- Texas
WASHINGTON — The debate on whether the Community Reinvestment Act caused the subprime crisis has outlasted election season and could affect future regulatory restructuring.
December 4
WASHINGTON — A new Federal Reserve Board report refutes the claim by some that the Community Reinvestment Act and affordable housing goals of Fannie Mae and Freddie Mac caused the mortgage crisis.
"We find little evidence that either the CRA or the" affordable housing "goals played a significant role in the subprime crisis," wrote senior Fed economists Robert B. Avery and Kenneth P. Brevoort in the report titled "The Subprime Crisis: Is Government Housing Policy to Blame?".
To test the claim forwarded by several conservatives that the policies are culpable, the central bank essentially compared loans backed by the two policies with those that were not. In one analysis, Fed researchers compared mortgages between CRA-covered and non-CRA-covered institutions. In another, they compared certain geographic areas known to benefit from the CRA and the housing goals set by the government-sponsored enterprises with other areas. In both tests, no link between the two initiatives and higher proportions of troubled loans could be found.
"Using a variety of indirect tests, we find little evidence to support the view that either the CRA or the GSE goals caused excessive or less prudent lending than otherwise would have taken place," Avery and Brevoort wrote.
Rather than find higher delinquencies in areas served by the CRA, the economists wrote, "In fact, the evidence suggests that loan outcomes may have been marginally better in tracts that were served by more CRA-covered lenders than in similar tracts where CRA-covered institutions had less of a footprint.
"Loan purchases by CRA-covered lenders also do not appear to have been associated with riskier lending. Additionally, this analysis found no evidence that either the CRA or the GSE goals contributed to house prices appreciation during the 2001-2006 subprime buildup," they wrote.
