Here’s a different perspective that I believe gives further substance to OSC’s post...
Compare the methods and results of Habitat for Humanity and The Fuller Center (HfH&TFC) with the methods and results of Fannie Mae, Freddie Mac, and the Community Reinvestment Act (FM&CRA).
All contributions to HfH&TFC have been directed toward building homes for those in need; FM&CRA took money intended for housing and gave it away as political contributions, spent enormous amounts of it on massive ad campaigns, and wasted it on illegally induced bonuses for Franklin Raines and Jim Johnson.
At HfH&TFC, volunteer labor joins with paid laborers and the people who are going to live in the home they are building to minimize cost and maximize value; FM&CRA inflated the construction boom and funded contractors who hired illegal immigrant labor, and many houses went to people who didn’t lift a finger — or even get a job — to help.
New homes built by HfH&TFC served only those people who weren’t otherwise able to be in the market for a home, so their demand did not raise the prices of other homes on the market -- if anything, the increased supply of houses actually lowered the price of housing for others in their area. Furthermore, HfH&TFC also include terms in their mortgage contracts that grant them right of first refusal to re-purchase the home when the owner chooses to sell it, in order to keep the houses from falling into the hands of developers or others seeking to re-market those homes for purposes for which they were not intended. This also serves to protect the value of other homes in the community. FM&CRA, however, flooded the market with unsupported credit, creating artificial demand, artificially driving housing prices higher for everyone, and flooding the market with new homes. This government-backed approach also provided plenty of grist for the speculators’ mills.
HfH&TFC have given, and will continue to give, hope and opportunity to those who would truly benefit from it; FM&CRA gave away the money invested in it by hard-working Americans to people who squandered it, stole it, misused it, and exploited it. And on top of all that, FM&CRA helped people like Herb and Marion Sanders lure trusting people into homes with mortgage terms that could only destroy them financially, and that’s why we now have some senior citizens committing suicide over their homes being foreclosed on.
Privately backed charities like HfH&TFC truly help people who need it; Government-backed “charity” like FM&CRA has harmed everybody the world over. Fannie Mae and Freddie Mac provided a useful service until the Community Reinvestment Act made it possible for -- and in most cases required -- mortgagors to lend to people who simply shouldn't have been given mortgages.
Had the CRA not been enacted, had Freddie and Fannie been reigned in and controlled, there would not have been so much bad mortgage paper on the market, and the derivative investments based on that paper would have been much more secure.
I also suggest that you consider this premise: had people given their money and time to private charities instead of investing in securities originated on the basis of bad government policies, the world would not be suffering such a horrible financial crisis. But (finally getting back to OSC’s point) we will never be able to confirm or deny that premise unless the Press and other investigators do their job and get the facts.
As for me, I lay the blame at the feet of Franklin Raines, “Calamity Jamie” Gorelick, Jim Johnson, Barney Frank, Maxine Waters, Gregory Meeks, Lacy Clay, Chris Dodd, and others* who received donations from Fannie and Freddie.
Why do I think this? Just listen to some of these people in their own words...
quote:Had the CRA not been enacted, had Freddie and Fannie been reigned in and controlled, there would not have been so much bad mortgage paper on the market, and the derivative investments based on that paper would have been much more secure.
But as just pointed out, CRA loans are only a small percentage of the bad mortgage paper. Reigning in Fannie and Freddie wouldn't have made that big a difference.
Posts: 8681 | Registered: Dec 2000
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JustSomeGuyYouKnow - You know when the CRA was enacted, right?
You've got an interesting story. Have you got a single number to back it up?
What percentage of sub-primes (High Cost Loans) were made by lenders trying to comply with the CRA? What percentage of Mortages currently in default were made by lenders even affected by CRA?
Under which Administration did Federal Regulators first allow F&F to use the purchase of bundles of sub-primes to satisfy their "low-income lending" requirements?
I drive around areas covered by the CRA, I see one empty house for sale every two or three blocks. I drive around McMansion developments in the Exurbs, I see up to half the houses on each block empty and for sale.
Why should I believe you over my lying eyes?
Posts: 11410 | Registered: Jul 2004
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CRA banks are among the best off in the current crisis because the CRA made them give out good loans to people who benefited their communities.
There is a direct, unamended clause that's been in the CRA since 1977 that forbids banks from making bad loans to fulfill it. In fact, just the opposite- it ends up requiring banks to sometimes work out more reasonable terms with people who couldn't afford a regular loan- lower payments, better rates; the banks need to make more effort to be sure that the the loans are shaped to meet the needs of the borrowers.
But the most important thing that the CRA did was keep money in the local community around the banks that it applied to. Which meant that those local communities were more successful, and thus more able to pay back the loans and keep the banks profitable.
Posts: 11997 | Registered: Oct 2005
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Here's an important timeline to be sure that people are putting the right blame in the right places. I'm not going to add Credit Default Swaps because I'm not as sure of timing, but they just amplified the problems:
1977 - Carter passes the CRA, which requires community depository banks to grant loans back to the community putting money into them, preventing them from essentially draining it all out to finance development that gave nothing back to the local community.
~1987 - Investment bankers figure out that they can mix high and low risk securities together to balance risk and profitability. CDOs, as they're called, become fairly attractive investments.
1994 - Republicans gain control of Congress
1995 - Clinton passed changes to the CRA from 1993 take effect, these raise the quotas, putting more money back into the local communities
1999A - Fannie and Freddie take a risky move; they announce that they will now back certain "sub-prime" loans. (They defined "sub-prime" in this case as fixed rate loans at 1% over standard rates. Please note that Fixed, 1% over market. Not ARMs)
1999B - Graham-Leach-Bliley passes, letting unregulated Investment banks into the more regulated market. They apply what works for them, and soon they're blithely handing out CDOs based on mortgages and rising house prices.
2000 - Clinton appointed HUD slaps heavy anti-predatory lending restrictions on Fannie and Freddie. They are not allowed to count such loans toward their funding goals
2000-2004 - Independent, unregulated mortgage brokers realize that investment banks are looking for high risk/high rate mortgages to fold into CDOs and happily oblige them. They make the loans (generally adding several thousand in personal commissions to the loan amounts) as adjustable loans at several points over market price, then sell them off to the investment banks, absolving themselves of all the risk. Since they have no risk, many have little reservation in lying in every direction about the affordability of the loans or the ability of people to pay the loans back. They just roll in the origination fees.
2004A - Bush appointed HUD removes the 2000 restrictions from Fannie and Freddie. They can now underwrite predatory sub-primes and count them toward their requirements.
2004B - An attempt to regulate Fannie and Freddie founders in the Republican controlled Congress.
2005 - McCain sings on to support the 2004 legislation which is solidly dead in the water
2006 - Democrats gain control of Congress (Note- this is when Frank and Dodd gain control of their respective Finance Committees. Anything that happened from 1994-2006 happened on the Republican watch, not theirs.
2007 - Slowing economy and ARMs that adjust up even as rates drop cause foreclosures, the CDOs begin to dry up and everything begins to unravel.
Posts: 11997 | Registered: Oct 2005
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