Posted by Tina
The Clinton Library has been releasing documents for public scrutiny lately. The latest memos show the degree to which Clinton’s regulatoryand policy changes became a driving force for trouble down the road:
Exhibit A in the 7,000-page Clinton Library document dump is a 1999 memo to him from his treasury secretary, Robert Rubin.
“Public disclosure of CRA ratings, together with the changes made by the regulators under your leadership, have significantly contributed to … financial institutions … meeting the needs of low- and moderate-income communities and minorities,” Rubin gushed. “Since 1993, the number of home mortgage loans to African Americans increased by 58%, to Hispanics by 62% and to low- and moderate-income borrowers by 38%, well above the overall market increase.
“Since 1992, nonprofit community organizations estimate that the private sector has pledged over $1 trillion in loans and investment under CRA.”
Other documents reveal how the community-activist group ACORN and other organizations met with Rubin and other top Clinton aides on “improving credit availability for minorities.”
Clinton’s changes to the CRA let ACORN use the act’s ratings to “target merging firms with less-than-stellar records and to get the banks to agree to greater community investment as a condition of regulatory approval for the merger,” White House aide Ellen Seidman wrote in 1997 to Clinton chief economist Gene Sperling.
“Community groups have come to recognize how terribly powerful CRA has been as a tool for making credit available in previously underserved communities,” Seidman added.
Seidman later boasted that Clinton’s 1995 CRA revisions created not only the subprime mortgage market but also the subprime securities market. Of course, subprime loans and their high default rates ruined minority neighborhoods when the market crashed.
Memos also reveal how Clinton aides held repeal of the Glass-Steagall Act hostage to strengthening the CRA. They gave Republicans deregulation of banking activities in exchange for over-regulating how those banking activities applied to low-income communities.
Clinton aides viewed ending the Glass-Steagall Act as a way to “extend the CRA to Wall Street firms” and wanted to extend it to insurers, mutual funds and mortgage bankers. But due to GOP opposition, that was “not politically feasible,” Rubin told Clinton in a 1997 memo.
In 2000, HUD Secretary Andrew Cuomo lit the fuse on the subprime bomb by requiring Fannie Mae and Freddie Mac to purchase subprime, CRA and other risky mortgages totaling half their portfolios.
A 1993 memo, “Racism in Home Lending,” captured the tone of Clinton’s affordable-housing crusade. It proposed coordinating with the Washington Post and Congressional Black Caucus on bank investigations.
Is it any wonder Clinton was dubbed the first black president?
But you have to admit, Obama has played, “I can top that” to a tea!
Many thanks to IBD.
So who’s surprised, and by which?, the “results” or the fact it is “now becoming public knowledge”
Sub-Prime leadership, lends itself to Sub-Prime thinking and eventually to Prime time failures.
In Chico, which can not afford it to happen, $500,000 of our tax dollars are being written off the books in housing loans because of this Sub-Prime feel good give away, Championed by Liberals. But not to worry it is only money(Tax Dollars)that most Liberal leaders feel can be wasted in a ineffective way
because there really is no accountability for throwing more money at failed programs. In fact the results for Liberals at the polls are considered a good return for these wasted dollars.
It would be a welcome change for Government to run fiscally responsible, much like the private sector where that type of thinking gets one fired and replaced!
The difference being Government takes and wastes while the private sector makes and creates, which translates into fiscal solvency.
Holy cow! And here I thought it was all Bush’s fault!
The memos show that Clinton’s changes to the CRA led to more banks serving poor minority communities, which was it’s intended purpose. The writer of the IBD piece takes that as proof that these changes also led to the housing crises, which is a huge leap in logic. In order to make that leap, the writer conflates CRA loans with subprime loans. This makes no sense, since as you know, CRA loans were much less likely to default than loans from private banks which were not subject to the CRA.
