How did the Government "FORCE" banks to make risky loans?
Please explain because in the "Community Reinvestment Act" it clearly states
"That an institution's CRA activities should be undertaken in a safe and sound manner, and does not require institutions to make high-risk loans that may bring losses to the institution."
So it wasn't because of the CRA because it doesn't "Force" anyone to make loans.
All CRA did was stop the banks from 'redlining" where they would deny you just because of your zip code and not on the fact if you could afford it or not. If you lived in a certain zip code (that was mostly poor and minority majority neighborhoods) they would automatically deny you.
Also approximately 50% of the subprime loans were made by independent mortgage companies that were not regulated by the CRA.
A 2008 study by Traiger & Hinckley LLP, a law firm that counsels financial institutions on CRA compliance, found that CRA regulated institutions were less likely to make subprime loans, and when they did the interest rates were lower. CRA banks were also half as likely to resell the loans.
So why how did the Government make Banks to make risky loans????
- Andy FLv 78 years agoBest answer
The government didn't FORCE the banks to do this. Many of them eagerly did it on their own, because they hoped to make big bucks on mortgage backed securities.
To be fair to those who want to blame Uncle Sam for what the private banks largely did on their own, the roots of the 2008 financial meltdown are complicated & controversial. There are a good half-dozen to a dozen major explanations of the crash that respectable experts have published in the past few years, and it's easy to see why many people don't understand the crisis..
One recent book that explictly discusses the community reinvestment angle, however, is "All the Devils Are Here," by financial reporters Bethany McLean and Joe Nocera.
What McLean and Nocera note is that the "securitizing" of mortgage loans had already become an attractive and seemingly proftable business by the early 1990s, when the private investment banks were eager to get into the business.
However, during the late 1980s and early 1990s the government-chartered but private owned mortgage leanders Fannie Mae and Freddie Mac had a virtual lock on the marketing of the most attractive mortgage-backed securities. They vigorously fought against efforts by the biggest Wall Street banks to take the business from them, too.
By the mid-1990s, therefore, most purchasers of mortgage-backed securities greatly preferred to buy from Fannie & Freddie when they could, and this meant that Fannie & Freddie traded in the vast majority of safe mortgage backed securities. The central role of Fannie & Freddie meant that big Wall Street banks were afraid of being squeezed out of this lucrative market.
What eventually gave the Wall Street bankers with no federal charters a promising way to get a piece of the securitized mortage business, though, was the growing popularity of securitized "subprime" mortgages.
In the beginning, anywayl, it was only home buyers with good credit histories and adequate incomes, buying conventional 30-year fixed-rate mortgages, who qualified for Fannie Mae and Freddie Mac mortgages. If you didn't make a large enough down payment, or if your income wasn't high enough, or if you didn't document your income well, you couldn't qualify for a Fannie Mae product.
But private mortgage lenders initially had the advantage in writing up "subprime" or "alt A" mortages -- mortgages made to people with bad credit, or with inadequate income levels, or with dubious or non-existent documentation to prove their qualifications for mortages.
To a large degree, therefore, private Wall Street lenders with no government backing plunged into buying up "subprime" mortgager from some fairly sleazy mortgage companies exploiting the bottom of the real estate market, and eventually Fannie & Freddie followed the Wall Street banks in relaxing their lending standards and buying securitized "subprime" mortages themselves -- before the market collapsed on everyone, of course.
Thus it was the banks themselves who raced to make risky loans, and to trade in dubious securities based on those loans. It wasn't the government taking the lead.
Apologists for Wall Street, and professional haters of government housing programs of all kind, naturally have tried to distort this history. But those are the facts.
- NorditeLv 58 years ago
The government didn't. The idea that they did is just more GOP Tea Party Republicon propaganda. The mortgage companies and banks were making tons of money pushing bad mortgages and then gambling that they would be bad and making huge profits on the bets against them. The GOP Tea Party Republicons have no problem lying about it all to the American people. Too bad news organizations don't hold them accountable.
- NearLv 68 years ago
Little too far back. It was during the Clinton administration
"Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits."
- Anonymous8 years ago
NEWT GINGRICH IS TO NASTY TO BE PRESIDENT:
Newt Gingrich’s business received between 1.6 and 1.8 million in consulting fees from Freddie Mac, the quasi-federal government mortgage lender. According to spokespeople at Freddie Mac, Gingrich’s role was to try to win over support for Freddie Mac among Conservatives. While Gingrich was receiving the money, he was also railing against Freddie Mac publicly, and even suggested recently that Congressman Barney Frank should be arrested because of his close lobbying connections at Freddie Mac.
As the Monica Lewinsky scandal was unfolding during the Clinton Presidency, Gingrich was one of the most outspoken critics of President Clinton. Later, we discovered that while Gingrich was criticizing Clinton for his immoral behavior with Lewinsky, he was having his own affair with one of his staffers, a woman he later married.
Newt Gingrich has been one of the most vocal critics of Obamacare, but as Mitt Romney pointed out in a recent Republican debate, Gingrich was in favor of the most controversial aspect of Obamacare, the individual mandate to purchase health insurance.
Gingrich, who frequently campaigned on family values issues, divorced his second wife, Marianne, in 2000 after his attorneys acknowledged Gingrich's relationship with his current wife, Callista Bisek, a former congressional aide more than 20 years younger than he is.
His first marriage, to Jackie Battley, ended in divorce in 1981. Although Gingrich has said he doesn't remember it, Battley has said Gingrich discussed divorce terms with her while she was recuperating in the hospital from surgery.
Gingrich married Marianne months after the divorce.
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- Anonymous8 years ago
During the Dubya administration, The republican dominated congress,
Allowed DEREGULATION to cause the wall street meltdown to transpire.
- SageandscholarLv 78 years ago
They didn't - but whenever anything goes wrong Republicans like to invent a way in which it is the Democrats' fault
- Anonymous8 years ago
Awww there ya go confusing 'em with facts!!!! Dontcha know that telling the truth is unfair!?
- Vito1964Lv 78 years ago
Why do you have to drag evidence into the Politics section? Buzzkill.
- Cali LivinLv 48 years ago
They didn'tSource(s): Simple
- 8 years ago