[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
                        PROPOSALS TO ENHANCE THE 
                       COMMUNITY REINVESTMENT ACT 

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 16, 2009

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 111-74
                           
                               ----------
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York         PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois          EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina       RON PAUL, Texas
GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California             WALTER B. JONES, Jr., North 
GREGORY W. MEEKS, New York               Carolina
DENNIS MOORE, Kansas                 JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West 
WM. LACY CLAY, Missouri                  Virginia
CAROLYN McCARTHY, New York           JEB HENSARLING, Texas
JOE BACA, California                 SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts      J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina          JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia                 RANDY NEUGEBAUER, Texas
AL GREEN, Texas                      TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri            PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois            JOHN CAMPBELL, California
GWEN MOORE, Wisconsin                ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire         MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota             KENNY MARCHANT, Texas
RON KLEIN, Florida                   THADDEUS G. McCOTTER, Michigan
CHARLES A. WILSON, Ohio              KEVIN McCARTHY, California
ED PERLMUTTER, Colorado              BILL POSEY, Florida
JOE DONNELLY, Indiana                LYNN JENKINS, Kansas
BILL FOSTER, Illinois                CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana                ERIK PAULSEN, Minnesota
JACKIE SPEIER, California            LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York

        Jeanne M. Roslanowick, Staff Director and Chief Counsel


















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 16, 2009...........................................     1
Appendix:
    September 16, 2009...........................................    57

                               WITNESSES
                     Wednesday, September 14, 2009

Aguilar, Orson, Executive Director, The Greenlining Institute....    46
Andersen, Leslie R., President and Chief Executive Officer, Bank 
  of Bennington, on behalf of the American Bankers Association 
  (ABA)..........................................................    44
Antonakes, Hon. Steven L., Commissioner of Banks, Commonwealth of 
  Massachusetts..................................................    14
Johnson, Hon. Eddie Bernice, a Representative in Congress from 
  the State of Texas.............................................     1
Kennedy, Judith A., President and Chief Executive Officer, 
  National Association of Affordable Housing Lenders (NAAHL).....    39
Pinto, Edward J., Real Estate Financial Services Consultant......    43
Roberts, Benson F., Senior Vice President for Policy and Program 
  Development, Local Initiatives Support Corporation (LISC)......    19
Stegman, Michael A., Ph.D., Director, Policy and Housing, John D. 
  and Catherine T. MacArthur Foundation..........................    41
Taylor, John, President and Chief Executive Officer, National 
  Community Reinvestment Coalition (NCRC)........................    17
White, Lawrence J., Professor of Economics, Leonard N. Stern 
  School of Business, New York University........................    15

                                APPENDIX

Prepared statements:
    Johnson, Hon. Eddie Bernice..................................    58
    Aguilar, Orson...............................................    61
    Andersen, Leslie R...........................................    67
    Antonakes, Hon. Steven L.....................................    78
    Kennedy, Judith A............................................   144
    Morial, Marc H...............................................   156
    Pinto, Edward J..............................................   162
    Roberts, Benson F............................................   170
    Stegman, Michael A...........................................   176
    Taylor, John.................................................   186
    White, Lawrence J............................................   231

              Additional Material Submitted for the Record

Frank, Hon. Barney:
    Excerpt from Bloomberg.com, dated June 17, 2004..............   239
Cleaver, Hon. Emanuel:
    Text of H.R. 1728............................................   241
Watt, Hon. Melvin:
    CRA Statute..................................................   246
Written statement of David Hanzel, Director, ANHD INC............   253
Remarks by FDIC Chairman Sheila Bair to The New America 
  Foundation conference: ``Did Low-Income Homeownership Go Too 
  Far?'': Washington, D.C., December 17, 2008....................   257
Letter to Senator Robert Menendez from Chairman Ben Bernanke, 
  Board of Governors of the Federal Reserve System, dated 
  November 25, 2008..............................................   261
Letter to Chairman Frank from Daniel A. Mica, President & CEO, 
  the Credit Union National Association (CUNA), dated September 
  16, 2009.......................................................   263
HUD Housing Counseling Grant Funding for ACORN Housing 
  Corporation 2001-2008..........................................   280
Written statement of the Independent Community Bankers of America 
  (ICBA).........................................................   281
Written statement of the National Alliance of Community Economic 
  Development Associations (NACEDA)..............................   288
Written statement of the National Association of Federal Credit 
  Unions (NAFCU).................................................   292
Written statement of National People's Action....................   296


                        PROPOSALS TO ENHANCE THE
                       COMMUNITY REINVESTMENT ACT

                              ----------                              


                     Wednesday, September 16, 2009

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:08 a.m., in 
room 2128, Rayburn House Office Building, Hon. Barney Frank 
[chairman of the committee] presiding.
    Members present: Representatives Frank, Waters, Maloney, 
Gutierrez, Watt, Moore of Kansas, McCarthy of New York, Baca, 
Lynch, Miller of North Carolina, Scott, Green, Cleaver, 
Ellison, Klein, Wilson, Perlmutter, Donnelly, Foster, Carson, 
Adler, Himes, Maffei; Bachus, Royce, Manzullo, Biggert, Capito, 
Hensarling, Neugebauer, Bachmann, Marchant, McCarthy of 
California, Posey, Jenkins, Lee, Paulsen, and Lance.
    The Chairman. The hearing will come to order. And I am 
going to make a proposal. We have a lot of interest here, and 
so we are going to expand the opening statements to 40 minutes, 
but I wonder if we would have unanimous consent to let our 
colleague Ms. Johnson speak first and then do the opening 
statements.
    So Congresswoman Johnson is one of a number of Members who 
has had a great interest in this, our colleague Congresswoman 
Waters and others have been very much in the forefront here. 
Congresswoman Johnson has filed a very comprehensive bill to 
improve and expand the Community Reinvestment Act (CRA) and it 
really makes me appreciate your being here and we will take 
your statement now. So please go ahead.

