The notion that the Community Reinvestment Act fueled the subprime bubble is a "misperception promulgated by many who either do not know much about the law or don't like it," Federal Reserve Board Governor Elizabeth Duke said Tuesday.
A recent Fed study of CRA-related lending found no connection between CRA and the subprime mortgage problems, she told a CRA policy meeting in Washington.
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CRA was established to prevent federally insured commercial banks
and other retail depository institutions from discriminating against
entire neighborhoods, a practice called "redlining." Republicans
particularly have argued that CRA fueled the housing bubble by
encouraging banks to offer low-doc, teaser rate financing to people who
otherwise would not qualify for mortgages because of poor credit
histories or inability to keep up with their payments.
The Fed study, however, found nearly 60% of higher-priced loans went
to middle- or higher-income borrowers or neighborhoods outside of the
scope of CRA lending. Additionally, the 20% of subprime loans that did
go low- or moderate-income areas or borrowers were originated by
nonbank lenders not covered by CRA obligations.
"Our analysis found, in fact, that only 6% of all higher-priced
loans were made by CRA-covered lenders to borrowers and neighborhoods
targeted by the CRA," said Duke, a former chairman of the American
Bankers Association and former chief operating officer of Portsmouth,
Va.'s Towne Bank. She also was once an executive vice president of
Wachovia Corp.
She added that foreclosure rates for loans originated by CRA-covered
lenders were significantly lower than those originated by independent
mortgage companies.
"Clearly, claims that CRA caused the subprime crisis are not supported by the facts," she said. - Bill McConnell
See Dealscape: Comptroller dismisses claims CRA fueled subprime meltdown
See Dealscape: The Guardian's misguided case against Clinton's role in the crisis
Comments
I never thought CRA had a serious impact on the housing crisis but it certainly played its part.