So what about the CRA? What about Freddy and Fannie being commanded to buy the mortgages that nobody in good conscience would make unless the Government bought them? That should be enforced? Or should that be done away with?
You really need to get information on what Freddy and Fannie actually do. While they do back SubPrime, they also back Prime loans as well. They are the glue that, for the past decade allowed banks to loan so much money with so little concern for risk. [and I am not suggesting that is a great thing]
If banking examiners and federal regulators had ENFORCED the rules as were in place many of the FM/FM problems would not exist. They accepted everything, not just SubPrime.
Now, CRA. I love it when that is brought up. A couple of facts regarding the financial sector and CRA.
- CRA ONLY applies to Depository Institutions (1).
- Only 20% of SubPrime mortgages were issued by depository institutions under the CRA (1).
- More than half of SubPrime loans were made by independent mortgage companies not subject to comprehensive federal supervision; another 30 percent of such originations were made by affiliates of banks or thrifts, which are not subject to routine examination or supervision, and the remaining 20 percent were made by banks and thrifts. (1) (2)
- Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households. (3)
(1) Michael Barr -- House Financial Services Committee
(2) Independent Mortgage and Thrift rules established by Gramm, Leach, Bliley in 1999.
(3) Janet Yellen, Federal Reserve Bank of San Francisco
President's Speech: Opening Remarks to the 2008 National Interagency Community Reinvestment Conference (3/31/2008)
To simplify, CRA is merely a blip on the radar of the entire Financial Sector FAILURE. You have to look at lack of supervision in the markets regarding derivative financial products, CBOs, CDOs, Hedge Funds and extreme leveraging. Financially CRA is a fart in a tornado in comparison, but the only one that many on the right have been willing to use as an example because, for some reason it seems to only affect a certain segment of the population and the talking heads have spun hate and lies into the reality of its contribution.