      STATEMENT OF THE HONORABLE EDDIE BERNICE JOHNSON, A 
       REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

    Ms. Johnson. Thank you very much, Mr. Chairman. Good 
morning, and to also Ranking Member Bachus and members of the 
committee. I am honored to testify on behalf of enhancing and 
modernizing the Community Reinvestment Act.
    I represent an extremely diverse congressional district 
that includes low- and moderate-income areas as well as the 
very wealthiest neighborhoods in Dallas County, Texas. 
Neighborhoods in my district have historically been subject to 
redlining by banks, which is the practice of denying loans and 
services to people based on where they happen to live. Congress 
has passed a number of laws designed to combat redlining and 
eliminate housing discrimination, and the CRA is one such law 
that helps to ensure equal services to all people. 
Unfortunately, we all know that redlining still occurs, and I 
am here to discusses some of my concerns with the current law 
and the need for modernization.
    The CRA encourages banks to invest in the communities in 
which they operate. It is an established system to monitor and 
rate the way in which banks lend to all their customers, for 
home mortgages, small business creation, and economic 
development. The CRA uses the mechanism of public 
accountability to achieve its goals rather than impose quotas 
or set specific credit targets. It rates banks on their 
practices, making them more transparent. The CRA also enables 
Federal institutions that examine banks to delay or deny a 
bank's request to merge with another lender, open a branch or 
extend any of its services, depending on its CRA rating.
    The CRA currently applies only to banks and thrifts. It 
does not apply to any of the financial institutions that lend 
money, like bank affiliates and independent mortgage companies. 
During the financial downturn, people have blamed the CRA and 
its low- and moderate-income recipients of loans for the 
meltdown in the housing market and thus the financial crisis. 
However, the facts tell a different story. The vast majority of 
subprime loans originated at independent mortgage companies and 
bank affiliates, 75 percent or more by most accounts.
    Most subprime lending occurred between 2003 and 2007, 
decades after the CRA became law in 1977. All stakeholders 
agree that CRA has worked, banks are making money. Since 1996, 
banks under CRA have made community development loans totaling 
more than $407 billion. They have also made $581 billion in 
small business loans in low- and moderate-income neighborhoods 
from 1996 through 2007.
    In 2007, in my district alone, nearly 200,000 CRA-covered 
small business loans were made valued at over $4.4 billion. 
Over 73,000 CRA-covered small business loans were given to 
small businesses with revenues of less than a billion dollars. 
Over 12,000 CRA-covered prime home loans were originated, 
equaling over $1.1 billion.
    One important outcome of the enactment of CRA is that 
responsible lending in these communities is profit for banks 
and thrifts. The truth about CRA is that it encourages prime 
lending. It offers incentives for safe and sound loans and 
foreclosure prevention efforts, including counseling for loan 
recipients, modifying loans, and investing in funds that 
finance loan modification. CRA also penalizes banks and thrifts 
through reduced CRA ratings if they engage in predatory or 
discriminatory lending or lending or services that have a 
negative impact on the community.
    CRA has thus been an extremely successful law. However, CRA 
needs to be updated. Representative Luis Gutierrez and I have 
introduced H.R. 1479, the Community Reinvestment Modernization 
Act. The CRA Modernization Act increases the responsiveness and 
accountability of banks to all communities, rural as well as 
urban. It would require CRA exams in the great majority of 
geographical areas that banks serve. Currently, CRA examines 
banks in areas where they have branches, but not in other areas 
where they lend through brokers. This bill would address racial 
disparities and lending by requiring CRA exams to explicitly 
consider lending and services to minorities in addition to low- 
and moderate-income communities. The bill also requires the 
reporting of race and gender borrowers of small business loans 
and would require data collection of deposit and savings 
accounts.
    This bill has worked. It would require the Federal Reserve 
Board to create a database from foreclosures and loan 
modifications, which would be linked to the Home Mortgage 
Disclosure Act data.
    The rating system of CRA exams would be enhanced and banks 
would be required to submit public improvement plans that are 
subject to public comment when they earn low ratings in any of 
the service areas. The Federal regulatory agencies would be 
required to hold more meetings and public hearings when banks 
merge and when banks seek to close branches.
    The CRA Modernization Act would establish CRA requirements 
for all affiliates and subsidiaries of banks, independent 
mortgage companies, mainstream credit unions, insurance 
companies, and securities firms. And this is not to say that 
many of them are in compliance with CRA without having the 
responsibility. But any type of loophole that could be found 
would be sought by financial institutions. So that is why it 
covers all of these entities.
    In 2006, in my district in Dallas County, 72 percent of all 
black and 56 percent of all Hispanic borrowers were issued 
subprime loans, whereas 28 percent of all loans to Anglo 
borrowers were subprime. Even middle- and upper-income 
minorities experienced significant lending disparities. During 
2007, in my district, 32 percent and 28 percent of the loans to 
middle- and upper-income African Americans and Hispanic women 
borrowers were high cost, whereas 17 percent of the loans were 
high cost to Anglo middle- and upper-income women.
    The high black and Hispanic lending disparities are driven 
by non-CRA-covered institutions. These disparities are not only 
occurring in my district, they are occurring in communities 
across the United States. It is happening to all of our 
constituents. Most likely it is happening to yours when you 
check the record.
    This year Representative Gutierrez and I introduced the CRA 
Modernization Act, which updates the current 32-year-old law to 
reflect the modern financial landscape, and I hope this hearing 
will bring much needed awareness and attention to long overdue 
CRA reform. I believe by modernizing CRA we will see fewer home 
foreclosures and see smart and safe investments in our 
communities, exactly what our struggling economy needs right 
now.
    And again I would like to thank you, Chairman Frank, and 
Ranking Member Bachus, and members of the committee for 
allowing me to testify on behalf of enhancing and modernizing 
the Community Reinvestment Act. Thank you very much.
    [The prepared statement of Representative Johnson can be 
found on page 58 of the appendix.]
    The Chairman. Thank you, Representative Johnson. And this 
is an issue that will be on the agenda of this committee. As 
people know, we will be for the next couple of months focused 
legislatively on the whole question of financial 
reorganization, but the question of the CRA and, in my 
judgment, making it more effective, improving a good program, 
will be one of the first things we will turn to later this year 
or early next year.
    I thank you. The witness is excused and I will now begin--
    Mr. Bachus. Mr. Chairman, I would like to say, 
Congresswoman Johnson, one of the most pleasurable evenings I 
have ever spent was you and I and one or two others dining in 
Abuja some years ago, and that was a delightful night. And I 
think CODELs, although they are sometimes criticized, I think 
they give Members the opportunity sometimes to discuss issues 
and get to know one another and their different points of view. 
I just wanted to express my respect for you.
    Ms. Johnson. Thank you very much. I do remember that; it 
was pleasant.
    The Chairman. I thank the gentleman. And we will begin on 
our side with the gentleman from Texas, Mr. Green, for 3 
minutes.
    Mr. Green. Thank you. Mr. Chairman, I would like to thank 
Representative Johnson, a fellow Texan also, for her testimony 
and for this legislation that she has put before us.
    Mr. Chairman, I would like to thank you as well and other 
members, the ranking member for this hearing. I think it is 
exceedingly important. I think it is important because it gives 
us an opportunity to not only look at the expansion of the CRA, 
but also to talk about some of the things that the CRA has done 
to be of benefit to us and to eliminate some of the confusion 
that surrounds the CRA.
    The CRA was started and implemented in 1977 because of 
redlining, some areas not able to get loans. CRA mandates that 
loans be made with safety and soundness in mind. It is 
important to note that the CRA did not create 3/27s and 2/28s, 
did not create prepayment penalties that coincided with teaser 
rates, that the CRA did not require large balloons. The CRA has 
always been an entity, a piece of legislation, if you will, 
that dealt with safety and soundness. And it is unfortunate 
that there is so much confusion surrounding the CRA, but I do 
thank God for Chairman Bernanke, who has indicated that the CRA 
was not the cause of the current crisis. Comptroller of the 
Currency John Dugan has so much as indicated that the CRA is 
not the culprit behind the subprime mortgage crisis. And of 
course, Chairwoman Sheila Bair has indicated that the CRA is 
not at the root of this crisis. And I think this affords us an 
opportunity to determine how we can expand upon it and make it 
an even greater benefit to us.
    Finally, I am concerned that at a time when the CRA can be 
of great benefit we find that some banks, by way of anecdotal 
evidence, and I do hope that we can get some empirical evidence 
today, by way of anecdotal evidence, are cutting back on their 
CRA efforts, they are cutting back on their CRA department. 
Some banks are doing quite well with it, but there are others 
who have persons who are sort of token CRA representatives who 
do other things within the bank and the CRA is a part-time 
effort.
    I think that this is a time for us to strengthen the CRA, 
not weaken it, and I appreciate this opportunity, Mr. Chairman, 
and yield back the balance of my time.
    Mr. Gutierrez. [presiding] Congressman Royce, you are 
recognized for 4 minutes.
    Mr. Royce. Thank you very much, Mr. Chairman. According to 
Larry Lindsey, who is a former Federal Reserve Governor, while 
the CRA was not the main culprit in the financial collapse, 
they certainly played a role. And in fact Mr. Lindsey said CRA 
regulations actually led to the creation of subprime mortgages. 
As Mr. Lindsey recently described, during the housing boom 
years, it would have been a real, in his words, ``CRA black 
eye'' for a bank to reduce the number of loans it was making in 
a particular area. However, given that the most creditworthy 
borrowers had already received loans, a less creditworthy group 
had to take their place. So the former Federal Reserve Governor 
goes on to note the role that CRA played in the development in 
the noncomforming secondary mortgage market, which included 
subprime mortgages.
    Whether or not you believe CRA may have been this 
significant a contributor to the financial collapse, moving 
forward, I think one of the things that it is critical that we 
discuss here in this committee is to answer a key question, 
does CRA require a bank to make loans that are less 
creditworthy than those the financial institution is making 
elsewhere? I think that is something that the panelists might 
want to think on a little bit, who are going to talk to us in a 
minute. If this is in fact the case, I believe a fundamental 
reform of CRA is in order. Providing credit to creditworthy 
borrowers is a useful concept that was abandoned during the 
housing boom. While this took place throughout the financial 
system, Congress should not be actively discouraging this 
practice.
    Similarly, government mandates in the form of affordable 
housing goals led the GSEs to purchase over $1 trillion in 
subprime loans and Alt-A loans, $1 trillion. Beyond causing the 
failure of Fannie Mae and Freddie Mac, and by the way when I 
say failure of Fannie and Freddie, that was 80 percent of the 
losses right there for those two GSEs. Besides doing that, the 
proliferation of these loans was a major contributor to the 
financial collapse.
    Artificial government enforced mandates based on altruistic 
goals have a tendency to result in unintended consequences and 
cause more harm than good. Instead of looking to the ways in 
which we could expand the number of institutions that must 
abide by CRA regs, I think we should reassess the role of this 
and other government mandates and reassess the role 
specifically that this played in the financial collapse and 
consider scaling them back and relying more on the market in 
these kinds of circumstances.
    And I would just like to quote from an article in the L.A. 
Times on October 25, 2008, ``ACORN, for example, has used the 
CRA as leverage to compel banks to create pools of loans for 
low- and moderate-income families. Its efforts generated about 
$6 billion in loans to these borrowers while also generating 
funds for ACORN's nonprofit housing corporation. Supporters 
call that a win-win scenario, critics say it is legalized 
extortion.''
    Now many have also noted their ability to stall mergers 
between financial institutions with complaints that are filed 
by CRA. In fact, according to Stanley Kurtz, a senior fellow at 
the Ethics and Public Policy Institute, ``Bank merger or 
expansion plans rarely held up under CRA until the late 1980s 
when ACORN perfected its technique of filing these CRA 
complaints.''
    So whether or not as enthusiasts for CRA you believe that 
they played a role in the financial problems, I think we do 
come back to that question: Is CRA being used by activist 
organization like ACORN to generate funds from financial 
institutions? It seems to me undebatable that the observation 
made by the Ethics and Policy Institute fellow there is in fact 
spot on in terms of the methodology here.
    I would just like to close by quoting from ``The Housing 
Boom and Bust,'' by Tom Sowell, author of ``Basic Economics.'' 
But Sowell quotes in here on page 66 of ``The Housing Boom and 
Bust,'' ``Mortgages made under the Community Reinvestment Act 
were especially vulnerable during the housing downturn to the 
detriment of both borrowers and lenders. For example, lending 
done under Community Reinvestment Act criteria, according to a 
quarterly report in October 2008, constituted only 7 percent of 
the total mortgage lending by the Bank of America, but 
constituted 29 percent of all the losses on the mortgages.''
    So again, you just have an enormously disproportionate 
amount of the loss here coming from the CRA loans.
    And thank you, Mr. Chairman.
    The Chairman. You are welcome. Next, will be the Chair of 
the Subcommittee on Financial Institutions and a coauthor of 
the bill that Representative Johnson referred to, the gentleman 
from Illinois, Mr. Gutierrez, for 3 minutes.
    Mr. Gutierrez. Thank you, Chairman Frank, for holding this 
very important hearing, positive changes in our banking system. 
We will be having a hearing on Congresswoman Johnson's bill in 
our subcommittee. Give her time to do that and we will look at 
community reinvestment and the reauthorization and 
strengthening.
    Look, over the past 31 years, the Community Reinvestment 
Act succeeded in opening up our banking system to communities 
and consumers who had been excluded from the mainstream banking 
system. By giving all our communities access to savings 
accounts, affordable mortgages, and student loans, the 
Community Reinvestment Act has helped many families achieve 
their own American dream.
    Everybody would think that CRA is only about mortgages. 
There is a lot more than simply mortgages. There remain, 
however, some who still question, as we have heard here this 
morning, the value of CRA and those who would blame the current 
crisis on this landmark legislation.
    I want to address those who would state or insinuate that 
CRA caused the crisis with a quote from Sandra Braunstein, the 
Director of the Division of Consumer and Community Affairs of 
the Federal Reserve System. And she did this right here in this 
committee room on March 11th, ``We have run data on CRA 
lending, and where loans are located we found that only 6 
percent of all higher cost loans were made by CRA-covered 
institutions and neighborhoods targeted, which would be low- to 
moderate-income neighborhoods covered by CRA. So I can tell 
you, she ends, if that is where you are going, CRA was not a 
cause of this loan crisis.''
    Furthermore, at the same hearing Michael Middleton, the 
president of Middleton Bank and speaking on behalf of the 
American Bankers Association, stated, ``We really find that CRA 
is a tool, not an obstacle.'' And I mention also that all our 
affordable loans are current, none of them are in default at 
his bank.
    So let all of those who would question the efficacy and 
value of CRA during this hearing keep those two quotes in mind.
    I also notice some of you here want the CRA to be included 
in the legislation moving forward to create the Consumer 
Financial Protection Agency. While the impulse to strengthen 
the enforcement provisions of CRA are noble, this is such an 
important issue that we should not chance weakening it by 
including it in a larger regulatory reform package.
    Early in this Congress, I pledged to Congresswoman Johnson 
and members of the National Community Reinvestment Coalition 
that I would hold a hearing on H.R. 1479, and I renew that 
pledge today. This fall that hearing will take place on that 
very important legislation. I look forward to that opportunity.
    And lastly, let me just state that statistically the 
question that Congressman Royce raised, is it necessary to give 
out these kinds of loans that are risky loans and that are 
subprime, that the subprimes, that they pushed these subprimes 
to meet their CRA. The fact is that hundreds of millions of 
dollars in mortgages were given to Latinos and African 
Americans that were subprime and they qualified for 
conventional, not subprime loans. So the community exists 
because the fact existed in the past, subprime loans are pushed 
on communities not because of CRA, but to exploit those 
communities.
    Thank you very much, Mr. Chairman.
    The Chairman. Next the gentleman from Texas, Mr. 
Hensarling, for 6 minutes.
    Mr. Hensarling. Thank you, Mr. Chairman. I do look forward 
to hearing from our witnesses, but I must admit with three 
different panels, I do note the absence of ACORN. ACORN has 
been a very vocal supporter of CRA, they have certainly 
appeared before this committee before, but I guess between 
countless acts of voter fraud, shakedowns of financial 
institutions, offering counsel on how to set up tax-evading 
brothels exploiting teenage girls, not to mention picking up 
tens of millions of dollars in taxpayer subsidies, I suppose 
they just found themselves too busy to make time to appear 
before us today.
    Regardless the subject before us is a serious one, I 
believe that the Community Reinvestment Act has had a proud 
genesis. Thirty-two years ago, in 1977, redlining was clearly 
not insignificant. Too many low-income and minority 
individuals' credit opportunities were simply limited to a 
handful of banks that might have been reachable on a city bus 
route. Thirty-two years later, much has changed. Interstate 
banking, branch banking, Internet banking, and risk-based 
pricing have helped revolutionize and democratize credit as 
never before. If you can gain access to a public library 
Internet or a toll-free line you can unlock countless, 
countless opportunities for credit cards and home loans that 
would have been unthinkable 32 years ago.
    Market competition from companies like Lending Tree and 
bankreg.com, cardhub, and many others, now provide low-income 
Americans with a platform to access competitive bids on 
financial products all across the United States of America, not 
just in localized communities.
    Now unfortunately the recession, not to mention legislation 
passed by this committee regarding home mortgages and credit 
cards, continues to erode credit opportunities for many low-
income Americans. This is regrettable. But that brings us to 
the great irony of this hearing: 32 years ago, if you look at 
the Congressional Record, the debate surrounding CRA was that 
discriminating financial institutions were denying credit 
opportunities to low-income individuals and minorities. Today, 
the debate is about greedy financial institutions exploiting 
low-income individuals and minorities by making too much credit 
available to those communities. So it somewhat begs the 
question, which is it, is it too much credit or is it not 
enough credit? I find it difficult to have it both ways.
    Regardless of what CRA was, today it is a costly and 
redundant anachronism that has contributed to our economic 
crisis and still enables certain activist groups to 
functionally shake down and intimidate financial institutions 
harming credit opportunities for all Americans.
    The Federal Reserve data has shown that well over 99 
percent of banks are already in full compliance with CRA, and 
studies show that community banks throughout America can spend 
anywhere from $20,000 to $90,000 a year to comply. So alluding 
to the testimony of the gentleman from California, it begs the 
question, are we simply having banks pay these great sums of 
money to prove that they are doing something that they would do 
anyway or are we forcing them to make loans that are not 
financially stable loans and that indeed contributed to our 
economic crisis? One should be very, very careful.
    When we talk about CRA loans contributing to the economic 
crisis, I have long contended it wasn't the size of the loans, 
it was the precedent of the loan, the precedent of having the 
United States Government put their imprimatur on a system that 
did not raise up the economic opportunities of the borrower, 
but instead lessened the credit standards of the lender. And we 
know for a fact it was in 1997 that the GSEs and CRAs converged 
in a landmark event, the first securitization of CRA loans, a 
$384 million offering guaranteed by Freddie Mac. Over the next 
10 months, Bear Stearns issued $1.9 billion of CRA mortgages 
backed by Fannie or Freddie. In between 2000 and 2002, the 
business accelerated. Fannie issued $20 billion in securities 
backed by CRA mortgages, and I believe the rest is history.
    Now when we get back to compliance cost, every community 
banker I speak to tells me that if they simply had the money 
that they are spending on the compliance cost, they could 
instead capitalize at least a couple of small businesses in 
their communities. And we know the facts. Since President Obama 
was inaugurated, and the Congress passed his economic plan, 
over 3 million of our countrymen have now lost their jobs and 
we have the highest unemployment rate in a quarter of a 
century, not to mention a tripling of the national debt.
    Now one thing our committee could do that would take a huge 
step in creating more jobs in America is to simply repeal the 
CRA. To help those of low income, we must increase their 
economic opportunities, not decrease the lending standards. And 
to fight discrimination, does anybody really doubt the Obama 
Administration will not vigorously enforce the Equal 
Opportunity Act and the Fair Housing Act? I think not. I think 
it is time to repeal CRA.
    I yield back the balance of my time.
    The Chairman. I yield myself 30 seconds, and I yield 3\1/2\ 
minutes to the gentlewoman from California just to say, no, 
ACORN hasn't testified here for a while, and while we talk 
about money for ACORN, I have asked the committee staff to look 
into the largest single source of funding for ACORN of which I 
am aware, the Bush Administration. Under the Presidency of 
George Bush, ACORN received more than $8 million from HUD, 
having nothing to do with the CRA of course. ACORN got $8 
million from HUD under the Bush Administration, averaging about 
a million dollars a year, for work and housing counseling. I 
have asked that we check in other areas. But as I said, the 
Bush Administration so far appears to me to have been the 
largest single source of funding.
    Mr. Hensarling. Would the gentleman yield?
    The Chairman. I will yield to the gentleman.
    Mr. Hensarling. Well, knowing our chairman's predilection 
to want to break precedent with anything that President Bush 
did, I would offer that perhaps this is a great opportunity.
    The Chairman. Oh, I understand that. No, I realize the 
gentleman may be a little embarrassed about this, because we 
have heard all this denunciation of ACORN, and in fact it was 
the Bush Administration that was a major funder of it and gave 
them over a million dollars a year just in that one program. I 
don't believe they are now getting the same amounts, I am not 
aware of it, but of course the Obama Administration has not had 
time to do very much. The fact is that in every year of the 
Bush Administration, ACORN got more than $1 million in funding 
for HUD. And I just have this--I understand that some of my 
colleagues think the world was created 4,000 years ago and that 
evolution is wrong, but it wasn't created on January 21, 2009. 
There was a history of these events and part of that history is 
a significant finding stream to ACORN from the Bush 
Administration.
    The gentlewoman from California.
    Ms. Waters. Thank you very much, Mr. Chairman, and members. 
I knew that when we held this hearing this morning that ACORN 
would be at the center of the discussion because of all of the 
news that is being shared with the world about an undercover 
operation that has taken place where there is an attempt to 
prove that ACORN is a criminal enterprise or organization that 
is receiving money from the Federal Government. We don't know 
what has taken place in that undercover operation by private 
conservatives. Let the investigation go on, but that should not 
interfere with or in any way intimidate us in our pursuit of 
equality in the mortgage lending area. We are here to talk 
about CRA and a bill that is being offered by Congresswoman 
Eddie Bernice Johnson, and I think it is good that we take the 
opportunity to discuss CRA every year, every 2 years, to see 
what it is doing, whether or not it is living up to the mission 
that was created for it by this committee or whether or not we 
need to strengthen CRA to make sure that opportunities are 
being made available to those who have been excluded 
historically and traditionally.
    And so let me just say this. The business about the CRA 
being responsible for the economic crisis or the subprime 
meltdown is absolutely not true. To single out CRA and say for 
some--all of these were CRA loans or most of them were CRA 
loans and those loans were given to people who could not afford 
to pay them, pay back those loans and that they were all risky 
loans and they should not have been made, well, that is a 
stretch. As a matter of fact, let me just say and remind 
everyone about redlining and what was taking place prior to CRA 
and CRA enforcement. When I was a member of the California 
State Assembly, we spent an awful lot of time trying to undo 
redlining. This was when financial institutions literally drew 
a line around communities and refused to make loans. And so CRA 
has helped to eliminate that.
    Now, if you want to talk about what causes the subprime 
meltdown, let's take a look at Mr. Mozilo and the threat that 
he made to Fannie and Freddie when he was writing bad loans, 
and they had salespeople on the street literally writing them 
out of the back of their cars without experience and some who 
were committing fraud. If you want to talk about the greed when 
these loans were packaged, securitized, and then Wall Street 
investment saw an opportunity to make money on subprime, if we 
want to get into that discussion, there is a lot that we can 
talk about, but I think it is quite unfair to use this as an 
opportunity to assign all of the problems to CRA.
    Let us move on with the discussion, let us see where we can 
strengthen this. I am not so sure that I am one who would like 
to see it in the consumer financial agency that is being 
created, but let us talk about its success and its failures, 
rather than simply accusing CRA of being responsible for the 
subprime meltdown.
    I yield back the balance of my time.
    The Chairman. The gentlewoman from Minnesota for 4 minutes.
    Mrs. Bachmann. Mr. Chairman, thank you. Stan Liebowitz, the 
Ashbel Smith Professor of Economics at the University of Texas 
at Dallas, said, perhaps the greatest scandal of the mortgage 
crisis is that it is a direct result of an intentional 
loosening of underwriting standards done in the name of ending 
discrimination, despite warnings that it could lead to 
widescale defaults. At the crisis core are loans that were made 
with virtually nonexistent underwriting standards, no 
verification of income or assets, little consideration of the 
applicant's ability to make payments, and no downpayment.
    He went on to state that flexible lending programs expanded 
even though they had higher default rates, the loans with 
traditional standards. And even today on the Web, you can still 
find CRA loans available through ACORN with 100 percent 
financing, no credit scores, undocumented income, even if you 
don't report it on your tax returns.
    In light of recent egregious revelations surrounding ACORN 
and with the American people to date demanding that Congress 
now defund, fully investigate, and pull the tax-exempt status 
of ACORN, including the 11 more arrests of ACORN workers in 
Florida and several undercover videos showing the group engaged 
in giving individuals allegedly illegal tax and housing advice, 
many questions have been raised about whether the banks have 
donated large amounts of money to the organization to satisfy 
their CRA requirements. Right now we do not have enough 
transparency in the CRA system to even understand the extent of 
such donations, and we should take a serious look into that.
    Peter Wallison is a Fellow in financial policy studies at 
the American Enterprise Institute. He said that instead of a 
direct government subsidy, say, for downpayment assistance for 
low-income families, the government has used regulatory and 
political pressure to force banks and other government 
controlled or regulated private entities to make loans they 
would not otherwise make and to reduce lending standards so 
more applicants would have access to mortgage financing. The 
two key examples of this policy are the adopted in 1977 and the 
affordable housing mission of the Government-Sponsored 
Enterprises, Fannie Mae and Freddie Mac.
    And Robert Leiken, who is a Senior Fellow at the Brookings 
Institute and an economic adviser to the Clinton Administration 
on financial industry deregulation in 2008, said, if the CRA 
had not been so aggressively pushed, it is conceivable things 
would not be quite a bad. People have to be honest about that.
    Mr. Chairman, again our committee should be focused on 
preventing another fallout of our financial system and 
revisiting the CRA to fully determine the role it played, that 
should be a part of the process. Our committee should be 
focused on preventing another fallout of the financial system, 
and discussion of the CRA would be to fully determine the role 
it played in the financial crisis. To discuss expansion at this 
level now is truly irresponsible.
    I want to thank everyone who is here, and I also thank the 
chairman for the opportunity to raise these issues, and I yield 
back.
    The Chairman. I am always glad to give the gentlewoman from 
Minnesota a chance to raise her issues.
    The gentleman from Georgia for 2 minutes.
    Mr. Scott. Thank you, Mr. Chairman.
    I certainly take strong issue with what has been said on 
the other side, with all due respect. I think it is a cheap 
shot to try to connect what is happening over there at ACORN 
with the CRA. This is a very credible program. Let me just 
share with you what Federal Reserve Chairman Ben Bernanke says 
about this. He says, ``Our own experience with CRA over more 
than 30 years and recent analysis of available data, including 
data on subprime loans performance, runs counter to the charge 
that CRA was at the root of or otherwise contributed in any 
substantial way to the current mortgage difficulties.''
    Comptroller of the Currency John Dugan said, ``The CRA is 
not the culprit behind the subprime mortgage crisis or the 
broader credit quality issues in the marketplace.''
    And FDIC Chairman Sheila Bair said, ``I think we can agree 
that a complex interplay of risky behaviors by lenders and by 
borrowers and investors, that is what led to the current 
financial storm. To be sure, there is plenty of blame to go 
around. However, I want to give you my verdict on the CRA: Not 
guilty.''
    This is what the leaders of our system are saying, with all 
due respect, and I think if you are going to measure CRA, let's 
measure them right. Let's measure them by what their results 
have been in helping with a tremendously difficult issue, and 
that has been to go in and stop the redlining and 
discrimination of low-income and minority communities. They 
have done an excellent job, and we need to move forward and 
reenergize the CRA, and I yield back the balance of my time.
    The Chairman. We have the last two members to speak, the 
gentleman from Texas. The time is working out equally. The 
gentleman from Texas, Mr. Neugebauer, for 2\1/2\ minutes. Why 
should he be the only Texan who didn't say anything today?
    Mr. Neugebauer. Thank you, Mr. Chairman. As we all know, 
CRA was put in place in 1977 and the landscape of banking and 
lending, as has been said, is much different now than it was 
then. While I am not sure that lenders ever really need to be 
required to make loans in communities they serve in order for 
those loans to be made, it is reasonable for our committee to 
look at how well banks are meeting the needs of their 
communities. Results of the CRA exams show compliance with that 
law is 99 percent.
    Today's banking environment is much different than it was 
when the law was enacted, and there is a lot more competition 
among banks for customers. If customers find that things are 
not going to work out with one lender, they have the option of 
seeing another lender. But--and they have options in their own 
communities, but to use lenders in other areas more easily as 
well. And so now it is just not about getting a loan from the 
lender in your region, but you can get loans from lenders from 
other regions.
    Banks are watching their risk more carefully these days, 
and hopefully lenders have learned from the mistakes of 
underwriting standards that were too relaxed and forgetting 
that borrowers have to show an ability to repay. Serving 
customers must be balanced with safety and soundness, and I am 
concerned with proposals to separate safety and soundness 
regulations and consumer regulation.
    It is interesting that the Treasury proposal to move CRA 
regulation and compliance examinations away from the functional 
regulators to the new agency, the chairman has drafted a 
legislation that keeps CRA regulation where it is. I am a 
little mystified. If it is good enough to keep CRA regulation 
with safety and soundness regulator, I am wondering why we 
shouldn't keep consumer protection regulation coupled with 
safety and soundness regulation as well.
    No one on this committee wants a creditworthy small 
business in their community to go without a loan or to hear 
about a working family who was unable to get a mortgage that 
they could qualify for. But we also have to ask whether CRA 
remains necessary to ensure banks are serving these needs in 
their communities and whether these needs will be served 
without CRA requirements and, more importantly, the cost of 
these programs.
    With that, I yield back the balance of my time.
    The Chairman. I will yield the remaining 2\1/2\ minutes to 
the gentleman from Indiana, but I will take 15 seconds to 
answer the gentleman's question. In the consumer area, we have 
all of those programs which protect individuals. CRA is not 
individual, you do not under the CRA get a right to get this or 
that. You do under fair housing, etc. And that is the 
distinction and one that deals with a broader set of policies. 
It is not an individual situation.
    The gentleman from Indiana is now recognized for 2 minutes.
    Mr. Carson. Thank you, Mr. Chairman. In this weakened 
financial system, the Community Reinvestment Act will play a 
vital role in providing credit to disadvantaged communities 
that are often ignored or discriminated against by financial 
institutions. This Act became necessary because, for too long, 
banks have ignored economically challenged neighborhoods and 
dismissed loan applications offhand regardless of the 
creditworthiness of borrowers.
    CRA directs depository institutions to find ways to 
responsibly invest in communities with which they do business. 
This has worked very well for over 30 years, but the time has 
come to expand and modernize the reach of CRA to all financial 
institutions. It is important that all Americans, regardless of 
social and economic factors, have an opportunity to access the 
capital they need to start or expand small businesses or to 
purchase property.
    In order to rebuild the financial sector, CRA needs to be 
broadened so that no financial institution will be allowed to 
engage in discriminatory lending. CRA neither encourages nor 
condones bad lending. In fact, only those who are creditworthy 
and have the resources to pay loans back qualify under CRA. CRA 
has led to an increase in homeownership rates among low-income 
and minority families, as well as the significant investment in 
affordable rental housing, community facilities and broader 
community economic development. Since then, we have taken 
significant steps toward rebuilding our economy. This will 
protect investors and empower communities. To achieve this, 
however, we need to modernize CRA by expanding its reach and 
making it even more effective.
    As we continue the ongoing effort to rebuild our financial 
system, I believe it is vital that we maintain for CRA, which 
has provided a foundation upon which low- and middle-income 
families can begin building their lives.
    With that, I yield back the balance of my time.
    The Chairman. We will now ask our witnesses to come 
forward. I do want to note that unfortunately, because of a 
family matter, one of our witnesses that we were looking 
forward to hearing from, Marc Morial, who is the president and 
chief executive of the Urban League, will not be able to 
attend.
    So I will recognize now the gentlewoman from California 
with regard to Mr. Morial.
    Ms. Waters. I ask unanimous consent to insert into the 
record the testimony of Mr. Marc Morial, president of the Urban 
League. Due to a family emergency, Mr. Marc Morial from the 
Urban League was unable to testify today, and I request that 
his testimony be entered into the hearing record.
    The Chairman. Without objection, is is so ordered. Let me 
now say to the witnesses that any additional material in 
addition to what they say orally that they want put in the 
record, whether it is part of their statement or any supporting 
material, we will without objection accept for the record. So 
no one needs to ask for any permission on that.
    And we will begin with the bank commissioner of the 
Commonwealth of Massachusetts, Steven Antonakes.

