Community Reinvestment Act: Did It Cause The Housing Crisis?

The Big Picture:

I've run out of patience with tired memes and discredited claims by fools and partisan.

The rhetoric of those pushing nonsense on the public in an attempt to confuse rather than illuminate -- the phrase is "agnotology" -- only serves to aid the lobbyists working on behalf of the Banks and Investment houses to maintain the status quo.

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Comments

[MadAppraiser]

The Community Reinvestment Act (CRA) mandates that federally regulated financial institutions in economically depressed communities meet the credit needs of those local communities in which they are chartered, CONSISTENT WITH SAFE AND SOUND OPERATION. WOW!!! These private and public agencies include the Federal Reserve Bank (CB), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and Office of Thrift Supervision (OTS).

In the early 1900's the Federal Housing Administration [authority, association (FHA)] created national community-lending maps to define mortgage risk in American communities. Commercial banks, and savings associations utilized these lending maps as the platform for discriminatory community credit lending policies (redlining). These FHA economic studies influenced urban planning department's economic and development policies in major American metropolitan areas.

[nomorefed]

Obamma,s policies may not be working as well as many had hoped:

1st 100 days - There are 2.9 million more people unemployed in May than there were unemployed in January. The unemployment rate went from 7.6% to 9.4%. Since May 2008, we have lost 5.5 million jobs. The biggest losers were: Manufacturing 1.5 million lost Finance & Prof Serv 1.5 million lost Construction 1.1 million lost Retail & Leisure 1.3 million lost

good articles http://www.bit.ly/12NCJR recommended reading

Why isnt the stock market falling when the economy is sinking? Why cant we get change in Washington that we really need? Why vote?

[libgrrl]

De-regulation is the direct cause of the financial industry collapse. Mortgage companies can now charge whatever they want in late fees, attorney fees, etc. The answer lies in the balance sheet. The stock value of a company is directly determined by a companies net worth. To put it simply, Assets-Liabilities= Net Worth. The higher the net worth, the higher the stock value. Included in receivables is your payment - an asset which increases a companies net worth, and in turn, it's stock value. This is why mortgage companies will not negotiate. Lowering interest rates and eliminating late/attorney fees will directly, negatively affect receivables, and in turn, net worth, and in turn, a drop in stock value.

A friend was laid off, could not make all of her house payment. Countrywide refused to accept a partial payment and added an additionl $600 in late/attorney fees. Had made her payment, on time for 7 years. If they had accepted partial payment and not tacked on the additional fees, their receivables (a current asset) would have decreased, as would net worth, and in turn their stock value. This has been a systematic industry practice to inflate stock value. De-regulation is directly the source of this problem. Charging whatever a mortgage company wants highly inflates their stock value by creating higher receivables - their assets. Eventually auditors will deem these receivables uncollectable and mortgagers are forced to remove them from the balance sheet - this is what caused the collapse.

[azcamp]

Like most government programs aimed to get the private sector involved in social justice, the program did not work and banks did very little real investment in communities that the lending institutions "red-lined". Rather than admit that redlining was going on, the banks let a few dollars trickle into those communities and submitted meaningless CRA reports of progress toward equal opportunity lending.

The result is that redlining continued in the inner cities and middle class blacks moved to the near suburbs and whites moved even further out. The jobs moved with the white population.

If this caused the Wall Street greed, the packaging of bad commercial paper, then the inner city poor must have claim extraordinary vision and economic savvy. Why don't we have these kinds of great minds serving in the U.S. Treasury Department?

[gcallaghan]

For $100,000 I'll debate any or all sides of this issue, up to a limit of 6. Thereafter, my rate is a flat $16,000 per additional side.

[DennyCrane]

The right wing has been pushing this argument for a while now. They want the pin this entire crisis on the "brown people". In other words, if we hadn't lent money to blacks and hispanics, the banks never would've collapsed. Yeah, right. The fact is that the lending industry was lending recklessly to everybody. I don't live in a poor community nor do I belong to an underprivileged minority. But banks were willing to give me loans up 6 times my income and let me buy a $300,000 house with only a few thousand down. When I got my last car, the lender never even called my employer. This is what happens when lending is unregulated. Don't buy into the right wing BS.

[cavegal]

I think this whole mess started with the "trickle down" theory which translates to "piss on" by the banks followed by a healthy dose of "free market" and "de-regulation". Overturning Glass-Steagle really put the screws to the middle class. Even Adam Smith said unregulated markets would only encourage the greed within our natures.

People used to save money, usually 20%, to put down on a house. My grandfather who remembered lard sandwiches from the depression, used to hide his money because he hated banks so much. He paid cash for his house.

I have a hard time understanding all of the fancy loans they came up with where people did not have to put any money down on such a huge purchase. Hell cars these days cost what people used to pay for houses. My parents only paid about $45K for their house in DC back in the 60's. And that won't even pay for a Mercedes anymore.

[cruzking2000]

No, they really want to blame this on Clinton, Barney Frank, Chris Dodd and co., so they can wash their hands clean of the mess THEY created. They're convinced that it was all the Dems' fault. Just unfreakinbelievable to me how they can rationalize this as NOT the Repubes' fault, nor the fault of the banks, because, because, because.... it CAN'T be the fault of unchecked free market capitalism!

[Peter007]

What are you talking about ? . Banking is the most regulated industry in the US. More than the drug industry. Every home loan is overseen by 6 regulatory agencies.
AND, the Community redevelopment act didn't have anything to do with race. It had to do with people with bad credit getting loans based on the value of their house and not their credit or income. ( a Clinton administration idea)

[NedroidPrime]

CRA may have been used for the problems we have and the scams that led us here, but there is no way that it is the cause. It is a great program that does a lot of good. Unfortunately, as with all good intentions, there are those that will find ways to take advantage of it.

I would say the bigger contributer was Bush's American Dream Downpayment Act. This initiative is what led to the no-document loans and no down payment loans that are at the center of this whole mess...

[ErnestineBass]

TRUE! TRUE! TRUE!

Want to read some vintage Booosh?

http://www.presidency.ucsb.edu/ws/index.php?pid=64935

The man fairly CROWED as he signed ADDA into law.

[cered]

I never see anything about ADDA, but it would seem a piece of legislation that dealt primarily with housing would be an important part of trends in the housing market.