Skip to comments.The Community Reinvestment Act, Evaluated
Posted on 01/17/2010 8:15:37 AM PST by Johnny_Longtorso
...Bank of America said in 3Q 2008 that while its CRA loans constituted 7 percent of its owned residential-mortgage portfolio, they represented 29 percent of that portfolio's net losses. [Pinto 2009a] The annualized loss rate from the CRA book was 1.26 percent and represented 29 percent of the residential mortgage net losses. [Husock 2008]...
...According to George Benston of Emory University, larger banks' loans to low to moderate income borrowers are operated as a strategic loss to get a satisfactory CRA rating for regulatory approval for mergers and acquisitions. This means larger banks charge extremely low rates that smaller banks cannot match [Minton 2008]. ...
...Supervision of banks with under $1 billion in assets was loosened, and larger banks were allowed to voluntarily reduce the amount of regulator scrutiny of their "investment" and "service"-two long-standing categories of assessment under the CRA....This had two unintended consequences that would later prove to be very costly. In the first place, it increased CRA scrutiny of larger banks, who were now the main focus of regulators....
...Unfortunately, the left's strategy is to use the CRA to target large institutions, then evaluate the harm done by the CRA (and related initiatives) by examining smaller institutions....
To sum it all up...You cannot legislate the poor into middle class.
While 39 percent of the smallest banking institutions in the sample report that the profitability of their CRA-related home purchase and refinance lending is either somewhat lower or lower than the profitability of their non-CRA-related lending, 69 percent of the largest banking institutions report this experience. [Fed 2000]
A greater proportion of large banking institutions (assets of $30 billion or more) report that their CRA-related home purchase and refinance lending is either marginally unprofitable or unprofitable than medium- (assets between $5 billion and $30 billion) or smaller sized (assets between $950 million and $5 billion) institutions. [Fed 2000]
The mean and median 30-89 day delinquency rates for both the CRA-related and overall lending of large banking institutions are more than two times the mean and median 30-89 day delinquency rates for smaller institutions in the sample. Differences for other measures of performance are about the same. [Fed 2000]
Nearly 90 percent of large banking institutions report higher 30-89 day delinquency rates for CRA-related home purchase and refinance lending than for overall home purchase and refinance lending. By comparison, 41 percent of smaller banking institutions in the sample report this kind of relative experience. Similarly, half of the large institutions report that credit losses are higher for CRA-related home purchase and refinance lending, while only 22 percent of smaller institutions in the sample report a similar experience. [Fed 2000]
Among all institutions, about 40 percent of CRA special lending programs are not profitable. For large institutions, 58 percent report that their CRA special lending programs are not profitable. [Silvia 2000]
Delinquency rates are higher on a per program dollar basis than on a per program basis. The study interprets this result as "suggesting that larger programs have higher delinquency rates." [Silvia 2000]
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