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No one ever asked you to stay up all night eight days a week trying to get filthy rich shorting what's left of the American auto industry or selling $600 billio

by drewr 18y ago

No one ever asked you to stay up all night eight days a week trying to get filthy rich shorting what's left of the American auto industry or selling $600 billion in toxic, irredeemable mortgages to ex-strippers on work release and Taco Bell clerks. Someone did ask for the latter: http://en.wikipedia.org/wiki/Community_Reinvestment_Act http://en.wikipedia.org/wiki/Community_Reinvestment_Act

bilbo0s 18y ago
Facilities like CRA and TIF did not contribute to the housing crisis in the manner you postulate. They contributed by giving real estate developers political and, more importantly, financial cover for redeveloping inner city areas. The areas redeveloped were full of impoverished people, BUT the areas were not redeveloped FOR the impoverished people. Generally, those people were moved out to section 8 housing, (rentals), and new people would come in. People who were decidedly non poor. Then, of course, those people started to default on their mortgages and the rest is history. Witness the downtown condo boom that happened across the US. Then witness the downtown condo bust that is happening presently. Been to Chicago or Miami lately? So, in short, the developers never sold their condos to "ex-strippers on work release and Taco Bell clerks". They sold them to retirees, empty-nesters, and a crapload of yuppies and speculators. Now the data coming in right now, at least the data for the developer that I worked for, seems to indicate that selling to yuppies and speculators was a mistake. But the gentrification of those neighborhoods was not a mistake, in my own opinion. I know others may think differently.
- jerf 18y ago
  I have to ask you if you even know what the CRA is, because your description of its effects appear to be based on not knowing. It is a requirement that banks load to people who couldn't afford a mortgage on their own merits because of the politically-oriented belief that the reason why these people couldn't get mortgages was not that they couldn't repay them, but because the bankers are racist. It is impossible for the CRA to have had any involvement in the creation of an area for "retirees, empty-nesters, and a crapload of yuppies and speculators", because those people would not have qualified under the CRA, what with being relatively rich and all. (Excepting the last one; one of the saddest outcomes in my opinion of this whole mess are those who use the CRA to speculate. Oops.) The CRA's entire, explicit purpose was the creation of a large number of toxic mortgages, a function it continues to perform. (It is of course impossible that a law so noble, so totally full of those glorious good intentions could be a bad idea, and the idea that it should be repealed is of course racist.) So, as my parenthetical sarcastically points out, that's not how the politicians see it, but it is an accurate description of the act in terms of what it actually does in practice. You can argue about the extent of responsibility it bears, but it is inarguable that it created toxic mortgages to some extent; for the CRA, that is working as designed.
  - bilbo0s 18y ago
    One of the major issues in this debate is the disconnect in how things like CRA are perceived, and how they are implemented. If you check the CRA what you will discover is that it is intended to increase lending in 'disadvantaged communities'. That's right, the loans are based on neighborhood, not individual disadvantages. For instance, an impoverished person from inner city Chicago finds a great deal on a house in Evanston, a suburb. CRA does NOT cover this situation, as you imply, because Evanston is not a 'disadvantaged community'. Same guy wants to buy a house in inner city Chicago and CRA DOES cover his situation. That's where the fun starts! It's at that point that people like me were helping large development firms come in and buy up property in the 'disadvantaged communities'. You keep just enough poor people to keep the disadvantaged designation and you build condos that sell like hot cakes. Usually you set aside a few units in every building for 'disadvantaged' people to buy. But here's the beauty of it. Most municipalities classify 'economically disadvantaged' as 'at or below the median income' for that municipality. By way of example, in Madison, WI, at the time, I believe it was $50000 per year that made you 'economically disadvantaged'. Make below $50000 per year, and you would qualify for one of the set aside units. The developer still made a killing, the cities looked like they were helping regular folks, and crime in the downtown areas dropped dramatically. Of course, now we see the mortgage crisis and the unintended consequences, but it all seemed like a good idea at the time. And parts of it were a good idea. Now, I don't know who explained CRA to you. But I can tell you unequivocally that for developers tools like this were VITAL. TIF as well. Downtown redevelopment rarely works without them. IF it is the case that politicians wanted to help these people, then they should have