Community Reinvestment Act had nothing to do with subprime crisis

BusinessWeek ^ | September 29 | Aaron Pressman

[agooga]

Fresh off the false and politicized attack on Fannie Mae and Freddie Mac, today we’re hearing the know-nothings blame the subprime crisis on the Community Reinvestment Act — a 30-year-old law that was actually weakened by the Bush administration just as the worst lending wave began. This is even more ridiculous than blaming Freddie and Fannie.

The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”

Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses, according to a recent study by the law firm Traiger & Hinckley (PDF file here).

[agooga]

Seeking your opinions, here.

[fooman]

laughable

[Iron Munro]

Its spin.

[kcm.org]

bttt

[Notwithstanding]

Totally serious investigation with hilarious headline:

Is this the Herbert M. Moses behind Barney Frank's mounting Fannie scandal that is about to erupt?

Herbert M. Moses

[A_Former_Democrat]

LOL . . that’s my opinion.

[machogirl]

The obama train.

[machogirl]

ewwwwwwwwwwww, someone didn’t proof that headline

[whitedog57]

I have the data. I would post the CRA pictures, but I can’t figure out how to do so with linking it to my work computer (which would be tracked down by Obama’s Gestapo).

The CRA and pressure on F&F is the cause. Other lenders jumped on the gravy train to offer subprime/ALT-A to anything that moved for the big fees, but the CRA is the cause.

Business Week is really bad and doesn’t listen to anyone.

[SlowBoat407]

Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly.

Why? We have a worldwide terrorism crisis today caused by a 1976 election.

[Cementjungle]

I'm no expert, but common sense tells me that the huge effort to offer loans to low-income people, coupled with the CRA rules allowing lending institutions to falsely package these loans for resale as "AA" rated paper, had a lot to do with this mess. Fannie Mae and Freddie Max did not have to follow the same SEC rules as most other financial institutions did and still to this day don't have a clue as to their real financial situation.

Therefore, I think this guy's opinion is dead wrong.

[C19fan]

The CRA was at its strongest in the 1990s, under the Clinton administration, a period when subprime loans performed quite well. It was only after the Bush administration cut back on CRA enforcement that problems arose, a timing issue which should stop those blaming the law dead in their tracks.

The reason CRA loans perfomed "well" during the 1990s was housing prices were steady or climbing. From my experience in the mortgage industry a large majority of these loans refinanced during the housing boom as home owners took out their new equity. Only a small fraction of these loans originated in the 1990s were still around when the housing boom crashed. Many of the newer loans originated during the Bush administration could not refinance when the borrower got into trouble as the boom crashed. Most likely as people like Frank, Dodd and yes Bush pushed for increased home ownership the underwriting standards for these loans deteriorated.

[ken21]

business week is a liberal magazine.

20 years ago i subscribed.

i noticed an error in a bar graph of male and female health costs and wrote a letter with the expectation that they’d acknowledge the error.

wrong! they defended the error.

the error was blatent: they claimed male lifetime health costs were more expensive than female.

looking at the bar graph i discovered that they’d left off the last decade of female lives.

[sourcery]

Nothing should ever be considered true beyond reasonable doubt until the MSM officially denies it.

[pacpam]

I agree that there was need to increase regulation. The President tried and was rebuffed by Congress. CRA set the stage for this to happen by letting Freddy and Fanny buy subprime mortgages originating from others. The Black Caucus demanded continued, unregulated lending - on the record.

[silverleaf]

http://www.dailymotion.com/video/x6wxmr_burning-down-the-house-what-caused_news

put together by a bunch of Know-nothings

[truthluva]

Sounds like “Burning Down The House” is making some headway.

[Eric in the Ozarks]

The CRA required banks for the first time, to list the race of the borrower to track the percentage of minority loans. A bank pal told me Janet Reno promised a “reign of terror” if a certain percentage didn't go to those with poor or non existent credit.

[ArrogantBustard]

Just the idea that a lending crisis created from 2004 to 2007

He starts off with a blatant falsehood ... the rest of the rant is sure to be worthless drivel.

[Ouderkirk]

Community Reinvestment Act had nothing to do with subprime crisis

the facts prove otherwise