Minnesota Independent: Subprime targets: Why everything pundits and politicians are telling you about the CRA is wrong

Minnesota Independent

Subprime targets: Why everything pundits and politicians are telling you about the CRA is wrong

What happened here is what many housing experts call reverse redlining–predatory lenders targeting low-income and black and Latino neighborhoods with high-cost and imprudent loans. Conservative columnists, punditsbankers, and politicians like Minnesota’s own Michele Bachmann have taken to blaming the subprime fallout and subsequent credit crisis on theCommunity Reinvestment Act, a Carter-era program that was designed to require banks to make loans in areas from which they also took deposits. And housing and civil rights experts like Myron Orfield, a law professor at the University of Minnesota and the executive dierctor of the Institute on Race and Poverty, and Geoff Smith of the Woodstock Institute, a policy and advocacy organization that specializes in housing research, say they couldn’t be more misguided.

Created more than 30 years ago, the CRA essentially worked like this: In turn for taking money from low-income communities, banks would have their lending practices examined by federal regulators to ensure they’re making loans for mortgages, small businesses, and community development in those same neighborhoods. In other words, they’d be examined to ensure they weren’t discriminating against low-income neighborhoods that supplied them with monies to make loans to other customers.

But what actually happened in the last few years, Orfield says, is much different. For one thing, the CRA never required banks and lenders to create risky loan packages and market them to consumers who would be unable to afford them after the terms changed. For another, the banks never had a specific quota to meet under CRA, but instead were simply required to show they reinvested back in the community.

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