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Housing Collapse Continues

Posted 25 Aug 2010 at 22:39 PM by spanner

Why the Housing Market Is Plummeting So Rapidly

August 24, 2010

WASHINGTON, DC – The sales of existing homes dropped 27.2 percent in July, accelerating the recent decline in the already frail housing market. This brings the number of existing houses sold to an annual rate of only 3.83 million units, the lowest figure since 1999. The number of single-family home sales hit its lowest level since 1995. Some economists even fear that this signals the end of housing as an investment. How bad is this and what does it mean?
  • Market Fears Double Dip Housing Recession The Los Angeles Times' Alejandro Lazo reports, "The big drop, which was worse than what many analysts had expected, sent stock markets tumbling Tuesday morning as investors feared a double dip in housing. The blue-chip Dow Jones industrial average fell more than 1%, as did the S&P 500, a broader measure of stocks. ... The July plunge was the third consecutive monthly decline following the April 30 expiration of the tax credit, which offered up to $8,000 for certain buyers."
  • Ballooning Supply Worsens Problem The Atlantic's Daniel Indiviglio explains, "This is the second highest inventory in a year. The number of months it would take to sell the current supply of homes also swelled in July to 12.5, which was a huge jump compared to June's rate of 8.9. It's also nearly double November's rate of 6.5. Given the low rate of sales this summer and consistently high foreclosure rate, inventory will likely continue to grow. This is a really, really bad report. The awfulness of July's sales were a little exaggerated due to all of the demand having been pulled forward form the buyer credit. But it's unclear how many months of demand were captured early by the credit, so it's hard to know when its effect will wear off."
New York Post Article THE seeds of today’s financial meltdown lie in the Community Reinvestment Act – a law passed in 1977 and made riskier by unwise amendments and regulatory rulings in later decades. CRA was meant to encourage banks to make loans to high-risk borrowers, often minorities living in unstable neighborhoods. That has provided an opening to radical groups like ACORN (the Association of Community Organizations for Reform Now) to abuse the law by forcing banks to make hundreds of millions of dollars in “subprime” loans to often uncreditworthy poor and minority customers. Any bank that wants to expand or merge with another has to show it has complied with CRA – and approval can be held up by complaints filed by groups like ACORN. In fact, intimidation tactics, public charges of racism and threats to use CRA to block business expansion have enabled ACORN to extract hundreds of millions of dollars in loans and contributions from America’s financial institutions . The Woods Fund report makes it clear Obama was fully aware of the intimidation tactics used by ACORN’s Madeline Talbott in her pioneering efforts to force banks to suspend their usual credit standards. Yet he supported Talbott in every conceivable way. He trained her personal staff and other aspiring ACORN leaders, he consulted with her extensively, and he arranged a major boost in foundation funding for her efforts. And, as the leader of another charity, the Chicago Annenberg Challenge, Obama channeled more funding Talbott’s way – ostensibly for education projects but surely supportive of ACORN’s overall efforts.


CNS News Analysis Under the Clinton administration, federal regulators began using the act to combat “red-lining,” a practice by which banks loaned money to some communities but not to others, based on economic status. “No loan is exempt, no bank is immune,” warned then-Attorney General Janet Reno. “For those who thumb their nose at us, I promise vigorous enforcement.” The Clinton-Reno threat of “vigorous enforcement” pushed banks to make the now infamous loans that many blame for the current meltdown, Richman said. “Banks, in order to not get in trouble with the regulators, had to make loans to people who shouldn’t have been getting mortgage loans.” This threat combined with the government backing of Fannie and Freddie set the stage for the current uncertainty, because the “banks could just sell the loans off to Fannie or Freddie,” who could buy them with little regard for negative financial outcomes, Richman said.

Community Reinvestment Act



* The Community Reinvestment Act (CRA), enacted by Congress in 1977 (12 U.S.C. 2901) and implemented by Regulations 12 CFR parts 25, 228, 345, and 563e, is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate. In this section of the web site, you can find out more about the regulation and its interpretation and information on CRA examinations.

* The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is aUnited States federal law that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as "redlining." The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses. It has been subjected to important regulatory revisions.

