Although the Act’s critics claim* otherwise, CRA does NOT mandate that banks lend to disadvantaged borrowers who are not credit-worthy, nor did it lead to banks lowering their underwriting standards to comply with the law. According to an independent study of 2006 mortgage loan data conducted by the law firm Traiger & Hinckley LLP, CRA actually deterred banks from engaging in the kinds of risky and subprime lending that brought on the foreclosure crisis. Specifically, the findings show that:
1. CRA banks were significantly less likely than other lenders to make a high cost loan;
2. The average APR on high cost loans originated by CRA banks was appreciably lower than the average APR on high cost loans originated by other lenders;
3. CRA banks were more than twice as likely as other lenders to retain originated loans in their portfolios; and
4. Foreclosure rates were lower in metropolitan statistical areas with greater concentrations of bank branches.
Whether one agrees with CRA’s mandate that banks responsibly serve the communities in which they accept deposits or not, the data shows that CRA actually deterred irresponsible lending. Further, the Treasury Department and the FDIC have emphatically stated that CRA is in no way responsible for the situation we are in today. Yay, CRA!
Instead of blaming CRA, we should sing it's praises, hoist it on our collective shoulders, and give it s parade. Or we could extend CRA provisions to the independent mortgage companies and bank affiliates from which at least 75% of subprime loans originated. That would probably be more productive than a parade, and leave less clean up - both figuratively and literally. In either case, to continue to mislead the public on the benefits of CRA is not only immoral, but it would lead us into situation in which more – not less – of the irresponsible lending that created our current meltdown takes place.
*CRA critics also tend to claim that a national health care plan will destroy freedom and that churches that speak about social justice are fronts for communists, so take it for what it's worth.
