Saturday, September 27, 2008

Community Reinvestment Act - Wikipedia, the free encyclopedia ACORN

Here is the reason there was a controversy over the last Bailout Bill.  Basically,  if I am reading right,   it will have a provision for people who cannot afford housing.  This is why they are fighting in Washington over the Bailout.  I agree. It forces banks to make loans to unqualified borrowers and that wiil make things worse.  I have to say this is just a taste of the social programs we tax payers are going to be paying for if Obama wins.  It is just a fact not a judgment. 



As I and others have pointed out, the federal government has been forcing banks to make bad loans to unqualified or "sub-prime" borrowers for more than 30 years under the 1977 "Community Reinvestment Act." Such loans comprise a large portion of all the sub-prime foreclosures. But the effect of the CRA is even worse than that. The chairman of the board of a major bank writes me:

"Mortage originators not subject to the CRA (presumably because they are not registered banks or thrifts) will still be subject to market pressures to make sub-prime loans. If banks and thrifts are pressured by CRA regulators . . . into making sub-prime loans, competitive pressures will encourage the non-CRA regulated institutions to make similar loans. Otherwise they will see their balance sheets decline relative to these other institutions."

"When you couple the pressures to make the sub-primes with the increase in the money supply arising from Federal Reserve actions, the fault comes fairly and squarely back to government actions over many years."

(I would add that the competitive effect mentioned above existed as long as the real estate bubble was bubbling.

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