Saturday, February 5, 2011

The Banker, In The Office, With The CDO

Republicans are still trying to revise history, as witnessed by John Fund on Real Time With Bill Maher last evening, by claiming the government (largely through Fannie Mae, Freddie Mac, and CRA) is primarily responsible for our Great Recession.

As I have previously noted:

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."

Eric Alterman and George Zornick reveal, "In the 15 most populous metropolitan areas, 84.3 percent of the subprime loans in 2006 were made by financial institutions not governed by CRA."

The Journal Sentinel even notes, in the article, "The federal law [CRA] applied only to depository institutions, not private, unregulated mortgage lenders."

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."

"The CRA applies only to banks and savings institutions. It does not apply to credit unions, independent mortgage companies, or investment banks," details Ellen Seidman.

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."

For Further Reading:

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