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.
By Paul Sperry
Investors Business Daily
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.