RE: Re: RE: Re: [Pen-l] Community Reinvestment Act at fault -- NOT

["David B. Shemano" <dshemano@xxxxxxxxxx>]

Max Sawicky writes:

"Even if you grant that all the people who bought mortgages because of CRA, or just in general, were scoundrels,"

 

Your words, not mine.

 

"it seems to me that at bottom the crisis is not in the mortgages but in the pyramid of bets based on mortgages."

 

I confess I don't see a material distinction.  The "crisis" is that everybody, from Joe Six-Pack homebuyer, to investment banks on Wall Street, to banks in Iceland, acted as if a 2500 sq ft. house on a 6000 sq ft lot in Riverside California actually was worth $600,000, and now discover that the house is only worth $250,000.  Ooops.  Somebody is going to lose a lot of money and it is going to take us another year to do the accounting of the losses.  The transition to reality is our present crises.  Call it the mortgage, call it the bet on the mortgage, I don't see the difference.

 

"And attributing any blame to home buyers, no matter how misguided they were, is utterly beside the point, not to mention odious."

 

Again, you are so judgmental.  Why "blame" anybody?   Why shouldn't somebody sign a nonrecourse mortgage with no money down, which is exactly what the rules of the game encouraged?  It's risk free -- you either flip the house when it appreciates or you mail the keys to the lender if it doesn't.  At the same time, I am not sure why it would be "odious" to argue that somebody shouldn't have speculated, but that is not my argument.

 

David Shemano

 

 

 

 

----- Original Message -----
From: David B. Shemano
Sent: 10/08/08 05:40 pm
To: Progressive Economics
Subject: RE: Re: [Pen-l] Community Reinvestment Act at fault -- NOT

Raghu writes:

>> Excellent. So lets stop blaming the CRA then for subprime mortgages
>> then. At worst, the CRA was ineffective. At best, it helped reduce
>> discrimination in availability of credit for minorities.

You go too far. The CRA is an example of how the rules of the game were changed to expand homeownership to people who could not obtain loans under traditional standards (like the ability ot make a 20% downpayment, a solid credit history, sufficient income, etc.). So while I agree nobody forced anybody to make a subprime loan, there was certainly a lot of political and economic pressure to relax standards, as exemplified by the CRA. As the unfairly maligned Mr. Liebowitz points outs, companies like Countrywide that played the new game the best enjoyed the most applause.

>> A good case can be made that predatory lending practices were
>> borderline coercive.
>> http://www.hud.gov/offices/hsg/sfh/pred/predlend.cfm
>>
>> In general, poor people are easier to coerce and intimidate than rich people.

I would point out the irony of arguing that poor peope don't have the capacity to understand the mortgage process, but believing the exact same people are fully capable of owning a home and performing all of the responsibilities that entails.

David Shemano

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