CRA “Clearly Did” Lead To Risky Loans

Democratic apologists hardest hit, Wizbang readers least surprised.

A new study by National Bureau of Economic Research confirms that the aggressive expansion of the “Community Reinvestment Act” did indeed result in the high risk loans which precipitated the economic crisis of 2008.

New Study Finds CRA ‘Clearly’ Did Lead To Risky Lending

By Paul Sperry
Investors Business Daily

The rush to the delinquent zone

The CRA Shakedown

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.



Both the rest of the IBD article and the full study (linked above) are must reads.

Nothing new here for those who have been paying attention, but plenty of grist for those of us who’ve been pointing this out for more than a year.

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  • Commander_Chico

    Ah, the old “ghetto real estate power crashed the world economy” zombie. Does that make sense to you? Riight.

    The overwhelming burden of undercollateralized loans from the ghetto somehow destroyed Bear Stearns, Lehman Brothers, AIG, not to mention Bankia and Allied Irish Bank? Selling and gambling on derivatives had nothing to do with it.

    • jim_m

      At least we provide evidence of the CRA leading to this mess. All you have is insane ramblings about teh Oligarchy!!!! or the Joooos!!!!

      And how convenient it is that you ignore that much of the derivatives market in mortgage securities was built after the changes wrought by Clinton in 1995. Those changes were opposed at the time as potentially forcing lenders to operate at a loss, which in retrospect we see is true. The derivative market was an attempt to mitigate the losses mandated by the rules.

    • UOG

      Chico, don’t lose track of the fact that it wasn’t just “ghetto real estate”. The same cheap mortgages went to the “house flipping, $1 down and $1/month, in 18 months we’ll sell it for twice what we paid for it” crowd. They may have thought they were doing something to create affordable housing but cheap mortgages were pretty pervasive at the height of the boom.

      • As well as plenty of shows on flipping houses. Make stuff look easy on TV, and there’s fools that will try it. (See the “Jackass” movies, for example. You can tell people “Don’t do this at home” – but there’s plenty of people who will try.)

        And I’ll admit, at the height of the boom, I was semi-seriously thinking about trying that myself. Buy house, fix up, sell for more than you paid… but then I reconsidered and went “Oh, HELL no…” when I started looking at the numbers.

    • EricSteel

      “Ghetto real estate” didn’t bring down the housing market. It was because the subprime mortgage industry went mainstream, and subprime mortgages stopped being used for ghetto real estate and instead started being used for McMansions.

      Traditionally most mortgages were conventional mortgages with strict requirements that reduced the over all risk. Subprime mortgages are high risk mortgages and traditionally were offered to people who couldn’t get a conventional mortgage. Lenders were able to absorb the losses from subprime mortgages because they were small in percentage and because they were generally not very expensive real estate.

      But that all changed. People who would normally settle for a $200,000 house and a conventional mortgage were getting lured into $500,000 or $1,000,000 houses with a subprime mortgage.

      The lenders were lured into the subprime market by the government waving a carrot and a stick. The CRA was the stick, Fannie Mae was the carrot. The government told the lenders not to worry about the risk as Fannie Mae was going to underwrite the risk.
      CRA was designed to help low income and minority home ownership. But in the process the government pushed the lenders into stupid reckless behavior, the lenders pushed home buyers into stupid reckless behavior and the whole thing snowballed.

      Do yourself a favor, go out and buy the book “Reckless Endangerment”.

    • fustian24

      No one doubts that the big banks jumped on the CRA bandwagon. They took a bad idea and made it much worse.

      But the proximal cause was the CRA. Without that, and Fannie and Freddie willing to buy anything, there would have been nothing to derive (see what I did there?).

      But it doesn’t really matter anyway. The CRA was a dem idea, Fannie and Freddie are all dems, and the bankers are mostly dems.

      Look into the financial collapse and it’s dems all the way down.

      You people are not very good with money.

      • herddog505

        fustian24[T]he proximal cause was the CRA. Without that, and Fannie and Freddie willing to buy anything, there would have been nothing to derive (see what I did there?).

        I think that Fanny and Freddie are key to this. The banks, having been assured that the full faith and credit of the United States was behind these damned things, had ample reason to think that they were (you should pardon the pun) as safe as houses. So, why not make some money from them by derivitzing them?

        By the way: what role was played in those derivatives by prominent democrats such as Larry Summers or Tax Cheat Timmy Geithner? And didn’t a certain bumbling fool called George Bush warn back in (IIRC) ’04 and ’05 that trouble was brewing, but certain leading democrat geniuses such as Bawney Fwank said, oh, no: keep rolling the dice?

  • Ah, the blatant racism of the soi disant “cognoscenti.”

  • Brian_R_Allen

    Thus America and more than likely Judeo-Christian/Western/Human Civilization faces the threat of total collapse into a “Democratic” potty/CRA-caused new dark age. While the CRA’s major pushers and beneficiaries – both: the treasonous, recidivist, lying, looting, thieving, mass-murdering, atrocities-of-September 11 2001-facilitating Gorelick-Wall-building, co-serial-rapist Billy-Bubbah-Blythe Gang – goes on about its business of building Web Hubbell’s daughter Chelsea Cli’ton’s “trust fund” into the multi-Billions.

    And imagining the world’s most stupid “woman” to have ever pooped between to shoes and to have failed the demographically-dumbed-down DC Bar: the habitually drunk Missus Billy-Bubbah — having the bloody hubris to run in 2016 to replace 1600 Prennsylvania’s present pretender.

    She, that is, who because of her prior engagement with Jack Daniels (she has Jack Daniel’s Single Barrel delivered VERY often by the multiple-case load) – the other day missed the confirmation ceremony for the, every-bit-as-treasonous-as-she, incoming occupant of the secretary of state’s office suite.

    God save us!

  • jim_m

    Come on Rodney. We already know that the left has explained how the CRA had nothing to do with the mortgage crisis. Their explanation was, “Because, shut up”.

  • Commander_Chico

    What’s up with that graph? Implies $6 trillion in CRA debt in 2008, but total household debt is 11 trillion right now. Oh, I get it. It’s bullshit.

    • jim_m

      but total household debt is 11 trillion right now.

      It’s 2013 right now. That might have something to do with it. Or are you really that stupid? Oh I get it, You are.

      Whatever might be wrong with that graph it cannot possibly be as wrong as you were yesterday when you claimed a no longer existent foundation was funding and influencing the MRC. I’ll just remind you that when I pointed that out you fled the site, declining the opportunity to correct your bullshit.

    • Calender challenged, are you?

      • jim_m

        Like all lefties, Chico is in denial about he true effects of his policies. I am sure that if you got him to admit that CRA is a failure his response will be that it should have done more to force banks to write more mortgages to people who couldn’t pay for them.

        Leftist policies can only fail because they are not far left enough. They never fail because they are wrong.

  • GarandFan

    As Barney Frank would say, “I was blinded by ideology”.

  • Dr. Strangelove meets the bankers…

    …or How Bankers came to Love poorly secured mortgages

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