“So the easiest way was to buy blocks of them on the market to have on the ledgers”
That’s what I suspected. Buying loans made by independent brokers got banks into big trouble. The conforming loan standard of Fannie and Freddie is what everyone was used to. That was the industry standard for many decades. A seasoned down, proof of income, a low loan to income ratio.
What banks were buying from F&F’s private sector competition was something entirely different. Your in house loan officers would never have made the loans that you were purchasing, not because they were subprime but because the loans didn’t conform to traditional lending standards, often wildly diverging from them. Subprime doesn’t mean non-conforming but that’s what people were buying on the market because the yield was much better. And the rating agencies were vastly misrepresenting the quality of those loans.
CRA may well have pushed banks towards the easy route of buying those outside loans but it didn’t make them do that. It didn’t force anyone to make risky loans- had they stuck to conforming subprime paper they would have weathered the storm much better. Moreover a CRA loan doesn’t have to be a mortgage, it could be a business loan as well.
I’m not defending the CRA, I just don’t want to see us falling for a convenient but false explanation of the financial crisis. The CRA was headed in the same direction and contributed to the crisis but it didn’t cause it. The driving force really came from quants in Wall Street who were hunting for yield in Greenspan’s ultra low interest rate environment, for reasons having nothing to do with CRA.
There had always been a cottage industry of high interest consumer loans, funded by groups of doctors and dentists. And small loans offered by the likes of Household Finance Corporation. Wall Street would have loved to get those high rates but consumer loans were much too small for their purposes. Those loans were in the hundreds of dollars. Wall Street was looking to lend hundreds of thousands.
In the late 90s one firm hit on the bright idea of lending to those who couldn’t qualify to buy a house. A potentially large undeveloped market of high interest rate borrowers. Oddly enough this firm dropped the practice early on but not before the concept spread all through Wall Street. The world of non-conforming subprime lending was born in a big way and it started eating Fannie and Freddies lunch. Wall Street’s shadow banks were investor financed, they didn’t take deposits, so they were immune from the CRA. They developed that market because the profits were huge, until the game blew up.
Thanks for bringing sanity to the subject... my major concern is that we have put banks above the law and that their antics have made damn near every deed that was connected with a new mortgage or a refi from 1998ish to 2008 a “wild deed” that shows ownership or an interest in the names of banks that have no connection with the actual money trail. I don’t know anyone that has received an actual cancelled note in response to a satisfaction as they should have.. not in at least 10 years. ALL THE PAPERWORK IS FAKED. Title companies will not guarantee anything touched by wall street from that timeframe ,, they’ll issue a “special warranty deed” only ... it only covers the property for the brief time the banks hold it and the coverage dies upon issuance of a new mortgage/note. What do they know?