In Nashville the median price for a residential single-family home was $498,785 in May, up from $400,000 a year ago.

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Why the 20-Year Mortgage Is the Answer to Housing Finance Mess

By Edward J. Pinto, February 5, 2016, - A recent Associated Press poll found more than six in 10 respondents expressed only slight confidence — or none at all — in the ability of the federal government to make progress on important issues facing the country.

The public's skepticism is well founded, especially when it comes to federal housing policy. Notwithstanding an alphabet soup of government agencies and federally backed companies — Federal Housing Administration, Fannie Mae, Ginnie Mae, Freddie Mac, Federal Housing Finance Agency, etc. — and trillions spent on government-mandated "affordable housing" initiatives, our homeownership rate today is no higher than it was in the mid-1960s. What is best described as a nationalized housing finance system has failed to achieve its two primary goals: broadening homeownership and achieving wealth accumulation for low- and middle-income homeowners.

The U.S. homeownership rate as of the fourth quarter of 2015 is 63.8%, the same as in the fourth quarter of 1966, and only marginally higher than the rate in 1956. More troubling, our housing policy has been unsuccessful at building wealth — the antidote to poverty. Between 1989 and 2013, median total accumulated wealth for households in the 40th to 60th percentiles has decreased from $76,100to $61,800, while median wealth for households in the 20th to 40th percentile has decreased by more than 50%, from $44,800 to $21,500. It was precisely these groups that were targeted to be helped by affordable housing policies.

For the last 60 years, U.S. housing policy has relied on looser and looser mortgage lending standards to promote broader homeownership and accomplish wealth accumulation, particularly for low- and middle-income households. Leverage first took the form of low down payments combined with the slowly amortizing 30-year term mortgage, which resulted in rapidly accelerating defaults, foreclosures and blighted neighborhoods. Since 1972, homeowners have suffered between 11 million and 12 million foreclosures. During the 1990s and early 2000s, new forms of leverage were combined with declining interest rates. With demand increasing faster than supply, the result was a price boom that made homes less, not more affordable, necessitating even more liberal credit terms. We are all familiar with the outcome—a massive housing bust and the Great Recession.

Today, in the shadow of Fannie and Freddie's continued existence, taxpayers are again driving home prices up much faster than incomes — particularly at the lower end of home prices. U.S. housing policy has become self-justifying and self-perpetuating — loved by the National Association of Realtors, many housing advocacy groups, and the government-sponsored enterprises, but dangerous to the very homebuyers it is supposed to help.

To help achieve sustainable, wealth-building homeownership opportunities for low- and middle-income Americans, our current government-backed command and control system should be replaced with market-driven antidotes. For most low- and middle-income families, the recipe for wealth-building over a lifetime contains three ingredients: buy a home with a mortgage that amortizes rapidly, thereby reliably building wealth; participate in a defined contribution retirement plan ideally with an employer match; and invest in your children's college education.

Here are three steps to make the first goal — quickly amortizing mortgages — more of a reality:

First, housing finance needs to be refocused on the twin goals of sustainable lending and wealth-building. Well-designed, shorter term loans offer a much safer and secure path to homeownership and financial security than the slowly amortizing 30-year mortgage. Combining a low- or no-down-payment loan with the faster amortization of a 15- or 20-year term provides nearly as much buying power as a 30-year FHA loan. A bank in Maine offers a 20-year term, wealth-building loan that has 97% of the purchasing power of an FHA-insured loan. By age 50 to 55, when the 30-year-term loan leaves most homeowners saddled with another decade or more of mortgage payments, the cash flow freed up from a paid-off shorter-term loan is available to fund a child's post-secondary-education needs and later turbocharge one's own retirement.

Second, low-income, first-time homebuyers should have the option to forgo the mortgage interest deduction and instead receive a one-time refundable tax credit that can be used to buy down the loan's interest rate. Borrowers who participate in a defined contribution retirement plan might receive a larger tax credit, enabling them to lower their rate even more.

The one-time tax credit would support wealth-building by being available only for loans with an Reductions in the Department of Housing and Urban Development's budget and other budgeted amounts supporting "affordable housing" should also be used to fund LIFT Home. Better to provide the dollars directly to prospective homeowners, than to be siphoned off to bureaucracies and advocacy groups.

initial term of 20 years or less. To avoid pyramiding subsides and reduce taxpayer exposure, only loans not guaranteed by the federal government would be eligible. This would provide a big start to weaning the housing market off of government guarantees. With the Low-income First Time Homebuyer — or LIFT Home — tax credit in place, the Fannie and Freddie affordable housing mandates could be eliminated, ending the race to the bottom among government guarantee agencies.

Third, the home mortgage interest deduction should be restructured to provide a broad, straight path to debt-free homeownership. Today's tax code promotes a lifetime of indebtedness by incenting homeowners to take out large loans for lengthy terms so as to "maximize the value" of the deduction. Current law should be changed to: limit the interest deduction for future home buyers to loans used to buy a home by excluding interest on second mortgages and cash-out refinancing; for future borrowers, cap the deduction at the amount payable on a loan with a 20-year amortization term; and provide a grandfather on the deduction cap for existing home loan borrowers with 30-year loans as long as their interest savings go toward shortening the loan's term.

A 21st-century market approach to wealth-building offers a safe and secure path to homeownership and financial security, something we haven't had for decades.

Edward J. Pinto is a resident fellow at the American Enterprise Institute and co-director of American Enterprise Institute's International Center on Housing Risk.

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Responsible Borrowers Should not Bail out Reckless Borrowers

Addressing realtors in Nashville and Chattanooga this week, Senator Corker discussed his proposal for long-term housing reform and sharply criticized recent comments by New York Federal Reserve President William Dudley who has advocated using Fannie Mae and Freddie Mac to write down the principal on home loans where the borrower owes more than the home is worth. 

“Reducing the principal on home loans for borrowers who put no money down amounts to a massive wealth transfer from places like Tennessee, where most homeowners have borrowed responsibly, to places like California and New York, where exotic mortgages were widely used to finance a speculative housing boom,” Corker said. “It is absolutely egregious that the Federal Reserve would insert itself in this manner and ask people in Tennessee who played by the rules to bail out reckless borrowers in other parts of the country. A program like this one that reduces principal for a few million underwater borrowers would come at a substantial cost to American taxpayers and responsible borrowers everywhere.”

Senator Corker has introduced the Residential Mortgage Market Privatization and Standardization Act in an effort to start a real conversation in Washington about the need to responsibly unwind government-sponsored enterprises Fannie Mae and Freddie Mac and gradually end dependence on the government for housing finance.

