Sorry, but a lot of bad loans had nothing to do with CRA. They were not even to poor people. Banks abandoned their “sound lending practices” all on their own. And investment houses kept creating bad investment instruments with bad loans. That was a choice not dictated by CRA.
I’m not sure if you just have a limited understanding of the industry or if you are purposely promulgating misinformation. The Boston Fed published a study in 1992 that led to banks being pressured to lower their mortgage standards in order to avoid disparate effects within different racial groups. That is, banks holding to high mortgage lending standards was itself deemed to be discriminatory. Here’s an excerpt that’s available online: http://www.fdic.gov/regulations/resources/side/partthree.html and indeed subprime lending (disproportionately to minority borrowers) is a large part of this crisis.
Banks were forced to make the loans, and then they took available steps to move them off their balance sheets.
FDIC COMPLIANCE EXAMINATION MANUAL
Available by Subscription from the FDIC
Fair Housing Section
In the previous section of this guide, A Comparative Analysis of Residential Loan Applications, we stressed the importance of reviewing loan policies and procedures for any disparate impact implications, i.e., where policies and practices may appear neutral on their face but have the net effect of a disparate impact on a protected group. If an adverse effect or impact on a prohibited bases group is shown, it is the responsibility of the institution to justify the particular policy or practice by a “business necessity.” Some policies or practices that may raise disparate impact questions include, but are not limited to, the following excerpted from the”FDIC Compliance Examination Manual”
* A requirement that the property securing a mortgage loan must not exceed a particular age, or appraisal practices that establish unrealistically low values for older properties
* Restricting mortgage lending to loans for certain types of properties, such as single family homes, properties having no more than two floors, those with large lots, garages, or with large square footage requirements
* A policy of not making loans on properties in certain locations or appraisal practices that arbitrarily discount the value of a property because of its location
* A policy of making mortgage loans only to applicants who have previously owned a home
* Establishing highly restrictive downpayment or income requirements, e.g., requiring a 25 percent downpayment or setting a very low (such as 20 per-cent) maximum monthly mortgage payment to income ratio
* Setting high minimum mortgage loan amounts that effectively exclude low-income borrowers or low maximum loan amounts that limit the financial institution’s participation in the mortgage market
* Arbitrarily excluding FHA or VA mortgage loans
In addition, general and not specific subjective lending criteria may raise effects test or disparate impact questions. Examples of subjective lending criteria that may lead to possible unlawful discrimination include:
* The property should be in a “stable” or “rising” area, should be “well-maintained” and have an “attractive appearance” or “good curb appeal”
* The neighborhood should be “desirable”; there should be “homogeneity of residents and structures”; or the neighborhood should reflect “satisfactory pride of ownership”
* Applicants must not be of “questionable” character; must have an “excellent” credit rating; or must have “adequate” longevity on the job
Such subjective criteria may allow lending personnel to arrive at differing interpretations. Also, they may have the effect of discouraging creditworthy applicants.