Congresswoman Eddie Bernice Johnson on legislation to expand the CRA

The 30th Congressional District of Texas, like many communities, is diverse and its residents should not be denied bank loans because of where they live. The Community Reinvestment Act (CRA) came into existence to protect people from housing discrimination. President Jimmy Carter signed the CRA in 1977 to establish a system to monitor and rate whether banks and thrifts meet a variety of needs that include: financing for rental housing, home mortgages, small business startup and expansion costs. The CRA encourages prime lending by offering banks incentives for its foreclosure prevention efforts, counseling loan recipients, modifying loans and investing in finance loan modification. The CRA also penalizes banks through reduced CRA ratings that result when a bank is caught practicing discriminatory loan practices – not lending to all of their qualified customers. Presently, the CRA only applies to banks and thrifts (thrifts are depository institutions like savings banks and savings and loan associations), however the CRA does not apply to other financial institutions that lend money like bank affiliates, independent mortgage companies and credit unions.

To solve this issue, I introduced the H.R. 1479, the Community Reinvestment Modernization Act. My legislation strengthens the existing CRA by expanding it to all institutions. I believe the CRA Modernization Act will help restore integrity to and trust of our financial system. The legislation will also strengthen the accountability of banks, address racial disparities in lending, penalize banks that engage in predatory and abusive lending practices and require federal regulatory agencies to hold more public hearings and meetings when banks merge.

~ Congresswoman Eddie Bernice Johnson (D-TX), Summer 2010 News and Views

Anonymous banker on the Community Reinvestment Act

I am an expert in the Community Reinvestment Act and the Home Mortgage Disclosure Act and related Fair Lending laws. I have been consulting in this specializeed compliance area for 14 years and have worked with hundreds of banks and some community organizations as well. There is a good deal of truth to the allegation that the CRA did contribute to the current financial crisis . . . . There is much good to be said about the CRA, but as the old saying goes, "The road to hell can be paved with good intentions." While the CRA has been around for more than 30 years, it was the changes made in 1995 under the Clinton administration that set the ball in motion for the pressurs that created market premiums for LMI ["low- to moderate-income, or sub-prime] mortgages. In 1995 for the first time, the CRA specified quantitative performance standards specifically related to LMI mortgages. It took 7 or 8 years for the cumulative effect to become too big to ignore.

About 50% of the sub-prime mortgages originated can be ascribed to banks and their affiliates (which itself is still very substantial). Under CRA banks receive credit [by the Fed and other regulators, for making bad loans] not only for loans they originated, but loans they purchase as well. This resulted in a premium value for mortgages to low- and moderate-income [i.e., sub-prime] borrowers . . . . The premium was reflected in the secondary market for these loans [i.e., Fannie and Freddie's operations] I personally saw transactions between banks in which these mortgages were sold and purchased at huge premiums that were driven by the "CRA value" of the credits [i.e., browny points with Fed regulators] for the loan purchaser. I vividly remember one portfolio transaction in which the purchasing bank paid a premium of $15000 per mortgage to effect a transaction just before year end. Some unscrupulous firms went around marketing "CRA mortages" . . . touting the mortgages to borrowers as highly attractive because of the CRA-angle. Lehman Bros. was one of the most acive players in the secondary market purchasing these loans. The reality is that the regulatory pressure exerted by CRA was a factor that should not be ignored. Ironically, at the same time, many banks did offer discounted rates to LMI borrowers that did benefit them. Not all sub-prime loans took advantage of borrower ignorance.

~ Anonymous banker, "A Banker on the Evils of the Community Reinvestment Act," LewRockwell.com Blog, September 29, 2008

Thomas DiLorenzo on Countrywide Financial's commitment to CRA lending

In his April 26 New York Post article on the CRA entitled "The Real Scandal," Professor Liebowitz explains how the government's Fannie Mae Foundation singled out one bank in particular as the role model for all other banks in America in terms of its commitment to CRA lending: Countrywide, the nation's largest mortgage lender, had committed to $600 billion in low-income or "subprime" loans as of 2003. Today, Countrywide is essentially bankrupted and has been merged with Bank of America.

~ Thomas DiLorenzo, "The CRA Scam and its Defenders," Mises.org, April 30, 2008

Thomas DiLorenzo on Paul Krugman blaming the mortgage mess on the free market

In [Paul] Krugman's article blaming the "subprime" mortgage mess on the free market, he claims that the Comptroller of the Currency should have been regulating the lending business more stringently. If so, this all might have been avoided, he says. As usual, he hasn't the foggiest idea of what he's talking about.

The fact is, the Comptroller of the Currency and the Fed itself have been busy enforcing the "Community Reinvestment Act" of 1977 for the past 30 years, which pressures banks to make uneconomical loans to uncreditworthy borrowers, euphemistically called "sub-prime" borrowers. They're not financial deadbeats, or people who never pay their bills on time. They're just a tiny, tiny bit below "prime" borrowers, in Governmentspeak.

Once again, Krugman gets everything ass backwards: Government regulation of the credit markets is a major CAUSE of the "subprime" mortgage debacle, not the solution. (Of course, the Greenspan Fed itself is the cause of the now-burst housing bubble).

~ Thomas DiLorenzo, "Crazed Keynesianism (and stupid, too)," LewRockwell.com blog post, December 21, 2007