NO ONE forced banks to make any loans. NO ONE. Instead, what happened was your wonderful unrestricted market created a ton of home loan related products (you listed them above, BANKS created those) to make money of the "ever upward" housing market.
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Wrong Jeff, I think you might benefit with a visit with the compliance officer of your local bank. Or I would refer you to the Fox News of the left, the "Villiage Voice" who would have an opinion other than your own. It has the catchy title, Andrew Cuomo and Fannie and Freddie How the youngest Housing and Urban Development secretary in history gave birth to the mortgage crisis
New York Andrew Cuomo and Fannie and Freddie - Village Voice
For the record, CRA Development Goals and related enforcement audits or the CRA evaluation of an institution's "Community Development Activity".
Banks took on risky loans or faced the wrath of CRA compliance agreements, demonstrations from SEIU, Rainbow Coalition, The National Community Reinvestment Coalition and my good friends at ACORN. In addition to providing these nonprofits with mortgage money to disburse, CRA allows those organizations to collect a fee from the banks for their services in marketing the loans. The Senate Banking Committee has estimated that, by the year 2000, as a result of CRA, $9.5 billion so far had gone to pay for services and salaries of the nonprofit groups involved.
Failure to meet with CRA "Development Activity" standards results in a CRA agreement, which is a compliance mandate that they increase their targeted lending or other activities in a designated community. The average agreement lasts FIVE years. The Federal Reserve studied a sample of these agreements and found they included the following: (Most agreements contained multiple pledges).
MONETARY PLEDGES (so much for no one made anybody do anything):
Mortgage-related 37.3%
Small business-related 68.6%
Minority-, women-owned businesses 23.5%
Community development 66.7%
Other 49.0%
SERVICE-RELATED PLEDGES
Mortgage technical assistance and counseling 45.1%
Small business technical assistance 17.6%
Branch-related 39.2%
Further, the market was not "unrestricted" Fannie and Freddie executives were paid massive bonus payments based on volume not quality. I wrote a lengthy piece on this a while back that you may wish to pull out of your treasured Veek scrapbook.
But don't take my word for it. The National Bureau of Economic Research that says, quite bluntly. that the CRA played a major role in the housing crash.
Authors Sumit Agarwal, Efraim Benmelech, Nittai Bergman, Amit Seru answer the title's question, "Did the Community Reinvestment Act (CRA) Lead to Risky Lending?," with the clear, "Yes, it did. ... We find that adherence to the act led to riskier lending by banks."
The full abstract reads:
Yes we can turned into yes, it did. THe authors used exogenous variation in banks’ incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect of the CRA on lending activity. Their empirical strategy compares lending behavior of banks undergoing CRA exams within a given census tract in a given month to the behavior of banks operating in the same census tract-month that do not face these exams. We find that adherence to the act led to riskier lending by banks: in the six quarters surrounding the CRA exams lending is elevated on average by about 5 percent every quarter and loans in these quarters default by about 15 percent more often. These patterns are accentuated in CRA-eligible census tracts and are concentrated among large banks. The effects are strongest during the time period when the market for private securitization was booming.
Investors Business Daily does a very nice job of summarizing the nature of the pressure brought on lenders (that's IBD's most excellent graphic, above):
"We want your CRA loans because they help us meet our housing goals," Fannie Vice Chair Jamie Gorelick* beseeched lenders gathered at a banking conference in 2000, just after HUD hiked the mortgage giant's affordable housing quotas to 50% and pressed it to buy more CRA-eligible loans to help meet those new targets. "We will buy them from your portfolios or package them into securities."
She described "CRA-friendly products" as mortgages with less than "3% down" and "flexible underwriting."
From 2001-2007, Fannie and Freddie bought roughly half of all CRA home loans, most carrying subprime features with little regard to their credit quality.
Note that the authors of the study caution that their work here may actually understate the impact of the CRA. How? Because the study assumes that the major impact of CRA took place when banks were undergoing examination regarding their compliance with CRA goals. If banks found it difficult to shift gears in preparation for such exams, they may have altered their overall behavior to satisfy politicians and regulators. Or, as the authors put it in their conclusion, "If adjustment costs in lending behavior are large and banks can’t easily tilt their loan portfolio toward greater CRA compliance, the full impact of the CRA is potentially much greater than that estimated by the change in lending behavior around CRA exams."
The housing meltdown and the Great Recession. Something else for which you can thank the feds. Don't worry student loans are on the horizon.
*By the way, if the name Jamie Gorelick rings a bell, even though she had no previous training nor experience in finance, Ms Gorelick was appointed Vice Chairman of Federal National Mortgage Association (Fannie Mae) from 1997 to 2003. She served alongside former Clinton Administration official Franklin Raines (who served as White House budget director under President Bill Clinton). During that period, Fannie Mae developed a $10 billion accounting scandal. For her services, Ms Gorlick from 1998 to 2002 received a total of $26,466,834.00 in income.