You may recall an article I published a few days ago concerning the strength of credit unions through the financial crisis. An article I read today brought this issue to my attention again…
Apparently, regulators in the federal government are not happy about the success of credit unions, and they aim to throttle the profitability of credit unions by further expanding some genuinely stupid regulations to limit the freedom of credit unions.
Case in point: The Jimmy Carter-era Community Reinvestment Act (CRA) forces lenders that want to expand their businesses to make stupid loans to weak borrowers living in bad locations. Yes, it’s that bad…and it’s one of the roots of our present subprime crisis.
The CRA is the law which forced traditional bank lenders to get involved in the stupid business of subprime lending. Interestingly enough, credit unions are the only category of financial institutions that have come through the financial crisis largely unscathed (and even profitably) - and credit unions have never been subjected to the requirements of the CRA. (Yes, there is a connection.)
But this is not “fair” according to John Taylor, CEO of National Community Reinvestment Coalition (NCRC). The NCRC masquerades as an advocate for “individual economic empowerment”, but what that actually means is they lobby Congress and regulators to support mortgage programs for people who can not pay back the loans.
(Yes, we call those loans “subprime” - and they are at the source of the economic downturn about which you’ve heard so much.)
Yes, you read that correctly: NCRC exists (in part) to convince stupid politicians to continue to do subprime loans. But now, the NCRC is trying to spread the cancer of subprime loans to other parts of the financial industry by calling for the application of the CRA to credit unions, even though there’s absolute no economic reason to do so.
This is bad news. Regardless of one’s opinion about politics, it’s undeniable that the government as a whole has taken a socialistic turn towards a greater role in the financial markets, and such a shift suggests increasing likelihood that the government will follow the prompting of tiny organizations like the NCRC. This will mean that not only do we have to suffer through the current subprime crisis, but we will likely have another significant phase of it that does not have to happen as credit unions suffer business losses as a direct result of misguided legislation.
But my friend, you can make a difference. For example, the website you are now reading - http://realestate.BryanEllis.com - gets significantly more internet traffic than the NCRC website. There are literally thousands of readers of this website each and every day. All we need to do is make our voices heard.
Here’s how to do it:
Click here to find your congressman/woman and Senators here and send them an email or give them a call. Tell them you don’t want the CRA expanded to include credit unions or any other financial organizations.
Thank you for reading RealEstate.BryanEllis.com. Your comments are welcomed and encouraged.
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4 Comments So Far»
Thank you for keeping us informed on these issues and giving concrete actions that can be taken to resolved them. Kudos to you, Brian.
Thanks, Kalimah! — Bryan Ellis
Bryan, you seem to have a rather bias view of the NCRC. Have you ever heard of red-lining where banks have blocked off areas of their lending territory as no loan areas? Does being in a lower income area mean you don’t pay off your loans? It seems to me to be healthy for the overall community for the lending institutions of it to provide their services for everyone who qualifies regardless of the type of neighborhood they live in.
I challenge you to show any real evidence to back up your rhetoric that banks are forced to make stupid loans to people who can not pay back their loan. Your misguided attack on the NCRC may be swallowed by your uninformed readers but it detracks from your creditability for me. Without advocacy groups like these in our communities looking out for and seeking opportunities for those who are not as privileged as some of us, we would all be the poorer for it.
Thanks for your comments. According to the American Sentinel about three weeks ago, “banks are now reporting that CRA defaults have in many cases exceeded 20 per cent of the bank’s total CRA loans - - a huge, unprecedented default rate.” I’d say that alone is a huge indicator. Even now in the United States, it’s estimated that approximately 6-8% of all mortgages are in default, which is considered a “mortgage meltdown”. Yet the number for CRA loans appears to be 3 to 4 times the currently elevated national average.
Further, the Federal Reserve board published an interesting report about this exact phenomenon (the poor quality of CRA loans compared to non-CRA loans). On page 15, evidence from NationsBank and CountryWide (now both part of Bank of America) “reported that their affordable home loan portfolios have had higher delinquency rates than their other conventional home loans.”
So there are some facts to consider. But the deeper issue is whether government really has a role in requiring lenders to make a particular type of loan, regardless of the nature of that loan. It is my contention that the government helps no one by doing so, nor is it a fundamental right of government to do so. Clearly, the default rate for CRA loans is MUCH higher than normal loans, causing profit losses that would not exist without the interference of the government. And those profit losses lead directly to job losses and further financial difficulty.
Thanks for your comments, Bill. I’m happy to continue this dialogue with you. — Bryan Ellis
ok. I wrote to all three. Thanks for the heads up.
Thank you, Margaret - you’ve done a very good thing! — Bryan Ellis
Bryan
Thank you for so clearly stating facts on this subject. It is very difficult for me to understand that we have so many stupid Senators, Congressmen in Washinton who ignore this issue. It is well known and has been documented by numerous sources for the past 20+ years, beginning (as you stated) in the Carter era and accelerated in the Clinton era. These people should be in jail for what they have done to the rest of the US hard working folks. However, the politicians have made them heros. How sad that all of our leaders turn the other way and ignore the root causes.
We must stop the bleeding. Another $150B to AIG, probable bail out of GM/Ford/Chrysler. Why don’t they ‘loan’ them the money to help them get through their self inflicted crisis? Entitlements are killing the desire to excel and work hard in this country.
Jim
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