I agree with Senator Corker and like Senator Corker I am a proponent of expanding homeownership opportunity.   However, there is a wrong way and a right way to do it. Irresponsible behavior should not be subsidized and encouraged. Many homeowners somehow feel they should be bailed out because their home did not increase in value or because they owe more on their home than its current value. There was never a guarantee that home values would always increase. 

Homeowners who got a conforming loan should not bail out those who got an adjustable, 80/20, negative amortization, pick-your-payment, interest-only or other type of "creative financing" product. Homeowners who bought a reasonably priced home should not bail out those who bought more home than they could afford. Those who planned for their retirement and either had their home paid for by the time they retired or had a reasonable mortgage payment they could afford on their retirement income, should not bail out those who at age 50 got a 30-year mortgage and upon retiring at age 65 can no longer afford their mortgage. Those who paid a reasonable downpayment should not bail out those who got into a home with no money down. Responsible people should not have to bail out irresponsible people.

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Government has not yet fixed the housing crisis the government caused

"The Obama loan modification program actually cost taxpayers $200,000 for each of the 375,000 loan modifications that were completed." Read more : no-government-fix-for-housing-woes

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Action Alert: Don't make foreclosure easier in Tennesee.

As a housing counselor working for a HUD-approved non-profit housing counseling agency, I see first hand the problems people face in trying to save their home from foreclosure. Tennessee already has one of the easiest foreclosure systems in the country. But yesterday in the Tennessee House Judiciary Sub-committee bankers tried to make foreclosure even easier in Tennessee.  

Tennessee's "non-judicial review" process for foreclosures ranks near the top for ease and speed of foreclosures.

• No courts. 
• No judges.
• No long drawn-out process.

All a bank has to do is:

1. Serve a single letter of notification to the homeowner. 

2. Publish 3 public notices of foreclosure in the area newspaper.  

3. Sell the property at auction. 

The whole process can take less than 21 days.

The only way to slow down the process is to file bankruptcy. Coincidentally, Tennessee has one of the highest bankruptcy rates in the country. 

Now in the Judiciary Subcommittee, bankers hope to make the process even easier.

Their shorter process would be;

 1. A single letter to the homeowner.  

2. A single public notice in the paper.

(No property description in the public notice.) 

(Errors would legally be allowed to appear in the notice.) 

3. Sell the property at auction. 

There are already documented cases across Tennessee where elderly, separated and divorcing couples had no idea their home was being foreclosed upon until someone read it in the paper and alerted them. 

This radical proposal from the banking industry violates several legal cannons including constructive notice, due process, fundamental fairness and the vagueness doctrines (see below).

This is not a conservative or liberal issue nor a Republican or Democratic issue but an issue of fair notice. Please take time right now to click here and email committee members and tell them what you think.   

Issue Brief SB1299 / HB1920

The Bill Threatens to Break Several Legal Doctrines.
 

Senate Bill 1299/House Bill 1920 will be heard this week.  The bill would decrease the number of publications necessary prior to foreclosing on a property from three to one, decrease relevant information contained in the notice, and the bill states that the law would allow errors in the public notice. Important constitutional and judicial doctrines such as constructive notice, due process, fundamental fairness and the vagueness doctrine are violated by this bill.  

Bill Violates the Legal Doctrine of Constructive Notice.

This bill decreases the number of publications for the public notice from three to one – thus violating a legal canon called constructive notice; the publication of a public notice three times. Courts allow constructive notice as a relief from liability for any claim of ignorance of the action.  Should a debtor willfully avoid notice by not opening their mail or claiming that they never received the notice of foreclosure the maxim of constructive notice provides protection for the bank or other entity; it is allowed by courts as legal proof that notice of the action was provided to the individual and or to the community.

Violates Procedural Due Process, Fundamental Fairness Doctrine and Vagueness Doctrines.  
Procedural due process of the law provides that any government action that unfairly deprives an individual of life, liberty, or property is unconstitutional.  This bill changes the standard description of property used for generations in foreclosure matters whereby one can easily identify through the ad the property being taken.  This bill would require only a “concise” description of the land in question; which means only a reference to the deed book and page in the county register of deeds office that contains the complete legal description of the property – it is not reasonable to believe that most citizens would be able to understand that the legal notice of foreclosure is identifying their property by reading such a technical description in the newspaper thus a procedural violation of due process would exist. 
 

An additional violation of due process set forth by the language of this bill is found in language that states “Any error or defect in the common description of the land shall not in any way void any sale of the land.”  This violates what is called the fundamental fairness doctrine which is synonymous with due process.  

 

The vagueness doctrine is a legal principle which states that law that does not provide a “person of ordinary intelligence a reasonable opportunity to know what is prohibited, proscribed or claimed” is unconstitutionally vague. This bill seems to allow language in legal notices which is intentionally vague and lacking in commonly useful information by changing the level of detail and standard description historically used to identify the property being taken. 

The above information is from the Open Government Project of the Education and Public Policy Center. EPPC has entered in to a project to defend open government in Tennessee called "Public Notice: under threat." Several pieces of legislation threaten to end public notices in Tennessee's newspapers including notices of upcoming elections, zoning changes, rate increases and many others. 

Please visit www.publicnoticetn.com to learn more about the impending threat to publication of public notices in Tennessee, watch the videos and read the issue alerts.

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Republicans Push to End President’s Failed Mortgage Program

WASHINGTON, D.C. - Today, U.S. Senators Jim DeMint (R-South Carolina) and Bob Corker (R-Tennessee), both members of the Senate Banking Committee, and Tom Coburn, M.D. (R-Oklahoma), a member of the Senate Finance Committee, introduced legislation to end the Housing Affordable Modification Program (HAMP).

The program was intended to help over 7 million homeowners modify their mortgages to avoid foreclosure. Instead, HAMP has only permanently modified just over half a million loans while leaving thousands of Americans worse off. A record 2.9 million homes were foreclosed on in 2010 with a projected 20% increase expected in 2011. In contrast, the Financial Services Roundtable reports that the private sector has completed nearly 9.8 million mortgage modifications since 2007, and over 1.2 million in 2010 alone.

Special Inspector General for the Troubled Asset Relief Program Neil Barofsky harshly criticized HAMP in Congressional testimony on March 2 stating that the program’s “failed trial modifications often leave borrowers with more principal outstanding on their loans, less home equity, depleted savings, and worse credit scores.” SIG Barofsky went on to say there is “near universal agreement that the program has failed to meet its goals” and concluded “there is little reason to hope things will get better.”

