You might note, too, that the document referred to in the footnote to that passage says:

“Since 1995, there has been essentially no change in basic CRA rules or the enforcement process that can be reasonably linked to subprime lending activity. This fact weakens the link between the CRA and the current crisis since the crisis is rooted in the poor performance of mortgage loans made between 2004 and 2007.”

In our analysis of loan originations, we found that approximately 60 percent of higher-priced loans went to middle- or higher-income borrowers or neighborhoods, which are populations not targeted by the CRA. Additionally, more than 20 percent of the higher-priced loans that were extended in low- to moderate-income areas, or to low- to moderate-income borrowers, were loans originated by lenders not covered by the CRA. In fact, the analysis found that only 6 percent of all higher-priced loans were made by CRA-covered lenders to borrowers and neighborhoods targeted by the CRA.

I’m having trouble parsing this part. Here, I think she’s saying that not a lot of high priced loans went to low priced neighborhoods. Maybe I misunderstood, but she then goes on (the part you put in bold) to say essentially that “therefore sub-primes were not the cause” WTF? That’s like saying that “because the apple was red, the cause of the fall was not the banana”. Why doesn’t she just state percentage of sub-prime verses prime mortgages that went bad instead of dancing around with teh weasel words?

“Since 1995, there has been essentially no change in basic CRA rules or the enforcement process that can be reasonably linked to subprime lending activity….”

That depends on your definition of “essentially no change”. Fannie Mae Eases Credit To Aid Mortgage Lending (Published: September 30, 1999) for just one example.

I’m not, however, saying that the only reason the whole house of cards fell down was because of teh subprime.

[Is there anyway you could open up this comment window a bit so I could read what I wrote first without having to fire up the word processor and doing a cut-n-paste?]

SM:

She didn’t say that subprime loans were not the cause. She said that subprime loans to low-income borrowers were not the cause. Important distinction. Further, even among the subprime and Alt-A loans made in lower-income neighborhoods, very few of them (only about 1 in 16) were made by lenders governed by the CRA.

I don’t know where you think she’s saying that subprime loans weren’t the problem, unless maybe somewhere you got the odd idea that subprime loans are only made to low-income borrowers…

depends on your definition of “essentially no change”

It depended on the staff of the Fed’s definition, not mine. And I don’t see how a small easing of credit constitutes a change in “basic CRA rules or the enforcement process.”

[...] The View From the Sinister Side of Life « More on CRA and the Subprime Meltdown [...]

This entry is great, thanks. I read also an essay by Dean Baker in the new book Thinking Big – wherein he suggests The Federal Reserve Board chair can use congressional testimony and other public appearances to explicitly warn of the dangers of a bubble, the Fed could name specific institutions that are likely to be put at risk by a collapsing bubble and raise interest rates as a last resort. I think we need to have a more proactive attitude towards asset bubbles.

I don’t know where you think she’s saying that subprime loans weren’t the problem,….

I got it from the very first line of what you quoted.

Although the current problems appear to be rooted in high-risk subprime lending….

..and yes, I do know what subprime means. I don’t know why she needed to be redundant with “high-risk” and “subprime” But thanks for clarifying.

So, in that case why is she saying that low-income subprime was not the problem when on the very last line says:

…serious delinquency rates for subprime loans are high in all neighborhood-income categories, not only those in lower-income areas, as might be thought if the CRA were a contributing force to the subprime crisis.

Here she is using weasel words again to say that risky loans are risky at any income level. What she does not say is that they were lower in “lower-income areas” or even that they were equal. And why “lower-income areas” instead of “lower-income borrowers”? Are the neighborhoods going to pay the loans back or the borrower?

I think it’s probably a good idea at this point to step back and consider if the Fed would lie to the public to try to instill confidence in the market, or whether we really have the straight dope from the top.

WP Ajax comment plugin thingy teh suck

LarryE: all the changes, broken out by year, roughly, on the wikipedia article. http://en.wikipedia.org/wiki/Community_Reinvestment_Act

I got it from the very first line of what you quoted.

Then your reading comprehension is poor, because she only says that the CRA wasn’t the problem, not that subprime loans in general weren’t the problem.

And I don’t think that “high risk” and “subprime” are redundant. No doubt, subprime loans are riskier than prime loans, but not all of them are necessarily high risk.

And why “lower-income areas” instead of “lower-income borrowers”?

