http://www.youtube.com/watch?v=uCHBLt-w9wE

I was so glad they had Sullivan on the same night as Klein.

The lenders should not have made those loans in the first place.

And they should not have sold those loans to other people as solid investments.

And the government should not have allowed any of this to happen.

Given the chance, ordinary people will often be grossly irresponsible, which is why you have to set rules in instances where that irresponsibility can spill over to the rest of us. Lenders, investors, and the government are in a far better position to judge and control for these risks than random people are.

The capitalism experiment has been a monumental failure in the United States, which is why we're becoming more and more socialist, like every other government that works.

Lenders, investors, and the government are in a far better position to judge and control for these risks than random people are.

So, lenders, investors, and the government know how big of a monthly payment X_person can afford more so than X_person does?

I don't follow that.

And the government should not have allowed any of this to happen.
The Community Reinvestment Act, and the 1999 changes to it by (essentially) the Clinton administration with Chris Dodd and Barney Frank, forced banks to make the majority of the sub prime loans to bad borrowers.

I would post a link to the wiki of CRA, but it is currently heatedly being editted(by partisans), and everything is completely out of chronological order.

The government was and is a driving force for the over valuation and appreciation of home prices in the first place. That is what you get when you use the tax code for social engineering. It was a driving force for the vast numbers of sub prime mortgages.

So, lenders, investors, and the government know how big of a monthly payment X_person can afford more so than X_person does?

I don't follow that.
Neither do I(the government part).

It is completely politically incorrect to say that the fault lies with the borrowers.

Kamion, if you ask me to loan you money, and I give you 100 bucks. And you ditch out on me, and don't pay, YOU are the deadbeat. I may be the goat, but you certainly are the deadbeat welching thief.

So, lenders, investors, and the government know how big of a monthly payment X_person can afford more so than X_person does?Of course they do. It is their business. If there's one thing that should be clear now, is that ordinary people DON'T know what they can afford.

ore importantly, the experts understand how adjustable rate mortgages and home prices operate, and fully appreciate the risks involved.

Do you really think an immigrant Mexican farmer with a grade school education, who barely speaks English and is buying his first home for the first time -- a common situation in California in recent years -- really understands the intricacies of home financing? Some salesman tells him he can buy a home for his family at $X per month, and he takes the deal, unaware of the risks involved.

Kamion, if you ask me to loan you money, and I give you 100 bucks. And you ditch out on me, and don't pay, YOU are the deadbeat. I may be the goat, but you certainly are the deadbeat welching thief.Unless I think I only have to pay back 100 bucks next week, but you come back and tell me it's now 500 bucks, which I never expected and can't afford, and I can't even pay back the 100 bucks because the stuff I bought with it is now worth 10 bucks.

The Community Reinvestment Act, and the 1999 changes to it by (essentially) the Clinton administration with Chris Dodd and Barney Frank, forced banks to make the majority of the sub prime loans to bad borrowers.Note that I used the phrase "should have". I am certainly not cheering for the Democrats (or the Republicans).

Just because they messed up doesn't mean the right person will.

The capitalism experiment has been a monumental failure in the United States, which is why we're becoming more and more socialist, like every other government that works.

I guess it is good thing you were not around during the 70's... Talk about government going socialist... with wage controls...

You make a good point about interested parties pushing Freddie and Fannie and banks to lend to poor people subprime loans. It is true that people wanted to get in on the gravy train by obtaining a house with the idea that the value goes up and purposely defaulting on the loan after the value goes down. I think 7% of mortage loans are being defaulted on and they refuse to renegotiate and intend to default on the mortage until they are evicted.

Lowered lending standards are at the heart of our economic disaster and I think it is wrong to blame the borrower. There are long standing standards that were thrown out the window because of political pressure. This increased risk occured because banks would not make these loans except they could sell them to someone else and take advantage of government incentives to lend to poor people without regard to reality.

