Community Reinvestment Act (CRA)

Well folks it was apparent to me that with all the finger pointing it would be appropriate to actually get you up to speed on what this piece of legislation was really about by allowing you to see it and read what the industry had to say about it. Forget the politicians because they have an agenda and only give you what they want you to know and hide the rest. Here you can check out what I was able to find and then make your own evaluations on who is telling you the truth and who is trying to sandbag you.

Basic information on the Community Reinvestment Act (CRC):

The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law that requires banks and savings and loan associations to offer credit throughout their entire market area and prohibits them from targeting only wealthier neighborhoods with their services, a practice known as "redlining." The purpose of the CRA is to provide credit, including home ownership opportunities, to under-served populations, and commercial loans to small businesses. The Act was passed in 1977 and has been subjected to important regulatory revisions since then.

Original Act
The CRA was passed by the 95th United States Congress and signed into law by President Jimmy Carter in 1977 as a result of national grassroots pressure for affordable housing, and despite considerable opposition from the mainstream banking community.[1] Only one banker, Ron Grzywinski from ShoreBank in Chicago, testified in favor of the act.[2] The CRA mandates that each banking institution be evaluated to determine if it has met the credit needs of its entire community. That record is taken into account when the federal government considers an institution's application for deposit facilities, including mergers and acquisitions after the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 repealed restrictions on interstate banking.[3] However, until 1995 the Act was laxly enforced and banks only were required to advertise in local minority newspapers or sit on the boards of local community groups.[4] The CRA is enforced by the financial regulators (Federal Deposit Insurance Corporation ("FDIC"), Office of the Comptroller of the Currency ("OCC"), Office of Thrift Supervision ("OTS"), and the Federal Reserve System).[citation needed]
The bill encouraged mortgage lending through two government sponsored enterprises ("GSEs"). One, the Federal National Mortgage Association, commonly known as Fannie Mae, enables mortgage companies, savings and loans, commercial banks, credit unions, and state and local housing finance agencies to lend to home buyers. The other, the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, buys mortgages on the secondary market and sells them as mortgage-backed securities on the open market.[5] It also charged the Federal Reserve System to implement the CRA through ensuring banks and savings and loans met their CRA obligations.[3]

Congressional Changes of 1989
The Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA) was enacted by the 101st Congress and signed into law by President G. H. W. Bush in the wake of the savings and loan crisis of the 1980s. It increased public oversight of the process. It required the agencies to issue CRA ratings publicly and written performance evaluations using facts and data to support the agencies' conclusions. It also required a four-tiered CRA examination rating system with performance levels of "Outstanding," "Satisfactory," "Needs to Improve," or "Substantial Noncompliance."[6]

Clinton Administration Changes of 1995
In early 1993 President Bill Clinton ordered new regulations for the CRA which would increase access to mortgage credit for inner city and distressed rural communities.[7] The new rules went into effect on January 31, 1995 and featured: requiring strictly numerical assessments to get a satisfactory CRA rating; using federal home-loan data broken down by neighborhood, income group, and race; encouraging community groups to complain when banks were not loaning enough to specified neighborhood, income group, and race; allowing community groups that marketed loans to targeted groups to collect a fee from the banks.[4][6]
The new rules, during a time when many banks were merging and needed to pass the CRA review process to do so, substantially increased the number and aggregate amount of loans to low- and moderate-income borrowers for home loans, some of which were "risky mortgages."[citation needed] Banks set up CRA departments, a CRA consultant industry was created and new financial-services firms helped banks invest in packaged portfolios of CRA loans to ensure compliance.[citation needed] Established and new community groups began marketing such mortgages. The Senate Banking Committee estimated that as of 2000, as a result of CRA, such groups had received $9.5 billion in services and salaries. As of that time such groups also had received tens of billions of dollars in multi-year commitments from banks, including ACORN Housing $760 million; Boston-based Neighborhood Assistance Corporation of America $3 billion; a New Jersey Citizen Action-led coalition $13 billion; the Massachusetts Affordable Housing Alliance $220 million.[4] The number of CRA mortgage loans increased by 39 percent between 1993 and 1998, while other loans increased by only 17 percent.[8][9]

GW Bush Administration Changes of 2005
In 2002 there was an inter-agency review of the effectiveness of the 1995 regulatory changes to the Community Reinvestment Act and new proposals were considered.[6]

The Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency put new regulations into effect September of 2005. [10] The regulations were opposed by a contingent of Democrats[11]
The regulations included less restrictive new definitions of "small" and "intermediate small" banks.[3] "Intermediate small banks" were defined as banks with assets of less than $1 billion, but allows banks to opt for examination as a large bank.[10] Currently banks with assets greater than $1.061 billion have their CRA performance evaluated according to lending, investment and service tests. The agencies use the Consumer Price Index to adjust the asset size thresholds for small and large institutions annually.[6]

Controversy
The effects of the Community Reinvestment Act on the housing markets are controversial. Some economists and financial experts have wondered if the CRA was - or at least had become - essentially irrelevant, because it was not needed to force banks to make profitable loans to a variety of lenders.[12][13]

