Tornado Alley (PROG)

[fuagf]

FDIC's Bair Sets to Shatter CRA "Myth"

By Kelly Curran .. • December 5, 2008 • 6:00am

"I want to give you my verdict on CRA: NOT guilty," said FDIC Chairman Sheila Bair, according to a press release by the Federal Deposit Insurance Corporation. Before the Consumer Federation of America, Bair said Thursday she wanted to clear up the "myth" that the Community Reinvestment Act caused the financial crisis -- and she set out to do so with vigor.

The Community Reinvestment Act — or CRA — is a federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. It has largely been criticized by conservative members of the GOP as promoting predatory lending practices.

"Point in fact," she said, "only one in four higher-priced first mortgage loans were made by CRA-covered banks during the hey-day years of subprime mortgage lending. The rest were made by private independent mortgage companies and large bank affiliates not covered by CRA rules."

And "Let me ask you," she proceeded. "Where in the CRA does it say to make loans to people who can't afford to repay? Nowhere." The facts are simple, Bair said. The lending practices that are causing problems today were driven by a desire for more market share and revenue growth, not because the government encouraged certain lending practices.

Mark Hillman, a former majority leader in the Colorado state Senate tells a different tale. “Through CRA, banks were strong-armed to make risky loans and threatened with fines of up to $500,000 per violation if they didn’t reach government quotas,” he wrote in an op-ed published in late October. “Banks were encouraged to hire ‘community groups,’ like ACORN, to find ‘qualified’ borrowers.”

Bair said CRA has always recognized there are limitations on the potential volume of lending in lower-income areas due to "safety and soundness" considerations, and that's why the CRA never set out lending targets or goals. However, the CRA isn't without imperfections, and now is the time to put more emphasis on the qualitative aspects of lending in CRA examinations, she said.

Bair isn't alone in her defense for CRA. Just two weeks ago, Comptroller of the Currency John Dugan said in a speech at the Enterprise Annual Network Conference that "CRA is not the culprit behind the subprime mortgage lending abuses, or the broader credit quality issues in the market place."

In closing remarks, Bair suggested that while the bulk of lending abuses were outside the banking sector, bank regulators must be more vigilant. "Consumer protection by bank regulators is not an oxymoron," she said.

Write to Kelly Curran at [e-mail].

http://www.housingwire.com/news/fdics-bair-sets-shatter-cra-myth

knew i'd only be posting that little one basically to bring a better one closer to view .. a couple of bits of your beauty ..

"In focusing on Newt Gingrich’s relationship with Freddie Mac in this fashion, his three main challengers offer us an explanation of the housing crisis that puts full responsibility for it (and its consequences) back onto the GSE’s, the Federal Reserve and the CRA; and they are not alone in this. Theirs is a view recently reinforced by the SEC decision to prosecute senior GSE managers for failing to disclose the scale of the subprime loans on their books;[4] by the widely-read newspaper articles of the GSE’s long-time critic, Peter Wallison;[5] and by the extensive coverage of the new book by Gretchen Morgenson and Joshua Rosner, Reckless Endangerment, one that singles out Fannie Mae for particular criticism and censure.[6]

The only problem with that view is that factually it is, in all its essentials, entirely misleading!"

farther down

"To quote Robert Kuttner’s review – one of several to make the point – when Morgenson and Rosner wrote that “Fannie Mae led the way in relaxing loan underwriting standards, a shift that was quickly followed by private lenders,”[17] “they have that backward…. only late in the game did Fannie Mae seriously water down its standards.”[18] “The GSEs did buy subprime mortgages in the 2000s, but contrary to the impression given by Morgenson and Rosner, their purchases were always a distinct minority of those sold by Wall Street;”[19] a fact that makes Kuttner’s judgment worth citing at length.

”It’s true — and appalling — that Fannie became the largest purchaser of subprime loans from one of the worst mortgage hustlers in the game, Jim Johnson’s pal Angelo Mozilo, the CEO of Countrywide Mortgage. But that was in the period from 2003 to 2005, when Wall Street had already provided the financing and created the securities market for subprime. Fannie was playing catch-up. So in the rogues’ gallery of scoundrels that caused the financial collapse, a fair reckoning would rank Fannie Mae fifth or sixth. Far higher on the list would be: Alan Greenspan’s Federal Reserve…; the Office of Thrift Supervision…; the Wall Street firms that bankrolled subprime lenders and turned their high-risk loans into securities; the credit-rating agencies that blessed toxic subprime securities with Triple-A ratings; the SEC’s failure to police those agencies; and, of course, the subprime lenders themselves.”

• So responsibility for the housing bubble needs to be placed instead squarely where it
properly belongs: on the shoulders of inadequately regulated private financial institutions."

and

"• If there is anything that can be salvaged out of the Republican fairy tale on the origins of the housing bubble, it is the Federal Reserve’s low interest rate policy and its failure adequately to see the danger of a bubble and move to regulate it. That much of the Ron Paul case has merit. But what Ron Paul regularly omits to mention, when making that case, was that the Federal Reserve was then under the leadership of Alan Greenspan: the Ayn Rand enthusiast, the deregulation guru, and the advocate of the efficient market hypothesis thesis that so mistakenly reassured the banks amid their speculative frenzy.[27] The housing bubble arose not because the Federal Reserve was dominated by heavy-handed Keynesian interventionists, as the Republican candidates now imply. The housing bubble arose precisely because it was not so led.

The big problem with all this Republican rewriting of the record is that it makes it ever more difficult to design good policy for the future. The rewriting of history serves their immediate political purposes, but not our long-term needs. The Republican presidential candidates need to downplay the causal role of unregulated finance in the immediate past, and to overstate the role of Fannie and Freddie. They need to do both those things in order to justify still more financial deregulation in the future, and to undermine the credibility of GSEs that are now fully in public hands and so available for direct policy use. Santorum would close Fannie and Freddie. Obama might yet use them. Stopping that use is the subtext of the housing bubble story now being concocted in one Republican debate after another.

There was a telling moment in the Florida exchange that went largely unreported on which we would do well to dwell. In the midst of his criticism of Gingrich’s lobbying/consulting relationship with Freddie Mac, Mitt Romney actually agreed with Gingrich’s defensive response: that “there are many different kinds of government-sponsored enterprises, and many of them have done very good things…in the early years, those housing institutions were responsible for a lot of people getting a lot of good housing.” Maybe that is why Republicans can’t decide between the two leading candidates. Each periodically and inadvertently lets a chink of reality penetrate the otherwise entirely fictional universe within which the Republican Party has chosen currently to organize its choice of standard bearer."