So, lenders, investors, and the government know how big of a monthly payment X_person can afford more so than X_person does?


The market standard that Freddie Mac and Fannie Mae set was a monthly payment not exceeding 30% of your monthly income and 20% down payment and working history. Many subprime loans were made with 0% down, 38% of monthly income and no verifcation of working history.

All that can be said is that there will be a certain number of defaults with the old standard and many more with the recent standards.

*edit* Fannie and Freedie were gov't sponsored although privately ran... well, were private and now owned by the Feds.

This notion that lenders or government etc knows better how to handle your personal finances than you do is rather absurd.

aybe I can afford putting 38% of my income towards a home. Maybe I can't afford putting 20% of my income towards a home. In either case, I know a lot more about what I can afford than some lender or bureaucrat does.

This notion that lenders or government etc knows better how to handle your personal finances than you do is rather absurd.Most people have no clue how to handle their finances, and know even less about the housing market. The disparity of sophistication and knowledge demands that the government step in and regulate the situation to prevent disaster.

Just because YOU may know more doesn't mean everyone does.

Most people have no clue how to handle their finances, and know even less about the housing market. The disparity of sophistication and knowledge demands that the government step in and regulate the situation to prevent disaster.

Just because YOU may know more doesn't mean everyone does.

And the people who are too stupid to manage their finances shouldn't own a house in the first place.

What the housing market does is irrelevant when considering whether or not you can afford X_payment every month.

And the people who are too stupid to manage their finances shouldn't own a house in the first place.And who's going to determine that? Thank you for proving my point.What the housing market does is irrelevant when considering whether or not you can afford X_payment every month.Interest rates and home equity values are very relevant to home ownership, in addition to other smaller factors.

The people who thought home ownership was only about affording the $X payment per month the lender quoted them are the same ones now in foreclosure.

And the people who are too stupid to manage their finances shouldn't own a house in the first place.

What the housing market does is irrelevant when considering whether or not you can afford X_payment every month.
But all those mortgage brokers, real estate agents, mortgage banks, made a killing off convincing unsophisticated people to take out mortgages they can't afford or else refinance into balloon mortgages.

It's all fine and dandy to say caveat emptor but keep in mind that many people make their living preying on the uneducated and unsophisticated.

Remember the average IQ is 100, which isn't really all that much brain power probably compared to most people on this forum. When you factor in how busy people are with work, raising families and so on, they don't have a lot of cycles left over for becoming experts on every aspect of their finances. Couple that with how much information is obscured or not made available and you've got a situation where you're very unlikely to win. They've had no training for it in their lives. It isn't taught in school, unless you went to college and majored in it.

So yeah, the government should be around to protect people not only from predatory practices but also from their own ignorance.

I saw my own parents really lose their ability to judge things like this as they grew older. Fortunately they had me and my sister to step in and take control but a lot of elderly people are ripe for the plucking.

This notion that (edit) government etc knows better how to handle your personal finances than you do is rather absurd.


Not to Communists and Socialists.

But all those mortgage brokers, real estate agents, mortgage banks, made a killing off convincing unsophisticated people to take out mortgages they can't afford or else refinance into balloon mortgages.



Right, the community reinvestment act caused this along with the inventive methods to resell mortages and spread the risk of those mortages. I do not think a bank would want to write a mortage that has a high possiblity to go bad. The govenment brought this about... Standards were lowered which allowed poor people to buy houses at the peak of the market...

Right, the community reinvestment act caused this along with the inventive methods to resell mortages and spread the risk of those mortages. I do not think a bank would want to write a mortage that has a high possiblity to go bad. The govenment brought this about... Standards were lowered which allowed poor people to buy houses at the peak of the market...
That's part of the problem, banks were pretty good about evaluating risk (well... until recently) but it wasn't banks that were taking the risk for these loans. They were getting collaterilized and bundled into investments and the so called risk was supposed to spread over an entire market. Except the fees generated by these loans was very tasty, the people writing the loans weren't taking any risks at all, they get their fees, they bundle up the loan and they sell it on the market, along with a bunch of others. I suppose if you're smart you made fees at both ends, writing the mortgage then selling the CDO you collect some fees as well.

