Last week the Securities and Exchange Commission charged Goldman Sachs with fraud in creating and selling the securities tied to subprime mortgages that eventually sent the U.S. economy into its worst collapse in decades.
These same sorts of investment instruments led to the downfall of Lehman Brothers, Bear Stearns, American International Group and others. The implosion of these companies led to the largest taxpayer bailout of private companies in history.
Interestingly, none of these major companies was regulated by the Community Reinvestment Act, a simple piece of legislation that has helped millions of middle-class people access homeownership and realize the American dream of entrepreneurship, creating jobs and helping small businesses grow.
The subprime mortgage meltdown and economic crisis weren’t caused by CRA, but by predatory practices and greed on Wall Street. That fact may come as a surprise to readers of the Examiner‘s five-part series on CRA and the Greenlining Institute, but it’s true.
In contrast to the casino mentality on Wall Street, CRA requires banks’ actions to be “consistent with … safe and sound operation.” Seventy-five percent of subprime loans were issued by institutions not covered by CRA: independent mortgage brokers and lightly regulated bank subsidiaries.
While free-market zealots blame CRA and those who support it for the subprime disaster, a study released last year by the Federal Reserve Bank of San Francisco paints a different picture. Researchers found that independent mortgage companies — outside the reach of CRA and other federal “safety and soundness” regulations — “originated a disproportionate share of loans in lower-income and minority neighborhoods.”
Minority borrowers were apparently steered into the subprime loans that detonated the foreclosure bomb. According to the Fed study, black and Hispanic borrowers were four times as likely to receive a high-priced loan as white borrowers with comparable credit scores.
The researchers concluded that “this trend of higher-priced lending coupled with minimal regulatory oversight has led to devastating impacts on communities of color in California.”
Echoing a broad expert consensus, Federal Reserve Gov. Randall S. Kroszner stated, “We believe that the available evidence runs counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis.” Federal Deposit Insurance Corp. Chairwoman Sheila Bair has declared CRA “not guilty.”
But there’s money in peddling these high-cost loans, and some in the financial industry don’t want their party spoiled by regulations. They and a small group of anti-regulation zealots hope to avoid further oversight — and loosen what already exists — by blaming CRA and its supporters for causing the recession, when the real culprits were inadequate regulation and greed.
So organizations like the Greenlining Institute get labeled “shakedown artists” for asking banks to follow the law by investing in the communities they serve, consistent with responsible banking practices.
We’re called “radical,” even “extortionists,” for doing what thousands of advocacy organizations do daily: asking business and political leaders for actions we believe necessary, negotiating, and occasionally taking our grievances to the media or holding demonstrations.
But as Ronald Reagan said, “If you can’t make them see the light, make them feel the heat.”
If shining a light on greed and irresponsibility, asking banks to behave responsibly, and demanding that government officials protect citizens on Main Street from the predators on Wall Street make us “radicals” or “extortionists,” the Greenlining Institute pleads guilty.
We welcome dialogue and invite readers to visit us online at greenlining.org to learn more about what we do, and how the Community Reinvestment Act has helped American communities.
Ortensia Lopez and George Dean are co-chairs of the Greenlining Institute.
