Tuesday, October 14, 2008

The CRA and the Mortgage Meltdown

Via Steve Sailer, I've been reading "Anatomy of a Train Wreck: Causes of the Mortgage Meltdown", by Stan J. Liebowitz under the auspices of the Independent Institute. Unlike a lot of commentary, Liebowitz gets into the specifics of how government agencies and pressure groups were able to leverage to Community Reinvestment Act to force lenders to discard their standards and make loans to poor minorities.

In addition to thoroughly discrediting that infamous study by the Federal Reserve Bank of Boston that alleged discriminatory lending practices, Liebowitz quotes extensively from the Boston Fed's follow-up publication, "{Closing The Gap:} A Guide To Equal Opportunity Lending" (braces in the original). Some choice tidbits:

Did You Know? Failure to comply with the Equal Credit Opportunity Act or Regulation B can subject a financial institution to civil liability for actual and punitive damages in individual or class actions. Liability for punitive damages can be as much as $10,000 in individual actions and the lesser of $500,000 or 1 percent of the creditor’s net worth in class actions.


Even the most determined lending institution will have difficulty cultivating business from minority customers if its underwriting standards contain arbitrary or unreasonable measures of creditworthiness.


In reviewing past credit problems, lenders should be willing to consider extenuating circumstances.


Successful participation in credit counseling or buyer education programs is another way that applicants can demonstrate an ability to manage their debts responsibly.


Read the whole thing.

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