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More on the CRA

August 6, 2013 - Harry Eagar
A long-running disagreement, both here at RtO and over at the Post-Judd Alliance where I comment a lot, has been over the role, if any, of the Community Reinvestment Act in the financial collapse of late 2008.

The argument goes that the government forced banks to reduce their requirements for mortgage borrowers, thus flooding the secondary market with bad paper that prudent bankers would never have written except under coercion.

RtO has given numerous examples why this cannot make sense, ranging from mortgage collapses in places where US law does not run, like Spain; to the fact (and it is a fact) that although the CRA is a national law, the distribution of bad paper was nowhere near uniform -- lots of lousy mortgages in Phoenix, very few in South Dakota.

As far as RtO is concerned, the disagreement is settled. But from time to time, a factoid comes along reinforcing the notion that whatever was going on, the CRA wasn't forcing it. Today's example, reported by Bloomberg News, concerns a lawsuit vs. Bank of America alleging (again) misrepresentation to secondary buyers, in this case, of $850 million in debt.

Bad stuff, if true, but down in the story is this graf:

"The company failed to disclose that more than 22 percent of the mortgages in the pool were made to borrowers who were self-employed and that its own standards weren’t followed to verify their income and assets, the department said in its complaint. "More than 40 percent of the 1,191 mortgages in the pool didn’t 'substantially comply' with the bank’s underwriting standards, the Justice Department claimed. Employees who worked on the origination of the mortgages admitted that the bank 'emphasized quantity over quality' and that they were instructed by supervisors that it wasn’t their job to discover mortgage fraud, according to the Justice Department’s complaint."

Since Bloomberg didn't do the math, RtO will do it for you: Those mortgages averaged about $775,000. Even at California prices, hardly entry-level housing for immigrants from Guatemala.

UPDATE: Saturday

Bloomberg has a followup story, which repeats a statement from the first one, one I should have pinpointed in the original post, since it nails down the fact that the bankers did not regard these loans as CRA garbage:

"Federal Home Loan Bank of San Francisco bought about $600 million of the pool while Wachovia Bank purchased about $235 million, according to the complaint."

Little as I regard the smarts of bankers, I think even the dumb ones would know enough to stay away from loans they regarded as legal setups imposed by the Democrats. That they were trading these as good paper just proves that the rightwing narrative about the CRA is hooey.


Article Comments



Aug-10-13 2:16 PM

Hey Harry Dude, I totally agree with you,and with that said I will gladly let my sparring partner try to have the last word.

Party on Dude.


Aug-10-13 1:27 PM

You guys do what you want, but I prefer substantive comments to taunting.


Aug-10-13 12:44 PM

Supreme Doppess- you are confusing your nouns and verbs, which again illustrates you do not know what you are talking about. Blood letting or sucking in the days of old, and even in some places today is done by leeches and not a leach. You need to quit sniffing whatever it is that has left you dazed,confused, and over emotional.

Party on Doppess, but stick to tea or milk for a change.


Aug-09-13 9:07 PM

It's "LEECH".

Tsk on shtuss.


Aug-09-13 5:43 PM

Hey dude, where did you pick up this little gnat? The tsker needs his barber to bleed him: a simple solution for a simpleton. It will be interesting to see his reply. Party on Harry dude.


Aug-09-13 2:25 PM

That's why we do multiple regression analyses, to see which elements are necessary to change an outcome.

It isn't true that we always have busts. Unregulated markets fail, but under New Deal regulations, we had all booms.

That's what I prefer.


Aug-09-13 9:51 AM

Dude, it may be preferred, and it would surely simplify life, but it still does not answer questions that would teach us how to avoid the same old economic calamities. One would fiqure that after 7 centuries that this philosophy would have saved economies and nations century after century. There will always be booms and busts which is a simple forecast, but the hows and whys are always more complicated than most will ever understand or agree.

Just think if Columbus had a Zepplin the Americas would have been discovered so much earlier .You make an interesting argument, but I do not agree that simplicity is the end all to this debate. Party on dude.


Aug-09-13 12:38 AM

A philosophical barber. His 'Razor' says, never multiply categories without necessity.

The least complicated explanation is preferred.


Aug-08-13 8:57 PM

Tsk on doppess. Frankly, you should give it up.


Aug-08-13 7:27 PM

You just cannot help yourself OneAikea.

Go continue to hide behind Harry. While I do not agree with much of his conclusions, at least he is well read and can write .

In your case, well there is nothing that can be said other than you are an over emotional and under developed lightweight.


Aug-08-13 5:31 PM

Hey dude, please tell us more about Dr. Ockham .



Aug-08-13 3:29 PM

Be polite.

I have challenged everybody who thinks CRA did it to explain how the same thing happened where there ws no CRA. No one has even tried.

I'll stick with Dr. Ockham. I can explain the whole thing without ever needing CRA.


Aug-08-13 8:44 AM

Hey tsker,rhetorical discussion with you is like dueling with an unarmed mind. By the way are you ex Army? You do a masterful job of digging a ditch.

Dig on dude.


Aug-07-13 9:21 PM

Hey doppess, you just do not know when you are over your head. Ignorant you may be, but a wit no way.


Aug-07-13 7:42 PM

Hey doppess, you are like the village idiot who always hides behind the biggest dude . Your narrative makes no sense, but again proves that your depth of market and finance knowledge is below that of superficial.

Go to the library and read a book, read the Fed. Reserve reports, Comptroller of the Currency postings...the list is long but there are no colored graphics of action figures . For that you need to stick to your comic books.

Keep on tsking, you are only embarrassing yourself.


Aug-07-13 6:09 PM

Hey dude, the country is much better off since you have "settled" the argument. Much of what you say is correct, but as always you only describe a sliver of what transpired. Your novel of the banking crisis is so superficial, and the reason why is that you only offer the practices that you want to enumerate. Your depth of what occurred is so shallow, that you have failed your readers, and yourself as well. You are entitled to opinion as we all are, but you are not free to make up your own narrative and claim that the issue has been settled. It only proves how uninformed you are about an issue that has more depth than you will ever understand or admit. Dude, this novel was a dud. Do your homework before you claim to settle the issue on anything.


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