“Congress should move swiftly to end the President’s disastrous mortgage program. It has funneled millions of taxpayer dollars to big banks and Fannie Mae while taking struggling homeowners on a wild goose chase as foreclosures increase,” said Senator DeMint. “My office has heard from numerous South Carolina families who went to HAMP for help, but after months of false promises and mountains of paperwork they were left in worse financial shape. HAMP is just the latest failure of President Obama’s big government experiments. HAMP has not even reached ten percent of its intended goal of helping 7 million American homeowners modify their loans, but it has succeeded in pushing hundreds of thousands of other Americans closer to foreclosure and personal bankruptcy.”

“Taxpayer dollars shouldn’t have been used to finance loan modifications that the private sector is performing on its own far more successfully,” said Senator Corker.  “By almost every measure, the HAMP program has fallen short of its stated goals.  Let’s end this program and restore the private incentives that already exist to keep families in their homes.”

“Like so many other big government programs, HAMP started with good intentions but has burdened homeowners and taxpayers,” said Dr. Coburn. “The administration pledged to help three to four million homeowners facing foreclosure but have rejected more requests than they have accepted.  In many cases, the program has done nothing but string along homeowners and increase their hardship.  Instead of leading homeowners through a maze of regulations and forcing them to run a gauntlet of incompetence, the federal government should help taxpayers by reducing spending, beginning with the $50 billion dedicated to this failing program.”

A January 2010 article about HAMP’s failure in the New York Times, headlined “U.S. Loan Effort Is Seen as Adding to Housing Woes” stated that, “[D]esperate homeowners have sent payments to banks in often-futile efforts to keep their homes... Some borrowers have seen their credit tarnished while falsely assuming that involved no negative reports to credit agencies. Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.”

Under the program, more mortgage modifications have failed than been successful. Out of 1,466,500 temporary modifications, more than 792,500 have failed. That means HAMP has a failing rate of 54 percent.
“The real story here is that the free market is working where the government is failing,” said Senator DeMint. “Private sector mortgage modifications successfully helped more than twice as many homeowners as HAMP last year, and nearly 10 million since 2007. It’s time to stop HAMP from hurting more homeowners and allow the housing market to finally recover without the government picking winners and losers.”

My Comment
As one who has first hand knowledge of the HAMP program, I can attest that it has been a frustrating failure.

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Facing Mortgage Default? Don’t be Scammed!

It is an outrage the number of people who are being scammed by phony mortgage default counseling services. I see it almost every day. Just today, another counselor in my office came to me with a case where the lady had paid a company $2800. She was behind on her mortgage and received a solicitation in the mail. The solicitation contained a form which looked like a government document. The form was a “009-S” and was called a “Payment Reduction Notification,” and said, “RE: HR5140 Economic Stimulus Act of 2008.”

This was totally phony. This company is not associated with the government and they are providing no service of any value. The lady responded to the solicitation and she was told that they could help her save her home. They also offered her legal services to save her house if such services were needed.

One often does need the assistance and guidance of a housing counselor in order to get a workout from one’s mortgage company. There are various factors involved in determining what workout may be available and the homeowner is often ill equipped to negotiate with the mortgage company. You do not need to pay for this service however; it is free. Secondly, Tennessee is a non-judicial foreclosure state and an attorney cannot help you save your home, except in the most extreme and rare of cases.

This lady ended up sending the mortgage company $2800. She has just lost that money and will not get it back. That $2800 could have went a long way toward a workout that would have helped save her home. This lady may or may not be able to file a chapter 13 bankruptcy and keep her house. It is too early to know what options might be available, but she was just ripped off of $2800 and without that money the prospect for avoiding loosing the home is a lot slimmer.

This is not an isolated case. I had one 89-year-old Black widow women who paid a company $800. We got her story on the local news and the “counseling agency” refunded her money. The reason she got her money back is that she had given the firm her bank account number and they took the money out of her bank account. Given the fact that the victim made such a good victim (elderly, Black, widow) and she claimed they took the money from her account without her permission, and that we got the story on TV, I assume the company thought it best to simply refund her money. Most people are not that lucky.

Last week, I served a client who had already filled out an information packet from one of these phony counseling agencies and already made out a check for $1600 to send to a company but luckily, on the advice of a friend, she called me first. We were able to negotiate a workout for her and she saved her home. If she would have sent the company the $1600 she would not have been able to afford a workout and would have most likely lost her home.

These phony mortgage default counseling companies solicit people by phone, by mail, by email, late-night TV infomercials and by knocking on a person’s door. There are several ways they can get the name of potential victims. They can get the names from the websites of the attorneys who handle the foreclosure or once a foreclosure notice is published they can get the information out of the newspaper. Another way is that they can purchase names from the credit bureaus. They establish certain parameters and then purchase the name of everyone who meets that profile. They may, for instance, purchase the name of everyone who is 60 days behind on their mortgage, or everyone who has been 30 behind for the last four months or so.

These companies are preying on desperate people. In addition to these scams there are also other more sophisticated scams, but the most popular scam is the phony counseling agency. Often the victim is the less educated or sophisticated but many intelligent, educated people also end up being victims. No one knows how widespread this is, but it is very widespread. Untold thousands of people are losing their homes when they could have saved them if they had gone to a legitimate housing counseling agency rather than a scam artist.

Legitimate housing counseling agencies are listed at this link: http://www.findaforeclosurecounselor.org/ . If you are in the Nashville area and need help call me, Rod Williams 850-3453. If elsewhere, use the above link and get help from a legitimate housing counselor. Please, help spread the word that legitimate free help is available. Please don’t let your friends or family fall victim to one of these cruel scams.

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Don’t Blame the Housing Crisis on Poor People

Whether you are a gardener or a physician or an auto mechanic or whatever, you have probably had people share their uninformed but strongly held opinions about your area of expertise. A lot of people have strong opinions about things they know little about.

I am a housing counselor and have helped many low-income people become homeowners. I routinely hear people assert that the reason we have a housing foreclosure crisis is because the government had programs that helped low income people become homeowners. I have heard Rush Limbaugh make this assertion and our local Rush-want-a-be and lot of other people say this.

It is true that a large part of the housing crisis was caused by lenders making loans to people who should not have gotten loans. It is true that there were many irresponsible borrowers. There were a lot of people who bought houses with no money down. Some of these people were low-income but many of them were not. These people who were low income did not get these bad loans due to government assistance programs.

Those low-income people who got government assistance for down payment probably were less risky borrowers than the typical borrower. There have been a variety of programs that helped low-income people become homeowners over the years.

In recent years the most widely available program was the Bush Administration’s program called American Dream Downpayment Initiative (ADDI). Under this program, the borrower could get into a house for an out-of-pocket cost of only 1% of the sale price and the balance of the closing cost and downpayment was provided in the form of a grant or a loan.

