Although last Wednesday's debate between Rep. Henry Brown (R-S.C.) and his Democratic challenger Linda Ketner lacked the sparks of their previous encounter, the face-off was notable for how Brown blamed poor minorities for the financial crisis. Straight outta the gate, the self-styled "workhorse" targeted the Community Reinvestment Act of 1977 as the root of all evil. The best part of this white noise was that the old fart got the name of the law wrong.
During the debate, Brown said, "We could go back, I think, into the '70s when Jimmy Carter was the president and he actually started a program, the Community Investment (sic) Act, which allowed the banks, not allowed the banks, almost mandated the banks to go in and invest in properties that weren't, weren't, the borrowers were not qualified to take the loans and they continued to expand that and I believe it could start there." Actually, he said "borry-ers."
It gives me a headache when a politician replaces the garden-variety distortions of his opponent's record with the "southern strategy." The GOP's faux populism of race-baiting and xenophobia serves only to inflame the worst elements of the national psyche and diminish further the claim of America as "a city on a hill."
The CRA was enacted in 1977 to prevent banks from refusing to give loans to those living in typically low-income, minority neighborhoods. It requires federally-insured institutions to lend money in areas where they take deposits. The act applies only to FDIC-covered banks and thrifts; it does not apply to independent mortgage companies and originators, pay-day lenders, or check-cashing companies.
In 1977, banks and thrifts wrote a majority of the mortgages, but by 2000, subprime lending went off the charts. By then, the CRA was essentially ineffective because non-bank companies were dramatically eroding the share of the mortgage market held by FDIC-covered banks and thrifts. It's generally accepted that one in four defaulted subprime mortgages originated with CRA-covered banks and thrifts. The remaining three-fourths were the fault of private mortgage originators and bank affiliates.
That the CRA mandates banks to lend to qualified borrowers in the areas where they conduct business, including low-income, minority neighborhoods, in no way means that poor blacks are the culprits in the current fiscal crisis. Just because somebody's poor, that doesn't mean they don't pay their bills.
But this doesn't stop conservatives from attempting to rewrite history, like John Derbyshire at the National Review Online's The Corner blog. In the blog post, Derbyshire highlights a New York Post commentary by Stan Liebowitz on the financial crisis. In that column, Derbyshire writes that Liebowitz "spells out in detail what I think we all kind of know: That the folk losing their homes because they took easy loans with minimal credentials are victims not of 'predatory lenders,' but of government-sponsored — in fact government-mandated — political correctness."
However, Janet Yellen, president of the San Francisco Federal Reserve, told Congress that independent mortgage companies not covered by the CRA made high-risk loans at more than twice the rate of covered institutions. She said, "Most important, the lenders subject to the CRA engaged in less, not more, of the dangerous lending."
Meanwhile, Ellen Seidman, former director of the Office of Thrift Supervision, told the House Financial Services committee that CRA encouraged lenders to become innovative in their business conduct and "once these initiatives were started, many have proven to be sustainable in purely financial terms."
If blame for the fiscal crisis truly lies at the feet of the CRA and the minorities who forced depositories to grant them mortgages, then wouldn't the banks be screaming this to whomever would listen?
Shame on you, Henry Brown.