Did They Cause the Credit Crisis?

other lenders. They were 58% less likely to offer high-cost loans to low- and moderate-income borrowers. Kathleen Day, a spokeswoman for the Center for Responsible Lending, points out that the act applies only to federally insured banks. Between 2004 and 2006, however, about half of all subprime loans were made not by such banks but by independent lenders, according to the Center. In testimony before the U.S. House of Representatives Committee on Financial Services last February, Michael S. Barr, a law professor at the University of Michigan Law School, noted that an additional 30% of subprime loans were made by bank subsidiaries, which are also not subject to the act. That leaves roughly 20% of subprime loans that may have been influenced by the Community Reinvestment Act.

Subprime Products Were Risky—Not Borrowers
At the heart of the conservatives’ claim, is the notion that efforts to promote minority homeownership led bankers to lend to high-risk borrowers who subsequently foreclosed on their homes. However, a study by the University of North Carolina’s Center for Community Capital found that the borrowers weren’t the problem. When tracking the mortgage default rate of low-income and minority borrowers with similar credit histories, researchers found that those who were issued subprime mortgages were three to five times more likely to default than those who received other types of loans. “The people weren’t risky, the products were,” says center director Roberto G. Quercia.

African Americans Were Steered Into High-cost Subprime Loans
African Americans are 2.7 times more likely than their white counterparts to be issued subprime loans, according to a report from the Association of Community Organizations for Reform Now on data compiled as part of the 2005 Home Mortgage Disclosure Act. “Even high-income African Americans were just as likely to be sold a bad subprime loan as a low-income white person,” says Austin King, director of the ACORN Financial Justice Center. So, were blacks, like the Harrisons, steered toward subprime loans when they could have qualified for something better? Yes. An estimated 35% to 50% of minority subprime borrowers could have qualified for prime market loans, according to research by the Fannie Mae Foundation.

First-time Homeowners Benefited Least from Subprime Loans
If the subprime market flourished because of pressures to help first-time minority homeowners, it would stand to reason that those first-time homeowners would have been the recipients of the most subprime loans. Wrong again. Between 1998 and 2006, only 9% of subprime loans went to first-time homeowners, according to the Center for Responsible Lending. The majority of subprime loans—62% were issued to homeowners looking to refinance an existing home.

White Americans Overwhelmingly Took out the Most Subprime Loans
While African Americans were more likely to be steered into subprime mortgages than white Americans, whites took out 56% of all subprime loans, far more than the 19%  taken out by African Americans. The proportion was 21% for Hispanics. Money also increased the likelihood of a borrower taking out a subprime loan, but not in the way that conservatives claim. Most subprime loans

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