A Lame Rap Against Low-Income Buyers

In the storm over who's to blame for Wall Street's financial meltdown, guess who's getting the biggest bum rap? Poor folks.

In a desperate attempt to deflect blame away from deregulation and other policy ideas they favor, conservatives are pointing their guns at a 1977 law that hardly anyone outside housing and banking circles cared about.

It's called the Community Reinvestment Act. It requires banks that receive federal insurance to lend within their own geographic communities.

Before laws like CRA came along, banks "redlined" entire neighborhoods, denying prospective homebuyers, most of them minorities, conventional home loans. Thanks to CRA, thousands of renters have become homebuyers. Neighborhoods have been saved. Tax revenue has increased. Urban life has improved.

But now the CRA has become a convenient scapegoat for commentators, Internet bloggers and YouTube propagandists. They want to deflect blame for the credit crash away from the more obvious culprits, like excess deregulation, lax oversight and reckless cowboy capitalism.

For example, Neil Cavuto of Fox News opined in mid-September that, if banks hadn't been forced to make loans to "minorities and risky folks," the Wall Street disaster would not have happened.

Ann Coulter blamed "affirmative action lending policies" that loaded banks up with mortgages that eventually defaulted and brought the nation's financial system to its knees.

George Will on ABC's "This Week" blamed "regulation, in effect, with legislation, which would criminalize as racism and discrimination if you didn't lend to unproductive borrowers," because "the market would not have put people into homes they could not afford."

And there's Rep. Michele Bachmann, a conservative Minnesota Republican, who caused a stir in Congress by quoting an Investor's Business Daily article that accused CRA and President Bill Clinton of forcing banks to give out loans "on the basis of race and often little else."

Nice try, but the CRA's villainy has been wildly exaggerated.

First, CRA applies only to banks and thrifts that get federal insurance. It does not even apply to three-fourths of the institutions that have made subprime loans, the high-interest loans at the heart of Wall Street's credit collapse.

Also, nothing in the CRA requires banks to give subprime loans, interest-only loans, no-money-down loans or any of the other gimmicks that inflated the now-fizzling housing bubble. Quite the opposite, the law calls on lenders to meet the credit needs of the communities in which they are chartered, "consistent with the safe and sound operation" of those lenders.

Contrary to the myths, studies show most CRA borrowers pay their bills on time and become successful homeowners. That's why the law has worked well for three decades, long before the recent Wall Street mess.

No, it makes more sense to blame the explosion of unregulated mortgage originators, an industry that grew in the housing boom, partly financed by the giant government-sponsored enterprises Fannie Mae and Freddie Mac, that the government recently took over.

Pressured by the Clinton administration, Fannie Mae and other lenders began in 1999 to relax the credit requirements for minorities and others whose incomes, credit ratings and savings were too low to qualify for conventional loans.

But that pressure did not come in response to CRA. Fannie Mae, its sister Freddie Mac, and independent mortgage brokers had no CRA obligation or much federal regulatory oversight. Yet they account for most of the subprime lending boom that began to explode in the late 1990s.

And, remember this: While subprime loans went to large numbers of non-whites and low-income borrowers, studies show that these recipients were outnumbered by upper-income and whites borrowers.

One study by Compliance Technologies, a consultant to lenders, found this summer that more than half of subprime loans that originated at the height of the lending frenzy two years ago went to non-Hispanic whites -- and about 40 percent went to borrowers whose annual income was at least 120 percent of their local area's median.

"Fannie and Freddie didn't have to be led to the water to drink," as Judith A. Kennedy, president of the National Association of Affordable Housing Lenders, recently wrote; "They ran."

Yet, CRA makes a convenient target for conservatives. It was created under pressure from "community organizers," a group ridiculed at the Republican National Convention without ever saying what's so bad about helping communities to organize.

CRA is a punching bag for the right along with ACORN, a left-progressive organization that has been pushing for deregulation and once was represented in a voting rights case by a young lawyer named Barack Obama. That's politics. But neither the CRA nor ACORN caused the housing market's crash. In fact, they tried to prevent it.

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E-mail Clarence Page at cpage(at)tribune.com, or write to him c/o Tribune Media Services, 2225 Kenmore Ave., Suite 114, Buffalo, NY 14207.