The CRA loans by themselves were not the problem. The problem was the mechanism the Democrats put in place to make it possible for lenders to fulfill the CRA lending goals.
Witness the contributions of Jamie Gorelick, who enriched herself to the tune of $26m off Fannie crony capitalism:
In 2001, Gorelick announced that Fannie was buying subprime loans encouraged by the Community Reinvestment Act (CRA) and bundling them as securitized financial instruments. Securities made from bundles of guaranteed mortgages were to contribute to the banking crisis later in the decade.“Fannie Mae will buy CRA loans from lenders' portfolios; we'll package them into securities; we'll purchase CRA mortgages at the point of origination; and we'll create customized CRA-targeted securities,” she said in 2001. “This expanded approach has improved liquidity in the secondary market for CRA product, and has helped our lenders leverage even more CRA lending. Lenders now have the flexibility to use their own, customized loan products.”
In remarks before the American Bankers Association on Oct. 30, 2000, Gorelick explicitly how the procress would work and what Fannie Mae would do to make it feasible for banks to lend to low-income applicants.
“We will take CRA loans off your hands--we will buy them from your portfolios, or package them into securities--so you have fresh cash to make more CRA loans,” she said. “Some people have assumed we don't buy tough loans. Let me correct that misimpression right now. We want your CRA loans because they help us meet our housing goals.”
That's how the housing bubble machine worked. The GSEs backed the bad paper, allowing lenders to comply with the CRA and get rich off origination fees, and Wall Street stepped forward to package the poison and fob it off on suckers. And, of course, you as a taxpayer backed the GSEs.
For me, one of the funnier episodes of the financial crisis was hearing that a Bavarian bank had failed because it had inadvertently invested in obligations of deadbeat California homeowners.
Such is the cost of the Low Information Voter.
BRAVO , That is exactly what happened ... Can you somehow get Rush to understand that it wasn’t the CRA , it was the banks abusing the mechanism... he doesn’t understand and it makes him sound idiotic.
I have always wanted to know what Andrew Cuomo’s roll in this whole fiasco was.