Posted on 06/22/2020 2:42:46 PM PDT by ameribbean expat
Sowing the seeds of the next housing bubble. Learned nothing from previous debacles.
—
What the banks learned it they’re too big to fail and they will be bailed out by the taxpayers.
Isn’t this the same insane garbage that the Clinton administration implemented/forced on banks to make loans to unqualified people for about a decade and a half that eventually led to the so called “banking crises” which caused the global economic meltdown in 2008 before the 2008 election? You know, the one where Obama gave billions of TAX PAYER dollars to corporations to bail them out and keep them afloat after it was this insane democrat “pandering to the poor for votes” policy that was forced on the banking institutions to begin with?
get out of the banks that do this
Winning! It obvious that these rules have been holding back the mortgage market and the economy. President Trump giving the economy another boost.
Should infuse the market with lots of Lehman brothers type money.
"Another fast way to destroy the middle class..The elites want 2 classes..Elites and poor...That’s it..."
BINGO!
The middle class is no good to Socialist Authoritarians. The middle class is working, paying their bills, and living a relatively comfortable life. You can't buy middle class voters off with promises of cheap cell phone and crappy govt insurance. The SA's rise to power lies in poor, disgruntled, disaffected crappy people who are willing to trade in their freedom for cheap crappy freebies. In other words, the more poor people their are, the more power they gain.
The SA literally want more and more poor people. They demagogue during campaigns that they wanna create more jobs, but it's a lie. They need people to be jobless.. and poor.
Capitalism's middle class gives the middle finger to socialism's class warfare scam. That's why they gotta bust out the middle class
The Debt to Income rule has always applied to conforming loans IIRC.
And during the Great Housing Bubble which came to its sad end in 2008, Conforming Loans were the very ones that had the lowest default rate.
Which is why lenders had learned to insist on conforming borrowers, until the financial world abandonded any vestige of good sense beginning around the year 2000.
Nope. That law was the Community Reinvestment Act and it contributed very little to the housing bubble.
The vast majority of subprime paper issued during the Bubble was done by firms that were not covered by the CRA. Investment banks, hedge funds, pure mortgage lenders.
Their subprime lending was entirely voluntary. They wanted high-yield paper to package and sell to investors, and subprime mortgage loans filled that bill.
Lol
This time it’s going to work out well
Since it failed miserably the first time, let’s Double Down ok!
I watched that last month, well worth it!!
John Carney Jun 27, 2009, 9:33 AM
Contrary to my initial conclusion, the evidence is overwhelming that the CRA played a significant role in creating lax lending standards that fueled the housing bubble. Once I realized this, I had to abandon my suspicion that the anti-CRA case was a figment of the rhetoric of Republicans attempting to distract attention from their own role in the mortgage mess.
So I laid out the facts and arguments that had convinced me to switch sides in the CRA debate. It was a long series of posts that generated hundreds of responses and counter-arguments. Felix Salmon’s response is here, Barry Ritholtz’s here, Mike Rorty's here, Ryan Chitum’s here, and Matthew Wurtzel’s here. All of my posts are here. Henry Blodget's earlier post on the CRA, with which I largely agreed until recently, is here. If you carefully run through these posts and the accompanying comments, I think you'll see that every argument raised by the "Defend CRA at all costs" crowd has been refuted.
For people with less time on their hands, here's a quick guide to the main points raised by the CRA defenders and the arguments that refute them. If I’ve left out any salient points, please let me know and I’ll add them to the list.
Let's begin:
flr
Modern times do not reward prudent lending. In the old days, the local banks made loans. If a loan officer approved a loan to Johnny Deadbeat, he would be called into the Bank President’s office for a dressing down, at least. But now, the loan officer says, “Boss, we already sold this loan and got paid, with interest. If Johnny defaults, it’s somebody else’s problem.”
“Good work, Freebish. There will be a little bonus in next month’s paycheck.”
I’ve read similar articles. I’ve also read a half dozen books on the bubble and countless articles. One reason being that I knew some of the characters here in Orange County who helped start the subprime madness and watched it develop in real time.
The facts are that the vast majority of loans made during the bubble were funded by the shadow banking system and they were not subject to the CRA. This isn’t in dispute and it’s not hard to check. Only deposit-taking financial firms were subject to CRA, and shadow banks don’t take deposits. They are funded by investors.
They made these loans because they were immensely profitable for the lenders, who packaged them into private label CMOs and CDOs, cut them into tranches and piled multiple levels of derivatives on top of the whole mess. They were paying mortgage writers 10 to 15 thousand dollars for each loan that they made. That’s serious incentive to give anybody breathing a loan, and they did exactly that. Kids who had been cooking pizzas and riding a bicycle a month before were now mortgage writers driving Maseratis.
There was zero government compulsion in anything shadow banks were doing. In fact they had managed to buy off enough of Congress to make sure that they weren’t regulated and couldn’t be stopped: The Financial Services Modernization Act, aka Gramm-Leach-Bliley, which repealed some of the last vestiges of the Glass-Steagall Act, itself passed in 1933 after the previous time that investment bankers had managed to blow up the retail banking system.
They created trillions of dollars of financial paper pyramided on these loans and sold them all over the world. And they fooled themselves into thinking that there was no risk in what they were doing. They guessed wrong.
“Modern times do not reward prudent lending. In the old days, the local banks made loans.”
That’s for sure. Sometime around 2000 mortgage lending changed radically and opened the door for reckless lending.
Mortgage writing was entirely split off from mortgage funding. The mortgage writer became a hired gun, not an employee of the lender.
And the mortgage funder now had no intention of participating in the loan, unlike S&Ls and retail banks had always done. The funders intended to package the loans and sell them off to investors. All they wanted was quantity, and at the highest interest rate they could get.
So the new lending model gutted all of the safeguards built into the old system of conforming paper. But if the loans were sold to investors rather than institutions that had to buy conforming loans, then it wouldn’t matter. So that’s what they did. Plus an enormous amount of derivatives built on that paper. All in the name of “financial engineering”. Sounded impressive. Turned out to be “financial weapons of mass destruction”.
This market is a sucker’s rally. One of the biggest we’ve ever seen and I’ve seen a lot of them.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.