NOT Fannie, Freddie, the CRA, Nor The Poor

Republicans have been somewhat successful in diffusing the idea that Fannie Mae, Freddie Mac, the Community Reinvestment Act, and poor people were responsible for the housing bubble. Thus, Republicans are winning some elections, and our casino capitalism is still running amok.

Yet Ned Gramlich, of the Federal Reserve, found, "Banks have made many low- and moderate-income mortgages to fulfill their CRA obligations, they have found fault rates pleasantly low, and they generally charge low mortgage rates. Thirty years later, CRA has become very good business." Russel Kroszner, also of the Federal Reserve, states, "Contrary to the assertions of critics, the evidence does not support the view that the CRA contributed in any substantial way to the crisis in the subprime mortgage market."

As Paul Krugman explained, "The Community Reinvestment Act of 1977 was irrelevant to the subprime boom, which was overwhelmingly driven by loan originators not subject to the Act...During those same years [the middle years of the naughties], Fannie and Freddie were sidelined by Congressional pressure, and saw a drop in their share of securitization."

Neil Bhutta and Glenn B. Canner discovered, "The small share of subprime lending in 2005 and 2006 that can be linked to the CRA suggests it is very unlikely the CRA could have played a substantial role in the subprime crisis."

Kenneth Cooper notes, "In his new study on racial-ethnic lending patterns, Jourdain-Earl finds that Federal Reserve data show that 84 percent of mortgages purchased by Fannie Mae and Freddie Mac between 2004 and 2009 had been made to whites, with 8 percent going to Hispanics and 5 percent to African-Americans. For loans to comply with CRA, 68 percent went to whites, 15 percent to Hispanics and 12 percent to African-Americans—hardly enough volume from minorities to cause the housing crisis."

"Overall, loans originated for private-label securitization have defaulted at about six times the rate of Fannie and Freddie loans," informs David Min.

For Further Reading:

An Obtuse & Deceptive Accounting

The Banker, In The Office, With The CDO

Faulty Conclusions Based On Shoddy Foundations

FCIC Investigation, Wallison on the GSEs and the Conservative Echo Chamber

Did Liberals Cause the Subprime Crisis?

It Was Wall Street

Things Everyone In Chicago Knows

The definitive debunking of the "CRA, Fannie, Freddie, and the poor are at fault" claims can be read in Why Wallison Is Wrong About The Genesis Of The U.S Housing Crisis.