STATEMENT OF THE HONORABLE STEVEN L. ANTONAKES, COMMISSIONER OF 
              BANKS, COMMONWEALTH OF MASSACHUSETTS

    Mr. Antonakes. Good morning, Chairman Frank, and 
distinguished members of the committee. My name is Steven 
Antonakes, and I serve as the commissioner of banks for the 
Commonwealth of Massachusetts.
    Enacted over 30 years ago, CRA is the most significant of 
all banking laws to address the practice of redlining or 
refusing to lend in low- and moderate-income communities 
despite sound lending opportunities. Unfortunately, ongoing 
disparities between pricing the loans to white and minority 
borrowers clearly demonstrates that more needs to be done.
    Moreover, it will take years for many urban communities to 
recover from the devastation of the ongoing foreclosure crisis. 
More so than ever before, access to sustainable homeownership 
opportunities in low- and moderate-income communities will be 
essential.
    An argument has been advanced by some that CRA is the root 
cause of the economic crisis in that it encouraged banks to 
sacrifice underwriting standards to increase homeownership 
opportunities. In my view, this contention is completely 
without merit.
    First, while CRA requires banks to serve their entire 
community, the Act specifically prohibits banks from making 
unsafe and unsound loans. The drafters of CRA recognized that 
unsustainable loans are even more harmful to consumers and 
communities than an absence of credit. CRA-covered lenders that 
engaged in high risk lending, most notably Fremont Investment 
and Loan, Countrywide, Lehman Brothers, National City, IndyMac, 
and Washington Mutual should have been strongly criticized by 
Federal regulators in terms of CRA compliance for originating 
and funding mortgage loans that borrowers could not afford.
    Second, large lenders and Wall Street firms did not develop 
confusing and risky subprime mortgage loans out of an 
altruistic sense of obligation to meet the needs of low- and 
moderate-income communities; they did so out of greed.
    Massachusetts' efforts to ensure banks serve their 
communities predate the passage of CRA in 1977. In 1982, 
Massachusetts broadened the coverage of the CRA to cover credit 
unions. In November 2007, Governor Deval Patrick signed 
groundbreaking foreclosure prevention legislation which 
extended CRA-type requirements to nonbank mortgage companies.
    Given today's changing financial banking landscape, the 
ongoing financial crisis, and the debate and consideration of 
the Obama Administration's regulatory reform initiative, it is 
the appropriate time to consider how CRA can be modernized to 
make it even more effective in the years ahead.
    In addition to extending CRA requirements beyond banks, 
Congress should consider the following: first, require 
affiliate lending to be reviewed. Some of the largest banks in 
this country were either directly or indirectly in the subprime 
and nontraditional mortgage markets, and yet in nearly every 
case, the largest banks consistently received satisfactory or 
outstanding CRA ratings. Current CRA ratings or regulations 
allow banks to have only their good loans considered and can 
shield their bad loans in an affiliated institution. Congress 
and the Federal regulators should close this loophole and 
require all lending by affiliates to be included in the review 
of a bank's CRA performance.
    Second, increased review standards for the largest 
institutions. Existing Federal CRA regulations define a large 
bank as having assets over $1 billion. Some of these 
institutions are often examined every 4 to 5 years if they have 
previously received a CRA rating of satisfactory or 
outstanding. However, as the banking industry has further 
consolidated, the $1 billion asset threshold has become 
increasingly antiquated. The scope and frequency of CRA 
examination should be commensurate with the bank's market 
share. A significantly more robust annual examination process 
should be undertaken for the top 20 bank lenders in the 
country.
    Third, downgrade banks that originate unsustainable home 
mortgage loans. Massachusetts has adopted a suitability 
standard when reviewing mortgage lenders' CRA performance. 
Congress should similarly amend the Federal law so that the 
origination of unsustainable loans has an adverse impact on a 
bank's CRA rating.
    Fourth, mandate the evaluation of loan modification 
efforts. CRA should be utilized to measure the pace, number, 
and quality of loan modifications. This type of public analysis 
will provide greater incentives for banks to move more 
aggressively to avoid unnecessary foreclosures.
    And fifth, downgrade banks whose partnerships harm the 
underbanked. Congress and regulators should hold banks 
accountable for activities that harm unbanked or underbanked 
consumers. The spirit of CRA embodies an accessible banking 
industry which promotes savings and increased credit 
opportunities in order to promote upward economic ability. 
Practices of national banks and Federal thrifts to evade State 
consumer protection laws by partnering with third parties to 
offer high cost payday loans, refund anticipation loans, or 
costly check cashing services are reprehensible. The 
partnerships should be outlawed. Until they are, CRA should at 
least be utilized to strongly criticize participating 
institutions for engaging in these activities.
    I thank you for the opportunity to testify and look forward 
to your questions.
    [The prepared statement of Mr. Antonakes can be found on 
page 78 of the appendix.]
    Ms. Waters. [presiding] Mr. White.

STATEMENT OF LAWRENCE J. WHITE, PROFESSOR OF ECONOMICS, LEONARD 
        N. STERN SCHOOL OF BUSINESS, NEW YORK UNIVERSITY

    Mr. White. Thank you, Madam Chairwoman, and members of the 
committee on both sides. My name is Lawrence J. White. I am a 
professor of economics at the NYU Stern School of Business and 
a member of the Financial Markets Working Group at the Mercatus 
Center at George Mason University. I represent solely myself at 
this hearing. Thank you for the opportunity to testify at this 
important hearing on the Community Reinvestment Act of 1977.
    My views about the CRA surely differ from those of many 
other individuals who are testifying at today's hearing. I 
believe that despite the good intentions and worthwhile goals 
of the CRA's advocates, the CRA is an inappropriate instrument 
for achieving those goals. Fundamentally, the CRA is a 
regulatory effort to lean on banks and savings institutions in 
vague and subjective ways to make loans and investments that 
the CRA's proponents believe those depository institutions 
would somehow otherwise not make. It is a continued effort to 
preserve old structures in the face of a modernizing financial 
economy. At base the CRA is an anachronistic and protectionist 
effort to force artificially a local focus for finance in an 
increasingly competitive and electronic and ever widening realm 
of financial services.
    Further, ironically, the burdens of the CRA may well 
discourage banks from setting up new locations in low- and 
moderate-income neighborhoods and thus providing local 
residents with better-priced alternatives to high-cost check 
cashing and payday lending establishments.
    There have recently been broader critiques of the CRA, 
arguments that the CRA encouraged banks to make subprime loans 
which were then securitized and thus the CRA bears major 
responsibility for the mortgage meltdown and the subprime 
debacle. I believe that these critiques are badly aimed; the 
facts do not support them. The CRA has multiple flaws, but 
responsibility for the subprime debacle is not among them.
    There is a better way.
    First, to the extent that lending problems can be traced to 
discrimination against racial or ethnic groups or involving 
other categories of personal discrimination, the right tool is 
more vigorous enforcement of anti-discrimination laws, notably 
the Equal Credit Opportunity Act of 1974.
    Second, vigorous enforcement of the antitrust laws, 
especially with respect to mergers, is necessary to keep 
financial markets competitive so that banks and other lenders 
are constantly under competitive pressure to provide attractive 
financial services offerings to their customers. If for some 
reason enforcement of the antitrust laws is deemed not 
sufficient in this respect, then policy makers should open 
entry into the business of banking to companies that have a 
business model of providing good value to low- and moderate-
income households.
    It is ironic, in my view, that many of the same groups that 
have advocated more efforts to provide financial services to 
low- and moderate-income communities were those who also 
opposed Wal-Mart's efforts to enter the banking business and 
thereby to offer more and better and lower cost financial 
services to low- and moderate-income communities.
    Consistent with this focus on providing good value to low- 
and moderate-income households, vigorous competition should not 
veer off into predatory practices in which aggressive sales 
personnel take advantage of unsophisticated customers who are 
insufficiently aware of better alternatives.
    Third, to the extent that there are socially worthwhile 
lending opportunities that somehow are not being satisfied by 
existing lending institutions, these projects should be funded 
through the public fisc in an on-budget and transparent 
process. The Community Development Financial Institutions Fund, 
authorized by the Riegle Community Development and Regulatory 
Improvement Act of 1994 and managed by the U.S. Treasury, is a 
good example of this kind of public funding mechanism. To the 
extent that its current funding levels are inadequate, they 
should be increased.
    Finally, if public policy persists with something that 
resembles the CRA, the annual local lending obligations of 
banks should be explicitly quantified. These obligations could 
then be traded among banks so that a system could arise that is 
similar to the cap-and-trade system that has proved so 
successful for dealing with sulfur dioxide emissions in a low 
cost and efficient manner.
    Thank you again for the opportunity to testify at this 
important hearing this morning. I will be happy to answer 
questions from the committee.
    [The prepared statement of Professor White can be found on 
page 231 of the appendix.]
    Ms. Waters. Thank you. Mr. Taylor.

    STATEMENT OF JOHN TAYLOR, PRESIDENT AND CHIEF EXECUTIVE 
   OFFICER, NATIONAL COMMUNITY REINVESTMENT COALITION (NCRC)

    Mr. Taylor. Representative Waters, Representative 
Hensarling, and other distinguished members of the committee, 
thank you for allowing me to testify. I am testifying on my 
behalf as well as for 600 organizations that NCRC represents, 
not to mention thousands of organizations and individuals who 
care about fair and equal access to credit.
    It doesn't seem to matter how many facts we put forward and 
how many notable economists like Bernanke and others who keep 
saying over and over again the data does not support that CRA 
had a negative impact other than perhaps given the benefit of 
the doubt to some of them, even Larry Lindsey, that it had a 
very slight impact. It doesn't seem to matter how often we say 
that, but I was happy to hear Professor White say that the 
subprime debacle had nothing to do with CRA. The facts don't 
seem to matter, the myth is going to continue, and so I am not 
going to address that. You want to ask me a question, I will 
address that with you.
    But let me say this, CRA is a very simple law; it is all of 
2 pages long. What it basically says is that banks will have an 
affirmative obligation to meet the credit needs of the 
communities that they are chartered to serve, including low- 
and moderate-income neighborhoods, simple.
    Simple and consistent with safety and soundness, just in 
case there is any doubt. So what does all that boil down to? It 
boils down to this. Free market? Yes, we want a free market 
too. That is what we are fighting for. CRA is all about the 
free market but not free to exploit or free to ignore 
neighborhoods or free to ignore certain peoples. A free market 
that really addresses the credit needs and allows people to 
pursue their version of the American dream the old-fashioned 
way. Like going to financial institutions and being able to get 
access to credit and basic banking services. And I once talked 
to Frank Luntz, hardly a bastion of liberal thought, one of the 
most notable conservative pollsters there are in this country. 
And he said that this ought to be--CRA ought to be a Main 
Street tenet of the Republican Party as it is for the 
Democratic Party. This shouldn't be partisan because this is 
about safe and sound lending and people having access to our 
financial services sector, to that free market that we believe 
in.
    So those folks who were marching the other day, those blue 
collar workers, the truck drivers and people working bakeries 
and newspapers, they ought to have the same chance when they 
walk into a financial institution of getting a decent loan and 
getting treated as a decent person and not have to be somebody 
wealthy or some large corporation to be able to get access to 
credit and capital in this country. That is the law of the 
land. That ought to remain the law of the land. But there are 
ways that we can improve this and those opportunities are 
before us now.
    First, we need to expand the coverage. The idea that we 
have these independent mortgage companies--who, by the way, if 
you really want to look for the culprit, look to them. They are 
the ones who create these high-cost loans that the gentlewoman 
from Minnesota confused with CRA loans. Those are the agencies. 
Those are the ones issuing those loans that shouldn't have been 
issued. Here is my professor nodding on the right, my 
conservative counterpart. Those were these folks. We need to 
expand CRA to make sure that all segments of the financial 
services sector--let us face it, we now know, right, there 
isn't a segment of the financial services sector that isn't 
supported by the U.S. taxpayer. We now know that.
    And those people marching the other day saw the billions of 
tax dollars, trillions going to banks. Why can't they and 
working class people in this country and blue collar people who 
vote for you, why can't they have the same fair and equal 
access to credit and capital? So we need to expand it to credit 
unions, independent mortgage companies, to security firms. We 
need to end this business of banks being able to not count 
areas where they are doing a lot of lending as part of the CRA 
assessment area. Right now whole swaths of where they do 
lending through brokers are not counted in their CRA exam. That 
needs to change. We need to expand the data enhancements. What 
we have in the way of small business reporting, where we can 
pinpoint census tracks by race, by gender, mortgages and 
mortgage related products that are made, we can't do that for 
small business lending.
    And as a result, we are really lagging in our ability to 
make sure that access to credit and capital goes to underserved 
communities, to people of color and to women. We really need to 
improve that. We need to consider race on exams once and for 
all.
    Frankly, we have--the law focuses on class, right, 
economics? Making sure that you do not ignore low- and 
moderate-income communities. But even controlling, looking at 
CRA and controlling on those exams for income and for housing 
starts and for creditworthiness, you still see a disparate 
difference in the treatment of African Americans and Latinos. 
Mr. Hensarling, in your district, 68 percent of African 
Americans in your congressional district got subprime loans. 
Almost over 50 percent, almost 58 percent of Latinos in your 
congressional district got subprime loans. And we know from 
Fannie and Freddie when they were purchasing these loans and we 
looked at their creditworthiness, that half of those, 50 
percent of those borrowers qualified for prime loans. Why 
shouldn't we as a bipartisan house Financial Services Committee 
and Congress be pushing for stronger, fairer, equal access that 
should just be the law of the land. And then finally--my final 
point, Representative Waters. I seem to have 30 seconds on this 
one. I don't know if--I am going the wrong way.
    Ms. Waters. Your time is up.
    Mr. Taylor. May I--one sentence? We really need to have--
    Ms. Waters. We are going to come back and do questions. We 
have to move onto the next one. Thank you. You can say this 
when you get a question.
    [The prepared statement of Mr. Taylor can be found on page 
186 of the appendix.]
    Mr. Roberts, go ahead.

