What did NOT cause the mortgage crisis

If you’ve read any conservative blogs in the past six months, you may have run across a somewhat bizarre claim. According to some of these folks, the mortgage crisis came about because banks were forced by the government to make loans to low-income people and minorities who could not pay them back and should not have gotten loans in the first place. Furthermore, it is the Democrats’ fault for creating the regulations that forced these banks to enter into such unwise arrangements.

Now granted it’s been a few years since my graduate coursework in affordable housing, urban poverty, and public policy. Off the top of my head, though, I did recall some lending requirements on banks contained in a piece of legislation called the Community Reinvestment Act. Perhaps this is what these folks were referring to?

Of course, the CRA was passed in 1977 and advocates have been complaining ever since about how the feds won’t enforce it and too many institutions not covered by the CRA have gotten into the mortgage lending business.

Many advocacy groups that represent low-income folks have also been quite concerned about what they call “predatory lending” in the housing market. Basically, they’ve been worried that low-income borrowers were being targeted for subprime loans, and they had spent years pushing for government regulation to prevent lenders from enticing people with unaffordable mortgages before the meltdown began.

So it was difficult for me to envision how a 30 year old law and a bunch of liberals had forced all the banks to make bad loans while the institutions that would have been doing the forcing were operating under a Republican president.

Luckily, I happen to know a Professional Economist, so he helped me out with some info on the debacle. Yes, it’s the CRA that’s being blamed, and yes, it’s a bunch of b.s. Did Liberals Cause the Sub-Prime Crisis? has the best explanation I’ve seen so far of exactly why. A few salient quotes:

  • […] half of sub-prime loans came from those mortgage companies beyond the reach of CRA.
  • Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts.
  • In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but […] that activity “largely came to an end by 2001.”
  • In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law’s toughest standards. Yet sub-prime lending continued, and even intensified…
  • […] even lenders have not fingered CRA.

Seriously, people. There are plenty of REAL things to dislike about any political party and their preferred laws no matter which side you’re on. No need to make stuff up.