Apr 4, 2011 at 9:01 am #1271684
This has nothing to do with backpacking, except if you have no house you may do more or less backpacking.
60 Minutes did a piece on bank mortgage foreclosures
In the mortgage securitization hysteria, the banks lost many mortgage documents
Most of the banks have done foreclosures with forged documents
If you or anyone you know is being foreclosed on you might want to consider this
Demand to see the mortgage documents. See if there are any date inconsistencies, like the mortgage document is dated after the foreclosure document.
Curiously, a lot of them use the name "Linda Green" as the bank vice president.
If you pointed out inconcistencies like that to the judge, maybe the foreclosure would be delayed.
You might get the bank to pay you off, like $20,000 to not contest it. It will cost them more than that to clear up their mess.
Or if you do a short sell, tell the bank you want $20,000 or you won't agree to itApr 4, 2011 at 9:52 am #1719763
Saw that. I thought it was Linda Green.Apr 4, 2011 at 10:42 am #1719794
fixed itApr 4, 2011 at 10:52 am #1719804
@ngatelLocale: Southern California
Hope it isn't the Linda Green I once dated, if so everyone better watch out!Apr 4, 2011 at 10:53 am #1719805
@davidlutzLocale: Bay Area
Um, I don't agree with what you are proposing.
The fact that banks screwed up their paperwork doesn't change the fact that a borrower isn't paying the mortgage. You won't be foreclosed if you stay current with the payments.
If you aren't making the payments, for whatever reason, you shouldn't be living in the house.
Now, if you feel that you were cheated by the lender in some way in the original transaction, that's a different matter.Apr 4, 2011 at 11:56 am #1719846
@jakep_82Locale: Pacific Northwest
"Um, I don't agree with what you are proposing."
This is America. It's always someone else's fault.Apr 4, 2011 at 12:08 pm #1719853
Short version of what follows …. "Two wrongs do not make a right" … why should fraudulent documents or lack of ducuments be allowed to result in a foreclosure""
Um, I don't agree with what you are proposing.
The fact that banks screwed up their paperwork doesn't change the fact that a borrower isn't paying the mortgage. You won't be foreclosed if you stay current with the payments.
If you aren't making the payments, for whatever reason, you shouldn't be living in the house.
That is true enough … but a rather incomplete. Consider other aspects of the issue:
* Foreclosure is a civil legal process. Transfer of ownership of real estate is one of the more precisely defined civil processes we have. Home buyer is not making payments so someone does have the right to take the home. But who is that? Do we really want our courts to grant a claim that has inadequate supporting documentation?
* The "mortgage industry" willing chose to shift from being a borrowing-lending business to becoming a fee for service business. That provided an incentive to increase the volume of their business. Securitization (sp?) was an invention that enabled them to sell the risk to another party, allowing them to unload the risk of sub-prime mortgages on other people. "I'll get my fees and let someone else get the risk". That was ripe for abuse and the situation ripened to the point of being rotten.
* Proper valuation of the properties was also an obstacle to the desired high volume of business. The chosen solution was to avoid doing business with appraisers who failed to inflate home values beyond what was supportable.
* proper paperwork (proof of ownership) is time consuming and expensive … another obstacle to high volume. The industry chose to avoid that expense, resulting in inadequate proof of ownership.
Do we really want our courts to transfer ownership without the required proof of ownership?
Going back to get the proper documentation is expensive and time consuming. SO, the solution to that problem has become to commit fraud by manufacturing false documentation after the fact. Do we really want the courts to ignore that?
So much for sub-prime mortgages where the home buyer shares a role in the problem. Surely that share of responsibility should mean that they should share the pain. I agree. But we're well past the point where it's subprime mortgages that are being foreclosed. The people being foreclosed now have lost their jobs due to a damaged economy … damage triggered by the sub-prime mortgage blowup.
Should not ALL parties involved in the transaction share the pain?
Lastly, the current owners of the mortgage had the responsibility to know what they were buying. Why should they be allowed to avoid the cost of completing the documentation for faulty mortgage bundles they had the opportunity and responsibility to inspect before they bought?
