The housing crisis that tanked the economy at the end of the Bush Administration was created by Congress. Congress wrote the rules in a way that almost forced banks to make risky loans. That led to an over-expansion of the housing market and that, combined with a large number of defaults, caused the housing bubble to pop. That’s when the derivatives helped spread the problem world wide, but of course, if Congress hadn’t engineered the disaster in the first place so they could run campaign commercials bragging about how many Americans had homes, there would have been no problem to spread.
Barack Obama, being Barack Obama — which means he has learned nothing and forgotten nothing — is repeating the exact same mistakes that caused the housing market to implode in the first place.
Added Allison, who now heads the Cato Institute: “The default rates on these low-income loans are extraordinarily high.”
Still, the Obama administration wants banks to step up approval of such low-income mortgages. And it’s using the CRA to spur more lending, including:
• Forcing banks through threat of prosecution to expand their CRA assessment areas to include inner-city areas blighted by subprime foreclosures, where they are compelled to invest in new brick and mortar.
Many banks, in fact, are under direct federal orders to open new branches or ATMs in high-risk and unprofitable areas of Detroit, St. Louis and other cities hit hardest by the recession.
“If your assessment area looks like something you can eat — a bagel or is crescent shaped — that should be a red flag for your bank,” senior Department of Justice official Tom Perez warned bankers serving areas mainly outside the inner city.
“DOJ wants banks to have a physical presence in the inner city,” Washington-based Buckley Sandler LLP recently told clients, adding that “banks should carefully monitor loan data to determine whether an appropriate volume of loan originations emanate from minority areas.”
• Ordering bank defendants accused of lending bias to underwrite riskier CRA loans at discounted rates.
For instance, Justice has ordered First United Security Bank of Alabama to “ensure that residential and CRA small business loan products are made available and marketed in majority African-American census tracts,” while offered on terms “more advantageous to the applicant” than normal.
…Using the threat of CRA “noncompliance” and denial of expansion plans to pressure bank defendants into settling “fair lending” cases, while scaring other banks into lending in low-income minority areas where the banks aren’t located.
“Regulators have now said that banks will not be permitted to proceed with any expansion if they are the target of these pending DOJ actions,” complained Independent Community Bankers of America President Camden Fine in a 2011 letter to Attorney General Eric Holder.
• Pressuring banks to fund HUD’s new $7 billion Neighborhood Stabilization Program to earn CRA credits under a new “community development” test.
This is mind-numbingly stupid and terrible for the country, but short term, it may help Barack Obama for the same reasons the policy was pushed in the first place. “Oooh, look there’s more demand for homes! Wow, more people are buying homes!”
Yet, it’ll probably take awhile for the whole house of cards to collapse; so by the time it causes another economic meltdown, Obama will be out of office. It’s the ultimate in cynicism and no responsible person who cares about his country would support this policy after seeing what the last mortgage crisis did to the country. But, it isn’t about what’s good for the country with liberals like Obama. Never has been, never will be.