To take advantage of this program, the first mortgage had to be an FHA loan, or VA loan, or conforming conventional loan. This meant that the borrower could not get a “liar’s loan,” also know as a “stated income” loan. They could not get a negative amortization mortgage or an interest only mortgage or the really bad adjustable rate mortgages. The borrowers had to have decent credit and could not have excessive debt and their housing cost, including escrowed taxes and insurance, could not be over 32% of their gross monthly income.

ADDI is but one of a number of similar programs that I have been familiar with over the years that were designed to help low income people become homeowners, but almost all of them had these same requirements. Most of these programs also required that the borrower attend homebuyer education programs. These borrowers were better informed homebuyers than the average buyers.

Another reason that low-income people who become homeowner using down payment assistance programs are not likely to default on their mortgage is because the agency that assisted them usually ends up holding a second mortgage on the property. The second may be in the form of a “due-on-sale” mortgage, which means the assistance will be paid back if the property is ever sold. It may be a “forgivable loan,” where for example, 20% of the downpayment assistance is forgiven each year for a period of five years. The assistance could simply be a low-interest, long-term second mortgage.

If one wishes to refinance a first mortgage, one cannot do so without paying off the second mortgage, unless the second agrees to subordinate. When the non-profit agency holds the second mortgage, they can prevent the homeowner from refinancing into a bad loan or persuade the borrower that it is not wise to do so. Many borrowers end up refinancing when it is not in their best interest to do so, but borrowers who got downpayment assistance usually can’t do this.

I think that programs that help low-income people become homeowners is money well spent. It helps lift people out of poverty rather than subsidizing their life in poverty. These programs have genrally been sucessful.

While it may be popular to blame the housing crisis on government programs that helped poor people become homeowners it is simply not the truth.

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The Obama Easy Payment Plan for Irresponsible Homebuyers

The Homeowner Affordability and Stability Plan

On February 18, President Obama announced a $75 million comprehensive plan to help homeowners avoid foreclosure by providing affordable and sustainable mortgage loans. The Homeowner Affordability and Stability Plan has two parts major parts but also contains other minor provisions. One part of this program one may have heard about, the judicial modification as part of a bankruptcy, is not achieved by this act but is simply proposed. Here is what is in the plan.

The first major part of the program provides for a sweeping loan modification program targeted at borrowers who are at risk of foreclosure because their incomes are not sufficient to make their mortgage payments. Some 3 to 4 million homeowners will be helped under this program.

The second part of the program provides refinance opportunities for borrowers who are current on their mortgage payments but have been unable to refinance because their homes have decreased in value. They may now have the opportunity to refinance into a 30 year, fixed rate loans. Fannie Mae and Freddie Mac will allow the refinance of mortgage loans that they hold in their portfolios or that they guarantee in their own mortgage-backed securities. Four to five million people will be helped under this program.

Here are the major components of the Loan modification provision of this program.

• A Shared Effort: If the lender will lower the payment so that the mortgage payment does not exceed 38% or the borrower’s income, then the treasury will match the reductions dollar for dollar down to 31% of the borrower’s income. The interest rate reduction necessary to reach this lower ratio would stay in place for five years then would be stepped back up to the conforming loan rate in place at the time of the modification. Subsidies could bring the interest rate as low as 2%.
• Incentive to servicers: For each loan so modified the servicer will be paid $1000 up front and up to $1000 a each year in “pay for success” fees.
• Incentives for Borrowers: As long as the borrower stays current the borrower will get $1000 a year for up to five years.
• Reach Borrower early: To encourage servicers to help at-risk borrowers before they go into default, an additional fee will be paid servicers and mortgage holders for loans they modify.
• Home Price Decline Reserve Payments: This is an insurance fund to grantee loans so that lenders will be willing to modify more loans in areas where house values are declining.

Here are the major components of the refinance provision of the program.

• Conforming loans. The loans had to be good loans to start with.
• Standard underwriting. The borrower must meet standard credit standards
• Higher Loan to value. The new loan can be up to 105% of the homes value.

Commentary

I do not like this plan. It may work. It may stabilize housing, but it is wrong. We could have done better. I do not have much of a problem with the refinance provision of this act but do not like the loan modification provision. Something had to be done however to slow the rate of foreclosures.

If the house next door to you goes into foreclosures your home value can drop. If several houses on your street go into foreclosure your homes value can drop considerably. Your wealth can be eaten up through no fault of your own. If you need to sell your home, you may have to sell it for considerably less than what you think it is worth. There is a social cost to other people’s foreclosures and we must do something. As long as existing homes are dropping in value lenders are going to be reluctant to ease up on credit and allow even deserving borrower to finance homes. This crisis stated in the housing sector and I do not think we can pull out of the economic crisis until we stabilize the housing market. Nevertheless, I don’t like this plan. We needed to so something else other than what we have been doing, but I think this is the wrong thing to do.

Rather than just give the money away, I would have preferred a plan that placed a second or third mortgage on the home of the borrower that got the assistance. We could have designed a program that made a loan to the borrower in order to “buy-down” the first mortgage. This loan could be a “due on sale” loan so the borrower would not have to pay the loan back as long as they lived in the house. If the home value never increases then the tax payers would still be out, but if home values stabilize and then increase the taxpayer subsidy would be paid back and the irresponsible lender and borrower would not realize a profit due to the government rescue.

Another possible way the bailout of irresponsible lenders and borrowers could have occurred is a “shared equity” loan designed so that if and when property values again accelerate the government recoups any subsidy but in a way that is proportional to the increase in equity. We needed to so something and I could have designed better ways to do it.

Perhaps the simplest way to achieve the desired effect of slowing the foreclosure rate but not enriching the irresponsible is to simply encourage mortgage companies to modify the loans by changing the amortization period to forty years or fifty years or however long it takes to make the payments affordable. The loans could still be 30 years loans but with a balloon at the end of 30 years. The homeowners who benefited by buying housing they cannot afford would still get to live in the houses they should never have purchased in the first place, they simply would not benefit by pocketing the equity and sticking it to the taxpayers.

One thing I do not like about the loan modification provision of this program is that it only helps the irresponsible. I see responsible people who are losing their home every day due to the loss of a job. I would have preferred that some of those people to whom bad things happen be helped and fewer of those who simply bought more house than they can afford. The economic impact would be the same weather we help a person who is facing foreclosure because a spouse died or because they bought too much house. This package does nothing to help the deserving borrower.

