Most subprime lenders weren't subject to federal lending law

Did a 31-year-old law giving poor people a break at the bank accidentally break the bank?

A lot of opinion leaders think so. From the editorial pages of The Wall Street Journal to talk shows to the op-ed page of The Register, people are charging that the Community Reinvestment Act of 1977 forced banks to make bad loans, leading to financial Armageddon.

There's just one problem: It isn't true.

A Register analysis of more than 12 million subprime mortgages worth nearly $2 trillion shows that most of the lenders who made risky subprime loans were exempt from the Community Reinvestment Act. And many of the lenders covered by the law that did make subprime loans came late to that market – after smaller, unregulated players showed there was money to be made.

Among our conclusions:

  • Nearly $3 of every $4 in subprime loans made from 2004 through 2007 came from lenders who were exempt from the law.
  • State-regulated mortgage companies such as Irvine-based New Century Financial made just over half of all subprime loans. These companies, which CRA does not cover, controlled more than 60 percent of the market before 2006, when banks jumped in.
  • Another 22 percent came from federally regulated lenders like Countrywide Home Loans and Long Beach Mortgage. These lenders weren't subject to the law, though some were owned by banks that could choose to include them in their CRA reports.
  • Among lenders that were subject to the law, many ignored subprime while others couldn't get enough.
  • Among those standing on the sidelines: Bank of America, which made no subprime loans in 2004 and 2005; in 2006 and 2007 subprime accounted for just 2 percent of its loan portfolio. Washington Mutual, meanwhile, raised its subprime bet by 20 times to $5.6 billion in 2006 – on top of its already huge exposure through its ownership of Long Beach Mortgage.

Since the federal takeover of mortgage giants Fannie Mae and Freddie Mac in September and particularly since the federal bailout of Wall Street, some have argued that the reinvestment law is to blame for the mortgage meltdown and credit crunch.

In a Sept. 22 editorial, The Wall Street Journal said that the law "compels banks to make loans to poor borrowers who often cannot repay them. Banks that failed to make enough of these loans were often held hostage by activists when they next sought some regulatory approval."

In a Sept. 15 editorial, Investors Business Daily wrote that by strengthening the reinvestment law in the late 1990s, President Clinton "helped create the market for the risky subprime loans that he and Democrats now decry as not only greedy but 'predatory.' "

In a Sept. 18 appearance on MSNBC, conservative economist Larry Kudlow said, "The Community Reinvestment Act literally pushed these lenders to make low-income loans. … Liberal, guilt(y) consciences forced banks and lenders to make lousy, substandard loans."

And in an Oct. 13 op-ed in The Register, Chapman University President James Doti, an economist, wrote that the law "pressured banks to make loans and mortgages to people who might not be the best credit risk. In fact, Clinton administration Attorney General Janet Reno threatened legal action against banks that didn't loosen up mortgage requirements."

The criticisms of the reinvestment act don't make sense to Glenn Hayes. He runs Neighborhood Housing Services of Orange County, which works with banks to provide CRA loans to first-time homebuyers. In its 14-year history, the nonprofit has helped 1,200 families buy their first homes. Score so far: No foreclosures and a delinquency rate under 1 percent.

"It is subprime that's really causing it," Hayes said of the mortgage crisis. "But CRA did not force anyone to do subprime."

Bob Davis, executive vice president of the American Bankers Association, which lobbies Congress to streamline community reinvestment rules, said "it just isn't credible" to blame the law CRA for the crisis.

"Institutions that are subject to CRA – that is, banks and savings asociations – were largely not involved in subprime lending," Davis said. "The bulk of the loans came through a channel that was not subject to CRA."

Congress passed the Community Reinvestment Act to crack down on "redlining," the practice by banks of refusing loans to neighborhoods where most residents are minorities or earn low incomes. The law applies to all federally insured banks and thrifts that take deposits. It generally requires banks to help potential customers near their branches, typically by making loans, investing or providing other services such as financial education.

A companion law, the Home Mortgage Disclosure Act, requires every large home lender to report annually on every home loan application they receive. (No names or streets are listed.) Those reports feed a database that in turn allows regulators, community activists and others to monitor home lending in virtually every neighborhood in America.

