paperthinwalls

Funny how the Republicans want to blame Carter and his Community Reinvestment Act for the current 700 billion dollar bailout. The act was instituted to address the blatant discriminatory credit practices (both geographical and social) by banks and lenders toward minorities and the elderly. The CRA was designed to REGULATE lending to ensure equality of lending to all peoples regardless of social class or geographical location (i.e. low to middle income and/or those living in poorer urban areas). It also was meant to ensure that all loans were done in a secure and safe manner, thereby DETERRING predatory lending. There was no penalty to banks or lenders for non-compliance with the Act; it was simply an Act to encourage equality of lending within the parameters of safe and secure lending. The Republicans claim this Act "encouraged" banks to grant subprime loans and/or simply bad loans to people who would otherwise not have qualified. This in turn caused the housing market crisis which then created the need for a bail out.

That is simply not true.

The majority of home loans in the housing market bubble were exurban, NOT urban. The majority was also NOT to low income earners. Also, only one in four loans included in the subprime lending or predatory lending in this crisis was from an institution that was closely regulated by the CRA. Three out of four came from institutions with the least amount of oversight. The problem wasn't with the CRA, rather with the lack of federal oversight of institutions and their lending practices under the guidelines of the CRA.

I'm not going to keep rambling on this, but the truth of the matter is that no bank or lending institution is ever going to give a loan where they don't see a profit in it for themselves. They knew they made bad loans. They knew if the market crashed some people would not be able to pay. They knew which loans were risky and which were not. So why did they do it? Because they saw billions of dollars in profit. Because they knew these subprime loans would be bundled into securities and bought by Fannie Mae and Freddie Mac thus adding federal backing to these bundled loans. And they KNEW that if the market tanked, the government would have to bail them out. Why? Because all of those loans were bundled into FEDERALLY BACKED securities which would require the government to pay up should those investments go tits up. It was a win-win situation. Short-term profit, plus either long term gain on the loans if the housing market stayed good or another short term gain with a bail out of the securities if the housing market crashed. Now here's the rub (if you're not irked already): these same lenders are going to buy back the foreclosed properties at pennies on the dollar and sell them back AGAIN for a profit.

Check out this link, I love Wikipedia:


Community Reinvestment Act