One of the most objectionable aspects of this program is paying people $1000 a year for simply making their new lower mortgage payments on time. This is an outrage. All of those people who didn’t buy more house than they should have bought, and who were smart cautious borrowers and who got good loans are not going to be rewarded for paying their house payment on time; the irresponsible will be. If you are a responsible person in today’s world you are a fool. I guess rewarding the irresponsible is the kind of change people voted for in November.

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Are CRA, Clinton and Carter Really to Blame?

by Harold Black

I am fed up with the conservative talk show hosts putting the blame of the current economic crisis on the Community Reinvestment Act. I’ve heard them say that the CRA was signed into law by Jimmy Carter and aggressively expanded under Bill Clinton forcing banks to make loans to people who could not afford them. Fannie Mae and Freddie Mac were also forced to buy these loans. Since people could not afford them, they defaulted causing the failure of Fannnie and Freddie and precipitating the crisis.

As my father used to tell me, “Harold, that sounds good if you are interested in sounds”. But what is the truth? The truth is that republican presidents rather than democrats were ultimately responsible. When I was Deputy Director of Economic Research at the Comptroller of the Currency, the Congress passed the Equal Credit Opportunity Act in 1974 and the Home Mortgage Disclosure Act in 1975. I was charged with determining if national banks (those who received their charter from the federal government) were guilty of discrimination and of redlining. Discrimination is the act of denying a person a loan based on a prohibited basis such as race. Redlining is the denying a loan to anyone regardless of race who is applying for a loan in a specific geographical area.

My study (published in the American Economic Review, "Discrimination in Mortgage Lending," (with R. L. Schweitzer and L. Mandell), May 1978, v. 68, n. 2, pp. 186-192) showed weak statistical evidence of racial discrimination in the accept/reject decision but no evidence of redlining. These acts and our research at the OCC laid the foundation for other research on discrimination and to the passage of the CRA in 1977.

Although the CRA was signed into law by Jimmy Carter, two other important acts the Equal Credit Opportunity Act (ECOA) and the Home Mortgage Disclosure Act (HMDA) were signed by a republican, Gerald Ford. The talk show hosts also state that Bill Clinton was responsive for the expansion of CRA and forcing the banks to make bad loans. However, the two major changes in the CRA occurred in 1989 with the passage of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) and the Federal Housing Enterprises Financial Safety and Soundness Act of 1992. Both were signed into law by George H. W. Bush. Under FIRREA, the reporting requirements of CRA compliance were expanded. The latter act required Fannie Mae and Freddie Mac to support affordable housing by purchasing CRA-qualifying loans. Even though the talk show hosts have said that up to one half of Fannie and Freddie loans were CRA loans, the act suggests that by the year 2010, that one-third of their purchases be affordable housing loans.

If there were pressures to expand CRA lending, it came in part from the banks themselves. As a result of the Riegel-Neal Interstate Banking and Branching Act of 1994, signed into law by George W. Bush, CRA ratings became an important factor in determining if banks could merge or acquire across state lines. Because advocacy groups would use CRA ratings as a protest against the banks in order to get additional CRA lending, the banks greatly expanded these types of loans. I recall going to a Fed Atlanta conference on CRA lending, compliance and enforcement. A banker told me that the Feds never pressured him into making a bad loan. However, because they wanted to expand into other states, they had instituted a more liberal CRA lending policy. So the truth is that if there is blame to be handed out for a misguided CRA policy, it has to be laid at the feet of the republicans and the banks. Jimmy Carter and Bill Clinton are convenient whipping boys and are well deserving of other blame but CRA lending is not one of them.

As to the banks making loans to people who could not pay them back? We in Finance have a technical term for such lenders – it is a fool. This makes no sense at all. Some people will say that the bankers could make bad loans because they would be sold to Fannie Mae and Freddie Mac. Well most CRA mortgages and subprime mortgages were sold to private investors. If these loans defaulted within 90 days, then the purchasers would put them back to the originator, If they defaulted later and more bad loans were made by the originator, then the investors would either not buy them or would offer low prices on mortgage pools of the originator. Either way, the originator would lose and would quit making bad loans.

Lastly, there are too few subprime mortgage to have caused the financial crisis. At year end 2008, there were $1.3 trillion in subprime mortgages. The default rate on subprimes had increased from 8 percent to around 20 percent. If you assume 100 percent loss on the defaulted mortgages, then this totals $260 billion. Well in 2008 the total loss in mortgage backed securities was $435 billion. If subprime defaults were at fault, then there would have been no need for the $800 TARP package. So like Carter and Clinton, subprime is just a convenient whipping boy. As my readers know, I am a laissez-faire free market conservative. But that does not blind me to the truth.

Harold A. Black is the James F. Smith, Jr. Professor of Finance, University of Tennessee, Knoxville. He has served on the faculties of American University, Howard University, the University of North Carolina - Chapel Hill and the University of Florida. His government service includes the Office of the Comptroller of the Currency and as a Board Member of the National Credit Union Administration. Dr. Black blogs at Caveat Emptor where he originally published this article. It is reprinted on this blog with his permission.

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Obama's Homeless Women

Is Henrietta Hughes homeless by choice?
Fox 4, Fort Myers Florida

Ever since she asked President Obama for help during his visit to Fort Myers 2 days ago, Henrietta Hughes has been on every TV network in the country.
She says she's been living in her car for months and couldn't find work. Now a local agency tells Four in Your Corner, yes Ms. Hughes has been homeless, but only because she chose to be. (link)

Obama’s Homeless Woman Is Actually Real Estate Investor
March 2, 2009, The Lie Politic

During Obama’s campaign to promote his stimulus package, he staged an event with a woman, Henrietta Hughes, who, as it turns out, appears to be anything but truly needy. Henrietta was given an audience with Obama to beg for a home. When aid was provided via the offer of free rent by an opportunistic politician, the liberal press spouted that Henrietta was actually given a free home and implied it came from Obama. The lie has propagated through the liberal media and, quite honestly, it nauseated us because it was so obviously staged and such a distorted lie. Well, as it turns out, the lie didn’t end there. (link)

Comment

I know there really are newly homeless people as a result of the housing crisis. Could the Obama administration not find a real one? The mainstream press has been awfully quite about this deception. Is this deception not newsworthy? Remember Joe the Plumber and how the press dug deep for dirt? It seems Joe the Plumber was not yet a licensed plumber and his name was not Joe and the press reported it widely. The mainstream press has been awfully quite about Henrietta the Homeless Fraud. Maybe I wasn't paying attention and the press has also been nationalized and they now all report to the new Propaganda Czar.

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The housing crisis: I saw it coming.

To tell you the truth, two years ago I didn’t know the difference between a credit default swap and a collateralized debt instrument, but I knew a housing crisis was brewing. I did not know how widespread it would be or the impact it would have on the rest of the economy, but I knew something was terribly wrong.