written the law so that it centered on the people and not the neighborhoods. My own opinion is that the real estate development industry probably lobbied hard to have CRA center on the idea of disadvantaged neighborhood. Because the whole thing was just too easy to not have been planned. In summary, take my word for it, I am VERY well versed with urban real estate development. CRA was not, indeed cannot, be used in the fashion you intimate. If someone told you that CRA obliged a bank to loan to people who could not afford it, then I'm afraid you've been misinformed. CRA obliges banks to lend in NEIGHBORHOODS that are disadvantaged. It is not by accident that many luxury condo developments are in formerly sketch areas. Nor is it a happenstance that the 'downtown condo' rose to prominence with the expansion of CRA. Go to any major city in the US and find a long time resident to walk around downtown with you. The story s/he will tell you will go something like this: "Boy, I can remember when this was a really dangerous area. But they really have fixed it up haven't they! When my kid goes off to college, we're thinking of moving down here!" And finally, as always, don't take my word for it. That was your mistake before, when you took the word of someone else that CRA obliged banks to lend to people who could not afford it. What I would encourage you to do is read through the act your self. Start here, http://www.ffiec.gov/cra/ http://www.ffiec.gov/cra/. You will see that 'communities' and 'neighborhoods' are the units of interest. Always get the data on your own kid. There are a lot of people out there trying to manipulate right now. Left wing socialists, right wing corporatists. Trust no one! Go read it for yourself.
- defen 18y ago
  Really? http://www.usatoday.com/money/economy/housing/2009-03-05-foreclosure_N.htm http://www.usatoday.com/money/economy/housing/2009-03-05-for... "More than half of the nation's foreclosures last year took place in 35 counties" "A few of the 35 counties leading the foreclosure boom are in already-distressed areas around Detroit and Cleveland. But most are clustered in places such as Southern California, Las Vegas, Phoenix, South Florida and Washington, where home values shot up dramatically in the first half of the decade, then began to crumble." What do all those areas have in common?
  - bilbo0s 18y ago
    A nice data point. Though, the critical thinker will immediately notice that the article discusses foreclosures, and not foreclosures on CRA loans. Indeed, a little research will confirm that most of the places you listed, do not qualify for CRA. For instance, Lehigh Acres (Ft. Meyers FL), often described as ground zero of the mortgage crisis would have in no way qualified for CRA loans. Contrast that with the North and South Carolinas. Both states have huge, impoverished, minority communities. Both states have communities that make liberal use of CRA. Odd, is it not, that these states should be so relatively void of foreclosures. An interesting exercise I am trying to engage in is to determine, what percentage of CRA loans were defaulted on in comparison to Fannie and Freddie loans. It is difficult to determine as right now Fannie and Freddie seem almost desperate to keep that information opaque. Why? What I can say is that here is a telling datapoint, Fannie and Freddy have collapsed, but Ginnie is still going strong. What problems Ginnie has, it got through foolhardy government attempts to save Fannie and Freddy. "What is Ginnie?", you ask. Ginnie Mae is the explicitly government backed entity that handles all of the FHA HUD housing stuff, indian (native American) housing, housing for military veterans etc. Incidentally, FHA HUD housing provides loans explicitly to those with low credit scores and low incomes. Strange, don't you think, that they are not having trouble right now? I mean given that these are exactly the people who are alleged to have caused the problem. Even more curious that Fannie and Freddy would collapse, considering Ginnie was the one on the hook for all of these low credit score mortgages. Again, as always, I know there are a lot of people shooting off their mouths right now, so I invite you to look these things up. You may find it helpful to start here http://en.wikipedia.org/wiki/Government_National_Mortgage_Association http://en.wikipedia.org/wiki/Government_National_Mortgage_As.... Then there is an explication of exactly what CRA does here http://www.ffiec.gov/cra/ http://www.ffiec.gov/cra/. And finally, you may think wikipedia is biased, so I would encourage you to read more about Ginnie Mae here http://ginniemae.gov http://ginniemae.gov. Finally, take a look at the map on the link you sent out in your post http://www.usatoday.com/money/economy/housing/2009-03-05-foreclosure_N.htm http://www.usatoday.com/money/economy/housing/2009-03-05-for... and compare the North and South Carolinas to say California. Now you are probably asking why you've never heard of this stuff before? Because data, takes analysis and critical thought. It doesn't fit well in a soundbite. Seneca said that a lie could make it halfway around the world before a fact could get its shoes on. The great CRA debate is a textbook example of this phenomenon.

