|
nice cut and paste from the Huffington Post but a little thin on facts...the 1992 CRA revision is the jumping off point where lending institution practices were changed, revised, reworked and lowered to accomodate government demands or face harsh penalties, CRA lending exploded and the shaky practices spread throughout the industry, looser practices, no money down, 125% equity lending, no income verification all bad practices....it was the seed that began the virus...everyone got into the act and had their hands in the cookie jar from banking to wall street to Mac and Mae to the politicians...and now we'll all be paying for it because in America noone is allowed to fail.... the argument is that a high percentage of failing loans were outside of CRA participants which may be true but all of these shaky loans were made possible by the reaction to the 92 revisions by lenders and the "success" however temporary, of the revision...I'm not saying that the lending in the 2000 was not responsible and I don't think anyone would but if you want to trace this to the root cause it's really not that complicated...."but CRA has absolutely nothing to do with the current sub prime mortgage mess. Good try though. "
read this....why would banks make risky loans that were not profitable??? because the govt. demanded it...without these unsound programs you as an institution risked a bad CRA rating which was/is bad for the growth of your business...I'm not saying what they did in creating these lending programs was right but they were forced into it and they were destined to fail but they set the standard(a lower one) for the entire industry...
Memorandum to the Chairman
Committee on Banking, Housing, and Urban Affairs
United States Senate
From: John E. Silvia, Chief Economist
Linda Lord, Chief Counsel
Wayne Leighton, Senior Economist
Dina Ellis, Counsel
July 19, 2000
Federal Reserve Report on
The Performance and Profitability of CRA-Related Lending
CRA Special Lending Programs
A large percentage of CRA special program loans are not profitable. About 39 percent of these loans are not profitable on a per program basis and 44 percent on a per dollar basis. For large institutions, 58 percent of large banks report that their CRA special lending programs are not profitable. This appears to violate the safety and soundness requirements of CRA, which require that CRA lending is to be "consistent with the safe and sound operation" of the financial institution.
According to the report, compared to smaller institutions in the sample, large- and medium-sized institutions report a higher percentage of special program loans that are unprofitable and have higher delinquency rates.
Financial institutions report that for their "special loan programs" they offer reduced interest rates and fee waivers or reductions for about 47 percent of the programs. They also report that they "alter their customary underwriting standards for a large majority of their special lending programs." The most frequently cited underwriting variances are lower down payments, higher debt-to-income ratios, and the acceptance of alternative measures of credit quality. These lower standards would seem to be reflected in profitability measures.
According to the report, delinquency rates are higher on a per program dollar basis than on a per program basis. The study interprets this result as "suggesting that larger programs have higher delinquency rates."
According to the report, "[o]btaining either a satisfactory or outstanding CRA rating is a reason mentioned for about 75 percent of the [CRA special lending] programs." (p
|