“The Federal Reserve Board has found no connection between CRA and the subprime mortgage problems. In fact, the Board’s analysis (102 KB PDF) found that nearly 60 percent of higher-priced loans went to middle- or higher-income borrowers or neighborhoods, which are not the focus of CRA activity. Additionally, about 20 percent of the higher-priced loans that were extended in low- or moderate-income areas, or to low- or moderate-income borrowers, were loans originated by lenders not covered by the CRA. Our analysis found that only six percent of all higher-priced loans were made by CRA-covered lenders to borrowers and neighborhoods targeted by the CRA. Further, our review of loan performance found that rates of serious mortgage delinquency are high in all neighborhood groups, not just in lower-income areas.”
http://www.federalreserve.gov/faqs/banking_12625.htm
Numerous studies and investigations have reached the same conclusions: CRA loans simply were not very risky and were made more responsibly than the majority of loans in the market.
Chris: “Numerous studies and investigations have reached the same conclusions: CRA loans simply were not very risky and were made more responsibly than the majority of loans in the market.”
Don’t confuse her with facts.
Claims about low failures in CRA loans are not based on reliable information and the Federal Reserve said so itself. In November 2000 the Federal Reserve Bank of Cleveland posted a report about the effects of the CRA through 1999. Find it at clevelandfed.org; it includes (emphasis mine):
Initial investigations found there were no statistics available regarding defaults and losses. The government had only tracked the increase in number of loans made. Congress asked for an investigation and specifics. Only 28.6% of banks queried answered the request for information and of those that did respond results were somewhat inconclusive since banks responded to questions using different methods of calculation. Other factors also made discovery difficult, for instance, there was no definitive way to report on loans made exclusively because of the CRA. Information as gathered produced the following result:
The words “marginally profitable” do not signal success of the program to me. They do suggest that banks were making the best of the situation. The report goes on to say that large banks were less likely to report profitability. If memory serves these were the type of banks that were pressured by ACORN and the President…targeted for protests and lawsuits. The report concluded:
that was the Clinton era. Today, April 27, 2014, the American Enterprise Institute (AEI) reports the following (emphasis mine):
That’s not small change; it represents defualt on CRA loans. The article continues:
Nor has WaMu been the last mistake that the CRAs annual awards have made. In 2004, CRA honored Unizan Bank for its Individual Development Account Asset Management program. CRA wasn’t alone in welcoming Unizan, a year prior the bank was called the number one SBA 7(a) bank in Ohio after expanding its loan volume in the state by more than 20 percent.
Much like WaMu, Unizan stumbled as housing collapsed. In 2006, Unizan, a small Ohio bank, was acquired by Huntington bank after Unizan saw profits dip by 7.5 percent.
Not all the banks that CRA has lauded have failed but almost all of them have been hit by the housing crisis. Wells Fargo, which won the CRA award in 2002 for a housing development it funded in Portland, has been hampered by the toxic assets it acquired in its $15.1 billion purchase of Wachovia. The 2005 winner, Key Bank, has been posting losses since early 2008.
Clearly there have been numerous toxic loans that can be attributed to the CRA since 1999, although banks were loath to account for them specifically (Fear of government regulator reprisal I imagine). But they can be measured by the bank failures that were a direct result of loans made “outside typical credit, income, or debt constraints” and pressure from regulators.
Radical leftists have been hard at work finding ways to paint over the effects of the CRA. But the pattern of activists intervention and pressure on banks both from organizations like ACORN and from activist regulators associated with the CRA and Fair Lending Colloquium.
More information about this years “Fair Lending Colloquium” here. Agenda here.
Forbes had a good article about the power and control of government in banking and lending:
We do what people to become successful and to be able to own their own homes. as we have experience that cannot be coerced through ridiculous government imposed low standards and regulations, or through threats and intimidation by activist organizations.
CRA loans were made through government intimidation against all notions of sensibility. the lowered standards were irresponsible; forcing banks to adopt and use lower standards was unconscionable. The impact and result harmed all Americans and did great damage to our economy.
