FINANCIAL REGULATORY REFORM (New Release

4. Access. The Agency should enforce fair lending laws and the Community Reinvestment Act and otherwise seek to ensure that underserved consumers and communities have access to prudent financial services, lending, and investment.

A critical part of the CFPA’s mission should be to promote access to financial services, especially for households and communities that traditionally have had limited access. This focus will also help ensure that the CFPA fully internalizes the value of preserving access to financial services and weighs that value against other values when it considers new consumer protection regulations.

Rigorous application of the Community Reinvestment Act (CRA) should be a core function of the CFPA. Some have attempted to blame the subprime meltdown and financial crisis on the CRA and have argued that the CRA must be weakened in order to restore financial stability. These claims and arguments are without any logical or evidentiary basis. It is not tenable that the CRA could suddenly have caused an explosion in bad subprime loans more than 25 years after its enactment. In fact, enforcement of CRA was weakened during the boom and the worst abuses were made by firms not covered by CRA. Moreover, the Federal Reserve has reported that only six percent of all the higher-priced loans were extended by the CRA-covered lenders to lower income borrowers or neighborhoods in the local areas that are the focus of CRA evaluations.

It is always interesting when the left retells history, cherry-picking the "facts" to support their argument. As I have written here before, the catalyst for the financial crisis was not the CRA of 25 years ago but the altered focus it adopted in the 1990s coupled with the change in Fannie's charter in 1992 to include an "affordable housing mandate" as described in the Federal Housing Enterprises Financial Safety and Soundness Act of 1992.

The means of insuring that such mandate was being met was a quota (goal, target or any other name you'd like to apply) on the number of mortages purchased in the portfolio each subsequent year that "qualified" under the mandate. Fannie, responded as expected with 34% of all mortgaged purchased in 1993 meeting the quota and rising to 50% in 2000.

The key to such a dramatic increase in affordable housing mortgages was the relaxation of underwriting standards that were also the subject of the 1992 Act as well as a Boston Federal Reserve Board publication in 1993.

The critical point ignored by these dolts is not that 6% of the sub-prime mortgages were made by entities covered by the CRA but that all mortgage originators had a ready buyer for mortgages of dubious quality by virtue of the demand for said products by Fannie/Freddie. Without the social-engineering mandate, those mortgages never would have been made.

To the best of my knowledge, the "quotas" remain in place at Fannie/Freddie and the publication still resides on the Boston Fed site. Additionally, the recent "religion" on underwriting practices is only a temporary lull waiting for the storm to blow over.

The more things change, the more they stay the same!

I still remember Janet Reno threatening to use the deep pockets and unlimited powers of the Justice Department against banks that wouldn’t loan to people who were wanting NINJA loans. Henry Cisneros and Bill Clinton were large players on that same stage.

NINJA- No Income-No Job or Assets.

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