We've done our part to point out that the 1977 Community Reinvestment Act (CRA) did not -- I repeat, did not -- lead to the current economic crisis. But the myth just keeps cropping up in conservative circles. Last Friday, the Daily Herald
published a bevy of interviews with suburban
congressional candidates, as well as those at the statehouse level. Lo and behold, when asked
what steps Congress should take to promote economic recovery, 14th District Republican candidate Jim Oberweis blamed the CRA for all the nation's problems.
From the Q&A:
In large measure, the financial crisis we're now facing is a crisis created by the unintended consequences of earlier Congressional and governmental action - so before we go about creating new "fixes," let's all take a breath and figure out how we got here in the first place, and do what we can to avoid mistakes the second time around. [...]
So, how did we get here? The Clinton Administration's decision to take a Carter-era law -- the Community Redevelopment Act -- and pump it up, made it easier for sub-prime borrowers (read: greater credit risks) to obtain loans, while simultaneously making it harder for lenders to deny them such loans. The result? Lots of bad loans were made.
Here's a tip, Jim: if you're going to baselessly suggest that a 30-year old law precipitated our current meltdown, you should probably remember the correct name of the legislation.
On a related note, the Campaign For America's Future released an exhaustive, point-by-point rebuttal of the CRA myth last night. Definitely worth a read.
Comments
Glen (not verified) on Wed, 10/01/2008 - 15:47
I am the Head Underwriter for a large community bank (70+ branches) which falls under CRA requirements. We have never been forced to make loans to poorly-qualified borrowers at all. In fact, some of our borrowers who have been declined by us for a CRA loan have been approved by us for conforming Fannie Mae or Freddie Mac "A-paper" loans!
The fact is that no bank has ever been forced to make a subprime loan by the Community Reinvestment Act. In fact, the overwhelming majority of subprime loans were not made by banks. Subprime loans were made for one reason and one reason only: they were very, very, very lucrative for those who made the loans, with revenues 3 to 5 times higher than those made from prime loans.
Those who claim that the Community Reinvestment Act is even a contributory factor to this mess are either poorly-informed or dishonest. I speak from personal knowledge.
Anonymous (not verified) on Wed, 10/15/2008 - 10:35
The lender may not be "forced" to make sub prime loans in the sense that a government regulator has the legal power to compel a particular loan to be made, but force can be much more subtle than that. Lenders may have to meet periodic licensing or regulatory standards and private parties may have standing in the process to object that the lender has not sufficiently complies with CRA standards. While this does not lead to a legal compulsion to make the subprime loans, lenders not wishing their licensing to be obstructed may well follow a path of least resistance and give in to making loans which, but for the pressure, the lender's business judgment would dictate not be made.
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