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Originally Posted by fishpoopoo
I could on and on and on ... but the enforcement of CRA, that really began in earnest with Clinton, basically bullied banks into lending to deadbeats.
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I'm not sure the data really demonstrates this though. Clearly that's not the position of the Heritage Foundation expert I quoted above. My assumption is that he's undertaken a very thorough and conservative analysis of the situation.
There are a good number of articles by economists (i.e. not pundits or pundit economists
) that basically come to the same conclusion. That the CRA hasn't changed much since 1995, yet the sub-prime issue didn't inflate until a decade later, that the default rate of sub-prime loans originated under CRA regulation was about the same as prime, and that a huge % of sub-prime lending was actually made by banks outside of CRA regulation.
Sowell is being a bit misleading when he tosses out numbers like "HUD also set a 42% target for Freddie Mac and Fannie Mae (FM & FM) to buy mortgages for people whose income were less than an area's median."
This was certainly true from 1997-2000, although lending "below median" is a pretty big group and doesn't necessarily indicate sub-prime borrowers. The target for those actually considered "low income" was only 14% and nothing in the CRA stipulates a bank has to knowingly make a bad loan.
Interestingly enough, both these numbers were actually raised in 2001 (50% and 20% respectively) while Denny Hastert was Speaker.
Further, the act that started these targets was put into place in 1992. I believe the general idea is to keep the GSE's aligned with what they believe the market will actually be doing over the coming few years. In other words, it's reactive rather than proactive.
The net being that these regulations have been around for a while, but didn't seem to cause any problems until just recently. While the CRA may certainly be a factor -- as any regulation impacting the mortgage market would be -- it doesn't seem to deserve the "root cause" status that pundits like to give it.
Sowell is going to oppose anything that smells of free market intervention, although I'd note that the first commercial bank in the USA was a government run institution
-spence