Since the financial collapse brought on by the housing bubble and the casino playing Too Big To Fail banks in 2008, many of us in the blogosphere put the blame government policies, which pumped air into the sub-prime mortgage market. The government of Barak Obama, of course, put the blame entirely on the Wall Street bankers and the unfunded wars of Bush II. Now, nearly five years later, the National Bureau of Economic Research (NBER) finished their review of what happened and puts the blame squarely on the Community Redevelopment Act (CRA). You are unlikely to hear about the NBER report from the MSM because it doesn’t fit with their liberal feel good agenda. But, paul Sperry at Investors.Com shares the news:
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.”
The Community Redevelopment Act was the brain child of Mr. Feel Good himself, President Jimmy Carter. But, like most things associated with Carter, nothing much happened. Presidents Reagan and Bush I also managed to keep a lid on CRA; but unfortunately, they didn’t kill it. Then came Mr. I Feel Your Pain, President Bill Clinton, and he with the help of the likes of Barney Frank had Fanny and Freddy put the CRA on steroids. Take a look at this graph:
And then there is this:
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 more CRA-eligible loans to help meet those new targets. “We will buy them from your portfolios or package them into securities.”
Housing analysts say the CRA is the central thread running through the subprime scandal — from banks and subprime lenders to Fannie and Freddie to even Wall Street firms that took most of the heat for the crisis.
And, this little tid bit is interesting:
Banks that didn’t meet Clinton’s tough new numerical lending targets were denied merger plans, among other penalties. CRA shakedown groups like Acorn held hostage the merger plans of banks like Citibank and Washington Mutual until they pledged more loans to credit-poor minorities.
Even if Obama and friends refuse to admit the role of CRA in the Great Recession, one would think they would be very prudent about continuing to push for more sub-prime mortgages. One would be wrong!
Obama officials, who are cracking the CRA whip anew against banks, insist the law played no role in the mortgage meltdown.
“CRA loans performed substantially better than subprime loans, and the CRA has been around for decades,” argued senior Justice Department official Thomas Perez.
Yes, the same Thomas Perez that is now Obama’s nomination for Secretary of Labor.
It truly is an asylum in which we live. Reagan was right. Government isn’t the solution; it is the problem.
Well, that’s what I’m thinking. What are your thoughts?