by drewr 18y ago

bilbo0s 18y ago

Facilities like CRA and TIF did not contribute to the housing crisis in the manner you postulate. They contributed by giving real estate developers political and, more importantly, financial cover for redeveloping inner city areas. The areas redeveloped were full of impoverished people, BUT the areas were not redeveloped FOR the impoverished people. Generally, those people were moved out to section 8 housing, (rentals), and new people would come in. People who were decidedly non poor. Then, of course, those people started to default on their mortgages and the rest is history. Witness the downtown condo boom that happened across the US. Then witness the downtown condo bust that is happening presently. Been to Chicago or Miami lately? So, in short, the developers never sold their condos to "ex-strippers on work release and Taco Bell clerks". They sold them to retirees, empty-nesters, and a crapload of yuppies and speculators. Now the data coming in right now, at least the data for the developer that I worked for, seems to indicate that selling to yuppies and speculators was a mistake. But the gentrification of those neighborhoods was not a mistake, in my own opinion. I know others may think differently.

jerf 18y ago
I have to ask you if you even know what the CRA is, because your description of its effects appear to be based on not knowing. It is a requirement that banks load to people who couldn't afford a mortgage on their own merits because of the politically-oriented belief that the reason why these people couldn't get mortgages was not that they couldn't repay them, but because the bankers are racist. It is impossible for the CRA to have had any involvement in the creation of an area for "retirees, empty-nesters, and a crapload of yuppies and speculators", because those people would not have qualified under the CRA, what with being relatively rich and all. (Excepting the last one; one of the saddest outcomes in my opinion of this whole mess are those who use the CRA to speculate. Oops.) The CRA's entire, explicit purpose was the creation of a large number of toxic mortgages, a function it continues to perform. (It is of course impossible that a law so noble, so totally full of those glorious good intentions could be a bad idea, and the idea that it should be repealed is of course racist.) So, as my parenthetical sarcastically points out, that's not how the politicians see it, but it is an accurate description of the act in terms of what it actually does in practice. You can argue about the extent of responsibility it bears, but it is inarguable that it created toxic mortgages to some extent; for the CRA, that is working as designed.
- bilbo0s 18y ago
  One of the major issues in this debate is the disconnect in how things like CRA are perceived, and how they are implemented. If you check the CRA what you will discover is that it is intended to increase lending in 'disadvantaged communities'. That's right, the loans are based on neighborhood, not individual disadvantages. For instance, an impoverished person from inner city Chicago finds a great deal on a house in Evanston, a suburb. CRA does NOT cover this situation, as you imply, because Evanston is not a 'disadvantaged community'. Same guy wants to buy a house in inner city Chicago and CRA DOES cover his situation. That's where the fun starts! It's at that point that people like me were helping large development firms come in and buy up property in the 'disadvantaged communities'. You keep just enough poor people to keep the disadvantaged designation and you build condos that sell like hot cakes. Usually you set aside a few units in every building for 'disadvantaged' people to buy. But here's the beauty of it. Most municipalities classify 'economically disadvantaged' as 'at or below the median income' for that municipality. By way of example, in Madison, WI, at the time, I believe it was $50000 per year that made you 'economically disadvantaged'. Make below $50000 per year, and you would qualify for one of the set aside units. The developer still made a killing, the cities looked like they were helping regular folks, and crime in the downtown areas dropped dramatically. Of course, now we see the mortgage crisis and the unintended consequences, but it all seemed like a good idea at the time. And parts of it were a good idea. Now, I don't know who explained CRA to you. But I can tell you unequivocally that for developers tools like this were VITAL. TIF as well. Downtown redevelopment rarely works without them. IF it is the case that politicians wanted to help these people, then they should have written the law so that it centered on the people and not the neighborhoods. My own opinion is that the real estate development industry probably lobbied hard to have CRA center on the idea of disadvantaged neighborhood. Because the whole thing was just too easy to not have been planned. In summary, take