One of the alleged reasons we have courts is to provide a "civil" way to resolve disputes … rather than resorting to violence. Don't you think that sooner or later someone will succumb to the temptation to call in their friends named Smith & Wesson to "right" the wrong of losing property to someone who has not proven their ownership rights?
Take the time to do it right.Apr 4, 2011 at 12:49 pm #1719871
So explain to me the situation where someone would be in foreclosure, and they would have to demand to see the mortgage documents. Back when I had a mortgage, I didn't have to ask anyone to see the mortgage documents, I could pull my own file, and look at my own copies. Not a big secret, I was there when they were signed. Any moderately responsible home owner should be able to prove fraud by this same method, although that doesn't get around that little "not paying the bill" issue.
Now if I understand what Jim is saying, it's that banks shouldn't be able to foreclose without proving they own the mortgage? That makes sense. But shouldn't the homeowner have to prove that they do to? Although getting a free house would be a big disincentive to honesty.Apr 4, 2011 at 12:56 pm #1719875
@hikinggrannyLocale: Gateway to Columbia River Gorge
The legal problem occurs when the mortgage was sold and resold and resold again as an investment. If any of those sales were not recorded with the county, it was not legal. The biggest risk in this situation is for the buyer of the foreclosed property, when there is not a clear legal title transfer. Most title insurance companies are now aware of this problem–don't buy if they can't guarantee a clear title!
There have been a number of cases in which homeowners have applied for relief under the current federal law designed to help those who lost their jobs and can't make full mortgage payments, only to have the bank either refuse or stall for months and then foreclose because the payments are too far in arrears.
Most people are only a paycheck or two away from this situation, unfortunately, especially those who were forced to buy when a tiny 1920's 2-bedroom bungalow in southern California cost over half a million. (My daughter and her husband were lucky–they were able to sell just before the bust hit.)Apr 4, 2011 at 1:00 pm #1719877
well put Jim
The root of the problem is that the wall between investment banks and regular banks was removed
They made way more money selling mortgage backed securities than sleepy mortgages
They quit worrying about making sure the mortgages were good, that they would be paid back, that the documentation was in order, etc.
Now, if they forge documents to get a foreclosure, that is illegal
Someone that is illegally being foreclosed upon should know about it
If the forclosed person gets $20,000 from the bank, well, the bank made so much money off the mortgage backed securities that there's a certain fairness
And if the bank is penalized, maybe in the future the banks will be more careful
By the way, we have only half fixed the deregulation problems and they threaten to remove deregulations which will take us right back to where we started, ripe for another financial collapseApr 4, 2011 at 1:27 pm #1719897
Take a deep breath…..relax….you are happy now……… Though I will just add this Michael. My great-grand-dad, grand-dad, dad and at least one brother are/were bankers and they might very well agree more with Jerry. Let's just say the last few years would have them spinning in their graves. It's not the kind of banking they practiced.Apr 4, 2011 at 1:34 pm #1719905
No Cole, the problem is that Jerry is perfectly happy with Jesse James robbing the bank. After all the bank is rich and it isn't hurting anybody, right?
He didn't say if you think the bank are wrong check them out. No, he said if you screwed up and face foreclosure go after the bank just in case they didn't cross the t's or dot the i"s. Maybe you can exthort them for 20k. Just what they deserve.
What a load.Apr 4, 2011 at 2:18 pm #1719922
Hmm. So before the homeowner stopped making payments they were making a payment each month to somebody. Each year they got a 1098 showing interest paid, so they could get the tax write off. Probably got a bill in the mail each month stating the balance, payment due and due date. So now all of a sudden they don't know who owns the mortgage. If they had doubts why did they ever make payments in the first place.
What a down right sleazy, unethical and illegal thing to do. I'm not saying the bank shouldn't have done a better job keeping records or that banks didn't make a lot of wrong decisions.
And by the way, who do you think pays for all this at the end of the day. All us legal abiding citizens who pay our mortgages.
BradApr 4, 2011 at 2:45 pm #1719931
Hmm. So before the homeowner stopped making payments they were making a payment each month to somebody.
That somebody would very often be a mortgage processing service … another layer of processing that emerged to deal with the complexity introduced as a side effect securitization.
