Sayeth the man:

“Some critics of the CRA contend that by encouraging banking institutions to help meet the credit needs of lower-income borrowers and areas, the law pushed banking institutions to undertake high-risk mortgage lending. We have not yet seen empirical evidence to support these claims, nor has it been our experience in implementing the law over the past 30 years that the CRA has contributed to the erosion of safe and sound lending practices. In the remainder of my remarks, I will discuss some of our experiences with the CRA. I will also discuss the findings of a recent analysis of mortgage-related data by Federal Reserve staff that runs counter to the charge that the CRA was at the root of, or otherwise contributed in any substantive way, to the current subprime crisis . . .

“This result undermines the assertion by critics of the potential for a substantial role for the CRA in the subprime crisis. In other words, the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis.”

Be sure to read the entire speech by the Fed Governor here. He discusses the result of an exhaustive data analysis performed by the various Fed Banks looking into the CRA issue and sub-prime

Of course, now that the election is over, the usual parade of reality challenged nitwits won’t be interested in any hard data or professional analyses. The full 233 page report is available here.


At the Confronting Concentrated Poverty Policy Forum
Governor Randall S. Kroszner
Board of Governors of the Federal Reserve System, December 3, 2008

The Enduring Challenge of Concentrated Poverty in America

Category: Credit, Data Analysis, Markets, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

41 Responses to “Kroszner: CRA & the Mortgage Crisis”

  1. Fair warning: I am disemvowelling comments that are fact-free, or the same old nonsensical stuff.

  2. bernandoo says:

    dn’t thnk y cn sy tht th CR ddn’t mpct th crss t ll. Bsds, wht knd f mprcl dt r y lkng fr? s lng s th CR ncrsd th nmbr f sbprm lns tht nstttns gv t, t hd ngtv ffct n th crss.

  3. John Borchers says:

    The law didn’t push the banks. That’s impossible. We know this because banks took on loans without credit or job verification. I think the new next generation bull market has started. It’s calmly and slowly moving up.

    BR is it true that every bailout was the start of a new bull market with the exception of the depression era?

  4. VennData says:

    The GOP Media Machine’s narrative that “…the financial meltdown is Clinton and Carters’ fault…” contradicts the “…Clinton and Carter are weak and incompetent…” narrative. Furthermore how could these two guys “Mothra vs Godzilla” the whole financial system particularily when the GMM continually floats the “…everything that happened was ‘cuz of [sic] Gingrich, Tom Delay and ‘The Contract with America’” narrative?

    You can’t have it all ways.

  5. Soylent Green Is People says:

    JB’s got one thing right. The law was meaningless. What caused the mortgage meltdown from a Loan Officers perspective:

    1) Automated Underwriting. Robot programs that greenlit loans simply based on computer input trickery and over reliance on FICO scoring. AU programs are as accurate as tea leaf reading, phrenology, and voodoo when it comes to decisioning risk. Anyone with a elementary school education could have fooled AU systems into approving $700k loans for migrant farmworkers – which was often the case.

    2) The G word. Realtor greed – “Buy now, before prices go any higher” – although you never hear “sell now before prices go any lower”… Buyer greed – “the Jones’s just got a 3,500 SF home with a view? We must have a 4,000 SF home on the sand”. Serial Refinancer greed – I can put my Anaheim Ducks center ice front row season tickets on my Line of Credit, can’t I”, and finally Lender greed – “Sure you can put those tickets on your loan, just let me add a prepayment penalty onto this 2/28 loan so I can make an extra $10k in commissions”

    3) The cheerleaders – NAR, CNBC, et al who said trees grow to the sky so enjoy your free money without the thought of ever paying back.

    4) The Feds – why pay your loan back? We’ll simply force your banks to modify your loans, reduce your rates, or forgive principal. Moral Hazard? Not really. You’re simply a victim of circumstance.

    My .02


  6. Winston Munn says:

    The WingNut Alchemist Formula For Changing Crap Into Truth:
    1) Keep it short.
    2) Keep it simple.
    3) Repeat it.

    The CRA and “bleeding-heart liberals”.
    The CRA and “bleeding-heart liberals”.
    The CRA and “bleeding-heart liberals”.

    Freeze then distribute to media outlets.

  7. leftback says:

    Greed. is not always good.
    Especially among realtors and mortgage bankers.

    A vision:
    Angelo Mozilo. Jail. Perp walk.
    You know he is a crook.