my word for it, I am VERY well versed with urban real estate development. CRA was not, indeed cannot, be used in the fashion you intimate. If someone told you that CRA obliged a bank to loan to people who could not afford it, then I'm afraid you've been misinformed. CRA obliges banks to lend in NEIGHBORHOODS that are disadvantaged. It is not by accident that many luxury condo developments are in formerly sketch areas. Nor is it a happenstance that the 'downtown condo' rose to prominence with the expansion of CRA. Go to any major city in the US and find a long time resident to walk around downtown with you. The story s/he will tell you will go something like this: "Boy, I can remember when this was a really dangerous area. But they really have fixed it up haven't they! When my kid goes off to college, we're thinking of moving down here!" And finally, as always, don't take my word for it. That was your mistake before, when you took the word of someone else that CRA obliged banks to lend to people who could not afford it. What I would encourage you to do is read through the act your self. Start here, http://www.ffiec.gov/cra/ http://www.ffiec.gov/cra/. You will see that 'communities' and 'neighborhoods' are the units of interest. Always get the data on your own kid. There are a lot of people out there trying to manipulate right now. Left wing socialists, right wing corporatists. Trust no one! Go read it for yourself.
defen 18y ago
Really? http://www.usatoday.com/money/economy/housing/2009-03-05-foreclosure_N.htm http://www.usatoday.com/money/economy/housing/2009-03-05-for... "More than half of the nation's foreclosures last year took place in 35 counties" "A few of the 35 counties leading the foreclosure boom are in already-distressed areas around Detroit and Cleveland. But most are clustered in places such as Southern California, Las Vegas, Phoenix, South Florida and Washington, where home values shot up dramatically in the first half of the decade, then began to crumble." What do all those areas have in common?
- bilbo0s 18y ago
  A nice data point. Though, the critical thinker will immediately notice that the article discusses foreclosures, and not foreclosures on CRA loans. Indeed, a little research will confirm that most of the places you listed, do not qualify for CRA. For instance, Lehigh Acres (Ft. Meyers FL), often described as ground zero of the mortgage crisis would have in no way qualified for CRA loans. Contrast that with the North and South Carolinas. Both states have huge, impoverished, minority communities. Both states have communities that make liberal use of CRA. Odd, is it not, that these states should be so relatively void of foreclosures. An interesting exercise I am trying to engage in is to determine, what percentage of CRA loans were defaulted on in comparison to Fannie and Freddie loans. It is difficult to determine as right now Fannie and Freddie seem almost desperate to keep that information opaque. Why? What I can say is that here is a telling datapoint, Fannie and Freddy have collapsed, but Ginnie is still going strong. What problems Ginnie has, it got through foolhardy government attempts to save Fannie and Freddy. "What is Ginnie?", you ask. Ginnie Mae is the explicitly government backed entity that handles all of the FHA HUD housing stuff, indian (native American) housing, housing for military veterans etc. Incidentally, FHA HUD housing provides loans explicitly to those with low credit scores and low incomes. Strange, don't you think, that they are not having trouble right now? I mean given that these are exactly the people who are alleged to have caused the problem. Even more curious that Fannie and Freddy would collapse, considering Ginnie was the one on the hook for all of these low credit score mortgages. Again, as always, I know there are a lot of people shooting off their mouths right now, so I invite you to look these things up. You may find it helpful to start here http://en.wikipedia.org/wiki/Government_National_Mortgage_Association http://en.wikipedia.org/wiki/Government_National_Mortgage_As.... Then there is an explication of exactly what CRA does here http://www.ffiec.gov/cra/ http://www.ffiec.gov/cra/. And finally, you may think wikipedia is biased, so I would encourage you to read more about Ginnie Mae here http://ginniemae.gov http://ginniemae.gov. Finally, take a look at the map on the link you sent out in your post http://www.usatoday.com/money/economy/housing/2009-03-05-foreclosure_N.htm http://www.usatoday.com/money/economy/housing/2009-03-05-for... and compare the North and South Carolinas to say California. Now you are probably asking why you've never heard of this stuff before? Because data, takes analysis and critical thought. It doesn't fit well in a soundbite. Seneca said that a lie could make it halfway around the world before a fact could get its shoes on. The great CRA debate is a textbook example of this phenomenon.