New loan restrictions will violate the Community Reinvestment Act

New OCRArleans Sometimes they simply protest too much, and sometimes strange bedfellows are simply bedfellows caught strangely.  This would be my summary on the team being put together to in Washington to whine about some of the new mortgage lending rules that the Mortgage Bankers Association, never a group that I would pick for the good guys in the room, claims would restrict homeownership.  Whenever this group claims it is concerned about the ability for low-and-moderate income families to buy houses, I know there’s something fishy going on.

The dispute is largely over whether or not potential homeowners will be required to put down 20%.  Right now in the real time of the housing market, this is already virtually the case, since so many loans are strictly adhering to Fannie and Freddie standards and requiring damned close to this.  The National Association of Realtors claimed 96% of first time buyers made down payments of less than 20%, but we don’t know how many of these sales had other first time buyer incentives that were part of the recovery and other special programs.

First, let’s put aside the ability of some reporters to swallow whole the notion that the NAACP and La Raza are somehow strange partners in an alliance with bank lobbyists.  These are partners pure and simple with banks providing millions of dollars worth of funding to capitalize their operations.  Occasionally, one has to pay the piper, and this is no doubt one of those, I would imagine.

Second, the requirement about which these stuck pigs are squealing is that 5% of “the value of basket of loans” would have to be kept on a bank’s balance sheet and books, if the basked carries loans where less than 20% was put down by the borrower.  What kind of topsy-turvy jabberwocky world are we living in where we put any credence on a claim that the small slice of 5% of a mortgage loan package is too much risk for a bank to handle?  Why should banks be immune from taking a small tablespoon of the medicine all of the rest of the housing finance market is handling?  This seems little more than a loud, blaring siren, as if we needed one, that the banks still in the midst of the greed and meltdown of the housing market and their forced foreclosures still have not learned anything.  What is the remedy here – that we recreate a housing market where once again we sanction tranches of off-the-book transactions?  Preposterous!  The market has proven (often to our peril) that they can assemble tranches of virtually any kinds of loans, so why would we believe that they cannot package loans with 19% or 18% or 15% or even 10% down payments, and then let banks determine whether or not they are comfortable carrying 5% of that package on their books?

Thirdly, why won’t Community Reinvestment Act (CRA) requirements alone force banks to keep some share of the loans on their books with or without the new regulations?  Here is where I get suspicious.  Robert R. Davis with the American Bankers’ Association claims that “It is more likely that the credit restrictions that result (from this proposed rule) will disproportionately fall on lower-income borrowers.”  The Times then summarizes his remarks saying “that, in turn, puts banks in a bind, because it gives the appearance of violating fair-lending practices.”  Appearances?  Baloney!  It would violate such practices.  It is discrimination and it is contrary to CRA requirements around racializing the geography of lending.  The day the ABA gives a flip about the problems of lower income borrowers entering the market, definitely finds us in wonderland with Alice.

None of this smells right to me.  There’s still no foreclosure relief.  There’s still no regulation of brokers.  There’s still no clarity on “affordability” standards or penalties for predatory practices.  There’s still no clarity about a bank’s role in providing credit to the whole community and its interest.

I worry that we are being distracted from the real fights on regulations that are needed to bring the banks in line because of a fake fight on a minor requirement that banks should in fact embrace.  Why aren’t banks standing up and saying that they are proud to keep some level of mortgage lending to all borrowers in their communities on their books?

Let’s get the answer to that first along with a renewed commitment to community reinvestment before we give an inch here.

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