Wednesday, October 12, 2011

No AEI, WSJ, Virginia and Anybody Else Who Is Interested in Factual Data and Analysis -- The CRA Did not Cause the Housing Bubble

In the name of God and all that is holy, the "government regulation and CRA caused the housing crash" meme popped up AGAIN today, thanks to some utterly clueless idiotic yahoo at the AEI.  Thanks to the truth challenged morons at the editorial page of the WSJ, we get this gem:

Fannie and Freddie were not the only government-backed or government-controlled organizations that were enlisted in this process. The Federal Housing Administration was competing with Fannie and Freddie for the same mortgages. And thanks to rules adopted in 1995 under the Community Reinvestment Act, regulated banks as well as savings and loan associations had to make a certain number of loans to borrowers who were at or below 80% of the median income in the areas they served.
Let me respond with someone who knows something about this: Federal Reserve governor Randall S. Kroszner:
Our findings are important because neighborhoods and communities affected by the economic downturn will require the active participation of financial institutions. Considering the situation today, many neighborhoods that are not currently the focus of the CRA are also experiencing great difficulties. Our recent review of foreclosure data suggested that many middle-income areas currently have elevated rates of foreclosure filings and could face the prospect of falling into low-to-moderate income status. In fact, 13 percent of the middle-income Zip codes have had foreclosure-rate filings that are above the overall rate for lower-income areas.

Helping to stabilize such areas not only benefits families in these areas but also provides spillover benefits to adjacent lower-income areas that are the traditional target of the CRA. Recognizing this, the Congress recently underscored the need for states and localities to undertake a comprehensive approach to stabilizing neighborhoods hard-hit by foreclosures through the enactment of the new Neighborhood Stabilization Program (NSP). The NSP permits targeting of federal funds to benefit families up to 120 percent of area median income in those areas experiencing rising foreclosures and falling home values.

In conclusion, I believe the CRA is an important model for designing incentives that motivate private-sector involvement to help meet community needs. The CRA has, in fact, been helpful in alleviating the financial isolation of many areas of concentrated poverty, but as our report illustrates, there is much more that could be done in these communities. Contrary to the assertions of critics, the evidence does not support the view that the CRA contributed in any substantial way to the crisis in the subprime mortgage market. Today's discussion is an important first step in the process of identifying other initiatives and areas of cooperation between government and the private sector that will effectively address the continuing challenge of poverty in the United States.
Barry Ritholtz over at the Big Picture Blog has a far more devastating take down of this intellectual bile.  See the numerous links at the bottom of this link.

I realize that getting paid to spread this type of complete tripe is what "think tanks" are about.  But, could you at least come up with something new?

And shame on Marc Perry for linking to this crap.  He should know better.