View Full Version : Homeowner bailout unfair?
eagle2
03-01-2009, 11:14 PM
Melonie,
So far you have not shown any links between government policies and sub-prime loans that did not fall under the CRA. Your whole argument seems to be; government policies required banks to make riskier loans to poor minorities, and as a result banks, and other financial institutions, began to make the same riskier loans to everyone else. This does not make any sense. Banks were not under any pressure from the government to make sub-prime loans to middle and upper class whites or speculators flipping condos. If banks were being forced to make these types of loans against their wills to poor minorities, why would banks and other lenders voluntarily make these types of loans to other borrowers whom they were not required to lend to?
It was the deregulation of the banking industry in the 1980’s that made these types of loans possible, not the CRA. The truth is, there were factors in the 1990’s that had nothing to do with the CRA which led to sup-prime loans becoming more popular.
http://www.allbusiness.com/finance/3596857-1.html
(snip)
It wasn't until the mid-1990s that subprime lending began to gain traction: Rising interest rates in the mid-1990s led to declining origination volumes and intense financial competition in the prime market. Furthermore, the endorsement of the beginning of subprime securitizations by Wall Street firms and the willingness of of investors to buy those securities represented an endorsement of this product segment, and provided impetus for expansion.
(snip)
The above article gives a good history of subprime loans and nowhere does it link the CRA to the growing popularity of these types of loans.
glambman
03-02-2009, 10:20 AM
It wasn't until the mid-1990s that subprime lending began to gain traction: Rising interest rates in the mid-1990s led to declining origination volumes and intense financial competition in the prime market. Furthermore, the endorsement of the beginning of subprime securitizations by Wall Street firms and the willingness of of investors to buy those securities represented an endorsement of this product segment, and provided impetus for expansion.
lololol so if we use the logic you've been using in the Political section, you're saying it was that administrations fault? Also, during that administration, banks were completely dereg'd to pre GDepression levels. No longer were banks the boring places that held and lent money (rather conservatively). :)
Melonie
03-02-2009, 12:15 PM
Your whole argument seems to be; government policies required banks to make riskier loans to poor minorities, and as a result banks, and other financial institutions, began to make the same riskier loans to everyone else. This does not make any sense. Banks were not under any pressure from the government to make sub-prime loans to middle and upper class whites or speculators flipping condos
Original gov't policies under Clinton did indeed TRY to confine the 'underpriced risk' subprime loans to the urban poor / minorities. Prior to those Clinton era policies, subprime loans were still being made but the 'risk' was appropriately priced (i.e. charging subprime interest rates several percent higher than normal rates available from Fannie / Freddie qualified prime loans at that time) !!!!
However, an inconvenient truth then came into play ... a small legal concept called 'equal treatment under the law'. All it took was a few 'reverse discrimination' lawsuits from non-minority subprime borrowers to force the gov't and thus the affected private banks as well as Fannie / Freddie to expand the relaxed creditworthiness / income / equity requirements beyond the urban poor / minorities for which it was originally intended to be confined.
eagle2
03-02-2009, 01:35 PM
Do you have any examples of these lawsuits?
eagle2
03-06-2009, 11:51 PM
Melonie,
Have you found any examples of these lawsuits and threatened lawsuits yet?
Melonie
03-07-2009, 01:03 AM
In Miller v. Countrywide Bank, N.A.,107 on facts similar to those in Ramirez, the district court denied defendants’ motion to dismiss, where the plaintiffs had shown that Countrywide, together with its subsidiaries joined in the suit, engaged in discretionary pricing of loans that bore no relation to the relative credit risks of the borrowers, and yet were more often applied to raise the costs associated with loans to African-American borrowers.108 The court described the plaintiffs’ allegations as follows: “Plaintiffs have identified the practice at issue: establishing a par [interest] rate keyed to objective indicators of creditworthiness while simultaneously authorizing additional charges keyed to factors unrelated to those criteria. Plaintiffs allege that the net effect of that discretionary pricing policy yields a discriminatory result.
