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Lending rule isnt to blame

OUR VIEW • Reinvestment act didn't cause crisis, but can help solve it

Let's not repeat bad policy decisions by determining a way to distort the reality and blame the victims.

The mortgage lending crisis and subsequent meltdown of the financial sector rests solely at the feet of a greedy industry taking advantage of 30 years of deregulation.

Randall Pozdena's My View blaming the Community Reinvestment Act for the meltdown is not only a gross distortion of the facts, it also is a deliberate attempt to discredit an essential element of our nation's equity infrastructure (More rules won't save financial system, Oct. 9).

The CRA was created after communities around the nation rallied elected officials to take action on the unfair and often racist lending and investment patterns of banks.

The act required banks to invest in the communities of their depositors, something they were not doing. This behavior had led to disinvestment in certain communities, prevented homeownership opportunities and hindered small business growth and development.

Now nearly 30 years old, the Community Reinvestment Act requires banks to lend, invest and provide services in communities where they receive deposits. It is intended to thwart lending discrimination and open up opportunities for low-income households and communities of color.

The CRA is responsible for increasing homeownership opportunities, discounted home improvement loans, construction financing, small business loans targeting women and minorities, and other investments in disadvantaged communities.

The act and the subsequent requirement for lenders to invest in homeownership are both complex and simplistic. The CRA has government stipulations and subsequent punitive actions for noncompliance, and it also has loopholes.

It's simple because it requires only that lower-income households be provided the same access to the one sure path to wealth creation - real estate ownership - as more affluent households.

The attempt to blame the Community Reinvestment Act's goals to expand homeownership for the mortgage crisis is unfortunate and literally untrue.

The true cause of the meltdown was the unregulated use of subprime loans. Subprime loans were not intended for long-term lending purposes. They were meant to serve a short-term need, primarily for real estate investors.

The majority of high-cost subprime loans were originated by independent entities not covered by the CRA. However, regulated banking institutions bankrolled the independent entities that made the loans.

If these institutions had appropriate, traditional regulatory oversight and exercised prudent lending practices, we would not be in this mess. Like the savings and loan crisis 20 years ago, the deregulation policy agenda set the stage for the fleecing of the generally uninformed American public.

It's becoming abundantly clear that fraud existed between the credit regulators and issuers of the mortgage-backed securities.

The CRA is not the cause of this current economic crisis; however, it must be part of the solution. A healthy future for America's economy depends on the American public holding banks accountable for their role in deceitful lending practices, for setting short-term limits on the risks they took for expansive short-term profits.

This will mean regulatory oversight across the board to all makers of mortgage loans to the general public. It means going back to practical lending practices. CRA was created to provide equal and just opportunities to all, primarily low-income and minority households. It was not formed to provide short-term mortgages to unqualified buyers for profit.

It's time to stop deflecting blame and acknowledge the reality surrounding the economic crisis. The Community Reinvestment Act is a tool for helping ensure that banks make sound loans and penalizing them for making unfair ones. The CRA is a remedy for the current crisis, not a cause.

Michael Anderson is executive director of the Oregon Opportunity Network. Jill Fuglister is executive director of the Coalition for a Livable Future.