Banks Learn Lesson The Hard Way: Lend Smart
As more and more borrowers default and fail to pay off mortgages, Banks are starting to show that they have learned a lesson. Reuters reports.
A Traiger & Hinckley LLP study of 2006 mortgage loan data suggests that the Community Reinvestment Act, a federal law that requires banks to help serve the credit needs of their local communities, including low- and moderate-income neighborhoods, deterred banks from engaging in the kinds of risky lending practices that are provoking the foreclosure crisis. Compared to other lenders in their communities, banks making loans in their CRA assessment areas (CRA Banks) were less likely to make a high cost loan, charged less for the high cost loans they did make, and were substantially more likely to eschew the secondary market and retain high cost and other loans in portfolio. Foreclosure rates were also lower in metropolitan areas with proportionately greater numbers of bank branches.
It’s nice to see that some banks have learned to modify their lending strategies, although many will argue it took far too long for them to ‘get’ it.
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