No one in this process was regulated by the CRA.
But CRA was attached to the GLB-act. If these institutions wanted to benefit from GLB they had to be in compliance with CRA. That’s one thing I can’t get past.
And...I can’t believe anyone who has looked into this cannot tell this bubble was going to pop no matter what.
I’ve seen TWO instances where the Clinton Admin made changes to the CRA, one being the Cuomo announcement, and the other being that CRA was attached to GLB in order for Clinton to sign it.
CRA has been around since 1977. There was no bubble in subprime loans during the first 25 years of its existence.
GLB passed in 1999 opening the mortgage market to investment banking. The amount of subprime lending exploded, and much of it was now high-risk and non-conforming. The rise and collapse of the subprime market occurred in less than 10 years.
There has been a raft of studies by the likes of the FDIC, the Office of Thrift Supervision, the Federal Reserve, and private firms. In the world of subprime lending, 50% of subprime loans were made by independent mortgage brokers and were not subject to CRA. 25% of subprime loans were made by bank subsidiaries and affiliates and were only partially subject to CRA. Only 25% of subprime loans were fully CRA regulated. CRA loans were conforming and low yield. The great excesses in subprime lending occurred in the non-regulated sector where you had zero-down loans, no doc loans, payment option ARMs, and a host of similar high-yield innovations. These loans were highly sought after by the investment community because they promised high yields. They also turned out to be time bombs for those unlucky enough to have been involved with them.
Boring, conforming, low yield CRA loans have proven to be as safe as other conforming loans since they use similar criteria to vet the borrowers’ ability to make payments. CRA is probably a bad idea just like all other government mandated social engineering, but it doesn’t involve enough money to have created the credit bubble. That took the firepower of Wall Street looking to create a large new market to invest in. And once Glass-Steagall was out of their way they poured huge amounts of money into mortgages and the related derivatives market.