Posts filed under “Legal”

More CRA Idiocy

Howard Husock has an exercise in cognitive dissonance in today’s NYT Op-Ed pages titled Housing Goals We Can’t Afford, and it begins:

“The national wave of home foreclosures, many concentrated in lower-income and minority neighborhoods, has created a strong temptation to find the villains responsible.”

What can you say about an Op-Ed whose very first sentence is a giant pile of steaming bullshit? That statement is demonstrably false. As the prior post on foreclosures shows, the concentration is mostly middle class and upper middle class white suburban neighborhoods.

California leads the nation in foreclosures. The state’s foreclosure activity was up 51% from a year ago. These are not CRA communities, they are what were hoped to be surburban bedroom communities east of the major cities (San Diego and L.A.)

Next up is Florida; The state’s foreclosure activity was still up 68 percent from November 2007. The enormous overbuilding of Condos, and not CRA, is to blame. These weren’t inner city loans to minorities, as Dan Gross pointed out, they were “WCI Communities — builder of highly amenitized condos in Florida (no subprime purchasers welcome there)” WCI filed for bankruptcy in August. “Very few of the tens of thousands of now-surplus condominiums in Miami were conceived to be marketed to subprime borrowers, or minorities—unless you count rich Venezuelans and Colombians as minorities.”

~~~

Let’s put some context around what the CRA  is and isn’t.

In the 1960s and 70s, banks would redline neighborhoods. They would literally put a map on a wall, and with a red magic marker, draw a redline enveloping certain neighborhoods. If you lived within the redlined areas, regardless of your income, credit score, assets, debt servicing ability, if you were in the redlined area you could not qualify for a mortgage.

Although Redlining was made illegal by the Fair Housing Act of 1968, the practice still surreptitiously continued. The Community Reinvestment Act of 1977 was the next attempt to stop redlining. There were two main aspects of the CRA: First, it required banks to apply the same lending criteria in all communities. Credit Score, Loan-to-value, percentage of monthly take home, etc. had to be the same across different areas.

Second, the Community Reinvestment Act required banks to make good faith attempts to loan the money back to its own depositors. If you open up a branch in Harlem, you cannot suck up all the local business and residents’ cash, and then turn around and only lend it out to Tribeca condo buyers. You must make a fair attempt to loan the money locally. Banks have no obligation to open branches in Harlem, but if they did, they are required to at least try to lend the locals back their own money.

Note that there are no quotas, minimums or mandates. This is a very soft rating system.

~~~

The rest of Husock’s article is filled with the usual dissembling and half-truths. He mentions “in 1995 the Clinton administration added tough new regulations,” but omits any mentions that the Bush administration substantially watering down the act in 2004.

The only testimony adduced from the banking industry in the Op-Ed was“a compliance officer for a New Jersey bank wrote in a letter last month to American Banker.” That’s your inside proof? Meanwhile, since Bear Stearns collapsed in March, there has been a veritable parade of bankers, mortgage originators, lenders, fund managers, and investment banks CEOs all testifying in Washington D.C. about the causes of the crisis. By some strange coincidence, not a single one blamed the CRA (Dick Fuld, CEO of Lehman Brothers was even asked about it). Not a one.

And of course, vast numbers of sub-prime mortgages were written by non-CRA banks. Indeed, none of the 300+ mortgage originators that imploded were depository banks covered by the CRA.

This is a an intellectually silly argument from other perspectives also. Why was there no credit/housing meltdown from 1977 to 2005? Why did 30 other countries, none of which have are covered by the CRA, have a remarkably similar housing boom and bust to the USA?  Husock’s arguments not only fail legally and factually, they also fail in terms of time and space . . .

>

Source:
Housing Goals We Can’t Afford
HOWARD HUSOCK
NYT, December 10, 2008

http://www.nytimes.com/2008/12/11/opinion/11husock.html

Subprime Suspects
Daniel Gross
Slate, Tuesday, Oct. 7, 2008, at 2:08 PM ET

http://www.slate.com/id/2201641

Category: Bailouts, Data Analysis, Legal, Politics, Psychology, Regulation

SEC’s Chair’s Bailout Bull$%&t

In what I can only type with a combination of disgust and astonishment, SEC Chairman Christopher Cox blames the current crisis on the “boom-and-bust cycles” of markets. “Financial markets, of course, are not perfect. In particular, they are susceptible to boom-and-bust cycles. Cycles of this sort have been a hardy perennial over the past 400…Read More

Category: Bailouts, Legal, Markets, Regulation

Getting Mortgage Fraud Down to an Art

Astounding: Orson Benn, once a vice president at the nation’s largest subprime lender, spent three years during the height of the housing boom tutoring Florida mortgage brokers in the art of fraud. From his office in New York, he taught them how to doctor credit reports, coached them to inflate income on loan applications, and…Read More

Category: Bailouts, Legal, Real Estate

Video: Mortgage Racket as Art

Orson Benn’s network of mortgage brokers wrote thousands of subprime loans in Miami-Dade which have gone into foreclosure.

via the Miami Herald

Category: Legal, Real Estate, Video

Minimum Pricing Battle

These Minimum Advertised Prices — floors under which retailers cannot drop a product price — always struck me as anti-competitive, and well, just wrong. The Supreme Court has been all over the map with them. Why not simply let retailers and manufacturers compete in the marketplace? “A group of major discounters, including eBay Inc. and…Read More

Category: Consumer Spending, Legal, Retail

Chrysler Hires Bankruptcy Firm

Chrysler has hired bankruptcy firm Jones-Day, sources say. WSJ: Chrysler several weeks ago hired the prominent law firm of Jones Day as bankruptcy counsel, suggesting the auto maker is preparing for imminent financial failure should its efforts to obtain federal rescue funds fall short. Gee, I wonder if that will put any pressure on Congress…Read More

Category: Bailouts, Legal, Markets

What Did the Repeal of Glass-Steagall Do ?

Here is a question that I have been wrestling with: What exactly did the repeal of the Glass-Steagall Act accomplish? Were there positives as well as negatives? Should the Gramm-Leach-Bliley Act be repealed, and Glass-Steagall reinstated? > ~~~ What say ye? >

Category: Bailouts, Credit, Finance, Legal, Regulation

Bush WH Ignored Mortgage Meltdown Warnings

“In hindsight, it was spot on.” -Jeffrey Brown, former top official at the Office of Comptroller of the Currency, one of the first agencies to raise concerns about risky lending. > A brutally damning article about the warnings the Bush administration received and ignored was published this morning by the Associated Press. The AP summed…Read More

Category: Bailouts, Credit, Finance, Legal, Real Estate, Regulation

The Plunge Protection Team ?!?

Definitely check out the cafe post on the Debate on the Existence of Plunge Protection Team Its well worth your time (the video is pretty amusing, too).

Category: Bailouts, Federal Reserve, Legal, Markets, Psychology

‘Maverick’ Is Called On Insider Trading

WSJ’s Ashby Jones talks about the Securities and Exchange Commission filing (civil) insider trading charges against Mark Cuban, owner of Dallas Mavericks. (Nov. 17)

Category: Legal, Video