How is the Community Reinvestment Act to blame for this mess?
In 1995, as a result of interest from President Bill Clinton’s administration, the regulations for the CRA were strengthened.
These revisions were credited with substantially increasing the number and aggregate amount of loans to low- and moderate-income borrowers for home loans. These changes were very controversial and as a result, the regulators agreed to revisit the rule after it had been fully implemented for seven years. Thus in 2002, the regulators opened up the regulation for review and potential revision.
Part of the increase in home loans was due to the emergence of lenders, like Countrywide, that do not reduce loan risk with savings deposits like traditional banks do, using the subprime authorization that was in the CRA. This is known as the secondary market for mortgage loans. The revisions allowed the securitization of CRA loans containing subprime mortgages. The first public securitization of CRA loans started in 1997 by Bear Stearns. The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent.
Other rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks. By 2007, Fannie and Freddie owned or guaranteed nearly half of the $ 12 trillion U.S. mortgage market.
Now, since the CRA is entirely a creation of the Democratic party and its leftist elements, how can anyone pin the blame on the Republicans, who actually tried to reform it in 2003?
Yes, Joan. But unlike the countries that you have wet dreams about, the ones with their epaulet-laden “el presidentes for life,” being president of the United States accords no such dictatorial powers. And get this, EVEN IF his own party is in power, he still doesn’t have control unless his party has a 2/3 supermajority. And at no time since Gingrich delivered the house to the republicans did they ever have a supermajority.
Deb M: Interesting you say that dems in power now can’t get anything done because republicans are blocking it, but then ask why republicans couldn’t pass reforms in 2002-2003. Funny you should apply such a double standard without even wincing.
Fact is, the republicans TRIED to reform it. It was blocked by the two biggest recipients of Fannie Mae contributions, Barney Fwank and Chuck Schumer.
Just because you have a simple majority does not mean you can do whatever you want.
gabriel bell: There was no bill that brought the changes in 1995. The original act in 1977 gave broad regulatory powers to three agencies: Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the Office of the Comptroller of the Currency. They made the regulatory changes within the power they already had under CRA 1977. It did not require congress to approve.