Commentary by Marc H. Morial, President National Urban League
NEW YORK - “I pledge…Every American lives in safe, decent, affordable, and energy efficient housing on fair terms.” One of the National Urban League’s four I AM EMPOWERED goals.
No, President Obama was not born in Kenya. Superman is not real. And there is no Monkey-man roaming the streets of Hoboken scaring the daylights out of little children. Some urban myths are nutty. Some are funny. But some, like the one about mortgage loans in low and middle income urban neighborhoods being the cause of the financial meltdown can be downright dangerous.
Since this assertion was first made several years ago, the National Urban League has called it for what it is – a weapon of mass deception, shifting blame for the economic crisis from Wall Street where it rightfully belongs onto the backs of hard working African American and Hispanic homeowners, who for decades were routinely refused home loans and a fair shot at the American Dream. Leading economists have agreed with us, including Federal Reserve chairman Ben Bernanke; FDIC chairman, Sheila Bair; and Nobel Prize columnist, Paul Krugman. And now, a new study by the congressionally established Financial Crisis Inquiry Commission conclusively states that the Community Reinvestment Act (CRA), established in 1977 to prevent redlining and spur homeownership in urban neighborhoods “was not a significant factor in subprime lending or the crisis.”
Undergirding this myth is the claim by some that the CRA requires banks and thrifts to make loans to unqualified low-income and minority borrowers. They contend that a higher default rate by those borrowers caused the housing meltdown. Aside from the fact that the law clearly states that CRA lending must be consistent with safe and sound banking practices, there is no evidence that CRA caused lenders to make risky subprime loans that contributed to the crisis. In fact, most subprime loans are not made to minorities or low income borrowers. Between 2005 and 2007, 58% of higher costs loans were made to white borrowers, and fewer than 30% of subprime loans in 2006 were made to low and moderate-income borrowers.
According to Commission chairman, Phil Angelides, “The debate about the role of the CRA should now be over…We found that this crisis was avoidable and was caused by widespread failures in financial regulation, dramatic breakdowns in corporate governance, excessive risk and borrowing, government officials ill prepared for the crisis and systemic breaches in accountability and ethics at all levels.” In short, black, brown and poor people, aggressively spurred on by the CRA did not cause our economic meltdown. This has been a yarn spun by some who wish to shift the blame from Wall Street to Main Street.
The latest to use this as a weapon of mass deception is Florida freshman congressman, Allen West who, speaking at a February Conservative Political Action Conference in Washington, singled out the CRA as the cause of the housing crisis. He added, “If government gets out of the way of the private sector, it would not have happened in 2008.”
The Financial Crisis Inquiry Commission disagrees and so do we. With millions of people out of work, instead of clinging to discredited ideological theories, our policymakers should be focused on creating jobs and making sure that more citizens are able to realize the American Dream of homeownership.