Bill’s Place

 Many politicians, some federal regulators, and many vocal media commentators claim that the Community Reinvestment Act (CRA) and its regulatory evolution had nothing to do with the creation of the U.S. housing and mortgage bubble. It seems that, at some point in the near future, an objective review of the facts may require a revision of the claim that the CRA was not a significant factor in the creation of the U.S. housing and mortgage bubble.¹

The Community Reinvestment Act: Its Evolution and New Challenges*

A speech by Chairman of the U.S. Federal Reserve, Ben S. Bernanke 

At the Community Affairs Research Conference, Washington, D.C.

March 30, 2007

From the third paragraph below the heading: The Evolution of The CRA

Even as these developments were occurring, extensive change was taking place in the financial services sector. During the 1980s and 1990s, technological progress significantly improved data collection and information processing, which led to the development and widespread use of credit-scoring models and the availability of generic credit history scores. Deregulation also contributed to the changes in the marketplace. Notably, the lifting of prohibitions against interstate banking was followed by an increased pace of industry consolidation. Also, the preemption of usury laws on home loans created more scope for risk-based pricing of mortgages. Securitization of affordable housing loans expanded, as did the secondary market for those loans, in part reflecting a 1992 law that required the government-sponsored enterprises, Fannie Mae and Freddie Mac, to devote a percentage of their activities to meeting affordable housing goals (HUD, 2006). A generally strong economy and lower interest rates also helped improved access to credit by lower-income households.

B of A Settles Lending Case By Ruth Simon and Brent Kendall

Wall Street Journal ~ December 22, 2011

 

Mr. Melton Commented: BofA just did not do due diligence and helped CW hide it's wrong doing and would have gotten away except for the housing mess.

 

Reply To: Mr. Melton, Please note that the allegations in the article claim that most of the overcharging took place "from 2004 through 2008, at the height of the housing bubble". During that time Bank of America was actually, in many ways, a competitor of Countrywide Financial.  During that time Countrywide Financial had borrowed significant amounts of money from B of A, and Countrywide had a large authorized line-of-credit with B of A.

 

Toward the end of Countrywide's independent existence, executives at Countrywide, and most significantly Angelo Mozilo, claimed Countrywide had insignificant sub-prime exposure and that the company was in strong financial condition. Not long after the last time they made that claim Countrywide exercised the balance of the authorized B of A line of credit. I have always thought that when B of A bought Countrywide, B of A did it, in significant measure, to protect the B of A loans which B of A made to Countrywide without any knowledge (apparently) of what a snake-pit Countrywide actually was.

 

It's interesting that you claim that B of A participated in the alleged activities while in fact it was a competitor of, and a banker for, Countrywide, yet you don't question why Countrywide's Board-of-Directors and the CFO at Countrywide weren't more aware of the alleged abuses, and why they weren’t more actively engaged in monitoring and bridling-in the alleged abuses.

 

What kinds of people sat on Countrywide's Board-of-Directors almost up-to the very end? Were they unsophisticated rubes with no understanding of mortgage finance and no understanding of what was going on? If you think that might be the case, key-words-search: "The Tragedy of Countrywide Financial and Angelo Mozilo Muckety".[1] Notice that Kathleen Brown,[2] the very financially savvy and well credentialed sister of then California Attorney General - now Governor of California - Jerry Brown sat on the Countrywide Board of Directors, as did former (under President Bill Clinton) Director of the U.S. Department of Housing and Urban Affairs (HUD) Henry Cisneros [see, “The Reckoning: Building Flawed American Dreams” By David Streitfeld & Gretchen Morgensen, NYT 10/18/2008.][3]

 

Maybe the abrupt retirement of former President of Countrywide, Stanford Kurland, (who most considered the obvious 'heir apparent' to CEO Angelo Mozilo) about a year 'before the fall' should have been recognized as a sign that it was time to look more closely at what was going on inside Countrywide Financial. [see, "Former Countrywide No. 2 Sees Opportunities in Troubled Mortgages" By Mathew Padilla - Orange County Register, 6/10/2008].[4]

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