“Let me ask you, where in the CRA does it say to make loans to people who can’t afford to repay? Nowhere.”
-FDIC Chairman Sheila Bair


This is old news to readers of the Big Picture, but I wanted to at least excerpt this:

“I want to give you my verdict on CRA: NOT guilty,” said FDIC Chairman Sheila Bair, according to a press release by the Federal Deposit Insurance Corporation. Before the Consumer Federation of America, Bair said Thursday she wanted to clear up the “myth” that the Community Reinvestment Act caused the financial crisis — and she set out to do so with vigor.

The Community Reinvestment Act — or CRA — is a federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. It has largely been criticized by conservative members of the GOP as promoting predatory lending practices.

“Point in fact,” she said, “only one in four higher-priced first mortgage loans were made by CRA-covered banks during the hey-day years of subprime mortgage lending.  The rest were made by private independent mortgage companies and large bank affiliates not covered by CRA rules.”

And “Let me ask you,” she proceeded. “Where in the CRA does it say to make loans to people who can’t afford to repay? Nowhere.” The facts are simple, Bair said. The lending practices that are causing problems today were driven by a desire for more market share and revenue growth, not because the government encouraged certain lending practices.


Read the full item at Housing Wire.


FDIC’s Bair Sets to Shatter CRA “Myth”
December 5, 2008


FDIC: Community Reinvestment Act is not cause of financial crisis, FDIC’s Bair said
Ronald D. Orol,
MarketWatch, 12:05 p.m. EST Dec. 4, 2008


Category: Credit, Real Estate, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

22 Responses to “FDIC Chairman Sheila Bair on CRA: NOT Guilty”

  1. The Curmudgeon says:

    Of course the government encouraged lending to anyone with the ability to sign their name, and even a few without*. But it was not through the CRA that it accomplished those ends. It was all about the Benjamins–too many of ‘em. Plain and simple.

    *As a closing attorney during the boom, I personally witnessed loans for people that had to sign w/ an “x”, or did not speak or write English. Whether this was a good or bad thing I’ll leave to the philosophers. Try not to be too self-righteous. These type of closings were always quite involved, as the ones that couldn’t read had to have someone read the documents to them. And no, I didn’t get paid extra for the trouble.

  2. twshore says:

    Barry, I know your feelings on this issue. While I mostly agree (CRA was not THE reason), I certainly believe CRA was/is a contributor. Just yesterday I had a hedge fund pitch me a real estate mezz lending opp that is effectively an outsourced CRA origination vehicle for three large banks. The portfolio is garbage and the locked-in non-bank financing was egregiously expensive. It is destined to provide profits for nobody but the management team sourcing the deals. Without CRA, this vehicle would not exist. Even today, this crap is still happening.


    BR: Nonsense.

    All that the CRA requires is that banks take deposits from the local neighborhood, and make reasonable attempts to lend the money back to them. No quotas, no hard numbers, no egregious penalties —

    Don’t open a bank in Harlem and suck all of ther money out of the neighborhood to loan to the upper East side. Understand how that works?

    Of course, any one who blames the CRA never bothers to explain why it never caused any trouble from 1977 to 2003, or why all those ther countries WITHOUT A CRA also had a housing crash.

  3. buzzp says:

    Barry – OT

    Did you ever reach Sherffius re his stuff for your book?

  4. The Curmudgeon says:

    And Ms. Bair is correct on one score–none of these type loans, in fact, none of the loans I ever did that could be considered subprime–were done by banks covered by the CRA. Banks wouldn’t touch the dicey stuff. It was all private mortgage companies not covered by CRA like Ameriquest, New Century, et al. No government program, except the one for printing cash, encouraged these lenders to make loans.

    Listening to these lies repeated over and over about the real source of these problems makes one, well, curmudgeonly…

  5. Chief Tomahawk says:

    “market share and revenue growth” Somehow I see those words being left out of Bush’s upcoming speech this morning.

