September 17, 2009

CRA: Does anybody really want to know?

26 months into the mortgage meltdown, we still lack basic data about the borrowers who failed to pay back their loans. Thanks to the efforts of Gale Cincotta, we have a huge amount of data in the Home Mortgage Disclosure Act database on the ethnicity of who gets mortgages, but no system for tracking who pays them back.

From the testimony of Edward Pinto, chief credit officer of Fannie Mae 1987-89, to the House Financial Services Committee on September 16, 2009:
While at Fannie, I had the pleasure to work extensively with the late Gale Cincotta. Some of you may be aware that Ms. Cincotta was the founder and head of National People’s Action (NPA) and is known as the “Mother of the Community Reinvestment Act”. Ms. Cincotta had experienced first hand the lending debacles created by the misguided efforts of Washington bureaucrats. ...

Cincotta was Alinskyite activist in the Austin neighborhood of Chicago (the one that my wife's family was driven out of in 1970 by FHA lending). Cincotta's tragic tale was featured in Alyssa Katz's book Our Lot, which I reviewed for recently.

Cincotta found over the course of her long career in leftwing activism that it was a lot easier to pressure lenders to lend more than it was to get them to lend more responsibly. There is simply no conceptual vocabulary in contemporary America to discuss the idea that NAMs should be lent less money. As Wallace Shawn liked to say in The Princess Bride, "It's inconceivable." Moreover, nobody can get their cut out of a loan that isn't made.
I also need to tell you that I have spent the last 14 months searching for the facts on what caused the real estate bubble and subsequent mortgage and financial meltdown. I have reviewed over 40,000 pages of documents. The process relative to estimating CRA lending volumes and loan performance was particularly difficult and opaque.

I give you this background because if Gale were here today, she would tell you that the federal bureaucrats have done it again, but this time on a much more massive scale. Because of CRA and Fannie and Freddie’s (the GSEs”) affordable housing goals, “American Nightmare of Foreclosure” has spread to virtually every congressional district of these United States.

Here are the facts that I believe Gale would want me to report to you:

• Understanding CRA lending performance is of vital importance because it is now clear that CRA-related single family mortgages totaled trillions of dollars over the period of 1993-2007;
• Over time CRA origination volume became a growing and ultimately significant portion of conventional conforming origination volume, growing from an estimated 7% of originations in 1993 to 19% in 2007;
• As H.R. 1479 points out, announced CRA commitment volume totaled over $6 trillion since CRA’s inception in 1977. Starting in 1992, volume exploded. Over the 17 year period 1992-2008, there were a total of $6 trillion in announced CRA commitments. This is an astounding 680 times the cumulative volume of $9 billion for such commitments over the entire first 15 years of CRA’s existence;
• Ninety-four percent of this $6 trillion in commitments were made by banks and thrifts that were or ended up being owned by just four banks: Wells Fargo, JP Morgan Chase, Citibank, and Bank of America;

Of course, analogous commitments were made by non-bank mortgage companies (such as Countrywide's $1 trillion pledge in January 2005) that had had been told by the Clinton Administration that if it didn't behave like it was under the CRA, it would be put under the CRA.
The questions you should be asking are:

Why don’t bankers know and disclose how their different products are performing?

Why is it that the Federal Reserve, the OCC, the OTS and other regulators appear to have no idea how CRA loans are actually performing over the last few years? Data from ten years ago cannot be the basis for making decisions on multi-trillion dollar programs.

Why is it that Comptroller Dugan just three weeks ago delivered remarks at the Interagency Community Affairs Conference where he asserted that CRA is not toxic lending, yet he failed to cite any broad-based quantitative evidence?

Why is it after requiring banks to demonstrate that they make extensive use of “innovative and/or flexible lending practices” in order to receive a rating of outstanding, not one regulator had the common sense to track the performance of these admittedly innovative and flexible loans?

Platitudes are not sufficient. I have presented a prima facia case that CRA is toxic lending which leads to unsustainable loans which leads to an unacceptable level of foreclosures.

Gale Cincotta’s views on FHA 11 years ago are now equally applicable to CRA and AH lending:

“We have been fighting abuse, fraud, and neglect of the FHA program that has destroyed too many neighborhoods and too many families' dreams of homeownership for more than 25 years.”

Section D of H.R. 1479 calls upon the Federal Reserve to create a loan performance database.

I respectively submit that before you take any action on H.R. 1479, you demand that the appropriate regulators request detailed CRA performance data from Wells Fargo, JP Morgan Chase, Citibank, Bank of America, Fannie Mae and Freddie Mac. These six institutions should be able to provide performance information for an estimated 70% or more of outstanding CRA loans.

These programs have subprimed America.

The pain and hardship they have spawned is immeasurable. What is measurable is exactly how the trillions of dollars in past CRA and AH loans are performing.

Once you have that information, it is imperative that you learn from it so that you may implement Gale Cincotta’s vision whereby participants in the mortgage lending system have skin in the game. It was this lack of adequate equity and capital by borrowers, lenders, and investors that has put our entire economy at risk.

Only then will America get the sustainable affordable housing programs she deserves.

