As many of you know, Bear Stearns and First Union did the first securitization of loans made under the Community Reinvestment Act in 1997.
They brought a $384 million offering to market, and found a surprising investor demand for the securities. Over the next 10 months, Bear Stearns issued $1.9 billion of CRA mortgages backed by Fannie Mae or Freddie Mac.
Two of the folks responsible for that deal, Dale Westhoff of Bear Stearns and Ned Brown, went on to write an article for the May 1998 issue of Mortgage Banking, explaining how their colleagues could package CRA loans into securities.
One thing that is clear from their article is that the loans were considered safe despite very lax underwriting standards.
“Forget about FICO scores and high LTV levels,” they write. “Almost everyone evaluating your portfolio assumes that the scores will be low (many 660 and less) and LTVs will be high (90 per cent and greater).”
Another piece of evidence about how the Community Reinvestment Act encouraged lending with high LTVs and low FICO scores.
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