Required reading

[unixronin]

Still think Obama is a moderate?  Want to see what kind of change he might bring?  Read all about it here.  Among other things, it turns out the Great New Hope Of The Left was personally instrumental in priming the banking crisis we're facing right now, representing ACORN in the lobbying drive that forced the strengthening of the Community Reinvestment Act and started the whole subprime-mortgage ball rolling.

(Pointer from the esteemed radarrider)

Comments

[skellington.livejournal.com]

Banks have ALWAYS given sub-prime loans. People with credit cards with 29% interest rates would be a sub-prime loan. This is a really great article about what sub-prime actually means, and why a bunch of the bubble loans, especially "Alt-A" loans, were absurd. (Note, it doesn't mean loans to low-income people or minorities.)

http://calculatedrisk.blogspot.com/2008/08/reflections-on-alt.html

And from this article at the St. Louis Fed:

http://research.stlouisfed.org/publications/review/06/01/ChomPennCross.pdf

"The subprime loan securitization
rate has grown from less than 30 percent in
1995 to over 58 percent in 2003. The securitization
rate for conventional and jumbo loans has
also increased over the same time period.5 For
example, conventional securitization rates have
increased from close to 50 percent in 1995-97 to
more than 75 percent in 2003."

So by 1995, sub-prime loan securitization already existed, and the first CRA securities weren't issued until November 1997 according to this article:

http://www.allbusiness.com/personal-finance/real-estate-mortgage-loans/677967-1.html

Short answer, blaming the CRA even for securitization of sub-prime is wrong. During the 1990's EVERY kind of loan was securitized, including car and credit card and every possible grade of mortgage.

The CRA also does not require banks to issue loans that are "bad risks" (i.e. don't have a sufficiently high interest rate to cover the risk.) Somewhere I've got a link to a survey of banks by the Fed that basically says "yes, CRA loans are profitable or very profitable to our bank."

From the second article above, which is basically an ad for selling securitization services:

Three important bits:

"Under the Community Reinvestment Act guidelines, a bank gets credit for originating loans or buying on a whole loan basis; but you get no credit for holding the loans. Conversely, if you sell your loans through a securitization, a buyer can get CRA investment credit if a percentage of the loans is based in the buying bank's trade area."

and a bit earlier in the article:

"Was it banks seeking CRA investment credit? No, it wasn't. The overwhelming participants were money managers and insurance companies buying the loans strictly because of their investment appeal."

and a bit later:

"the credit scores were fairly evenly dispersed along the four standard quartile levels (620 or less, 620-659, 660-719, 720 or more)."

So they're not even necessarily to people with bad credit either. A school teacher, policeman, or fireman, who is earning half the median wage in San Francisco, with perfect credit, counts as a CRA loan.

And the only point of doing CRA securitization, compared to normal sub-prime securitization, is to let banks earn brownie-points so they don't have to pay blackmail to ACORN, etc.

There may be some effects of HUD pushing lenders to write more low-income loans, but that's _NOT_ part of CRA.

[unixronin.livejournal.com]

You appear to be deliberately avoiding addressing the specific point I cited.

[skellington.livejournal.com]

Which point is that?

But it's also a not-insignificant factor that ACORN used lawsuits based on the CRA to force banks to issue subprime loans that they otherwise would not have issued because they were bad risks.

This? I have seen no evidence that CRA loans in general, or sub-prime CRA loans in specific, were given better terms than other sub-prime loans. And I've seen no evidence that CRA sub-prime loans default at any higher rates than sub-prime loans for other populations.

If you can find default data on CRA loans that shows is significantly higher than comparable sub-prime loans, especially during the 1998-2003 time period, I'd love to see it because everything I've seen says it is comparable or better given loan quality.

One can argue (soundly, I think) that this set the stage for the later bundling of the bad loans.

And this is another point where your logic chain breaks down. Banks were issuing sub-prime mortgages before the CRA, and were securitizing sub-prime mortgages before the special CRA mortgage backed securities were created in 1997. Details listed in my response.

Is there another point I'm missing?