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The way to crush the middle class is to grind them between the millstones of taxation and inflation. – Vladimir Lenin

Here We Go Again: Democrats Trying to Lower Mortgage Loan Standards – UPDATED!

Posted by iusbvision on September 22, 2009

They are calling it the Community Reinvestment Modernization Act (CMRA). The Old Community Reinvestment Act played an important role in lowering mortgage standards and creating so many of these high risk loans that broke the system. While the CRA was just one layer of a multi layered problem created by government that culminated in the largest economic collapse since the Great Depression, it was still an important layer, so naturally the far left wants to do it AGAIN.

As we have reported before and have taken a lead in reporting on, the original CRA was intended to make it illegal to stop “redlining”; the practice of not giving loans to people based on race. But CRA was used by the Clinton Justice Department to make it an affirmative action program for loans, forcing banks to give mortgages to people who had no business getting a home loan simply because it was very unlikely that they could pay the loan back. They say it was about giving loans to poor minorities, when it fact it was about getting loans to Democrat constituent groups.

The rub is, that giving out high risk loans did not do them any favors. Many thousands of people in high risk loans defaulted, they lost their homes, their credit was destroyed and mortgage securities based on those loans brought down AIG, Lehman Brothers and dozens of banks.

Of course ACORN was at the heart of this problems as they filed CRA lawsuits to force banks to make high risk loans, under the faux guise of “fighting racism”.

We reported on this activity extensively HERE and HERE.

ACORN and SEIU have already created an atroturf support group to help get it passed – LINK.

The CRMA takes the old CRA one step further and mandates that loans be given to minorities regardless of income. Is giving a home loan to anyone regardless of income a wise move?

The Washington Examiner has details:

Dems push expanded Community Reinvestment Act; deny Act’s role in mortgage meltdown; GOP cites ACORN connection

By: BYRON YORK

Chief Political Correspondent

09/16/09 4:13 PM EDT

A number of experts believe that aggressive enforcement of the 1970s-era Community Reinvestment Act contributed to the mortgage meltdown, and thus to the greater financial crisis, by requiring financial institutions to lend to unqualified borrowers. Now, the Democratic majority in the House of Representatives is responding to that situation by proposing to expand the scope and power of the Community Reinvestment Act.

This morning House Financial Services Committee chairman Rep. Barney Frank held a hearing on H.R. 1479, the “Community Reinvestment Modernization Act of 2009.” The bill’s purpose is “to close the wealth gap in the United States” by increasing “home ownership and small business ownership for low- and moderate-income borrowers and persons of color.” It would extend CRA’s strict lending requirements to non-bank institutions like credit unions, insurance companies, and mortgage lenders. It would also make CRA more explicitly race-based by requiring CRA standards to be applied to minorities, regardless of income, going beyond earlier requirements that applied solely to low- and moderate-income areas.

Republicans on the committee strongly oppose the plan. “Instead of looking to expand the number of institutions that must abide by Community Investment Act regulations,” California Rep. Ed Royce said in prepared opening remarks at today’s hearing, “I think we should reassess the role this and other government mandates played in the financial collapse and consider scaling it back.”

In private conversation, other Republicans were more emphatic. “There is clearly arguable evidence that the CRA is at the root of this financial meltdown,” says one GOP committee member. “So what do they do? They try to expand CRA.”

But Democrats, led by H.R. 1479 sponsor Rep. Eddie Bernice Johnson, claimed that expansion of CRA is much-needed. “Congress has passed a number of laws designed to combat redlining and eliminate housing discrimination,” Johnson said at the hearing. “Unfortunately, we all know that redlining still occurs.”

Then there is the ACORN angle. Republican critics point out that the Association of Community Organizations for Reform Now has used the CRA to pressure banks to pour money into ACORN and its affiliates, allowing ACORN to facilitate loans to clearly unqualified borrowers. Now, with ACORN under fire after a series of undercover videos showing ACORN workers in Baltimore, Washington DC, New York, and California openly encouraging prostitution, tax evasion, and other crimes, Republicans on the committee are citing the CRA-ACORN connection as yet another reason the Act should not be expanded.

Johnson’s bill has 51 co-sponsors, including some of the most liberal members of the House, like Reps. Dennis Kucinich, John Conyers, Bobby Rush, Steve Cohen, and Barbara Lee. Given the Democrats’ tremendous numerical superiority in the House, if the majority wants to expand CRA, Republicans will be unable to stop it.

