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Conservatives Blame People of Color for Wall Street Meltdown

Washington Afro, News Report, Zenitha Price Posted: Oct 07, 2008

(October 3, 2008) - Efforts on the part of some conservatives to pin the Wall Street meltdown and the $850 billion rescue tab on the backs of minority homeowners are shameless and spurious, several activists and minority lawmakers said Friday.

That is total bunk, said Kathleen Day, spokeswoman for the Center for Responsible Lending, a public interest group. I think this is an effort by extremists who are embarrassed that their economic model of little regulation and oversight failed miserably, so theyre trying to deflect blame to the victims.

The recent toppling of Fannie Mae, Freddie Mac, several investment banks, an insurance giant and other firms has been traced to the proliferation of subprime mortgages, which lenders packaged with securities and sold in the financial markets at great profits.

Some homeowners were assured they could afford the high-interest, adjustable loans as long as housing prices continued to rise. When the market crashed, however, many homeowners defaulted on their loans and companies were left with devalued securities. The resulting instability on Wall Street and the ripple effect on the American economy precipitated the need for government intervention.

But throughout the debate on the recently passed bailout plan, however, conservative lawmakers, pundits and bloggers on Capitol Hill, the airwaves and the Web placed blame on the Community Reinvestment Act, which was enacted in 1977 to eradicate discrimination in lending, saying it encouraged imprudent lending.

John Wallace, of the conservative New York Campaign for Liberty, wrote an Oct. 3 opinion piece on newsblaze.com titled, The Great Mortgage Swindle. He contended that the CRA was an attempt by the government to intrude into the free-market mortgage business through the introduction of welfare state type legislation.

The CRA required banks and other lending institutions to make extraordinary efforts to give loans to communities of color, disregarding sound economic and risk guidelines that were so successful in the past, Wallace posits. In the name of ending alleged discrimination, members of these communities of color were no longer required to provide all of the standard mortgage documents such as verification of income, proof of employment, credit history, or even provide a down payment. Even if that were true, it was lenders not applicants that okayed questionable loans.

In her statements on the floor, Rep. Michele Bachmann (R-Minn.) struck out against the law, quoting an Investor's Business Daily article that said banks made loans "on the basis of race and little else."

Members of the Congressional Asian Pacific American Caucus (CAPAC), the Congressional Black Caucus (CBC) and the Congressional Hispanic Caucus (CHC) said in a joint statement Friday that such claims were not only offensive to their 72 members and their constituents, but also false.

I am angered by the blame and burden put onto our minority communities for the current financial crisis, said Rep. Mike Honda (D-Ca.), chair of CAPAC. The CRA law requires that all CRA lending activities be executed through responsible and safe lending practices. To put further blame onto the victims of this financial crisis is cruel and borders on just plain bigoted.

Day, the public interest official, said opponents of the Act were purposefully and knowingly confusing the facts.

According to studies by the Center for Responsible Lending, the University of North Carolina at Chapel Hill Center for Community Capital and other organizations, the subprime mortgage meltdown was the result of risky loans, not risky borrowers.

Several facts about the CRA defy the claims of its opponents.

For one thing, the Act was a response to redlining, a deliberate decision by commercial banks to withhold credit from minority communities in the 1960s and 1970s, more than three decades before the subprime mortgages gained traction.

To put further blame onto the victims of this financial crisis is cruel and borders on just plain bigoted.

Also, 50 percent of subprime loans were made by finance companies that do not have to comply with CRA. And it was these lenders that precipitated the collapse. Another 30 percent of subprime loans were made by bank subsidiaries or thrifts, which can choose to include those loans in their CRA rating.

Claims that the foreclosure crisis was caused by Blacks and Latinos who gobbled up loans they knew they couldnt afford have also been debunked. Data from the Home Mortgage Disclosure Act (HMDA) from 2005-2007, revealed that while low-income and minority groups have suffered from the products peddled by predatory lenders, it was White and affluent borrowers who took out most of the subprime loans. White borrowers took out 58 percent of higher-cost loans, while Blacks and Latinos account for 18 percent each.
And, an August 2008 analysis by Compliance Technologies, a lending-industry consultancy, revealed that of 1.9 million subprime loans originated in 2006, 39 percent went to upper-income borrowers, defined as those whose annual income met or exceeded 120 percent of their areas median income.

Such facts underline just how unacceptable and un-American such conjecture has been, said CBC Chair Rep. Carolyn Kilpatrick.

Rep. Joe Baca (D-Ca.), chair of the CHC, agreed.

The baseless claims made by some that minorities and home loans given to minority families are responsible for the current economic crisis are not only patently false, but also divisive and hateful, said Baca. Predatory lending and greed are the root causes of the current downturn. To place the blame on those most victimized by these very practices is scapegoating of the worst kind and offends every sense of truth and moral responsibility.

In a letter to Treasury Secretary Henry Paulson, National Urban League President/CEO Marc Morial called for the Bush administration official to put a stop to the spread of such misinformation.

He wrote, History provides too many lessons about the consequences of singling out only certain segments of the population as culprits of the countrys woes. You have a moral obligation to remember these lessons and do what is necessary to extinguish the flames of history.

Related Articles:

Black Lawmakers on the Bailout

Democrats' Hands Arent Clean in the Financial Mess

Working For Peanuts -- Downturn Hits the Streets of New York

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