NYS: Don't Blame the Markets (Community Reinvestment Act for Banks brought to you by Congress)

New York Sun ^ | April 18, 2008 | JERRY BOWYER

[OESY]

...Up until 1995 the Community Reinvestment Act was largely a requirement to support "community groups" in poor neighborhoods. Of course, this often meant left wing groups like ACORN, etc. But after 1995 the scope of the law was dramatically increased.

Over the strenuous objections of the banks themselves and some Republicans in Congress, CRA was renewed and modified in such a way that it gave far more power to the federal government to punish banks for not lending more widely in poor neighborhoods.

The classic "fair housing" laws from the Martin Luther King Jr. era of civil rights were deemed insufficient. Under CRA, not only were realtors required to sell to qualified buyers regardless of race, which they should have been, but banks were accused of a new kind of "financial redlining" if they didn't provide the funds. Income, credit history, assets, debts were out. Urban neighborhoods were in. The Home Mortgage Disclosure Act pushed things along too by requiring banks to ask about and disclose the race of its mortgage applicants. In effect, banks were forced to provide the evidence of their own alleged discrimination.

Subprime loans to minority applicants exploded ten fold in the mid-1990s as a result. In fact the Clinton administration found a rapid increase in subprime loans in minority neighborhoods. Their principle worry was that... not enough lending was going on in these communities. More was needed. And they got what they asked for....

[T]he banks' CRA rating was taken into account in the [merger] decision [by regulators]. This meant that a high CRA rating became an important prerequisite for mergers, which increased the pressure on the banks to make these risky loans. The banks also were given permission to put these loans into packages of securities that could then be sold into investment markets....

[OESY]

Mr. Bowyer, a contributor of CNBC, is the chief economist for Benchmark Financial Network.

[VR-21]

A problem it appears, brought about by government meddling in the market, and I fear that it will be exacerbated by yet more government meddling.

[Jimmy Valentine]

Thank you so much for finding and posting this.

The CLINTON Admin istration in the person of DEVAL PATRICK at the INJustice Department hammered banks to comply with the new loose rules.

[Grut]

All this crap about CRA is an attempt to distract us from the way reckless lenders inflated the price of housing to an unsustainable level, in order to reap greater rewards for loaning more money. The immediate problem isn’t mortgage defaults, it’s that markets are realizing that the dollar is worth a lot less than market managers thought it was; even ‘good’ mortgages represent much less real value than their face value indicates.

[CarWashMan]

So, “all this crap” about the government forcing banks to make loans that the banks normally would not make is just a distraction? I have read several articles along the same lines as this one, and they all point out the dangerous interaction between government agencies and left-wing groups such as ACORN.
Recently someone wrote into our local paper saying that “supply and demand” was just a ploy to keep gas prices high. How can you educate someone that doesn’t understand the basic laws of economics?
If there were lending institutions that committed fraud, prosecute them. But don’t let government mandated supidity stare you in the face and look somewhere else for fault.
I see that our saviour Barack said that raising capital gains is about “fairness”, not revenue. This is the kind of thinking that gave us CRA and the Home Mortgage Disclosure Act.

[OESY]

Sometimes problems have more than one cause.

Congressional meddling often makes the problem worse
because the populist remedies like the CRA often
don't make for sound economic policy.

That said, the penalties for good underwriting were real.

.

[Cacique]

btt