Campaign for America’s Future: Sadly, No! The Community Reinvestment Act Had Nothing To Do with this Crisis

Campaign for America’s Future (9/21/08)

Sadly, No! The Community Reinvestment Act Had Nothing To Do with this Crisis

As these mirthful bloggers observe, we’ll be hearing very soon from every conservative opinion outlet on the planet that the present financial meltdown is the fault of the 1977 Community Reinvestment Act, which demands banks lend throughout the communities they serve. Here’s what Investor’s Business Daily says:

Age-old standards of banking prudence got thrown out the window. In their place came harsh new regulations requiring banks not only to lend to uncreditworthy borrowers, but to do so on the basis of race.
These well-intended rules were supercharged in the early 1990s by President Clinton. Despite warnings from GOP members of Congress in 1992, Clinton pushed extensive changes to the rules requiring lenders to make questionable loans.

Lenders who refused would find themselves castigated publicly as racists. As noted this week in an IBD editorial, no fewer than four federal bank regulators scrutinized financial firms’ books to make sure they were in compliance.
Failure to comply meant your bank might not be allowed to expand lending, add new branches or merge with other companies. Banks were given a so-called “CRA rating” that graded how diverse their lending portfolio was.
It was economic hardball.

And here is a post from Ourfuture.org written back in April—conservatives are oh-so-predictable—that demonstrates why IBD is lying. It quotes, for example, Federal Reserve governor Ned Gramlich:

banks have made many low- and moderate-income mortgages to fulfill their CRA obligations, they have found default rates pleasantly low, and they generally charge low mortgages rates. Thirty years later, CRA has become very good business.

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