The mortgage processing service is not the owner of the mortgage. But the processing service DOES know who they were forwarding the payment to … but that is because someone told them that they owned the mortgage and they believed them without documentation. That falls very far short of the legal requirements establishing a chain of ownership,
Note that I am NOT advocating that people in the rears on their mortgage get a "free house". I am advocating that folks who took short cuts while creating this mess bear the expense and time delay of correcting the problems caused by the short cuts. Committing fraud is not an acceptable correction to that problem. I am also advocating for the concept that shared responsibility should result in shared cost of remedy.
Note that another response in this thread pointed out that title companies are starting to decline to service sales of properties with this kind of chain of ownership problem. Perhaps because they now expect that'll be their financial future is at risk if they do so?
All of my (very few) real estate transaction were handled by a qualified attorney at some expense to myself just for the purpose of avoiding this kind of situation. We did that because we had been taught that in real estate there is no such concept of "verbal contract" If it isn't in writing, it does not exist. My position is that the current mortgage owners should have avoided the problem they are in by being informed or hiring the right expertise to KNOW that there will be no problems rather than trust the verbal word of the financial snake oil vendors who sold them the securities. Short cuts always come with risk and risk sometimes leads to future expense.
disclaimer: I have no financial interest in either side of this issueApr 4, 2011 at 3:11 pm #1719940
"No Cole, the problem is that Jerry is perfectly happy with Jesse James robbing the bank."
No, Jesse James was illegal and killed people, very bad.
If someone that's being foreclosed on uses legal means to slow up the process or get a payment to go away, good for them.
Forging documents is not crossing t's and dotting i's.
And ethically, banks created this mess so deserve to be penalized. There bad practices created the real estate bubble and bust and high unemployment. If they have to pay off someone to fix a document screwup it's fair.
By the way, I got a 15 year mortgage which is now paid off. Never borrowed money to buy a car. Always saved 15% of what I earned. That is a much better way to manage your finances.Apr 4, 2011 at 3:30 pm #1719953
@ngatelLocale: Southern California
This is much more complicated than it sounds.
Banks and mortgage companies do not loan most of the money for homes any more — they sell the loan, which is "serviced" by mortgage servicing companies. In these cases the bank or mortgage company just originates the loan. When I was a kid, for the most part, banks actually lent homeowners money, based on the deposits they had on hand. But that soon changed…
Banks and mortgage companies do not actually do the foreclosure documentation, they hire other companies to do it, the largest of which is LPS. A lot of the current documentation fraud problems lead to us directly to one company: LPS. The robo-signers work for LPS. However, many banks contract this company.
All of this does not absolve the financial "loan originator" of responsibility. Typically banks do a good job of documenting paperwork, mortgage brokers can be worse. If you have ever financed a home, you know there are a few pounds of paperwork in the loan package. The problem usually starts when the loan is sold, and it gets worse from there.
Who created the mortgage backed securities industry? Guess who….
hint: think Freddie Mac and Fannie Mae).
Both were created to increase and regulate the money supply. And it got worse…
Fannie Mae's mantra is to "provide financial products and services that increase the availability and affordability of housing for low-, moderate- and middle income families… (quote from their Website)" It was created in 1938 to provide banks with taxpayer money to increase homeownership and affordable housing, since the government was unhappy that banks were unwilling to lend money for home loans — it was too risky at the time. In 1968, Fannie Mae was "privatized." But is classified as a Government Sponsored Enterprise. The reason to "privatize" Fannie Mae, was to get it out of the Federal Budget, because along with the Viet Nam war, the budget was looking pretty dismal. Pretty creative financial move.
Freddie Mac "Works with mortgage lenders to help people get lower housing costs and better access to home financing (quote from their Website)." It was created in 1970 by the government, so Fannie Mae would not be a monopoly.
Freddie Mac and Fannie Mae control 90% of the secondary mortgage market, and hold over 50% of all home loans. We have two government sponsored, investor owned companies that have a monopoly on the secondary mortgage market that the government created. Unless it has changed, these two GSE's are exempt from registering with the SEC, or paying state & local income taxes. Sweet!!
