MovieMaster

Forcing banks to finance loans to unqualified low income households...


Original Act

The CRA was passed by the 95th United States Congress and signed into law by President Jimmy Carter in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community.[1] Only one banker, Ron Grzywinski from ShoreBank in Chicago, testified in favor of the act.[2] The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an institution's application for deposit facilities, including mergers and acquisitions after the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 repealed restrictions on interstate banking.[3] However, until 1995 the Act was laxly enforced and banks only were required to advertise in local minority newspapers or sit on the boards of local community groups.[4] The CRA is enforced by the financial regulators (Federal Deposit Insurance Corporation ("FDIC"), Office of the Comptroller of the Currency ("OCC"), Office of Thrift Supervision ("OTS"), and the Federal Reserve System).[citation needed]
The bill encouraged mortgage lending through two government sponsored enterprises ("GSEs"). One, the Federal National Mortgage Association, commonly known as Fannie Mae, enables mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies to lend to home buyers. The other, the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, buys mortgages on the secondary market and sells them as mortgage-backed securities on the open market.[5] It also charged the Federal Reserve System to implement the CRA through ensuring banks and savings and loans met their CRA obligations.[3]
[edit]H. W. Bush Administration Changes of 1989

The Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA), enacted in the wake of the savings and loan crisis of the 1980s, increased public oversight of the process. It required the agencies to issue CRA ratings publicly and written performance evaluations using facts and data to support the agencies' conclusions. It also required a four-tiered CRA examination rating system with performance levels of "Outstanding," "Satisfactory," "Needs to Improve," or "Substantial Noncompliance."[6]
[edit]Clinton Administration Changes of 1995

In early 1993 President Bill Clinton ordered new regulations for the CRA which would increase access to mortgage credit for inner city and distressed rural communities.[7] The new rules went into effect on January 31, 1995 and featured: requiring strictly numerical assessments to get a satisfactory CRA rating; using federal home-loan data broken down by neighborhood, income group, and race; encouraging community groups to complain when banks were not loaning enough to specified neighborhood, income group, and race; allowing community groups that marketed loans to targeted groups to collect a fee from the banks.[4][6]
The new rules, during a time when many banks were merging and needed to pass the CRA review process to do so, substantially increased the number and aggregate amount of loans to low- and moderate-income borrowers for home loans, some of which were "risky mortgages."[citation needed] Banks set up CRA departments, a CRA consultant industry was created and new financial-services firms helped banks invest in packaged portfolios of CRA loans to ensure compliance.[citation needed] Established and new community groups began marketing such mortgages. The Senate Banking Committee estimated that as of 2000, as a result of CRA, such groups had received $9.5 billion in services and salaries. As of that time such groups also had received tens of billions of dollars in multi-year commitments from banks, including ACORN Housing $760 million; Boston-based Neighborhood Assistance Corporation of America $3 billion; a New Jersey Citizen Action-led coalition $13 billion; the Massachusetts Affordable Housing Alliance $220 million.[4] The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent.[8][9]
[edit]W. Bush Administration Changes of 2005

In 2002 there was an inter-agency review of the effectiveness of the 1995 regulatory changes to the Community Reinvestment Act and new proposals were considered.[6]
The Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency put new regulations into effect September of 2005. [10] The regulations were opposed by a contingent of Democrats[11]
The regulations included less restrictive new definitions of "small" and "intermediate small" banks.[3] "Intermediate small banks" were defined as banks with assets of less than $1 billion, but allows banks to opt for examination as a large bank.[10] Currently banks with assets greater than $1.061 billion have their CRA performance evaluated according to lending, investment and service tests. The agencies use the Consumer Price Index to adjust the asset size thresholds for small and large institutions annually.[6]
[edit]Criticism

Some economists have questioned if CRA originally was, or at least had become, irrelevant because the CRA was not needed to force banks to make profitable loans to a variety of lenders.[12][13][14] Economist Howard Husock writes that a CRA-connected community group The Woodstock Institute found in a survey in the Chicago-area that even banks not subject to CRA tended to loan in a variety of of neighborhoods. He also criticized as an "amateur delivery system" community groups' involvement in marketing loans.[4] Federal Reserve chairman Ben Bernanke has stated that an underlying assumption of the CRA ? that more lending is always better for local communities ? is questionable.[3]
Economist Stan Liebowitz has claimed that banks were forced to loan to consumers who were not credit worthy with "no verification of income or assets; little consideration of the applicant's ability to make payments; no down payment." The chief executive of Countrywide Financial, the nation's largest mortgage lender, is said to have "bragged" that in order to approve minority applications, "lenders have had to stretch the rules a bit."[15]
Congressman and 2008 Republican presidential candidate Ron Paul has partially attributed the ongoing subprime mortgage crisis to legislation such as the Community Reinvestment Act.[16] A Wall Street Journal editorial argued that the law compelled banks to make loans to poor borrowers who often could not repay them and that this contributed in part to the subprime crisis.[17]
However, many believe that the Community Reinvestment Act did not play a role in the subprime crisis.[18] A BIS working paper by economist Luci Ellis concluded that "Contrary to some media commentary, there is no evidence that the Community Reinvestment Act was responsible for encouraging the subprime lending boom and subsequent housing bust."[19] Center for American Progress fellow Robert Gordon[20] noted that approximately half of the subprime loans were made by independent mortgage companies that were not regulated by the CRA and thus had no government obligation to offer credit to minorities. In the later part of the crisis, these mortgage companies made subprime loans at twice the rate of CRA banks. Another third of the major subprime lenders were regulated but had very little CRA involvement.[21] Gordon also makes the argument that the weakening of the CRA in 2004 was followed by intensified subprime lending.[21] Austrian economist Thomas DiLorenzo counters Gordon's statistic by arguing that even if half of the subprime loans were made by non-CRA companies, the CRA had still caused tens of billions in defaults on mortgages by unqualified borrowers. He further states that Gordon's statistic ignores that independent mortgage companies are middlemen who sell subprime loans to banks that are in turn regulated by the CRA.[22]
Ellen Seidman, former director of the US Office of Thrift Supervision during the Clinton administration, who also works at the New America Foundation,[23] has stated her belief that the CRA did not have an effect on the United States housing bubble.[24] She observes that CRA banks were particularly warned to make responsible investments, citing one of her own speeches as an example. She noted that if unregulated independent mortgage companies make subprime loans, affiliated CRA banks should not be able to count them for CRA purposes although she did not indicate whether this practice currently occurs.[25] An analysis by the law firm of Traiger & Hinckley, LLP, which counsels financial services entities on fair lending and Community Reinvestment Act compliance, concluded that CRA banks were less likely than other lenders to make high cost loans or to foreclose in certain metropolitan areas; they also were more likely to retain their original loans.[26]

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tony286

after banks were deregulated in 1999,only 25 subprime loans fall under cra. No it was fucking greed and less and less regulation throw in a war and lowering taxes at the same time.Mortgage scumbags got people into loans they couldnt afford. I can see avg consumer well the mortgage company thinks I can afford it I must be able to.

pigman

The blame is actually on the credit rating companies that rated packages with subprime loans with the highest rating. Therefore the big bubble started, but ofcourse many banks must have understood the danger.

tony286

the report on cra just after dereg was just signed in so this report is prederegulation. Look how profitable it was
http://www.federalreserve.gov/boardd...ummary2000.pdf

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How many threads are you going to start for this republican meme?

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