  8. DeDude says:

    I think there are very few people left in the reality-based world who believe that CRA had any substantial effect on the subprime crisis. A few may still be hanging on to some version of the “last-straw-that-broke-the-camels-back” version of blaming poor minorities for the mess that rich white people brought this world. But those are the same idiots who think that a facts are whatever Rush pulled out of his dumb a$$ this morning – and they are pretty much beyond reach.

  9. Soylent Green Is People says:

    Leftback reminded me of this thought:

    Let’s have a weekly Haiku on the mess we are in contest, A La the HotChicksWithDouchebags Haiku contest?

    Paulson is a tool
    Bernanke not much better
    Both inspire FAIL.

    I’ll work on it a bit.

    My .02


  10. Mannwich says:

    @Winston Munn: You forgot the boogeyman also known as “Barney Frank”.

  11. Mannwich says:

    @leftback: Would love to see Mozilo in a jail cell. We could even throw in a tanning bed so that he can keep up on his tan. That would be fine with me.

  12. Bruce N Tennessee says:

    Gsh, Brr, I thght y mght dsmvwl m!

    Brc n Tnnss

    (Mks t mght hrd t rd, tgh)

  13. karen says:

    th dsmvwlld s bttr thn th hk.

  14. Bruce N Tennessee says:


    We gr!

  15. Bruce N Tennessee says:

    I meant:

    W gr !

  16. MorticiaA says:

    The majority of the subprime mortgages made were originated by mortgage companies that are not banks, therefore were not even subject to the Community Reinvestment Act. There is so much misinformation floating around regarding the CRA as culprit of today’s crisis, and much of it is generated by Cato Institute.

  17. JohnnyVee says:

    MorticiaA–that’s right. BS for the masses.

  18. Winston Munn says:

    Thnk Gd Fx s stll “Fr nd Blncd”. Th jst rprtd tht th crss ws csd b “Th CR nd bldng-hrt lbrls”. Fnlly, smn wth th crg t spk th trth!

    (Snds lk thntc wstrn gbbrsh)

  19. leftback says:

    Y lt r wy 2 clvr 4 yr wn gd – Bt ths s sfl prctc 4 txtng…

  20. Bruce N Tennessee says:


    Tht ws Wndrfl!


  21. Mannwich says:

    Barry – I’ll bet this is the last time you threaten “disemvowelling” on the masses here at TBP!

  22. daveNYC says:

    The disturbing thing is that I’m actually enjoying puzzling out what the disemvowelled comments say.

    Anyway, it’s not the number of CRA loans, it’s how they are performing relative to pre-CRA loans of similar quality (sub-prime/Alt-A/prime).

  23. Bruce N Tennessee says:

    H tlks lk Hnk Plsn…..gbbrsh….

  24. Brett Tibbitts says:

    so many here have it just right….it’s ALL W’ fault…..ALL OF IT….EVERY SINGLE BIT of our current economic problems due his lack enforcement of regulations…..NONE of it has to do with a country that’s been hell bent on debt and deficit financing for decades….it’s all W’s lack of enforcement of regulations….none of it has to do creating Fannie Mae and Freddie Mac to be created and then allowing them to become too big…..none of it has to do with the man in the street wanting too much too fast….nope it’s W’s fault…..none of it has to do with the repeal of Glass Steagall by the Clinton administration….or the refusal to regulate derivates by Clinton and Rubin and Summers (and their destruction of Brooksely Born)….

    NOPE, it’s all W’s Fault

    And now the new powers that be are going to save us by the world’s biggest debtor nation becoming an even greater debtor nation….Paul Krugman to the rescue….we have no choice but to spend ourselves into oblivion…..and all the heads nod “yes, yes, Paul, you’re the Nobel man!!!!”

    Simply brilliant….this country’s hatred for all things W could very well blind us and bring us to our knees.

  25. daveNYC says:

    “Simply brilliant….this country’s hatred for all things W could very well blind us and bring us to our knees.”

    Perhaps, although we’d probably be in better shape if we had started hating W six or seven years ago.

  26. Brett Tibbitts says:

    “Simply brilliant….this country’s hatred for all things W could very well blind us and bring us to our knees.”

    Perhaps, although we’d probably be in better shape if we had started hating W six or seven years ago.

    daveNYC: didn’t your mother teach you that “hate destroys the vessel in which it is contained”????????

