08-13-2012, 03:14 PM
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Join Date: Mar 2012
Location: Phoenix, AZ.
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Re: Explanation of what created our current financial problems
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Originally Posted by G.R.A. Garner
That is not correct. No one "pushed" the banks into making any loans. It was the banks that lobbied Congress to repeal the provisions of Glass-Steagall and for the bankruptcy exemption. See Post# 34, supra.
As for borrowers walking away from their mortgages, that depends on wheather the loans were subject to anti-deficiency statutes under state law. There are several states that provide protection from deficiency liability for "purchase-money" loans secured by residential real property; however even in these "non-recourse" states, the protection does not apply to investment property, refinanced obligations, or nonpurchase-money loans (e.g., home equity lines). Congress did step in to provide some relief from the tax consequences by enacting the Mortgage Forgiveness Debt Relief Act of 2007 to ameliorate the tax consequences for cancellation of debt income on foreclosure sales; however the provisions are limited and due to expire at the end of this year. For most people, there is deficiency liability for which their only recourse is bankruptcy.
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From the WSJ:
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The real story started years ago. In 1977, Jimmy Carter signed the Community Reinvestment Act (CRA) into law. But this law had no teeth, no way to require lenders to lower their standards and to make subprime loans. Enter Bill Clinton. In 1994, President Clinton directed 10 agencies to issue an ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. This ultimatum was signed by HUD Secretary Henry Cisneros, Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Alan Greenspan, along with the heads of six other agencies. Mr. Clinton also ordered Fannie and Freddie to buy these mortgages from the banks.
The ultimatum was then codified into a 20-page "Policy Statement on Discrimination in Lending" and entered into the Federal Register on April 15, 1994. You can Google this if you're interested in reading it. Among other things, the policy says "HUD is authorized to direct Fannie Mae and Freddie Mac to undertake various remedial actions, including suspension, probation, reprimand or settlement, against lenders found to have engaged in discriminatory lending practices" and "Applying different lending standards to applicants who are members of a protected class is permissible" and "in addition, providing different treatment to applicants to address past discrimination would be permissible."
To make sure banks complied, the policy was (and still is) enforced by bank auditors who kept close tabs on how many subprime loans banks were making and constantly threatened them if they weren't making enough. The policy and the enforcement was meant to intimidate lenders to make the very subprime loans they had previously refused to make. The American Bankers Association issued a "fair lending tool kit" to its members. Today, banks have employees whose job titles are "Community Reinvestment Act Analyst" and whose job is to ensure that the banks are in compliance with the CRA. The Obama administration is being even more aggressive in enforcing compliance.
When George W. Bush took office, members of his administration and GOP members of Congress continually tried to get the Democratic members of Congress to order Fannie and Freddie to cut back on their subprime portfolio, but the response was that the GOP was trying to fix something that wasn't broken. For a full story on this issue and the names of all the members of Congress who refused to act, see "Why the Mortgage Crisis Happened" at American Thinker.com.
As soon as the financial crisis occurred, the politicians largely responsible for it, (Barney Frank, Chris Dodd, Harry Reid, etc.) started blaming George Bush, banks and Wall Street, seeking to deflect blame from themselves. Since they receive a lot of media attention, they have been able to sell this line to the public. This is not to say that Mr. Bush, banks and Wall Street should not share any of the blame, but if you want to point a finger at those most responsible, point it at Bill Clinton and the Democrat members of Congress. Today, Barack Obama is continuing the same policy.
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