   STATEMENT OF BENSON F. ROBERTS, SENIOR VICE PRESIDENT FOR 
   POLICY AND PROGRAM DEVELOPMENT, LOCAL INITIATIVES SUPPORT 
                       CORPORATION (LISC)

    Mr. Roberts. Good morning, Ms. Waters, Mr. Hensarling, and 
other members of the committee. My name is Benson Roberts. I 
work for LISC, the Local Initiatives Support Corporation. We 
are a community development organization. We work with 
community groups and banks and States and localities and many 
other partners to rebuild low-income communities in urban and 
rural areas around the country.
    I want to focus on the community development aspect of CRA. 
Many other people here today are addressing the crucial home 
mortgage aspects of CRA. Community development is also a very 
important part of CRA. By community development, I am talking 
about rental housing development and finance. I am talking 
about grocery stores, other retail, and other commercial 
facilities in low- and moderate-income communities. I am 
talking about community facilities like health clinics and 
child care centers that help our citizens have access to the 
tools for self sufficiency and independence. I am talking about 
partnerships with community development financial institutions 
such as Mr. White referenced earlier. CRA has been crucial to 
this community development activity.
    Banks have made billions of dollars of loans and 
investments for community development, generating over a 
million affordable rental homes, millions of economic 
development space and community space. And beyond those 
numbers, what CRA has done is to help forge partnerships among 
the banks, the community groups and other, for-profit, 
developers, States and localities to move these communities 
back into stability and revitalization. And it has proven both 
safe and profitable.
    Moreover, most Federal housing production and community 
development programs today rely on these partnerships. Without 
these public-private partnerships and the private partner in 
them, these Federal programs are going to be compromised. Less 
will get done, more government money will be required for each 
project, and there will be less business discipline in the 
process because we need the banks to be part of the process in 
ensuring that these are really done safely and successfully.
    So many Federal policies made through this committee depend 
on having strong bank participation in the process. We want 
these communities and we want these public programs to be part 
of the mainstream, not to be isolated from the mainstream. 
These community development projects have done a great job at 
rebuilding neighborhoods. We would invite you to go on tour 
with us or many other people to see for yourselves what this is 
like. It is really remarkable and really heartening, I think.
    Other people have cited Chairman Bernanke. I will do the 
same. He makes the point that: ``This community stabilization 
work is important for the overall economic recovery. Healthy 
and vibrant neighborhoods are a source of economic growth and 
social stability. Community development financial institutions 
and other community groups are already responding to the 
evident needs, but they will require many willing partners to 
ensure success in the long run, including governments, mortgage 
servicers and mainstream lenders.''
    How is it going? Unfortunately, not very well these days, I 
am afraid. While CRA and community development have in the past 
fared very well, we have seen the effectiveness of CRA with 
respect to community development erode over the last several 
years. Now, it is true that things are particularly tough today 
in this financial crisis, but the trend began well before then. 
We now have in low-income housing tax credits, declining 
investments from over $8 billion in 2007 to about $5 billion 
last year. CRA can and should do more to encourage broadening 
of the investor base by getting other banks to participate. But 
the way CRA is structured, it really provides very little 
workable opportunity for many of the local and regional banks 
to get involved.
    In economic development, we see the same thing, a real 
decline in lending for economic development in low-income 
communities. We still see investments flowing for new markets 
tax credits, but it is very hard to get the loans on those 
properties. We are worried that investment capital is drying 
up.
    We have lots of recommendations. Some of them Mr. Taylor 
has suggested we think have a lot of merit. We have other ideas 
as well. But we really need to make CRA work for the rural 
communities, the smaller cities, the Gulf Coast, and many, many 
places in this country that just can't get the capital they 
need to help America grow and recover.
    [The prepared statement of Mr. Roberts can be found on page 
170 of the appendix.]
    Ms. Waters. Thank you very much. With that, I will 
recognize myself for 5 minutes. Mr. Taylor, I would like you to 
share with us your suggestions about how we can get communities 
more involved with CRA. I was initially some years ago under 
the impression that community groups and organizations could go 
to their local bank and ask to see the books and meet with the 
managers and find out what was going on in their immediate 
communities. But I have not found that to be true. Also, I 
don't believe that local communities are well informed about 
examinations and how they can be a part of that. So would you 
help us to understand what we should be doing to ensure 
enforcement and for participation by our communities?
    Mr. Taylor. Sure. First off, you are absolutely right. If 
you pass a law but the sheriff isn't interested in regulating 
the law, it is going to be made hollow. And that is precisely 
what has happened. And it relates a bit to what Mr. Roberts was 
talking about, the recent weakening of CRA by the regulatory 
agencies frankly who simply don't have public hearings like 
they used to, don't count--don't reach out to community groups 
like they used to regularly just to say how is this bank doing 
in your community, less frequent exams. There has just been 
this plethora of moving away from the enforcement under CRA.
    So I think that the most important thing and this gives me 
the chance to say the point I was trying to say, is the 
enforcement authority--we really need to have an enforcement 
authority who sees it as their mission to protect the 
taxpayers, protect consumers, and to ensure that the CRA is 
adhered to.
    CRA is not a law about communities. CRA is a law about 
individuals, individuals having access to credit and capital 
and basic banking services. And to think that the Equal Credit 
Opportunity Act or the Fair Housing Act, as Mr. Hensarling 
has--and now I get a chance to disagree with Professor White--
that they will fill the purpose of CRA belies a 
misunderstanding of what CRA is about. Because the Equal Credit 
Opportunity Act and the Fair Housing Act will prohibit you from 
discriminating if you are making loans. If you choose not to 
make loans in neighborhoods, then you won't have to worry about 
the Equal Credit Opportunity Act or the Fair Housing Act. It is 
CRA that brings you into those neighborhoods, which is why we 
support President Obama's initiative in the Consumer Finance 
Protection Agency that he proposed, that it includes CRA 
because it is one thing to make sure they don't discriminate; 
it is another thing to make sure that they are doing business 
in these neighborhoods to begin with.
    So consumers can then educate themselves, can be in contact 
with their banks, can do a lot to communicate. But the truth of 
the matter is we need the regulatory agencies holding their 
hands to the fire, having these banks not ignore neighborhoods 
and making safe and sound loans, primarily prime loans 
available to people in these neighborhoods.
    Ms. Waters. Thank you. Mr. White, I appreciate your 
testimony. And even though you disagree with the mission of 
CRA, I thank you for helping to clarify CRA's role in the 
subprime meltdown or lack of a role. But I would like to ask 
you, do you also agree that CRA should be placed in the 
Consumer Finance Agency under the new regulatory reform that we 
are discussing?
    Mr. White. That is a tough one, Representative Waters, 
since--as you know from my testimony, I am not an advocate of 
CRA to begin with. My first preference would be for it not to 
be there at all. If there is going to be a Consumer Protection 
Financial Agency, it strikes me that that ought to be focusing 
on consumer protection and that means protection against 
predatory practices, against bad information. I don't see CRA 
as fitting into that particular framework.
    Ms. Waters. Thank you very much.
    The Chairman. The gentleman from Texas.
    Mr. Hensarling. Thank you, Mr. Chairman. Mr. Antonakes,--I 
am sorry. Did I pronounce that right? I believe in your 
testimony you said that CRA does not require banks to make 
unsustainable loans. Does it require them to make sustainable 
loans if it doesn't require them to make unsustainable loans?
    Mr. Antonakes. Representative, the law specifically 
requires them to make loans throughout their local communities 
that are written under the tenets of safe and sound 
underwriting practices.
    Mr. Hensarling. So arguably it is mandating that they 
engage in some universe of sustainable loans. So it would be 
your opinion that we need a law to mandate banks to make 
sustainable loans rather?
    Mr. Antonakes. It is my opinion that until loans are made 
throughout communities, despite whatever the geographic or the 
racial makeup of that community may be, that, yes, an 
affirmative obligation to make loans throughout communities 
should exist until we can demonstrate statistically that is no 
longer necessary.
    Mr. Hensarling. In Massachusetts, how many banks practice 
racial discrimination? And can you tell me their names?
    Mr. Antonakes. We examine banks on a regular basis. We have 
primarily a community bank supervision in Massachusetts. We 
have had some fair lending issues in the past. We don't have 
any at this current time. However, fair lending--
    Mr. Hensarling. So the banks that are under your 
jurisdiction, as of today you can't name any that are 
practicing racial discrimination; is that correct?
    Mr. Antonakes. We have none that we have current fair 
lending issue with. That is not to say that examination and 
supervision should be abandoned however.
    Mr. Hensarling. Are the banks in Massachusetts exempt from 
the Equal Opportunity Credit Act or the Fair Housing Act?
    Mr. Antonakes. No, they are not.
    Mr. Hensarling. Do you believe that the Obama 
Administration is failing to properly enforce these laws?
    Mr. Antonakes. No, I do not.
    Mr. Hensarling. Mr. Taylor, I heard what I would view as 
your tortured logic. We will continue to agree to disagree on 
that particular point. I did hear you say, Mr. Taylor, that CRA 
is a simple law. To a lot of bankers, it is simply just a very 
expensive law. And I am still trying to figure out what we are 
getting at here in the sense of--if we are not forcing banks to 
make unsustainable loans, they are in the business of making 
sustainable loans.
    So if there is a universe of citizens who are being denied 
credit opportunities in the sustainable loan universe due to 
race, yes, as individuals, the opposite of--you have the Equal 
Opportunity Credit Act, Fair Housing Act. You say that applies 
to individuals. If they don't make loans, they don't come 
within the ambit.
    Frankly, I would beg to disagree on that particular legal 
interpretation. So if we are not forcing them to make 
sustainable loans they would already make, there is some 
universe of the loans we are asking them to make that they 
wouldn't otherwise make. So essentially we are asking the 
government to substitute its judgment for the decisions of 
creditworthiness that would be derived from a competitive 
marketplace. I have to tell you as I look at our first trillion 
dollar deficit, as I look at Social Security going broke, as I 
look at Medicare going broke, as I look at Medicaid going 
broke, as I look at the National Flood Insurance going broke, 
the track record of government in deciding what type of loans 
and programs are sustainable is not a good one. And so are we 
not coming up simply with a universe of people who are either 
going to already get loans that the banks are going to loan 
them anyway and charging the banks $30,000, $40,000, or $50,000 
for the privileging of doing what they are already going to do, 
we already have laws on the books to make sure they don't 
discriminate.
    Again, it seems like a rather expensive anachronism today. 
And Mr. Taylor, my time is running out, but I always enjoy 
hearing from you.
    Mr. Taylor. Sure. If you don't mind hearing from me another 
minute.
    Mr. Hensarling. Probably less than a minute, but go ahead.
    Mr. Taylor. First off, as far as the government running 
things and their function, I happen to think we have the 
greatest country in the world, and I think our government has 
done a very good job, including the Federal Government. By the 
way, you work here and I don't. And you have worked here for a 
long time. So I actually don't disparage the Federal Government 
the way you do. I actually think in many years they have done a 
good job. I am here to help them do a better job. You keep 
confusing racial lending with CRA. You need to read the law, 
with all due respect, Representative. It is an income law. It 
is about working class, blue collar people having access to 
credit and capital. And, yes, we would like to see race 
considered because there still is a disparity in that.
    But the key is this: If left to their own demise, financial 
institutions historically would have really ignored low-wealth 
neighborhoods in low-wealth populations. That is a fact. What 
happened is they closed a lot of branches, they closed a lot of 
shops and in their place in urban and rural areas came the 
payday lenders, the pawnshops, the subprime and the high-cost 
lenders. And that happened under several Presidents' watch. 
That is what we are trying to fix to make this work properly, 
safely and soundly, and effectively in these low-wealth 
neighborhoods. Thank you for listening to me.
    The Chairman. I will now recognize myself. First, for some 
reason, the question of ACORN, I would guess we will amend in 
all saying mighty obsessions from fairly small acorns will 
grow. This one organization appears to be totally dominating 
the thinking of my colleague, not during the period when the 
Bush Administration was funding it. There was apparently a pass 
for the Bush Administration. I haven't been able to find any 
insistence that we cut off funding from ACORN when it was 
coming from the Bush Administration. There was also this 
question about their testifying. I checked. The last time they 
testified when we were the Majority was in June of 2007, which 
was probably the first time since we had only taken over 
before. So they did testify once over 2 years ago. The notion 
that some recent change has occurred has no basis. But I also 
want to talk about the--the gentleman from Texas talked about 
contradictions. It seems to me that he has himself evinced one 
when he first said that the problem with CRA is that it was 
forcing people to get mortgages where the lending standards 
were relaxed.
    He then said that because of the actions by this committee, 
the credit card bill and the mortgage bill he said, we have cut 
off credit to low-income people. I wish that those were more 
true, that they had gone into effect. The credit card bill 
which passed doesn't go into effect for some months, although I 
am inclined to think we may have to push that up because the 
credit card companies have been abusing it. The restrictions we 
have put on mortgages haven't gone into effect yet. We passed 
them. They haven't become law yet because the Senate hasn't 
passed them. But the theory is this: He says that there are 
people and those of us who support the CRA who are pushing for 
relaxation of mortgage standards, of no-doc loans that the 
gentleman from Minnesota mentioned. Exactly the opposite is the 
case. It has been we on the Democratic side who have 
consistently tried to enact regulations and laws to prevent 
those abusive forms of loans. In 1994, when the Democrats last 
controlled Congress before 2007, this committee passed--it 
wasn't me. It was my predecessor. It was the senior Democrat, 
John LaFalce--the Homeownership and Equity Protection Act, 
which mandated the Federal Reserve to put restrictions on 
mortgage lending. And Mr. Greenspan refused to do it. And when 
some of us then tried during the early parts of 2000 to press 
for legislation, we were rejected. It was the Bush 
Administration in 2004 that mandated a significant increase in 
the number of mortgages for people below the median that had to 
be bought by Fannie Mae and Freddie Mac.
    In 2005, the gentleman from North Carolina, Mr. Watt, the 
gentleman from North Carolina, Mr. Miller, and myself, working 
with Mr. Bachus tried to get legislation through to limit 
exactly the kind of loans that the gentleman from Texas said 
have caused the problem. And the Republican leadership said, 
you can't do it. We were ordered not do it. And we have 
legislation pending now. The fact is that many of us have been 
concerned about housing for lower-income people, primarily 
rental housing. And that has been a big debate. I do believe 
that it is a mistake to push people into homeownership when 
they are not economically and in some cases socially prepared 
to do it. I am very proud that Larry Lindsey, who is a major 
official in the economic area in every one of the last three 
Republican Administrations, President Reagan and both 
Presidents Bush, cited me as one of the few elected officials 
who has been consistently skeptical of this pushing of low-
income homeownership. So we have tried very hard to do that.
    Now we get to the CRA. The argument was first that the CRA 
caused it. That is unsustainable. As Bush Administration 
officials have said--Sheila Bair, George Bush's appointee to 
head the FDIC--I want to give you my verdict on CRA, not 
guilty. I ask that the whole testimony go in here. So let the 
record show that CRA is not guilty of causing the financial 
crisis. Another Bush appointee, Ben Bernanke. He is the 
chairman of the Federal Reserve. He is now an Obama appointee. 
He was a Bush appointee when he said that. Not just as chairman 
of the Federal Reserve, but previously as the head of the 
Council of Economic Advisors.
    It is not true that CRA caused the problem. Here is what he 
says, ``The available evidence to date, however, does not lend 
support to the argument that CRA is to blame for causing the 
subprime loan crisis. Our own experience with CRA over more 
than 30 years and recent analysis of available data''--this is 
November of 2008--``including data on subprime loan performance 
runs counter to the charge that CRA was the root of or 
otherwise contributed in any substantive way to the current 
mortgage difficulties.''
    So since the basic argument has failed, we now have a 
second level argument. It was the CRA that scared the banks 
into giving money to ACORN so they could cause the problem. So 
then the question is, did the CRA scare the Bush 
Administration? Was HUD under George Bush, which was regularly 
funding ACORN, intimidated somehow by the fact that there was a 
CRA even though they weren't covered? Yes, there are some 
serious problems here. But the notion that it was a CRA 
actually I have just been--late flash. I will give myself 5 
more seconds.
    The total funding under the Bush Administration for ACORN 
is now $14,215,475. I feel like I am running a telethon. So the 
Bush Administration is now, I think, at first place at 
$14,215,000. I now recognize the gentleman from Texas. Who is 
next? Mr. Neugebauer.
    Mr. Neugebauer. Thank you, Mr. Chairman. I want to go back 
to your testimony, Mr. White. You said that banking has changed 
a lot since CRA was instituted and as you stated, you are not a 
big proponent of CRA. Is it that you think that task is 
already--could be accomplished by abolishing CRA or is CRA 
failing to accomplish its task and you think something 
different is needed? Can you elaborate on that just a little 
bit for me?
    Mr. White. Thank you, Congressman. I think it is primarily 
the latter, the intentions are good, but there are better ways 
than leaning on banks in this vague, ill-defined way to 
accomplish those goals. As I indicated, first, if you think the 
problem is racial or other kinds of discrimination, find those 
who are discriminating and prosecute and fine them and throw 
them in jail, do the max. Second, if you think it is a problem 
that they are lazy, they are just not competitive--here are 
these profitable loans, these worthwhile loans and they are 
just not finding it worthwhile because they are lazy, they are 
incompetent, let us get more competition into this area, let us 
encourage companies that have a successful business model of 
providing good value to low- and moderate-income households, 
companies like Wal-Mart that were interested in entering the 
financial services area, that were stonewalled, that were 
prevented from entering this area.
    Let us encourage them to enter and provide those services. 
If still there is not enough financial services, then let us do 
it through the public fisc, let us do it in an on-budget and 