  27. willid3 says:

    while our fearless leader might not have created FREDDIE or FANNIE, that would have been about 60 years ago. so unless some thing has changed (like i don’t know stupid lending by mortgage companies not caring if it gets paid back or not) they couldn’t be much more than accomplices after the fact. and gee, it seems he was warned that allowing these mortgage companies to write these notes, would lead to a credit crises. while we may not like spending our selves out of a crises, engineered by business leaders, we know they aren’t going to get us out of it. they can get us into a huge mess on their own, but cleaning up that mess isn’t in their job description. that was just to make the money and run! and the down side, is we can even throw them in jail as there is no crime in being greedy (and stupid). unless they created fraud. which maybe their next home away from home, the grey bar hotel!

  28. Scott F says:

    Note that Federal Reserve governor Kroszner is a conservative economist on leave from a teaching post at the University of Chicago (Booth Graduate School of Business)

    If this guy says the Community Reinvestment Act isn’t to blame for the subprime mess, the wingnuts should give it up

  29. Scott F says:

    Fed economists found that about 60% of higher-priced loan originations — the technical definition of subrpime — went to middle- or higher-income borrowers or neighborhoods who aren’t targeted by CRA. More than 20% of the higher-priced loans were extended to lower-income borrowers or borrowers in lower-income areas by institutions that aren’t banks — and aren’t covered by CRA.

    How have CRA-related subprime loans performed relative to other loans. Answer: “[D]elinquency rates were high in all neighborhood income groups, and that CRA-related subprime loans performed in a comparable manner to other subprime loans.”

    The “striking result,” Kroszner said: “Only 6% of all the higher-priced loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas, the local geographies that are the primary focus for CRA evaluation purposes

  30. cognitive dissident says:

    For anyone who doesn’t enjoy puzzling through de-voweled comments, copy-and-paste them here.

  31. Ethel-to-Tilly says:

    That’s right Tibbits – it’s all Clinton’s fault. The story of how the Commodities Futures Modernization Act passed tells the whole dastardly story:

    (from Wikipedia):

    The Commodity Futures Modernization Act of 2000 or CFMA (H.R. 5660 and S.3283) is United States federal legislation which repealed the Shad-Johnson jurisdictional accord, which had banned single-stock futures in 1982. The legislation also provided certainty that products offered by banking institutions would not be regulated as futures contracts.

    This act was incorporated by reference into H.R. 4577, an omnibus spending bill. It was passed by the 106th United States Congress and signed by President Bill Clinton on December 21, 2000; the legislation thus became law as a part of H.R. 4577 – Public Law 106–554, §1(a)(5).

    The act has been cited as a public-policy decision significantly contributing to Enron’s bankruptcy in 2001 and the much broader liquidity crisis of September 2008 …

    The “Commodity Futures Modernization Act of 2000″ (H.R. 5660) was introduced in the House on Dec. 14, 2000 by Rep. Thomas W. Ewing (R-IL) and cosponsored by Rep. Thomas J. Bliley, Jr. (R-VA) Rep. Larry Combest (R-TX) Rep. John J. LaFalce (D-NY) Rep. Jim Leach (R-IA) and never debated in the House.[2]

    The companion bill (S.3283) was introduced in the Senate on Dec. 15th, 2000 (The last day before Christmas holiday) by Sen. Richard Lugar (R-IN) and cosponsored by Sen. Peter Fitzgerald (R-IL) Sen. Phil Gramm (R-TX) Sen. Chuck Hagel (R-NE) Sen. Thomas Harkin (D-IA) Sen. Tim Johnson (D-SD) and never debated in the Senate.

    Given the above-stated chronology, it would appear that the House and Senate versions of the bill were introduced just prior to the Christmas holiday in December of 2000, following George W Bush’s (first) election (in November of 2000), while then-President Clinton was serving out his final days as President. The bill was never debated by the House or Senate. The bill by-passed the substantive policy committees in both the House and the Senate so that there were neither hearings nor opportunities for recorded committee votes. In substance, it appears that the leadership of the Republican-controlled Senate and House incorporated the deregulation of credit default swaps into an omnibus budget bill (without hearings or recorded votes)at a time when the outgoing president was in no position to veto anything. The following article suggests that Bill Clinton and Alan Greenspan endorsed this law The Bet That Blew Up Wall Street though Clinton’s position in 2000 is only suggested, not confirmed or made clear in the report.

