08.29.2014 8

Obama’s low-income, community lending shakedown reaches $128 billion

obama_treeBy Robert Romano

$128 billion and counting.

That is Investor’s Business Daily’s latest tally of settlements the Obama Justice Department has extracted from the U.S. banking industry in connection with the 2008 financial crisis, as Bank of America agreed to another $17 billion in payouts over losses stemming from its 2009 acquisition of Countrywide.

Included is $5 billion as a penalty paid to the federal government itself, $300 million will be paid to the state of New York, $300 million to California, $200 million to Illinois, $75 million to Maryland, $45 to Delaware, and $23 million to Kentucky, according to the Justice Department.

Another $7 billion will go to debt forgiveness, mortgage principal cramdowns, and, of course, more low-income lending. And then, after four years, whatever is not lent into the financial abyss by Bank of America directly will be given to community organizer groups so they can do it.

You know, the ones that in part contributed to the financial crisis by coercing low-income, Community Reinvestment Act (CRA) loans from financial institutions engaged in mergers allowed under the 1999 Gramm-Leach-Bliley financial modernization law.

The groups include the Interest on Lawyers’ Trust Account, NeighborWorks of America, La Raza, the National Community Reinvestment Coalition, the Neighborhood Assistance Corporation of America, Operation Hope, and the Mutual Housing Association of New York, an ACORN off-shoot.

So, Bank of America and other institutions get busted for engaging in risky low-income lending, and naturally, their penalty is to engage in even more of it. Similar settlements have been reached with Citibank and JP Morgan Chase, the Investor’s Business Daily editorial notes, with more to come from Morgan Stanley and Wells Fargo.

This is the same type of stupidity that helped contribute to the mortgage crisis in the first place.

Most forget that when the 1999 law was being debated, it almost did not pass. The hold-up? Concerns by the Clinton White House and congressional Democrats such as Senators Chuck Schumer and Chris Dodd over the Community Reinvestment Act (CRA), as chronicled by the New York Times’ Stephen Labaton in 1999.

The White House “wanted the legislation to prevent any bank with an unsatisfactory record of making loans to the disadvantaged from expanding into new areas, like insurance or securities.”

When all was said and done, the final agreement provided that “no institution would be allowed to move into any new lines of business without a satisfactory lending record.”

In other words, Democrats were okay with rolling back Glass-Steagall — that is, the banks, investment houses, and insurance companies could merge — so long as low-income lending programs would be expanded dramatically.

And so they were. The American Enterprise Institute’s Edward Pinto, a former chief credit officer of Fannie Mae, estimated that CRA commitments totaled $4.5 trillion by 2008. The rest, as they say, is history.

Those were not the only bad loans that were made. Hundreds of billions more stemmed from Fannie Mae, Freddie Mac, the Federal Housing Administration and other federal agencies. These institutions operated under separate legal requirements that the crappy loans be made, but it’s all the same story. The government wanted this lending to occur.

Here’s a thought. If these types of loans are so risky to the economy, perhaps they should not be required to be made as a matter of policy?

That is, if Congress has a mind for true financial reform. Then, removing such mandates on lenders, both government-backed and private, would be a good place to start. And in the meantime, members of both houses should be working to guarantee that not one penny of these $128 billion of settlements goes to engage in any more risky lending or go to shady community organizer groups to do the same.

Robert Romano is the senior editor of Americans for Limited Government. 

  • Greg

    I guess if the banking lobbyists had more strongly supported conservative candidates they could have saved themselves from the mandated liberal give-away loans to unqualified borrowers that was forced upon the banks AND saved themselves from $128 billion shake down by this administrations “Justice” Department. When will we wake up and stop all this wealth redistribution? Maybe this November election?

  • pduffy

    The ‘moral’ of the story? Never get in bed with satan, things won’t turn out well for you. The banks got in bed with liberal politicians, and now they are paying the price.

  • pduffy

    No, the next election won’t make a dime’s worth of difference. The corruption is so institutionally ingrained in the society, no voting booth is going to ‘fix’ this mess.

  • Lockmanxo

    What’s the saddest is that the people who paid THEIR loans, made sacrifices, etc to meet their responsibilities hey further hosed by the government in the fact that any so-called settlement, etc is paid for by the consumer. Just a different form of WEALTH REDISTRIBUTION.

  • RonKeffer

    and we are in the process of getting in bed with SATAN again. Check out the the ISIS

  • RonKeffer

    I was in the Mortgage Business from 1972 until 1997, and very successful, I might add. I dealt in “subprime loans” my entire career. I also did the “A” paper loans as well.

