More on the CRA
Here are some more debunkings of the argument that the 1977 CRA somehow caused the recent financial meltdown. One of the key problems with the argument, as Ellen Seidman points out, is the timing of the crisis. The CRA’s teeth are supplied by the penalties it metes out to those covered entities who earn low CRA scores (e.g., low CRA scores made it hard to get bank mergers approved). Those teeth were at their strongest in the mid-1990s, when the federal government was serious about CRA enforcement and a lot of banks wanted the goodies associated with having a good CRA score. But, despite that favorable ecology, no housing bubble emerged in the mid-1990s:
CRA enforcement became a lower priority for bank regulators after 2001. My successor at the Office of Thrift Supervision, in fact, led an effort-eventually thwarted-to unilaterally loosen CRA regulations for institutions with more than $1 billion in assets. See 70 Fed. Reg. 10023. Nevertheless, CRA regulations were eased more generally in 2005. See 70 Fed. Reg. 44256.
The years that coincided with reduced CRA enforcement are also the years when CRA-covered entities wandered deeper into “higher priced loans,” a category that includes, but is not limited to, “exploding ARMs” and other particularly pernicious kinds of loans. Thanks to the valiant efforts of late Fed Governor Ned Gramlich, starting in 2004 we have data about “higher priced loans.” In that year, bank, thrifts and their subsidiaries-the entities covered by CRA-made about 37% of high cost loans. By 2006, the bank, thrift and subsidiary percentage was up to 40.9%. That a lack of interest in CRA enforcement coincided with CRA-covered entities getting into higher priced lending does not seem to me an argument for less CRA enforcement. Rather, it’s an argument for better enforcement of a statute that, when well enforced, had proven its worth in helping both borrowers and communities.
Despite this temporal mismatch, some conservatives continue to press this argument. That, my friends, is not a causal inference you can believe in.
on September 30th, 2008 at 6:19 pm
Assume, arguendo, that Ellen Seidman, former director of the US Office of Thrift Supervision during the Clinton administration, is correct. CRA is a side-show in all of this. I understand she is defending her professional record and she’s a partisan in an election year and all that, but it would have been nice if she mentioned the HUD affordable-housing goals under the GSE Act. Perhaps giving a complete picture of the issue was beyond the scope of what she was trying to accomplish, but it would have been nice. Anyway, as I’ve said elsewhere here, criticizing broken affordable housing policies, and the grotesque D.C. corruption surrounding them, is not the same as attacking the “poor” – that being said, here are two very liberal sources on the housing crisis, taking the HUD affordable-housing policies to task:
http://www.villagevoice.com/content/printVersion/541234
http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626_pf.html
Here are the 2004 HUD Goals: http://www.hud.gov/offices/hsg/gse/gse.pdf
To ignore the role of the HUD affordable-housing goals and its reckless governing of the GSE’s in this mess is to “willingly suspend disbelief”, to quote the junior Senator from New York.
on September 30th, 2008 at 7:53 pm
And here I thought that the housing crisis just started rather recently. So did the market, as a matter of fact. Is CRA responsible for the bubble too, or was that something else?
on October 1st, 2008 at 11:33 am
I just want to ask MAT if he’s a partisan too?
on October 1st, 2008 at 12:30 pm
Bob Nunz: I don’t know how you are defining the term, but, arguedo, I will say yes. Does that poison The Village Voice and Washington Post articles in some way?
on October 1st, 2008 at 1:31 pm
As in other posts, I’ve expressed my disdain for partisanship and our losat sense of objectivity in discussions.
That’s reinforced by “analysis” meaning talking heads on both sides of a question who are obviously biased.
This approach is poisining our democracy more and more, dividing the Country and undermining desire for service inthe ideal mined of our young (in my opinion.)
on October 1st, 2008 at 2:10 pm
Bob Nunz: I couldn’t agree with you more. I hope my comment didn’t come off as partisan – the political blame-game was not my intention. In fact, I tried to link to articles which took both major political parties to task for this financial mess. I guess I did not succeed.