The government has provided over $110 billion to Fannie and Freddie in bailout money.
So what have the regulators been doing to oversee the GSE's they created?
Any fraud committed should be punished. But, what is the root cause of the problem?Apr 4, 2011 at 3:55 pm #1719971
"And ethically, banks created this mess so deserve to be penalized. There bad practices created the real estate bubble and bust and high unemployment. If they have to pay off someone to fix a document screwup it's fair."
For goodness sakes Jerry is anyone ever responsible for their actions besides a business? Just curious because you never ask the government or an individual to take any responsibility for their actions. It's ALWAYS the business worlds fault. Sure they have some blame in all this mess, but they NEVER forced a homeowner to sign the mortgage documents.
The funny thing is back in the late 1970's people were having discussions about why everyone didn't own a home. People started saying everyone is "entitled" to own a home. People were complaining that banks were not loaning to those who were a credit risk. So what happen:
"The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII of the Housing and Community Development Act of 1977, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.
The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to help meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation (Section 802.). To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions (Section 804.)."
Guess who was President at the time, oh Jimmy Carter (D). And who controlled the congress from 1977-1979, oh democrats. Some yes this was a law that the democrats pushed through. However to be fair every president since then has supported this effort and added to it.
So maybe the Govt has some reasonability in this whole mess. And again supports my position that government intervention rarely works out.
The blame for the financial crisis of the past couple of years can be spread across a whole lot of people. Time to stop pointing figures and move on.
BradApr 4, 2011 at 4:08 pm #1719979
@kat_pLocale: Pacific CoastApr 4, 2011 at 4:09 pm #1719981
Wish I could find the link but recently there was a story of a homeowner who never missed a mortgage payment but was threatened with foreclosure.
The banks got real sloppy with their paperwork and I hope some of these judges fine the banks hard. It's time the banks started paying strong attention to strong and documented procedures and treat legal homeowners who are paying on their mortgages properly.
ps. I found the link.Apr 4, 2011 at 4:25 pm #1719991
Obviously I'm not advocating that banks should foreclose on homeowners who are making their payments. I'll be the first to agree that we have a lot of problems in the system and financial institutions have screwed up big time. I'm also an advocate that banks should try to work out mortgages because we all benefit by having people stay in their homes. IMHO I think we should return to the days of old where home buyers put down a substantial deposit, banks hold the mortgage, homeowners must show proof of earnings and good credit scores are required. Kinda financing 101 to me.
However to advocate that a homeowner in foreclosure is entitled to commit fraud or extort from a bank is just flat out wrong.
And to blame banks for the financial crisis, high unemployment, global warming, world hunger, NFL lockout, rain in local forecast tomorrow, etc just isn't right.
BradApr 4, 2011 at 4:31 pm #1719993
My apologies to the civilized for the length of this post
These are the basic arguments
1.The financial crisis was precipitated ( caused) by loans to low income minority groups.
2.President George W Bush and his administration had no supporting role in expanding home ownership to lower income buyers.
3.A major root cause of the financial meltdown was loans to low income minorities underwritten by the GSA’s ( Fannie Mae and Freddie Mac)
What follows below is the very edge of the tip of the ice-berg of information directly related to those three related ideas.
Karl Smith: No, Fannie and Freddie Did Not Cause the Housing Bubble
Fannie / Freddie Acquitted: Fannie Mae and Freddie Mac are members of a long list of individuals and entities including Gary Condit, Tom Delay, Michael Jackson, Rod Blagojevich and JonBenet Ramsey’s parents…. tried and convicted in the popular press essentially on the grounds that they were creepy…. As I hope to continue to argue, being creepy, a bad person, or even a usual suspect does not make one automatically guilty…. [G]overnment subsidies in the housing market are a bad idea for a host of reasons and have been for years. I will testify to this with vigor and passion. However, that does not mean that Fannie or Freddie caused the housing bubble. Indeed, by my count they were among the biggest victims of it.
The proper question is not: What story is consistent with my general philosophy or worldview? The proper questions is: What story is consistent with the facts?
Fact One: Fannie and Freddie’s primary business of subsidizing conventional loans was not a driver of the housing the bubble….
