Poor Richard's News: National Bureau of Economic Studies: Clinton's Community Reinvestment Act "clear cause" for housing crisis

poorrichardsnews:

President Obama likes to blame “the previous administration” for the housing and economic crisis.  Well, it was in a previous administration that started the housing crisis, but not the previous administration.

from Investors Business Daily:

Democrats and the media insist the Community Reinvestment Act, the anti-redlining law beefed up by President Clinton, had nothing to do with the subprime mortgage crisis and recession.

But a new study by the respected National Bureau of Economic Research finds, “Yes, it did. We find that adherence to that act led to riskier lending by banks.”

Added NBER: “There is a clear pattern of increased defaults for loans made by these banks in quarters around the (CRA) exam. Moreover, the effects are larger for loans made within CRA tracts,” or predominantly low-income and minority areas.

To satisfy CRA examiners, “flexible” lending by large banks rose an average 5% and those loans defaulted about 15% more often, the 43-page study found.

The strongest link between CRA lending and defaults took place in the runup to the crisis — 2004 to 2006 — when banks rapidly sold CRA mortgages for securitization by Fannie Mae and Freddie Mac and Wall Street.

CRA regulations are at the core of Fannie’s and Freddie’s so-called affordable housing mission. In the early 1990s, a Democrat Congress gave HUD the authority to set and enforce (through fines) CRA-grade loan quotas at Fannie and Freddie.

It passed a law requiring the government-backed agencies to “assist insured depository institutions to meet their obligations under the (CRA).” The goal was to help banks meet lending quotas by buying their CRA loans.

But they had to loosen underwriting standards to do it. And that’s what they did.

read the rest

There have been previous studies that came to the same conclusion.  President Clinton’s Community Reinvestment Act is a clear example of Democrats doing what they always do: interfering with the free market for the sake of “fairness” and “racial equality.”  The truth is that the law is anything but “fair” or “equal” as it forces banks to make risky loans just because of the color of a person’s skin.  Much like Affirmative Action, it holds different ethnic groups to different standards, and that kind of racial policy has no place in the United States.

Liberal ideology pushes these kinds of bad ideas time and time again, and the results are always the same: disaster.

(via nomosshere)