“CRA loans were never more than 3% of originations.”
There’s a response to this here by John Carney, summarizing the debate:
http://www.businessinsider.com/the-cra-debate-a-users-guide-2009-6
Also, another article by Carney:
“As much as I respect Barry’s formidable analytical powers, I’m afraid he’s taken too narrow of the view of the matter. His question is far easier to answer than he suspects. Regulations often touch those who are not directly regulated. Indeed, the regulation of one group in a marketplace will almost always wind up affecting other groups.
More concretely, there are three very specific ways in which the CRA nudged Countrywide and other mortgage companies to adopt lax lending standards.”
Thanks. I had actually read this one before. Here is what i found germane way back then:
“Banks making CRA loans initially expected that defaults would be higher due to lax lending standards. When they discovered the low-income borrowers had an unexpected propensity to pay their mortgages. After years of data poured in showing that borrowers were paying mortgages despite high LTVs, low down payments and unconventional income measures, bankers began to believe that many of the traditional measure of credit worthiness were overly conservative. Recall what I said earlier about how mortgage service providers started pursuing low-income borrowers in part because of the CRA.
What they didn’t take into account was that different types of borrowers may behave differently, and that much of the data on those lax lending mortgages was warped by increasing home prices. Wealthier, more sophisticated borrowers ruthlessly default when their mortgage goes underwater, for example. What’s more, the reversal of housing prices meant that defaults across all borrower classes increased.”
What I took from this was that the poor folks didn’t cause the problem. Maybe the CRA was the first cause for lower doc standards, which is why I used the word “basically” when I first answered this post. It was the wealthier people who told banks/mortgage companies to shove the loans when they got upside down.
When you read the links above from the Wall Street guys, you don’t find any real mention of CRA being behind this. What appears to be the real culprit was the derivatives behind the lousy loans.
parsy, who appreciates links!