One of the cruelest and dumbest things that have emerged out of the financial crisis now rocking the US and global markets is the unfair attempts by conservatives in the media and by some politicians to blame the current mortgage and financial crisis on minorities who were granted home ownership through the Community Reinvestment Act (CRA).
This is plain stupidity and bigotry. After ignoring repeated warnings by housing advocates to regulate the runaway sub-prime lending by greedy mortgage companies long before the mortgage meltdown, these spokesmen of the free market economy are now pointing the finger at an institution that is federally regulated and is responsible for less than 20 percent of sub-prime loans.
They conveniently forgot to mention that mortgage companies, which are not subject to federal regulations and out of reach of the CRA, made more than half of all sub-prime loans, while 30% were made by affiliates of banks and thrift associations that are not CRA-regulated.
The Community Reinvestment Act is a federal law passed in 1977 to encourage banks to meet the needs of borrowers in all segments of the neighborhoods they are serving, including low-income and moderate-income families. It was enacted to reduce discriminatory lending practices against these minority neighborhoods, a practice known as “redlining.” To blame the law, after more than 30 years, for the current mess borders on the ridiculous.
In fact, housing advocates who support the CRA claim that they have been lobbying federal regulators for years to stop the very sub-prime loans that have caused the current crisis. They said they have counseled thousands of homebuyers to stay away from mortgage products being peddled by predatory mortgage companies, including adjustable rate mortgages, option ARM, and similar deceptive loan packages.
A recent study made by the law firm Traider & Hinckley showed that because of the higher degree of supervision, loans made under the CRA program were made more responsibly than other sub-prime loans. It said the CRA loans carried lower rates than typical sub-prime loans given by non-CRA mortgage companies and financial institutions and were less likely to end up in mortgage-backed securities peddled by Wall Street.
After reaching its apex during the time of President Bill Clinton in the 1990s when the sub-prime loans were not creating a mess, the Bush Administration cut back on the enforcement of the law, at the same time that the Federal Reserve ignored warnings on the sub-prime lending practices of mortgage companies and non-CRA bank affiliates. It was only in the middle of last year that the Fed finally decided to crack down on these predatory lending practices.
It is unfair and irresponsible for these conservative media commentators and politicians to blame the victims, instead of the predators. Lining up behind Republican President George W. Bush, who again threatened that “our entire economy is in danger” if lawmakers didn’t approve the $700-billion bailout plan – as he had threatened the American people when he pleaded Congress to support the sending of troops to Iraq: “Either you are with us or you are with the terrorists” in 2002 – cowardly Democrats and puppet Republicans in Congress voted to bail out the predators on Wall Street after dilly-dallying on measures to rescue the homeowners.
The irresponsible comments against the CRA did not escape the attention of the members of three minority caucuses in Congress – the Congressional Asian Pacific American Caucus (CAPAC), the Congressional Black Caucus (CBC) and the Congressional Hispanic Caucus (CHC). They denounced the “shameless tactic of blaming the financial meltdown on minorities.”
“I am angered by the blame and burden put onto our minority communities for the current financial crisis,” said Rep. Mike Honda (D-CA), Chair of CAPAC. “The CRA law requires that all CRA lending activities be executed through responsible and safe lending practices. To put further blame onto the victims of this financial crisis is cruel and borders on just plain bigotry.”
Rep. John Baca (D-CA), chair of the CHC, said: “The baseless claims made by some that minorities and home loans given to minority families are responsible for the current economic crisis are not only patently false, but also divisive and hateful. Predatory lending and greed are the root causes of the current downturn. To place the blame on those most victimized by these very practices is scapegoating of the worst kind and offends every sense of truth and moral responsibility.”
It is apparent that it was the free-market ideology and deregulation policy espoused by the Republicans in government, in support of corporate America, that created this financial mess, and yet they are the same people who now advocate the bailing out of these same Wall Street giants with $700 billion of the people’s money. Never to turn down their back on giant corporations that they have supported for generations, they now wish to reward the perpetrators and punish the victims by suggesting that the law that gives the victims the opportunity of ownership is to blame and must, therefore, be repealed.
Is there any assurance, in the first place, that once these Wall Street giants get their share of the Bush patty, they will start loosening their tight credit policies and begin lending again to beleaguered homeowners and businessmen needing small loans for their operations? Or will they just take their share and look to invest somewhere else?
Welcome to America, the land of the free… recklessly free market economy.