Fact Two: Fannie and Freddie lost market volume during the boom….
Fact Three: The major losses to Fannie and Freddie came through their expansion into guaranteeing non-traditional loans, not through their portfolio. That is, yes like every other financial entity Fannie and Freddie were buying subprime packages in the secondary market. However, these losses were relatively mild….
Fact Four: The key change in the Fannie / Freddie business model was their expansion in the types of loans they willing to guarantee. In particular moving into the Alt-A and Interest-Only categories….
Fact Five: The higher number of Alt-A and Interest Only loans combined with ultimately higher delinquency rates have meant that a plurality of losses have come from these two categories. These loans were vulnerable not because the borrowers were poor low-credit individuals that the government was taking pity upon but because the loan concepts were predicated on rising or at least stable housing prices.
Fact Six: Areas with the largest collapse in home prices have accounted for most of Fannie and Freddie losses. Refer to the same graph above. This is further evidence that it was the collapse of the bubble and not betting on people who were poor credit risks that induced major losses at Fannie and Freddie….
The wave of housing price increases was kicked off by changes in private label securitization. These changes left Fannie and Freddie with a smaller market share and lower absolute level of securitizations. Fannie and Freddie attempted to adjust their basic business practices to stay competitive in bubble markets and among aggressive borrowers. These adjustment left Fannie and Freddie exposed to a large decline in housing prices….
In short, attempting to subsidize the American dream for low and moderate income families may be a fundamentally bad policy. However, it does not appear to be either the origin of the housing bubble or the source of Fannie and Freddie’s trouble.
Democrats and Republicans share political blame for promoting laws and initiatives that precipitated the mortgage crisis (in concert with lenders and buyers– there's a lot of blame to go around. Here is proof that not only was the GOP complicit, they were in the leadership role of the crisis when the greatest damage was done from 2002-2006, with the Bush Administration completely confessing to it in their own 2002 HUD report.
The 46-page 2002 HUD report "Blueprint for the American Dream" is the Bush Administration's promotion of lowered credit standards, low-documentation loans and hybrid loan products to get poor people into homeownership. In this, the Bush administration brags about doing the things that fueled the mortgage crisis. You can download the report from HUD here:
It is a GOP confession to their involvement. It documents the “Partnership" between the government (GOP House majority and GOP president), the Mortgage Bankers Association, Fannie Mae, Freddie Mac and other groups. In it you will read Bush administration proposals such as:
— Fannie Mae commits exactly $700 billion dollars to mortgages for this initiative(bottom of page #41). The Bush administration brags in the same paragraph that they got Fannie Mae to expand their commitment by 66% from the $420 billion that was made in March 2000 for the "American Dream Commitment" during the last year of the Clinton Administration. Note that the hybrid loans and lowered credit standards were amplified under the Bush Administration starting in 2002.
— GOP congress claims credit for the creation of hybrid Adjustable Rate Products (ARMs) on page 39:
"The Federal Housing Administration will help more low-income families become homeowners by implementing the hybrid Adjustable Rate Mortgage (ARM) product that was enacted into law in the FY2002 Appropriations Act. This program lowers families' initial homeownership costs by combining a low fixed rate in the early years with a rate that later adjusts with the market".
This is the loan product universally decried as tipping many people into bankruptcy when it adjusts their payments beyond what they can afford.
— The Bush administration explicity states that it is pushing to have credit standards lowered to get more people into homeownership, as quoted on page 32 "Fannie Mae will continue to develop its full line of low downpayment mortgage products for lenders, including Expanded Approval for borrowers with blemished credit"
— Bush strategies for downpayment assistance, on page 30: "These include the proposed expansion of president Bush's American Dream Downpayment Fund . . . and innovative mortgage products that require very low or zero down payments".
