A bank regulator tells his side

John Corby on 610 a.m. in Columbus offers a call-in show with topics from uses for bacon (yesterday) to what's the dumbest trick you pulled as a teen-ager. Today, the subject seems to be a bit more serious--the government bailout. As I walked in the door (I was outside picking up branches from the storm 2 weeks ago) I heard

--a bank regulator saying the banks were forced into the Community Reinvestment Act (CRA) and each bank had to have a plan and a department. Bank field examiners spent over 50% of their time enforcing the Act, which took away from the enforcement of safety and soundness of the investments. Every bank in the nation, under the CRA, had to reinvest part of its own capital in the community, i.e. lending to borrowers, primarily minorities, who were not qualified for loans. This participation (which was forced) showed the banks were supporting the community. The caller said he and other bank employees who realized what was going on would have never been able to speak up for fear of losing their jobs, and that those who oversaw the CRA at his bank were the most liberal and militant in the organization. Then the banks were blamed for all the subprime loans they were forced to write. From the horse's mouth

Before we taxpayers fund the bailout, we need to dump the CRA which started the downward plunge and abandon this crazy idea that everyone needs "the American dream." And that includes its slush fund, Housing Trust Fund, which goes to the states for local organizations to put poor people in housing (which usually no one else would buy) including my own church. It's a nightmare for many. There needs to be good, sound, affordable housing stock. But it doesn't mean that every welfare mother who's taken a training program in computer programming and found a decent job should be shoehorned into "affordable" housing with a mortgage which will be a burden to her and her children. I'm sure this was all done with the best intentions, but the consequences have resulted in a national crisis. These same people in a good rental or subsidized housing with an adequate investment vehicle on the side would have been far better off and not experienced one more failure in their lives.

"The CRA forces lenders to spend money, time, and resources on documentation, PR, and other compliance costs. Moreover, the examination process to determine the level at which a bank is meeting its CRA obligations can sometimes take several months. This has become a major point of leverage—and source of funding—for “community” activist groups. Lending institutions, rather than face the increased expense of a slowed deposit facility application due to a CRA challenge, have committed over $7 billion to such groups and $23 billion to community development lending projects since 1977. Some companies seek to mitigate the threat by funding activist groups’ projects, instead of reforming their overall approach to community reinvestment, according to Jonathan Macey of Yale Law School.

Groups like the Association of Community Organizations for Reform Now (ACORN), aware that even small delays in approval can result in substantial losses of money for financial institutions, have been exploiting such a strategy for years. For example, Chase Manhattan and J.P. Morgan donated hundred of thousands of dollars to ACORN around the time that they applied for permission to merge." The Community Reinvestment Act's Harmful Legacy March 20, 2008