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Saturday, April 24, 2010
Reagan Wrong About CRA
Topic: Newsmax

Michael Reagan writes in his April 23 Newsmax column:

It is imperative that we look at our past to understand how we got here. And we need not look further than the Carter administration’s Community Reinvestment Act of 1977 for the answer. That act required banks to lend to un-creditworthy borrowers, mostly in underprivileged and minority communities.

Although the concept of putting more Americans in homes comes across as a “feel-good” policy, the fact of the matter is that these types of policies saddle families who don’t have the income or earning potential to meet their payment obligations, leading to foreclosure and displacement.

This type of enabling legislation, coupled with predatory lenders and institutions, including those under federal government control, who would push potential investors into buying homes and other schemes for which they were not fiscally viable, formed an all-too-powerful formula that led to an almost paralyzing economic bust.

Reagan is misleading about the nature of the CRA. It doesn't "require banks to lend to un-creditworthy borrowers"; it requires banks to invest in the communities in which they operate, and it does not require institutions to make high-risk loans.

further, Reagan is wrong to claim that the CRA was part of the "formula that led to an almost paralyzing economic bust." In fact, experts agree that the CRA played no substantive role in the mortgage crisis; indeed, the vast majority of subprime loans were made by institutions not governed by CRA regulations.

Reagan, if you'll recall, wants to bring back redlining, so it's no surprise he would rail against a law that was designed to end it.

Posted by Terry K. at 1:51 AM EDT

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