Tina: “Claims about low failures in CRA loans are not based on reliable information and the Federal Reserve said so itself. In November 2000…”
That was almost fourteen years ago, so I’m not exactly sure how that proves your case that the most recent numbers are unreliable.
The rest of your info attempts to blame the CRA for bank failures, but gives no real evidence that the CRA loans made by these banks were directly at fault; they simply assert that that is the case. If the CRA were truly to blame, then we would expect to see CRA loans defaulting much more commonly than non-CRA loans. Since the opposite is true, the most rational explanation is that the CRA is not at fault.
Jim I don’t mind facts a long as we include ALL of them. Most Democrats like to leave out all of the and pertinent facts that show how they are culpable. There is sufficient evidence, as far as I’m concerned, to show a concerted effort was made by politicians, activists groups, lawyers, administrators in Fannie and Freddie, regulators and at least one dude at countrywide to push very bad loans into the system. Several Democrat administrators made millions in bonuses as the bundled “secured” loans were sold to Fannie Mae. After the crash administrators of these institutions continued to make fat bonuses even as Americans were losing their homes and finding themselves underwater:
As Bush said there was plenty of guilt to spread around but it was the Democrats who created the CRA and expanded it under Clinton. Democrats came up with the idea of bundling the bad loans at Fannie Mae and it was government regulators urging banks to “be creative” in their lending practices…which is code for dropping all common sense requirements to determine a borrowers ability to repay. Regulators are supposed to protect the citizens not enable one segment of the population to help destroy the housing market and in the process the entire economy…of the world!
Excuses and blame shifting are just not acceptable…the facts are what they are.
Tina, for what its worth I agree. The Dems (Dims) have a lot of explaining to do. This is one of those times when “W” had it right and Congress didn’t listen or they listened to Barney Frank instead. Too many people saw dollars signs and did what was best for them, not what was best for the country.
Chris the study up to 1999 shows that there was nothing in place to count the number of defaults that could be attributed to the CRA. The government didn’t care to know. They didn’t even bother to try to get that information. All they cared about was whether the banks were performing according to CRA rules and making the right number of loans in poor neighborhoods. Nothing changed after 2000. The government still had nothing in place to track defaults of CRA loans. Therefore, the claim that the loans that defaulted weren’t CRA loans is bogus…made up…a guess at best and not a very logical one.
Common sense tells us if people are defaulting on loans in great numbers it’s likely that economic conditions will cause poorer people to default first…not in all cases but in most.
The conditions that created the crash also created the bubble. Interest rates held artificially low helped create the bubble but also made it easier to stretch qualification rules. Toward the end they were asking nothing in down payment and lending to people that didn’t even have a job. Once those loans were bundled it was as if they had disappeared into the ether…there was no way to account for them.
Think about it. Who is more likely to default a guy with no savings and no job or a guy with a job and steady income?
Politics and very poor judgement created the mess. Sadly the administration is still urging banks to “make loans to people with weak credit,” according to the Washington Post:
One of the reasons Wall Street investors helped create the bubble was because there was no information about the number of toxic loans. Toxic loans bundled and sold (again and again) were seen as a tool to mitigate risk. Only in hindsight did the information begin to fall out about the high levels of unsound loans inside those bundles.
There is plenty of blame to go around but denying that the Democrats lowered standard for lending and pressured banks to make bad loans is not possible if you’re going to maintain any credibility at all…there is just too much evidence to show what the Dems were doing and who benefited in the deals.
Poor people are not served in the long run by bad policy and bad policy can do great damage. As usual the approach dems took to solve a problem was bassackwards. If we want more poor people to have homes we need policy that makes it possible for them to meet the sound lending standards. Training programs, better schools, higher standards for teachers in poor neighborhoods, and jobs should come first.
The problem with that more sensible and humane approach is that it wouldn’t ensure a permanent democrat voting bock. Poor people would begin to depend on themselves. The radicals in power don’t want that.