This is part of the reason untangling this mess is so hard. You can't go to a bank and ask to renegotiate your mortgage because a bank doesn't own it, some mutual fund or pension fund does most likely, Joe Six-pack owes .0002 percent in his mutual fund, I own some, you own some, etc.

Panamah,

Taking out a mortgage isn't something to be taken lightly. You are literally signing over thousands upon thousands of hours of your life to working to pay off a mortgage.

People should be expected to do hours of homework before they sign over 10,000, 20,000, etc hours of their life over to a mortgage broker.

Nothing about mortgage calculations involves anything beyond 7th grade math, even your average American w/ an IQ of 100 can figure it out -- its just that they chose not to.

Right, the community reinvestment act caused this along with the inventive methods to resell mortages and spread the risk of those mortages. I do not think a bank would want to write a mortage that has a high possiblity to go bad. The govenment brought this about... Standards were lowered which allowed poor people to buy houses at the peak of the market...Sorry, this has already been hashed out in the press and history again has the right of it.

That act was passed in 1977, why did it take 30 years to become such a problem?

Also, it only applies to Banks and Thrifts that are federally insured. The law doesn't apply to independent mortgage companies. It was passed to assure that while banks make money off of underprivileged communities, that they also reinvest it back into the community.

There was a flurry of CRA activity that ended in 2001. In 2004 Bush administration curtailed CRA for small and mid-sized banks, yet sub-prime lending increased at the very time the law was weakened and CRA activity had slowed.

Also, the CRA isn't responsible for most of the loans behind the sub-prime crisis.

As the University of Michigan's Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA.

The real problem came from companies beyond the reach of the CRA
ost important, the lenders subject to CRA have engaged in less, not more, of the most dangerous lending. Janet Yellen, president of the San Francisco Federal Reserve, offers the killer statistic: Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts. With this in mind, Yellen specifically rejects the "tendency to conflate the current problems in the sub-prime market with CRA-motivated lending.? CRA, Yellen says, "has increased the volume of responsible lending to low- and moderate-income households."

Yellen is hardly alone in concluding that the real problems came from the institutions beyond the reach of CRA. One of the only regulators who long ago saw the current crisis coming was the late Ned Gramlich, a former Fed governor. While Alan Greenspan was cheering the sub-prime boom, Gramlich warned of its risks and unsuccessfully pushed for greater supervision of bank affiliates. But Gramlich praised CRA, saying last year, "banks have made many low- and moderate-income mortgages to fulfill their CRA obligations, they have found default rates pleasantly low, and they generally charge low mortgages rates. Thirty years later, CRA has become very good business."

Put the CRA argument to rest. It has already been debunked in this thread. I hate re-debunking.

Even ConsumerUnion recognizes it as bunk.
http://www.consumersunion.org/blogs/fpn/2008/11/the_community_reinvestment_act_1.html

The Federal Reserve debunks it:
http://phoenixwoman.wordpress.com/2008/12/03/federal-reserve-community-reinvestment-act-did-not-impact-mortgage-crisis/

an, do a little fact checking on yourself. A simple google of "did community reinvestment act cause crisis" would have saved me a whole lot of typing.

Sorry, this has already been hashed out in the press and history again has the right of it.
The press is wrong most of the time.

That act was passed in 1977, why did it take 30 years to become such a problem?
Because it was amended in late 90s and in the 2000's to change how banks were supposed to loan mortgages, especially risky loans, and the changes to FMac and FMae.

Washington Mutual was one of the nation's oldest banks.

I never heard of it before 2000. In 7 years they had branches everywhere.

Oh, sorry. It wasn't this thread where CRA was discussed. It was the Libertarianism thread.