I have been Director of Housing Services for a non-profit housing counseling agency for the last sixteen years. For most of this time our primary housing service has been providing prior-to-purchase, housing counseling. We provide two types. We offer single session, eight-hour housing workshops, which we call “Fast-track." We also offer in-depth, long-term counseling, which we call “Homebuyers Club.”

Fast Track is for people who are already eligible for a home mortgage. People are often motivated to take the class because it is required in order to be eligible for certain down-payment assistance programs or preferential interest rate programs. In an eight hour class the client learns all they need to know about working with a realtor; getting a good mortgage; protecting their investment; purchasing homeowners insurance; getting a home inspection; down payment assistance programs; and closing on their home.

Our Homebuyers Cub program is quite different. It is for people who have serious obstacles to homeownership. While clients learn the same things as participants in the Fast Track, the focus is on getting people ready to get a mortgage. Most of the clients in our Homebuyers Club are single mothers. Most are African American. Most are low income. Clients attend class for an hour and a half, once a month, for a year. Many clients are still not ready after a year and they re-enroll and stay in class. For many of our clients it takes two or three years before they are ready to purchase a home.

In a Homebuyers Club, we not only teach the mechanics of home buying but, more importantly, we change people’s values and habits. We teach the virtue of delayed gratification. We teach people how to clean up their credit and improve their credit score. We encourage people to get a checking account and to stop using check-cashing services. We teach money management skills and encourage savings.

Many times, after being in a Homebuyers Club for a while a Club member may decide that, rather than pursuing homeownership at this time, they are better off getting their GED or skills or training that will enhance their potential to earn more money, and then at a later time try to become homeowners. Many participants in our Homebuyers Club never buy a house while in our program but make other positive changes that will improve their lives. While the primary measure of success in this program is the number of people who actually become homeowners, the number of people who improve their lives, yet do not become homeowners, is a greater number. I have always felt like we helped a lot more people than simply the number of people who became homeowners. Since the start of our Homebuyers Club we have had over 735 people become homeowners. Unfortunately, not many of these successes occurred in the past three years.

At one time we had sixteen Homebuyers Clubs and average attendance in each club was about twelve. Now we have four clubs and attendance is only about six per club. About three to four years ago attendance started dropping in our clubs, and when we offered new clubs we had few takers.

Managing a Homebuyers Club requires providing a lot of encouragement to participants. Clients can easily get discouraged. Prior to a meeting, clients get a reminder call and a reminder post card. If a client misses a couple meetings, we try to reach them to find out why they have not been attending.

It was about three years ago that I noticed a disturbing trend. I would call a client and the conversation would go like this: “I noticed you missed the last couple of Homebuyers Club meetings and I just wanted to see what was going on.”

“Mr. Rod,” the client would say excitedly, “I have good news. I bought a house.”

I would immediately have a sinking feeling in my stomach. I knew the client was not mortgage-ready. “Great!” I would say. “Tell me about it.”

The client would start describing her new home. Then I would say, “Tell me about the financing. What kind of loan did you get?”

More often than not, the client did not know. I would ask the client to bring in her mortgage papers for review. What I would find is that our clients were getting terrible loans. They would buy their homes with no money down. They often were getting 80/20 loans with the 80% loan a hybrid adjustable, with a low teaser rate fixed for three years and then adjusting every six months thereafter. These loans had high margins and payments that would adjust steeply after the end of the fixed period. The 20% loan was often fixed but with very high interest rates of 12% to 22%.

Most often the clients had no idea what they had gotten themselves into. If they would have just stuck with our program, they could have gotten a FHA fixed loan but they did not. The temptation to do it the easy way was just too great. Also, the clients were often misled and told they could refinance before the loan reset. They were told this as if it was almost automatic. They were not told that they would have to meet income and debt and credit standards in order to refinance their loan. It was presented as something they could do almost automatically.

After a while the problem was not that our clients were dropping out of our program and getting bad loans, they were never enrolling in the first place. They no longer needed us and the discipline our program required. With “creative financing” they could buy a house without saving any money or changing their habits. They could get a loan without becoming responsible. Income and credit were not necessary. Knowing the clients I was serving, I was shocked that anyone would give these clients a loan in their current circumstances.

I saw this crisis coming. It was like watching a train on a collision course; I knew without a doubt that many of these clients were going to default.

I still believe in the goal of helping poor people become homeowners. If done the right way it permanently helps people escape terrible environments. It causes people to be more responsible. It builds wealth. It lifts people out of poverty for generations to come. It changes lives. Helping low-income people climb out of poverty is good for society and is the right thing to do.

If done the right way, low-income people can be given assistance to help them become responsible homeowners and it does not have to lead to foreclosures. Handing out mortgages to undeserving people, however, who have not leaned new skills, behaviors, and values can be detrimental to society and it betrays poor people in the process.

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The Crisis of Credit Visualized

by Jonathan Jarvis

Comment

This animation does good job of illustrating the role of CDOs, credit default swaps and leverage in causing the current economic crisis. I find that many on the right want to blame the crisis on the Community Reinvestment Act and the push to expand homeownership and those on the left want to blame deregulation. The problem is more complex than either simple answer. This animation helps explain the complexity of what led to the current crisis.

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Friends of Angelo

Countrywide's Many 'Friends'
by Daniel Golden, Conde Nast Portfolio .com Jun 12 2008

Two U.S. senators, two former Cabinet members, and a former ambassador to the United Nations received loans from Countrywide Financial through a little-known program that waived points, lender fees, and company borrowing rules for prominent people.

Senators Christopher Dodd, Democrat from Connecticut and chairman of the Banking Committee, and Kent Conrad, Democrat from North Dakota, chairman of the Budget Committee and a member of the Finance Committee, refinanced properties through Countrywide’s “V.I.P.” program in 2003 and 2004, according to company documents and emails and a former employee familiar with the loans.

Commentary

While thousands of Americans got predatory loans from Countrywide Mortgage and now face the loss of their home, VIP "Friends of Angelo" were getting preferential treatment including low interest rates and waived fees. One of the most powerful Friends of Angelo was Chairman of the Senate Banking Committee Chris Dodd.

Candidate Obama promises us a more open, honest, and transparent government. How can we have any confidence in the new administration or Congress if the lead watchdog in the Senate is a Friend of Angelo who got a preferential loan from Countrywide while he was supposed to be protecting the public's interest?

President Obama,

Would you please ask Chris Dodd to release his mortgage papers as he promised to do. If he will not, please ask him to resign from the US Senate. If he does release them and he is guilty of accepting preferential treatment, please demand his resignation. Did you really mean that stuff about honest government or was that just empty campaign talk?

