ON-Lion Letter
"The once-obscure Community Reinvestment Act [CRA], passed during the Carter administration, has recently ... become a bogeyman for Republicans, some of whom have proposed its repeal," writes Howard Husock in an online City Journal article in late October.  "Liberal Democrats have defended it as unrelated to the meltdown.  The truth lies somewhere in between. While it’s a long way from the late-seventies world of the original Act to the twenty-first century’s housing crisis, the CRA’s role was important."

Husock, a contributing editor of City Journal, is the Manhattan Institute for Policy Research’s vice president for policy research, the director of its Social Entrepreneurship Initiative, and the author of America’s Trillion-Dollar Housing Mistake:  The Failure of American Housing Policy.

The CRA was meant to encourage banks to extend credit to those in low- and moderate-income neighborhoods.  A bank's good CRA rating improves the chances that the Federal Reserve will approve its mergers.  In 1996, Congress strengthened the CRA, spurring even more lending that might otherwise have been considered risky.

"It seems clear that we have, as a matter of national policy, pushed too many households toward homeownership," Husock concludes, and "[b]oth political parties are guilty.

"We have the tools in place for a fair and effective housing policy," he continues.  "Fair-housing and antidiscrimination laws must be enforced to ensure that prospective borrowers are not turned away for nonfinancial reasons.  Credit scoring -- which didn’t exist at the time of the original passage of the CRA -- allows lenders to differentiate among households of similar incomes but different levels of frugality and thrift.  Let’s allow these market mechanisms to operate, rather than relying on regulatory mandates and the political risk they introduce into financial markets."

Earlier in October, Husock participated in a Bradley Center for Philanthropy and Civic Renewal (BCPCR) event at the Hudson Institute in Washington, D.C., on the CRA and the financial crisis with the Consumer Federation of America's Barry Zigas, George Mason University's Russell Roberts, and the National Fair Housing Alliance's Deborah Goldberg.  Media clips of the discussion are accessible online.  A transcript will be available soon.

The Lynde and Harry Bradley Foundation in Milwaukee substantially supports both the Manhattan Institute and BCPCR.
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