Facts About the CRA and the Racist Meme Used to Attack It...
By Desi Doyen on 10/5/2008, 10:36am PT  

Guest Blogged by des...

The emerging meme last week from the conservative corner is that the 1977 Community Reinvestment Act (CRA) is to blame for the economic meltdown on Wall Street. The CRA was intended to confront decades of institutionalized discriminatory lending practices by banks in refusing loans to women and minorities. The twisted logic behind this newest meme is that the CRA forced formerly prudent lenders to abandon their previously cautious ways, and forced them to throw sound lending practices out the window because that's what the law demanded, and gosh, it's not their fault that they made bad loans in the bargain.

You may not be surprised to learn that's not the case. Read below, in full, for some facts that counter the insidious prejudice --- with racism at its heart --- inherent in the latest lie drummed up in the conservative blame game. You'd think they couldn't cry "Political Correctness made me do it!" with a straight face, but alas, they do...

Rick Perlstein, OurFuture.org [strikethroughs in original]:

Yes, well, that would be the right-wing smear du jour: the Community Reinvestment Act caused the meltdown, not greedy bankers and the oily politicians who love them. As regular readers at OurFuture.org know, we've called the idea a modern day equivalent of the Protocols of the Elders of Zion --- a Big Lie narrative that blames a despised, outcast social group for problems they had nothing to do with, in order to aggrandize the ability of the dominant group to hate and oppress.

...So what did I do in that Chicago radio studio last Friday when a wingnut (who, incidentally, is African American) spewed forth some excrement about how Jews harvest the blood of children for their Passover matzohs handouts to swarthy people are responsible for the meltdown of the American economy? I did my job. I called it a "lie and a slander," explaining in simple and forceful terms that lending institutions covered by the CRA have a lower mortgage default rates than ones that aren't, and that even if the former were the worst companies in the history of the universe, they wouldn't have helped produce the financial contagion had not conservative deregulation green-lighted the buying and selling of insanely irresponsible mortgage-backed securities.

...Then, the next day, waiting in the drive-through line at a Burger King, I heard myself on the radio. But not my debunking of the right-wing smear. That part was cut.

You may also be surprised to see that the Federal Reserve disagrees with the racist meme, as they are quoted by The Big Picture [emphasis in original post]:

"Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institution's individual circumstances. Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institution's CRA activities should be undertaken in a safe and sound manner."

...What are the requirements of the CRA?

The CRA simply requires the Federal Reserve and the other federal financial supervisory agencies:

  • to encourage federally insured depository institutions to help meet the credit needs of their entire communities, including low- and moderate-income areas, consistent with safe and sound operations;
  • to assess their records of performance under the CRA during examinations; and
  • to take those CRA records into account when evaluating proposals for expansion.

Robert Gordon, The American Prospect [emphasis added]:

[I]t is hard to blame CRA for the mortgage meltdown when CRA doesn't even apply to most of the loans that are behind it.
Most important, the lenders subject to CRA have engaged in less, not more, of the most dangerous lending. Janet Yellen, president of the San Francisco Federal Reserve, offers the killer statistic: Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts. With this in mind, Yellen specifically rejects the "tendency to conflate the current problems in the sub-prime market with CRA-motivated lending. CRA, Yellen says, "has increased the volume of responsible lending to low- and moderate-income households."
It's telling that, amid all the recent recriminations, even lenders have not fingered CRA. That's because CRA didn't bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA --- or any federal regulator. Law didn't make them lend. The profit motive did.

And that is not political correctness. It is correctness.

More facts, analysis, and sourcing at the original links.

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