Conservatives blame poor people for housing crisis [De-bunking the CRA myth]

This morning I received a coded message across the super-secret liberal journalist hotline an email directing my attention to an article in the Washington Independent which puts the kibosh on the misguided-but-popular-with-conservatives notion that the Community Reinvestment Act of 1977 is the cause of the housing crisis.

A little background: the CRA "requires banks to help meet the credit needs of the local communities in which they are chartered,' regardless of income levels. The law was enacted to prevent banks from denying loans (home, small business etc.) based on the poverty levels of certain neighborhoods — a practice known as redlining." In other words, yes, the law was designed to promote lending in low-income areas. It was not, however, designed to promote risky, sub-prime loans. In fact, the CRA penalizes banks for reckless and irresponsible lending practices. This is an important distinction.

The GOP and conservative pundits would have us believe that this law is the root cause of the nation's housing mess. In other words, poor people got risky loans and defaulted on their payments because they couldn't pay their bills. This argument puts the blame squarely on the shoulders of low-income homeowners while letting their lenders off scot-free.

Ah, but if only it were the true. Federal Reserve Board analysis in 2006 found that "CRA-covered banks operating in CRA-targeted neighborhoods accounted for just six percent of the risky, high-cost loans largely responsible for the housing crisis."

According to the NCRC, sub-prime lending practices exploded two decades after the passing of the CRA and reached their peak—nearly doubling—from 2000-2006. These were made by unregulated mortgage companies because let's not forget that it was the George W. Bush Administration's "roll back of regulation and oversight of banks, insurers, lenders, and credit raters" that left Wall Street with "no cop on the beat."

A top federal regulator went before Congress last week and didn't mince words:

“I can state very definitively,” Sandra Braunstein, director of the Federal Reserve’s consumer and community affairs division, said during a House Financial Institutions subcommittee hearing Wednesday, “that from the research we have done, the Community Reinvestment Act is not one of the causes of the current crisis.”

Yet, according to the article, "some myths don’t die easy." Republicans, backed by the financial and banking industry who continue to lobby hard and make campaign donations even in the wake of recent and on-going bailouts, "appear as willing as ever to blame the CRA for the collapse of the housing market."

So remember, the cause of the housing crisis wasn't bad loans or predatory lending or poor underwriting practices. It wasn't the non-CRA-covered banks who targeted CRA-covered areas to to push risky, high-cost loans, and it certainly wasn't failed regulatory oversight.

It's the poor people's fault.

Read the entire article here.

MOMocrats co-founder Stefania Pomponi Butler wishes she really did have access to a super-secret liberal journalist hotline. Because that would be some badassery right there.

Comments

[jen]

it's badassery anyways, sister. so typical and so entirely lame. all part of the system of keeping a few happy and well fed and everyone else scraping for leftovers. way to call them out!

[cynematic]

The CRA is a favorite right-wing bogeyman, based, as you so wonderfully point out, CityMama, on misdirected emotion and scapegoating as opposed to FACTS.

We know homeowner behavior isn't free from blame. But at least we know CRA-banks in CRA-neighborhoods were a negligible part of the problem.

It was mainstream banks like Wells Fargo, Washington Mutual, Citibank, and others who offered shady loans and then allowed those loans to be turned into SIVs and CDOs. Sure there were the greedy and unscrupulous house flippers who gamed the system. BUT, even if you add together those flippers to the people who were victims of predatory lending, there's no way that amount of "lost" money adds up to the trillions stolen and mismanaged by the investment banks who created derivatives.

That theft is so vast it imperils the world's financial systems. If so-called fiscal conservatives cared about their country or being held hostage for the care and feeding of investment banks too greedy and stupid to succeed, they'd be calling for accountability of the banking executives who made these decisions.

Until then, so-called "fiscal conservatism" that believes homeowners are the ones largely responsible for the financial crisis is misdirected and misinformed.

[Julie Pippert]

Oh to be a card-carrying member of the GOP and have life so easy, so simple, so black and white. *sigh*

Luckily I understand the actual crisis---thank you Adam and Alex---and realize it is far more complicated than a so-called social outreach program gone awry.

Which, for the record, wasn't even a cause. Period.

Way to straighten out the record and separate wishfulGOPthinking-to-further-biased-agenda-regardless-of-consequence away from myth and redirect over to fact and logic.

[Lisse]

Thank you for continuing to spread this message. "Credit Default Swaps" are far more responsible for this mess, something those conservatives would rather we forget.

[Miami Beach condos]

This article makes a lot of sense. How can low cost loans be the reason our nation has plummeted into recession?