October 25, 2008

THE REPUBLICAN LIE ABOUT SUBPRIME LOANS

William Fisher, Inter Press Service - A 31-year-old law designed to put an end to "redlining" and other restrictive practices that effectively shut poor and minority families out of home-ownership and neighbourhood development is being attacked by conservative commentators as a major cause of today's sub-prime mortgage mess. The charge is being incessantly repeated by some of the so-called mainstream media as well as by right-wing bloggers. . .

Then, in 1977, when Jimmy Carter was president of the U.S., Congress passed the Community Reinvestment Act . The Act required federally regulated and insured financial institutions to show that they were lending and investing in their communities. . .

But over the years, these banks have largely become adjusted to the requirements of the CRA. Today, most regard it as normal "cost of doing business".

The key words here are "federally regulated and insured financial institutions" -- which means commercial banks and thrift organisations.

Not included were investment banks, mortgage brokers, and the now-bankrupt non-bank lenders such as New Century Financial Corp. and Ameriquest that underwrote most of the subprime loans that we now know were so toxic. . .

Federal housing data shows it was the unregulated private sector -- not the government or government-backed companies -- that was responsible for the explosion of subprime lending at the core of the crisis. According to the Federal Reserve Board, more than 84 percent of the subprime mortgages in 2006 were issued by private unregulated lending institutions and private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year. . .

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