Wednesday, September 17, 2008

The CRA caused the mortgage crisis meme

Judging by the results of Google News and Technorati searches, conservatives are pushing the "Community Reinvestment Act regulations caused the mortgage crisis" theory a lot harder than liberals are pushing back. Barry Ritholtz* made a derisive reference to the conservative position and linked to two liberal responses today, but those are five month old links. I can't find any current liberal responses to an idea that's been all over the conservative blogosphere (and probably in group emails) the last couple of days.

For criticisms of both the liberal and conservative takes on the current financial crisis, Time Magazine gives a typical Time Magazine assessment. Mike Volpe of The Provacateur gave criticisms of both sides last month, and followed up with a criticism of the conservative attack today:
Now, first, I am no fan of the CRA, and I do believe that it had the effect that its attackers say it had, however, the effect is significantly more limited than any of the conservative partisan make it out to be. As such, while it may have had a corrossive effect on lending standards, this effect was a small blip compared to other factors.
To really prove that CRA was an insignificant factor, what one really needs to do is identify those areas most helped by the real estate boom and also those areas with the most foreclosures. If all these Conservatives are correct, then the real estate boom would have centered most of all in most of the poorest areas of the country and the current crisis in foreclosures would also be the same. In other words, the years 2003-2007 should have then seen an explosion in areas like Bedford Stuyvesant in New York, Englewood in Chicago, and Compton in California, and on the flip side those areas should be leading the pack for foreclosures now.

Instead, the biggest concentrations of foreclosures can be found in well to do areas like Boca Raton, Riverside County near San Diego, and of course Las Vegas. Does anyone really believe that there was an explosion of lending in Vegas because banks were attempting to meet some sort of quota of lending to poor folks? In fact, the real estate boom had a fairly negligible effect on the poorest areas of the country. In fact, the same areas Boca, Phoenix, Miami, and Vegas that boomed the most during the height of the real estate market are also now the ones suffering the most now that it is over.

I have no idea whether Volpe would describe himself as a conservative, but a look through his archives shows that he's clearly no liberal. However, it looks like you'll need to go back to the April archives of the big liberal blogs if you're looking for liberal answers to the talking points that you'll probably hear from from your conservative friends tomorrow or Friday.

*Not to imply that Ritholtz is a liberal. He's a frequent critic of the Bush administration and he clearly believes in some regulation, but I've never seen anything to indicate whether he's more of a moderate or a liberal.

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Thanks for the links and information on this one. This meme is definitely resurfacing.
I am definitely a conservative, though on some issues, like oil, I go against the Conservative grain.

That said, mortgages are my business and I am sick of both sides using the crisis for some sort of a political and ideological platform. The dynamics that lead to the mortgage crisis are extremely sophisticated. It is important that the truth come out, and using the crisis for ideological agendas is wrong no matter what your agenda.

That's why I loathe when either side uses it as their ideological play pen and I will correct the record when either side does it.
I am afraid in situations like this one there is no universal truth. Everybody will blame the second side. There is no universal truth even for the Great Depression, and it was 80 years ago, so I don't believe we will find unanimity in this case. Republicans, liberals, capitalism, free market, regulation, FED - everybody will pick "his" candidate...
Well, sometimes there are those of us who aren't looking to blame one side or the other for some political gain but when you see it in front of your eyes and you know that the conditions were right for you to get a house in the time frame of 2003-2005 but you could actually afford it. Then you move into a house,which you have trouble getting a loan for reasons others aren't and then suddenly your middle class neighborhood has foreclosures and Sect 8 housing a few years later and everywhere in the DFW area has an extremely high foreclosure rate...and you know why because of all the loan companies you worked with to get your loan and how it was working at the time.
Well it doesn't take an expert to realise that feel good politics doesn't add up.
..and also
Don't tell me because your a real estate agent from Canada that you see with your own eyes what is happening inmy backyard. Socialism almost works in Canada, accept for the fact that you flood into America for better healthcare cause socialism causes a decline in quality, but your country also doesn't have the immigrant and bottom feeder problem and the abuse of our system. A true free market as Amercia is requires the market determine loans. NOT mandatory acts by the gvt. to give subprime loans. I worked my ass off just to get into a middle class neighborhood only for the foreclosures to run rampant, lower property value and have section 8(yes,yet another gvt. handout) housing all over the place. Mind your own.
Yes the liberal need go push back on this issue and it is easy. The Conservatives are completely wrong! The CRA based banks have higher loan standard and are much less likely to issue sub-prime loans. Infact CRA loans are substantially less likely to foreclose. just google or Check out
I think CRA should be more liberal. The conservative view in business can never make a big success.
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Great and fantastic blog. I am interested very much in the subject matter of your blog, it’s my first visit. I like very much your way of presentation. I am so much interested to join your network. Thanks for sharing this post. Keep blogging.
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If the Community Reinvestment Act caused the mortgage crisis, I thing the government should do something about this. They should act immediately to stop the crisis.
Thanks for the information that you shared in this blog. This will really help us move forward with our future business plans.
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