GOP Plan to Roll Back CRA Sparks Heated Debate

By Hopkins, Cheyenne | American Banker, April 16, 2010 | Go to article overview

GOP Plan to Roll Back CRA Sparks Heated Debate


Hopkins, Cheyenne, American Banker


Byline: Cheyenne Hopkins

WASHINGTON - A plan by Rep. Jeb Hensarling to repeal the Community Reinvestment Act reignited a heated debate at a House subcommittee hearing on Thursday on the 33-year-old law's role in the financial crisis.

The Texas Republican, the lead GOP member on the financial institutions subcommittee, introduced a bill to roll back the CRA at the start of the hearing, arguing it was a partial cause of the housing crisis and was the source of excessive compliance costs for banks.

"Do you really have to force a bank to make a profitable, creditworthy loan?" Hensarling said. "And if not, are we forcing them to make loans to a universe of people that they may not otherwise make? And these loans may not be financially sound loans. And indeed, they may be loans that helped contribute to our financial crisis."

He was quickly assailed by Democrats, community activists and former regulators, who said the CRA did not cause the crisis and remained an important way to ensure banks lend to everyone in their communities.

"To blame the CRA is to let rascals go," said Rep. Al Green, D-Texas. "Not anyone can show me where the CRA mandated subprime loans with prepayment penalties that coincided with teaser rates. Show me where the CRA required that we have collateralized debt obligations, known as CDOs. Show me where the CRA promulgated and promoted credit default swaps. Show me where the CRA caused negative amortization."

Green vowed to "fight to the end anyone who wants to end the CRA. ... I will not allow the clock to be rolled back."

Democrats argued that the vast majority of the risky loans that led to the financial crisis were made to middle-income borrowers and said CRA loans have performed well. "It had nothing to do with CRA ... the fact is only 6% of all subprime loans, hybrid loans, were under CRA and that is assuming all of them went under. You see what a small portion they were," subcommittee Chairman Luis Gutierrez said.

But Hensarling said it wasnot the volume of CRA loans or their performance that contributed to the crisis but the goal of the law to promote lending. …

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