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Some critics of the CRA contend that by encouraging banking institutions to help meet the credit needs of lower-income borrowers and areas, the law pushed banking institutions to undertake high-risk mortgage lending. We have not yet seen empirical evidence to support these claims, nor has it been our experience in implementing the law over the past 30 years that the CRA has contributed to the erosion of safe and sound lending practices. ...
Over the years, the Federal Reserve has prepared two reports for the Congress that provide information on the performance of lending to lower-income borrowers or neighborhoods--populations that are the focus of the CRA.3 These studies found that lending to lower-income individuals and communities has been nearly as profitable and performed similarly to other types of lending done by CRA-covered institutions. Thus, the long-term evidence shows that the CRA has not pushed banks into extending loans that perform out of line with their traditional businesses. ...
The research focused on two basic questions. First, we asked what share of originations for subprime loans is related to the CRA. The potential role of the CRA in the subprime crisis could either be large or small, depending on the answer to this question. We found that the loans that are the focus of the CRA represent a very small portion of the subprime lending market, casting considerable doubt on the potential contribution that the law could have made to the subprime mortgage crisis.
Second, we asked how CRA-related subprime loans performed relative to other loans. Once again, the potential role of the CRA could be large or small, depending on the answer to this question. We found that delinquency rates were high in all neighborhood income groups, and that CRA-related subprime loans performed in a comparable manner to other subprime loans; as such, differences in performance between CRA-related subprime lending and other subprime lending cannot lie at the root of recent market turmoil. ...
Our analysis of the loan data found that about 60 percent of higher-priced loan originations went to middle- or higher-income borrowers or neighborhoods. Such borrowers are not the populations targeted by the CRA. In addition, more than 20 percent of the higher-priced loans were extended to lower-income borrowers or borrowers in lower-income areas by independent nonbank institutions--that is, institutions not covered by the CRA.6
Putting together these facts provides a striking result: Only 6 percent of all the higher-priced loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas, the local geographies that are the primary focus for CRA evaluation purposes. This result undermines the assertion by critics of the potential for a substantial role for the CRA in the subprime crisis. In other words, the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis.
Of course, loan originations are only one path that banking institutions can follow to meet their CRA obligations. They can also purchase loans from lenders not covered by the CRA, and in this way encourage more of this type of lending. The data also suggest that these types of transactions have not been a significant factor in the current crisis. Specifically, less than 2 percent of the higher-priced and CRA-credit-eligible mortgage originations sold by independent mortgage companies were purchased by CRA-covered institutions.
FRB: Speech--Kroszner, The Community Reinvestment Act and the Recent Mortgage Crisis--December 3, 2008
In other words, 8% of subprime loan losses were CRA-covered.
So for all those who are blaming the CRA for the financial melt-down, you will have to find another culprit.
It's simple cause/effect.
The Fed started it all off by offering artificially low rates which caused way more people to borrow then normally would have. Everything after that, which may have contributed to the problem, is an afterthought.
The ultra-cheap, abundant credit caused the mess in the first place. The effect was that too many people borrowed, and too many banks gambled with toxic debt that wouldn't have existed without the enticing interest rates being dangled in front of hungry would-be homeowners like meat to a starving lion.
Stop enabling the debt problem, and stop injecting so much new money into the system, and we will not see these kinds of problems anymore.
Criminally low interest rates IMHO.
As far as I'm concerned, whatever rate is set by the Fed is criminal, because the Fed ITSELF is criminal.
But had the market decided those rates on its own without the Fed, or any other entity, setting a "target rate", I would be fine with it.
I seriously doubt the market would ever set a rate that low on its own, though. Without the Fed manipulating the money supply and the credit markets, we most likely wouldn't have these boom and busts where new money is needed to "jumpstart" things, therefore banks would never offer a subprime rate that low.
Exactly---now since we know the fed knew what it was doing the question is WHY WERE THEY DOING IT ?
Well it isn't the first time they set rates that low. But they know things ALWAYS get bad eventually after the boom period is over. The question of why they keep doing it is easily answered: greed and control
but WHO? WHO made the big bucks while America went down the tubes.
It's hard to say exactly. Admittedly, many of the names that I'm positive are benefitting the most are shrouded in conspiracy theory.
The wealthiest families, the ones who have had a stake in the Fed since day 1. The Morgans, the Warburgs, the Rothschilds, the Schiffs, the Rockefellers...You start there.
And then there's all the lackies who've been mere peons compared to those families, but are still extremely wealthy. They would be whoever has held a high position within the entity. For a recent, more known name, how about Tim Geithner?
Have you read Creature from Jekyll Island, yet? If not, I recommend it. It's required reading if you're really interested in understanding just what exactly the Fed Reserve is all about.
You can add the rating companies to your list of targets for a hand in the meltdown. From what I understand they totally blew it. I also read somewhere that the companies pay the rating companies to rate them...sounds like a nightmare on wall street.
Simple fix is reasonable regulation.
You can add the rating companies to your list of targets for a hand in the meltdown. From what I understand they totally blew it. I also read somewhere that the companies pay the rating companies to rate them...sounds like a nightmare on wall street.
Simple fix is reasonable regulation.
FRB: Speech--Kroszner, The Community Reinvestment Act and the Recent Mortgage Crisis--December 3, 2008
In other words, 8% of subprime loan losses were CRA-covered.
So for all those who are blaming the CRA for the financial melt-down, you will have to find another culprit.
Let me get this straight... You're actually on the side of the Federal Reserve???
If you don't trust the Fed (and most thinking people DO NOT), read this:
Abolish the Federal Reserve
H.R. 2755: Federal Reserve Board Abolition Act (GovTrack.us)
Toro has mentioned before that he believes the Fed is the prime culprit in this mess. Whether or not he trusts them, or wants to see them remain, I can't speak to.
I'd like to know what he thinks should be done about the Fed though, if he thinks it should stay.