Beginning in 2004, federal regulators also have required lenders to report on high-priced loans – those with rates at least three percentage points higher than U.S. Treasury notes of comparable maturity. While the mortgage industry defines subprime loans by credit scores, Federal Reserve Board analysts believe that subprime and Alt-A loans fall into their high-priced loan category.

The Register used that database for its analysis. During the four years covered by our analysis, lenders made 55 million home loans, including 12 million subprime loans.

In its glory days, subprime lending was a lucrative business that paid six-figure salaries to 20-something salespeople and made fortunes for top execcutives. Nowhere were the riches more evident than in Orange County, home to industry giants New Century, Ameriquest, Argent and Fremont.

But the money spread far beyond Orange County, thanks to Wall Street's years-long love affair with subprime. In 2005 and 2006, subprime lenders sold about 70 percent of their loans by dollar volume to investors – principally to finance and insurance companies or by packaging the loans in highly rated securities.

Fannie and Freddie, the federally sponsored mortgage buyers, were bit players in this market. Together they bought about 3 percent of all subprime loans issued from 2004 through 2007, most of that in 2007 alone.

In 2007 Wall Street turned its back on subprime. That year, subprime lenders were forced to keep 60 percent of their loans on their own books or on the balance sheets of their affiliates.

That was the last fatal step in a financial high-wire act.

Since then, most of the 25 companies that dominated subprime lending between 2004 and 2007 have shut down or been sold at fire-sale prices.

Just eight of the 25 top subprime lenders were subject to the reinvestment law. But among those eight are two of the summer's most prominent failures – Washington Mutual and IndyMac Bank. Together with its Long Beach Mortgage subsidiary, WaMu made $74.2 billion in subprime loans. IndyMac specialized in "Alt-A" loans to customers who had good credit but couldn't qualify for top-drawer loans.



Homeowner loans

are a type of personal loan that can be availed by UK homeowners. Most people confuse homeowner loans to be a mortgage as this loan is also known as second charge loan or mortgage. What this loan does is to allow the borrower the right to borrow money over the equity prevalent in his property. Lenders usually provide homeowner loans up to 90% over the value of the asset. In some cases, lenders may be willing to grant a loan against 125% equity over the home.

Homeowner loans or home loans are easier to obtain than a mortgage. As these loans are secured against some asset, the processing is quite fast. Financial providers are willing to make some concessions regarding the terms and conditions because they are guaranteed returns against their investments. Unlike an unsecured loan, a

UK secured homeowner loan

will provide low interest rate, flexible repayment period and big loan amount.

The maximum amount of an UK secured homeowner loan can stretch up to a staggering two million. Depending on your credit rating, the lender will decide how much principle can be taken by the loan seeker. Anything above 660 will be termed as good credit. Funding officials will scrutinise factors, such as the value of your home, amount of the outstanding mortgage, as well as other outstanding debts. Be careful about missed payments as that can result in bad credit ratings and in worse case scenarios, repossession of the property by the financial providers.

But do remember that you will have to repay the loan. It is not free money. Use it wisely as you are borrowing the money and paying interest for it too. The longer you stretch the repayment period, the more interest you will have to pay. Trawl the net before embarking on your quest to find the perfect loan deal.

Secured Debt Consolidation Loan :Live a debt free life

In case, you are juggling numerous debts and want to get your finances in order, Debt consolidation loans might just be the answer to your prayers. Any sane person will be exhausted within the cycle of sorting and paying the bills, avoiding the calls of irate creditors and managing the monthly budget. This loan type is engineered in such a way as to facilitate the paying off of debts. The lender and the borrower have a reciprocal relationship. The additional funds help the borrower to pay the money and create a debt free life and the lender earns handsome returns.

Borrowers have to make only one payment. Instead of dealing with multiple creditors, the consumer will have to pay only one lender from whom he has borrowed the amount. If the consumer can afford to place a security in the form of his/her home against the loan amount, then he can be assured of low interest rates. In fact, a secured debt consolidation loan is the best solution for those suffering from adverse credit ratings. The lender in return tries and persuades the other creditors to reduce the interest on the debt. At times the interest rate can be slashed to almost 30%. Creditors are willing to cut the interest because in case the debtor declares bankruptcy then they will not get anything.