No, not that! Not what we deserve ... Please, give us something much better than we deserve.

My published articles are archived at -- Steve Sailer


l said...

THIS JUST IN: Now that the gov't's $8,000 First Time Homebuyer's credit is such a huge success, some in congress want to boost the figure to $15,000 and make it available to anybody who's buying a home.

The coalition of dingbat 'activists' and greedy bankers lives on.

Anonymous said...

"Once you have that information, it is imperative that you learn from it so that you may implement Gale Cincotta’s vision whereby participants in the mortgage lending system have skin in the game."

"Skin in the game?"

Was he being unintentionally ironic with that statement?

Henry Canaday said...

I assume you saw the recent Arnold Kling paper on the financial collapse, which seems to me very balanced. Kling puts primary blame on 1) the corruption of home-loan standards, especially reduction or elimination of down payments, and 2) failure to maintain reserve ratios at banks adequate to the changes in loan quality.

Kling says that estimating the incremental effects of just the CRA alone would require further investigation. But he notes this: By around 2004-2005, when smart people knew we were heading for trouble, it was impossible to stop the trend because too many groups had an interest in the current policies. These groups included home buyers and owners, both minority and other, banks, real- estate brokers and construction firms.

Φ said...

Outstanding. But can you tell us where we can access the testimony without paying AlacraStore $19.95 for the transcript?


David said...

They know. They just don't want to do anything about it.

Pat Shuff said...

Acorn's a Creature of the CRA

September 16, 2009

Over time, the mortgage industry not only developed new products based on these lower underwriting standards but eventually allowed many borrowers to qualify for such loans under the reasonable assumption that if they were "safe" for low-income borrowers they were certainly safe for middle and upper income borrowers, too.

Of course, these loans weren't actually safe, and as far back as the early 1990s it was clear that mortgages made under affordable housing standards had a significantly higher default rate. But the facts weren't allowed to get in the way of the housing juggernaut, and so the quantity of risky loans increased. By 2005 HUD required that 45 percent of all loans purchased by Fannie Mae and Freddie Mac had to be from low and middle income borrowers, with no sense whatsoever of whether such a quota was advisable or doable.

The subsequent drying up of the mortgage market and failure of many banks has proved an especially great burden to the umbrella of nonprofit groups who were operating programs financed by CRA, which has become big business for nonprofits. So now we have, rather than a diminished CRA, legislation in Washington which would find new sources of funding for community groups in the form of credit unions and insurance companies. And the new legislation takes CRA well beyond the mortgage market and into small business lending, requiring financial institutions to begin keeping records on the race and gender of owners of firms who apply for loans. If form follows, soon banks and other financial institutions operating under CRA will be cudgeled into lending to small businesses based on race and gender, which will be the opening of a new round of lower lending standards in the very risky small business sector.

The effort to save and extend CRA in the face of its role in the mortgage market's massive meltdown is testament to the unique power of this legislation to nourish an entire industry of nonprofits which, like Acorn, have been reliable supporters of politicians like Barney Frank, Maxine Waters and a former community organizer and associate of Acorn by the name of Barack Obama.

Follow the money. The activist groups' cut of the rake, in exchange for services around election time, ultimately derives
by hook or by crook from the additional financial burden borne by the victims portrayed as beneficiaries of their beneficence. Let us prey.

Anonymous said...

In todays Washington Examiner.

A number of experts believe that aggressive enforcement of the 1970s-era Community Reinvestment Act contributed to the mortgage meltdown, and thus to the greater financial crisis, by requiring financial institutions to lend to unqualified borrowers. Now, the Democratic majority in the House of Representatives is responding to that situation by proposing to expand the scope and power of the Community Reinvestment Act.

This morning House Financial Services Committee chairman Rep. Barney Frank held a hearing on H.R. 1479, the "Community Reinvestment Modernization Act of 2009." The bill's purpose is "to close the wealth gap in the United States" by increasing "home ownership and small business ownership for low- and moderate-income borrowers and persons of color." It would extend CRA's strict lending requirements to non-bank institutions like credit unions, insurance companies, and mortgage lenders. It would also make CRA more explicitly race-based by requiring CRA standards to be applied to minorities, regardless of income, going beyond earlier requirements that applied solely to low- and moderate-income areas.

Anonymous said...

One aspect that I don't see discussed in plain terms is the number of folks that milked their equity with EZLoans and the like.

I worked in City Austin public job up until 2005 and for years every day someone told a story of how they were paying off their credit cards, buying a new car, funding their kids toys by bleeding their rising home "equity",.... prebled the meltdown so to speak, ole Peter to pay Paul scenario and these were long-term public workers many of them. It was happening everywhere all the time.

I would be willing to bet statistics on foreclosures and upside down equity dillemas would be highlighted in a large way by the personal actions of folks invited into the "privilege of owning a home" and then proceeded to act like they always did....something for nothing, where's mine, I'm tired of waiting, my time has come, and I don't care how I get it.

Also, as one coworker told me, when one has to tear from anothers hand what they feel is rightfully theirs and has been denied, they aren't inclined to be grateful when they finally get it.....

Anonymous said...