* Clinton Administration Changes of 1995. In 1995, as a result of interest from PresidentBill Clinton's administration, the implementing regulations for the CRA were strengthened by focusing the financial regulators' attention on institutions' performance in helping to meet community credit needs. These revisions[1] with an effective starting date ofJanuary 31, 1995 were credited with substantially increasing the number and aggregate amount of loans to small businesses and to low- and moderate-income borrowers for home loans. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for seven years. Thus in 2002, the regulators opened up the regulation for review and potential revision.[citation needed] Part of the increase in home loans was due to increased efficiency and the genesis of lenders, like Countrywide, that do not mitigate loan risk with savings deposits as do traditional banks using the new subprime authorization. This is known as the secondary market for mortgage loans. The revisions allowed the securitization of CRA loans containing subprime mortgages. The first public securitization of CRA loans started in 1997 by Bear Stearns. [2] The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent.

* George W. Bush Administration Proposed Changes of 2003 In 2003, the Bush Administration recommended what the NY Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago." This change was to move governmental supervision of two of the primary agents guaranteeing subprime loans, Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. However, it did not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enabled them to issue debt at significantly lower rates than their competitors. The changes were generally opposed along Party lines and eventually failed to happen.

* The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations. It was enacted by the Congress in 1977 (12 U.S.C. 2901) and is implemented by Regulation BB (12 CFR 22. The regulation was substantially revised in May 1995, and was most recently amended in August 2005. Evaluation of CRA Performance
The CRA requires that each depository institution's record in helping meet the credit needs of its entire community be evaluated periodically. That record is taken into account in considering an institution's application for deposit facilities. Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institution's individual circumstances. Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institution's CRA activities should be undertaken in a safe and sound manner. CRA examinations are conducted by the federal agencies that are responsible for supervising depository institutions. Information on this page is related to depository institutions that are examined by the Federal Reserve, mainly state-chartered banks that are members of the Federal Reserve. CRA information on other depository institutions is available from the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS). Interagency information about the CRA is available from the Federal Financial Institutions Examination Council (FFIEC).
Background

