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Mediamatters.Org - Several conservatives in the media have recently blamed the
Community Reinvestment Act (CRA) for
the current financial crisis --
when, in fact, the CRA does not apply to
institutions making what some experts
have estimated to be the vast majority of troubled loans
underlying the crisis. In a September 28 Boston
Globe column, Jeff Jacoby asserted: "The pressure to make
more loans to minorities (read: to borrowers with weak credit histories) became
relentless. Congress passed the Community Reinvestment Act, empowering
regulators to punish banks that failed to 'meet the credit needs'
of 'low-income, minority, and distressed neighborhoods.' Lenders
responded by loosening their underwriting standards and making increasingly
shoddy loans." Likewise, during the September 25 edition of The Radio Factor with Bill O'Reilly, guest
Jonathan
Hoenig, a regular panelist on Fox News' Cashin' In
and managing member of Capitalistpig Asset Management LLC, asserted that the
CRA "makes banks give loans to bad risks." Similarly, during the
September 25 edition of Fox News' The
O'Reilly Factor, radio
host Laura Ingraham said
that "the problem here is government intervention in the
free markets" and baselessly suggested that 1995 rules strengthening the
CRA "pushed all these institutions to lend to minority communities, many were very risky loans."
A September 25 Investor's Business
Daily editorial claimed
the CRA "forced banks to make many more subprime loans." Contrary
to the accusation that the CRA is responsible for the current crisis, experts
have said that
approximately 80 percent of high-priced subprime loans were offered by financial institutions that
are not subject to the CRA. Moreover, the president of the Federal Reserve Bank
of San Francisco
earlier this year said the CRA has actually increased
the volume of responsible lending to low- and moderate-income households, as Center for American Progress senior fellow Robert
Gordon noted in an American Prospect blog post.
On The
Radio Factor, host Bill O'Reilly
asked Hoenig whether he
had "a plan B" for the proposal for the U.S. Treasury to purchase
up to $700 billion in mortgage-backed securities. Hoenig replied, "Let the bad actors
fail, let bad banks fail, kick deadbeats out of their homes, get rid of the
Community Reinvestment Act that makes banks give loans to bad risks, no more
easy money from the Fed, no more bailouts for anybody, and no Fannie, Freddie,
or government [inaudible]."
During The O'Reilly Factor that
evening, Ingraham claimed:
They say, "Well,
this is a failure of the markets. Oh, this is about greed on Wall Street." And Bill, the problem
here is government intervention in the free markets. 1995, when Bill Clinton
decide to tell, you know, [then-Treasury
Secretary] Robert Rubin to rewrite the rules that govern the Community Reinvestment Act and push all these institutions to
lend to minority communities, many were
very risky loans.
That was a noble idea,
perhaps, but that certainly wasn't following free-market principles. This big
pressure on institutions to dole out money and these risky loans started this
whole ball rolling at Fannie and Freddie.
In fact, the federal Community Reinvestment Act -- enacted in 1977 -- applies only to depository
institutions, such as banks and savings and loan associations. In testimony before the House
Financial Services Committee, Michigan law professor Michael Barr stated that while problems in the subprime lending
industry were a driving force behind the housing crisis, he estimated
that only 20 percent of subprime mortgages were issued by depository
institutions under the CRA. In his testimony, Barr stated:
Despite the fact that CRA appears to
have increased bank and thrift lending in low- and moderate-income communities,
such institutions are not the only ones operating in these areas. In fact, with
new and lower-cost sources of funding available from the secondary market through
securitization, and with advances in financial technology, subprime lending
exploded in the late 1990s, reaching over $600 billion and 20% of all
originations by 2005. More than half of subprime loans were made by independent
mortgage companies not subject to comprehensive federal supervision; another 30
percent of such originations were made by affiliates of banks or thrifts, which
are not subject to routine examination or supervision, and the remaining 20
percent were made by banks and thrifts.
Moreover, in comments to the National Interagency Community
Reinvestment Conference in March, the
president and CEO of the Federal Reserve Bank of San Francisco, Janet Yellen, criticized
efforts to blame CRA lending for weaknesses in the mortgage market, stating:
There has been a tendency to
conflate the current problems in the subprime market with CRA-motivated
lending, or with lending to low-income families in general. I believe it is
very important to make a distinction between the two. Most of the loans made by
depository institutions examined under the CRA have not been higher-priced
loans, and studies have shown that the CRA has increased the volume of
responsible lending to low- and moderate-income households. We should not view
the current foreclosure trends as justification to abandon the goal of
expanding access to credit among low-income households, since access to credit,
and the subsequent ability to buy a home, remains one of the most important
mechanisms we have to help low-income families build wealth over the long term.
From the September 25 edition of the Westwood One's The Radio Factor with Bill O'Reilly:
O'REILLY: I don't know
if it's gonna solve it. I can't say with certainty that --
HOENIG: It's not, Bill,
it's not.
O'REILLY: OK. But
there's no other alternative other than a deep, deep recession, or -- slash depression,
depending on what the foreign investors do. OK? There's no other
alternative. There's no plan B.
