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Experts Refute Argument that CRA Was Primary Driver of Foreclosure Crisis

Federal Deposit Insurance Corporation Chairman Sheila Bair spoke last Wednesday, December 17 at the New America Foundation in Washington, DC. In addition to outlining the FDIC’s recommended approach to loan modifications, she addressed the Community Reinvestment Act (CRA) and its purported links to the foreclosure and credit crises. Some have argued that the 31-year-old CRA is one of the chief causes of the financial and housing debacles – for example, please see this recent opinion editorial published by The New York Times.

Chairman Bair made it clear that in her view these claims have no merit. “I think we can agree that a complex interplay of risky behaviors by lenders, borrowers and investors led to the current financial storm,” she said. “To be sure, there’s plenty of blame to go around. However, I want to give you my verdict on CRA – it is not guilty.” She further pointed out that only about one in four subprime loans were originated by the banks covered under the CRA during the heyday of these risky mortgage products from 2004 to 2006.

An editorial in The New York Times reflected this point of view, noting that it made little sense to blame a 31-year old act for comparatively recent problems and that the regulations promoted under the act “actually impose restraints on the riskiest kinds of subprime lending.”

Following Chairman Bair’s speech, Roberto Quercia and a team of researchers from the University of North Carolina’s Center for Community Capital presented the results of an ongoing study on the performance of the Community Advantage Program, a secondary market program for CRA loans to low- and moderate-income homebuyers operated by Self-Help in North Carolina. The study compared the performance of fixed-rate loans sold into the Community Advantage Program to the performance of subprime loans to buyers with similar demographic and financial characteristics. Most of the loans in the Community Advantage Program pool were originated by retail lending institutions motivated by CRA obligations.

The findings showed that the loans in the Community Advantage Program pool had significantly lower default rates than the subprime loans, and even than Federal Housing Administration loans and adjustable-rate mortgages in the prime market. These findings suggest that the current financial crisis is rooted in the widespread use of poorly-underwritten loans with risky features, rather than the act of lending to low- and moderate-income families.

Multiple other reports and statements have echoed the benefits of the CRA and provided evidence that it has not been a major factor in the foreclosure and credit crises. These include:

CRA Not Responsible for Subprime Lending Abuses by Comptroller of the Currency, Administrator of National Banks


CRA is Not to Blame for the Mortgage Meltdown by the Center for Responsible Lending


Defending the CRA by David M. Abromowitz and Cathy Minehan, Center for American Progress


It’s Still Not CRA by Ellen Seidman, New America Foundation


Statement from National Civil Rights, Consumer, Community Development and Housing Groups Regarding Attacks on the Community Reinvestment Act (CRA)


The Community Reinvestment Act: A Welcome Anomaly in the Foreclosure Crisis by Traiger & Hinckley LLP, 2008.


Addendum: (

Video, audio and PowerPoint files for Chairman Bair’s speech and the Center for Community Capital’s presentation are available on New America Foundation’s Web site.

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