The Community Reinvestment Act (CRA) and the nation’s fair lending laws have leveraged a tremendous increase in affordable home lending for minority and low- and moderate-income communities. Our nation, however, has now reached a crossroads. After a dramatic surge earlier in the decade, increases in lending for underserved neighborhoods slowed down in the late 1990’s. At the same time, predatory lending threatens the progress in reinvestment by dispossessing homeowners of their wealth through foreclosures. CRA and the nation’s fair lending laws must be strengthened in order to enhance progress in revitalizing formerly redlined communities. Tougher enforcement of CRA and the fair lending laws, coupled with higher levels of public participation in the CRA process, has resulted in increases in lending above and beyond what the economic boom in the 1990’s by itself would have produced. In 1990, low- and moderate income borrowers received only 19 percent of all home mortgage loans made in this country. By 1999, their share had surged to 31 percent. From 1993 to 1999, low- and moderate-income borrowers enjoyed an 86 percent increase in the number of home purchase loans they received, while upper-income borrowers only received 51 percent more loans. The economic expansion alone cannot account for all of the increase in lending to underserved populations since lending increased faster for this segment of the population than for the overall population. Factors related to CRA and fair lending laws play an important part of the story. Starting with the former Bush Administration, the Department of Justice has settled lawsuits with more than a dozen lending institutions over violations of the CRA, the Fair Housing Act, the Equal Credit Opportunity Act, and other fair lending and consumer protection laws. These settlements required the lending institutions to make millions of dollars in loans to compensate victims of discrimination and to implement new policies and programs to reach minority and lower income neighborhoods that had been redlined. Increased enforcement sent a strong reminder to the financial industry that they have an obligation to lend in a non-discriminatory manner to all the communities in which they are chartered and from which they take deposits. The Clinton Administration implemented reforms in CRA that enhanced the rigor of CRA exams by emphasizing results (measuring actual lending) and discarding process-oriented exams (e.g., looking at minutes of bank board meetings to see if board members were involved in bank CRA exam programs). Policymakers also enhanced the information disclosed under the Home Mortgage Disclosure Act (HMDA) and CRA to provide the general public and regulatory agencies with more detail on home and small business lending in underserved neighborhoods. Improved data disclosure led to enhanced accountability on the part of lending institutions, which, in turn, led to increases in lending to underserved neighborhoods. The CRA reforms empowered communities to become active in the CRA process. The National Community Reinvestment Coalition (NCRC) calculates that community organizations have negotiated about 370 CRA agreements with lending institutions that total more than $1 trillion dollars. CRA agreements are promises to make a specified number of loans and investments for low- and moderate-income communities over a certain number of years. By the late 1990’s, however, the dramatic spike in lending to underserved communities had slowed. The low- and moderate-income share of home mortgage loans increased 8 percentage points from 19 percent of all loans in 1990 to 27 percent in 1995. However, the loan share of these income groups increased only 4 percentage points from 27 percent of all loans in 1995 to 31 percent in 1999. Ironically, while some observers credit subprime lending with a surge in low- and moderate-income homeownership, the greatest gains in affordable homeownership opportunities occurred in the first half of the decade before the surge in subprime lending. When passing the Gramm-Leach-Bliley Act of 1999, Congress "modernized" the financial industry by eliminating most of the remaining limitations on cross-industry mergers of banks, insurance companies and securities * firms. The statute will intensify lending activity by nontraditional lenders such as insurance agents that will be making home loans on behalf of newly affiliated depository institutions. Most of the non-traditional lending activity will remain outside of the purview of CRA since the Gramm-Leach-Bliley Act does not apply CRA to the new lenders. Additionally, provisions were added to the Gramm-Leach-Bliley Act that weaken existing CRA law and practice. Under the statute, small banks (under $250 million in assets) will undergo CRA exams once every four or five years instead of every two or three years. Residents of smaller towns and rural areas depend on small banks, which number more than 8,200 or 80 percent of the nation’s banks, for home loans and banking services. Reducing the frequency of CRA exams reduces the accountability of small banks for making loans in their community. The Gramm-Leach-Bliley Act also instituted the so-called CRA “sunshine” provision that mandates detailed disclosures of CRA agreements and other contracts concerning CRA made by community groups, banks, and other private sector entities. By imposing onerous reporting provisions, this provision may deter private sector contracts to make (and purchase) loans in lowand moderate-income communities. In a potential violation of the First Amendment, the sunshine disclosure requirements are triggered by certain CRA-related discussions among banks, community organizations, and federal banking agencies. Status The next administration must support H.R. 4893, the Community Reinvestment Modernization Act of 2000, that updates CRA to keep pace with the revolutionary changes in the financial industry. In addition, the next Administration must support provisions in H.R. 4893 that repeal the stretch-out of the small bank exams and the onerous sunshine disclosure requirements. In order to preserve the gains made possible by CRA, the next administration must also support anti-predatory lending legislation. Subprime loans are high interest rate loans to borrowers with blemished credit histories. A segment of the subprime lending industry is predatory, meaning that they make abusive loans that exploit borrowers and do not even consider the borrowers’ ability to repay. Featuring terms such as stiff prepayment penalties, single premium credit insurance, and high balloon payments, predatory loans can often lead to foreclosure and dispossession of families’ homes. Predatory lenders are out to take advantage of homeowners, heedless of the destabilizing effect on individual borrowers and neighborhoods. Representatives LaFalce and Schakowsky as well as Senators Schumer and Sarbanes have introduced anti-predatory legislation that limits fees and prohibits abusive terms and conditions. If the next Administration succeeds in convincing Congress to modernize CRA and pass anti-predatory legislation, our nation’s progress in revitalizing formerly redlined neighborhoods and expanding affordable housing opportunities will resume at a rapid pace. FDIC’s Community Affairs Program
In 1990, the FDIC established a Community Affairs Program that advances compliance with CRA and the fair lending laws by FDIC supervised institutions. The FDIC’s Division of Compliance and Consumer Affairs administers the program. Community Affairs Staff help to ensure equal access to credit, work with lenders and the public to revitalize communities and serve as intermediaries to further fair lending objectives.
How does the Community Reinvestment
Act and fair lending laws affect you?
• The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderateincome neighborhoods, consistent with safe and sound banking operations. It was enacted by Congress in 1977, subsequently revised in 1995, and is implemented by FDIC regulations. In addition, the following fair lending laws and regulations were designed to ensure access to credit by all sectors of communities, to prohibit discrimination in lending, and to promote fair lending practices.
• The Equal Credit Opportunity Act prohibits discrimination in any aspects of a consumer or commercial credit transaction based on color, religion, national origin, sex, marital status, age, receipt of income from any public assistance program, or the exercise, in good faith, of any right under the Consumer Credit Protection Act.
• The Fair Housing Act prohibits discrimination based on race or color, religion, national origin, sex, marital status, or handicap, in all aspects of residential real estate transactions, including, but not limited to: dwelling, purchase real estate loans, selling, brokering or appraising residential real estate; and selling or renting a dwelling.



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