transparent way; as I indicated the Community Development 
Financial Institution's Fund is a good framework. And if it is 
inadequately funded, let us fund it more adequately. That is 
the way to deal with these issues.
    Mr. Neugebauer. And I still want to go back to that last 
part there, the fund. How would you fund that?
    Mr. White. I will pay more taxes. And I think that it is 
simply the right thing to do, and the Congress, the Obama 
Administration, the American people should step up and be 
prepared to fund it more adequately.
    Mr. Neugebauer. Mr. Roberts, did you want to respond to 
that?
    Mr. Roberts. We are big supporters of the CDFI Fund as 
well. But the CDFI Fund works because it leverages bank 
financing. The CDFI Fund leverages about 30 private dollars for 
every Federal dollar. So if you take that $30 away, you are 
going to have to multiple the CDFI appropriation by 30-fold. 
And then you won't get the partnership and engagement of the 
local banks because the CDFIs provide financing that 
complements what banks find more feasible for them to do 
directly. And you don't get the additional scrutiny of the 
CDFIs that the banks provide because of their participation and 
so you are putting it on the Federal Government to make all 
kinds of very complex underwriting judgments about all kinds of 
organizations out there. It just doesn't work. This public-
private partnership is really what has transformed the 
effectiveness of the Federal policies and I will also cite 
Chairman Bernanke in observing that mainstream financial 
institutions have been pulling away from CDFIs, that CDFIs are 
liquidity constrained as a result.
    They are unable to meet the needs of their communities in 
part because they cannot raise the private capital anymore in 
this climate.
    Mr. Neugebauer. Mr. Taylor wants his standard last 30 
seconds. So I am going to give it to him.
    Mr. Taylor. Well, I want to keep trying to unconfuse people 
here, Professor White and others. That a racial discrimination, 
anti-discrimination law substitute for what the purpose and 
mission of CRA is. It doesn't. Because CRA is about having an 
affirmative obligation to go in and offer product. If you 
offer--
    The Chairman. Time is up.
    Mr. Neugebauer. You got your 30 seconds.
    The Chairman. The gentleman from North Carolina. But before 
I do, I want to correct myself when I said that the Bush 
Administration had given $14,275,000 to ACORN. That is through 
HUD. We don't know whether they gave them money elsewhere. That 
CRA may have been scarier than I thought to the Bush 
Administration. So the $14,275,000 funding from the Bush 
Administration to ACORN only applies to HUD funding. We are 
checking on other funding. The gentleman from North Carolina.
    Mr. Watt. Thank you, Mr. Chairman. I think we benefit from 
having a copy of the CRA law in the record and I therefore ask 
unanimous consent to submit a copy of the--
    The Chairman. Without objection, it is so ordered.
    Mr. Watt. Mr. Taylor is absolutely right, I don't know what 
all this fuss is about and Mr. White, I am just baffled by your 
testimony. I am sorry. The notion that antitrust laws should be 
a substitute for CRA or that Wal-Mart should be a substitute 
for CRA just--is just beyond me. I don't understand that. 
Suppose, Mr. White, that all of the banks in my community--I 
live in Charlotte--independently, they didn't get together 
collectively and decide this, but all of them decided that they 
were going to--not going to serve any part of the priority 
community, would that be a violation of the antitrust laws?
    Mr. White. Congressman, I am not a lawyer. I don't practice 
law.
    Mr. Watt. It is obvious if you think the antitrust laws are 
going to cover a lot of the things that CRA covers. But you 
have testified here as if the antitrust laws in some way are a 
substitute for CRA. And then when I asked you a question, you 
say I am not a lawyer.
    Mr. White. Sorry. Let me continue. However, my 
understanding of the antitrust laws--I was the chief economist 
at the Antitrust Division--
    Mr. Watt. Just answer the question, Mr. White. Do you think 
if all of these banks, independent of each other, decided that 
they were not going to serve the minority community or put any 
branches there or make any loans, that the antitrust laws would 
have any application to that?
    Mr. White. From a conspiracy perspective, obviously, no.
    Mr. Watt. Okay. All right. Again, I just don't understand 
how you can assert to us that the antitrust laws are somehow a 
substitute for CRA. Do you honestly believe that us authorizing 
Wal-Mart to get into banking is going to be a satisfactory 
substitute for CRA? That is what your testimony was, Mr. White.
    Mr. White. Congressman, I don't understand what the 
argument is--
    Mr. Watt. I don't understand it either.
    Mr. White. Profitable loans that somehow aren't being made 
by these profit-seeking institutions.
    Mr. Watt. I understand that. I agree with that. But I don't 
know how you wipe the law off the book that says you shall make 
loans in your community and solve a problem that you just 
acknowledged is a problem. I agree that we are underserved in 
our community. Do you think banks have any obligation to serve 
the communities in which they operate?
    Mr. White. Congressman, I don't see this kind of community 
focus--
    Mr. Watt. That is not the question I asked. Do you 
acknowledge that banks have some obligation to serve the 
communities in which they operate?
    Mr. White. Under the law--again, I am not a lawyer--
apparently they do.
    Mr. Watt. Okay. All right. And do you disagree with the 
congressional findings that regulated financial institutions 
have continuing and affirmative obligations to help meet the 
credit needs of the local communities in which they are 
charted? Do you disagree with that?
    Mr. White. I don't think that is good public policy. I 
don't think that is the way financial institutions ought to be 
bullied or forced.
    Mr. Watt. You don't think that ought to be the law?
    Mr. White. It is a matter of public policy and I disagree. 
I respectfully disagree.
    Mr. Watt. I would be--I would actually be happy for you 
just testified you disagree with any kind of CRA obligation. 
But to come in here and tell me that Wal-Mart is a satisfactory 
substitute for this obligation just insults my intelligence. 
And to tell me that the antitrust laws will solve the problem 
when the antitrust doesn't cover any of this obligation is 
just--I don't understand that. I don't know how you can with 
integrity do that to this committee.
    Mr. White. Congressman, if the problem is not enough 
competition, then we want to make sure that--
    Mr. Watt. If I thought that was the problem, I would solve 
it the way you suggested. But the problem is lack of service, 
not lack of competition.
    The Chairman. The gentleman from California.
    Mr. Royce. Thank you. I was going to ask Mr. White a 
question. And it comes from an article written by Stanley 
Kurtz, as senior fellow at the Ethics and Public Policy 
Institute. His argument is this. He says ACORN's local CRA 
enabled pressure tactics served to entangle the financial 
system as a whole in the subprime mess. This is his thesis. He 
says by using CRA and ties to sympathetic congressional 
Democrats, ACORN succeeded in drawing Fannie Mae and Freddie 
Mac into the very policies that led to the current disaster. 
And here is the way in which he lays out this case. He says 
ACORN's efforts to undermine credit standards in the late 
1980's taught it a valuable lesson. However much pressure ACORN 
put on banks to lower credit standards, tough requirements in 
the secondary market run by Fannie Mae and Freddie Mac served 
as a barrier to change.
    Back then, Fannie and Freddie refused to buy loans that 
failed to meet high credit standards. If, for example, a local 
bank buckled to ACORN pressure and agreed to offer applicants a 
5 percent downpayment rate instead of the normal 10 to 20 
percent, Fannie and Freddie would refuse to buy up the 
mortgage. That would leave all of the risk of these shaky loans 
with the local bank. So again and again, local banks would tell 
ACORN that because of standards imposed by Fannie and Freddie, 
they could lower their credit standards only by a little.
    So the 1980's taught ACORN that their Washington lobbyists 
would have to bring inside pressure on the government to 
undercut credit standards at Fannie and Freddie. Only then 
would local banks consider making loans available to customers 
with bad credit histories, with very low wages, with virtually 
nothing in the bank and even with bankruptcies on record. And 
precisely because ACORN's local pressure tactics were working, 
banks themselves wanted Fannie and Freddie to loosen their 
standards still further so as to buy up still more of the high-
risk loans they had made at ACORN's assistance.
    So by 1993, a grand alliance of ACORN, national Democrats 
and local bankers looking for someone to lessen the risks 
imposed on them by CRA and ACORN were uniting to pressure 
Fannie and Freddie to loosen credit standards still further. He 
goes on in the article to explain that ACORN called for at 
least half of Fannie and Freddie's loans to go to low-income 
customers. At first, the Clinton Administration offered to set 
aside 30 percent, but eventually ACORN got what it wanted.
    By early 1994, the Clinton Administration floated plans for 
committing $1 trillion in loans to low- and moderate-income 
home buyers which would amount to about half of Fannie Mae's 
business by the end of the decade. Wall Street analysts 
attributed Fannie's willingness to go along with the change to 
the need to protect itself against still more severe 
congressional attacks. And this sweeping debasement of the 
credit standards was touted by Fannie Mae's Chairman, Chief 
Executive Officer, and Obama advisor, James A. Johnson. This is 
also the period when Fannie Mae ramped up its pilot programs in 
local partnership with ACORN, all of which became precedence 
and models for the pattern of risky subprime mortgages at the 
root of today's crisis. At both the local and national level, 
ACORN served as the critical catalyst, levering pressure 
created by the Community Reinvestment Act and pull with 
Democratic politicians to force Fannie Mae and Freddie Mac into 
a pattern of high-risk loans and a disastrous disregard of the 
most basic financial standards. I know there are other factors 
in here because I know in 1992 the CRA Act--the GSE Act was 
passed setting those mandates that Congress basically set those 
housing mandates for the GSEs.
    But Mr. White, I was going to ask you if you believe that 
lowering those standards, getting standards down to zero 
percent or 3 percent or 5 percent in connection with the push 
to have half of the portfolio held by the GSEs in subprime and 
alt-A contributed to housing bubble and to the problem?
    Mr. White. Congressman, I have no knowledge at all about 
ACORN's actions, what they did, what they didn't do. So I 
really cannot comment on that. As my testimony indicated, 
everything I know about who was originating the subprime 
mortgages, who is investing in them, they are primarily non-CRA 
covered institutions. Where you did have CRA-covered 
institutions like Washington Mutual, like Wachovia, like the 
depository side of Countrywide, like Citi, they were investing 
because they saw this as a profitable investment, not because 
of CRA.
    There is excellent empirical work that has been done by 
economists at the Federal Reserve Bank of San Francisco, 
Elizabeth Laderman and Carolina Reid. I urge everyone in this 
room to read that article. It is excellent.
    The Chairman. Thank you, Mr. White. The time has expired. I 
recognize the gentlewoman from New York.
    Mrs. McCarthy of New York. Thank you very much, Mr. 
Chairman. And I thank you for the hearing. I am really finding 
this extremely interesting. I am also one of those 
Representatives who has very wealthy people in my community. 
The majority of them are probably middle-income families and I 
have underserved areas. But listening to this conversation from 
both sides of the aisle, from everything I understood, CRAs 
were to help all people, not just minorities.
    Now, I have an area--a community came to me several years 
ago. They had no bank, they had no food store. All they had 
were payday loan places to go cash their checks. Yes, they have 
small homes. But they are all hard workers and over the years 
we have been able to have CRAs come in. We have had community 
developments coming in. And I have to say, you drive down Main 
Street nowadays, and it is a busy place. You have a beauty 
shop, you have a bank, you have the supermarket. These are 
things that work.
    Now, did anybody ever come in there? It is not that the 
residents didn't want it. And by the way, from what I can see, 
banks, when they do go into these communities, make money. That 
is why I am seeing a battle going on right now in my district 
because I have credit unions that want to go into the 
underserved area and now all of a sudden, I have banks that 
want to come into the underserved area. Nobody is telling them 
to go in there. They want to go in there. They work. They need 
to cash their paycheck. They need to take out loans to buy a 
home.
    These are things that are going on. So my concern is, if we 
did what were the CRAs, who would come in to some of these 
communities? We have rural areas in the west, that whole towns 
are shut down and a community development can go in there and 
help them. CRAs can go in and help them rebuild their towns. We 
have seen it. But you have to have faith in the community. And 
I think that is the important thing. Mr. Taylor, you have been 
shut off so many times, getting 30 seconds right at the end.
    From hearing your testimony, I certainly agree with you on 
the majority of issues that you are talking about. But when I 
talk about modernizing or reforming the Community and 
Reinvestment Act, what the effect such as payday loans and 
other services that may be underserved in low-income areas are 
the only things that they have to rely on. What is going to 
happen to people when they need to cash their check? And I will 
give you some time to answer those questions.
    Mr. Taylor. Sure. And that is a very good example of the 
regulatory malaise that we have suffered over the last several 
years where full service bank branches have been able to close 
their branches and in their place have popped up these hybrid, 
high-cost alternative basic banking services like payday 
lenders, pawnshops, and check cashers. And community groups, 
many of our members have struggled with financial institutions 
to try to get them to open branches all over the country in 
underserved areas.
    And they do it kicking and screaming. But I have to say--
and I will give you examples, like Houston' fifth ward, which 
is a predominantly African-American community that didn't have 
a single bank branch in it. We challenged this bank to try and 
open a branch there. They said there is no way, it is not 
profitable. They forget the fact that while the average income 
may be less, there is a denser population, so there is more 
incomes. Low- and moderate-income neighborhoods does not mean 
everybody is not working. It means about 15 percent of them are 
not. That means 85 percent of the people in those neighborhoods 
are working and they need basic banking services.
    So what happened to this bank? They opened a branch in 
Houston's fifth ward. They predicted that maybe in 5 years, 
they would be profitable. Within the first year, it became the 
most profitable branch in this bank's network, that first year. 
And this is true in Roxbury where I come from, in other 
communities around the country where they have opened branches 
and they have found indeed there is a pent-up demand, indeed 
they can make a profit. So I think what we really need to do 
is--I would like to see those payday lenders go out of business 
altogether. I would like to see the check cashers have a 
nominal impact in these neighborhoods.
    I would like to see the same kind of basic banking services 
that are available to upper- and middle-upper-income white 
Americans available to blue collar, white, black, brown 
Americans throughout this country. I think that would be a 
Democratic society and a fairer system.
    Mrs. McCarthy of New York. We have heard the argument here 
on those kind of hearings from the other side of the aisle, 
that a lot of their constituents like going to the payday and 
they don't want to see them closed. But just to close your 
argument, and I know you have said it a million times. Kenneth 
Lewis, CEO of the National Urban League Annual Conference spoke 
there. And he basically talked about how Bank of America 
supports CRAs, they have had good relations with it, and they 
see it as a future for many, helping middle-income and lower-
income families. So I thank you for your testimony and I yield 
back the balance of my time.
    The Chairman. The gentleman from Texas, Mr. Marchant.
    Mr. Marchant. Thank you, Mr. Chairman. I would like to 
focus my questions on the expansion of the CRA into other 
financial institutions. For Mr. Taylor, is it your opinion that 
the--if the CRA even if the CRA was properly enforced under 
current law that it would not provide sufficient community 
investment or community loans?
    Mr. Taylor. If it was properly enforced, it would be 
helpful, but it wouldn't do as much as we could do to bring 
more capital and credit to underserved neighborhoods.
    Mr. Marchant. But to the banking commissioner, you 
testified that you currently do not have any banks that--in 
Massachusetts. Is this State charter or State and Federal 
charter?
    Mr. Antonakes. State charter.
    Mr. Marchant. State charter that are in noncompliance and 
that are written up under CRA?
    Mr. Antonakes. Not at the current time. There was a time in 
which we had a significant portion that were not compliant. But 
at the current time we have--I believe it is--I believe we 
have--all of our banks are in compliance.
    Mr. Marchant. Under H.R. 1479, the CRA has expanded the 
independent mortgage companies, mainstream credit unions, 
insurance companies, security firms, and investment banks. Now, 
if--from the argument of simplicity and the argument of 
enforcement, if the opinion is that CRA is not being enforced 
currently among the banks and it has not been effective, how 
would you add all of these additional entities in there which 
obviously have very complicated implications as their loan 
portfolios?
    Mr. Antonakes. I would argue that the law is not 
consistently applied and certainly there are ways to improve 
and that is what we are discussing today. And 30 years is a 
long time in banking, in the industry and banking practices 
have changed. Secondly, there are new players in the market. 
And I think that is what has to be reflected as well. Let me 
say this about our application of CRA to credit unions. We have 
applied CRA to credit unions since 1982, and there has been a 
lot of discussion regarding regulatory reform, about a 
regulatory arbitrage and a race to the bottom.
    In Massachusetts, if you are a State-chartered credit 
union, you will comply with CRA. You can flip to a Federal 
charter if you want to lawfully and you can get out from under 
that obligation. In 27 years, no Massachusetts State-chartered 
credit union has ever flipped its charter to evade its CRA 
responsibilities. Is there an increased compliance cost 
associated with CRA? Yes, there is. One I think we have to make 
sure is appropriate and commensurate with the market share of 
the institution. Those credit unions that have flipped charted 
in a few instances for other reasons have all told us that we 
maintained our CRA program after we started operating under a 
Federal charter because it was good business.
    Mr. Taylor. Can I answer that?
    Mr. Marchant. I would like to hear Mr. Taylor's opinion.
    Mr. Taylor. First off, I do want to thank you because it 
sounds like you are really thinking this through and it is a 
very thoughtful question. And it gives me the opportunity to 
say you are absolutely right, a number of these agencies would 
have to either create new departments to be able to regulate 
under CRA or, as it should be, it moves over to the Consumer 
Finance Protection Agency. We could have one agency that works 
on this law along with the others that applies to all the 
financial services sector so that you can streamline the 
process for having this oversight with the single agency rather 
than having multiple agencies now develop new departments.
    Mr. Marchant. Expanding it into, for instance, investment 
banks, securities firms, what would be the name of a security 
firm?
    Mr. Taylor. The name of a security firm?
    Mr. Marchant. Would it be Goldman Sachs? I am trying to 
understand--
    Mr. Taylor. Yes, it would be. But it would be obviously.
    The Chairman. It would have to be; there aren't many others 
left.
    Mr. Taylor. Obviously, those without a retail presence 
would have a different obligation. Their obligation would be to 
make sure that they are actually securitizing loans that relate 
to low- and moderate-income products that have been generated 
by the financial services sector. If they say, for example, we 
are not going to securitize any loans that are not--let us take 
mortgages--not on houses that are worth less than $400,000, 
