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.
- Among those standing on the sidelines: Bank of America, which made no subprime loans in 2004 and 2005; in 2006 and 2007 subprime accounted for just 2 percent of its loan portfolio. Washington Mutual, meanwhile, raised its subprime bet by 20 times to $5.6 billion in 2006 – on top of its already huge exposure through its ownership of Long Beach Mortgage.
These are facts, adduced from analyzing data.
Data based analysis, for those of you who may be unfamiliar with the term, is how research and discovery get accomplished in the real world. It is an alternative way of arguing that the “Blame CRA” proponents are blessedly unaware of. However, outside the universe of rabid partisan sniping, its how actual analysis gets accomplished.
click for larger graphic
Chart courtesy of OC Register
Most subprime lenders weren’t subject to federal lending law
THE ORANGE COUNTY REGISTER, Sunday, November 16, 2008