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Hey Barney Frank, Thanks for the Housing Crisis.

No doubt there were various factors at work that caused the mortgage crisis. Democrats and their friends in the media like to blame the Reagan-era deregulation and many conservative commentators wish to blame the Carter-era Community Reinvestment Act, while others point to other causes.

One undeniable factor, if not the primary factor, was the irresponsible practices of Fannie Mae and Freddy Mac. Fannie and Freddie do not make loans of course but purchase the paper of the mortgage companies that do make the loans.

In the 1990’s, encouraged by the Clinton administration as a means of advancing homeownership, Fannie Mae and Freddie Mac started buying sub prime loans. Previously there was a much smaller market for sub prime mortgages, but with Fannie and Freddie buying the paper the availability of sub prime loans skyrocketed. With time-tested lending practices out the window, these two institutions ended up controlling 90% of the secondary market for mortgages. Those within the organizations who raised objections to the irresponsible lending being encouraged by Fannie and Freddie were overruled and eased out.

Fannie and Freddy began hiring Democratic operatives as CEO’s and upper management.
At the same time, Fannie and Freddie began making huge contributors to Congress, spending millions to influence votes. While some Republicans also received financial contributions from the two institutions, most of the money went to Democrats. Top recipients of those campaign contributions were Barney Frank and Chris Dodd, the Chairmen of the Committees that should have been providing over site of the two financial giants. Barack Obama and Hillary Clinton were also among the top receipts of Fannie and Freddy campaign contributions.

Wall Street investors liked the new arrangement and the easy money. Democrats liked the votes they could garner by being the party that advanced homeownership and they liked the dependable source of campaign contributions. This was the “crony capitalism” that led to the crisis.

By the early part of this decade it became clear that Fannie and Freddie were advancing a market in risky loans. If these practices continued an economic meltdown was inevitable. In 2004 Fannie Mae was caught in an accounting scandal overstating their earning and their financial stability. Congress conducted dozens of hearing and Democrats defended Fannie Mae and denied that a problem existed. (See above video.)

Principled Republicans, let by John McCain, called for the reform of Fanny Mae and Freddy Mac and President Bush proposed a bill to tighten regulation of the institutions. (For a record of the Bush administrations efforts to rein in Fannie Mae see Just the Facts: The Administration's Unheeded Warnings About the Systemic Risk Posed by the GSEs)

The bill to tighten regulation over the Government Sponsored Enterprises (Fannie and Freddie) was introduced in Congress in January 2005 but Democrats blocked it. If one single person gets credit for blocking reform that could have averted the mortgage crisis it has to be Barney Frank. (See, Fannie Mae’s Patron Saint)

While there are other factors at play that led to the economic meltdown, the bulk of the blame must be laid at the feet of Congressional Democrats who turned a blind eye to what was going on, benefited from it, and blocked reform that could have averted it.

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Don’t Blame the Community Reinvestment Act

It has almost become conservative orthodoxy to blame the current housing crisis on the Community Reinvestment Act. The line of argument is that the housing crisis was caused by loaning money to undeserving borrowers and these loans would not have been made if not due to pressure from the government forcing lenders to make bad loans. Despite this argument having been repeated over and over, I am not buying it.

When I have read some of the columnist making this claim, I have often wondered what expertise they had to support their conclusion and what evidence they had to support their claim. I often wonder if commentators are not listening to the echo chamber and repeating each other without a firm basis for reaching their conclusion.

The CRA has been around since 1976; only in the past three years did we start seeing the massive mortgage defaults. Since 1976 we have had many years of Republican dominance of the House and Senate and we have had Presidents Ford, Reagan, Bush 41 and Bush 43. If the CRA was so bad, why have Republicans not repealed it?

I have a background in mortgage lending and have been the Director of Housing Services for a non-profit housing counseling agency since 1996. I have helped hundreds of low-income people become homeowners. The people I helped have usually gotten FHA loans and had to meet standard underwriting guidelines. The help I provided was getting them eligible for the loans. I taught them money management skills, helped them repair and improve their credit and educated them to be good consumers. They often did get down payment assistance, but otherwise met the same underwriting guidelines as everyone else who got good loans.

Below is a condensed version of a speech given by Federal Reserve Board Governor Randall S. Kroszner at the Confronting Concentrated Poverty Policy Forum of the Board of Governors of the Federal Reserve System in Washington, D.C. on December 3, 2008.

Before becoming a member of the Federal Reserve Board, Dr. Kroszner was Professor of Economics at the Graduate School of Business of the University of Chicago from 1999 to 2006. He was also Assistant Professor (1990-1994) and Associate Professor (1994-1999) at the University. Dr. Kroszner was Director of the George J. Stigler Center for the Study of the Economy and the State and editor of the Journal of Law & Economics. He was a visiting scholar at the American Enterprise Institute, a research associate at the National Bureau of Economic Research, and a director at the National Association for Business Economics. Dr. Kroszner also was a member of the Federal Economic Statistics Advisory Committee at the Bureau of Labor Statistics in the Department of Labor.

You will note that Dr. Kroszner is well credentialed including an association with AEI, a free market think tank. I think Dr. Kroszner’s evaluation is a more accurate portrayal of the roll of the CRA in the current crisis than what we are hearing from many conservative columnist.

The Community Reinvestment Act and the Recent Mortgage Crisis
By Randall S. Kroszner

Some critics of the CRA contend that by encouraging banking institutions to help meet the credit needs of lower-income borrowers and areas, the law pushed banking institutions to undertake high-risk mortgage lending. We have not yet seen empirical evidence to support these claims, nor has it been our experience in implementing the law over the past 30 years that the CRA has contributed to the erosion of safe and sound lending practices. The findings of a recent analysis of mortgage-related data by Federal Reserve staff runs counter to the charge that the CRA was at the root of, or otherwise contributed in any substantive way, to the current subprime crisis.

In the 1970s, when banking was still a local enterprise, the Congress enacted the CRA. The act required the banking regulators to encourage insured depository institutions--that is, commercial banks and thrifts--to help meet the credit needs of their entire community, including low- and moderate-income areas. The CRA does not stipulate minimum targets or goals for lending, investments, or services. Rather, the law provides incentives for financial institutions to help meet the credit needs of lower-income people and areas, consistent with safe and sound banking practices, and commensurately provides them favorable CRA consideration for those activities. By requiring regulators to make CRA performance ratings and evaluations public and to consider those ratings when reviewing applications for mergers, acquisitions, and branches, the Congress created an unusual set of incentives to promote interaction between lenders and community organizations.

