New Study Finds CRA ‘Clearly’ Did Lead To Risky Lending
By Paul Sperry
Posted 12/20/2012 06:56 PM ET
Democrats and the media insist the Community Reinvestment Act, the anti-redlining law beefed up by President Clinton, had nothing to do with the subprime mortgage crisis and recession.
But a new study by the respected National Bureau of Economic Research finds, “Yes, it did. We find that adherence to that act led to riskier lending by banks.”
CRA regulations are at the core of Fannie’s and Freddie’s so-called affordable housing mission. In the early 1990s, a Democrat Congress gave HUD the authority to set and enforce (through fines) CRA-grade loan quotas at Fannie and Freddie.
But they had to loosen underwriting standards to do it. And that’s what they did.
Lenders not subject to the CRA, such as subprime giant Countrywide Financial, still fell under its spell. Regulated by HUD, Countrywide and other lenders agreed to sign contracts with the government supporting such lending under threat of being brought under CRA rules.
Housing analysts say the CRA is the central thread running through the subprime scandal — from banks and subprime lenders to Fannie and Freddie to even Wall Street firms that took most of the heat for the crisis.
Obama officials, who are cracking the CRA whip anew against banks, insist the law played no role in the mortgage meltdown.
While the 1977 law was passed 30 years before the crisis, it underwent a major overhaul just 10 years earlier. Starting in 1995, banks were measured on their use of innovative and flexible" lending standards, which included reduced down payments and credit requirements.
Banks that didn’t meet Clinton’s tough new numerical lending targets were denied merger plans, among other penalties. CRA shakedown groups like Acorn held hostage the merger plans of banks like Citibank and Washington Mutual until they pledged more loans to credit-poor minorities (see chart).
Note: I only quoted snippets of the article to be in line with copyright and fair use law/standards. It is longish and worth every second it takes to read the entire article! If you are looking for a must-read for today, this article, IMO, is IT!
Time for the MSM to crank up the Demonization Machine! The LAST thing the Ds and their MSM shills need is for the US public to learn that the housing bubble that burst in 2007-2008 was caused by government over-regulation and activists’ (Pres. Obama being one of those activists!)shake-downs, not under-regulation**!**
Now I need to replenish my stock of exclamation points, “italic” tags and “bold” tags!