— they state they will use ACORN !!! as a PARTNER to facilitate schooling poor folks and minorities on how to get the mortgages (page 8) (Wow)
This report is evidence how the minority home ownership initiatives begun during the Clinton Administration were pushed to completely unsound levels by the Bush Administration
The Bush Administration's "Blueprint for the Amercian Dream Partnership" was very well planned to pump up the economy (it is noted as an economic stimulus in the document on the HUD web site), create fast and huge wealth for the Mortgage Bankers Association lenders, and curry political favor with minority populations, as well as offer hand outs to community groups like ACORN and faith based organization for the outreach/education components. It was in reality the "blueprint for the mortgage crisis".
The "American Dream Commitment" announced in March 2000 was Fannie Mae's six-point plan to increase minority home ownership and is the source of the $420 billion figure that the Bush Administration urged Fannie Mae to increase to $700 billion. After reading the Blueprint report and the Fannie Mae annual reports, it is clear that the Bush Administration took a leadership role in expanding homeownership to people who were not economically stable enough to fulfill their mortgage obligations. The sudden bust in home prices exacerbated all these problems, and now the recession is going to magnify them even more. The Republicans were happy to claim these initiatives until 2006.
Additional evidence on how hard the Bush Administration promoted this:
Here is the October 17, 2002 HUD web page promoting the Blueprint
As late as December 2005 this was the featured HUD initiative on their homepage:
Here are the archived HUD home pages. October and November 2002 featured the initiative:
Here is a 2004 Mortgage Bankers Association Progress Report for the Blueprint "partnership".
A blogger put together a nice timeline of the publicity surrounding this, but missed the meat of the actual Blueprint report. This has more evidence of GOP culpability in the mortage crisis:
Here is some congressional testimony about the Down Payment Assistance thanking President Bush for the initiative and a bunch of Republicans and Democrats in congress congratulating themselves for creating the opportunity for homeownership for low-income people. This is TYPICAL of the Republican led Congress at this point in history pushing lending to lower and lower income eligible people:
The Fannie Mae annual reports are available here:
And right from the horse’s mouth:
The Bush Video announcing the American Dream Downpayment Fundprogram is linked below:
Below is just one of literally thousands of news reports and articles on this subject:
Group on Financial Markets reported Friday.
Conservative critics claim that the Clinton administration pushed Fannie Mae and Freddie Mac to make home ownership more available to riskier borrowers with little concern for their ability to pay the mortgages.
"I don't remember a clarion call that said Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster," said Neil Cavuto of Fox News.
Fannie, the Federal National Mortgage Association, and Freddie, the Federal Home Loan Mortgage Corp., don't lend money, to minorities or anyone else, however. They purchase loans from the private lenders who actually underwrite the loans.
It's a process called securitization, and by passing on the loans, banks have more capital on hand so they can lend even more.
This much is true. In an effort to promote affordable home ownership for minorities and rural whites, the Department of Housing and Urban Development set targets for Fannie and Freddie in 1992 to purchase low-income loans for sale into the secondary market that eventually reached this number: 52 percent of loans given to low-to moderate-income families.
To be sure, encouraging lower-income Americans to become homeowners gave unsophisticated borrowers and unscrupulous lenders and mortgage brokers more chances to turn dreams of homeownership in nightmares.
But these loans, and those to low- and moderate-income families represent a small portion of overall lending. And at the height of the housing boom in 2005 and 2006, Republicans and their party's standard bearer, President Bush, didn't criticize any sort of lending, frequently boasting that they were presiding over the highest-ever rates of U.S. homeownership.
Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication. One reason is that Fannie and Freddie were subject to tougher standards than many of the unregulated players in the private sector who weakened lending standards, most of whom have gone bankrupt or are now in deep trouble.
During those same explosive three years, private investment banks — not Fannie and Freddie — dominated the mortgage loans that were packaged and sold into the secondary mortgage market. In 2005 and 2006, the private sector securitized almost two thirds of all U.S. mortgages, supplanting Fannie and Freddie, according to a number of specialty publications that track this data.
In 1999, the year many critics charge that the Clinton administration pressured Fannie and Freddie, the private sector sold into the secondary market just 18 percent of all mortgages.
Fueled by low interest rates and cheap credit, home prices between 2001 and 2007 galloped beyond anything ever seen, and that fueled demand for mortgage-backed securities, the technical term for mortgages that are sold to a company, usually an investment bank, which then pools and sells them into the secondary mortgage market.
