Submitted by Greg J (not verified) on October 27, 2008 - 3:29pm.
I used CRA in 1978 to get my community banks to participate in helping an inner-city community with some development projects. There was a spirit of "doing the right thing" that produced results. Now, fast forward to 1999; CRA was being vigorously "enforced" by the Fed; banks and thrifts were required to lend to communities in their market areas--not just loan their money anywhere in the world to maximize profit. This has been a disagreeable point to bankers since CRA was announced in the 70's as a policy. CRA enforcement typically involved banks developing a loan pool for loans to low and moderate income families through a community development corporation. Nothing about the enforcement of CRA required banks to make sub-prime and predatory loans, however, and that seems to be the spin that conservatives are putting on the program. Community Development Corporations that work to provide low and moderate housing opportunities do not promote sub-prime or other risky loans for low and moderate income buyers. They want successful, community-building projects and programs. Why would they want to "maximize" production and push people into homes that they could not afford?
On the other hand, banks and thrifts had to be on the sidelines when mortgage brokers were coming into low and moderate income communities with all kinds of short-term, easy-entry variable-rate loans. They had regulations that kept them from openly doing this kind of business (HMDA and CRA). But once the Federal Government changed its leadership in 2001, these regulations also began to fall in line with lower and lower controls, fewer standards that had to be met and CRA basically was reduced to a less enforceable regulation.
Who benefitted and who lost in this change in regulation? The Bush Administration clearly was pushing the idea of affordable housing, but in a way that fostered little regulation of the types of financing being offered to low and moderate income families. The wreckage left behind from the lack of responsible regulation includes many mortgage company workers who got wealthy and many low income families who lost everything they had saved, including their credit.
It is a mystery to me how anyone could believe that the people who failed to enforce the regulations and the ones who took advantage of it to pile up great profits are just completely innocent. Or, better yet, it is amazing that one would even consider blaming a regulation for "forcing banks to issue sub-prime loans" when that is a complete lie.
Let's look at the motives of those who blame CRA
I used CRA in 1978 to get my community banks to participate in helping an inner-city community with some development projects. There was a spirit of "doing the right thing" that produced results. Now, fast forward to 1999; CRA was being vigorously "enforced" by the Fed; banks and thrifts were required to lend to communities in their market areas--not just loan their money anywhere in the world to maximize profit. This has been a disagreeable point to bankers since CRA was announced in the 70's as a policy. CRA enforcement typically involved banks developing a loan pool for loans to low and moderate income families through a community development corporation. Nothing about the enforcement of CRA required banks to make sub-prime and predatory loans, however, and that seems to be the spin that conservatives are putting on the program. Community Development Corporations that work to provide low and moderate housing opportunities do not promote sub-prime or other risky loans for low and moderate income buyers. They want successful, community-building projects and programs. Why would they want to "maximize" production and push people into homes that they could not afford?
On the other hand, banks and thrifts had to be on the sidelines when mortgage brokers were coming into low and moderate income communities with all kinds of short-term, easy-entry variable-rate loans. They had regulations that kept them from openly doing this kind of business (HMDA and CRA). But once the Federal Government changed its leadership in 2001, these regulations also began to fall in line with lower and lower controls, fewer standards that had to be met and CRA basically was reduced to a less enforceable regulation.
Who benefitted and who lost in this change in regulation? The Bush Administration clearly was pushing the idea of affordable housing, but in a way that fostered little regulation of the types of financing being offered to low and moderate income families. The wreckage left behind from the lack of responsible regulation includes many mortgage company workers who got wealthy and many low income families who lost everything they had saved, including their credit.
It is a mystery to me how anyone could believe that the people who failed to enforce the regulations and the ones who took advantage of it to pile up great profits are just completely innocent. Or, better yet, it is amazing that one would even consider blaming a regulation for "forcing banks to issue sub-prime loans" when that is a complete lie.
And so it goes...