The lender will keep a tab on your credit cards. The idea behind this loan is to get you back on your feet. If the borrower continues in the indiscriminate spending then he/she cannot be on the road to recovery. Most often than not, the lender will cancel some of the credit cards which have a huge debt against it. Most credit cards charge 30% interest rates. As far as the annual percentage rate (APR) is concerned, debt consolidation loans are a cheaper bet than credit cards.


In a secured debt consolidation loan, the borrower only has to pay the lender a stipulated sum at the end of every month. After that, it is the lenders job to distribute the payments to the other concerned parties.

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The proper angle to look at: Secured Loans

"Nothing is good or bad, but our thinking makes it so." For example, you can take the case of secured loans. From one angle, this type of loan seems to be risky for the borrower. From the other side, it seems to be the most cost-effective borrowing style. So, it is up to you to view it from the angle you like. In this regard, you will be highly assisted by the following discussion. This article dwells at length on the pros and cons of this loan.

Literally, secured loans are defined as loans that necessitate collateral. To be clearer, this type of loan is offered against property. The property that is used as collateral must be of reasonable value. Though any asset of significant worth can be collateral, a home has universal acceptance. The ownership of the property offered as collateral is transferred to the lender. But its possession is decided by the terms of the loan.

In case, you offer your home as collateral, you will retain its possession. But you will be bound by law to hand it over to the lender if you fail to pay off the loan. Now, if you think that your home will be lost in the event of failure, then this loan certainly appears to be risky. After all, you are not the architect of your future. If anything adverse occurs and you fail, then your home will be lost.

On the contrary, if you look at the gamut of benefits offered by this loan, the risk factor will become negligible. It provides you a hefty amount of money at low interest. It also comes with a long repayment term, thereby allowing you to repay it in small instalments. The repayment terms will be in your favour. So, it will not be difficult to deal with the loan and pay it off.

Enjoying all these benefits and simultaneously retaining the possession of the home is certainly something great. So, looking from this angle, one cannot but appreciate the offerings of secured loans. To conclude, it can be said that there is nothing wrong in taking this loan if you have sufficient income to clear the instalments.

Summary: This article sheds light on secured loans from different angles and discusses its pros and cons.

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Secured business loans

Prospective businessmen always need financial help in order to start their business venture. Even those who have just started their business require financial support for streamlining the same.


new business loan

is used to establish a business enterprise. Though you may opt for an unsecured loan for your business purpose, secured loans can offer you a larger loan amount. You can meet your business requirements in a better way with a secured loan option.

Secured business loans necessitate the presence of collateral. If you are a homeowner in the UK, you can avail a loan for your different business needs. You can seek a loan according to the equity present in your home. With a secured loan option, you may get lower interest rates and a longer repayment term. Hence, you will be having a lower monthly outflow.

People who have a bad credit history can avail a loan for this purpose. You need to select a good loan deal for this purpose. A bad credit history can be anything like arrears, defaults, bankruptcies, County Court Judgements etc. With a bad credit loan, you will not only avail the finance for your loans but you may improve your credit history as well.

You can seek secured business loans for buying premises, maintaining cash flow, giving wages to the employees, buying plants and machinery etc.

You can apply for the loans online and you will be contacted by the lenders with their loan quotes. This loan option would be a viable loan option for you to take. The growing competition among the lenders may help you in getting a loan with lower interest rates.

There are many avenues from where you can get unsecured business loans. The most viable of them, these days, happens to be the online option. It gives the borrower a sea of choices to choose from.

Summary: Secured business loans are a good loan option for you to take, as this will help you in getting a larger loan amount with a longer repayment term. You can think of taking major business strides with this loan type.

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Homeowner's paradise

Secured loans are readily available to homeowners in UK. Most lenders feel secure lending money to those who can pledge their residential property as collateral. Hefty amounts can therefore be procured for a longer tenure as secured loans. The loan period can stretch up to 30 years and the loan amount depends on the home equity valuated by the lender.

Secured loans for borrowers with bad credit Homeowners with bad credit are at advantage over others. With a fixed asset i.e. home as the collateral, the lender will be inclined to give secured loans to the customers, even if they have had a poor credit record.