well, that pretty much cuts out most of the middle class and 
low- and moderate-income people altogether.
    So they have an obligation to report what they are doing 
and not doing to--also to be able to do investments in 
institutions that act as intermediaries and partners with the 
financial institutions, banks to have those security firms and 
investment banks invest in them so they can develop jobs, 
housing, rental housing. Yes.
    The Chairman. Time has expired. I now recognize the 
gentleman from Texas. And he has agreed to yield me 30 seconds. 
We heard from the gentleman from California that if you are 
Fannie Mae and Freddie Mac--I want to add a couple of facts. I 
am quoting now. ``In 1996, the Department of Housing and Urban 
Development required that 42 percent of Fannie and Freddie's 
mortgage financing should go to borrowers with income levels 
below the median. Clinton administration.'' ``In 2004, HUD 
revised these goals, increasing them to 56 percent and 
additionally mandated that 12 percent of all mortgage purchases 
be `special affordable' loans, made to borrowers with incomes 
less than 60 percent of the median, a target that ultimately 
increased to 28 percent for 2008.'' ``After this authorization 
to purchase subprime securities, subprime and near-prime loans 
increased from 9 percent in 2001 to 40 percent in 2006.''
    Now, obviously, we are talking here about the Bush 
Administration from 2001 to 2006 and the Bush Administration 
that brought this up from 42 to 56 and specifically mandated 12 
percent be for people below median. And I do not like to quote 
without giving credit. So let me note that I am quoting from 
the Hensarling amendment added to the mortgage bill at the 
motion of the gentleman from Texas. The gentleman from Texas, 
Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. Let me move quickly. 
Friends, thank you for your testimony. Just for the record, if 
you agree that the CRA was not, not, N-O-T, a cause of this 
financial crisis, will you kindly raise a hand? Let the record 
reflect that all have concurred that the CRA is not the cause.
    Now, Mr. Taylor, you have been very courageous today and I 
thank you. You have indicated that facts don't seem to make a 
lot of difference in this conversation, this dialogue. I would 
like to say argument, but I am not sure that it really is an 
argument at this point. And do you agree that you have said 
that the facts don't make a lot of difference? Is this true? 
Did you say this?
    Mr. Taylor. Yes, I did.
    Mr. Green. Would you agree then it is not about facts when 
facts don't make a difference? Would you agree with this 
premise?
    Mr. Taylor. Yes.
    Mr. Green. If it is not about facts, what is it about, Mr. 
Taylor?
    Mr. Taylor. I suppose it is politics, it is posturing. 
Unfortunately, what it is not about is trying to make sure that 
this free market, this financial services system works to the 
benefit of all people, including working class people and 
people who are working their way up the economic ladder. 
Because if you don't have access to quality products from banks 
and others so that you can build wealth, you are not going to 
be very successful in this democracy, in this capitalist 
system. That is what this is all about unfortunately. I 
honestly don't get some of the Republicans. I don't get it at 
all frankly because they ought to be embracing the CRA because 
it is about making the free market work in a safe and 
sustainable way and making sure that their constituents who are 
not wealthy people, but some of them are presumably working 
class people, that they have the opportunity to try to build 
wealth and realize their version of the American dream. I don't 
get it.
    Mr. Green. Let me intercede and make a couple of comments 
quickly and perhaps you will have an opportunity to respond to 
some other things. You mentioned Texas, and Houston, Texas. I 
am aware of what you speak. And the truth be told, once the 
first bank came in and started to rake in the dollars in the 
coffer and the coffers started to expand, other banks decided 
that this is really not a bad idea. And we now have many banks 
that have gone into some of these neighborhoods simply because 
someone forced literally the first to go in, forced in a sense 
they were cajoled and encouraged. No one did it physically.
    Mr. Taylor. That there was a law that required it--the CRA.
    Mr. Green. The CRA as strong as it is didn't do enough to 
help us to the extent that I would like to see us helped. 
Finally, I want to make a comment to no one in particular, but 
just the people. It is easy to be your brother's keeper when 
you don't have to keep your brother. We have a lot of folks who 
talk about keeping their brothers until it is time to be the 
brother's keeper. And at that point, CRA becomes invidious, 
community development bloc grants become too much for those who 
have too little. They always seem to find a way to be their 
brother's keeper until it is time to keep their brothers. I 
yield back the balance of my time.
    The Chairman. The gentleman from New Jersey.
    Mr. Lance. Thank you, Mr. Chairman. I yield 30 seconds to 
Mr. Hensarling.
    Mr. Hensarling. I thank the gentleman for yielding just to 
respond to our chairman's comments. As I listened to his words, 
it seems like he doesn't debate the facts. He just simply wants 
to assess the blame. And I know that no one will miss President 
Bush more than our chairman. But I don't see him denying the 
fact--
    The Chairman. Will the gentleman yield?
    Mr. Hensarling. It is not my time.
    The Chairman. Will the gentleman yield? No. I don't deny 
the fact. I just would note that in 2004, when the Bush 
Administration upped those homeownership goals, I objected to 
them. So I am very much acknowledging the facts and putting the 
blame where it lies, on George Bush, not CRA.
    Mr. Hensarling. Assuming the gentleman still continues to 
yield time--and I know that the gentleman quoted from an 
amendment of mine. I will take the chairman at his word that he 
fought that proposal. I assume that it is in the record. But 
again, it was the chairman who said, I believe, when it comes 
to dealing with safety and soundness issues on Fannie and 
Freddie, that he wanted to roll the dice. And so I will 
return--
    The Chairman. Let me ask for unanimous consent for an 
additional minute. And I will take 30 seconds and yield to the 
gentleman. Yes, I did say that. I was talking about affordable 
rental housing and I am a little surprised that the gentleman 
said he will take me at my word. I will provide for him the 
quotation from Bloomberg in 2004 when I specifically was quoted 
as objecting in the article by Jim Tyson to that increase in 
homeownership goals saying it was bad for Fannie and Freddie 
and bad for the homeowners.
    Yes, I was willing to do more and gamble for what was 
rental housing. And I will supply to the gentleman that 
quotation from 2004 and put it in the record and yield to him 
the rest of his time.
    Mr. Hensarling. Well, certainly it is not necessary and I 
apologize if it appeared that I wasn't taking the chairman at 
his word. I take the chairman at his word. I don't recall that 
specific debate, but I take you at your word. But again, I 
think the facts speak for themselves as to what happened, what 
contributed to the cause in the subprime debacle. We will 
continue to debate it. Again, all I have heard from the 
chairman is not necessarily debating the facts, simply who is 
to blame. And I thank the gentleman from New Jersey for 
yielding.
    Mr. Lance. Thank you.
    The Chairman. With unanimous consent, we will give the 
gentleman 5 minutes.
    Mr. Lance. Thank you very much, Mr. Chairman.
    The Chairman. And the rest of the members will ask him not 
to yield to us again.
    Mr. Lance. Thank you, Mr. Chairman. Number one, let me say 
that from my perspective, I certainly respect the point that 
the CRA is not responsible for the subprime crisis. I have a 
great respect for Larry Lindsey and also for Ben Bernanke. 
Number two, I hope that this Congress defunds ACORN. And I am 
sorry that there was funding by the Bush Administration, and 
now by the Obama Administration, and I think ACORN has widely 
been discredited.
    Number three, I think that banks are chartered to be 
responsible to their communities both at the State and the 
Federal level. Number four, however, to get to my line of 
questions, the Congressional Research Service has indicated 
that some bankers have identified CRA as the most burdensome 
regulation placed upon them. And this has been the experience 
based upon discussions I have had with bankers in the district 
in New Jersey I represent. Does the panel have recommendations 
on how to simplify the regulations that currently exist 
regarding CRA? Yes, sir?
    Mr. Roberts. Yes. There are some regulations that are too 
complicated. There are a lot of restrictions on where banks can 
get credit for making loans and investments. Instead of saying 
go and lend to low- and moderate-income places, the rules 
basically say, we are only going to give you credit if you 
invest within a certain radius of where you are. And if you 
want to join with other banks and work together, we are not 
going to give you credit if some of those other loans go 
elsewhere. And this rule makes it very hard to get things done. 
Another example is: in New York, a key part of the financing 
for rental housing are letters of credit. It has been almost 
impossible for the banks to get CRA recognition for their 
letters of credit. They are incredibly important to the system.
    Mr. Lance. That would be a commonsense reform in which we 
should engage statutorily in your judgment. Mr. Taylor, your 
views?
    Mr. Taylor. First, I don't know how old that document is 
you are reading from. Do you have it in front of you? Because 
it sounds pretty dated. Because actually it is dated, right?
    Mr. Lance. I do not have a date on it.
    Mr. Taylor. We actually follow this pretty well and I think 
the complaints from the banking institution as regards to CRA 
regulation have been pretty quiet and pretty subdued over the 
last several years. Furthermore, you should probably know, you 
probably already do know that the bankers and the American 
Bankers Association support expanding CRA to credit unions and 
others.
    Mr. Lance. I am not suggesting--
    Mr. Taylor. No. I am saying that if they support expanding 
it, I doubt that they would continue to argue that it is too 
burdensome for them. I just haven't heard that. And what I have 
read is that of all the regulations that are imposed on them, 
it is really not the--
    Mr. Lance. The bankers with whom I have spoken in my 
district--
    Mr. Taylor. Can I have their names, sir? I am just kidding.
    Mr. Lance. I would be happy to supply the bankers with whom 
we have discussed this.
    Mr. White. Well, first let me address what John was just 
saying. Of course, the bankers would want to have the pain 
expanded, misery loves company. That doesn't come as a 
surprise. As I indicated in my testimony, if you are going to 
keep CRA and do anything about it, quantify it. Change it from 
this vague leaning on type of regulation, quantify it.
    Mr. Taylor. Quotas.
    Mr. White. Make it clear.
    Mr. Lance. Thank you. Commissioner Antonakes, do you have a 
view on how we might improve the system?
    Mr. Antonakes. Sure, Congressman, I do. I think we have to 
acknowledge that diversity of our banking system is very 
important in this country. The large money center banks had to 
leverage during this period the community banks have continued 
to lend. So I do think we have to increase the risk base manner 
in which we supervise with CRA compliance. There is a very big 
difference in how we should--
    Mr. Lance. --versus the largest banks in the--
    Mr. Antonakes. The largest banks in the country.
    Mr. Lance. And I yield back the balance of my time. Thank 
you, Mr. Chairman.
    Mr. Green. [presiding] The Chair now recognizes Mrs. Capito 
for 5 minutes.
    Mrs. Capito. Thank you, Mr. Chairman, I am going to pass on 
questions in the first panel. Thank you.
    Mr. Green. The Chair recognizes a person who should have 
been recognized, Mr. Cleaver, for 5 minutes.
    Mr. Cleaver. Thank you.
    I am having a really weird experience serving in Congress. 
And I guess over the last few months, I am experiencing things 
that I just didn't believe to be a part of life, real life. And 
it is just amazing and that is--and I guess I just didn't 
understand how we are supposed to function here. I didn't come 
up to function in a way that I have seen, which is no matter 
what, we are required, I think in this body to challenge 
indisputable, unarguable facts, no matter what, we just ignore 
it. Since I have been here, I see people talking right past 
each other. And I don't even know why some of this conversation 
is going that is taking place.
    I have a lot of follow up with what Congressman Mel Watt 
had earlier said. He introduced the CRA to the record. He 
wanted it to be placed in the record. I want to quote from the 
Act. I know that is not the way we are supposed to conduct 
business here, but I think this is important. According to the 
Act, ``lending is supposed to be consistent with the safe and 
sound operation of such institutions from the Act.'' That is 
not my philosophy, it is not biblical. It is the facts, it is 
what is in the law. I will yield to anyone on the panel, in 
Congress, in the audience, or on the Redskins. If they can read 
from the Act anything that says something contrary to what I 
just read. I will yield to anyone on the planet.
    Yes, sir, I want you to stand up and state your name.
    Mr. Pinto. I am going to be on the next panel. My name is 
Ed Pinto. I am representing myself--
    Mr. Green. Mr. Cleaver, let me do this, this is a little 
bit irrelevant. Why don't we hear from the gentleman on the 
next panel, and I am confident that we will be back.
    Mr. Cleaver. Well, we may not need to hear from him. If he 
doesn't have the bill, and is not going to read from the bill, 
it is irrelevant to the question I asked. Do you have a bill?
    Mr. Pinto. I have the--
    Mr. Cleaver. Were you getting ready to read from the bill?
    Mr. Pinto. I have the post bill, I don't have the existing 
bill.
    Mr. Cleaver. Maybe I wasn't clear. I want anybody to read 
from the bill anything contrary to what I just read.
    Mr. Chairman, I yield back the balance of my time.
    Mr. Green. Let me do this. We will make sure that you have 
a copy of the bill and when we return, you'll have an 
opportunity to read.
    Friends we have two votes, this should take approximately 
30 minutes. We will recess for approximately 30 minutes--hold 
it for a moment, I am being given some additional intelligence.
    We have one additional member who would like to ask 
questions, I am told he is immediately available, Mr. Ellison, 
and as soon as he comes in, we will take him and have him ask 
his questions.
    Mr. Ellison, we will recognize you for 5 minutes.
    Mr. Ellison. All right, thank you.
    Thank you, Mr. Chairman. I am multi-tasking here. Mr. 
Taylor, as you know, the CRA offers great flexibility to cover 
institutions with how they can comply. Have these particular 
institutions found innovative ways to which to do so such as 
funds that invest directly in underserved communities?
    Mr. Taylor. Yes. In fact, the banking industry has been 
very creative and I think somewhat aggressive in trying to find 
and work with organizations like LISC and other intermediary 
organizations, with community development organizations, 
community development and financial institutions, a number of 
other mechanisms to try and serve on the underserved 
populations. And then some of the larger banks have created 
whole community development departments, investment departments 
and community development, affordable housing programs, very 
innovative, creative and very effective programs.
    Mr. Ellison. Thank you. Should Congress consider including 
broker dealers under the CRA?
    Mr. Taylor. Say it one more time.
    Mr. Ellison. Should Congress consider including broker 
dealers under the CRA?
    Mr. Taylor. What has happened in the evolution of the 
financial services sector is that in lieu of branches, many of 
these financial institutions, the banks, have been using 
brokers and broker dealers as a way of accessing or creating 
large--sending product into communities. And I think it is high 
time that this got looked at within their CRA exam as part of 
what they are doing and not doing in underserved communities.
    Mr. Ellison. Thank you.
    This question is to everybody, feel free to dive in. What 
are your thoughts regarding whether authority relating to the 
CRA should continue to remain with the functional regulators or 
should be moved to a new consumer financial protection agency. 
I invite anybody to answer that one.
    Mr. Antonakes. Congressman, I will start. I support the 
creation of the CFPA as a rulemaking body, I think primary 
enforcement should be retained with the prudential regulators, 
however I believe that CFPA should have the ability to step in 
if they deemed deem enforcement to be unsatisfactory by the 
Federal regulators.
    Mr. Ellison. So like back stop jurisdiction.
    Mr. Antonakes. Correct.
    Mr. Ellison. Others?
    Mr. Taylor. I think it is imperative that the Consumer 
Finance Protection Agency include oversight of CRA. What more 
evidence do we need from the existing regulatory agencies who 
treated this law like a stepchild regulation for most of its 
history. Ignored it for many periods and really have just 
simply ended the public hearings, created great inflation, CRA 
great inflation where beginning in the 1990's, you looked at 
for the first 5 years, 5 percent of banks failed the CRA 
ratings, some years it was as close at 10 percent, so now it is 
consistently less than 1 percent, even in the period where we 
had the worst lending practices in modern history.
    So we need someone whose mission it is to look out for the 
taxpayer, to look out for the consumer, to look out for the 
homeowner, the small businessperson so we need the CFPA to have 
oversight on this.
    Mr. Ellison. I would like to follow up on that question. I 
am aware that there have been different grades that the 
industry has received with regard to CRA compliance, and now it 
is like less than 1 percent, before it was not nearly that 
high. And yet we have seen the proliferation of fairly 
disturbing practices. How do you account for that?
    Mr. Taylor. Well, I can't. But I can tell you having served 
on the Consumer Advisory Council of the Federal Reserve and 
worked with all these Federal agencies, we have been frustrated 
over the years, terribly frustrated in trying to get them to 
focus, indeed focus on a lot of predatory lending and the 
problems that brought this Nation economically to its knees. 
And we just haven't been able to make any headway. Even the 
recent rules that the Fed finally released, they released them 
in July 2008, long after the economy had collapsed, long after 
they knew that these were problematic. So the sheriff dropped 
the ball, they did not enforce the law.
    Mr. Ellison. But the sheriff got an ``A.'' The sheriff was 
passing out--
    Mr. Taylor. I don't know who gave the grade.
    Mr. Ellison. You know what I mean, though. Mr. Roberts, do 
you want to dive in?
    Mr. Roberts. Right. If you make an analogy here between CRA 
grades and school grades, on CRA, you can get an ``A,'' ``B,'' 
``D'' or ``F;'' you can't get a ``C.'' And that is required by 
the Congress. So if you are a regulator, you are going to give 
somebody who is really a ``C'' student a ``B'' or going to give 
them a ``D?'' ``D'' is pretty bad.
    Mr. Ellison. So what you are saying is we need to reform 
the way we rank CRA compliance?
    Mr. Roberts. Absolutely. I would add a ``C'' grade, a low 
satisfactory grade. And then I think we need to have both 
carrots and sticks to encourage good performance and discourage 
poor performance.
    Mr. Ellison. Okay, okay, very good. Mr. White, you didn't 
weigh in on this one.
    Mr. White. I was asked this question before by 
Representative Waters. I don't see CRA as being part of the 
CFPA.
    Mr. Green. You will have to make it brief, because we have 
a vote.
    Mr. Ellison. Well, that is all the time I have, thank you 
very much.
    Mr. Green. We will stand in recess for approximately 30 
minutes.
    Mr. White. Will you need this panel?
    Mr. Green. The panel is excused. Thank you for your 
attendance and for your testimony.
    [recess]
    Mr. Green. We shall now reconvene the hearing. I would like 
to introduce the third panel and thank the persons who are part 
of this panel for waiting and being so patient. We have with 
us: Judith A. Kennedy, president and chief executive officer of 
the National Association of Affordable Housing Lenders; Michael 
A. Stegman, Ph.D., director of policy and housing at the 
MacArthur Foundation; Mr. Edward Pinto, real estate financial 
services consultant; Ms. Leslie Andersen, chief executive 
officer, Bank of Bennington, on behalf of the American Bankers 
Association; and our final witness will be Mr. Orson Aguilar, 
executive director of The Greenlining Institute.
    All witnesses having been introduced, I shall now ask that 
each witness have 5 minutes to summarize your testimony, after 
which you will be subjected to questions. We will start with 
Ms. Kennedy.

