New Study Finds CRA 'Clearly' Did Lead To Risky Lending

Democrats and the media insist the Community Reinvestment Act, the anti-redlining law beefed up by President Clinton, had nothing to do with the subprime mortgage crisis and recession.

But a new study by the respected National Bureau of Economic Research finds, "Yes, it did. We find that adherence to that act led to riskier lending by banks."

Added NBER: "There is a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam. Moreover, the effects are larger for loans made within CRA tracts," or predominantly low-income and minority areas.

To satisfy CRA examiners, "flexible" lending by large banks rose an average 5% and those loans defaulted about 15% more often, the 43-page study found.

The strongest link between CRA lending and defaults took place in the runup to the crisis — 2004 to 2006 — when banks rapidly sold CRA mortgages for securitization by Fannie Mae and Freddie Mac and Wall Street.

CRA regulations are at the core of Fannie's and Freddie's so-called affordable housing mission. In the early 1990s, a Democrat Congress gave HUD the authority to set and enforce (through fines) CRA-grade loan quotas at Fannie and Freddie.

It passed a law requiring the government-backed agencies to "assist insured depository institutions to meet their obligations under the (CRA)." The goal was to help banks meet lending quotas by buying their CRA loans.

But they had to loosen underwriting standards to do it. And that's what they did.

"We want your CRA loans because they help us meet our housing goals," Fannie Vice Chair Jamie Gorelick beseeched lenders gathered at a banking conference in 2000, just after HUD hiked the mortgage giant's affordable housing quotas to 50% and pressed it to buy

Sorry posters, this is bank BS. CRA led to subprime loans, but subprime mortgage notes are marked as such. The fatal punch to the mortgage banking system was liar loans. These are conventional loans which the bank decided not to verify the borrowers credit history, income and assets so the borrower can qualify for a bigger loan with false information. Clinton try to placate the banks on subprime loans by encouraging them to bundle them with good loans and form a portfolio of loans to spread the risk. Clinton offered to have Fannie Mae and Freddie Mac buy the loans after six months. Problem is FM/FM in their rush to buy loans did not audit the mortgage notes in the portfolios. When the bankers discover the lack of audit by the gov buyers they decided that they can make more money not on the payments but on the fees and points. To maximize the profit within six months on fees and points the bankers need to qualify people for larger loans. Since the gov will not check on the application info, liar loans were born. Problem is liar loans were passed off as good conventional loans. The Fed gov and other investors brought these mortgage portfolios without knowing of its toxic liar loans content. Many large banks who brought the portfolios for resale did discover the toxic liar loans, but chose to cover this up by hiring rating agencies such as Moody, Fitch and etc and pressure them to rate the portfolios AAA and resold it to other investors fraudulently. Why do you think JPM was forced to settle with fines of billions of dollars? JPM was not the only bank that did this, the top five Wall Street banks were doing the same.
Believe me, banks run this country. If the gov is going to force them to lose money they will fight tooth and nail in court and have their brought politicians in both parties kill this policy. Instead they quietly agreed because they found huge money making blindspots in the CRA policy and offers by FM and FM. The profits from liar loans and FM and FM stupidity would more then make up for the inconvenience of subprime loans. Banks made a killing from fees and points, and used the spread of toxic assets into the US and world financial system as a terrorist threat to crash the US financial system for a taxpayer bailout. There is still toxic mortgage assets in our system even today. Why do you all think the Fed Reserve is forced to print money and buy 40 billion mortgage backed securities each month as part of QE!!!! Subprime is half of the story and the spin is the gov is the main culprit. That is only half the story, the other half is not told by Investor article. Big gov and big business is the enemy of Main Street America!!!!!

” With wanton disregard for the economic well being of America, a decade ago the social justice entrepreneurs of the ultra-leftist Association of Community Organizations for Reform Now (ACORN) let Americans know their strategy for bringing equality of result to the housing market — at all costs.

In a circa 1999 document, “To Each Their Home: Success Stories from the ACORN Housing Corporation,” the ACORN affiliate called the American Dream a sham and bragged about undermining banks’ underwriting standards.

The brochure acknowledged there may be scattered “stories of hope and success” in ACORN-targeted communities, but “they also belie the supposition that if you simply work hard, sacrifice and save, you can easily buy a home of your own.”

ACORN Housing took credit for developing “several innovative strategies” to get around pesky traditional lending guidelines, which were unfair because they “were geared to middle class borrowers.”

Instead of using passé measures of creditworthiness such as, say, credit history and having an adequate income, ACORN convinced lenders to adopt “more flexible underwriting criteria that take into account the realities of lower income communities.” Henceforth, some banks serving inner cities would accept “less traditional income sources such as food stamps.” (See Foundation Watch, November 2008.) “

Bears repeating: “less traditional income sources such as food stamps.”

ACORN. One of Benghazi Barry’s favorite groups.

http://spectator.org/archives/2008/10/29/acorns-food-stamp-mortgages

Read ACORN’S brochure here:

http://capitalresearch.org/wp-content/uploads/2008/10/toeachtheirhome.pdf

“CRA obliges banks and S&Ls to meet the credit needs of their entire federally chartered serviice area. It instructs regulators to rate financial institutions on their community lending performance and allows community groups to CHALLENGE (my emphasis) a bank expansion or merger if the bank has ignored the needs of poor or minority neighborhoods.”

Sounds like thug tactics to me. Seems ACORN “community organizers” are ALSO to blame.

Liar loans were middle and upper middle class loans for buyers who wanted to flip homes. Bankers knew these mortgage notes can be sold to Freddie Mac and Fannie Mae after the bank holds them for six months or more. Since the gov will not audit the notes before purchase, bankers waived loan standards for so they can originate liar loans. CRA pushed the banks into subprime loans for minorities. These loans also used faulty income data such as food stamps and etc, BUT the loan is marked SUBPRIME, thus investors who buy the mortgage note will buy it at a price that accounts for the risk the note has. Liar loans were disguised as good conventional loans. When the gov brought them from the bank, they paid premium prices for the notes not realizing it was high risk and near junk. CRA and ACORN were pushing for unsound lending practices to make up for past injustice. Approaching business from that premise is faulty and will increase risk of bankruptcy. Subprime collapse proved that in the open. Liar loans is not just unsound business practice, it is also fraudulent business practice. So when banks pay groups to do studies that conclude only the gov CRA policy and subprime loans caused the financial debacle of 2008, it only tells half the story (the bankers version) and not the whole truth. I say this once and will say it again, in the 21st Century America the two biggest threat to American freedom is big gov and big business.

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