Because the CRA applies to the former, not the latter. The CRA has nothing to do with individual borrowers, but with neighborhoods, drafted as it was as a response to the practice of redlining.

And, of course, it bears repeating that 94% of the subprime loans that were not in any way governed by the CRA — so how is that the CRA’s fault?

I think it’s probably a good idea at this point to step back and consider if the Fed would lie to the public to try to instill confidence in the market, or whether we really have the straight dope from the top.

Sure, but the Fed has been pretty damn doom-and-gloom for a while now, so I find it difficult to figure out why they’d carve out this tiny niche for a ray of purported sunshine.

As to your regulatory changes, notice that (A) the bulk of the “bad” loans were made in 2006 and 2007, and (B) the changes to CRA that took effect in 2005, per your own link, weakened the CRA, making it less likely to influence a bank’s behavior than it would have been before that change.

As to your regulatory changes, notice that (A) the bulk of the “bad” loans were made in 2006 and 2007, and (B) the changes to CRA that took effect in 2005, per your own link, weakened the CRA, making it less likely to influence a bank’s behavior than it would have been before that change.

Homopathy?

T. -

As to your regulatory changes

You beat me to it. Except for the one you noted, which essentially exempted the biggest banks from the CRA, the changes since 1995 were technical rather than substantive.

Which means that the statement of the Fed’s staff that since ‘95, there’s been “essentially no change in basic CRA rules or the enforcement process that can be reasonably linked to subprime lending activity” is confirmed by that link, not challenged.

Then your reading comprehension is poor…

Yes, thank you very much for pointing out my failure of speed reading. Rub it in a bit more, even thought I admitted to as much in my second comment.

“…per your own link, weakened the CRA…”

dude, at my link there were a dozen substantial changes to the CRA, but you want to come back to the one substantial change that weakend it? WTF?

How about we start over, except this time I won’t assume that she was defending sub-prime loans and you won’t assume that I’m against home ownership in low-income neighborhoods, and that I endorse such practices as redlining?

And, of course, it bears repeating that 94% of the subprime loans that were not in any way governed by the CRA — so how is that the CRA’s fault?

I’m going to assume this is true and then ask; can you find any evidence that there was any substantial practice of making sub-prime loans before the CRA? Would it be fair to say that perhaps the CRA was a “precursor” to all the creative sub-prime adjustable balloon ARM interest only NINJA loans?

SM:
Rub it in a bit more

Sorry, I never noticed a retraction. And anyway, sorry if my tone was short, but as you may have noticed, I’ve been spending a lot of time arguing about this with people who haven’t been arguing in good faith, and some of that nastiness spills over. Apologies for the tone.

at my link there were a dozen substantial changes to the CRA, but you want to come back to the one substantial change that weakend it?

Because, as I pointed out above, the lion’s share of the bad loans were made in 2006 and 2007, and the closest change to CRA to that time frame was the 2005 change that did the weakening. The most recent change before that was in 1999, well before the time frame in question.

How about we start over, except this time I won’t assume that she was defending sub-prime loans and you won’t assume that I’m against home ownership in low-income neighborhoods, and that I endorse such practices as redlining?

Agreed!

can you find any evidence that there was any substantial practice of making sub-prime loans before the CRA?

I wouldn’t think so. The CRA pre-dated pervasive sub-prime lending by at least two decades, from what I can tell.

Would it be fair to say that perhaps the CRA was a “precursor” to all the creative sub-prime adjustable balloon ARM interest only NINJA loans?

I don’t really think so. To do so would be to make the post hoc, ergo propter hoc mistake. It seems to me that the reasonable conclusion based on available evidence is that nastier and nastier subprime lending practices became more common because the market for traditional, prime mortgages had dried up, and because such subprime mortgages were very profitable as long as the housing bubble was expanding.

at my link there were a dozen substantial changes to the CRA

The issue, remember, was this statement from the staff of the Fed:

“Since 1995, there has been essentially no change in basic CRA rules or the enforcement process that can be reasonably linked to subprime lending activity. This fact weakens the link between the CRA and the current crisis since the crisis is rooted in the poor performance of mortgage loans made between 2004 and 2007.”

Except for the one T. and I both cited, the changes since 1995 listed in the Wikipedia link are not substantial, they are mostly technical. They do not affect “basic CRA rules or the enforcement process.” Therefore, they do not refute the contention that the CRA is not responsible for the credit crisis.