Regulators: Wall Street reform at risk

Good! Cut the S out of it, and all the rest of those horrible nanny-state BS agencies

Let Wall Street and banksters "police" themselves. It so well in the past, for THEM.

To dems are the regulators: elections have consequences, deal with it.

Everything I've read misses the point, including the documentary "Inside Job."

The problem is the erosion of the mortgage downpayment. Congress should require a minimum downpayment of 20% on all mortgages, and give the Board of Governors of the Fed the authority to raise that percentage at any time. If borrowers have to put up that much cash to buy, they will bid carefully and only sober and responsible people will qualify for mortgages. The lower default rates will mean that mortgage rates will go down.

While Fannie and Freddie could not buy subprime mortgages, by definition, their terms of reference were silent about their ability to buy privately issued mortgage backed securities, backed by subprime mortgages.

On the eve of the crisis, Fannie and Freddie held nearly a half trillion of "corporate bonds," namely MBS issued by Wall Street and backed mostly by subprime and Alt-A mortgages. This was more than 20% of all privately issued MBS in existence.

The financial crisis of 2008 was caused by a belief that the US govt. backstopped the American mortgage industry, because homeownership was up there with motherhood. The result was the Promised Land of High Finance: the privatisation of gains, and the socialisation of losses. The seizure of Fannie and Freddie, and the failure of Lehman Brothers, was like an expulsion from this Garden of Eden.

seymour wrote:

Everything I've read misses the point, including the documentary "Inside Job."
The problem is the erosion of the mortgage downpayment. Congress should require a minimum downpayment of 20% on all mortgages, and give the Board of Governors of the Fed the authority to raise that percentage at any time. If borrowers have to put up that much cash to buy, they will bid carefully and only sober and responsible people will qualify for mortgages. The lower default rates will mean that mortgage rates will go down.
While Fannie and Freddie could not buy subprime mortgages, by definition, their terms of reference were silent about their ability to buy privately issued mortgage backed securities, backed by subprime mortgages.
On the eve of the crisis, Fannie and Freddie held nearly a half trillion of "corporate bonds," namely MBS issued by Wall Street and backed mostly by subprime and Alt-A mortgages. This was more than 20% of all privately issued MBS in existence.
The financial crisis of 2008 was caused by a belief that the US govt. backstopped the American mortgage industry, because homeownership was up there with motherhood. The result was the Promised Land of High Finance: the privatisation of gains, and the socialisation of losses. The seizure of Fannie and Freddie, and the failure of Lehman Brothers, was like an expulsion from this Garden of Eden.

Congress should require 20% down? No, that should be left up to the individual bank making the loan. 20 years ago and before no bank would give anyone a loan without at least 20% down,except ironically people who actually didn't need a loan to buy a home. The banks did their job by checking income, how long you have been with your current employer, previous employer, how long have been renting from your current landlord, late payments, clearing all past debts, etc. Similar to a prostate exam for your finances.Back then THEY were on the hook for loaning you money. BTW, How is everything going in Christchurch? A terrible event.

Banks were given the freedom to set downpayments and interest rates, and what happened? In 2006, 40% of mortgages awarded in the USA in 2006 featured no money down. The median downpayment was 2%. Large numbers of the mortgages awarded in that year are in foreclosure, or will be by the end of 2012. The resulting impairment of bank capital has required a huge injection of public fund into the banking system.

If mortgage bankers had done their job properly, the crisis of 2008 would never have happened. By definition, a mortgage banker is NOT on the hook for the money he lends out.

I have the enormous good fortune of living in a part of ChCh which was very little affected by either earthquake. But much of this city will have te be razed and rebuilt.

seymour wrote:

Banks were given the freedom to set downpayments and interest rates, and what happened? In 2006, 40% of mortgages awarded in the USA in 2006 featured no money down. The median downpayment was 2%. Large numbers of the mortgages awarded in that year are in foreclosure, or will be by the end of 2012. The resulting impairment of bank capital has required a huge injection of public fund into the banking system.
If mortgage bankers had done their job properly, the crisis of 2008 would never have happened. By definition, a mortgage banker is NOT on the hook for the money he lends out.
I have the enormous good fortune of living in a part of ChCh which was very little affected by either earthquake. But much of this city will have te be razed and rebuilt.

In 1993 and 1996 I purchace a home, both with zero down and both paid off, so why should I have paid 20% down?? this was more a problem with govermental regulation with the CRA (community reinvestment act) where community organizers like obama threatening banks with lawsuits if they didn't loan to those who couldn't pay their loan back.

chief22 wrote:

<quoted text>
In 1993 and 1996 I purchace a home, both with zero down and both paid off, so why should I have paid 20% down?? this was more a problem with govermental regulation with the CRA (community reinvestment act) where community organizers like obama threatening banks with lawsuits if they didn't loan to those who couldn't pay their loan back.

