To understand what's going on in this meltdown, you need to understand about the CRA. The melt-down has other roots, but the CRA is critical to what has happened over the years and, along with its related Federal acts, must be dealt with to prevent more problemsThis post is worth reading. Even if the formatting is a bit frustrating.
Two of my sons who work in the financial sector say that the start of the current problems was the Community Reinvestment Act (CRA) of 1976. It was the bad loans mandated by CRA that were bundled together and sold as investments, involving Fannie Mae and Freddie Mac. As a consequence, there is no way to correctly value these bundles of loans. Closely related to the CRA are the Equal Credit Opportunity Act (ECOA), the Home Mortgage Disclosure Act (HMDA), and the Fair Housing Act (FHA).
The CRA was proposed during the Carter years by Sen Proxmire to eliminate redlining. The major justification for CRA was the perceived unfairness of using bank deposits in poorer areas to provide loans to people who lived outside of the depository's geographic area. The remedy was CRA which requires "geographic credit allocation" that has no relation to the market and little relation to the credit-worthiness of borrowers or the true value of collateral.
I wonder if black communities were better off with out the CRA? Especially since a neighborhood like Chatham had a locally owned bank to provide loans and such to area residents. Is it worth it to force a big downtown bank to provide lending services to a depressed community?
Don't get me wrong certainly we can do without this idea of redlining, especially if it's done in an indiscriminate way that treats black middle-class neighborhoods the same as poor black neighborhoods. Still would the CRA be much good if loans weren't at some point offered to people who couldn't afford them?