PAGE: Blaming the poor

COMMENTARY:

In the storm over who is to blame for Wall Street’s financial meltdown, guess who gets the biggest bum rap? Poor folks.

In a desperate attempt to deflect blame away from deregulation and other policy ideas they favor, conservatives are pointing their guns at a 1977 law that hardly anyone outside housing and banking circles cared about.

It’s called the Community Reinvestment Act. It requires banks that receive federal insurance to lend within their own geographic communities.

Before laws like CRA came along, banks “redlined” entire neighborhoods, denying prospective homebuyers, most of them minorities, conventional home loans. Thanks to CRA, thousands of renters have become homebuyers. Neighborhoods have been saved. Tax revenue has increased. Urban life has improved.

But now the CRA has become a convenient scapegoat for commentators, Internet bloggers and YouTube propagandists. They want to deflect blame for the credit crash away from the more obvious culprits, like excess deregulation, lax oversight and reckless cowboy capitalism.

For example, Neil Cavuto of Fox News opined in mid-September that, if banks hadn’t been forced to make loans to “minorities and risky folks,” the Wall Street disaster would not have happened.

Ann Coulter blamed “affirmative action lending policies” that loaded banks up with mortgages that eventually defaulted and brought the nation’s financial system to its knees.

George Will on ABC’s “This Week” blamed “regulation, in effect, with legislation, which would criminalize as racism and discrimination if you didn’t lend to unproductive borrowers,” because “the market would not have put people into homes they could not afford.”

And there’s Rep. Michele Bachmann, a conservative Minnesota Republican, who caused a stir in Congress by quoting an Investor’s Business Daily article accusing CRA and President Clinton of forcing banks to give out loans “on the basis of race and often little else.”

Nice try, but the CRA’s villainy has been wildly exaggerated.

First, CRA applies only to banks and thrifts that get federal insurance. It does not even apply to three-fourths of the institutions that have made subprime loans, the high-interest loans at the heart of Wall Street’s credit collapse.

Also, nothing in the CRA requires banks to give subprime loans, interest-only loans, no-money-down loans or any of the other gimmicks that inflated the now-fizzling housing bubble. Quite the opposite, the law calls on lenders to meet the credit needs of the communities in which they are chartered, “consistent with the safe and sound operation” of those lenders.

Contrary to the myths, studies show most CRA borrowers pay their bills on time and become successful homeowners. That’s why the law has worked well for three decades, long before the recent Wall Street mess.

No, it makes more sense to blame the explosion of unregulated mortgage originators, an industry that grew in the housing boom, partly financed by the giant government-sponsored enterprises Fannie Mae and Freddie Mac, that the government recently took over.

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