The CRA has been around since the 70's, if what you say is true, there would have been thousands of lawsuits filed since then. No one can "force" a bank to loan money to someone who doesn't meet their standards for a loan. The CRA is still around, how come they aren't being "forced" or "threatened" to make loans NOW? It sure would help.

seymour wrote:

Banks were given the freedom to set downpayments and interest rates, and what happened? In 2006, 40% of mortgages awarded in the USA in 2006 featured no money down. The median downpayment was 2%. Large numbers of the mortgages awarded in that year are in foreclosure, or will be by the end of 2012. The resulting impairment of bank capital has required a huge injection of public fund into the banking system.
If mortgage bankers had done their job properly, the crisis of 2008 would never have happened. By definition, a mortgage banker is NOT on the hook for the money he lends out.
I have the enormous good fortune of living in a part of ChCh which was very little affected by either earthquake. But much of this city will have te be razed and rebuilt.

Correct. That was the core of the problem. The banks knew they weren't liable. I would love to gamble in Las Vegas, if I knew I someone else would pay the "house" when I lost. Enormous good fortune is an understatement.

Crying Orange Man wrote:

<quoted text> The CRA has been around since the 70's, if what you say is true, there would have been thousands of lawsuits filed since then. No one can "force" a bank to loan money to someone who doesn't meet their standards for a loan. The CRA is still around, how come they aren't being "forced" or "threatened" to make loans NOW? It sure would help.

and there have been numerous threats of suits. This problem came to light after the collapse, evil detests the light, those community organizations have cowared back under thier rocks.

chief22 wrote:

<quoted text>
and there have been numerous threats of suits. This problem came to light after the collapse, evil detests the light, those community organizations have cowared back under thier rocks.

Of course they did. Can you find one case, I couldn't. The one I found was filed in Houston.
Buycks-Roberson v. Citibank Fed. Sav. Bank Fair Housing/Lending/Insurance
Docket / Court 94 C 4094 ( N.D. Ill.) FH-IL-0011
State/Territory Illinois
Case Summary
Plaintiffs filed their class action lawsuit on July 6, 1994, alleging that Citibank had engaged in redlining practices in the Chicago metropolitan area in violation of the Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691; the Fair Housing Act, 42 U.S.C. 3601-3619; the Thirteenth Amendment to the U.S. Constitution; and 42 U.S.C. 1981, 1982. Plaintiffs alleged that the Defendant-bank rejected loan applications of minority applicants while approving loan applications filed by white applicants with SIMILAR financial characteristics and credit histories. Plaintiffs sought injunctive relief, actual damages, and punitive damages. That was way before the crisis and it had to do with race not income.

Crying Orange Man wrote:

<quoted text> Of course they did. Can you find one case, I couldn't. The one I found was filed in Houston.
Buycks-Roberson v. Citibank Fed. Sav. Bank Fair Housing/Lending/Insurance
Docket / Court 94 C 4094 ( N.D. Ill.) FH-IL-0011
State/Territory Illinois
Case Summary
Plaintiffs filed their class action lawsuit on July 6, 1994, alleging that Citibank had engaged in redlining practices in the Chicago metropolitan area in violation of the Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691; the Fair Housing Act, 42 U.S.C. 3601-3619; the Thirteenth Amendment to the U.S. Constitution; and 42 U.S.C. 1981, 1982. Plaintiffs alleged that the Defendant-bank rejected loan applications of minority applicants while approving loan applications filed by white applicants with SIMILAR financial characteristics and credit histories. Plaintiffs sought injunctive relief, actual damages, and punitive damages. That was way before the crisis and it had to do with race not income.

Threats of lawsuits don't make it to public record, however loans made to people who can't affort them tend to make it into the forclosure records, I also recall a news story where one of these community organizers actually had the nerve to go onto national TV and tell us that her organization picked, threatened banks ot give loans to people who couldn't afford it, that was about 7 or 8 months ago, so I have forgotten much of the details, not to mention they had freddy and fanny to pass that bad paper to.

chief22 wrote:

<quoted text>
Threats of lawsuits don't make it to public record, however loans made to people who can't affort them tend to make it into the forclosure records, I also recall a news story where one of these community organizers actually had the nerve to go onto national TV and tell us that her organization picked, threatened banks ot give loans to people who couldn't afford it, that was about 7 or 8 months ago, so I have forgotten much of the details, not to mention they had freddy and fanny to pass that bad paper to.

If banks made loans on threats we would all be millionaires. If you work at McDonalds and are making $9.00 hr, the bank is not going to loan you $200.000 on a "threat". Not if they know they are on the hook for it and cannot resell it or pass it on to some government agency.

