Ellen Seidman on why the historically effective CRA shouldn’t take the blame for the financial crisis it didn’t cause:
How did we get into this? There are a plethora of potential culprits.
But in the face of all these factors, some have fixed their attention instead on a formerly obscure 32-year-old statute, the Community Reinvestment Act (CRA). Echoing much of the conservative blogosphere, The Wall Street Journal in September 2008 assigned CRA blame for the ongoing crisis, albeit behind “the Federal Reserve,” “banking regulators,” and “a credit-rating oligopoly.” The election of President Barack Obama and subsequent revelations about the extent to which unregulated credit-default swaps and mortgage-backed securities backed by sub-prime loans played a pivotal role in the economic devastation, have tempered but not silenced the criticism.
This is ridiculous. The case against fingering CRA for the destruction of the mortgage market rests on both logic and fact. Recent work by economists at the Federal Reserve Board of Governors and the Federal Reserve Bank of San Francisco provides a strong factual rebuttal, but let’s start by understanding what the Community Reinvestment Act is and isn’t.