' LONDON (Reuters) - The Bank of England sought to put the brakes on Britain's surging housing market on Thursday by announcing a cap on home loans and tougher checks on whether borrowers can repay their mortgages.The Bank's Financial Policy Committee said that from October, it would only allow 15 percent of new mortgages to be at multiples higher than 4.5 times a borrowers' income.'
'In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
...
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.'
''twas Wall Street greed what done it, some folks say, when it comes to explaining the spectacular housing meltdown of recent years, which had its roots in a great many astonishingly risky loans.Do read the whole article at the above link but also remember that I've covered this before:
Other folks suggest that the federal government just may have played something of a role in inducing, even strong-arming, banks to take risks they otherwise would have avoided. Specifically, the Community Reinvestment Act and related policy pressures are pointed to as culprits, part of a government effort to extend home-ownership in lower-income neighborhoods. Now comes a new study from the National Bureau of Economic Research that says, quite bluntly. that the CRA played a major role. In the academic world, mealy-mouthed delivery of even powerful conclusions is the norm, so it's refreshing to see authors Sumit Agarwal, Efraim Benmelech, Nittai Bergman, Amit Seru answer the title's question, "Did the Community Reinvestment Act (CRA) Lead to Risky Lending?," with the clear, "Yes, it did. ... We find that adherence to the act led to riskier lending by banks."'
I have wanted to blog about the Community Reinvestment Act (CRA) for some months now but have been cautious of doing so for obvious reasons. However the vitriol being spewed out, by the usual suspects in the left wing media, at the banking community has really pissed me off. So here we go, as Forbes tells us:In February 2009:
"The CRA forces banks to make loans in poor communities, loans that banks may otherwise reject as financially unsound. Under the CRA, banks must convince a set of bureaucracies that they are not engaging in discrimination, a charge that the act encourages any CRA-recognized community group to bring forward. Otherwise, any merger or expansion the banks attempt will likely be denied. But what counts as discrimination?I know this is not the agreed narrative but it is the truth.
According to one enforcement agency, "discrimination exists when a lender's underwriting policies contain arbitrary or outdated criteria that effectively disqualify many urban or lower-income minority applicants." Note that these "arbitrary or outdated criteria" include most of the essentials of responsible lending: income level, income verification, credit history and savings history--the very factors lenders are now being criticized for ignoring."
I have blogged many times about the Community Reinvestment Act and how it was one of the key factors in creating the US housing bubble as well as its effect on UK housing finance. You should read my earlier articles - here, here, here, here (in October 2008) the links to Barack Obama and here the links to UK policy.In March 2009:
I raise the matter today because Christopher Booker in The Telegraph yesterday wrote
"It is all very well for President Obama to vent his anger on all those US bankers who continued to claim billions of dollars in bonuses while expecting Washington to bail them out after the sub-prime mortgage scandal brought the banks to their knees. But conveniently overlooked has been the curious part Mr Obama himself played in the sub-prime debacle.
At the heart of it was a 1995 amendment to the Community Reinvestment Act which legally required banks to lend money to buy homes to millions of poor, mainly black Americans, guaranteed by the two biggest mortgage associations, Fannie Mae and Freddie Mac. And no one campaigned more actively for this change to the law than Mr Obama, as a young but already influential Chicago politician.
It was this Act which, more than anything, helped to create the US housing bubble, well beyond the point where it was obvious that hundreds of thousands of homeowners would be likely to default. And in 2005 no one more actively opposed moves to halt Fannie Mae's reckless guarantees than Senator Obama, as he was by then. As the official records show, no senator received more donations from Fannie Mae than he did (although Hillary Clinton ran him close). Thus no US politician arguably did more to promote the sub-prime disaster than the man now expected to pick up the pieces, Rather like Gordon Brown, really. "
I couldn't have put it better myself and somehow I doubt that this story will get anywhere near the BBC where the Obamamessiah is beyond criticism and will remain so so long as he follows the BBC approved line.
'A very interesting article in the New York Times should be read here. It's from 30 September 1999 that's whilst Bill Clinton was President and in the light of the current sub-prime crisis it is quite enlightening:
"In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.'' "
Read the whole article and wonder at how the MSM and especially the BBC have just ignored this angle on the banking crisis. Anyone would think they had an agenda...'
'This video aims to highlight a sample of just 8 local issues upon which the EU Parliament has usurped the control of central and local government in the UK - often to disastrous effect. Some appear scandalous, others farcical, but all illustrate that the EU is the hidden local issue. www.hiddenlocalissue.co.uk
This film was produced by the Europe of Freedom & Democracy Group in the European Parliament. It incorporates EU-critics, eurosceptics and eurorealists. The main goals of the Group are to reject the Treaty establishing a constitution for Europe and to oppose all forms of centralisation.
www.efdgroup.eu'
'A group of young Berliners who call themselves “Hedonist International” has begun turning up at apartment viewings to throw nude parties in protest of rising rents as the city becomes more gentrified.
Clothes off, cartoon masks and music on. The 10 or so young Berliners get naked in seconds, dancing around at a flat viewing in an unusual form of protest at quickly rising rent rates in their city.
Bopping around in the buff in the living room of this apartment in the formerly communist East Berlin district of Friedrichshain, the demonstrators quickly drew the ire of the estate agent conducting the viewing.
"Get out! I'm calling the police," he screamed, trying in vain to grab one of the naked dancers as techno music boomed.'
'Edward Miliband: The Prime Minister is about to make 500,000 people redundant as a result of the cuts announced by the Chancellor of the Exchequer. It is clear that his policy on housing benefit is a complete shambles. He has talked about London, but in London alone councils are saying that 82,000 people will lose their homes—they are already booking the bed-and-breakfast accommodation. How many people does he think will lose their homes as a result of that policy?'So Ed Miliband states as fact that 'councils... are already booking the bed-and-breakfast accommodation'. Are they?
're councils really block-booking bed and breakfasts in anticipation of an exodus of housing benefit claimants from inner London boroughs?
...
Full Fact spoke to London Councils who provided us with a statement...
“London Councils has warned that up to 82,000 households could become homeless in the capital as a result of the government’s changes to housing benefit next year. Boroughs are now talking to private landlords outside of the capital about procuring private properties in case they need to use them as temporary accommodation.
“This is of course a last resort. Boroughs don’t want to move people into different homes outside of the capital - this causes disruption and comes at great cost. But unless the government takes on board the proper measures to prevent this housing crisis - like increasing a special hardship fund to help tenants who can’t afford their rents - they might have no choice.
“We urge the government to act before this housing crisis gets to unmanageable proportions where even more pressure is placed on council budgets, and the lives of thousands of Londoners - including many families on low incomes – are put at great risk,” the statement said.
...
However the whole fiasco suggests that Ed Miliband and others may need to avoid referring to these block-booking in future political jousts.'
'Whenever Germany tells you how much the Greeks are costing them, remember this: German exports to Greece have risen by 133% since the single currency started. Greek exports to Germany have risen by 13%. The resulting trade gap between the two countries is one reason why German banks are now sitting on so much Greek debt.'If only I had time to fisk that article.
'The housing crisis in England is set to intensify, with insufficient numbers of homes having been built in every region since 2002, a campaign group has said.
The National Housing Federation said a record 4.5m people were on housing waiting lists and 2.5m people lived in overcrowded conditions. '
