That is a 5 page snippet absent of scope with almost no substantive statistics to back up one individuals conclusions.
The point I originally made about the CRA, and subsequent lending and banking laws, is that it started a series of misguided and risky government policies that ultimately led to the demise of the mortgage market. Lets try to summarize with facts.
- 1993: CRA mandates lending to low and moderate income families in low and moderate income communities (CRA TARGET ZONES).
That's a fact we can agree on. As a result of this law lenders increased their activities in this demographic at record numbers.
From a 2002 study by the Board of Governors at the Federal Reserve concerning CRA and lending activity. Linky
HERE
- 1998: Clinton pressures Fannie Mae to reduce credit requirements for borrowers AND directs Fannie Mae and Freddie Mac to maintain 50% of their mortgage inventory in low and moderate income loans.
I think we can agree that low and moderate income loans in low and moderate income areas are generally higher risk. I think we can also agree that reduced credit requirements (lower credit score) create riskier loans.
- 1999: Modernization Act overturns Stegall.
I think we can agree that conglomerates like Citigroup would not have existed under Stegall and companies like Lehman would not have been in the mortgage business under Stegall.
I think we can agree that lending practices were more at fault then lending mandated by the government but I would contend that the government set the table for relaxed lending requirements across the board. They didnt say make bad loans but they did encourage loans in risky areas to risky people through legislation even though that legislation didnt require foolish loan practices.
Todays foreclosure rate in geographical areas covered by the CRA are the highest in the country. Inner City REO inventory is 30% higher in urban areas (CRA Zones) then anywhere else.
From the data located HERE
Unfortunately, this data paints a troubling picture of the incidence of foreclosures in America’s inner cities.
Data from the 100 largest US cities show the REO rate in inner
city neighborhoods was twice as high (0.63% versus 0.31%) as in the rest of the United States.
This data underscore two important aspects of the current crisis. The
first is that urban areas have been disproportionately affected by the crisis: Second, within urban areas, lower-income neighborhoods (i.e.,
inner city neighborhoods) have suffered much higher foreclosure rates than their higher income counterparts.
The data suggest that there is an urban component to the foreclosure crisis.
It should come as no surprise that foreclosures in urban areas out pace those in other areas. I think we can agree on that.
I think we can also agree that beginning in 1993 profound changes have occurred in the financial industry. I would contend that each piece of legislation, each change in mandated lending requirements and each revision of financial policy were building blocks in the house of cards. What I have stated all along is the totality and comprehensive combined effect of these laws is what caused the financial crisis. While the CRA may not be the primary reason, it was the first step down a slippery slope that was compounded by subsequent laws and changes which set in motion, directly and indirectly, the mortgage and banking failures.
