In the Albuquerque Journal Outlook Brandon Curtis wrote a good editorial explaining some of the issues that are being discussed about the current housing crisis. I quote: "There has been a lot of blame and a lot of partisan talking points regarding the housing crisis and the state of real estate in general today. One such talking point is that the 1977 Community Reinvestment Act (CRA) somehow forced lenders to make bad loans to consumers with poor credit.
This argument has a tad of scapegoating to it. The original act in 1977 required federally insured banks to make loans in the communities they operated in; and to combat discrimination in lending based on race or geography called redlining. Banks could still reject applications but the rejections had to be based on objective factors such as credit, income, etc. A statement in December 2008 by Federal Reserve governor Randall Kroszner stated that the CRA in no way contributed in any substantial manner to the crisis and at maximum, less than 10 percent of lenders that fall under CRA regulations issued sub-prime loans. Another fed data study illustrated that 84 percent of sub-prime loans were issued by non-regulated mortgage lenders and 83% of debts were held by private, non-CRA regulated entities.
A report by Lending Patterns, published in Real Estate Magazine on July 24, 2008 showed that in 2006, 71 percent of sub-prime loans were issued to non-Hispanic Whites; 40 percent were to middle- and upper-income borrowers."
While there are many factors that drove this crisis deregulation is the culprit. Both Bush and Clinton were in the deregulating mode though Clinton had more inclinations toward regulation and enforcement. They allowed financial institutions to pursue areas outside of their core missions. The invention of stated income, stated asset loans for would-be real estate investors and budding real estate millionaires caused a toxic soup which we are trying to purge today.
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