Somehow after WWII the western elites went insane. They adopted the "everyone is equal" ethic which turned into "equality of outcome".

Nothing else matters to them, except pushing this line. Not the truth, or the injustice that is done to others in pursuit of it, or even national destruction.

Who knew that western elites were so vulnerable to this mental virus ? What kind of God (or Darwin) would make beings who are so vulnerable to a self-destructive cultural virus ? Who would do this ? Increasingly, I think maybe the world is some kind of an arena for entertainment for Satanic type beings. Something like the old Outer Limits episode of "Fun and Games".

David said...

> Who knew that western elites were so vulnerable to this mental virus ? <

KMac has some good stuff on the white self-destruct mechanism: "altruistic punishment" and how it is activated.

I would provide a link, but my workplace blocks everything KMac.

Whiskey said...

There is nothing mysterious about this. The sort of romanticism of no standards dates back to Mary Wollstonecroft advocating free love and no marriage -- in the 1780's.

Elites ALWAYS have an enemy: the people from whence they sprang, and ALWAYS seek to destroy them so they are not in turn, usurped. This is the natural position of ever aristocracy ever created.

Since WWII, with the destruction of many elites, and the mass mobilization of all those people, particularly GIs, and what they extracted: the GI Bill, etc. the elites have been searching for groups to use against the people the way the Ottomans used the Greeks, the various Levantine Christians, Jews, and Armenians (along with a contingent of Slavs) against the mass of Turks in Anatolia.

Pretty straightforward, and part of the larger struggle between the populists given more power by technology (industrialization, mass communications, greater wealth) and elites getting even more wealthy by comparison and (absolutes to their own elite predecessors).

goyomarquez said...

Well I think my problem with your analysis Steve is that you seem determined to make the minorities the bad guys in this drama, when it seems pretty clear they were doing what was in their economic best interest. It wasn't their job to protect Steve Sailer's retirement fund that's Steve's job.

If zero down loans were available for which they were counted qualified for whatever reason why shouldn't they take the chance at buying a home? It wasn't illegal. I'm not talking about the borrowers who committed fraud or provided fraudulent documents or information.

Why were those bad loans made available? Well I think there are several reasons not least of which being that there was a lot of money to be made at the first levels of this pyramid scheme. But that is irrelevant to the behavior of poor minorities who were trying to buy a home.

Why was it wrong for these poor minorities to take the chance even if in retrospect the odds of them paying off the loan were slim? Why shouldn't they have taken that chance if the government, banks and mortgage insurers were willing to give it to them?

Your anger seems to be somewhat misdirected. And you're not the only one engaging in this type of convenient thinking where the wish seems to father to the thought. Many others are also trying to pin this economic meltdown on the same people they were attacking before the meltdown. How convenient.

Greg Marquez

Anonymous said...

you seem determined to make the minorities the bad guys in this drama, when it seems pretty clear they were doing what was in their economic best interest.

They were, and are, doing what is in their economic best interest. The problem is that their best interests are at odds with the best interests of the country as a whole.

Dr Doc dlcs said...

do you not think the banker studied hard and worked hard to get where he is? Education is the key to bettering ourselves. You sound angry and childish. You scare me.

Anonymous said...

Miles here folks:

Simply put, if we do not put safeguards in place that assure us that 'bad credit loans' are no longer able to be "bundled" with good loans in mortgage-backed securities, then not many investors are going to be interested in mortgage-backed securities.

If the banks want to make 20% of their loans "high-risk", thats up to them, but they asked all of us to foot the bill by sneaking these loans into bundles of good loans. When the high-risk loans started defaulting during the bubble, then we all took a hit in our 401K's because most of us hold some of this paper in our portfolios whether we know it or not. Even if we dont, that much of the market tanking ends up effecting the whole economy.

If the banks want to do charity loans (pressured by the Gale Cincotta's of the world), the rest of us shouldn't have to pay for it. What pisses me off is that the Gale Cincottas should start their own damned banks if they feel certain groups are "underserved" in recieving loans, not forcing those who rightly see them as lousy credit risks to lend to them anyway.

David said...

> you seem determined to make the minorities the bad guys in this drama <

Nobody is blaming minorities. Steve (I believe) is blaming those who pander to them.

Pandering to minorities is the big problem. Not the minorities.

It is necessary to repeat this ad infinitum, because newbies naturally have difficulty wrapping their heads around the concept.

Pandering. Not minorities.

Not minorities, but the pandering to them.

Pandering to minorities is the big villain. Not the minorities.

Acquiesence to the plea: "Do it for the oppressed minorities - to heck with rational standards" is the recipe for destruction.

It may be too fine a point. In the world of Who/Whom, those who don't want to give the store away on account of the minorities "must" be anti-minority.

Simon said...

"There is simply no conceptual vocabulary in contemporary America to discuss the idea that NAMs should be lent less money"

How about "We must avoid reverse redlining and predatory lending"?

Anonymous said...

Somehow after WWII the western elites went insane. They adopted the "everyone is equal" ethic which turned into "equality of outcome".

The elites are all nihilists.

The "equality of outcome" that they desire is Death and extinction.

Anonymous said...