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Community Reinvestment Act

THE CRISIS


The Community Reinvestment Act (CRA), enacted by Congress in 1977 (12 U.S.C. 2901) and implemented by Regulations 12 CFR parts 25, 228, 345, and 563e, is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate. In this section of the web site, you can find out more about the regulation and its interpretation and information on CRA examinations.

The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses

Fed Governor Ned Gramlich said in an August, 2007, speech “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”

The CRA was at its strongest in the 1990s, under the Clinton administration, a period when subprime loans performed quite well. The Clinton Administration rewrote the CRA to REQUIRE loans be made to low credit quality borrowers. And engaged FNMA and FRE to buy these loans. In 2004 Bush and several Republicans, including McCain, pushed for tougher enforcement standards. It was only after the Bush administration cut back on CRA enforcement that problems arose, a timing issue which should stop those blaming the law dead in their tracks. The Federal Reserve, too, did nothing but encourage the wild west of lending in recent years. It wasn’t until the middle of 2007 that the Fed decided it was time to crack down on abusive pratices in the subprime lending market. But too late???The borrowers did not meet the historic standards of the homeowner of the past. It was not the CDS market that caused the problem, it was the terrible result of the low underwriting standards and the high default rates that brought on.

 

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The fact is that no bank has ever been forced to make a subprime loan by the Community Reinvestment Act. In fact, the overwhelming majority of subprime loans were not made by banks. Subprime loans were made for one reason and one reason only: they were very, very, very lucrative for those who made the loans, with revenues 3 to 5 times higher than those made from prime loans. Those who claim that the Community Reinvestment Act is even a contributory factor to this mess may find its wrong. Blaming minorities, the Democratic Party, and Community Reinvestment Act for the financial crisis has become pretty popular these days, but there are no data establishing a valid facts on whose really responsible but read on.

And the worst offenders, the independent mortgage companies, were never subject to CRA -- or any federal regulator. Law didn t make them lend. The profit motive and money greed did. So blame cannot be lined at the CRA. And in many cases, we're talking about loans that were made in the suburbs to low to middle income WHITE people who, for whatever reason, did not have sufficient income to buy houses that were averaging $400,000-800,000 in the early 2000's not the low income Black people who could not get loans anycase. Like any mess people go witch hunting!!! but its happened & its moving into the 2009 to be even worse. Lets face it we are in depresssion. The Banks are fine but you and I aren't getting a cracker --just another headache.

THE REAL CUPLPIRTS FOR THE SUBPRIME

Simple Answer: Governments and the Fed for doing too little too late. Don't blame Democrats or Republicans after the fact. 2009 Obama is saying as we say the Recession was caused by the finance and banking execs who paid themselves large amounts of bonuses & salaries. These & their board of directors are the ones to blame to the financial collapse.

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