    The Republican leadership of the House incorporated”The Commodity Futures Modernization Act of 2000(H.R. 5660)” by reference, as Section 1(a)(7), in a long and complex conference report to the 11,000 page long “2000 omnibus budget bill” formally known as “The Consolidated Appropriations Act for FY2001(Labor, Health and Human Services, and Education Appropriations Bill) (H.R. 4577).” 157 Democrats and 133 Republicans voted for the appropriations bill. 51 Republicans and 9 Democrats opposed the appropriations bill vote results in the house. The Senate version passed by “Unanimous Consent.” President Clinton signed it into Public Law (106-554) on December 21, 2000.


    That’s the Republican method of responsible governance – insert sweeping changes in regulatory legislation into an 11,000 page ominbus budget bill the day before Congress ends the session and must pass the bill to enusre that the budget gets passed and the government can keep going. Make it too late to have any discussion in debate in committee or on the floor. Ensure that, like the 2001 tax cuts passed under emergency “Budget Reconcilation” procedures, that there is the absolute minimum of consideration or amendment. Then blame it others. Yep – it’s the Republican way.

  32. Brett Tibbitts says:


    Never said it was ALL Clinton’s fault…..never even intimated such an idea.

    My point is that what we are dealing with are systemic issues that have been years in the making.

    George Bush certainly made more than his fair share of mistakes. And perhaps, if he hadn’t made all of them, the day of reckoning would have been delayed.

    But this county has been on the wrong track WHEN IT COMES TO DEBT for decades and decades, not just the last eight years.

    There’s a lot of blame to go around. All I am saying is that if this country wants to take the tack that ALL of our current problems are the result of George Bush and his “laissez faire attitude”, we are in for a world of trouble, IMHO.

    George Bush didn’t whisper in the ear of the CEOs of Lehman, Bank of America, Goldman, Merrill Lynch, Fannie, Freddie, Citi, etc., etc. and say “make those loans”. Gee, this is America, and I think each of them made the stupid choice to make those loans.

    George Bush didn’t whishper in the ear of my next door neighbor to buy an obviously over valued house and then get a HELOC to buy a boat. Gee, this is America, and I think my next door neighbor made the decision to get in over his head based upon his own entitlement mentality to live beyond his means.

    Yes, George Bush, clearly tried to take credit for things when the shell game was still going with his ridiculous “homeownership for all” statements. But he didn’t CAUSE the WHOLE thing.

    The fault for the financial problems this country currently faces lays miles deep.

  33. DeDude says:

    It is not the number of loans but the amount of $ defaulted that should be counted, if you are looking for financial/economic impact. It costs a lot more for the banks if someone defaults on a 400K loan in a nice suburb than when someone defaults on a 40K loan for a shack in the slums. However, you have to compare the same vintage of CRA vs. non-CRA loans to get a fair comparison. The economy (and default rates) cycles up and down so it would be hard to make a meaningfull comparison of before and after CRA loans. Anyway it would be pretty much impossible to find comparable sub-prime 125% LTV, no doc, no payment needed loans given in the period before CRA.

    Brett; Bush didn’t cause a lot of this by his actions, its his inactions that are to blame. It is his job to keep an eye on things and stop problems before they develop into something serious. Greenspan at least had the balls to admit that he was wrong when he believed that the CEO who (in theory) had access to all the information didn’t need oversight because they would never put their companies into such huge risk. All I have heard from the other neo-con-men are excuses about how it is actually someone elses (gay, democrat, etc.) fault or sticking the head in the sand with elaborate explanations of how the problem was too much regulation. I agree that if all consumers and CEO’s had been smart, responsible and capable of predicting the future by other means than linear extrapolation of the past, then this would not have happened. However, unless you want to throw people in jail for being gullible and wanting more than they have, the only way to prevent this type of disaster from happening again is to demand that government pick up the signs early and prevent the problems from getting out of hand. We don’t allow drug companies to go directly to cancer patients and peddle whatever poisonous snake oil they want without any scientific evidence that it works. Why should we allowing financial companies to enrich themselves by ruining gullible peoples life with lies and distortions?

  34. Lugnut says:

    I think the study is suspect, at best. I read the case study on Atlantic City, and its enduring, terminal poverty problem. Ask anyone in NJ why it is, and they’ll tell you its all about the entrenched corruption of the Democratic controlled political machine in south Jersey that rides herd over the money coming into the city. In the long study, that warrants only a two sentence mentionas a minor possible contributing factor. This wasnt a fact finding study, if thats representative of the other cities studied, its only documenting their predetermined premise for the study.

