It’s a dead thread but you are wrong to some degree
I sat on a loan committee of a local bank
The CRA most definitely contributed
As did bundling mortgage backed derivatives by the large houses
We were required to carry loans as a result of social engineering in mortgage markets facilitated by the CRA we would not have normally booked
And the default rate was around 40%
I’m curious if you know if your CRA loans were conforming loans? And did your local bank write the loans or were you purchasing CRA qualifying paper from some outside broker? Conforming paper fared only slightly worse than it normally does. Non-conforming paper defaulted at a staggering rate.
I agree with Neidermeyer on this. I knew some of the original subprime brokers, they all began with Roland Arnall at Ameriquest before splitting off on their own. Ameriquest was the first and largest of the pure subprime lenders, the epicenter of the ensuing bubble.
None of their lending was covered by the CRA. They were shadow banks that didn’t take deposits so they were exempt. They may have sold paper to those of you who had CRA numbers to meet, but they could do anything that they wanted for themselves.
They were financed from Wall Street investment banks and hedge funds that wanted tons of high yield (and therefor high risk) paper to roll into CDOs, CDOs squared, Synthetic CDOs and all the rest of what Warren Buffet derisively called Financial Weapons of Mass Destruction. On this one Buffet was right.
The real money was in packaging high risk paper and derivatives based on it. They not only didn’t care about the quality of the loans, they actively wanted their contract brokers to push the limits and make any loan to anyone who would take one. Ergo strawberry picker Alberto Ramirez getting a $700,000 mortgage in Hollister on a $14,000 annual income.
Why? Maybe because it was possible to bet against the very loans that you had written by the use of credit default swaps.
If you knew that the loans you had written were bad, then you also knew that you could make guaranteed money on swaps when those mortgages defaulted. The sooner the mortgages defaulted the sooner you’d get paid. And you could buy as many swaps as you wanted to.
It’s not hard to see where this led to. It’s as if you could buy a hundred life insurance policies on your neighbor and were allowed to poison him as well.
Local banks holding loans they made were never the problem. They maintained standards. If your bank was in a CRA area then that would have been a problem for you but generally those areas were not a widespread issue and the “borrowers” would have gone with a wall street backed NINJA loan after about 2002/2003 and CRA lending would have dried up.