CRA

Those who, like me, believe that CRA not only did not cause the current mess but has been a positive force, are gratified that the mainstream press has finally started to pick up the theme.  For example, this morning the New York Times ran an editorial pointing up both the fallacies of the anti-CRA argument and the good CRA has done.   And last week Forbes carried a piece by Luis Ubinas, the new President of the Ford Foundation, pointing out that the crisis was caused by risky mortgages (by risky, non-CRA-regulated lenders), not risky borrowers, and in particular not poor borrowers.  

Perhaps even more important for countering the effects of the "blame CRA" campaign in middle America, the McClatchy papers have distributed a news item blasting the myth, noting, "What's more, only commercial banks and thrifts must follow CRA rules. The investment banks don't, nor did the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans.  These private non-bank lenders enjoyed a regulatory gap, allowing them to be regulated by 50 different state banking supervisors instead of the federal government. And mortgage brokers, who also weren't subject to federal regulation or the CRA, originated most of the subprime loans."

When the Wall Street Journal lists the Community Reinvestment Act as only the 6^th Washington policy responsible for the current mess-behind such items as "The Federal Reserve," "Banking regulators" (the Fed gets dinged in this category too), and "a credit-rating oligopoly," I suppose those of us who think CRA did (and continues to do) some good should be pleased.  After all, it was not so long ago that CRA was being fingered by conservative commentators as "the" cause of the crisis.  But just to remind folks why CRA shouldn't even be on the Journal's list at all (their major compliant is that CRA "compels" banks to make loans to "poor borrowers who often cannot repay them," which describes one hell of a lot of not poor borrowers who banks made loans to without any prodding), I thought it would be useful to republish this blog's first posting.  Here it is: