ABSTRACT
By the 1990s, California lending laws for financial institutions were far more lax than national laws. The variety of assets available to state-chartered financial institutions brought investment funds from domestic and, due to the large trade deficit, international sources. In 1989, Congress mandated the Federal Home Loan Banks to begin a special program of support for low-income housing. The Community Reinvestment Act (CRA) of 1977 was designed to eliminate redlining, the supposed practice of financial institutions that excluded lower-income neighborhoods from eligibility for loans. Commercial banks came under increased scrutiny in the early 1990s as a new Federal Deposit Insurance Corporation (FDIC) director declared his intention of examining every bank, every year. In spite of the income of the borrowers, their company made subprime loans almost exclusively. Almost a quarter of their loans were made to borrowers or property located in California.
