C-SPAN broadcast Barney Frank's remarks to an AARP gathering Friday. While answering a question he said that Repug talking heads were already blaming the "Community Redevelopment Act" for requiring financial institutions to make bad loans to people who can't repay them. He derisively noted that there was no federal "Community Redevelopment Act," and they were probably trying to blame their philosophical woes on the Community Reinvestment Act (CRA), and that they had probably never heard of the CRA before that week.
On today's CNN "Late Edition" I heard "Republican strategist Alex Castellanos" say:
... You can make an argument that Republicans' lack of oversight and lack of regulation on the banking industry, that's a fair debate to have. They exploited a bubble. But the other side that's not getting discussed is who created the bubble? Who let Americans go out there and borrow money without equity, without putting anything in the bank? Who created institutions like Countrywide and allowed that to happen that was exploited? And that, frankly was the Community Redevelopment Act that (inaudible) Clinton...
As usual, it's Clinton's fault, and now, the "Community Redevelopment Act."
This meme was put out as early as the Winter of 2000 by Howard Husock, and has been pushed at a low pitch for several years. It has reappeared during the last week in the face of the Repug party going down in flames. Investors.com posted it last Wednesday. The post began by quoting House Speaker Nancy Pelosi: "The American people are not protected from the risk-taking and the greed of these financial institutions." Then:
Only, the risk-taking was her idea — and the idea of all the other Democrats, along with a handful of Republicans, who over the past 30 years have demonized lenders as racist and passed regulation after regulation pressuring them to make more loans to unqualified borrowers in the name of diversity.
They were the ones who screamed — "REDLINING!" — and sent banks scurrying for cover in low-income neighborhoods, where they have been forced to lower long-held industry standards for judging creditworthiness to make the subprime loans.
If they don't comply, they are threatened with stiff penalties under the Community Reinvestment Act, or CRA, a law that forces banks to make home loans to people with poor credit risks.
The Investors.com post was picked up and repeated on MSNBC message boards, and has made its way to the blogosphere.
Even Senator Richard Shelby admitted on Face The Nation that the financial meltdown was caused by "greed and a lack of regulations." The transcript is not up yet, but courtesy of the RedState front page (no link for boosting traffic, but you can go there on your own):
On CBS' FTN, Paulson said that they are asking foreign governments to help in this crisis, as it is an international problem. Next, Senator Richard Shelby said that this crisis was caused by greed and a lack of regulations. We need more regulations. As Schieffer was leaving the segment, Barney Frank interrupted to say a "Sunday morning... Amen to Senator Shelby." Schieffer opined that it was worth the interruption just to hear him say this.
I was watching and I remember Shelby saying "massive regulation" was going to be part of the solution.
What is the Community Reinvestment Act?
The Community Reinvestment Act (CRA), Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.):
... is a United States federal law that requires banks and thrifts to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as "redlining." The purpose of the CRA is to provide credit, including home ownership opportunities to underserved populations and commercial loans to small businesses. It has been subjected to important regulatory revisions.
In the same Wiki article:
Critics claim that government policy encouraged risky lendin and the development of the subprime debacle through legislation like the CRA. Economics professor Stan Liebowitz writes that banks were forced to loan to un-credit worthy consumers with "no verification of income or assets; little consideration of the applicant's ability to make payments; no down payment." The chief executive of Countrywide Financial, the nation's largest mortgage lender, is said to have "bragged" that to approve minority applications "lenders have had to stretch the rules a bit." Robert Gordon of the Center for American Progress disagrees, quotes statistics that he claims show "independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts." He faults then-Federal Reserve chair Alan Greenspan for "cheering the subprime boom" in the banking industry. ...
The Federal Reserve Board says of the CRA:
Evaluation of CRA Performance
Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institution's individual circumstances. Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institution's CRA activities should be undertaken in a safe and sound manner.
(...)
Interagency information about the CRA is available from the Federal Financial Institutions Examination Council (FFIEC).
The Federal Financial Institutions Examination Council (FFIEC) is:
a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS), and to make recommendations to promote uniformity in the supervision of financial institutions. ...
They say in their Interagency Questions & Answers(.doc file), cited by the Federal Reserve Board:
Types of lending activities that may warrant favorable consideration as activities responsive to the credit needs of an institution’s community:
Credit needs vary from community to community. However, there are some lending activities that are likely to be responsive in helping to meet the credit needs of many communities. The agencies are adopting a new question and answer, § __.22(a) – 1, which identifies the following activities as being responsive to the needs of an institution’s assessment area:
·Providing loan programs that include a financial education component about how to avoid lending activities that may be abusive or otherwise unsuitable;
·Establishing loan programs that provide small, unsecured consumer loans in a safe and sound manner (i.e., based on the borrower’s ability to repay) and with reasonable terms;
·Offering lending programs, which feature reporting to consumer reporting agencies, that transition borrowers from loans with higher interest rates and fees (based on credit risk) to lower-cost loans, consistent with safe and sound lending practices. Reporting to consumer reporting agencies allows borrowers accessing these programs the opportunity to improve their credit histories and thereby improve their access to competitive credit products.
Sandra F. Braunstein is Director of the Federal Reserve Board's Division of Consumer and Community Affairs. In an appearance before the House Committee on Financial Services February 13, 2008, she said the implementation of "specific dollar level of lending or investments that an institution needs to qualify for a particular CRA rating" were not provided because they would be "be contrary to the safe and sound operation of the institution."
The Feds say:
"CRA activities should be undertaken in a safe and sound manner" (and)"avoid lending activities that may be abusive or otherwise unsuitable" (to) "provide small, unsecured consumer loans in a safe and sound manner (i.e., based on the borrower’s ability to repay) and with reasonable terms" (and) "consistent with safe and sound lending practices."
Every document I could find on the subject of the CRA says that financial instutions should not engage in risky loans.
As we already knew, the claim that the CRA is in any way responsible for the financial meltdown we are witnessing is pure hokum. Here is the supporting documentation.