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Edward J. Pinto: Establishing the Role of the Community Reinvestment Act in the Financial Crisis
...If the tidal wave of CRA’s and GSE AH loans created the housing bubble, then these same loans created the so called “affordability gap”.

It was a seemingly unclosable “affordability gap” that spawned the worst excesses of subprime and Alt-A by the private sector, CRA, and the GSEs.....

...Added to the mix is the false comparison – CRA loans performed better (or no worse) than self-denominated subprime loans.

• The true test is a comparison to traditionally underwritten loans with a 20% down payment. Being 7-10 times more risky than this loan type is not acceptable.

• Looked at by a CRA researcher, a person who dies from falling off a 20 story building and breaks every bone in his body is 2 times worse off than a person who dies falling off a 10 story building and breaks only half his bones. The CRA researcher reports the 10 story fall half as bad and ignores the fact that both died.

– CRA loans are also favorably compared to so called “prime” loan delinquencies, even though 35%-50% of these prime loans used “innovative or flexible” underwriting.

• When Fannie’s subprime & Alt’s loans are removed from its data so as to yield its traditionally underwritten loans, the serious delinquency rate drops from 4.72% (all loans) to 1.78% (traditional loans). This is the true point of comparison. CRA loans do not compare well by this metric....

...Countrywide (1): in 2001 committed to finance $100 billion in community lending through 2005. It exceeded this goal by early 2003. In 2003 it announced an expanded $600 billion goal, extended to 2010. In 2005 it announced an expanded $1 trillion goal. Countrywide was the first national lender to sign HUD’s CRA-like Declaration of Fair Lending Principles and Best Practices in 1994.

– Washington Mutual (3): in 1998 committed $120 billion, gets OTS approval of Dime merger in 2003, simultaneously establishes 10-year, $375 billion commitment to low- and moderate-income borrowers. Enters into an $85 billion 5-year strategic alliance with Fannie for similar borrowers.

– Chase Home Finance (4): In 2003 announces $500 billion commitment to meet home financing needs of underserved borrowers and is pleased to work with Fannie Mae to help millions of families from underserved segments with the American dream of homeownership.

– CitiMortgage (5): in 1998 committed to $115 billion in community lending through 2007, in 2003 committed to finance $200 billion in community lending through 2010 and exceeded this goal in 2005, with lending to date totaling $224.5 billion. It received the highest possible CRA rating - “outstanding” for all 5 of its constituent banks.

– Bank of America (6): at 2004 hearing on its merger with FleetBoston notes “a remarkable national commitment to loan and invest $750 billion for community economic development over the next 10 years.” For 2005-2007, 44% in CA, AZ, FL, and NV. In 2009 announces it’s doubling commitment to $1.5 trillion ($1 trillion for housing).