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Originally Posted by scottw
can't argue with the last part...
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Glad we can agree on something.
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by government forcing banks to change their established lending practices and standards for more "liberal" lending...and eventually encouraging the same be applied through the rest of the industry....
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That's a gross and misleading oversimplification.
The data shows is that a very small % of sub-prime lending can be attributed to the CRA, and even then, those loans didn't perform all that badly. Programs under the guise of "affordable housing" encouraged by both the Left and the Right certainly worked to lower standards to extend credit, but the data doesn't reflect a substantial negative impact to the overall system. If anything it actually increased home ownership which I'd think was a good thing.
That's not to say that deteriorated lending standards weren't a massive part of the problem...quite to the contrary...low rates and a demand for the mortgage backed securities started to drive the number of loans, but at the risk of increased defaults the products changed and we saw the explosion of ARMs with ultra low or no interest rates. This made it easy for anyone to get a loan that they could probably make payments on...at least long enough for the warranty to the underwriter to expire.
This deterioration in lending standards really didn't start until 2002 and combined with the other factors previously discussed led to the blow up...again, mostly of adjustable rate loans originated in just the last few years before the crisis. Affordable Housing mandates might have helped to build some of the infrastructure, but I've still yet to see any real data or thoughtful analysis that shows it was a signification contributor when put in context with the other factors.
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"Countrywide tends to follow the most flexible underwriting criteria permitted under [Government Sponsored Enterprises] and FHA guidelines. Because Fannie Mae and Freddie Mac tend to give their best lenders access to the most flexible underwriting criteria. Countrywide benefits from its status as one of the largest originators of mortgage loans and one of the largest participants in the [Government Sponsored Enterprises] programs. Countrywide uses nontraditional credit, a practice now accepted by the [Government Sponsored Enterprises].
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I would expect any business to do what it can within the law to create shareholder value. That firms like Countrywide did it in such a reckless manner would seem to put the blame on them first and foremost.
-spence