How did the democrats "demand" poor people, people who could not afford these loans, be given these loans?
What forced banks to underwrite these loans? A banks does not have to lend to anyone who can not afford the payment!
as the regulator of bank the government could and did pressure banks to make loans (mortgages) to were credit risks. If a bank did not bow to the pressure the government could make their life difficult.
In 1992 there were articles in the Charlotte Observer about “communty organizers” who were pressuring NCNB (who was later absorbed by Bank of America) to stop “redlining” certain areas of Charlotte, and start writing mortgages to people in those areas-they of course caved in to the pressure. One bank that didn’t was BB&T-who I understand is still pretty strong today. Just like the ICC with trucking companies, and the FCC with radio stations-if you were a private entity that was regulated by the government-you do what you’re told or the regualtors will put pressure on you.
Until the Clinton years, CRA compliance wasn’t a difficult matter for banks, which could get an A for effort simply by advertising loan availability in certain newspapers. Then the Clinton Treasury Department changed matters in 1995, requiring banks that wanted “outstanding” CRA ratings to demonstrate statistically that they were lending in poor neighborhoods and to lower-income households.
But banks, engaged in a frenzy of mergers and acquisitions, soon learned that outstanding CRA ratings were the coin of the realm for obtaining regulators’ permission for such deals. Further, nonprofit advocacy groups—including the now famous Acorn and the Neighborhood Assistance Corporation of America (NACA)—demanded, successfully, that banks seeking regulatory approvals commit large pools of mortgage money to them, effectively outsourcing the underwriting function to groups that viewed such loans as a matter of social justice rather than due diligence.
http://www.city-journal.org/2008/eon1030hh.html
The information is there if you want to look.
CRA and the “community Organizer” race pimps!
Short summary:
1. Fannie Mae is created during the Carter Administration (1976-1980).
2. Fannie Mae is expanded during the Clinton Administration. B. Clinton claims he tried to rein it in, but Democrats blocked it.
3. GW Bush calls repeatedly for regulation, but Democrats block it. They did hold hearings in 2004, which are rather startling to watch. At one point a Democrat is even cussing the regulator and questioning the competency of his agency.
4. Fannie Mae continues to be expanded and defended by Barney Frank, Maxine Waters, Christopher Dodd (and other Democrats) and given teeth. Banks are required to hold larger and larger percentages of these bad loans, or must pay high penalties. The penalties finally reach a point the banks can no longer ignore them.
5. Lending institutions begin to advertise "No Money Down!" The lines form, people who can't afford a house are given a loan as required by law (Fannie Mae). Dumb.
6. One unfortunate result is that more and more houses are taken off the market. The loans are bad, but that doesn't matter. As housing availability drops, the prices soar to unreasonable levels.
7. Somebody or some group tinkers with the oil futures market, gas prices soar to around $4 a gallon. Who did this is still not clear. The economy begins to slow down, bad loans go... bad, people fall behind on mortgage payments. Housing values start going back down.
8. Regulation regarding how lenders compute value had been changed from "future value" to "current value." So the current value was declining rapidly at a time the lenders had filled up their portfolio's with bad loans. Computing their new values, banks came up with next to nothing, or worse. They could no longer apply to Fed for money to lend. No money to lend meant no more housing loans, no houses sold leads to more dramatic reduction on housing values.. driving the lenders value to negative values of millions or billions of dollars in a few weeks.
The Fannie Mae ponzi scheme had finally burst, costing us more than a trillion dollars to fix, so far, and we haven't seen the last of it yet.
It does beg the question: Why not reinstitute the measure that allowed lenders to compute on "future value"? Wouldn't this help solve the problem?
Anyway, thats the best I can do to explain it. Hope this helps.
You've got it backwards.
The government didn't force the banks to do this.
The banks wanted to do this and saw to it that people were elected who would do their bidding, like Clinton and Bush.
The banks didn't care whether the loans got paid back because they sold them to Fannie Mae and Freddie Mac who them bundled these financial time-bombs together with good loans into mortgage-backed securities and spread the risk out among the entire US population.
The knew all along that the government would ultimately bail them out because they'd already seen to it, way back in 2001, that their man was in office.
If you want more details about what Bush did during his first term to cause this, see my FR homepage.
“How did the democrats “demand” poor people, people who could not afford these loans, be given these loans?
What forced banks to underwrite these loans? A banks does not have to lend to anyone who can not afford the payment!”
Study up on the Community Reinvestment Act. It goes back almost 30 years and was “supercharged” during the Clinton debacle. It did, indeed, force financial intermediaries to lend mortgage money to folks who did not have the credit worthiness to otherwise qualify for loans. It was originally intended to prevent banks from “redlining” areas from loans.
Too much government intervention strikes again.