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The RW's attempt to blame CRA for the mortgage crisis is despicable [View All]

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ProSense Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Sep-22-08 08:52 PM
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The RW's attempt to blame CRA for the mortgage crisis is despicable
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Edited on Mon Sep-22-08 08:53 PM by ProSense

The Community Reinvestment Act: lending that works

The Community Redevelopment Act ("CRA") was passed in 1977 to encourage banks to lend credit in their own communities. This was an answer to the problem of "redlining" in which districts or areas of a community were being effectively shut out of getting home mortgage loans from local banks. Banks with assets over $250 million dollars were required to show that they were not discriminating in their loan programs against residents because they lived in a predominantly minority or low-income area. The CRA was weakened in 2004-2005 when a bank had to have assets of $1 billion or more before it became subject to the CRA rules.

Investor's Business Daily and other right wing sites have started to blame the three decade old CRA for the current subprime mortgage crisis. They claim that the CRA forced banks to make loans to low-income customers who were unable to pay them back. This interference in the "free market," according to some right wing sources, is the cause of the current mortgage problems and the reason why banks, investment firms and so forth are in trouble.

This is patently false. According to an independent study done by the firm Traiger & Hinckley LLP in a study release on January 7, 2008:

Our study suggests that without the CRA, the subprime crisis and related spike in foreclosures might have negatively impacted even more borrowers and neighborhoods. Compared to other lenders in their assessment areas, CRA Banks were less likely to make a high cost loan, charged less for the high cost loans that were made, and were substantially more likely to eschew the secondary market and hold high cost and other loans in portfolio. Moreover, branch availability is a key element of CRA compliance, and foreclosure rates were lower in metropolitan areas with proportionately greater numbers of bank branches.

The American Prospect, in an online article by Robert Gordon dated April 7, 2008, called out those who were blaming the CRA for the subprime crisis. It noted:

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