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Mortgage Meltdown – Who’s To Blame?

Posted by James Burns | Sep 22, 2019

Many people have now looked to point a finger and fixed it on the Community Reinvestment Act, passed in 1977, which requires banks to extend loans where they accept deposits. It was created to combat redlining — the practice of denying loans to residents of minority neighborhoods. Conservatives have periodically criticized the fair-lending law, saying, for example, that it discourages banks from opening branches in poor districts. The latest controversy on these points began via a Sept. 15 editorial in Investors Business Daily, titled “The Real Culprits in This Meltdown.”

Contrariwise, Kenneth Thomas, author of two books about the law (“Community Reinvestment Performance” and “The CRA Handbook”). Thomas says you could just as easily blame the Sept. 11 terrorists (because the Fed slashed short-term interest rates afterward), or the Chinese (for buying so many bonds during the subprime boom). In other words, he thinks it's a huge stretch to blame the CRA on lenders' bad decisions.

Mr. Thomas espouses three reasons to exonerate the Community Reinvestment Act in the mortgage meltdown:

Why allegedly the CRA is not to blame

  • The CRA applies to banks. Most subprime mortgages came from lenders that were not banks — so the CRA did not cover them.
  • The non-bank lenders made more reckless lending decisions than banks did.
  • Regulations didn't drive the subprime lending boom. The pursuit of profits did.

I still think the enacting of the CRA is like loading the gun and even though you didn't pull the trigger, you set the circumstances for someone to be hurt. I think those involved in this legislation should step up and take responsibility and admit they didn't go far enough to examine the other side of the coin which was the potential for abuse and that it might get out in the hands of unscrupulous brokers; as if brokers just started in the business in 2000. There is such a symbiotic relationship between the bank and those who peddle the products or the investors (banks) that you are not kidding me when you act as if it is someone else's fault.

No dah, the pursuit of profit drove the subprime lending boom…why wasn't someone watching to prevent this and get additional regulation in early enough. When you see something booming you know it is going to get abusive so get proactive rather than were we are now which is reactive with a new deficit around $11.3 Trillion.

Sound off if you have any good ideas or analysis in finding a balance between helping struggling families of color or just struggling families and how to keep it from going haywire with abuse and greed.

About the Author

James Burns

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