The right-wing blames Fannie Mae and Freddie Mac for the subprime mortgage crises. The truth is that the big losses were generated by banks, Wall Street, and unregulated mortgage originators. Ethical subprime lenders, i.e. social lenders who are careful to whom they loan and who provide counseling and other assistance, outperform conventional lenders – in good times and bad. Anyone interested in some profitable ethical investing – contact me.
FDIC’s Bair Sets to Shatter CRA “Myth” – Housing Wire via The Big Picture - Kelly Curran – 5 December 08
“I want to give you my verdict on CRA: NOT guilty,” said FDIC Chairman Sheila Bair, according to a press release by the Federal Deposit Insurance Corporation. Before the Consumer Federation of America, Bair said Thursday she wanted to clear up the “myth” that the Community Reinvestment Act caused the financial crisis – and she set out to do so with vigor…
“Point in fact,” she said, “only one in four higher-priced first mortgage loans were made by CRA-covered banks during the hey-day years of subprime mortgage lending. The rest were made by private independent mortgage companies and large bank affiliates not covered by CRA rules.”
And “Let me ask you,” she proceeded. “Where in the CRA does it say to make loans to people who can’t afford to repay? Nowhere.”…
The Subprime Good Guys - Slate via Economist’s View – Daniel Gross – 15 November 08
In recent months, conservative economists and editorialists have tried to pin the blame for the international financial mess on subprime lending and subprime borrowers. If bureaucrats and social activists hadn’t pressured firms to lend to the working poor, the story goes, we’d still be partying like it was 2005 and Bear Stearns would be a going concern. The Wall Street Journal’s editorial page has repeatedly heaped blame on the Community Reinvestment Act, the 1977 law aimed at preventing redlining in minority neighborhoods. Fox Business Network anchor Neil Cavuto in September proclaimed that “loaning to minorities and risky folks is a disaster.”
This line of reasoning is absurd for several reasons. Many of the biggest subprime lenders weren’t banks and thus weren’t covered by the CRA. Nobody forced Bear Stearns to borrow $33 for every $1 of assets it had, and Fannie Mae and Freddie Mac didn’t coerce highly compensated CEOs into rolling out no-money-down, exploding adjustable-rate mortgages. Banks will lose just as much money lending to really rich white guys like former Lehman Bros. CEO Richard Fuld as they will lending to poor people of color in the South Bronx…
But the best refutation may come from Douglas Bystry, president and CEO of Clearinghouse CDFI (community-development financial institution). Since 2003, this for-profit firm based in Orange County-home to busted subprime behemoths such as Ameriquest-has issued $220 million worth of mortgages in the Golden State’s subprime killing fields. More than 90 percent of its home loans have gone to first-time buyers, about half of whom are minorities. Out of 770 single-family loans it has made, how many foreclosures have there been? “As far as we know,” says Bystry, “seven.” Last year Clearinghouse reported a $1.4 million pretax profit…
Cliff Rosenthal, CEO of the National Federation of Community Development Credit Unions, notes that for his organization’s 200 members, which serve predominantly low-income communities, “delinquent loans are about 3.1 percent of assets.” In the second quarter, by contrast, the national delinquency rate on subprime loans was 18.7 percent…
What sets the “good” subprime lenders apart is that they never bought into all the perverse incentives and “innovations” of the bad subprime lending system-the fees paid to mortgage brokers, the fancy offices, and the reliance on securitization. Like a bunch of present-day George Baileys, ethical subprime lenders evaluate applications carefully, don’t pay brokers big fees to rope customers into high-interest loans, and mostly hold onto the loans they make rather than reselling them. They focus less on quantity than on quality…
Of the 500 loans on Homewise’s books in September, only 0.6 percent were 90 days late. That compares with 2.35 percent of all prime mortgages nationwide…
And with plenty of lenders having failed or pulled back from markets, new customers are flocking to their doors. “We’re getting demand for regular co-op loans for the first time,” says Levy of the Lower East Side Credit Union. In California, the news on housing may be unrelentingly grim, but through the third quarter, Clearinghouse CDFI made 161 loans for $48.4 million, up about 50 percent from the total in the first three quarters of 2007. Doug Bystry says, “This may be a record year for us.”
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Illegal residents, diligent owners – LA Times via Credit Slips – Anna Gorman – 06 October 08
Undocumented immigrants who own homes have a lower rate of delinquencies than U.S. citizens, according to various real estate sources…
Home loans held by illegal immigrants in California and across the nation generally have had fewer delinquencies than similar loans held by U.S. citizens, in part because of stricter lending requirements, according to banks, insurers and Realtors…
The real estate association does not keep statistics on foreclosure rates. But it has reported that the delinquency rates for taxpayer identification loans were 1.15% or lower in 2006, compared with about 3.5% for other home loans…
Many of the mortgages nationwide came out of a partnership between Citibank and Acorn Housing, a nonprofit group that helps the poor. Citibank said the taxpayer identification loans have some of the lowest delinquency rates among all affordable-lending programs…
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