Economist Howard Husock writes that a CRA-connected community group The Woodstock Institute found in a survey in the Chicago-area that even banks not subject to CRA tended to loan in a variety of neighborhoods. He also criticized as an "amateur delivery system" community groups' involvement in marketing loans.[4]

Federal Reserve chairman Ben Bernanke has stated that an underlying assumption of the CRA – that more lending is always better for local communities – is questionable.[3]

Economist Stan Liebowitz has claimed that banks were forced to loan to consumers who were not credit worthy with "no verification of income or assets; little consideration of the applicant's ability to make payments; no down payment." The chief executive of Countrywide Financial, the nation's largest mortgage lender, is said to have "bragged" that in order to approve minority applications, "lenders have had to stretch the rules a bit."[14]

On the other hand, Professor of Law Michael S. Barr in congressional testimony stated that a Federal Reserve survey showed that affected institutions considered CRA loans profitable and not overly risky.[15]

Congressman and 2008 Republican presidential candidate Ron Paul has partially attributed the ongoing subprime mortgage crisis to legislation such as the Community Reinvestment Act.[16]

A Wall Street Journal editorial argued that the law compelled banks to make loans to poor borrowers who often could not repay them and that this contributed in part to the subprime crisis.[17]

A Bank for International Settlements ("BIS") working paper by economist Luci Ellis concluded that "Contrary to some media commentary, there is no evidence that the Community Reinvestment Act was responsible for encouraging the subprime lending boom and subsequent housing bust."[18]

Referring to CRA and abuses in the subprime market, in congressional testimony Michael Barr stated that in his judgment "the worst and most widespread abuses occurred in the institutions with the least federal oversight".[15]

Center for American Progress fellow Robert Gordon[19] noted that approximately half of the subprime loans were made by independent mortgage companies that were not regulated by the CRA and thus had no government obligation to offer credit to minorities. In the later part of the crisis, these mortgage companies made subprime loans at twice the rate of CRA banks. Another third of the major subprime lenders were regulated but had very little CRA involvement.[20] Gordon also makes the argument that the weakening of the CRA in 2004 was followed by intensified subprime lending.[20]

Austrian economist Thomas DiLorenzo counters Gordon's statistic by arguing that even if half of the subprime loans were made by non-CRA companies, the CRA had still caused tens of billions in defaults on mortgages by unqualified borrowers. He further states that Gordon's statistic ignores that independent mortgage companies are middlemen who sell subprime loans to banks that are in turn regulated by the CRA.[21]

Ellen Seidman, former director of the US Office of Thrift Supervision during the Clinton administration, who also works at the New America Foundation,[22] has stated her belief that the CRA did not have an effect on the United States housing bubble.[23] She observes that CRA banks were particularly warned to make responsible investments, citing one of her own speeches as an example.[24]

Here is a link to the data source: http://en.wikipedia.org/wiki/Community_Reinvestment_Act

What the FDIC says.

The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations. It was enacted by the Congress in 1977 (12 U.S.C. 2901) and is implemented by Regulation BB (12 CFR 228). The regulation was substantially revised in May 1995, and was most recently amended in August 2005.

Evaluation of CRA Performance
The CRA requires that each depository institution's record in helping meet the credit needs of its entire community be evaluated periodically. That record is taken into account in considering an institution's application for deposit facilities.

Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institution's individual circumstances. Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institution's CRA activities should be undertaken in a safe and sound manner.

CRA examinations are conducted by the federal agencies that are responsible for supervising depository institutions. Information on this page is related to depository institutions that are examined by the Federal Reserve, mainly state-chartered banks that are members of the Federal Reserve. CRA information on other depository institutions is available from the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS). Interagency information about the CRA is available from the Federal Financial Institutions Examination Council (FFIEC).

Link to Federal Reserve Board. http://www.federalreserve.gov/dcca/cra/default.htm


What the Federal Financial Institutions Examination Council (FFEIC) said.

Background & Purpose
The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound banking operations. It was enacted by the Congress in 1977 (12 U.S.C. 2901) and is implemented by Regulations 12 CFR parts 25, 228, 345, and 563e. (See Regulation).

The CRA requires that each insured depository institution's record in helping meet the credit needs of its entire community be evaluated periodically. That record is taken into account in considering an institution's application for deposit facilities, including mergers and acquisitions. (See CRA Ratings)

CRA examinations (see Exam Schedules) are conducted by the federal agencies that are responsible for supervising depository institutions: the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS).

Additional information in the form of Interagency Questions and Answers, Interagency Interpretive Letters, CRA data reporting is available.

Here is a link to the Federal Financial Institutions Examination Council (FFEIC) site. http://www.ffiec.gov/cra/default.htm

NOTE:
Because this legislation was put forth in 1977 by the 95th Congress I was unable to locate the original legislation through the Library of Congress or the Congressional Record as they only go back to the 101st Congress which was in session from 1989 to 1990.

The problem has and always will be until we get legitimate and independent oversight that these guys are political and operate like politicians and bureaucrats insted af watchdogs. We need to have the guys watching over the operation also making sure these entities they are watching aren't cooking the books and that is something that has never been incorporated into the oversight boards.

Currently the level of partisan politics in Washington is so intense that I feel that the only way to get beyond it is to run them all out of town on a rail and elect a completely new set of representatives and senators.