'Tis the Season for Scapegoating

December 24, 2008

According to Federal Reserve Governor Randall Krozner, “It’s hard to imagine.”

John Dugan, Comptroller of the Currency, declared “It is not the culprit.” 

The New York Times says, “The charges do not hold up.”

 

They are talking about the wrong but persistent rumors that the Community Reinvestment Act, a longstanding rule to encourage banks to lend to all parts of the communities they serve, is the reason behind for the surge in reckless subprime lending.

 

First, CRA was passed into law in 1977, well before the development of the subprime market.  The majority of lenders who originated subprime loans were finance companies, not banks, and thus not even subject to CRA requirements. 

 

A recent study by the Federal Reserve points out that 94% of high-cost loans made during the subprime frenzy had nothing to do with Community Reinvestment Act goals.  In fact, nearly $3 of every $4 in subprime loans made from 2004 through 2007 came from lenders who were exempt from the law.

 

Learn more here.

 

 

 


More straight answers: CRA | minority lending | subprime mortgage |