Question: Can someone explain what happened to PMI insurance in all of this. Wasn’t insurance required on sub prime loans? Are the insurers unable to pay or are the terms strict that collection is unlikely?”

No, the vast majority of the failed loans did NOT have PMI attached to them. Crazy, huh? Nuts. Psychotic. But true. That was one of the reasons the loans were so attractive to potential buyers. You didn’t need 20% (or even 10 or 5%) down, no PMI attached.

Shouldn’t some effort be focused on countering a radical and ill-considered swing towards state socialism?

I’ve enjoyed your articles on the CRA/efforts by some to shift an inordinate amount of blame towards the low income / minority loan recipients.

To that end, I’ve extended elements of your arguments in an article that I’ve written:

http://thegreatunwind.com/2008/10/on-blame-partisanship/

The way I see it, the chief goal of promulgating these liberal / conservative ideological arguments isn’t to definitively prove that one side or the other is right, but simply to divide us citizens along the same old partisan lines. To this end, we must be vigilant. Those who have the power make no such distinctions, lobbyists work both sides of the aisle without prejudice.

As the recent bailout opposition has momentarily shown, citizens of both conservative and liberal stripes have a deep uneasiness toward the hidden influence of industry in the halls of government. We should keep this in mind, lest we descend into pointless bickering and lose this precious opportunity to unite together against the merger of business and government.

Jiff
http://www.privacy-center.ru.tc

-jcr

The thousands of mortgage defaults and foreclosures in the “subprime” housing market (i.e., mortgage holders with poor credit ratings) is the direct result of thirty years of government policy that has forced banks to make bad loans to un-creditworthy borrowers. The policy in question is the 1977 Community Reinvestment Act (CRA), which compels banks to make loans to low-income borrowers and in what the supporters of the Act call “communities of color” that they might not otherwise make based on purely economic criteria.

The original lobbyists for the CRA were the hardcore leftists who supported the Carter administration and were often rewarded for their support with government grants and programs like the CRA that they benefited from. These included various “neighborhood organizations,” as they like to call themselves, such as “ACORN” (Association of Community Organizations for Reform Now). These organizations claim that over $1 trillion in CRA loans have been made, although no one seems to know the magnitude with much certainty. A U.S. Senate Banking Committee staffer told me about ten years ago that at least $100 billion in such loans had been made in the first twenty years of the Act.

So-called “community groups” like ACORN benefit themselves from the CRA through a process that sounds like legalized extortion. The CRA is enforced by four federal government bureaucracies: the Fed, the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Deposit Insurance Corporation. The law is set up so that any bank merger, branch expansion, or new branch creation can be postponed or prohibited by any of these four bureaucracies if a CRA “protest” is issued by a “community group.” This can cost banks great sums of money, and the “community groups” understand this perfectly well. It is their leverage. They use this leverage to get the banks to give them millions of dollars as well as promising to make a certain amount of bad loans in their communities.

A man named Bruce Marks became quite notorious during the last decade for pressuring banks to earmark literally billions of dollars to his organization, the “Neighborhood Assistance Corporation of America.” He once boasted to the New York Times that he had “won” loan commitments totaling $3.8 billion from Bank of America, First Union Corporation, and the Fleet Financial Group. And that is just one “community group” operating in one city – Boston.

http://www.lewrockwell.com/dilorenzo/dilorenzo125.html

I just saw BR on CNBC again make the claim that the Fed holding rates at 1% for a year “started the housing boom” (he makes a similar point above). I would like to see BR directly respond to the following:

If the 1% rate is the primary cause of the housing bubble, why did real home prices start their ascent in 1997?

For cause and effect to be true, the cause must happen before the effect, right? Talk about cognitive dissonance. I agree that the Fed’s easy money accelerated the bubble, but cannot have possibly started the housing bubble unless the Fed found a wormhole in the time-space continuum.

~~~

BR: Its complex, bvut here’s the short version:

Home sales & prices cycled up post ’87 market crash — they peaked in 1989, and for the next 7 years, were down to sideways. A 1989 house buyer did not get back to breakeven until 1996/97.

On top of that, you had the Taxpayer Relief Act of 1997 — that dropped cap gains to 20% from 28%, and exempt the first $500,000 for married couples selling house (allowable once every two years).

Around that time, guess what else was going on? The stock market boom and tech dot com bubble put ALOT of money in people’s hands in 1997, 98, 99 and even 2000. I had many discussions with clients, real estate agents and traders about rotating money from equities into Houses back then.

The stock market crash led to a new rate cutting cycle starting in January 2001. We didn’t get to 1% overnight, it was a gradual process — and home prices responded. But note that rates historically moved in a broad range — and Greenie took them thru the basement of that range.

The chart you linked to shows a long base of fairly stable home prices — but they ticked up in 1996/97, but moved higher in 2001, and then ventured into uncharted territory after 2002/03.

Can you give me the names and dates of any legislation that was passed to deregulate the subprime industry?

So far one person has mentioned “the decision of the OCC to exempt most mortgage originators from state regulations”, but I haven’t been able to find any reference or date for this.

Thanks.

The Republicans refuse to throw Friedmanomics in the trash can where it belongs.