The Community Reinvestment Act of 1977 (CRA) prohibited redlining — denying or increasing the cost of banking to residents of racially defined neighborhoods. Republican conspiracy theorists blamed the 2008 lending crisis on the CRA, which is absolute nonsense. Eighty percent of subprime loans were made by firms that weren’t subject to the CRA. The blame should be put on the Republican-sponsored Commodity Futures Modernization Act which ensured that credit default swaps remained unregulated and on services such as Standard & Poor’s for giving inflated ratings on risky mortgages to increase business for banks.
If it wasn’t so, why did JPMorgan-Chase get fined $13 billion and Bank of America (BofA) spend $70 billion settling allegations surrounding suspect mortgage securities? BofA settled with the Federal Housing Finance Authority, which superintends Fannie Mae and Freddie Mac, over violating security laws while selling bonds during 2005-07. Citigroup agreed to pay $1.13 billion to settle claims of investors by buying back residential mortgage-backed securities after bundling $59.4 billion in home loans into securities from 2005-08. SunTrust Banks paid $968 million, Morgan Stanley $2.6 billion, Goldman Sachs $3.15 billion and First Tennessee/MetLife paid a combined $336 million in fines while admitting they didn’t comply with lending standards on subprime mortgages.
The Securities and Exchange Commission forced Standard & Poor’s to pay $1.37 billion concerning inflated mortgage ratings. The vast majority of foreclosed loans were taken out from 2004-08 and insured through credit default swaps by Lehman Brothers and AIG — both outside CRA and Federal Deposit Insurance Corp. (FDIC) control.
Fannie Mae, Freddie Mac and other federal agencies guarantee 90 percent of all new mortgages and make money from fees charged to banks and other mortgage lenders for guaranteeing home loans. Both have repaid the full government bailout from 2008 while Fannie Mae paid dividends of $138.2 billion to the U.S. Treasury through March 2015. Alone, the Troubled Asset Relief Program (TARP), the 2008 government bailout which included General Motors, made a profit of $15.3 billion and saved the U.S. economy from collapse.
Republican misinformation about the CRA in letters to this newspaper erroneously blamed the lending crisis on liberal Democrats and poor non-whites. Republicans spread false information, then pretend to protect us against it: Nevertheless, it only ensures the spiraling idiocy of trying to solve the wrong problem never ends. Government isn’t the problem — what Republicans have become is.