Of all the factors behind the collapse of America's financial institutions during the second half of 2008, few have been as trumpeted - or misunderstood - as the Community Reinvestment Act (CRA). This Carter-era legislation, intended to boost residential mortgage lending in lower-income urban neighborhoods, increasingly has served as a blank check for community groups to shake down depository institutions into lowering their credit standards to reach marginally qualified borrowers. In extracting such concessions, these groups have contributed to the ongoing explosion in loan defaults and foreclosures. Undaunted, House Democrats, led by Rep. Eddie Bernice Johnson, D-Tex., are proposing to make the CRA even more aggressive in rooting out "redlining," the practice by which mortgage lenders allegedly refuse to extend credit to low-income and often nonwhite minority neighborhoods.
Supporters call it "financial services reform." Yet one has to wonder what the Restoring American Financial Stability Act of 2010 is reforming or stabilizing. The House on Wednesday by a 237-192 margin passed the 2,300-plus-page conference bill designed to protect American households from predatory practices by banks, subprime lenders, brokerage houses and other intermediaries. But evidence suggests that if it becomes law, the bill instead will lay the groundwork for another major federal bailout. During House-Senate conference sessions, affirmative action zealots inserted a host of mandates to promote credit allocation by race.
