THE NEW SCAPEGOATS - FANNIE & FREDDIE

The radio wingnuts have been blaming the Community Reinvestment Act, passed in 1977, for the sub-prime crisis. I noted below that compared to the major investment banks and mortgage brokers, their part in this mess is comparatively MINOR and Mike Dunford of Science Blogs has provided some more evidence debunking the wingnuts.

First of all, the CRA does not mandate a set amount or percentage of sub-prime loans. All it does is ensure that the banks do provide some loans in the area they serve that is CONSISTENT WITH SOLID BANKING PRACTICES. Here's the relevant excerpt from the law itself:

...assess the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institution;

Second, 80% of the loans made under the CRA provisions IN 2006 were PRIME, NOT SUB-PRIME.

Third, only about 20% of all subprime loans made in 2oo5 were done by CRA banks.