ways to force banks to do some Robin Hood Bankerin.

But hey, why worry? The politicians will do anything to get elected. As Thomas Sowell said,

So long as the taxpayers don’t understand that all this political generosity and compassion are at their expense, Barney Frank is an odds-on favorite to get re-elected.

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There will be no podcast this morning. I have a business appointment that was rescheduled.

November 24, 2009 By Fausta

Politicians solving their own problem(s)

Thomas Sowell explains what politicians are after when making disastrous policy:
Solving Whose Problem?

No one will really understand politics until they understand that politicians are not trying to solve our problems. They are trying to solve their own problems– of which getting elected and re-elected are number one and number two. Whatever is number three is far behind.

Dr Sowell looks at Barney Frank’s role in the mortgage crisis:

Very few people are likely to connect the dots back to those members of Congress who voted for bigger mortgage guarantees and bailouts by the FHA. So the Congressmen’s and the bureaucrats’ jobs are safe, even if millions of other people’s jobs are not.

Congressman Barney Frank is not about to cut back on risky mortgage loan guarantees by the FHA. He recently announced that he plans to introduce legislation to raise the limit on FHA loan guarantees even more.

Congressman Frank will make himself popular with people who get those loans and with banks that make these high-risk loans where they can pocket the profits and pass the risk on to the FHA.

So long as the taxpayers don’t understand that all this political generosity and compassion are at their expense, Barney Frank is an odds-on favorite to get re-elected. The man is not stupid.

What is stupid is believing that politicians are trying to solve our problems, instead of theirs.

While you’re at it, don’t bet on the Community Reinvestment Act to stop being law any time soon.

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And a side comment:
Townhall.com, where the Sowell article is posted, now has the most obnoxious, by far, website. As Gerard put it, it’s become a

crapulous example of graphic sludge, popovers, popunders, animations, blink tags and other web page bullshit gone wild

As if that weren’t enough, the RSS feeds are screwy, too.

If any of you guys in charge of that mess are reading this, I urge you to please clean up the mess.

October 5, 2009 By Fausta

Want bad news? Congress Dems want to expand Community Reinvestment Act

At Forbes, news on the next economic catastrophe, this time involving credit unions, insurance companies and mortgage lenders, not just banks:

A Poisonous Cocktail
Expanding the Community Reinvestment Act.

The White House and Congress want to expand a 30-year-old law–the Community Reinvestment Act–that helped to fuel the mortgage meltdown. What the CRA does, in effect, is compel banks to seek the permission of community activists to get regulatory approval for bank expansions and mergers. Often this means striking a deal with activist groups such as ACORN or unions like the Service Employees International Union (SEIU) and agreeing to allocate credit to poor and minority areas that are underserved.

In short, the CRA encourages banks to make loans they would not ordinarily make. What’s more, these agreements often require that banks offer no-money-down mortgages and remove caps on how much debt a borrower can take on. All of this is done in the name of “financial democracy.”

Take a look at the amount of CRA-commitments forced on banks in the run-up to the 2008 financial crisis:

Scott Johnson:

As for the speculative action on Wall Street that contributed to the crisis, Peter points out that Washington had a hand in that too. Peter argues that the Clinton administration fueled the speculation by bailing out big investment houses such as Goldman Sachs and Morgan Stanley five times during the Clinton years. The Clinton team not only pulled their chestnuts out of the fire from derivative investments around the world, they ensured that they actually profited from their risky behavior.

In finance they call this “moral hazard.” It’s like bailing a friend with a DUI charge out of jail, giving them the keys to the car, and throwing a six pack in the back seat.

Look who’s involved:

Now comes Rep. Eddie Bernice Johnson, D-Texas, and 50 other co-sponsors (all Democrats) of H.R. 1479 the “Community Reinvestment Modernization Act of 2009,” who want to expand the CRA to include not just banks but also credit unions, insurance companies and mortgage lenders. Congressman Barney Frank, chairman of the House Financial Services Committee, has supported the idea in the past. The SEIU and ACORN, along with a host of other activist groups, are also behind the effort.

President Obama has been a staunch supporter of the CRA throughout his public life. And his recently announced financial reforms would make the law even more onerous and guarantee an explosion in irresponsible lending. Obama wants to take enforcement of the CRA away from the Federal Reserve, the FDIC and other financial regulators who at least try to weigh bank safety and soundness when enforcing the law, and turn it over to a newly created Consumer Financial Protection Agency (CFPA). This agency’s core concerns would not be safety and soundness but, in the words of the Obama administration, “promoting access to financial services,” which is really code for forcing banks to lend to those who would not ordinarily qualify. Compliance would no longer be done by bank examiners but by what the administration calls “a group of examiners specially trained and certified in community development” (otherwise called community activists). The administration says, in its literature about the reforms, that “rigorous application of the Community Reinvestment should be a core function of the CFPA.”

For good measure, Obama’s plan also calls for the CFPA to work closely with the Department of Justice to combat perceived discrimination in lending.

What this will amount to is the worsening a financial crisis through expanding bad debts, while at the same time there’s a credit crunch affecting small businesses.

Insane.

Or, as Dennis, who sent me the link, said, “Folks, this is Loony Tunes.”