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Battling the CRA Myth
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| Contributor | ArmyDem |
| Last Edited | ArmyDem Mar 18, 2009 12:12pm |
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| Category | Commentary |
| News Date | Wednesday, March 18, 2009 06:00:00 PM UTC0:0 |
| Description | Push To Expand Law That Encourages Loans to Low-Income Communities
By Mike Lillis 3/18/09 6:00 AM
Amid the ongoing debate over mortgage lending reform, a top federal regulator took a seat before Congress last week and debunked the myth — popular among conservatives — that a law encouraging loans to low-income communities has been largely responsible for the nation’s housing crisis.
“I can state very definitively,” Sandra Braunstein, director of the Federal Reserve’s consumer and community affairs division, said during a House Financial Institutions subcommittee hearing Wednesday, “that from the research we have done, the Community Reinvestment Act is not one of the causes of the current crisis.”
The statement may have come as a surprise to some of the panel Republicans, who have made a habit of fingering the CRA as a leading cause of the financial downturn. Enacted under the Carter administration, the law has been a lightning rod for conservative criticism for years, but the scorn really took off when the housing market collapsed last year. Critics claim that the CRA forced lenders to make bad loans to low-income borrowers who ultimately couldn’t pay them back.
Braunstein’s testimony, supported by a Fed analysis and echoed by other finance regulators in recent months, could add force to a recent Democratic push to expand the CRA to cover non-bank financial institutions, including mortgage companies, securities firms, credit unions and insurance companies. The bill aims to boost not only lending, but also investments and other services in minority and low-income neighborhoods.
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Yet Braunstein’s testimony told a different tale. She cited a Federal Reserve Board analysis which found that, in 2006, CRA-covered banks operating in CRA-targeted neighborhoods accounted for just six percent of the risky, high-cost loans largely responsible for the housing crisis. |
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