1) The CRA said banks had to work within their community to help those who could not quite meet current standards buy mortgages by lowering the interest rate or down payment. In these cases, home buyers still had to prove they could make these payments.<quoted text>
It's all here, dummy:
Community Reinvestment Act of 1977.
In the 1990's under the administration of Franklin Raines, a Clinton Administration appointee, Fannie Mae began to demand that the lending institutions that it dealt with prove that they were not redlining. This meant that the lending institutions would have to fulfill a quota of minority mortgage lending. This in turn meant that the lending agencies would have to lower their standards in terms of such things as down payments and the required incomes. These subprime borrowers would be charged a higher interest rate. Having put the lending agencies into the position of granting subprime mortgages Fannie Mae then had to accept lower standards in the mortgages it purchased. That set the ball rolling. If a bank granted a mortgage to a borrower that was not likely to successfully pay off the mortgage then all the bank had to do was to sell such mortgages to Fannie Mae. The banks typically earned a loan origination fee when the mortgage was granted. The lending agencies could then make substantial profits dealing in subprime mortgages.
Because Fannie Mae and Freddie Mac made a market for subprime mortgages the lenders did not have to worry about of the soundness of the mortgage contract they wrote. Thus the lenders could write the mortgages as adjustable interest rate mortgages knowing full well that an upturn in the interest rates could easily throw the borrower into insolvency. For example, when the interest rate is 6 percent the mortgage payment for a 30-year $200,000 mortgage is $1199 per month. If the interest rate goes up to 7 percent the mortgage payment would increase by $131 per month, an 11 percent increase. For many of the subprime borrowers living on the edge of insolvency this would be enough to push them over the edge. The guilt for the subprime mortgage financial crisis lies both with the lenders who knowingly put borrowers into booby trapped mortgages and the management of Fannie Mae and Freddie Mac for making a market for such booby trapped mortgages thus giving the lenders the incentive for writing them.
2) These loans were typically long term standard (fixed interest) mortgages. The vast majority of problem mortgages were short term mortgages like interest free with a balloon payment.
3) In the housing collapse, the percent of failed mortgages that were CRA was no higher than the percentage of all loans that were CRA. If CRA loans were the cause then certainly more of these would have failed.
4) Banks hated the CRA. They were not as profitable. How did they go from hating the CRA to deciding that they loved it?
5) The loams you described are not CRA loans.