The Community Reinvestment Act Didn't Do It

Heard the latest joke about the current financial crisis?

The Democrats did it.

Actually, that’s not a joke, but it’s the sad excuse for one that corporate capitalist apologists are pushing. Ann Coulter even put out an entire rant with the typically subtle title “THEY GAVE YOUR MORTGAGE TO A LESS QUALIFIED MINORITY. Other lessor minds, from Rush Limbough to the Wall Street Journal, concur.

The twisted thinking goes like this: in the late 1970s fair housing advocates pushed through the Community Reinvestment Act, or CRA, to stop banks from discriminatory practices like “Redlining” (the term comes from banksers who would use a red marker to mark off the minority neighborhoods on a city map to show where they refused to lend). Jim Campen discussed the act back in 1997. (The Act was reformed in 1995 and 2003). Right-wing pundits are now claiming that the law forced banks to give mortgages to “unqualified” minorities who are now all defaulting on their mortgages.

Simple story, but there’s one problem. It’s not what actually happened.

Writing on the Public Citizen’s Consumer Law & Policy blog, Alan White wrote this response:

The blame-the-CRA theory says that the subprime mess was caused by weak-hearted lenders pushed by misguided bureaucrats into making loans to poor people and minorities who can’t repay them. Nothing could be further from the truth. First, subprime mortgages that are now defaulting in droves were made mostly by unregulated mortgage bankers with no CRA obligations or oversight. Second, the Alt-A mortgages that are a major part of the crisis were made mostly to middle-and upper-income white borrowers who didn’t want to verify income or wanted a bigger loan than a prime lender would offer. Third, loans made by banks to fulfill CRA obligations, even those to very low-income homebuyers, perform quite well. Fourth, the only category of mortgages in which the foreclosure and default rates are not going up is the FHA program, a program that makes loans almost exclusively to low- and moderate-income Americans, many of them African-American and Latino. The bottom line is that it was the design of subprime mortgages, not the selection of borrowers, that caused them to default in massive numbers. Lenders can make sound loans to underserved groups, or they can make overpriced dangerously risky loans.

Read Alan White’s full post here.

Bailout Bill Fails in House Vote

From the WSJ:

By MICHAEL R. CRITTENDEN

WASHINGTON — A bipartisan group of U.S. House lawmakers defeated a $700 billion rescue plan for Wall Street on Monday, rejecting pleas from the Bush administration and congressional leaders from both parties of the potential dire consequences of policymakers not acting to help financial markets.

The 205-228 vote against the plan sent stocks plummeting, with the Dow Jones Industrial Average down around 500 points as news of the vote spread through Wall Street.

The defeat came despite House leaders holding open the vote for well beyond the 15-minute time limit, supporters were unable to convince enough members of either party to switch their votes against the proposal.

The defeat is a massive setback for the Bush administration, specifically the Treasury Department, as well as lawmakers who have been working throughout the last week on the legislation in the wake of the collapse of Lehman Brothers Holdings as well as the government’s bailout of American International Group Inc. and its takeover of Fannie Mae and Freddie Mac.

The White House expressed displeasure with the defeat of financial-market bailout legislation in the U.S. House of Representatives, and said President George W. Bush will meet with his economic team later Monday to determine the way forward.

“Obviously we’re very disappointed in the outcome this afternoon,” Mr. Fratto said. “There is no question that the country is facing a difficult crisis that needs to be addressed.”

Mr. Fratto said President Bush will meet with his team Monday afternoon and be in touch with congressional leaders.

The $700 billion rescue plan for Wall Street was defeated by a bipartisan group of lawmakers in a 205-228 vote. The vote, which was expected to be tight, is a sharp repudiation of the Bush administration and congressional leaders, who warned that failure to act would have dramatic implications for financial markets and the U.S. economy.

Earlier Monday, the White House said it believed it had the votes necessary for the rescue bill to pass.

President Bush, who tried to rally support for the package with a televised statement early Monday, had a list of a “couple dozen” lawmakers to call before the vote, Mr. Fratto said before the vote.