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> Gov regulations did little to promote sub prime lending. Actually, they did. See http://news.investors.com/Article/589858/201110311638/Housing-Crisis-Obama-

by anamax 15y ago

> Gov regulations did little to promote sub prime lending. Actually, they did. See http://news.investors.com/Article/589858/201110311638/Housing-Crisis-Obama-Clinton-Subprime.htm http://news.investors.com/Article/589858/201110311638/Housin... . "At President Clinton's direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties." "The threat was codified in a 20-page "Policy Statement on Discrimination in Lending" and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining." http://www.ots.treas.gov/_files/25022.pdf http://www.ots.treas.gov/_files/25022.pdf Then there's Fannie and Freddie lying about the composition of the loans they were buying, which threw off everyone's risk evaluation.

Retric 15y ago
That's a stretch, if you look at the history of sub prime lending Clinton was out of office long before it took off. Most people would argue that subprime was a fairly healthy part of the overall loan / risk landscape until 2000. So, I think you need to look for slightly more recent causes. If you want to look for mis regulation the fed's stimulus to deal with .bust was a significant contributing factor. http://dallasfed.org/research/eclett/2007/el0711.html http://dallasfed.org/research/eclett/2007/el0711.html
inthewoods 15y ago
Ugh, this tired idea. Ask yourself this: if the law was created in 1994, why didn't the bubble take off then? The CRA had nothing to do with the crisis as most of the subprime loans were made by non-CRA governed companies. The housing bubble could have been avoided entirely if the Fed had just placed tighter restrictions on the loans that could be made. Greenspan famously decided that he didn't want to do that - which lead to companies like Countrywide creating the loans for packaging by Wall Street, allowing them to offload all risk immediately. My true disappointment with Obama has been his lack of real, strong re-regulation of Wall Street and a pursuit of criminal charges against many on Wall Street, but at least, immediately after he came into office, added the simple language of requiring lenders to confirm income as part of the lending process. That simple language, which would seem obvious to anyone who would lend money, could have stopped the whole thing in its tracks in my opinion.
- anamax 15y ago
  > Ask yourself this: if the law was created in 1994, why didn't the bubble take off then? We were running another bubble then. Note that W also encouraged home ownership, so I'm not blaming Clinton alone. > The CRA had nothing to do with the crisis as most of the subprime loans were made by non-CRA governed companies. The posted link wasn't the CRA, but a policy that applied to every company that made/makes home loans. Also, you're ignoring the role of Fannie/Freddie. A large fraction of loans are made to be sold. As the largest buyer, Fannie/Freddie have a huge effect.
  - inthewoods 15y ago
    >We were running another bubble then. Doesn't follow - if the banks were forced, as you say, to make loans, the bubble should have started then. >The posted link wasn't the CRA, but a policy that applied to every company that made/makes home loans. That's fine, but there is no indication, in the actual mortgage data, that banks were being forced to issue subprime mortgages. The data shows that it was mainly mortgage companies were issuing subprimes, then offloading them for packaging into CDOs by Wall Street. If you want to make that argument, it isn't enough to produce a document - the data has to support the argument and it doesn't. >Also, you're ignoring the role of Fannie/Freddie. A large fraction of loans are made to be sold. As the largest buyer, Fannie/Freddie have a huge effect. Not true - Fannie/Freddie were late to the subprime game and had lost marketshare. In 2006, they got started buying subprimes. Bottom line, Fannie/Freddie had an impact, but they were not the driving force behind the housing bubble. "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." http://www.mcclatchydc.com/2008/10/12/53802/private-sector-loans-not-fannie.html#ixzz1cvYnjvcB http://www.mcclatchydc.com/2008/10/12/53802/private-sector-l...
arethuza 15y ago
It wasn't just US banks that had problems in 2007/2008: http://en.wikipedia.org/wiki/Northern_Rock http://en.wikipedia.org/wiki/Northern_Rock

by anamax 15y ago

Retric 15y ago

That's a stretch, if you look at the history of sub prime lending Clinton was out of office long before it took off. Most people would argue that subprime was a fairly healthy part of the overall loan / risk landscape until 2000. So, I think you need to look for slightly more recent causes. If you want to look for mis regulation the fed's stimulus to deal with .bust was a significant contributing factor. http://dallasfed.org/research/eclett/2007/el0711.html http://dallasfed.org/research/eclett/2007/el0711.html

inthewoods 15y ago

Ugh, this tired idea. Ask yourself this: if the law was created in 1994, why didn't the bubble take off then? The CRA had nothing to do with the crisis as most of the subprime loans were made by non-CRA governed companies. The housing bubble could have been avoided entirely if the Fed had just placed tighter restrictions on the loans that could be made. Greenspan famously decided that he didn't want to do that - which lead to companies like Countrywide creating the loans for packaging by Wall Street, allowing them to offload all risk immediately. My true disappointment with Obama has been his lack of real, strong re-regulation of Wall Street and a pursuit of criminal charges against many on Wall Street, but at least, immediately after he came into office, added the simple language of requiring lenders to confirm income as part of the lending process. That simple language, which would seem obvious to anyone who would lend money, could have stopped the whole thing in its tracks in my opinion.

anamax 15y ago
> Ask yourself this: if the law was created in 1994, why didn't the bubble take off then? We were running another bubble then. Note that W also encouraged home ownership, so I'm not blaming Clinton alone. > The CRA had nothing to do with the crisis as most of the subprime loans were made by non-CRA governed companies. The posted link wasn't the CRA, but a policy that applied to every company that made/makes home loans. Also, you're ignoring the role of Fannie/Freddie. A large fraction of loans are made to be sold. As the largest buyer, Fannie/Freddie have a huge effect.
- inthewoods 15y ago
  >We were running another bubble then. Doesn't follow - if the banks were forced, as you say, to make loans, the bubble should have started then. >The posted link wasn't the CRA, but a policy that applied to every company that made/makes home loans. That's fine, but there is no indication, in the actual mortgage data, that banks were being forced to issue subprime mortgages. The data shows that it was mainly mortgage companies were issuing subprimes, then offloading them for packaging into CDOs by Wall Street. If you want to make that argument, it isn't enough to produce a document - the data has to support the argument and it doesn't. >Also, you're ignoring the role of Fannie/Freddie. A large fraction of loans are made to be sold. As the largest buyer, Fannie/Freddie have a huge effect. Not true - Fannie/Freddie were late to the subprime game and had lost marketshare. In 2006, they got started buying subprimes. Bottom line, Fannie/Freddie had an impact, but they were not the driving force behind the housing bubble. "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." http://www.mcclatchydc.com/2008/10/12/53802/private-sector-loans-not-fannie.html#ixzz1cvYnjvcB http://www.mcclatchydc.com/2008/10/12/53802/private-sector-l...

arethuza 15y ago

It wasn't just US banks that had problems in 2007/2008: http://en.wikipedia.org/wiki/Northern_Rock http://en.wikipedia.org/wiki/Northern_Rock