General Message Board
n 1977, in response to complaints that banks were "redlining" inner-city neighborhoods, President Carter signed into law the Community Reinvestment Act (CRA), which declared that banks have "an affirmative obligation" to meet the credit needs of the communities in which they are chartered and that federal regulators should take their performances into account when considering merger requests. But efforts to enforce the law were sporadic until a 1992 study by the Federal Reserve Bank of Boston purporting to prove racial bias in mortgage lending. Yet the study had mishandled statistics on minority default rates. When the errors were accounted for, the same study showed no evidence that nonwhite mortgage applicants were being discriminated against.
But in 1995, the Treasury Department issued new CRA regulations that would make it much more difficult for banks to get a satisfactory CRA rating. These institutions would have to demonstrate that they were investing more money in poor, higher-risk neighborhoods if they wanted federal approval to merge. Much of that money they invested went to ACORN and other left-wing nonprofit groups who prided themselves on making loans to persons with poor credit and little to no savings. Meanwhile, by the late 1990s, Fannie Mae, the nation's biggest underwriter of home mortgages, came under pressure from the Clinton administration, the banking industry and mortgage companies to make more loans to subprime borrowers. If Fannie fails, "the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry," American Enterprise Institute scholar Peter Wallison warned in 1999.
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