Jack you’re right. The thing that makes this type of policy so ugly, one you get under the surface, is that people who look at the train wreck in the future can’t object because people will just say they don’t care about poor people or that they are greedy or stingy. It’s extremely difficult to defend a position that makes it look like you don’t want poor people to have a home.
Bush did try to pressure congress to do something. He also spoke favorably about wanting every American to have a home…who wouldn’t in his position…and who doesn’t?
I can see that some of it was just like the perfect storm. But a lot of it was set in motion by bad policy and bad politics…like the pressuring of banks and the perks at Fannie and Freddie for urging the buying of more and more toxic bundled loans.
I just want us to never do it again.
Tina, like I said, the study you cite is too old to tell us whether or not the government tracked the default rate of CRA loans in the lead-up to the crash. It’s possible that after that study came out, the government decided to take a closer look. I will have to do more research to find out. So many agencies have found such similar numbers that it’s hard to believe they’re all just making them up, but I suppose it’s possible.
That said, since you claim that we don’t know the success or default rate of CRA loans, aren’t you making a pretty big assumption as well? You’re assuming that CRA loans were “bad loans,” and I understand your reasoning for thinking that, but you still haven’t really convinced me. If it can be shown that CRA loans defaulted more often or just as often as non-CRA loans, I may reconsider my position on this issue.
The possibility is miniscule! The government has no interest in such information.
Chris when Democrat politicians are in cahoots with activist organizations like ACORN to enforce CRA loans by intimidating through protest and filing lawsuits and when regulators are on board and demand it from banks, and when the banks are encouraged to “be creative” with rules so that unqualified people magically become qualified, and when the banks are expected to meet certain goals or lose their bank rating or their merger deal there’s a damn good chance bad loans are being written. Add to that the further cahooting by Fannie Mae, creating the whole idea of bundling bad laons with good to “hide” the bad loans and there’s a good chance that nobody will know how toxic the whole business will become. Add to that the government keeping interest rates low. Low interest rates help allow poor people to qualify but also encourage investor home buying. At the end we had a home buying frenzy. That helped inflate balloon to bubble status. Connect the dots it isn’t that difficult. Who is more likely to default? who is more likely to just walk away. It isn’t that some investors, the flippers, didn’t get caught when the bubble burst, some did, it’s that the toxicity from bad loans made the collapse inevitable. A bad loan is a loan where payments aren’t kept up leading to losses. The pool was poisoned but the delivery system was hidden…nobody knew it was as bad as it was. It’s one of the reasons nobody was prosecuted. The loans were made according to the law and with the approval and encouragement of regulators.
All of it was insane of course. It is insane to make loans to people who will default with near certainty. No sane banker would ever do such a thing unless he is forced to by law/strong arm twisting.
Poor people are not served by selling them snake oil. It’s terrible to give people such false hope. Most people have little experience about such things. The excitement of owning a home would play significantly on emotions. These people must be able to rely on professionals in the business to explain to them how lending works and what it will mean to them. It is despicable that banks were forced to give people the false idea that they could qualify just to gain some political advantage for the democrats. The whole business is a dishonest dirty mess that ultimately does more harm than good. That should be reason enough for you to be against such practices.
Do your research but also do some good old fashioned common sense thinking.
