I've heard occasional blips of conservative commentary blaming something called the Community Reinvestment Act for the mortgage meltdown. The 30-year-old federal program gave loans to poor people who shouldn't have gotten loans, goes the argument, and that's why housing prices are tanking, Wall Street is collapsing, and America is turning into Sweden (not there's anything wrong with Sweden... now where's my universal health care?).
Hmm, conservatives blaming low-income folks for the country's problems while ignoring the role of wealthy speculators... why didn't this set off my B.S. alarm sooner?
The Community Reinvestment Act is a scapegoat, and a pretty thin one at that. The program was around for 30 years, well before subprime lending came along to indulge irresponsible buyers and crash the economy. It was enacted to address discrimination in low-income and minority neighborhoods, where "banks were happy to take depositors' money but weren't willing to lend the money back into those neighborhoods" [Shannon Buggs, "Crisis Has Nothing to Do with Reinvestment Act," Houston Chronicle, 2008.10.11]. It did on a small scale exactly what Paulson, Bernanke, et al. now feel obliged to do for the giant corporate banks: make credit available to those who can't get it.
And the funny thing is, the Community Reinvestment Act worked:
"Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households," said Janet Yellen, president and CEO of the Federal Reserve Bank of San Francisco, in a March speech [Buggs, 2008.10.11].
And it had almost nothing to do with the subprime implosion. The federal government wasn't making risky loans; the deregulated private sector was:
Federal Reserve Board data show that:
The “turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007,” the President’s Working Group on Financial Markets reported Friday [David Goldstein and Kevin G. Hall, "Data Show Federal Incentives Not to Blame for Subprime Mortgage Mess," Kansas City Star, 2008.10.12].
- More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.
- Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.
- Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that the critics lambaste.
Darned data, always getting in the way of some good old conservative scapegoating.
Read more from the Kansas City Star, Aaron Pressman at BusinessWeek, the Center for Responsible Lending (PDF alert!), Media Matters, and Professor Mark Thoma at U. of Oregon.
And stop blaming poor people for a problem caused by rich people trying to get richer.