CRA & FHEFSSA for Dummies?
Can someone please point me to something that gives a concise yet factual account of how these housing acts "forced" lenders to give risky loans? One thing I constantly hear about the housing crisis is that it was mainly caused by liberal government forcing the private sector to give out risky loans to minorities. I'd like to know if the "forced" part is factual, misleading because the issue is more complex, or simply false.
I've scanned wikipedia on these but quickly got lost in details, and I'm not about to go read the actual legislation :)
I've scanned wikipedia on these but quickly got lost in details, and I'm not about to go read the actual legislation :)
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The CRA was intended to end the practice of "red lining", that is drawing lines around whole communities where loans were not to be extended.
You will find no authoritative source indicating the act forced lenders to lend to non-credit worthy borrowers because it just isn't true.
At least go read the introduction and purpose portions of the legislation.
October 29, 2008 4:44 PM | Reply | Permalink
Allright, allright I'll go read it, dangit.
I'm suspecting that it's not a black/white answer and I'd like to read some reputable opinions on the subject. Blurbs in wikipedia (jah, should always be suspect) on FHEFSSA:
"required Fannie Mae and Freddie Mac, the two government sponsored enterprises that purchase and securitize mortgages, to devote a percentage of their lending to support affordable housing"
"mandates that HUD set specific goals for the government-sponsored enterprises Fannie Mae and Freddie Mac, with regard to low income and underserved housing areas".
At first glance, my initial take on this is that devoting a percentage of lending implies that even if they can't find sufficient lower-strata lendees they still have to fill the percentage, which imply that they're forced to give risky loans. But of course, that's probably just ignorance on my part. Bah. Now I have to dig deeper into all that lawyer mumbo-jumbo.
It seems that the FHEFSSA is the issue here more than the CRA, though, right? I still haven't positively confirmed this but it looks as though the CRA doesn't force it:
"The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation"
October 29, 2008 5:36 PM | Reply | Permalink
Ah, my stupid: FHEFSSA is an amendment to the CRA.
October 29, 2008 5:44 PM | Reply | Permalink
Hrmmm... I'm perusing the FHEFSSA and keep seeing "the need to maintain the sound financial condition of the enterprises" as one of the "FACTORS TO BE APPLIED" for each goal. So far that doesn't sound like forcing risky loans... ?
October 29, 2008 5:59 PM | Reply | Permalink