Did The Community Reinvestment Act Cause The Financial Meltdown?
The Community Reinvestment Act (CRA), which was enacted in 1977, requires banks to lend throughout the communities they serve. The law was enacted in response to both redlining and other barriers to credit in low-income communities. Studies have shown that CRA increased lending and homeownership in poor communities without undermining banks’ profitability. CRA applies only to banks and thrifts that are federally insured and therefore, it doesn’t apply to independent mortgage companies. Recently, conservatives have attacked CRA, blaming it for the recent financial crisis and suggesting that the law forced lenders to make irresponsible loans to underserved communities in order to meet their CRA requirements. This claim, of course, is completely ridiculous.