HOENIG: Well, they're going to
turn what probably could be 18-month slowdown -- Bill, they're going to
turn that into a decades-long depression.
O'REILLY: I'm gonna give
you 30 seconds to give me a plan B. You got one?
HOENIG: Let the -- yeah, absolutely.
O'REILLY: Go.
HOENIG: Let the bad actors fail, let
bad banks fail, kick deadbeats out of their homes, get rid of the Community
Reinvestment Act that makes banks give loans to bad risks, no more easy money
from the Fed, no more bailouts for anybody, and no Fannie, Freddie, or
government [inaudible].
O'REILLY: All right, and let
the chips fall, right? All the people who lose their jobs, all the people who
lose their savings, all the panic that will ensue -- all the panic, remember --
HOENIG: Yeah, that's the --
O'REILLY: -- panic that will
ensue, you're going to sit by and say, "It's OK, because
we'll emerge five years from now stronger."
HOENIG: You're so concerned with
the folks, Bill, but you rattle off the same drivel that comes out of both the Democrats --
O'REILLY: You don't
believe there would be panic from your plan?
HOENIG: Bill, the panic's
being caused by the government. They're making up the rules as they go
along. They're distorting markets and prices every day. Every little
thing that comes out of [Treasury
Secretary Henry] Paulson or [Rep.] Barney Frank's [D-MA] mouth has trillions of dollars worth of
impact for those of us who are the folks working for a living, trying to navigate this market.
O'REILLY: All right, last
question.
From the September 25 edition of Fox News' The O'Reilly Factor:
O'REILLY: All right, [ABC News correspondent] John
Stossel just said -- took a contrarian point of view and said, "Look,
you know, you're enabling an inefficient government to be even more inefficient
by doing this." I say you have to do
the bailout. What say you?
INGRAHAM: Well,
I think that I'm probably more closely aligned with Stossel than you, Bill.
Here's what I think we have to be
very concerned about here is that the narrative being written about how we got
here is the following. And you've heard [Sen. John] McCain and [Sen. Barack] Obama say
similar things.
They say, "Well,
this is a failure of the markets. Oh, this is about greed on Wall Street." And Bill, the problem
here is government intervention in the free markets. 1995, when Bill Clinton
decide to tell, you know, Robert Rubin to rewrite the rules that govern the Community Reinvestment
Act and push all these institutions to lend to minority communities,
many were very risky
loans. That was a noble idea,
perhaps, but that certainly wasn't following free-market principles. This big
pressure on institutions to dole out money and these risky loans started this
whole ball rolling at Fannie and Freddie.
O'REILLY: I don't disagree with you.
INGRAHAM: That's the
problem.
O'REILLY: I don't disagree with you
there. But see, that's hindsight. That was a mistake. But now we have to deal
with reality of foreign investors pulling out of here unless they get
assurances the federal government won't let the whole thing collapse. That's
where I am, because I don't want people getting hurt from some mistake during
the Clinton
administration, because the Bush administration didn't practice oversight
either, as I've said
many times.
From the September 25 Investor's
Business Daily editorial:
Congressional leaders contend that Wall
Street is to blame and must be punished. Yet they're the ones who during the
Carter years approved the Community Reinvestment Act that forced banks to make
many more subprime loans.
And it was President Clinton who
dramatically accelerated the rules that coerced banks to make far more subprime
loans to people who couldn't normally qualify.
Three of every four foreclosures
have involved these subprime loans. Most should never have been made, but big
government mandated that they be made or else. Once again, a big government
with the best of intentions created terrible unintended consequences. It was
big government that started the whole mess.
From Jacoby's
September 28 Boston Globe column:
The roots of this crisis go back to
the Carter administration. That was when government officials, egged on by
left-wing activists, began accusing mortgage lenders of racism
and "redlining" because urban blacks were being denied mortgages at a
higher rate than suburban whites.
The pressure to make more loans to
minorities (read: to borrowers with weak credit histories) became relentless.
Congress passed the Community Reinvestment Act,
empowering regulators to punish banks that failed to "meet the credit
needs" of "low-income, minority, and distressed neighborhoods."
Lenders responded by loosening their underwriting standards and making
increasingly shoddy loans. The two government-chartered mortgage finance firms,
Fannie Mae and Freddie Mac, encouraged this "subprime" lending by
authorizing ever more "flexible" criteria by which high-risk
borrowers could be qualified for home loans, and then buying up the questionable
mortgages that ensued.
Media Matters - Media conservatives baselessly blame Community Reinvestment Act for foreclosure spike {...} Several conservatives in the media have recently blamed the Community Reinvestment Act for the current financial crisis -- when, in fact, the CRA does not apply to institutions making the vast majority of troubled loans underlying the crisis. It applies only to depository institutions, such as banks and savings and loan associations. Experts have estimated that 80 percent of high-priced subprime loans were offered by financial institutions that are not subject to the CRA. {...} Published: September 30, 2008, 8:05 pm - Indexed: September 30, 2008, 8:28 pm - Page Size: 28KB |