Debunking the RW's "Community Reinvestment Act" nonsense

[SHRED]

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They are reaching deep to deflect away from the party of deregulation (Republican) for this current mess.

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Did Liberals Cause the Sub-Prime Crisis?

Conservatives blame the housing crisis on a 1977 law that helps-low income people get mortgages. It's a useful story for them, but it isn't true.
Robert Gordon | April 7, 2008 |

~SNIP~

The revisionists say the problem wasn't too little regulation; but too much, via CRA. The law was enacted in response to both intentional redlining and structural barriers to credit for low-income communities. CRA applies only to banks and thrifts that are federally insured; it's conceived as a quid pro quo for that privilege, among others. This means the law doesn't apply to independent mortgage companies (or payday lenders, check-cashers, etc.)

The law imposes on the covered depositories an affirmative duty to lend throughout the areas from which they take deposits, including poor neighborhoods. The law has teeth because regulators' ratings of banks' CRA performance become public and inform important decisions, notably merger approvals. Studies by the Federal Reserve and Harvard's Joint Center for Housing Studies, among others, have shown that CRA increased lending and homeownership in poor communities without undermining banks' profitability.

But CRA has always had critics, and they now suggest that the law went too far in encouraging banks to lend in struggling communities. Rhetoric aside, the argument turns on a simple question: In the current mortgage meltdown, did lenders approve bad loans to comply with CRA, or to make money?

The evidence strongly suggests the latter. First, consider timing. CRA was enacted in 1977. The sub-prime lending at the heart of the current crisis exploded a full quarter century later. In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation's Ellen Seidman (and by Harvard's Joint Center), that activity "largely came to an end by 2001." In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law's toughest standards. Yet sub-prime lending continued, and even intensified -- at the very time when activity under CRA had slowed and the law had weakened.

MORE:
http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis

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Now the major cause:



Gramm’s Bundles of Greed
by state Sen. Eliot Shapleigh

Rules created in the 1930s New Deal to protect Americans were removed by Phil Gramm under the Gramm-Leach-Bliley Act of 1999. Now, Gramm’s bundles of greed so taint our financial markets that the U.S. Government must intervene.
Posted on September 26, 2008

What happened on Wall Street? Why is it that every working man and woman in America is now asked to
shoulder $2,300 in more taxes?<1>

What happened is a familiar story—people borrowed more than they can pay;<2> lenders hiked appraisals to lend more than homes were worth. And interest rates adjusted higher and higher such that fewer could pay at all. Then, this toxic package was bundled up and sold once, twice, several times to investment banks—as every middle man made a buck.<3>

Why? Because rules created in the 1930s New Deal to protect Americans were removed by Phil Gramm under the Gramm-Leach-Bliley Act of 1999.<4>
Now, Gramm’s bundles of greed so taint our financial markets that the U.S. Government must intervene to give confidence here<5> and around the world<6>—and taxpayers will pony up $700 billion dollars to pay for it.

MORE:
http://www.newspapertree.com/opinion/2888-gramm-s-bundles-of-greed

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[rucky]

1. It can't be repeated enough.

CRA is the standard that responsible lenders were held to. It includes lending obligations to underserved people, with high-cost controls built in. Independent banks have the largest CRA obligation, in aggregate, and they've been relatively unscathed in all of this.

[creeksneakers2]

2. I'm glad someone is responding

It made me angry to hear Republicans trying to shift blame to CRA. Its true that Fannie Mae and Freddie Mac did raise their subprime exposure 4% to comply with CRA. But that was at the insistance of Bush's HUD chief. Otherwise, I don't see how CRA played any role at all.

I'm also irked because the GOP and ill informed media are also blaming Fannie Mae and Freddie Mac for the crisis. Only a small portion of Freddie's and Fannie's loan portfolios were subprime. As a guarantor of loans with the federal goverment behind them, Fannie and Freddie haven't defaulted on any obligations. The taxpayers are now exposed to incredible liabilities but so far Fannie and Freddie had covered most if not all of their losses. And when other lenders quit lending last year, only Fannie and Freddie kept the mortgage market alive at all. We would be in depression now if it weren't for Fannie and Freddie. Fannie and Freddie investors took a bath, but they put their money at risk.

A crisis is caused when A can't pay B so B can't pay C and on and on. The CRA, Fannie and Freddie have nothing to do with that. GOP gods on Wall Street caused all of that.