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Blame Game Gets Nasty When It Targets the Poor

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By Michelle Singletary
Sunday, October 12, 2008

I was raised by a grandmother who had to assign blame when anything went wrong. For Big Mama, there were never any accidents.

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When I got into a car crash while driving her to a doctor's appointment, she blamed me. Never mind that it was the other driver who failed to yield the right of way.

"You shouldn't have chosen that street to turn down," Big Mama argued.

What my grandmother did following that accident is exactly what some politicians, columnists, television hosts and bloggers are doing right now when they blame America's economic earthquake on the Community Reinvestment Act of 1977, or CRA.

Passed by Congress in an effort to stop discriminatory banking practices against minorities and low- and moderate-income families, CRA compels banks to lend responsibly to customers in local communities where they take deposits.

As we fall deeper into financial trouble, people are looking to assign blame. Critics of CRA say that it has put pressure on banks to make subprime mortgages to poor people and minorities. Therefore, it's CRA's fault that we're experiencing a financial upheaval in our economy.

CRA "legalized the idea that lending institutions could not make loan decisions based solely on criteria such as income and ability to pay the loan back," a reader wrote to me.

That accusation and others like it are worth about as much as the stock of the failed mortgage companies -- the true culprits of this crisis.

CRA specifies that financial institutions cannot be forced to make loans or investments or provide services inconsistent with safe and sound banking practices.

No sir, it wasn't lending under CRA rules that took down the mortgage industry. It was greedy, reckless banking executives, lending officers and mortgage brokers who were supposed to properly screen borrowers and apply prudent loan underwriting standards. It was lax and inadequate federal and state regulation that allowed exotic and predatory mortgages to be sold to borrowers.

"There is no evidence that the Community Reinvestment Act was responsible for encouraging the subprime lending boom and subsequent housing bust," wrote Luci Ellis, an economist for the Switzerland-based Bank for International Settlements, last month in her working paper, "The housing meltdown: Why did it happen in the United States?"

In her study, which examined the calamity enveloping global financial markets, Ellis wrote that deposit banks covered by CRA "showed a lesser tendency to write subprime loans than lenders not subject to the act."


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