The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities– an interesting article from 2000 by Howard Husock that warned of the possible consequences of the CRA. (tips to Instapundit)

Excerpt:

If loans that win banks good CRA ratings were going to be made anyway, and if most of those loans are profitable, should CRA, even if redundant, bother anyone? Yes: because the CRA funnels billions of investment dollars through groups that understand protest and political advocacy but not marketing or finance. This amateur delivery system for investment capital already shows signs that it may be going about its business unwisely. And a quiet change in CRA’s mission—so that it no longer directs credit only to specific places, as Congress mandated, but also to low- and moderate-income home buyers, wherever they buy their property—greatly extends the area where these groups can cause damage.

This policy—”America’s best mortgage program for working people,” NACA calls it—is an experiment with extraordinarily high risks. There is no surer way to destabilize a neighborhood than for its new generation of home buyers to lack the means to pay their mortgages—which is likely to be the case for a significant percentage of those granted a no-down-payment mortgage based on their low-income classification rather than their good credit history. Even if such buyers do not lose their homes, they are a group more likely to defer maintenance on their properties, creating the problems that lead to streets going bad and neighborhoods going downhill. Stable or increasing property values grow out of the efforts of many; one unpainted house, one sagging porch, one abandoned property is a threat to the work of dozens, because such signs of neglect discourage prospective buyers.

A no-down-payment policy reflects a belief that poor families should qualify for home ownership because they are poor, in contrast to the reality that some poor families are prepared to make the sacrifices necessary to own property, and some are not. Keeping their distance from those unable to save money is a crucial means by which upwardly mobile, self-sacrificing people establish and maintain the value of the homes they buy. If we empower those with bad habits, or those who have made bad decisions, to follow those with good habits to better neighborhoods—thanks to CRA’s new emphasis on lending to low-income borrowers no matter where they buy their homes—those neighborhoods will not remain better for long.

HKO

Blaming greed for the meltdown is like blaming gravity for airplane crashes. By blaming Wall Street exclusively we stand exposed to repeat the disaster.

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