Inside Financial Services

No Thanks, Activists

Consumer groups' efforts to lobby Dodd-Frank rulemakers aren't apt to produce anything good

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Uh-oh. Here we go again:

The weight of the mortgage crisis fell heavily on lower-income and minority communities, where first-time home buyers often fell victim to the predatory lending practices that resulted in an explosion of defaults and foreclosures.

That left consumer advocates and civil rights groups frequently at odds with bankers, mortgage lenders and their lobbyists during the debate over the financial regulation act last year, which aims to rein in the subprime mortgage excesses that inflated the housing bubble.

Now, as banking regulators are rewriting the rules for the mortgage market, unusual alliances have sprung up in opposition to tighter lending standards. Advocacy groups like the N.A.A.C.P. and the National Council of La Raza, a Latino civil rights organization, on the one hand, and the American Bankers Association on the other, are joining together to fight rules they say could make home loans less affordable for minority and working-class Americans. [Emph. added]

Wait a minute. Didn’t the housing blowup come about in the first place because of the federal government’s 20-year-long drumbeat to boost homeownership among low-income borrowers? It did indeed. People can blame the bust merely on “predatory lending practices” all they like, but the real causes were more complex. Underwriting models-especially at the rating agencies-were deeply flawed. Compensation practices were counterproductive. And, yes, there was some predatory (not to mention dumb) lending going on, not to mention some egregious fraud on the part of borrowers.

But this whole symphony of folly was allowed to play on for so long, and to such ruinous results, because it all was consistent with the federal government’s policy at the time, which said that, essentially, anyone in the country who wanted to own a house should be able to. In the fullness of time, we now know that the policy wasn’t so different from mandating teenagers drink a gallon of Four Loko daily. Crazy things happened.

I have no doubt that as regulators come up with their post-Dodd-Frank lending rules, they will err on the side of being too conservative. That’s human nature. Thoughtful lobbying aimed at loosening things up will be a good thing. But the goal of the rulemaking ought to be to create ways for banks to lend widely and prudently, without unduly restricting credit. Re-introducing the entirely separate (and conflicting) notion of home-ownership as some sort of entitlement is a bad, bad idea. We tried that once. It didn’t work.

P.S.: Lenders’ and consumer groups’ resistance to efforts to get the federal government out of the mortgage lending business once and for all is hopelessly misguided, too. The more deeply the feds stay enmeshed in the business and keeps it semi-politicized, the more likely we get a rerun of the housing crackup, and sooner rather than later.

What do you think? Let me know!

7 Responses to “No Thanks, Activists”

  1. mudwall jackson

    “Underwriting models–especially at the rating agencies–were deeply flawed. Compensation practices were counterproductive. And, yes, there was some predatory (not to mention dumb) lending going on, not to mention some egregious fraud on the part of borrowers. ”

    Could you please explain where a policy of expanding homeownership along the lines of the CRA had anything to do with the housing meltdown? Had anything to do with what was happening at the rating agencies or how lenders compensated their employees? Or predatory lending practices? Please! I don’t pretend to be an expert on bank regulatory issues but I do get deeply offended when commentators blame the poor (and attempts to help them) for the foul-ups of the affluent. And one more point: while there was “egregious fraud on the part of borrowers,” most of it wasn’t perpetrated by low-income buyers looking to get into a home but rather by organized rings usually with the assistance of insiders – bankers, lawyers, real estate people and others who knew how to work and manipulate the system.

  2. Jimmie Johnson

    What is wrong with a gallon of Four Loko?

  3. mr anonymous

    I find this article to be deeply misleading. Four Loko (TM) is not and never was sold in a gallon size. For you to imply otherwise is simply wrong. Does the bankstocks.com Corporation even have a fact-checking department? For shame. Also, I think supervia is right on his/her 7th and 9th points, but point number 12 was offensive and possibly even racist.

  4. Banker1

    Completely agree. I assume positive intent with laws like the Community Reinvestment Act. However, in my opinion, this became another mechanism for legislators to influence something they know little about. As I think we know now, universal home ownership is not a good policy goal. Some people should be renters and there is nothing wrong with that. Forcing banks to make bad loans and deal with groups like ACORN turns into nothing more than legalized extortion as I have experienced personally. In other words, it becomes another entitlement program. It’s time to recognize that although intentions were good, the actual results have turned out to be costly – especially for those that were supposed to be served the most.

  5. supervia

    Really? Is that what you think? Please show me the law in question. Show me where a banker got in trouble for not financing a mortgage for an unqualified borrower. What we (you) choose to call ‘government mandates’ or ‘course-setting legislation’ or whatever, comes from the efforts of lobbyists from the various industries who wish to pass legislation or prevent it. I should not have to tell you which lobbying groups are well-funded, strong and powerful, and which are not. I would say that bank lobbyists are rich enough and smart enough to not only direct their attention to legislators but to smaller, weaker lobbyists looking to make deals. Bankers would push showings of ‘It’s a Wonderful Life” if they thought consumers needed even more encouragement to desire home ownership in favor of other more practical investments. This isn”t conspiracy thinking; considered as a rational investment homeownership does not look so good. At the commercial level, short-term leases or even month-month seems to be the flavor of the day among the MBA crowd

    Should such a thing as a dream ever become the law of the land, the government might consider subsidizing the dream sufficiently to make pretty much criminal to miss the monthly payments and not take care of the property. Of course there is the problem that such subsidies destroy ‘value’ especially the speculative value of unsubsidized dreams. So another prudent scheme would be to elimnate the need for the dream. Home ownership is not for everyone. This might or might not have a net effect of dampening value, but might also create value of another kind — quality of life. Landlords ill-equipped fincancially or morally to deliver on quality of life would of course suffer. But sh++t happens on the way to social justice.

    Bottom line: then and now the sucker’s bet called the 30-year mortgage still has a lot of traction. An unholy combination of lobbying will keep the dream alive and the product avai

  6. supervia

    will keep the dream alive and the product available. Nothing stops banks, even banks too big to fail, as they say, from not forming a mortgage businesses. Or staying in the business and incurring steady but small losses as a sop to somebody’s idea of social need. Business is business. Liars loans are not good business, They are fraudulent instruments. Care to speculate on how many liar’s loans were sold in the glory years? That’s what I want Frank and Company to fix. In the long run the small time chiseller, much like the counterfeiter, is good for the economy.

  7. supervia

    will keep the dream alive and the product available. Nothing stops banks, even banks too big to fail, as they say, from not forming a mortgage businesses. Or staying in the business and incurring steady but small losses as a sop to somebody’s idea of social need. Business is business. Liars loans are not good business, They are fraudulent instruments. Care to speculate on how many liar’s loans were sold in the glory years? That’s what I want Frank and Company to fix. In the long run the small time chiseller, much like the counterfeiter, is good for the economy.

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