About 70 percent of all U.S. mortgages are in this secondary mortgage market, according to the Federal Reserve.
Conservative critics also blame the subprime lending mess on the Community Reinvestment Act, a 31-year-old law aimed at freeing credit for underserved neighborhoods.
Congress created the CRA in 1977 to reverse years of redlining and other restrictive banking practices that locked the poor, and especially minorities, out of homeownership and the tax breaks and wealth creation it affords. The CRA requires federally regulated and insured financial institutions to show that they're lending and investing in their communities.
Conservative columnist Charles Krauthammer wrote recently that while the goal of the CRA was admirable, "it led to tremendous pressure on Fannie Mae and Freddie Mac — who in turn pressured banks and other lenders — to extend mortgages to people who were borrowing over their heads. That's called subprime lending. It lies at the root of our current calamity."
Fannie and Freddie, however, didn't pressure lenders to sell them more loans; they struggled to keep pace with their private sector competitors. In fact, their regulator, the Office of Federal Housing Enterprise Oversight, imposed new restrictions in 2006 that led to Fannie and Freddie losing even more market share in the booming subprime market.
What's more, only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.
These private non-bank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans.
In a speech last March, Janet Yellen, the president of the Federal Reserve Bank of San Francisco, debunked the notion that the push for affordable housing created today's problems.
"Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans," she said. "The CRA has increased the volume of responsible lending to low- and moderate-income households."
In a book on the sub-prime lending collapse published in June 2007, the late Federal Reserve Governor Ed Gramlich wrote that only one-third of all CRA loans had interest rates high enough to be considered sub-prime and that to the pleasant surprise of commercial banks there were low default rates. Banks that participated in CRA lending had found, he wrote, "that this new lending is good business."
And finally the point that the proportion of the losses due to defaulted mortgages was only a fraction of the total losses suffered during the financial collapse.
Here is one quote from Wikepedia:
Others have pointed out that there were not enough of these loans made to cause a crisis of this magnitude. In an article in Portfolio Magazine, Michael Lewis spoke with one trader who noted that "There weren’t enough Americans with [bad] credit taking out [bad loans] to satisfy investors’ appetite for the end product." Essentially, investment banks and hedge funds used financial innovation to enable large wagers to be made, far beyond the actual value of the underlying mortgage loans, using derivatives called credit default swaps and synthetic CDO. As long as derivative buyers could be matched with sellers, the theoretical amount that could be wagered was infinite. "They were creating [synthetic loans] out of whole cloth. One hundred times over! That’s why the losses are so much greater than the loans."
The Wikepedia article quoted above is a very thorough source of info on the whole crisis, factual and non-partisan ( Wikepedia articles are open to public review and challenge and are subject to change if the info is peer reviewed to be accurate ).Apr 4, 2011 at 4:32 pm #1719996
Brad, we're in complete agreement then.Apr 4, 2011 at 4:34 pm #1719998
@redmonkLocale: Greater California Ecosystem
It is not fraud unless the bank can prove they have the right to collect payment.
That right to collect payment stems from the original paper work.
If they lost it, then they are just as likely to be committing fraud as the person in the home.
Except, the person has possession of the home, and squatters have rights.
If my business was based on collecting payments, I'd make sure my business plan ensured I could produce the papers when needed. Not only are the banks too big to fail, they are too big to be competent.Apr 4, 2011 at 4:36 pm #1720001
I like your ending "( Wikepedia articles are open to public review and challenge and are subject to change if the info is peer reviewed to be accurate )." I suppose that means that only inaccurate ones survive the peer review. [grin] I don't want to go on a tangent but there are plenty of Wikipedia articles that are suppressed if they are not politically correct. That is why I got a chuckle out of your typo. I don't want to be teased or bullied into going on a tangent here. This thread is not about Wikipedia. But I couldn't help have a little fun on the typo. I know what you meant.Apr 4, 2011 at 4:41 pm #1720002
Roleigh I think/ thought I merely copied that from wikipedia….yikes evidently not. Any way that whole thing was done quite awhile ago and from a multitude of sources. It just ended with that last paragraph from wikipedia.
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