Tina, you are still conflating CRA loans with predatory loans, but you have not shown that to be the case. Almost every reputable source has concluded that CRA loans were less risky and less likely to default than others. The Federal Reserve study you linked to says that up to 1999, estimates for the performance of CRA loans were rare and difficult to perform; it did not conclude that such estimations were impossible, and it even attempted to construct a methodology of its own to estimate this data. It reached the same conclusions as everyone else: CRA loans were less risky and less likely to default. Subsequent studies have found the same thing. Here are links to a couple:
http://www.federalreserve.gov/pubs/feds/2008/200829/200829pap.pdf
http://www.gpo.gov/fdsys/pkg/GPO-FCIC/content-detail.html
There’s also the fact that the 15 largest subprime servicers were all private lenders who were not subject to the CRA:
http://www.mcclatchydc.com/2008/10/12/53802/private-sector-loans-not-fannie.html
Then there’s the fact that subprime loans did quite well in the 90s, when CRA enforcement was at its strongest, but the crisis started during the Bush administration, which weakened the law:
http://www.businessweek.com/investing/insights/blog/archives/2008/09/community_reinvestment_act_had_nothing_to_do_with_subprime_crisis.html
If you can show me evidence to the contrary, Tina, I might consider your position that the CRA is to blame for the crisis more seriously. But so far you’ve presented nothing to counterbalance the enormous amount of evidence that the CRA was not a source of the problem. All you’ve provided are politically motivated assumptions.
Chris: “you are still conflating CRA loans with predatory loans, but you have not shown that to be the case.” In either case it was government regulations, the CRA, that was the basis for lowering standard lending practices. Regulators were encouraging such practices…telling the banks to be “creative” and looking the other way. The lowered standards would not have been possible (in fact they are stupid as any banker will tell you) were it not for the CRA. There was no upside for banks in this. Democrats profited politically by pandering to the poor. It was not worth the trouble it has caused by any stretch of the imagination.
“CRA loans were less risky and less likely to default.”
Bologna! By what possible measure could loans given to people with zero ability to pay be considered “less risky”? By what measure were they able to track defaulted loans, especially to the originator since they got bundled and sold again and again?
Regarding your studies. The first link includes a disclaimer about the findings: “…are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors.”
So much for that study.
The second link was better but since it’s introduction reads like a campaign statement and since it also produced, “…126 pages of dissenting views,” it too does not represent much more than opinion.
I have asked you to apply some common sense and logic to the circumstances. I have asked you to connect the dots. Poor people have been taken advantage of if what I see has even a modicum of accuracy to it. The entire world experienced a major financial meltdown because of the utterly stupid and ideological regulations that were placed on banks and because of the intimidation and pressure they received from activists, lawyers, and regulators!
Sorry, I completely disqualify the article posted in Business Week, your final link, because the author begins including the following remark, “…today we’re hearing the know-nothings…”
Subprime loans cannot “do well,” not in the 90’s or any other time frame.
People may have done better at meeting their obligations in the beginning since a much smarter than Obama President Clinton worked together with the Republicans to create a decent economy. But momentum for the toxicity of the entire pool takes time to build. Loans bundled and securitized become invisible…Fannie made sure of that when the created bundling. Jamie Gorelick is on tape telling the world that Fannie was eager to buy those bundled loans! (She is also one that made millions in bonuses while at Fannie…the more loans the better for her).
Regarding changes made under Bush:
The changes made had to do with implementation, paperwork and record keeping, but not to regulations regarding qualification standards. Regulators continued to encourage lending to the unqualified.
the issue is not that poor people got loans. It isn’t poor people at all. The issue is the ignorance of creating such a law in the first place. The issue is the irresponsible persons who conceived of it using intimidation to force implementation even when it was unsound to do so through intimidation, threats and lawsuits:
The dots are there to be connected. You are either willing to connect them or you are not; clearly you are not. I’m done.
Tina, since you are so disbelieving of the numbers I have presented, you should present your own. What percentage of subprime loans during the financial crisis can be directly attributed to the CRA? Was this percentage larger or smaller than the percentage of non-CRA loans that defaulted?
Since you are the one making a specific accusation here–that the CRA caused the crisis–the burden of proof is on you to prove that accusation. I have given a lot of evidence that this is not the case–evidence that you have completely dismissed, for increasingly silly reasons–but that shouldn’t even be my role in the debate here. Again, if you have real evidence that CRA loans were more likely to default than non-CRA loans, you should present it. If you do not have such evidence, then the honorable thing to do would be to admit you have no real proof of your opinion.