Government Policies and The Subprime Mortgage Crisis - Community Reinvestment Act - Conclusions of The Financial Crisis Inquiry Commission

Conclusions of The Financial Crisis Inquiry Commission

The Financial Crisis Inquiry Commission (majority report) concluded in January 2011 that: "...the CRA was not a significant factor in subprime lending or the crisis. Many subprime lenders were not subject to the CRA. Research indicates only 6% of high-cost loans—a proxy for subprime loans—had any connection to the law. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law."

The three Republican authors of a dissenting report to the FCIC majority opinion wrote in January 2011: "Neither the Community Reinvestment Act nor removal of the Glass-Steagall firewall was a significant cause. The crisis can be explained without resorting to these factors." The three authors further explained: "Credit spreads declined not just for housing, but also for other asset classes like commercial real estate. This tells us to look to the credit bubble as an essential cause of the U.S. housing bubble. It also tells us that problems with U.S. housing policy or markets do not by themselves explain the U.S. housing bubble."

Read more about this topic:  Government Policies And The Subprime Mortgage Crisis, Community Reinvestment Act

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