In the aftermath of the financial crisis, conservative commentators have blamed the Community Reinvestment Act (CRA), low-income people, minorities, and past Democratic administrations for the sub-prime mortgage meltdown:
- Laura Ingraham: “When Bill Clinton decided to tell Robert Rubin to re-write the rules the Community Reinvestment Act and push all of these institutions to lend to minority communities.”
- Neil Cavuto: “I don’t remember a blaring call that said, Frannie and Freddie are a disaster, loaning to minorities and risky folks is a disaster.”
- Gov. Mike Huckabee (R-AR): “It was their harsh regulation under the Community Reinvestment Act that started this ball rolling down the hill.”
Watch a video compilation:
Congress passed the Community Reinvestment Act in 1977, requiring banks “to lend throughout the communities they serve.” In the 1990s, greater “home mortgage lending to lower income households and in lower income communities by the banks and thrifts covered by the CRA,” increased the homeownership rate “for lower income and minority families.” As a result, “property values went up dramatically in low and very low income urban” communities, “reversing severe declines during the prior two decades.”
But the Bush administration ushered an end to CRA enforcement. In 2004, Bush “announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law’s toughest standards.” Ironically, conservatives are now blaming legislation that “was losing force and relevance” just as “sub-prime lending was exploding,” for the current crisis.
As CAPAF Senior Fellow Robert Gordon argues in The American Prospect, “the real problems came from the institutions beyond the reach of the CRA“:
- CRA Only Applies To Federally Insured Banks And Thrifts: CRA did not apply to independent mortgage companies, which were responsible for “half of sub-prime loans.” Only about “one in four sub-prime loans were made by the institutions fully governed by CRA.”
- CRA Institutions Engaged In Less Dangerous Lending: As the president of the San Francisco Federal Reserve points out, “independent mortgage companies, which are not covered by the CRA, made high-priced loans at more than twice the rate of the banks and thrifts.”
- CRA Does Not Encourage Or Condone Bad Lending: According to Ellen Seidman, Director of the U.S Treasury Department’s Office of Thrift Supervision from 1997 to 2001, CRA-covered institutions were warned “that badly underwritten subprime products that ignored consumer protects were not acceptable. Lenders not subject to CRA did not receive similar warnings.”
While most economists blame the current crisis on market failure and sparse regulation, conservatives are attempting to elude responsibility by smearing the victims of predatory lending. As Matt Yglesias points out, “it was conservatives who watched as the housing bubble developed and it was conservatives who blocked any action to try to ensure a soft landing once the bubble popped….It was conservatives who blocked efforts to curb predatory lending and it was conservatives who blocked efforts to investigate fraud more robustly.”
Now, the preachers of ‘personal responsibility’ are ducking for cover.