Letter: Mortgage crisis might have been worse without CRA

December 02, 2008 12:29 am

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To the editor:

So Taylor Armerding has joined the conga line of conservatives blaming those darn liberals and their do-goodin' ways for the current economic mess ("Nothing 'free' about market that led to our economic downfall," Viewpoint, Thursday, Nov. 27).

Specifically your columnist points the finger at the Carter-era Community Reinvestment Act, a law designed to force banks to loan money in (Can you believe it?) the poor neighborhoods where they actually take in their deposits.

But Mr. Armerding might have done better by digging a little deeper. In fact, about 80 percent of the problematic loans that have precipitated the current credit crisis were granted by investment banks, thrifts and other lenders not covered by the Community Reinvestment Act and not subject to much government oversight of any kind. Seems unfair to blame 100 percent of the problem on only 20 percent of bad loans.

The truth is the economy may have been better off today if a higher percentage of those loans were made under the purview of the CRA, since, as Janet Yellin, president of the Federal Reserve Bank of San Francisco, pointed out, "Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households" (Italics mine). That doesn't sound like a recipe for financial disaster to me, but then, I'm not a conservative.

It's even possible that the CRA may actually have slowed the credit collapse, since according to a recent study of CRA bank loans by Traiger and Hinckley LLP, "the CRA ... may have deterred banks from engaging, at least in their local communities, in lending practices that fuel foreclosures." In other words, without the CRA we'd likely have more, not fewer, worthless sub-prime mortgages.

As far as apportioning the political blame, don't place it all on the shoulders of liberals. As Aaron Pressman wrote in Business Week magazine, "The CRA was at its strongest in the 1990s, under the Clinton administration, a period when subprime loans performed quite well," while "the Bush administration has been weakening CRA enforcement and the law's reach since the day it took office."

Finally, let's not blame the nation's poor and those who tried to help them for a crisis that's been created largely by and for the wealthy — bankers and their heedless friends in Washington.

Charles Ahl

Beverly