Leading up to the financial crisis, mortgage originators loaned money to people who were unlikely to pay it back. But why? A simplistic answer is that the Community Reinvestment Act forced them to. This answer is appealing: blame the crisis on the government.

While this answer is appealing, is it true? Did the act contribute to the financial crisis? Kansas City Star columnist E. Thomas McClanhan thinks so, and feels vindicated by a recent study published by the National Bureau of Economic Research. The study’s title and first sentence are: “Did the Community Reinvestment Act (CRA) Lead to Risky Lending? Yes, it did.” The study observes that loans issued during compliance examinations have a slightly higher default rate (for example, a 90-day delinquency rate of 1.5 percent rather than 1.2 percent).

It’s disappointing to learn that the act apparently causes lending that is marginally riskier than it otherwise would be. However, the study doesn’t suggest that the act contributed to a financial crisis that happened 30 years after it was enacted.

To understand the causes of the economic crisis, we need to take a step back and look at the history of the mortgage industry. Before the Great Depression, it was common for banks to issue mortgages with money they received from savings account deposits.

As the movie “It’s a Wonderful Life” illustrates, this is dangerous — depositors might want to withdraw money that’s tied up in long-term mortgage investments. In order to help banks safely issue mortgages, the government chartered Fannie Mae in 1938. If a mortgage met strict underwriting guidelines, it would be classified as a “conforming mortgage.” Fannie would purchase conforming mortgages from banks, combine them into mortgage pools, and then sell pieces of the pools to investors as mortgage-backed securities.

This model proved to be an effective way to bring capital to the housing market. However, it didn’t completely satisfy the market’s needs: there was a demand for mortgages from people who didn’t meet Fannie’s underwriting standards.

Investment banks such as Lehman Brothers saw an opportunity. What if they could create private-label mortgage-backed securities based on sub-prime mortgages?

In order for securities to be appealing to investors, they have to be safe. Investment banks invented schemes called “credit enhancements” that were intended to make securities based on sub-prime mortgages safer. The credit rating agencies believed the credit enhancements worked, and gave these securities their top ratings. Investors believed it, too, and purchased these securities insatiably.

Consequently, mortgage brokers could offer mortgages to almost anybody who wanted one. In fact, the investment banks gave them huge incentives to issue as many of these mortgages as they could.

But didn’t Fannie and Freddie play a role in the sub-prime mess? Since 1992, the government has pressured them to provide more mortgages to lower income households.

The objective was to provide people with better options than the loans funneled through investment banks, which were often considered predatory. In an effort to both meet affordable housing goals and to compete with the investment banks, Fannie and Freddie lowered their underwriting standards. Yet they struggled to compete with the investment banks and from 1992 to 2006 their market share declined from 70 percent to 40 percent. This loss of market share in the years leading to the crisis proves they weren’t the primary cause. The booming demand for private-label mortgage-backed securities was.

The CRA didn’t force mortgage brokers to fill up the mailboxes, billboards, and airwaves of America with offers for first and second mortgages. Compliance with the act was simply a small bonus for closing deals that free market players wanted. It didn’t cause the crisis.