    In subprime loans, you always have a way out and in most cases, it is through limiting the amount you will loan that borrower, and the loan to value ration. A subprime borrower, will, in most cases, always be a subprime borrower. They seem to get into a habit of not paying their bills and wanting the best of rates. Try lending to a previous Bankrupt. Talk about those who know all the in’s and out’s of the credit industry, and some even file multiple times. It use to be it was degrading, embarrassing, and a big NO NO to file. We ask the borrowers, “what is the problem, why haven’t you paid Sears, Wards, and your mortgage on time ? I can tell you the borrower who is applying for a loan will pay you just like they paid everyone else. It is interesting but true. The reason regardless of what the borrower said is one of three things if not all. That is Marital Problems, Gambling, drugs, or alcohol, and last truly a legitimate reason like employment, health etc. Employment and health can be fixed with time. So now you look at how they paid prior to the employment, health, or other problem. The subprime borrower HAS TO HAVE some type of investment into the property. They had none. no cash, no down, just move in and enjoy the fruits of the industry.

    So, what did our government do ?………they came up with an adjustable rate mortgage thirty year amortization due in five years, they allowed no income qualifier loans, they allowed 100% financing, on both purchases and refinance, and for all intent and purposes “Gave away the store”. That is not hind sight, that is the truth. Most borrowers being greedy just like the seller, the realtor, the mortgage broker, the lender, the banker, the loan servicer, the insurance industry, the title company, right up to and including wall street. very simple, GREED. Ok, so the loans began to become delinquent, if not before, especially when the call date became due. Call date ? remember earlier, I said the thirty year amortized with a five year call? Well the adjustable rate was as low as 1to 1 1/2 percent interested and when they adjusted, they adjusted to and amount as much as 5 to 6 times their regular payment. Who in their right mind could survive that, they couldn’t refi, cause the lower rates went by by, so the other option was to sell. That was their intent going in, sell, make money use that inflated money to purchase another home. Makes sense, right, wrong, cause everyone and their neighbor had the same loan, when they adjusted the rate, everyone including your neighbor could not make the payments and after a while, when the market was flooded with sales, the values began to collapse. Now the banks, because our government put them in that position and had guaranteed those loans, began to foreclose on those properties getting people out of their house in 120 days, and now, our government because of GREED, has a lot of vacant houses out there on the market which worsens the market even more, not to mention the crime, the squatters, etc. The banks and lenders,Fannie Mae, Freddie Mac , Fannie Sue, and many others just called the government and collected money on those houses that were foreclosed on. Then they sold the properties at a loss, making the market decline even more.

    Now, our government, instead of making intelligent decisions, let the bottom fall out, creating a major decline in the market, Houses not being occupied, looting, squatters, etc. Neighborhoods went to hell, then the City went to hell, it is called the domino effect….

    Solution: The government could have and should have, first and foremost never offered that financing to ALL BORROWERS. second: They should have looked at all loans becoming delinquent for non payment at the adjustment period, called the borrower in their office, take a current credit application, to get up to date information, remember, this loan had a five year call date, so it has been five years since they have updated any or all info on the borrower. Then, those who were making their payments at the 1 to 1 1/2 % interest rate, they should have offered them a reprieve and modified the loan terms and given those people the same interest rate i.e. 1 to 1 1/2 . % interest rate for another 3 to five years. The ones that were not making their payments at the lower rate, foreclose, accept your mistakes, sell the property and move on. The ones that could sell their homes would and collect the difference, the ones that could not sell their property in time, then so be it. Take possession.

    Result: The property owners who have made their payments on time, deserved to continue living in the house and would have a payment that they could afford, the ones that couldn’t would be out. The market would not have been flooded with foreclosures, people moving, losing their house, creating other problems, marital or otherwise. ………..and……………guess what………..most everyone would be happy, especially those that were making their payments and qualified for the modification, the neighbors would be happy because they didn’t have the crime increase in their neighborhoods, because of vacant houses. The buyers would be happy cause they knew their investment was sound, the sellers would be happy cause their values didn’t drop out of site. the title company, the realtor, the mortgage broker, the banks and the Fannie Mae’s, the Freddie Mac’s and others, right up to and including wall street, would be happy, cause our economy remained stable.

    Everyone is a winner, instead of everyone being a loser.

    I am not a genius, it was programed to happen exactly the way the cards fell. The hand writing was on the wall ! If you really analyze what I have just said you may agree or disagree that is your prerogative. but it is “common sense’. yes it is that simple…common sense is something we lost in the 90’s.

  • Guest

    Oh by the way………your elected officials cause this mess and made it worse.
    and…………..you keep electing the same people into office, and we just keep getting hosed.

  • RonKeffer

    Oh, I forgot to mention:

    It is your elected officials who put us where we are today, …………….and………YOU just keep voting the same “good ole boys and girls” into office.

    Wake up all you citizens.

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