  6. CRA, like Fannie and Freddie, is a great marker. You can instantly tell who is repeating talking points, and therefore are biased political hacks.

    Its been wonderful that way for the likes of Charlie, Michelle, and others.

    Its a magic xray machine!

  7. kwsmith2 says:

    **CRA, like Fannie and Freddie, is a great marker. **

    I agree. I also find it funny that those blaming CRA, Fannie and Freddie are often the same ones who denied there was problem in the first place.

    Perhaps, its possible that the problem originated in the place that those who saw the problem last August were pointing at.

  8. sellthekids says:

    Barry et al,

    hope you haven’t been enjoying the rays of truth and insight from Bair, b/c it appears that she is not long for the world when Geithner takes over.


    still wasn’t able to find the entire text of her comments at the Financial Services Conference.


  9. Mannwich says:

    It’s also a great “tell” regarding where those hacks get their “news” (read: FOX) and it’s usually the only channel or “news source” they utilize………

  10. karen says:

    Oh, this poor, dead horse! I can’t partake in the beating anymore. The big 3 is far more important at this stage and
    Marty Chenard points out that GM could be bought for 6.2 times less money than they are asking Congress to give them.


  11. mitchn says:

    twshore @ 10:36

    “I had a hedge fund pitch me a real estate mezz lending opp that is effectively an outsourced CRA origination vehicle for three large banks. The portfolio is garbage and the locked-in non-bank financing was egregiously expensive. It is destined to provide profits for nobody but the management team sourcing the deals. ”

    ‘Nuf said.

  12. hop says:

    BARRY -

    This redesign of your site is awful and growing worse for me.

    I read your posts many times a day and the monstrosity of a header you have is the bane of my existence.

  13. DeDude says:

    And if the only reason CRA covered banks actually gave shaky loans was because of the fear of violating CRA, why would those 75% of shaky loans by non-CRA-cover institutions have been given. I mean if the only (or the main) reson to give these shaky loans were fear of CRA, why would the other guys have done it. No ALL of these loans were given because they had fat fees and fat profits in them as long as the housing price increases and ship-the-risk-downstream gravy train was working. And for those employees and CEO’s getting fat on this gravy train, it didn’t matter that one day it would end realy bad for the company. They would have harvested their big juicy piece of the pie and always planned on finding some other kind of company and scam to feed on when this one stopped working.

    The first thing we need to do is to ensure that all compensation of CEO, CFO etc. in the form of stocks must be real paper stocks and must be locked up for 10 years (with a ban on any kind of loan or pre-selling of them). We must demand that at least half of any compensation in excess of 500K/year comes in the form of these locked up stocks. No public pension or tax-deferred/free funds can be invested in companies not following these rules. That way the interest of the executives will not be a short-term fake boast in the company, but its long-term survival.

    twshore; yes and I had a guy pitch me a bicycle with a flat tire as an economic Cadilac and one of the things he pointed to was a nice little Barbie sticker on the broken bell. But it didn’t make me buy it anyway. I am sure that crocks will use any and all arguments that they think might have the smallest chance of selling the product. However, only an idiot would take it – did you ?

  14. twshore says:

    Dedude – hell no I didn’t take it. Jesus, you people kill me. I laughed at the guy and asked him how I could find the non-bank finance providers so I could short the stew of the debt. Didn’t I explicitly say the management team running the deal is the only group of clowns that stand to make ANY money from this?

    And Barry, I said I mostly agree with you. However, I gave you a concrete example of how CRA is contributing to the problem. As I said…it is the three of the largest banks of the street. I acknowlege CRA was not THE problem or even close. However, the deal I mentioned is live and funded and originating garbage right now. There are tax and regulatory benefits. You all can say it has no impact until you’re blue in the face. You’re wrong and gave you evidence. On the flip side those on the “right” of the political spectrum can blame entirely CRA for the mess. This is also idiotic and false but is in line with their agenda.

