Posted on 02/05/2008 5:42:47 AM PST by OESY
...From the current hand-wringing, you'd think that the banks came up with the idea of looser underwriting standards on their own, with regulators just asleep on the job. In fact, it was the regulators who relaxed these standards- at the behest of community groups and "progressive" political forces.
In the 1980s, groups such as the activists at ACORN began pushing charges of "redlining"- claims that banks discriminated against minorities in mortgage lending. In 1989, sympathetic members of Congress got the Home Mortgage Disclosure Act amended to force banks to collect racial data on mortgage applicants....
In fact, minority mortgage applications were rejected more frequently than other applications- but the overwhelming reason wasn't racial discrimination, but simply that minorities tend to have weaker finances.
Yet a "landmark" 1992 study from the Boston Fed concluded that mortgage-lending discrimination was systemic....
No sooner had the ink dried on its discrimination study than the Boston Fed, clearly speaking for the entire Fed, produced a manual for mortgage lenders stating that: "discrimination may be observed when a lender's underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants."
Some of these "outdated" criteria included the size of the mortgage payment relative to income, credit history, savings history and income verification. Instead, the Boston Fed ruled that participation in a credit-counseling program should be taken as evidence of an applicant's ability to manage debt....
Banks that got poor reviews were punished; some saw their merger plans frustrated; others faced direct legal challenges by the Justice Department....
These days, everyone claims to favor strong lending standards. What about all those self-righteous newspapers, politicians and regulators who were intent on loosening lending standards?
As you might expect, they are now self-righteously blaming those, such as Countrywide, who did what they were told.
(Excerpt) Read more at nypost.com ...
The answer to that question is PMI ( private mortgage insurance) It covers the lender’s loss for any part of loan money over 80% value of the house. So their backup plan was to accept a 20% decline in values and still make their money. The media tanked values more than that.
Thanks, and bump for a later read ............... FRegards
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