 STATEMENT OF JUDITH A. KENNEDY, PRESIDENT AND CHIEF EXECUTIVE 
  OFFICER, NATIONAL ASSOCIATION OF AFFORDABLE HOUSING LENDERS 
                            (NAAHL)

    Ms. Kennedy. Thank you, and good afternoon. As I was 
preparing for this testimony, I kept thinking about a eulogy 
Senator Ted Kennedy delivered 3 years ago at a service for 
Senator Proxmire. Senator Ted Kennedy opened by saying that 
Senator Proxmire was a true American profile in courage. I 
assumed it was because of the infamous, famous, genocide treaty 
that the Senator worked so hard to have enacted. But in fact, 
Senator Kennedy recognized Proxmire for his Banking Committee 
work first, saying nearly 30 years after he passed it, his 
Community Reinvestment Act has produced literally hundreds of 
billions of dollars worth of private sector investment in our 
Nation's urban and rural communities.
    And not many others can claim such an accomplishment. He 
made America a better place with CRA. I absolutely agree. After 
the memorial service, you won't be surprised to hear that the 
Senator, his wife, and I talked about what was happening in the 
GO zone and how to use CRA to better help redevelopment.
    Our mission, NAAHL's mission is 100 organizations, banks, 
nonprofits, foundations, and others all devoted to funneling 
those hundreds of billions of dollars of private capital 
leveraging scarce funds. You heard Buzz Roberts, one of our 
board members, speak earlier about leveraging 30 to 1. On 
affordable rental housing, CRA leverage is about 25 to 1. So it 
has been a huge success story and I think probably not well-
known. For example, we had $100 billion invested in low-income 
housing tax credits in 20 years, and $8 billion in new markets 
tax credits in just 7 or 8 years. Every year, for the last 5 
years, CRA-reportable HMDA data confirmed $400 billion in loans 
made by banks to low- and moderate-income people--$50 billion 
way understates loans made on family affordable rental housing.
    So you won't be surprised I am here to say, don't throw the 
baby out with the bathwater, and don't cut the baby in half. 
This is huge business, and it does not involve lowering of 
standards. We should recognize though that the regulations 
haven't caught up with best practice by banks under CRA. We 
should also recognize that CRA's success story has been 
focusing on community development needs, i.e. the needs of low- 
and moderate-income people. So as you go forward, our 
recommendations are really going to be around. Don't lose the 
focus, don't undermine the success by asking CRA to do what 
other laws were intended to do.
    First and foremost we say, please address the weaknesses in 
the current regulatory structure. The deferred maintenance in 
updating the regulations, the process by which the examinations 
go on, all are badly in need of updating.
    But second, do no harm, for more than 30 years, this law 
has encouraged insured depositories to meet the credit needs of 
their communities on safe and sound terms, and any changes in 
the law should be carefully considered, practical to implement, 
and incentivize lenders to engage in high-impact activities. 
But finally, address the dual mortgage problem. In 2001, NAAHL 
partnered with former, now deceased, Fed Governor Ned Gramlich 
to highlight the craziness of a dual mortgage market. In 2004, 
we did another symposium and we could never communicate 
adequately the chaos that the unregulated alternative network 
of mortgage originators was wreaking, we now know.
    So is CRA is a success story? Absolutely. Maybe one of the 
successes is CRA has created a cadre of bankers and banks who 
now get it. They recognize that you can do good in underserved, 
as Caroline McCarthy spoke of today, on fair terms and make 
money.
    We think it is going to be critical that CRA is revitalized 
for preservation of affordable rental housing. Let me give you 
one Alabama example, I can't help it, not just Rosa Parks 
Homes, in the last 5 years, 41 banks in Alabama, through our 
nonprofit Alabama's Multifamily Consortium, have developed two 
56-unit elderly properties in Birmingham. Beautiful blessings 
on their communities.
    One of the more interesting things that has happened with 
CRA money recently in the State of California where they have 
these budget problems, our member Low Income Investment Fund 
has been essentially asked by daycare centers and charter 
schools to reinsure the State of California. When California 
can't provide subsidy money owed to daycare centers and charter 
schools in low-income areas, somebody still has to still 
provide the milk. And so our Low Income Investment Fund has 
been using CRA dollars from banks to extend bridge loans to 
these entities to provide what they need for the low-income 
kids so parents can go to school--go to work, maybe go to 
school too.
    [The prepared statement of Ms. Kennedy can be found on page 
144 of the appendix.]
    Mr. Green. We will come back to you when the questions are 
asked. Let us move forward.
    Let me make this comment for the record: all statements 
will be placed in the record without objection, so as you 
summarize, know that you are doing so with the understanding 
that your statement will be a part of the record. Mr. Stegman?

 STATEMENT OF MICHAEL A. STEGMAN, PH.D., DIRECTOR, POLICY AND 
     HOUSING, JOHN D. AND CATHERINE T. MACARTHUR FOUNDATION

    Mr. Stegman. Good afternoon. While I appear here as an 
employee of the MacArthur Foundation, the opinions I express 
this afternoon are my own.
    I have been a longstanding student of the Community 
Reinvestment Act, and believe there is solid evidence it has 
been directly responsible for increasing lending for low-income 
home purchases and, in Chairman Bernanke's words, serving as a 
catalyst inducing banks to enter underserved markets that they 
might otherwise have ignored.
    In my professional experience, I have never come across a 
CRA mortgage program whose underwriting guidelines didn't 
require certification of our income or that employee deeply 
discounted teaser whose payments were guaranteed to explode 
shortly into the loan term. Or enabled the low- or moderate-
income borrower to decide for herself what her monthly loan 
payments would be are allowed deeply negative amortization. In 
fact, most CRA programs with which I am familiar also require 
escrow accounts to assure the borrowers timely payment of real 
estate, taxes, and insurance obligations. This explains why an 
accumulating body of research confirms that CRA-driven mortgage 
portfolios outperform other market segments in recent years. A 
case in point is research that my UNC colleagues and I have 
conducted over much of the past decade, which tracks the 
performance of a $4.5 billion portfolio of nearly 50,000 CRA 
loans originated by 36 lenders across the country.
    Our search finds--and controlling for loan vintage 
origination date, borrower credit and loan characteristics--the 
estimated cumulative default rate for a comparable group of 
subprime borrowers was about 3\1/2\ times greater than that 
experience with the CRA borrowers.
    Next, I will weigh in on the ongoing discussion of the 
policy rationale from posing community reinvestment 
requirements on financial institutions. The most common 
argument is grounded in institutions receipt of Federal deposit 
insurance and related charter benefits. While this is a 
powerful argument and one most frequently cited for expanding 
CRA coverage based on the extension of FDIC insurance to an 
array of Wall Street investment and insurance firms, I think 
there is an even more compelling argument for extending CRA 
requirements to many more mortgage-related institutions.
    I embrace former Federal Reserve Governor Lawrence 
Lindsey's public goods argument for imposing CRA obligations on 
financial institutions, that is, it is in the national interest 
and for the common good that low- and moderate-income 
populations fully participate in the American economy and that 
this is not possible unless the financial services and credit 
needs are as well served as those of higher income populations. 
A public goods argument recognizes that shrinking share of the 
mortgage mart accounted for by CRA covered loans, covered 
institutions and that absent a duty to serve that would apply 
to the broader financial services sector the credit needs of 
underserved population will continue to be under supply because 
the economic returns of providing such services to them cannot 
be fully captured by any individual supplier. Much about credit 
markets and financial service providers has changed since the 
CRA was enacted and even since the Clinton era reforms. We now 
recognize that the terms of credit are as important as the 
availability of mortgage finance in underserved communities, 
and the principle of sustainable mortgage finance is important 
to consider within a CRA context. As is the notion of negative 
credit for institutions or their subsidiaries or affiliates 
that provide abusive loan products, inside or outside their 
assessment areas.
    There is also more market concentration today among CRA-
covered institutions than in past decades. Today, America's 10 
largest CRA-covered institutions have combined deposits of more 
than $3.1 trillion and a 45 percent market share. In my view, 
not only should this top tier of depository have affirmative 
obligation to meet the credit needs of the designated 
communities, but Congress should impose upon them an additional 
duty to lead the financial services industry in the development 
commercialization and scale up of innovative, affordable and 
sustainable credit products and financial services in low-
income communities. One needs look no further for such a 
precedent than a new rule being promulgated by Fannie Mae and 
Freddie Mac's now regulator.
    The Federal Housing Finance Agency has imposed on the GSEs 
a duty to serve specified mortgage finance needs of underserved 
markets that are above and beyond Fannie and Freddie's 
affordable housing goal purchase requirements. I believe that 
this top tier of CRA-covered institutions should have a similar 
duty to serve as beacons of innovation and creativity that is 
over and above their traditional CRA requirements. Whatever 
form enhanced CRA might take, it goes without saying that the 
bedrock principle should be retained that no CRA mandate should 
impair an institution's safety and soundness, nor should it 
ever require banks to become subsidizers of last resort. 
However, there is an important difference between the requiring 
covered institutions to offer financial services or credit 
products that are unprofitable over the long-term.
    [The prepared statement of Dr. Stegman can be found on page 
176 of the appendix.]
    Mr. Green. I am going to have to intercede. We will come 
back to you, and you will have an opportunity to continue. Mr. 
Pinto, you are recognized for 5 minutes.

 STATEMENT OF EDWARD J. PINTO, REAL ESTATE FINANCIAL SERVICES 
                           CONSULTANT

    Mr. Pinto. Mr. Chairman, members of the committee, thank 
you very much for this opportunity to testify. I have 15 years 
experience in affordable housing lending. I was Fannie Mae's 
Chief Credit Officer from 1987 to 1989. While at Fannie, I had 
the pleasure to work extensively with the late Gale Cincotta, 
the founder of National People's Action. Some of you may be 
aware that Miss Cincotta is affectionately known as the mother 
of CRA. She and I collaborated over a 3-year period to develop 
a carefully designed program whereby Fannie would purchase CRA 
loans originated by local banks. I would like to remind you of 
some of the things that Ms. Cincotta would say before 
committees like this about high-risk lending. She spent 30 
years, ``Fighting abuse, fraud and neglect of the FHA program 
that has destroyed too many neighborhoods, too many family's 
dreams of homeownership.'' She warned that ``poor lending 
practices lead FHA to have a national default rate 3 to 4 times 
the conventional market and in many urban neighborhoods it 
routinely exceeded 10 times.''
    I have spent the last 14 months researching what caused the 
real estate bubble and the subsequent financial meltdown 
estimating CRA lending volumes and loan performance was 
particularly difficult and opaque. For example, my research 
found that FHA's percentage of new foreclosure starts has 
steadily increased over the last 60 years from 0.06 percent in 
1951, to 2.36 percent in 1998 when Gale testified, to 4.4 
percent estimated for this year.
    Gale was appalled at FHA's default rate in 1998. Based on 
my CRA research, I believe she would call CRA lending toxic. 
She would tell you that the American nightmare foreclosure, as 
she called it 11 years ago, has now spread to virtually every 
corner of these United States. Over a 17-year period, 1992 to 
2008, this was a total of $6 trillion in announced CRA 
commitments--680 times the cumulative volume of $9 billion 
during the entire first 15 years of CRA. Ninety-four percent of 
this $6 trillion was made by just 4 banks, and you all know 
their names: Wells Fargo; JPMorgan Chase; Citibank; and Bank of 
America. It is those four banks and banks they purchased or 
merged with that accounted for 94 percent of those commitments. 
I don't have time to explain how CRA enabled these and other 
``too-big-to-fail'' banks to accomplish this.
    Single family loan production originated pursuant to CRA 
totaled almost $3 trillion over the period 1993 to 2008. Ninety 
percent, here is where I agree with the other witnesses, 90 
percent of CRA lending was not classified as high rate 
subprime, even though most of it had subprime and other high 
risk characteristics.
    How do I define subprime? FICO scores that are below 660 
representing credit impairment or very high LTVs, or other 
qualifying terms that are high risk, excessively high risk. It 
is estimated that the GSEs alone purchased 50 percent of CRA 
production to help meet their mandated affordable housing 
goals. The combination of CRA originations and non overlapping 
GSE AH acquisitions over $7 trillion over the same period.
    There is little in the way of concrete information on CRA 
performance but consider the following: Third Federal Savings 
and Loan in Cleveland has a 35 percent delinquency rate and 
every single loan was fixed rate, every single loan did not 
have the characteristics that people talk about as being bad. 
They had characteristics that were high risk and they have led 
to a 35 percent delinquency rate versus 2 percent for the rest 
of its entire portfolio. Third Fed's involvement represents a 
case study as to how CRA was sued to weaken credit standards 
and I refer you to footnote number 1 in my written 
presentation.
    Sure, Bank of Chicago has a 19 percent combined delinquency 
and non accrual rate for its entire single family mortgage 
portfolio and they were the Nation's first community 
development bank.
    Fannie Mae and Freddie Mac acquired trillions of dollars in 
high LTV loans that were to meet the affordable housing goals, 
many of which were CRA over the period 1993 to 2007. They 
acquired 62 percent of all such loans. They acquired trillions 
in credit-impaired loans over the same period; again, many of 
them were CRA. These trillions drove up the Nation's 
homeownership rate and after being level for 30 years. The 
GSA's delinquency rate on 1.5 trillion high risk loans 85 
percent of which are affordable housing with 15.5 percent in 
June of this year. That is 6\1/2\ times the 2.4 percent 
delinquency rate on the GSA's traditionally underwritten loan. 
This flood of high risk and CRA and age lending drove house 
price bubble that I have a chart in my prepared remarks.
    In 1998, Ms. Cincotta expressed a wish that FHA's default 
rate would be on par with the GSEs. Unfortunately, she got her 
wish, CRA and age loans acquired by the GSAs have a delinquency 
rate equal to FHA.
    Mr. Green. Mr. Pinto, I have to intercede. We will have to 
intercede and we will move now to Ms. Andersen. Thank you.
    [The prepared statement of Mr. Pinto can be found on page 
162 of the appendix.]

STATEMENT OF LESLIE R. ANDERSEN, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, BANK OF BENNINGTON, ON BEHALF OF THE AMERICAN BANKERS 
                       ASSOCIATION (ABA)

    Ms. Andersen. Mr. Chairman and members of the committee, my 
name is Leslie Andersen. I am president and CEO of the Bank of 
Bennington headquartered in Bennington, Nebraska. I am pleased 
to be here today to present the views of the American Bankers 
Association on the Community Reinvestment Act. ABA believes 
that compliance with the spirit and the letter of the Community 
Reinvestment Act is healthy. Forging partnerships and 
developing a deeper understanding of the perspectives of all 
parties has led to an open and effective system that now most 
closely reflects bank's involvement in serving our communities. 
This evolution has not been without difficulties, but it has 
lead to improvements, and this afternoon I would like to talk 
briefly about the changes that have taken place as CRA has 
evolved and suggest changes that will further strengthen it.
    CRA implementation has matured and clearly demonstrates 
that banks do serve their communities well. The bank 
regulators' initial attempt to meet the mandate of the Act put 
emphasis on process rather than performance. CRA examinations 
became paper trails for talking the talk, rather than the 
recognition that banks were walking the walk. The 
dissatisfaction on the part of bankers, community 
organizations, and regulators led to important changes in the 
regulatory requirements and examination process. These include 
balancing the burden between smaller and larger institutions, 
enlarging the range of lending that received CRA credit in 
rural communities and requiring consideration of any evidence 
of discriminatory lending or violations of consumer protection 
laws.
    Moreover, the CRA examination process is now an open one 
incorporating public opinion as well as the regulators' review 
of banks' compliance.
    Now it would be an exaggeration to say that banks are 
content with the burdens that remain, but the new CRA 
regulations are certainly a marked improvement over the old 
regulations and now better reflect banks' contributions to 
their communities. The bottom line is that banks that do not 
serve the credit needs of their entire community do not 
prosper.
    Drill down in a CRA public evaluation and you will read 
about how we compete for market share across all income levels 
in all neighborhoods. It is therefore not surprising that the 
banking industry excels at satisfying community credit needs. 
Looking forward, bankers believe that the CRA process must 
continue to evolve to meet changing markets and participants.
    There are several ways that improvements can be made. 
First, regulators need to adjust the process to encourage 
responsiveness to market changes. For example, there seems to 
be widespread consensus that financial literacy for all 
consumers is critical to allow individuals to function 
appropriately in today's increasingly complex economy. However, 
ABA members report being constrained by examiner 
interpretations of the regulations and guidance about what 
types of financial education they can offer their communities 
that will pass supervisory muster as CRA.
    In addition, although there has been progress made since 
the last time ABA testified on this subject, we continue to 
press the agencies for giving the appropriate CRA credit as 
community development activity to investments in minority owned 
and women owned institutions.
    Second, the CRA regulations and examination are still too 
complex and should be simplified. Maintaining CRA simplicity is 
important for any modernization effort. Adding burdensome data 
reporting requirements will not materially improve an 
examiner's ability to evaluate a bank's record of CRA 
performance, but will create expenses that could be used to 
actually support the community. Third, the reach of CRA should 
be extended to cover all depositories. CRA itself is tailored 
to the banking industry. However it contains core concepts that 
should be applied to other depository institutions, 
particularly credit unions who are increasingly seeking 
community based charters. These core concepts include: helping 
to meet the financial needs of the institution's entire 
chartered community safely and soundly; applying standardized 
but flexible criteria to measure performance; and providing 
public visibility for the resulting evaluation.
    In conclusion, ABA believes there has been a significant 
evolution of the implementation of the Community Reinvestment 
Act. We believe that changes to simplify the process, add 
flexibility, and provide viability for all depository 
institutions will continue to improve CRA for the future. I 
would be happy to answer any questions the committee has.
    [The prepared statement of Ms. Andersen can be found on 
page 67 of the appendix.]
    Mr. Green. Thank you.
    Mr. Aguilar?