  15. DeDude says:

    twshore; Why do you think that hedgefund originally bought the c**p they were trying to unload on you? My guess is that they figured it would be a great way to harvest some of the home-value increase from those succers that had been sold on those sub-prime loans. The hedge fund certainly did not purchase it because of its “CRA-value”, right?. So even if the hedge fund pointed to that nice little CRA-Barbie sticker on their c**p, CRA had nothing to do with why it originally was put together, by someone else, and purchased by the idiot that managed the hedgefund. So I just don’t bye your “example of how CRA is contributing to the problem”.

  16. twshore says:

    Dedude, you don’t buy it b/c you don’t understand it. I’m not going to sit here and waste three paragraphs explaing non-bank mezz financing and orgination. The banks are taking most of the risk. Yes, they are going to lose money. THAT’S THE ENTIRE POINT. No, it’s not illegal. They know exactly what they’re doing and so do the guys originating the loans.

    The hedge fund doesn’t “own” anything…they will get paid a boatload of fees.

    And yes…CRA is the only reason the deal exists. They’re quite upfront about this.

    And lastly, don’t go badgering and disparaging people you don’t know about their ability to comprehend or understand a deal. My p&l this year…..positive (a lot of it from shorting BS commerical RE and LBO deals). How’s yours?

  17. DeDude says:

    twshore; OK I shall accept your and the hedge funds claim that this particular thing was created exclusively to help fulfilling CRA requirements and that idiot bankers who can’t see that it is pure s**t may end up buying it, rather than fulfilling their CRA requirement with sound and solid lending of affordable loans to poor people. However, in the big picture, the question must be how big a contribution to a problem is CRA. Barry had a great piece about that a few days ago: http://www.ritholtz.com/blog/2008/12/kroszner-cra-the-mortgage-crisis/ where he had a link to a speech by Krozner: http://www.federalreserve.gov/newsevents/speech/kroszner20081203a.htm that told us their studies had found: “Only 6 percent of all the higher-priced loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas” (and nobody can say how many of those were actually giver to comply with CRA and how many were just given for the same “to pig-out-on-the-poor-suckers” reasons that the other 94% were given. The studies also showed that: “less than 2 percent of the higher-priced and CRA-credit-eligible mortgage originations sold by independent mortgage companies were purchased by CRA-covered institutions”. Meaning that you just avoided being part of the unlucky 2%, but you were lucky enough to have observed and been able to report on this extremely rare phenomenon. Again remember that since they cannot document the actual motivation of those buying the paper; the 2% (like the above 6%) are absolute maximums of the CRA induced piece of the trouble. It may also be that the CRA institutions purchased their 2% of the problem paper for the same “to pig-out-on-the-poor-suckers” reasons that the other 98% were purchased by non-CRA buyers. Quite frankly my pissing in the Mississippi river may have contributed to the great flooding of 1994, but nobody discussing the cause of that flood would think that it was worth mentioning.

  18. Bill Ackman for all intents and purposes made the same case as Sheila Bair in her closing remark…

    The Charlie Rose Show 11.11.08

  19. ben22 says:

    this probably means that Bair will be out of her positions before the end of 2009, that’s my prediction. She’s making too much of the wrong kind of noise for someone at that post. It’s a shame because she’s of course correct.

  20. BG says:

    Yeah, that’s right! We need to get rid of anyone who makes a god-damn lick of sense!!

    This nation is nothing but a bunch of fucking idiots!! And you think all of this was brought down because of CRA? What a bunch of dumb-asses. Haven’t you figured out anything yet??

    Or are you a part of the scheme looking for any cover you can find to cover your asses? We are not idiots out here. We know WTF is going on!! You bastards dream up your little GD schemes but don’t have the balls to admit it when you are caught red-handed. You are a bunch of greedy bastards! Even have the audicity to ask for the tax-payers to bail your sorry asses out!! Go fuck yourself!!

    You are lucky you are not in jail right this moment for what you greedy fucks have done to this Country!!

    Leave Shelia Bair alone. She speaks the truth!!