There were actually tons of cases ... the gist of which was that banks were being successfully sued based on the plaintiff's use of subprime loan data which showed a far higher percentage of subprime loan issuance to minority borrowers than to white borrowers. Arguably, a major reason that subprime data of the time showed a high percentage of black and hispanic subprime borrowers versus white borrowers was that the banks chose not to make any more subprime loans than they were absolutely required to by CRA etc. However this practice, while minimizing the total number of subprime loans the bank was forced to make, also created highly skewed racial statistics since very few subprime loans were approved for white borrowers. But this led to a Catch 22 situation in that the banks were losing money, public image, and business as the result of increasingly successful racial discrimination based CRA lawsuits. In order to reduce the banks' vulnerability to racial discrimination in subprime lending practices lawsuits, banks then began to make far more subprime loans to white borrowers in order to 'equalize' the racial component of subprime loan statistics and thus reduce the bank's vulnerability to future lawsuits.
eagle2
03-07-2009, 02:00 AM
Thank you Melonie. I'm not familiar with this case, but from what I could find, the motion to dismiss was denied on 7/30/08.
http://74.125.47.132/search?q=cache:8XyKoKNNpwUJ:www.wcsr.com/resources/powerpoint/mortgagecrisis101508.PPT+%22Miller+v.+Countrywide+ Bank%22&hl=en&ct=clnk&cd=3&gl=us
This would be after the subprime problem had been going on for quite some time.
Melonie
03-07-2009, 02:45 PM
^^^ well, many of these type of cases pre-date the point in time where state court records were routinely posted online. Again the basic points apply in regard to the 'early going' under CRA ...
- from the point of view of ACORN, the fact that <20% of 'subprime' loans had been made to caucasian borrowers constituted some form of discrimination i.e. black and hispanic 'subprime' borrowers were being saddled with higher interest rates / higher fees etc. for racial reasons.
- from the point of view of Bankers, the fact that <20% of 'subprime' loans had been made to caucasian borrowers simply meant that the bank didn't want to have to make any more 'subprime' loans than it was already being 'coerced' into making ... with ACORN paying little attention to the fact that the statistic was actually based on would-be 'subprime' caucasian borrowers being denied 'subprime' loans while black and hispanic 'borrowers' were being approved ( to avoid the first wave of ACORN lawsuits) .
- the Catch 22 situation then came into play when ACORN discovered that they could continue to utilize alleged racial discrimination as grounds for a second wave of lawsuits ( based on the <20% caucasian 'subprime' borrower statistic ), which in turn 'coerced' Banks to make more loans to caucasian 'subprime' borrowers in an attempt to water down the racial component of their total 'subprime' loan portfolio and thus protect the Banks from being as vulnerable to the second wave of lawsuits !!!
The law of unintended consequences can never be discounted !
eagle2
03-08-2009, 10:11 PM
^^^ well, many of these type of cases pre-date the point in time where state court records were routinely posted online. Again the basic points apply in regard to the 'early going' under CRA ...
Can you give me specific examples of these cases?
Your example contradicts your claim. You said that the CRA was the cause of banks and other lenders making subprime loans to people who did not fall under the CRA. If banks and other lending institutions started making all of their loans based on CRA standards in the 1990's, please explain why Countrywide Bank was being sued in 2008, for applying different standards to borrowers who did not fall under the CRA.
- from the point of view of ACORN, the fact that <20% of 'subprime' loans had been made to caucasian borrowers constituted some form of discrimination i.e. black and hispanic 'subprime' borrowers were being saddled with higher interest rates / higher fees etc. for racial reasons.
- from the point of view of Bankers, the fact that <20% of 'subprime' loans had been made to caucasian borrowers simply meant that the bank didn't want to have to make any more 'subprime' loans than it was already being 'coerced' into making ... with ACORN paying little attention to the fact that the statistic was actually based on would-be 'subprime' caucasian borrowers being denied 'subprime' loans while black and hispanic 'borrowers' were being approved ( to avoid the first wave of ACORN lawsuits) .
- the Catch 22 situation then came into play when ACORN discovered that they could continue to utilize alleged racial discrimination as grounds for a second wave of lawsuits ( based on the <20% caucasian 'subprime' borrower statistic ), which in turn 'coerced' Banks to make more loans to caucasian 'subprime' borrowers in an attempt to water down the racial component of their total 'subprime' loan portfolio and thus protect the Banks from being as vulnerable to the second wave of lawsuits !!!
Again, please provide references for these lawsuits or threatened lawsuits.
The law of unintended consequences can never be discounted !
The finanacial crisis is a result of the unintended consequences of de-regulation of the banking industry.