UPDATE – Byrom York gives an analysis of the CRA that is spot on and tells the same story we told when the collapse took place. Well done Byron.

Washington Examiner Byron York:

Democrats on path to repeat housing disaster
By: Byron York
Chief Political Correspondent
September 22, 2009

With all the attention paid to the health care battle, ACORN, and the president’s “Full Ginsburg” appearances on five Sunday talk shows, few people noticed a hearing with an exceedingly boring title — “Proposals to Enhance the Community Reinvestment Act” — held last week in the House Financial Services Committee. But the session marked a key moment in the ongoing battle between Republicans and Democrats over what caused our current financial woes — and how we might best avoid getting into the same trouble again.

At the hearing, and in others across Capitol Hill, Democratic majorities are pressing hard to expand some of the very policies that led to the reckless home lending that in turn helped lead to the great financial meltdown. If Chairman Barney Frank and his fellow Democrats have their way, we’ll do it all again — and more.

At issue last week was H.R. 1479, the Community Reinvestment Modernization Act of 2009, sponsored by Democratic Rep. Eddie Bernice Johnson. It would expand and strengthen the 1977 Community Reinvestment Act, which required banks to make loans in low-income areas that many lenders had traditionally shunned.

After the meltdown, some conservatives blamed the CRA for almost solely causing the crisis by requiring banks to make risky loans to unqualified borrowers. It was an unfair charge. “CRA had at best an incremental role in the U.S. housing debacle,” says J.D. Foster, an economist at the Heritage Foundation. But CRA did help create the conditions in which disaster could occur.

The problems began in the 1990s, when Congress made it harder for lenders to do business if they had not passed the CRA “exam” — that is, if they had not met the government-imposed standards for loans to low- and moderate-income borrowers.

“From 1995 on, there was an incredible push by the Clinton and Bush administrations in every way they could — CRA, Fannie Mae, Freddie Mac, and other ways — to increase the homeownership rate,” says Russell Roberts, a professor of economics at George Mason University. “What that did was to push up the price of housing, and that made it imaginable to lend money to people you never would have lent money to, on terms you wouldn’t have done before.”

In particular, Fannie Mae began to aggressively promote homeownership using the Community Reinvestment Act to give loans to people who couldn’t afford them. Fannie went to bankers and said, make as many CRA loans as you can; we’ll buy them and take them off your hands. “Our approach to our lenders is ‘CRA Your Way,’ ” top Fannie executive Jamie Gorelick told the Mortgage Bankers Association in 2001. “Fannie Mae will buy CRA loans from lenders’ portfolios; we’ll package them into securities; we’ll purchase CRA mortgages at the point of origination. …”

Fannie promised to buy billions and billions of dollars worth of CRA loans because it was under pressure to do so from the Department of Housing and Urban Development, which in turn was under pressure from Congress, which set ambitious quotas for low- and moderate-income loans.

The policy ended in a lot of people losing their homes. Now, Johnson’s bill would ensure more of that by applying CRA’s lending requirements not just to banks but to non-bank institutions like credit unions, insurance companies, and mortgage lenders. It would also make CRA explicitly race-based by, in Johnson’s words, “requiring CRA exams to explicitly consider lending and services to minorities in addition to low- and moderate-income communities.”

Republicans on the Financial Services Committee strongly oppose the plan. “Instead of looking to expand the number of institutions that must abide by CRA regulations, I think we should reassess the role this and other government mandates played in the financial collapse and consider scaling it back,” California Rep. Ed Royce said at the hearing.

In private conversation, other Republicans were more emphatic. “There is clearly arguable evidence that the CRA is at the root of this financial meltdown,” said one GOP committee member. “So what do they do? They try to expand CRA.”

That’s an overstatement of CRA’s role in the housing mess, but it’s right about the Democratic plan. Denying that CRA, Fannie and other institutions played any role in setting the stage for disaster, they’re proposing more of what helped get us into trouble in the first place. It’s no way to fix the problem.

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3 Responses to “Here We Go Again: Democrats Trying to Lower Mortgage Loan Standards – UPDATED!”

  1. dayat said

    Great post, I found it useful information on this site and relationship with my blog….thanks

  2. alexandra1956 said

    It is racism to lower the standards for one group of people based on race and hold another group
    based on race or color to a higher standard.

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