CRA and Acorn Caused Housing Crisis?

Mortgage and Lending with Willamette Falls Financial

If I told you that the floods that destroyed New Orleans in 2005 were the result of a solitary homeowner who left his lawn sprinkler on too long, you'd laugh out loud.

Well, that's essentially the argument some are making about the housing crisis. They are laying the blame for it on the Community Reinvestment Act of 1977.

The fact this urban myth is still around is further testimony that we Americans rely way too much on ideologically driven media for our news. The people pushing this fantasy have an agenda, and it's damn the facts, full speed ahead.

Facts? Here are the facts...

"I would like to dispel the notion that these problems were caused in any way by Community Reinvestment Act (CRA) lending. The CRA is designed to promote lending in low- to moderate-income areas; it is not designed to encourage high-risk lending or poor underwriting. Our analysis of the data finds no evidence, in fact, that CRA lending is in any way responsible for the current crisis."

Whose words are those? Some far lefty blogger? A tie dye shirt wearing, Volkswagen van driving radical college prof?

No and no.

Those are comments from Federal Reserve Governor Elizabeth Duke in a speech to bankers from February of this year.

Duke, in case you were not aware, was appointed to the Fed's Board of Governors in 2008 by then president George H.W. Bush.

As a Fed Governor, Ms. Duke knows that the overwhelming majority of bad, risky loans made during the real estate boom were originated by non-bank mortgage companies. That's right students. Entities not subject in any way, shape or form, to the requirements of the CRA. The problem loans, and the securities attached to them, that fueled the housing crisis, and it's spillover into the economy as a whole, were traded by...wait for it...Merrill Lynch, Bear Stearns, and Lehman Brothers.

Any of those names ring a bell? If you want to, you can read the rest of Duke's speech here.

She has some very interesting ideas on what we, as a nation, can do to lessen the severity of the crisis in the housing market.

Here in the Portland area, we are still fortunate. Our foreclosure rate is significantly lower than the national average.

The best thing for those of us in the Portland area, and elsewhere, to cure what ails the housing market is to get people back to work. With the unemployment rate still over 10%, Americans are reluctant to purchase first homes, or to move up. Once Americans are working again, this crisis, like those before it, too shall pass.

Comments (3)

Rachelle McMahan
Golf Savings Bank - Grants Pass, OR


Isn't it crazy what some folks would wish us to believe?   You are absolutey correct on every point!  I'm located in Southern Oregon with one of the states highest unemployment rates.  Our foreclosure numbers speak to that.   Another wave of foreclosures is beginning here.  Loans that were made to folks with great credit but are now unemployed are losing their homes right and left!!

Amen for speaking the truth!  Keep up the great work.   You have a new blog subscriber!


Nov 23, 2009 03:39 AM
Bob Haywood
McGraw Realtors - Owasso, OK

Some people would say that lending in low to moderate income area is high risk lending.  Don't know if that is true or not, but there are people who say the CRA was the problem and others who say it was wall street investors.  Quite complicated for sure!  I suspect greed found it's way in there somewhere too.

Nov 23, 2009 03:39 AM
Paul Gowen
Willamette Falls Financial - Lake Oswego, OR

Bob, with all due respect, it isn't really complicated at all.

The villians in the current housing mess are many, that is true.

Yes, you could make the argument that lending to low income individuals is inherently risky, but we're dealing with a question of scale.

The housing crisis, and the near global financial meltdown we just lived through, were were NOT triggered by delinquencies on a few small mortgages made to low income borrowers.

The real problem is the staggering mountain of risky, no money down, option ARM, stated income loans made to people who were essentially real estate speculators. And again, the math is the math. 80% of those loans were made, not to low income borrowers, but to high income borrowers. Further, they were originated by non-bank institutions not subject to CRA.

You have to look at the motivations of those blaming this mess on CRA. I can only speak for myself, but I'm going to value the opinion of a Federal Reserve Board Governor over the opinions of radio talk show hosts every time.

Nov 23, 2009 03:52 AM