First let us see what factors make your credit report adverse:-
  • Arrears, missed payments and late payments in your other loan or credit card history
  • Defaults in your repayment tenure
  • CCJs (County court judgments against you)
  • In case of bankruptcy
  • Frequent job changes and changes in the address
  • A negative or less than 0.36 DTI (debt to income ratio)
  • Too many loans running at the same time
  • Small disposable income
  • Frequent cheque bounces
So, if you have earned any of the above stated disadvantages, there are chances that lenders may not approve your loan. However, still you are a homeowner and don't have any other mortgage against your residential property, there are good enough chances of your loan getting approved. Every lender has one major satisfactory factor when he grants secured loans and that is in case you fail to repay the loan, he can repossess your home. Lender's motivation is borrower's risk.

So, before you make any decision regarding secured loans, just ask yourself one question honestly "Will I be able to repay the loan?" If you are doubtful, never ever go for secured loans. You may end up loosing your most treasured procession i.e. your home.

Summary- Secured loans are loans supported by assets belonging to the borrower so as to reduce the contingency assumed by the lender. The home may be seized by the lender if the borrower fails to make the necessary payments.

About The Author

The Author is a business writer specializing in finance and credit products and has written authoritative articles on the finance industry. He has done his masters in Business Administration and is currently assisting finance-hub as a finance specialist.

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Secured Loans: With It's Popularity, It's Got To Be "Something!"

Although the loan market has provided us, customers, with a diverse collection of loans, Secured Loans are among the few loans that have gained outstanding, ever increasing popularity with the common people, rather than with the business class. Secured Loans are easy to obtain, they offer low interest rates and flexible repayment terms. To make a Secured Loan seem fair to the lenders too, they necessitate placement of collateral. At the end, Secured Loans are ideal solutions to any fiscal problem that needs attention.

Features of Secured Loans:
Secured Loans are also referred to as Secured Personal Loans because they are Personal Loans that need to be secured on an asset commonly known as "collateral." Collateral is a mandatory feature when any loan is "secured." It can be in the form of real estate - a house, property, etc. or also in the form of an operative bank account, jewellery, an automobile, etc. Collateral of higher value will enable you to avail of a higher loan amount. The basic idea of collateral arises so as to give the lender or creditor some kind of assurance that the loaned amount will be repaid. This is why collateral remains in the lender's custody until complete repayment of the Secured Loan. While on the topic, something worth mentioning is that in case you default in your monthly repayments, the lender can seize or confiscate your collateral

·Low Interest Rate:
The presence of collateral puts a Secured Loan lender in a comparatively complacent position and this is why Secured Loans offer low interest rates compared to other Personal Loans like the Unsecured Personal Loans. Interest rate is commonly termed as APR (Annual Percentage Rate) and it ranges from 6% to 25% depending on the loan amount, value of collateral, credit history and your repayment capability. Since, interest is what determines how feasible a loan is, Secured Loan are a better option.

·Loan Amount:
Being secured and being a preferred option for most lenders, Secured Loans make a larger amount available to it's borrowers. A typical Secured Loan amount ranges from £5,000 to £75,000. The amount that is finally approved also depends on value of collateral, credit history and financial standing of the borrower.

·Loan Term:
Secured Loans have flexible repayment options that can suit your personal financial standing. In fact, Secured Loans are customized to your requirements. Based on your loan amount, your collateral value, credit history and interest rate, you and your lender choose your loan term. A loan term for Secured Loans generally ranges from 3 to 25 years. Your monthly payments will in turn depend on the loan term selected for you.

·Credit history:
Good credit history helps you avail of a Secured Loan with a higher amount. On the other hand, although bad credit doesn't stop you from getting a Secured Loan, it limits the amount. However, as Secured Loans are backed by collateral, most lenders approve them even in cases of C.C.J's, defaults, bankruptcies and arrears. This makes Secured Loans available to those who would otherwise not qualify for a loan from their local bank.

Secured Loans are approved as soon as your collateral is evaluated and also after a credit check is carried out. This is why a Secured Loan is so easy to obtain. Based on what all Secured Loans offer, there is now a financial solution for the employed, the self employed and the unemployed, too.

Always remember you should consider your financial position, the amount to borrow and the repayment option you will be able to afford. Based on them, look for a lender who provides the best possible offer. Take informed decisions with proper guidance from experts as they will have a wider opinion on the matter. Do the calculations yourself. The amount to be repaid includes the actual amount, interest and other fees charged by the lender. Try to repay your loans as soon as possible. Paying more means paying faster! Take an active part in choosing your repayment options. Ultimately, it's customized specially for you!!

By Marsha Claire