Crying Orange Man wrote:

<quoted text> If banks made loans on threats we would all be millionaires. If you work at McDonalds and are making $9.00 hr, the bank is not going to loan you $200.000 on a "threat". Not if they know they are on the hook for it and cannot resell it or pass it on to some government agency.

No, but $10.50/hr working as an electrician wanting a 160K loan would be aceptable under threat of boycots, pickets, blockages to expansion. especially when that bank can sell that morgage to fanny.

chief22 wrote:

<quoted text>
No, but $10.50/hr working as an electrician wanting a 160K loan would be aceptable under threat of boycots, pickets, blockages to expansion. especially when that bank can sell that morgage to fanny.

Threats are acceptable to a bank? Where do you bank?

Crying Orange Man wrote:

<quoted text> Threats are acceptable to a bank? Where do you bank?

seems to have been enough to get banks to make bad loans.

chief22 wrote:

<quoted text>
In 1993 and 1996 I purchace a home, both with zero down and both paid off, so why should I have paid 20% down?? this was more a problem with govermental regulation with the CRA (community reinvestment act) where community organizers like obama threatening banks with lawsuits if they didn't loan to those who couldn't pay their loan back.

I am no friend of the CRA, but don't know much about how it worked in practice. Here as elsewhere, the devil's in the details.

Would you have paid off those mortgages if house prices had fallen 20% or if you had been laid off for 2 years? That's the $64 question.

Not every mortgage borrower is as virtuous as you are.

It is very well established that the smaller the downpayment, the higher more frequent the eventual foreclosure. So the standard way to make foreclosure uncommon is to require a substantial downpayment.

The downpayment is like a hostage. It is money that is at risk if you choose to walk away from your mortgage. Millions of Americans in recent years have chosen to walk away from their mortgages and this is a huge headache for the mortgage industry.

Crying Orange Man wrote:

<quoted text> If banks made loans on threats we would all be millionaires. If you work at McDonalds and are making $9.00 hr, the bank is not going to loan you $200.000 on a "threat". Not if they know they are on the hook for it and cannot resell it or pass it on to some government agency.

The CRA gave the Feds the right to look over a bank's loan book and conclude that not enough loans had been made to people of color. The Feds then had a right to issue a press release to that effect and/or to threaten to take the bank to court. Banks knew this and made loans to people of color simply as "insurance" against CRA liability.

I do not believe that loans made to avoid CRA liability are front rank villains in the meltdown of the USA mortgage industry. But it may have had a bit part.

My suspicion is that before 2002, the one to blame for loans made to people who had no business taking out a substantial mortgage, was the FHA and not Fannie or Freddie.

Poeple who own their houses or who are struggling to pay off a mortgage, seldom deal drugs or commit an act of violence. That common sense fact led Congress and the President to conclude that pumping up homeownership by any means would reduce the American underclass. This was idiotically naive. USA politicians interpreted a correlation as a causation.

Alicia Munnell, an economist at the Boston Fed, led a big study nearly 20 years ago, claiming that there was smoking gun evidence of racial discrimination in mortgage awards in New England. Her conclusion was wrong because her data were garbage. But the American Economic Review would not publish an article explaining how Munnell was led astray. That article was eventually published in an American journal the right thinking sorts feel free to ignore. Competent economists agree that Munnell was mistaken, because elected officials don't.

Crying Orange Man wrote:

<quoted text> Of course they did. Can you find one case, I couldn't. The one I found was filed in Houston.
Buycks-Roberson v. Citibank Fed. Sav. Bank Fair Housing/Lending/Insurance
Docket / Court 94 C 4094 ( N.D. Ill.) FH-IL-0011
State/Territory Illinois
Case Summary
Plaintiffs filed their class action lawsuit on July 6, 1994, alleging that Citibank had engaged in redlining practices in the Chicago metropolitan area in violation of the Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691; the Fair Housing Act, 42 U.S.C. 3601-3619; the Thirteenth Amendment to the U.S. Constitution; and 42 U.S.C. 1981, 1982. Plaintiffs alleged that the Defendant-bank rejected loan applications of minority applicants while approving loan applications filed by white applicants with SIMILAR financial characteristics and credit histories. Plaintiffs sought injunctive relief, actual damages, and punitive damages. That was way before the crisis and it had to do with race not income.

The problem seldom led to a lawsuit being filed. Federal regulators, or the Justice Department, would quietly exchange letters with bank executives, and have a meeting or two. That's all that's need to have a chilling effect. The threats were seldom explicit. When you look like Hulk Hogan, you can be very effective even while speaking very softly and being deferential and polite.