Bill Clinton on the Mortgage Crisis

The Community Reinvestment Act, passed in 1977, requires banks to lend to low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 wascaused by a 1977 law is silly. But it's even more rediculous when you consider that most subprime loans were made by firms that aren't subject to the CRA.

Fifty percent of subprime loans were made by mortgage service

companies that were not subject to comprehensive federal supervision, and another 30% were made by affiliates of banks, or Thrifts, which are not subject to routine supervision or examinations. Former Fed Governor Ned Gramlich said in an August 2007 speach shortly before he passed away: "In the subprime marketwhere we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat."

Not surprisingly, under the CRA's Higher supervision, loans made under the CRA Program were made in a more responsible way than Other subprime loans. According to a study done by the law firm Traiger and Hinckley,CRA loans carried a lower rate than other subprime loans and were less likely to to end up securitized into the mortgage-backed securities that have caused so many losses.

And finally,(This is crucial information), keep in mind that the Bush administration had weakened CRA enforcement and the law's reach since the day they took office. The CRA was at it's strongest in the 1990's under the Clinton administration, a period when subprime loans performed quite well. It was Only AFTER the Bush administration cut back on CRA enforcement that problems arose, an issue in timing that should put to rest the finger pointing at other people and stop those blaming the CRA law in their tracks.

Furthermore, The Federal Reserve did nothing but encourage the

wild west of lending during those years. It wasn't until the

middle of 2007 that the Fed decided that it was time to crack down on abusive lending practices in the subprime market.

Better targets for blame in government might be the 2000 law that ensured that credit default swaps would remain unregulated, the SEC's puzzling 2004 decision to allow the largest brokerage firms to borrow upwards of 30 times their capital, and that same agency's failure to oversee those brokerage firms in subsequent years as many of them gorged on subprime debt.

AmericanMade of IL 9:41AM September 03, 2011