The Community Reinvestment Act – Who’s to Blame

Barney Frank Rewriting History

Barney Frank blames Republicans for the failure of the Community Reinvestment Act.  “It’s part of a pattern in which the Republicans who were the ones responsible for Fannie Mae and Freddie Mac during the bad times incredibly tried to blame us. Newt Gingrich was Speaker of the House in 1995 through 1998, for four years. during that period, he never moved anything to restrain Fannie Mae and Freddie Mac. His fellow Republicans continued to control Fannie Mae and Freddie Mac until the end of the 2006. George Bush tried to get Congress to do something about Fannie Mae and Freddie Mac, although he was contradictory there and the Republicans refused. Nothing happened to restrain those two entities from doing things they shouldn’t have been doing until Chris Dodd became chair of the committee,” Rep. Barney Frank (D-MA) told MSNBC.

Beginning in 1992, according to the WSJ, the government required Fannie Mae and Freddie Mac to direct a substantial portion of their mortgage financing to borrowers who were at or below the median income in their communities. The original legislative quota was 30%. But the Department of Housing and Urban Development was given authority to adjust it, and through the Bill Clinton and George W. Bush administrations HUD raised the quota to 50% by 2000 and 55% by 2007.

It is certainly possible to find prime borrowers among people with incomes below the median. But when more than half of the mortgages Fannie and Freddie were required to buy were required to have that characteristic, these two government-sponsored enterprises had to significantly reduce their underwriting standards.

The Federal Housing Administration was competing with Fannie and Freddie for the same mortgages. And thanks to rules adopted in 1995 under the Community Reinvestment Act, regulated banks as well as savings and loan associations had to make a certain number of loans to borrowers who were at or below 80% of the median income in the areas they served.

Research by Edward Pinto, a former chief credit officer of Fannie Mae (now a colleague of mine at the American Enterprise Institute) has shown that 27 million loans—half of all mortgages in the U.S.—were subprime or otherwise weak by 2008. That is, the loans were made to borrowers with blemished credit, or were loans with no or low down payments, no documentation, or required only interest payments.

Of these, over 70% were held or guaranteed by Fannie and Freddie or some other government agency or government-regulated institution. Thus it is clear where the demand for these deficient mortgages came from.

Peter Wallison on how reckless government policies caused the financial crisis.

The huge government investment in subprime mortgages achieved its purpose. Home ownership in the U.S. increased to 69% from 65% (where it had been for 30 years). But it also led to the biggest housing bubble in American history. This bubble, which lasted from 1997 to 2007, also created a huge private market for mortgage-backed securities (MBS) based on pools of subprime loans.

Warnings about Fannie and Freddie Mac

Republicans asking for the regulation of Fannie and Freddie

Barney Lying



Barney Frank and Bill O’Reilly Smackdown