CRAven Cover-Up

June 8, 2010 07:20

The Financial Crisis Inquiry Commission was set up to sort out the mortgage mess. But it’s merely setting us up for another disaster by circling the wagons around the culprits. The Democrat-led panel has put out a preliminary staff report defending the Community Reinvestment Act against charges the banking rule encouraged risky lending to boost homeownership in communities of color. But the studies the report cites are howlingly flawed and biased.

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One is by a couple of Fed economists who argue that only 6% of subprime mortgages in 2006 were made to CRA-qualified borrowers or neighborhoods by CRA-regulated banks.

But that stat is misleading, since it doesn’t include subprime loans — or securities — bought by CRA-covered banks. Mortgages originated by independent mortgage companies can be bought by banks to get CRA credit. Nor does the study include the billions in public commitments big banks made to lend to low-income and minority households to buy off Acorn and other CRA lobbyists.

The commission cites a report by CRA booster Center for Responsible Lending as evidence. And the center is hardly an impartial observer.

“The foreclosure crisis — and the resulting economic crisis — was caused by reckless and predatory lending practices and toxic financial products, not by the Community Reinvestment Act, Fannie Mae and Freddie Mac, or any other policy goal aimed at increasing homeownership,” the center argues in testimony before the commission. The crisis “occurred for one reason and one reason only: for mortgage brokers, lenders and investors to make money.”

In other words, the private sector is to blame — which seems to be the commission’s premeditated conclusion.


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