A couple of economists at the Federal Reserve actually did the research, and what do you know? The government policy of supporting home ownership didn’t encourage the unworthy peasants to borrow beyond their means, as the Republicans would like to tell the story today.
It was actually the slimy mortgage lenders who gave undocumented mortgages to anyone who was breathing. They did it because they could sell them off to unscrupulous Wall Street investment houses. They in turn bought them because they could buy AAA ratings from the ratings agencies for the bundles they made from them.
And then the Wall Street could slice and dice the bundles and sell them to unsuspecting pension funds and charitable organizations looking for safe yields to replace the bonds they could no longer invest in because they were only yielding paltry interest rates. Why? Because Alan Greenspan kept interest rates so low in the early 2000’s that charities couldn’t meet their obligations to pay out 5% of their assets and still grow with the safe investments they were used to investing in.
So let’s not drink the Kool-Aid we’re being sold. Here it is from the horse’s mouth- first the Abstract, then the link to the entire research paper:
A growing literature suggests that housing policy, embodied by the Community Reinvestment Act (CRA) and the affordable housing goals of the government sponsored enterprises, may have caused the subprime crisis. The conclusions drawn in this literature, for the most part, have been based on associations between aggregated national trends. In this paper we examine more directly whether these programs were associated with worse outcomes in the mortgage market, including delinquency rates and measures of loan quality.
We rely on two empirical approaches. In the first approach, which focuses on the CRA, we conjecture that historical legacies create significant variations in the lenders that serve otherwise comparable neighborhoods. Because not all lenders are subject to the CRA, this creates a quasi-natural experiment of the CRA’s effect. We test this conjecture by examining whether neighborhoods that have been disproportionally served by CRA-covered institutions historically experienced worse outcomes. The second approach takes advantage of the fact that both the CRA and GSE goals rely on clearly defined geographic areas to determine which loans are favored by the regulations. Using a regression discontinuity approach, our tests compare the marginal areas just above and below the thresholds that define eligibility, where any effect of the CRA or GSE goals should be clearest.
We find little evidence that either the CRA or the GSE goals played a significant role in the subprime crisis. Our lender tests indicate that areas disproportionately served by lenders covered by the CRA experienced lower delinquency rates and less risky lending. Similarly, the threshold tests show no evidence that either program had a significantly negative effect on outcomes.