- substantially less likely than other lenders to make the kinds of risky home purchase loans that helped fuel the foreclosure crisis.
- significantly less likely than other lenders to make a high cost loan; and
- more than twice as likely as other lenders to retain originated loans in
their portfolio (ie not engage in selling off the loan to other banks etc to "balance the risk - a major cause of the crisis).
The authors of the study concluded:
Without the CRA, the subprime crisis and related spike in foreclosures might have negatively impacted even more borrowers and neighborhoods.
Compared to other lenders in their assessment areas, CRA Banks were less likely to make a high cost loan, charged less for the high cost loans that were made, and were substantially more likely to eschew the secondary market and hold high cost and other loans in portfolio.
Moreover, branch availability is a key element of CRA compliance, and foreclosure rates were lower in metropolitan areas with proportionately greater numbers of bank branches.
In other words the CRA actually worked well because of the Government's meddling - it forced banks to engage is safe lending practices (just not be discriminatory about it), and it wasn't economically reckless.
So sorry guys, it wasn't the Government's meddling that was at fault, and it wasn't (to quote Alexander Downer) the poor and largely, but by no means exclusively, African-Americans and Hispanics who took out such loans.
Nope when you talk about sub-prime mortgages, you aren't for the large part talking about any done under the CRA. Most of those bad loans were made by unregulated mortgage lenders with no CRA obligations or oversight - yes they may have been to "poor people", but they weren't being done because the government was forcing them to - they were being done because the banks and lenders were treating such high-risk loans as low risk (in much the same way junk bonds in the 80s were treated as low risk), because they were chopping up the loan and selling it off to other banks and investors (known as "securitization").
Now I'm not saying that none of the government initiatives to free up the lending market in the US were misguided (I'll probably write more on the financial crisis later - suffice to say it's a complicated mess), but let's not just pick out a 30 year old law and simplistically say that the government forced banks to lend to poor people who couldn't afford to repay.
It's wrong, it shields the banks from blame, it argues that no regulation is required, and instead puts all the blame at the feet of lefty government policy (which of course is the aim of such commentators).