Author Topic: Did the CRA cause the housing bubble that borked the economy?  (Read 643 times)

Emo Howard

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Or, more broadly, is this true-ish.


The reason that the most recent bubble created a worldwide financial crisis is that it was inflated with low-quality loans required by government mandate.



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Re: Did the CRA cause the housing bubble that borked the economy?
« Reply #1 on: July 20, 2011, 07:19:54 pm »
I would say the CRA definitely played a part.  However the way in which these mortgages were repackaged and sold was a big part of why the defaults caused the problems that they did.  Also, the rush on the parts of banks to foreclose rather than work with debtors led to a rapid decrease in property values that led to upside down mortgages and a lot more defaults.
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Re: Did the CRA cause the housing bubble that borked the economy?
« Reply #2 on: July 20, 2011, 07:33:37 pm »

Mike Konczal reads the Democratic report on conduct at the Financial Crisis Inquiry Commission (pdf), which has some fairly shocking evidence about Peter Wallison, who has been pushing the clearly false line that Fannie and Freddie were actually leading the charge into high-risk lending.

“Mortgages originated for private securitization defaulted at much higher rates than those originated for Fannie and Freddie securitization, even when controlling for all other factors (such as the fact that Fannie and Freddie securitized virtually no subprime loans). Overall, private securitization mortgages defaulted at more than six times the rate of those originated for Fannie and Freddie securitization.”

Every time you hear or read someone claiming that Fannie and Freddie were responsible for large amounts of subprime/risky lending, you should remember that this is based on essentially phony numbers: people at AEI invented their own definition of subprime, which isn’t the standard definition, and, more important, doesn’t work: the supposedly high-risk loans that F&F were making or buying were, demonstrably, not actually high-risk: