What about "No Money Down" Mortgages? Were they required by the CRA?<quoted text>
That is right, but an important aspect was the guy selling that mortgage did not care if it defaulted because he was going to sell it. Whether it was successful or failed did not matter to him.
The people that bought it from that seller didn't care because they bundled them up into securities. Mortgage based securities were selling like hotcakes & that created the demand for more mortgages. So it goes well beyond banks & well into investment houses. Companies like Standard & Poor then gave them AAA rating for the right price.
The buyers often knew they could not make the balloon payments. Many were hesitant but they were told that when the time came for the balloon payment that they could just remortgage at that time. But home values tumbled & they were all underwater.
So many were duped.
Now these types of mortgages were not CRA loans. So for all those out there screaming "CRA CRA", no. CRA loans were typically standard long term mortgages.
The regulators charged with enforcing the CRA praised the lowering of down payments and even their elimination. They told banks that lending standards that exceeded that of regulators would be considered evidence of unfair lending. This effectively meant that no money down mortgages were required.
A Treasury Department study published in 2000 found that the CRA had successfully lowered down payments not just for CRA loans, but for all mortgages.
Explain the shift in loan to value away from the traditional lending requirement of 80%
http://126.96.36.199/scholar?hl =en&lr=&safe=off&c lient=firefox-a&q=cache:pb Dlag9rnykJ:www.ustreas.gov/pre ss/releases/reports/crareport. pdf+securitization+%22communit y+reinvestment+act%22
Again, the regulators told banks that much higher LTVs was an appropriate way to meet the CRA obligations.
Regulators instructed banks to consider alternatives to traditional credit histories because CRA targeted borrowers often lacked traditional credit histories. The banks were expected to become creative, to consider other indicators of reliability.
Banks were expected by regulators to relax income requirements. Day labors and others often lack reportable income. Stated-income was a way of resolving the gap between actual income of borrowers and reported income.