Uncovering the Ingredients in a Shit Stew
About: foxnews.com - analysis: reckless mortgages brought financial market to its knees - opinion
"In an attempt to increase homeownership, particularly by minorities and the less affluent, an attack on underwriting standards was undertaken by virtually every branch of the government since the early 1990s," Liebowitz writes. "The decline in mortgage underwriting standards was universally praised as 'innovation' in mortgage lending by regulators, academic specialists, (government-sponsored enterprises) and housing activists."
He continues, "Although a seemingly noble goal, the tool chosen to achieve this goal was one that endangered the entire mortgage enterprise."
But it was the Clinton administration, obsessed with multiculturalism, that dictated where mortgage lenders could lend, and originally helped create the market for the high-risk subprime loans now infecting like a retrovirus the balance sheets of many of Wall Street's most revered institutions.
Tough new regulations forced lenders into high-risk areas where they had no choice but to lower lending standards to make the loans that sound business practices had previously guarded against making. It was either that or face stiff government penalties.
- housing meltdown
- shit stew
- redlining ban
The Boston Fed still used the study to produce a manual for mortgage lenders that said: "discrimination may be observed when a lender’s underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower–income minority applicants."
So what were some of the "outdated" criteria?
Credit History: Lack of credit history should not be seen as a negative factor.... In reviewing past credit problems, lenders should be willing to consider extenuating circumstances. For lower–income applicants in particular, unforeseen expenses can have a disproportionate effect on an otherwise positive credit record. In these instances, paying off past bad debts or establishing a regular repayment schedule with creditors may demonstrate a willingness and ability to resolve debts....
Down Payment and Closing Costs: Accumulating enough savings to cover the various costs associated with a mortgage loan is often a significant barrier to homeownership by lower-income applicants. Lenders may wish to allow gifts, grants, or loans from relatives, nonprofit organizations, or municipal agencies to cover part of these costs. . . .
Sources of Income: In addition to primary employment income, Fannie Mae and Freddie Mac will accept the following as valid income sources: overtime and part–time work, second jobs (including seasonal work), retirement and Social Security income, alimony, child support, Veterans Administration (VA) benefits, welfare payments, and unemployment benefits.
Accepting these new criteria was hardly voluntary. The Fed warned the banks:
"Did You Know? Failure to comply with the Equal Credit Opportunity Act or Regulation B can subject a financial institution to civil liability for actual and punitive damages in individual or class actions. Liability for punitive damages can be as much as $10,000 in individual actions and the lesser of $500,000 or 1 percent of the creditor’s net worth in class actions."
Well "trickle down" has been around since the Regan era. Perhaps it works for some people. But it has the nasty effect of widening the gap between rich and poor - go look up your own stats there are plenty of them around. That it may increase the GDP does not mean that it is good for the grunt on Main Street.
"Deregulation" is what Bush and McCain have been pushing for the past 8 years ... that is until things got so bad that now they need to print up 800,000,000,000 more dollars of your tax payers money to bail out the financial world. Now McBush is shouting mad about regulating the corruption. That's what is called "trickle down deregulation economics" ... you put money in the top ... deregulate it ... then bail it out. It happened back in the 80's too after the Regan years ... remember.
...wasn't only minorities but low income people. Do you think that the taxpayers should have just given a house to all low income & minority people? Forcing lenders to make bad loans under penalty of fines spun out of control. It's certainly not the free market & it was bad regulation.
had no history of paying money back or paying it back on time
put no money down to show a vested commitment & had no money to even process the loan
a person who did all of his money in cash transactions or did not have a steady job
was buying in a gang infested area where few people ever paid back loans & the values of the real estate rarely appreciated
If so, I would like you to loan me some money on a bridge I want to buy. Why should the loan company take all the risk?
Yet, there was another major change that has gotten little attention. Back in 1992, a Boston Federal Reserve study claimed to find evidence of racial discrimination -- claiming that minorities got denied mortgages at higher rates than whites even after important factors such as creditworthiness were accounted for. The data used in the study were riddled with typos and other serious errors. For example, of the 3,000 mortgages studied, 50 of the loans supposedly had the banks paying interest to the borrowers, 500 of the mortgages were not even in the data set from which the data was supposedly obtained, and some mortgages were supposedly approved for individuals who had negative net worth in the millions of dollars. When those mistakes were corrected, no evidence of discrimination remained.
CAVUTO: All right, but let me ask you -- but, Congressman, when -- when you and many of your colleagues were pushing for more minority lending and more expanded lending to folks who heretofore couldn't get mortgages, when you were pushing homeownership --
What you might want to come away from this interview with is not what Cavuto was pushing, rather it is what he couldn't prevent the expert from letting drop: "I'm not aware of anyone asking anyone to make a loan to someone who couldn't afford it." But that is what ended up happening. Now go look for the people who made loans to people who couldn't afford it and those who were profiting by that.
Also at the bottom of that article: CAVUTO: -- that -- that you wanted to encourage minority lending -- obviously, a lot of Republicans did as well. There was a lot of -- expand lending to those to get a home. Do you think, intrinsically, it was a mistake, on both parties' part, to push -- HOYER: I think -- CAVUTO: -- to push for homeownership for everybody? HOYER: I think clearly what happened is, Fannie and Freddie got caught up in trying to do what the Congress wanted done.
"It might just be that those who have bad credit tend to be minorities"
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