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Make Risky Loans!

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This letter [2] in today’s Wall Street Journal hits an important nail square on the head:

Regarding your editorial "Fannie Mae’s Patron Saint [3]"
(Sept. 9): We are all talking about subprime loans and the havoc
they’ve wreaked on the economy, but no one is talking about why banks
give out these loans — they are required to by law. Since the
Community Reinvestment Act of 1977, Congress requires banks to offer
loans to minorities in low-income areas, even if the clients can’t make
down payments, don’t have good credit histories, or even employment
histories.

Since these clients are
high-credit risks, the only loans lenders can offer are high-interest
loans that don’t require a down payment or good credit history. These
loans frequently default.

In order to cut down on
the number of subprime loans an institution must make, it must cut down
on all loans, because its subprime business is a proportion of its
overall business.

Are we willing to crash
our economy over some misplaced idealism? Congress must rescind the CRA
or this problem will continue beyond today’s bailouts.

M. Franks

Little Rock, Ark.

The foolishiness that is the Community Reinvestment Act is not the only reason for the mortgage-market meltdown, but it must be exposed and take its share of the blame.

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