  35. DeDude says:

    Sorry Lugnut (is that Swedish for Wingnut :-), but you seem to be the one with a “predetermined premise”. You claim without any supporting evidence that the corruption in south Jersey is more than a “minor possible contributing factor” (and indirectly that the major causes the study documented are only minor contributors). Unless their (or your) data somehow demonstrate something else, how could anybody make a claim about the contribution of corruption to the problem?

  36. gz says:

    well, the Boston FED was the one claiming racial discrimination in lending since 1994 and the FED has set up racial quotas for mortgages based on CRAso maybe now they that about 60% of subrime endend up to hispanic and black and blew up the global financial system the FEDS feel like … you know… not admitting that meddling with mortgage standards because of worthy social causes was a good idea

    it would be nice to know then why is that ONLY IN AMERICA THERE WERE SUBPRIME, I live in Europa and I was in LA for a while and noticed the difference, here we did not have political pressures to lend based on social and racial justice , yes we had verylow rates and lots of greed and high leverage even more than USbanks but not Subrime lending

    It is really hard to deny that subrime lending which was 80% california, nevada, florida and arizona and pushed for racial policy reasons to immigrants has nothing to do with minority politics, but that is why to read BR, he is the one that performs this difficult act

  37. DeDude says:

    gz; this paper present data to support the claim that CRA did not cause the reckless lending that has brought our financial system to its knees. All you present is unsubstantiated postulates and attack on the messenger. Are we supposed to take you serious? Did you think you had entered a high school debate club?

    So am I right that you with your “correlation-is-causation” logic is claiming that it is not monority lending and subprime that caused the crisis here. Because, if forced loans to minorities are responsible for subprime and you had neither of those things in Europe, then I guess that either subprime is not responsible for the banking and financial crisis or Europe does not have such a crisis.

  38. RW says:

    Most of those arguing or insinuiating the CRA was in any way responsible for the current debacle appear to come from the Sarah Palin school of debate: Make unfounded assertions with unsupported facts, half-truths or falsehoods then assert a link exists to some other idea that is not really related but might be if a person squints real hard, add a couple ad hominems or other brand of personal aspersion, make it sound like a joke or a bit of good-natured joshing, then toss the word salad and assert anyone who honestly says it’s a steaming pile of pandering bowdlerized horse manure must be prejudiced.

    Folks who get their slop and bull from right-wing talking heads need to at least accept they are being played even if they can not accept where that logically leads. As a general matter the CRA improved the quality of loans (e.g., and their repayment record is better than that of subprime or, these days, even alt-A generally. Any part loans originated under CRA may have played in the mortgage meltdown is simply dwarfed by the subprime and Alt-A trash from non-CRA lenders that constituted the vast majority of the loan pool(s) entering the securitization machinery; e.g,

    It is beginning to occur to me that we don’t just seem to be becoming two countries ideologically, we appear to be separating into a country willing to take a shot at seeing the world as it is and working with it and a country that just flat can’t or won’t, a new emergence of know-nothings. I was going to be flip and say that Dumbfuckistan appears to be seceding from the USA but, actually, I’m coming to believe it could be more serious than that …for a lot of reasons …okay here’s one, a new contract for Intrade perhaps: The length of time before a domestic, non-Muslim (probably Christian fundamentalist) group initiates a terrorist attack against their fellow Americans.


  39. RW says:

    Just closing the bold tag.

  40. John Pozzi says:

    The solution is a New World Order –

  41. DeDude says:

    JW; I have been thinking about this thing with two countries (or parallel universes) myself. I get my opinions from looking at facts. Many of the neo-con-men on the blogs appear to hold their opinions in spite of facts. It seems to me so obvious that if you make decisions that are based on a lie you are likely to fall on your face. So why would anybody discard facts and base decisions on ideology (fantasy)? I understand that there can be issues of reliability of sources but they seem to discard all facts that disagree with their preconceived opinions, regardless of sources. If it doesn’t fit with their ideology they ignore it. If it supports their opinion they will bring it out regardless of how discredited the sources are. It appears that in this parallel universe the approach is that “if it sounds good to me” it must be true, “if it sounds bad to me” it must be wrong. If we ever should have learned anything from the “weapons of mass destruction” blunder of the Bush administration it should be what a disaster such an approach is. I really miss the old Bob Dole style conservatives, at least you could have a reality-based debate with them.