Why do republicans keep repeating the lie that “loans to minorities” created the crisis?
Almost all economic experts have said this is a lie. Even bush’s top 2 banking appointees have said this is a lie.
Bush appointee Federal Reserve Chairman Ben Bernanke said “Experience runs counter to the charge that CRA was at the root of, or otherwise contributed in any substantive way to, the current mortgage difficulties.” In a November 25, 2008, letter, Federal Reserve chairman Ben Bernanke stated: “Our own experience with CRA over more than 30 years and recent analysis of available data, including data on subprime loan performance, runs counter to the charge that CRA was at the root of, or otherwise contributed in any substantive way to, the current mortgage difficulties.”
Most subprime mortgages not issued by institutions under CRA. In a paper published on the website of the Federal Reserve Bank of San Francisco, Michigan law professor Michael Barr stated that as of 2005: “Only 25 percent of subprime loans were made by banks and thrifts, and the Federal Reserve reports that only six percent of subprime loans were CRA-eligible.” Similarly, a 2008 study by a law firm specializing in CRA compliance estimated that in the 15 most populous metropolitan areas, 84.3 percent of subprime loans in 2006 were made by financial institutions not governed by the CRA.
Bush appointee FDIC chairwoman Shelia Blair said in the following speech:
Remarks by FDIC Chairman Sheila Bair to The New America Foundation conference: “Did Low-income Homeownership Go Too Far?”: Washington, DC
December 17, 2008
Good morning and thank you for inviting me to speak.
What I’d like to do today is bury two myths that have been circulating lately. The first myth is that the Community Reinvestment Act caused the financial crisis. And the second myth is that working with troubled homeowners to reduce foreclosures lacks urgency and may be akin to a fool’s errand.
CRA as a scapegoat
I think we can agree that a complex interplay of risky behaviors by lenders, borrowers, and investors led to the current financial storm. To be sure, there’s plenty of blame to go around. However, I want to give you my verdict on CRA: NOT guilty.
Point of fact: Only about one-in-four higher-priced first mortgage loans were made by CRA-covered banks during the hey-day years of subprime mortgage lending (2004-2006). The rest were made by private independent mortgage companies and large bank affiliates not covered by CRA rules.
You’ve heard the line of attack: The government told banks they had to make loans to people who were bad credit risks, and who could not afford to repay, just to prove that they were making loans to low- and moderate-income people.
Let me ask you: where in the CRA does it say: make loans to people who can’t afford to repay? No-where! And the fact is, the lending practices that are causing problems today were driven by a desire for market share and revenue growth … pure and simple.
CRA isn’t perfect. But it has stayed around more than 30 years because it works. It encourages FDIC-insured banks to lend in low and moderate income (or LMI) areas, and I quote, -“consistent with the safe and sound operation of such institutions”.
Another question: Is lending to borrowers under terms they can not afford to repay “consistent with the safe and sound operations”? No, of course not.
CRA always recognized there are limitations on the potential volume of lending in lower-income areas due to safety and soundness considerations. And, that a bank’s capacity and opportunity for safe and sound lending in the LMI community may be limited.
That is why the CRA never set out lending “target” or “goal” amounts. That is why CRA supporters, many of you here today, have labored for three decades to figure out how to do it safely. It makes no sense to give a loan to someone under terms you know they can’t pay back. That’s a set up for failure.
Despite our current problems, the homeowner is still one of the best credit risks in the world. Today, the delinquency rate on all home mortgages is only 3.6 percent. For subprime loans, there is a stark difference in the type of loan. The rate of seriously delinquent subprime fixed rate loans is a little more than one-third the rate for subprime adjustable rate mortgages.
Any family willing to work, save money, pay the mortgage on their house is a sound basis of credit and a sound basis for America.
So let the record show: CRA is not guilty of causing the financial crisis.