Great New Books on Organizing:
By Judith Bell
October 10, 2008 — Reprinted with permission
We started noticing the trend last week. Traffic on our website was spiking dramatically, with nearly half of all our hits landing on one specific page, entitled: “What is the Community Reinvestment Act?” Could it be that in these increasingly dire economic times, Americans are looking for examples of successful, pragmatic solutions to encourage responsible homeownership and promote equality and justice? Sadly, not quite.
It turns out our CRA page was linked in a scathing video blaming the CRA for the housing crisis — the basic argument being that the CRA forced banks to loan to all people and, therefore, precipitated the sub-prime crisis and irresponsible people getting loans they couldn’t afford.
The Drudge Report happily hyped this video and injected it into the conservative blogosphere. From there, the CRA meme caught like wildfire. Soon, we were seeing it in top conservative blogs and even on the op-ed pages of major newspapers. It is now an article of faith among many conservatives that the housing crisis is rooted in the CRA — and, in turn, the millions of people of color who were able to obtain mortgages through it.
This argument is not only morally repugnant, but simply factually off-base.
The CRA was passed in 1977 to counter proven and pervasive racial discrimination by banks and savings & loans. It addressed the unfair and widespread practices of denying credit-worthy customers of color, particularly African-Americans and Latinos, access to standard loans and mortgages. The CRA was a remarkable success, sending home ownership rates among people of color to unparalleled heights and helping usher in a black and Latino middle class that is essential to America’s economic future.
However, during the past decade as the nation’s housing market flew closer and closer to the sun, enforcement of the CRA has actually decreased. Contrary to what CRA critics espouse, the CRA did not force these loans of lenders. The CRA became law in 1977, and the sub-prime loans that got us into this current crisis started being issued en masse in 2003. As financial institutions’ desire for accelerated profits and revenue streams grew, necessary regulation did not follow.
The strength of the CRA was significantly weakened in 1999 when financial legislation allowed investment and securities firms to enter the mortgage world. Prior to these changes, the home mortgage industry was fairly simple-banks offered loans, those loans were purchased, held and backed by the General Service Enterprises of Fannie Mae and Freddie Mac. The CRA applied to the regulated institutions issuing loans.
After the 1999 legislation broke down the firewalls between players, however, the network of firms financing homes included more than 20 types of entities that could purchase, repackage and securitize loans. Brokers became free agents to recruit these loans for players that made money on high-fee, high-interest transactions. This massive web of financial entities offering, bundling and trading of mortgages was not covered by the CRA. The vast majority of the sub-prime loans causing today’s massive foreclosures were issued by institutions not covered by the CRA.
Watchdog group Media Matters notes that in the 15 most populous metropolitan areas, 84.3 percent of high-cost loans in 2006 were made by financial institutions not governed by the CRA. Janet Yellen, president and CEO of the Federal Reserve Bank of San Francisco, said in a March speech that ‘studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households.’”
Rather than having the government enforcing a banking regime that is fair and just to all people — as the CRA intended — lawmakers abdicated their responsibilities by not regulating the new players, and let the market run roughshod over millions of low-income Americans simply yearning for the American dream of home ownership. The CRA required meeting community credit needs across banks’ markets — not predatory lending across a vast opaque network of lending, trading and securitization institutions. Uneven and nonexistent regulation became the tragic accelerant.
Trying to blame the CRA and hard-working, low-income Americans for an economic crisis that began in smoky Wall Street backrooms is not only factually but morally wrong. The CRA is an indispensable tool in our continuing push toward an America that offers equal, just and fair opportunity for all people.
Judith Bell is president of PolicyLink, a national research and action institute advancing economic and social equity by Lifting Up What Works®.You can contact PolicyLink at 1438 Webster Street, Suite 303, Oakland, CA 94612, or by telephone: (510) 663-2333, e-mail: email@example.com or by visiting their website: http://www.policylink.org/.