2 On Subprime/Mortgage Mess

by Dollars and Sense

First, a link to Doug Henwood's latest (June 25th) radio program, which features an excellent interview with Alyssa Katz on the history of mortgage lending in the U.S. from the '30s on. Second, this piece about a recent study which casts interesting light on the role of the Community Reinvestment Act on subprime lending (courtesy of Economist's View):


Most Subprime Lenders Weren't Covered by CRA
The Big Picture
By Barry Ritholtz - June 27th, 2009, 9:00AM


The CRA brouhaha last year led the Orange County Register to run an analysis of "more than 12 million subprime mortgages worth nearly $2 trillion" in late 2008.

What did their data based analysis discover?

"Most of the lenders who made risky subprime loans were exempt from the Community Reinvestment Act. And many of the lenders covered by the law that did make subprime loans came late to that market--after smaller, unregulated players showed there was money to be made."

Among their research conclusions:

Nearly $3 of every $4 in subprime loans made from 2004 through 2007 came from lenders who were exempt from the law.
State-regulated mortgage companies such as Irvine-based New Century Financial made just over half of all subprime loans. These companies, which CRA does not cover, controlled more than 60 percent of the market before 2006, when banks jumped in.
Another 22 percent came from federally regulated lenders like Countrywide Home Loans and Long Beach Mortgage. These lenders weren't subject to the CRA law, though some were owned by banks that could choose to include them in their CRA reports.
Among lenders that were subject to the law, many ignored subprime while others couldn't get enough.

Read the rest of the piece

Labels: Alyssa Katz, bailout, Barry Ritholtz, Community Reinvestment Act, Doug Henwood, financial crisis, subprime lending, The Big Picture

 

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6/28/2009 11:21:00 AM