Capital New York

saysomething commented on Bloomberg: 'Plain and simple,' Congress caused the mortgage crisis, not the banks

The CRA only required a small segment of banks to make loans to the communities where they set up shop. They were notoriously convincing these communities to make deposits so they could lend money to people outside of those communities while actively refusing to loan anything into the communities. The CRA never required that loans be made to high-risk individuals, just that these certain banks could not consider the communities as a whole high-risk. The banks had the responsibility to lend to community members who COULD pay back the loans. As was pointed out already on this thread, the crisis happened when private lenders and mortgage companies from all over got into the subprime game and pushed loans like crazy and gave them out without regard to borrowers' ability to pay. These entities were NOT under CRA jurisdiction in the least. And why did these moronic lenders give money to people who could not pay the loans back? Because they didn't carry the risk for even 10 minutes. The loans were instantly sold to financial institutions to be packaged into mortgage backed securities. And then these financial institutions bet against the securities (KNOWING they were crap) making money on both ends. So, massive amounts of loans were made to high-risk borrowers due to the incentives created by the mortgage backed securities and credit default swaps. Period. Congress had nothing to do with any of that. Ever.

Posted on November 1st, 2011 10:14pm