Community Recovery Banks & Not Selling Derivatives.

Not directly. They could and usually did sell the mortgages to either Freddie or Fannie. It is highly unusual for even a local community bank to hold the mortgage paper of loans they provided for even a few days. I checked in to this recently and was told that standard policy in my bank, as well as their local competitors is to close on a mortgage and then almost immediately sell the mortgage paper to Fannie or Freddie. Even now despite all the problems both corporations have. In my case I required the mortgage to not only be initiated by the bank but also held by the bank and not sold to Freddie. As my banker said such a circumstance is highly unusual. Despite being a CRA bank, and the bank clearing over 40,000 mortgages a year, the mortgage department consists of three people who do the paperwork and a single agent at each branch. Meaning less than 20 people are the mortgage department of my CRA qualified/compliant bank.

How many mortgages does the bank hold directly? According to my agent somewhere under 1000. But my bank sure is healthy.

The CRA banks cannot sell their own bundles or create mortage back derivatives. Absolutely true. But the standard industry practice for all small/mid cap banks writing loans is to simply sell the paper to an institution that can. In the case of CRA lending institutions the only market they are allowed to sell to is either Freddie or Fannie.

Saying that CRA banks/lending institutions cannot directly participate in the derivative markets and securities is a bit disingenuous because although true on face value, it neatly overlooks the reality that they were the institutions that were selling to Freddie and Fannie. Of course CRA banks can say "We didn't sell or create derivatives!" because they didn't.

What they aren't making plain to he people of the United States is that they SOLD it to Fannie and Freddie. So obviously since Fannie and Freddie made the bundles that included CRA mortgages, it is now the fault of Fannie and Freddie. Instead of realizing it is the consequence of a progressive social policy law that shirked common business standards of credit, and overlooking the fact that the nation's two quasi-independent mortgage clearinghouses were fully aware of the plausibility of insolvency by including the CRA loans, people are happy to say its the fault of the investment banks in Wall Street .

I have heard this argument before. Except usually it is the one advocated by people who want to legalize drugs. Except when they make the argument that the end users aren't responsible for the negatives of drug economics. They a;ways say that the violence and negative costs of drugs lie almost exclusively with the manufacturers.

With the CRA banks taking the position of the drug producers and the former investment banks of Wall Street taking the roll of the junkie who just got some bad smack, I have to wonder why people are so eager to blame the investment banks in this case. They were fed an adulterated cut of drug, and the people who created the drug are getting away with it because it is simply implausible to any progressive liberal that a social program that tinkers with market economies could cause any harm at all.