Blame Game Gets Nasty When It Targets the Poor

Even if you include subprime loans made by CRA-covered banks and thrifts, the vast majority of the toxic loans stinking up mortgage-backed securities had nothing to do with CRA compliance.

More than half of subprime loans were made by independent mortgage companies not subject to comprehensive federal supervision; another 30 percent of the loans were made by affiliates of banks or thrifts subject to routine examination or supervision, according to congressional testimony given earlier this year by Michael S. Barr, a professor at the University of Michigan Law School.

"The worst and most widespread abuses occurred in the institutions with the least federal oversight," Barr testified.

Traiger & Hinckley, a New York-based law firm that represents lenders complying with CRA regulation, took a look at whether the law encouraged irresponsible lending.

"CRA banks were significantly less likely than other lenders to make a high-cost loan," the law firm's report found. When CRA banks did originate high-cost loans, the average APR (annual percentage rate) was appreciably lower than the average APR on high-cost loans originated by other lenders.

Further, CRA banks were more than twice as likely as other lenders to retain originated loans in their portfolio, said Warren Traiger, a partner at Traiger & Hinckley.

"If more lenders were covered by CRA, the crisis would have been mitigated," Traiger said in an interview.

The investment banks that purchased, bundled and securitized subprime loans were not covered by CRA, points out Matthew Lee, executive director of Inner City Press, a nonprofit community advocacy group based in the New York borough of the Bronx.

"I see why this argument has gained traction," Lee said. "You have a law telling banks to lend to poor people. So now people wonder whether CRA is good."

It's important to dismiss this atrocious accusation against CRA. Going forward as financial institutions rein in their lending, we cannot go back to a time when low- and moderate-income families, including minorities, had great difficulty getting loans to buy a home. This group of borrowers can make good and profitable mortgage customers when the loans are made wisely and with sound and safe lending criteria.

"I'm offended that the poor are being blamed for this crisis when the exact opposite is true," Traiger said. "The well-to-do looking to become more well-do-to are to blame -- not folks looking to get a mortgage."

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and athttp://www.npr.org.

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