Given the incentives of the CRA, bankers have pursued lines of business that had not been previously tapped by forming partnerships with community organizations and other stakeholders to identify and help meet the credit needs of underserved communities. This experimentation in lending, often combined with financial education and counseling and consideration of nontraditional measures of creditworthiness, expanded the markets for safe lending in underserved communities and demonstrated its viability; as a result, these actions attracted competition from other financial services providers, many of whom were not covered by the CRA.

In addition to providing financial services to lower-income people, banks also provide critical community development loans and investments to address affordable housing and economic development needs. These activities are particularly effective because they leverage the resources available to communities from public subsidies and tax credit programs that are targeted to lower-income people. In just the past two years, banks have reported making over $120 billion in community development loans nationwide. This figure does not capture the full extent of such lending, because smaller institutions are not required to report community development loans to their regulators.

Over the years, the Federal Reserve has prepared two reports for the Congress that provide information on the performance of lending to lower-income borrowers or neighborhoods--populations that are the focus of the CRA. These studies found that lending to lower-income individuals and communities has been nearly as profitable and performed similarly to other types of lending done by CRA-covered institutions. Thus, the long-term evidence shows that the CRA has not pushed banks into extending loans that perform out of line with their traditional businesses. Rather, the law has encouraged banks to be aware of lending opportunities in all segments of their local communities as well as to learn how to undertake such lending in a safe and sound manner.

Recently, Federal Reserve staff has undertaken more specific analysis focusing on the potential relationship between the CRA and the current subprime crisis. This analysis was performed for the purpose of assessing claims that the CRA was a principal cause of the current mortgage market difficulties. For this analysis, the staff examined lending activity covering the period that corresponds to the height of the subprime boom.

The research focused on two basic questions. First, we asked what share of originations for subprime loans is related to the CRA. The potential role of the CRA in the subprime crisis could either be large or small, depending on the answer to this question. We found that the loans that are the focus of the CRA represent a very small portion of the subprime lending market, casting considerable doubt on the potential contribution that the law could have made to the subprime mortgage crisis.

Second, we asked how CRA-related subprime loans performed relative to other loans. Once again, the potential role of the CRA could be large or small, depending on the answer to this question. We found that delinquency rates were high in all neighborhood income groups, and that CRA-related subprime loans performed in a comparable manner to other subprime loans; as such, differences in performance between CRA-related subprime lending and other subprime lending cannot lie at the root of recent market turmoil.

In analyzing the available data, we focused on two distinct metrics: loan origination activity and loan performance. With respect to the first question concerning loan originations, we wanted to know which types of lending institutions made higher-priced loans, to whom those loans were made, and in what types of neighborhoods the loans were extended. This analysis allowed us to determine what fraction of subprime lending could be related to the CRA.

Our analysis of the loan data found that about 60 percent of higher-priced loan originations went to middle- or higher-income borrowers or neighborhoods. Such borrowers are not the populations targeted by the CRA. In addition, more than 20 percent of the higher-priced loans were extended to lower-income borrowers or borrowers in lower-income areas by independent nonbank institutions--that is, institutions not covered by the CRA.

Putting together these facts provides a striking result: Only 6 percent of all the higher-priced loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas, the local geographies that are the primary focus for CRA evaluation purposes. This result undermines the assertion by critics of the potential for a substantial role for the CRA in the subprime crisis. In other words, the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis.

Of course, loan originations are only one path that banking institutions can follow to meet their CRA obligations. They can also purchase loans from lenders not covered by the CRA, and in this way encourage more of this type of lending. The data also suggest that these types of transactions have not been a significant factor in the current crisis. Specifically, less than 2 percent of the higher-priced and CRA-credit-eligible mortgage originations sold by independent mortgage companies were purchased by CRA-covered institutions.

I now want to turn to the second question concerning how CRA-related subprime lending performed relative to other types of lending. To address this issue, we looked at data on subprime and alt-A mortgage delinquencies in lower-income neighborhoods and compared them with those in middle- and higher-income neighborhoods to see how CRA-related loans performed. An overall comparison revealed that the rates for all subprime and alt-A loans delinquent 90 days or more is high regardless of neighborhood income. This result casts further doubt on the view that the CRA could have contributed in any meaningful way to the current subprime crisis.

Our analysis of the data on loan performance and the roll of the CRA revealed the following:

Some lower-income lending by institutions subject to the CRA law was outside their local communities and was unlikely to have been motivated by the CRA..
Delinquency rates for subprime and alt-A loans in neighborhoods just below the CRA-eligibility threshold are very similar to delinquency rates on loans just above the threshold, hence not the subject of CRA lending.

Most foreclosure filings have taken place in middle- or higher-income neighborhoods; in fact, foreclosure filings have increased at a faster pace in middle- or higher-income areas than in lower-income areas that are the focus of the CRA.

In conclusion, I believe the CRA is an important model for designing incentives that motivate private-sector involvement to help meet community needs. Contrary to the assertions of critics, the evidence does not support the view that the CRA contributed in any substantial way to the crisis in the subprime mortgage market.

To read the uncondensed version and see the supporting research, visit this link: http://www.federalreserve.gov/newsevents/speech/kroszner20081203a.htm

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NBC Edits ‘Saturday Night Live’ Sketch

By Brian Stelter, New York Times, Oct 8, 2008

NBC has taken the unusual step of editing the online video version of a “Saturday Night Live” skit.

Two characters in a sketch about the Congressional bailout are no longer labeled “people who should be shot” in the revised version of the video, which was posted online Tuesday night. Those two characters represented actual people, Herb and Marion Sandler, who sold subprime loans to Wachovia. (link)

Comment:
I had forgotten part of the orginal skit! The version I show in the post below has more of the orginal skit than that showing on YouTube and other sites now, but it is not complete. It edits out the offending portion about Wachovia.

This reminds me of how the old Soviet Union used to retouch official photos to remove the images out-of-favor former leaders.

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SNL Housing Bailout Skit: Hilarious unedited version!

This is hilarious! I think it is very close to representing the truth. As a housing counselor I see many clients who really were victims or people who just made poor decsion, but I also see people like the couple of guys in this skit who represent the undeserving homebuyer.

This is the unedited version. When this first appeared it was widely available then inexplicably the full versions just disappeared and I really had to search to find the unedited version. I am not one who subscribes to conspiracy theories and I am not joining the tinfoil hat crowd, but for some reason YouTube removed the uncut version and now only show a version that removes the best parts. All across the net the unedited version simply disappeared. Watch it while you can. Please endure the 30 seconds of advertisement, the skit appears shortly (I hope).

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