Setting the Record Straight

OK.  Enough chemistry for now.  I’ve been reading comment after comment in various newspapers (letters to the editor, electronic comments on articles, etc.) from stupid dittoheads saying that the Community Reinvestment Act (CRA) was the cause of the subprime mortgage meltdown and that it should be repealed as part of any bailout bill.  These people are woefully uninformed and actually need to read legislation rather than just repeat some bullshit that a high priced hypocrite tells them.

You can find the actual text of the act here.  The argument I’ve read is that the CRA forced banks to make risky loans to those pesky minorities (why can’t they just rent like they are supposed to?).  This is simply untrue.  The act requires that banks stop the practice of redlining by forcing them to offer loans to people from their entire geographical area (defined by where they have branches).  There have never been quotas detailing how many loans to minorities or low income customers they must make.  If someone is a bad credit risk, they can still be denied a loan at no cost to the bank’s compliance record.  If some banks chose to make risky loans, that was their choice.  They simply were no longer allowed to discriminate on the basis of SES or race (the corollary here is that a low income borrower wouldn’t be able to get as big of a loan for obvious reasons).

Moreover, fully 80% of subprime mortgages originated from financial institutions not covered by the CRA.  Equally damning to the dittohead argument is that subprime lending only intensified (in terms of dollars) after 2004, when the CRA was defanged.