STATEMENT OF ORSON AGUILAR, EXECUTIVE DIRECTOR, THE GREENLINING 
                           INSTITUTE

    Mr. Aguilar. Good afternoon. Mr. Chairman and members of 
the committee, thank you for being here to listen to my 
testimony. My name is Orson Aguilar, and I am executive 
director of an organization called The Greenlining Institute. I 
am here to provide eight simple suggestions for how we can make 
CRA better. First, I would like to say CRA has been successful 
and one of the things you also notice is we have had a love/
hate relationship with CRA. Even though it has done a lot, we 
think it could do a lot more if implemented in a manner in 
which we agree with many of the points made by our colleagues 
in the banking sector. Despite the CRA's success, more can be 
done, and I am going to provide recommendations.
    First, I think we need a new vision for CRA. The landscape 
has changed, as people said, it has been 32 years since we 
first implemented CRA. We need to focus on wealth creation. 
Credit to me is about putting people in debt. I want to see CRA 
enhance economic opportunities, enhance wealth creation so that 
all communities can participate in capitalism.
    In my written testimony, I give some specifics on issues we 
can focus on, homeownership, business ownership, business 
contracts, equity investments, checking accounts and the list 
goes on. But if we can focus on wealth creation, I believe it 
gives us a solid vision for moving forward.
    Second, focusing on wealth creation we can see that we can 
do more in areas of consumer protection. I will give you a 
quick example. There are a lot of complaints about overdraft 
fees at banks. One of the things that we have realized is that 
these types of practices not only strip wealth, but also make 
people, especially people from the communities that I come 
from, not want to continue working with banks. We think it is a 
negative for the banks in the short-term, but it will be very 
negative for them in the long-term.
    Third, CRA should leave room for creativity and leadership. 
We also believe it has become too much of a numbers game, some 
banks that so extraordinary leadership often get satisfactory 
and some banks who get outstanding it is hard to tell why. Some 
of the things that we would like to consider is that there 
should be more room for flexibility and individual creativity 
and leadership on certain CRA factors.
    Fourth, we need to measure the effectiveness of CRA for all 
Americans. And we can only measure the effectiveness with more 
comprehensive demographic data. Many people assume within this 
committee today we have heard diversity data being used in the 
context of discrimination. We like to think of it in terms of 
how do measure progress to make sure that all sectors of our 
Nation whether it be women, African Americans, Latinos, Asians 
or Native Americans are succeeding in some of the key 
indicators that I listed below. There is also a false 
assumption that if we just stick to income data, that we will 
be able to capture communities of color. As we have seen, even 
when you look at subprime lending and control for FICO scores 
and income, you still see African Americans and Latinos twice 
or even 3 times as likely to receive subprime loans.
    I would like to say diversity is growing, there is a 
growing consensus that diversity is a safety and soundness 
issue. The Federal Reserve of Boston said this back in 1992, 
that diversity at all levels should be evaluated and there is 
increasingly more conversation and discussion about how 
diversity leads to greater effectiveness.
    Fifth, CRA needs to be more to support small business. We 
believe small business contracts do a lot to increase the 
viability and soundness of these banks, therefore we urge that 
every CRA regulator gather data on the race and gender of 
contracts awarded. If we work with many of the banks, many of 
the banks provide that information to Greenlining and other 
organizations, they could do this at no additional cost to 
them.
    Sixth, we need to extend CRA to other institutions. If we 
stick with the mission and vision of wealth creation, we 
realize that there are other banking institutions or other 
institutions in general that provide activities for wealth 
creation. This should be brought into CRA in a manner that 
makes sense for them and in a manner that speaks to their 
strengths.
    Seventh, we need a more effective rating system. As we have 
discussed, 99 percent of the banking institutions receive 
satisfactory or outstanding. We do believe that there should be 
perhaps more ratings, we mentioned an outstanding-plus, for 
example, to encourage more competition amongst the banks to 
achieve for higher leadership and more creativity.
    Finally, philanthropy should be a stronger part of CRA, 
especially during these times where you see a lot of 
foundations cutting back on their investments to our 
communities. Philanthropy should be weighted more heavily on 
the CRA exam.
    With that, I would be happy to take any questions.
    [The prepared statement of Mr. Aguilar can be found on page 
61 of the appendix.]
    Mr. Green. Thank you.
    I will now yield to Mr. Watt for 5 minutes.
    Mr. Watt. Thank you, Mr. Chairman.
    Mr. Pinto, let me just ask you a couple of questions, are 
FHA loans and CRA loans synonymous?
    Mr. Pinto. No, I estimate about 15 percent of all the CRA 
loans were FHA.
    Mr. Watt. All right. Ms. Cincotta, is she still living?
    Mr. Pinto. She died, I belive, in 2001. She was 
instrumental in getting CRA passed in 1977.
    Mr. Watt. Okay. I guess I am a little reluctant to argue 
with somebody who is not here. You seem to be testifying in her 
behalf to the facts that you believe she would want you to 
report, many of which I have read and don't relate necessarily 
to CRA at all. If a bank doesn't choose to classify something 
as a CRA loan, would you treat it as a CRA loan anyway?
    Mr. Pinto. No.
    Mr. Watt. And the fact that banks have high default rates 
on those loans that they haven't classified as CRA, you would 
think would be an indictment of CRA in general?
    Mr. Pinto. I don't think I referred to any of those banks.
    Mr. Watt. And you think Ms. Cincotta would consider it an 
indictment?
    Mr. Pinto. I said I don't think I referred to any banks 
that have delinquency rates on CRA loans--I cited--
    Mr. Watt. Well, your testimony suggested that really none 
of this stuff that you testified about really--I reviewed over 
40,000 pages of documents, the process relative to estimating 
CRA lending volumes and loan performance was particularly 
opaque and difficult, yet you go on to generalize about a bunch 
of things related to CRA that you acknowledge your research 
doesn't document. I can't figure out what it is you are saying 
about CRA, which is what this hearing is about.
    Mr. Pinto. Okay, Third Federal CRA loans--
    Mr. Watt. I understand, but I want to know about CRA, what 
are you saying about CRA? Do you support CRA? Or do you think 
Ms. Cincotta would come in here today and tell us that we 
should do away with CRA?
    Mr. Pinto. What I am suggesting is that I have submitted a 
prima facie case that CRA loans have performed poorly, I 
provided evidence of that.
    Mr. Watt. I haven't seen any evidence in this statement, 
because you started out by saying that you couldn't get the 
information that correlates what you have analyzed with CRA.
    Mr. Pinto. No.
    Mr. Watt. The question I want to know is, you think Ms. 
Cincotta, if she were here today, would come in here and tell 
this committee that we should do away with CRA?
    Mr. Pinto. I think Ms. Cincotta would say, find out how the 
CRA loans have performed in reality before you make any changes 
and you can find that out.
    Mr. Watt. Well, that is fair. I am not going to argue with 
Ms. Cincotta's--that conclusion. It is kind of hard for me to 
argue with somebody who is not here.
    Mr. Pinto. Well, I am here, and I would make the same 
statement.
    Mr. Watt. Well, but you know everything you have said here 
you represented on behalf of Ms. Cincotta.
    Mr. Pinto. It is my opinion, yes.
    Mr. Watt. You are kind of hiding behind somebody who is 
deceased, and I think that is a little unfair to reach 
conclusions. I hope her family would support what you are 
saying here today because unless you are suggesting that she 
would support doing away with CRA or substantially watering it 
down, I am not sure I understand what it is you came to talk 
about. We all want to make it more transparent, but I take it 
that banks who were doing things that were irresponsible were 
making a conscious decision that they shouldn't be doing those 
things under CRA, because CRA specifically says that you ought 
to do what is in the interest of safety and soundness. Do you 
read CRA to say something different than that?
    Mr. Pinto. I read the regulations which have the force of 
law in implementing CRA which require the banks that want to 
receive an outstanding CRA rating have to use ``innovative and/
or flexible lending practices.'' And I would argue that the way 
those innovative and flexible lending practices have been 
implemented particularly by a subset of very large banks for 
their CRA lending has led to toxic lending.
    Mr. Watt. I appreciate it. Let me say I am delighted, I 
didn't mean to go off on Mr. Pinto, I am delighted we have some 
people here who have been in this business and really 
supporting CRA, including ABA and others who have worked 
closely with banks in our communities to make lending available 
responsibly in every community that we represent. I thank you 
and I yield back.
    Mr. Green. Mr. Hensarling is recognized for 5 minutes.
    Mr. Hensarling. Thank you, Mr. Chairman. Mr. Pinto, a lot 
of questioning is surrounding your statement on page 4 of your 
testimony. Let's revisit it. Ninety percent of CRA lending was 
not classified as high rate subprime even though much of it had 
subprime and high credit risk characteristics. Later on, under 
this narrow misleading definition, only 10 percent of CRA 
lending ended up being classified as subprime. Ironically, the 
reason that these were not high rate loans is that the big 
banks and the GSEs were subsidizing the rates as recent events 
have painfully demonstrated. Could you elaborate on that 
portion of your testimony, please?
    Mr. Pinto. Yes, my research has found that 90 percent of 
CRA loans were done as fixed rate, they were done as not high 
rate loans, they were done without the characteristics that 
many people call the subprime characteristics. I have heard the 
numbers 2/28 and 3/27 are thrown out. The numbers I would focus 
on are 97 percent and 100 percent. The 97 percent loan was 
introduced as a result of CRA and affordable housing goals. The 
100 percent loans are introduced as a result of same thing. And 
as my testimony indicates, Fannie and Freddie purchased 
trillions of dollars of those loans. Those loans were very high 
risk, they have been known as high risk for decades but they 
were pushed by affordable housing and CRA.
    Mr. Hensarling. What is your data point for that, that they 
were pushed by CRA?
    Mr. Pinto. I would quote the 1992 GSE Act, the Safety and 
Soundness Act which Congress passed, where the GSEs were 
required to undertake a review of its underwriting guidelines 
and examine the ``implications of implementing underwriting 
standards that establish a downpayment requirement for 
mortgagors of 5 percent or less allow a use of cash on hand as 
a source for downpayments and approved borrowers have a credit 
history of delinquency if the borrower can demonstrate a 
satisfactory credit history for at least a 12-month period 
ending on the date of the application for the mortgage.''
    The GSEs high-risk affordable housing acquisition is 50 
percent of which were CRA loans were made as a direct result of 
these congressionally mandated reviews.
    Mr. Hensarling. On page 5 of your testimony, footnote 2, it 
says, ``I believe that Fannie Mae purchased and securitized 
$201 billion of CRA loans in 2002, bringing a CRA cumulative 
total to $394 billion since 2000. CRA acquisitions totaled 25 
percent of Fannie's total loan acquisitions in 2002 and 50 
percent of its affordable housing loans.'' Where do you find 
that fact?
    Mr. Pinto. There is a press release that I can submit that 
Fannie Mae produced, that goes through all these numbers, it a 
Fannie Mae press release. That is what I meant by the term 
opaque and difficult. I was able to, by reviewing these 40,0000 
documents, generally on mortgage defaults, etc, find bits and 
piece that piece this puzzle together, but it was very 
difficult. I said it was difficult, but I didn't say it was 
impossible. And the information I provide in my testimony is 
the result of that thorough research.
    Mr. Hensarling. So you conclude on page 5 of your 
testimony, CRA created the supply and the GSEs created the 
demand. Do you care to elaborate upon that?
    Mr. Pinto. There is no coincidence that the explosion of 
CRA commitments that started in 1992 coincides directly with 
the passage of the GSE Safety and Soundness Act of 1992; they 
were tied together. Again, I can provide evidence from 
supporters of CRA in books that they have written that document 
that correlation. And what that correlation meant was the CRA 
supporters realized that the bank couldn't hold these books on 
their portfolios indefinitely, you needed to liquidate them. 
And the way to get them liquidated, meaning off their books and 
sold was to have Fannie and Freddie buy them. And that was 
really the purpose of the 1992 Act as evidenced by the 
provision that I read and the mandates that were inserted into 
the Act.
    Fannie and Freddie ended up being the demand for the Act, 
for the CRA loans, they were buying them, they were a willing 
buyer and the banks who wanted to merge the four banks who 
bought up all the other banks that ended up being the other 94 
percent they wanted to merge and so it was a marriage made in 
heaven, they were the supply.
    Mr. Hensarling. A couple of quick questions in the 
remaining time for Ms. Andersen. There are a couple of points 
in your testimony that are a little bit confusing to me. I 
think on page 1, you essentially say that the ABA supports the 
Community Reinvestment Act. On page 4, you say banking 
institutions--I am paraphrasing--that do not serve the credit 
needs of their entire community do not prosper. Does your 
organization need to be told and mandated to serve your 
communities of interest?
    Ms. Andersen. No, sir it does not. As a community banker, 
the heart of what we do is serving our community, and the 
Community Reinvestment Act simply documents what we do in the 
course of business.
    Mr. Hensarling. I understand the ``misery loves company'' 
portion of your testimony. I yield back.
    Mr. Green. Mr. Cleaver is recognized for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman.
    The Community Reinvestment Act, I will read again from the 
Act, the CRA Act literally, literally requires that a banking 
regulatory agency evaluate how each of its regulated 
institutions affirmatively meets ``the credit needs of its 
entire community, including low- and moderate-income 
neighborhoods consistent with the safe and sound operation of 
such institutions.''
    And so, Mr. Pinto, you were going to lead from the CRA Act, 
something that would contradict what I just read.
    Mr. Pinto. Yes, as you know, regulations promulgated 
pursuant to an Act have to enforce the law as the same as the 
Act, and the regulations promulgated to implement CRA provide 
that the bank wants to receive an outstanding CRA rating it has 
to use extensive use of ``innovative and/or flexible lending 
practices.'' I would argue that is inconsistent.
    Mr. Cleaver. What page is that on?
    Mr. Pinto. It is not in my testimony; it is in the 
regulations.
    Mr. Cleaver. I sure would like to--I am sure you are 
absolutely 100 percent correct. I think the Nation needs to see 
it. Ms. Kennedy?
    Ms. Kennedy. I think there is some confusion about the 
regulation, it does encourage institutions to be innovative. 
And what that has meant over the years is that institutions 
that want an outstanding CRA rating partner with blue chip, 
nonprofit experts, think of Neighborhood Housing Services of 
Kansas City, which counsel families who have very little money 
to bring to the closing table, to prepare them for 
homeownership. So I think Mr. Pinto's interpretation of the 
regulation and his interpretation of all of the public and 
private studies that have written over the last 10 years that 
argue with Mr. Pinto's conclusion, and in fact, Mike Stegman is 
the expert on this, but the University of North Carolina Center 
for Community Capital recently, and NeighborWorks America 
recently all confirmed the default rates on CRA loans are lower 
than the average loan, let alone subprime.
    There is one other fact I want to get on the record, 
because I think it is really important Fannie Mae and Freddie 
Mac were directed in 1992 that they could, if they wanted to, 
in order to support communities with credit needs. They never 
did that. Mr. Pinto reflects the generation of Fannie Mae 
executives who resisted that. But the tragedy is that in 2005, 
Fannie Mae and Freddie Mac went to HUD, and this was documented 
on the front page of The Washington Post last spring, went to 
HUD and persuaded HUD to give them credit for affordable 
housing which were securities backed by subprime loans that 
yielded higher than market rates. They didn't take less of a 
return, they found a way to game the system and take more of a 
return, even as they were saying publicly that 50 percent of 
the loans should have been prime.
    Mr. Cleaver. I was actually on the Fannie Mae advisory 
committee at that time, appointed by a Republican because I 
don't get into this ideological stuff that doesn't make sense, 
but at any rate, if you would, Mr. Pinto, read the beginning of 
the statement that you just read in response to Mr. 
Hensarling's question, just the first few lines.
    Mr. Pinto. It is on page 8 of my submitted testimony. The 
regulator requires banks to demonstrate that they make 
extensive use of ``innovative and/or flexible lending 
practices'' to get an outstanding rating. A single family is 50 
percent of the weight of outstanding.
    Mr. Cleaver. That was not the thing that I was speaking of. 
You had just read a statement asking for--that spoke of a 
reconsideration or a consideration of, just moments--
    Mr. Pinto. I am sorry, what?
    Mr. Cleaver. Just before the Chair called on me, you read a 
statement where you talked about a new direction with regard to 
CRA because Congress had--
    Mr. Pinto. Oh, from the 1992 Act?
    Mr. Cleaver. Yes.
    Mr. Pinto. The 1992 Act requires the GSEs to undertake a 
review of their--
    Mr. Cleaver. All right, thank you. I am cutting you off 
because I--the point I am trying to make, and maybe I am making 
it poorly, is that there is nothing in this Act that 
contradicts this Act. Do you agree with me, Mr. Pinto?
    Mr. Pinto. I do not. How can you have a regulation that I 
read and which has the force of law, and is interpreting that 
Act and then say that can't--that isn't contradictory. The fact 
of the matter is it is, and--
    Mr. Cleaver. So Congress passed the CRA and then unpassed 
it?
    Mr. Pinto. They effectively amended it.
    Mr. Cleaver. The same legislation?
    Mr. Pinto. No, they effectively amended it through 
regulations.
    Mr. Cleaver. In 1992?
    Mr. Pinto. In varying years.
    Mr. Cleaver. When they asked for a review. That is what you 
said, review.
    Mr. Pinto. A review, that is what Congress said, yes.
    Mr. Cleaver. Okay, just as a preacher, I think about 
synonyms of review, examination, right? If you disagree with 
any of my synonyms, examination, commentary, critique, 
reappraisal.
    Mr. Pinto. I agree that Congress will always provide a fig 
leaf so that the fingerprints are not quite as clear.
    Mr. Cleaver. Do you know when they had the fig leaf 
meeting, when the people gathered in the room to decide how to 
deceive the American public with the fig leaf? Do you have any 
dates at the meeting when they conspired to do this? Because 
those people don't need to be in public office if they met and 
conspired to fig leafs.
    Mr. Pinto. All I know is that within 24 months of that 
direction from Congress, Fannie Mae and Freddie Mac started 
buying loans like--
    Mr. Cleaver. You never used the word ``directive,'' you 
used the worth ``review.'' I am just a Methodist preacher.
    Mr. Pinto. I am just a simple observer.
    Mr. Green. The gentleman's time has expired.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Mr. Green. We will hear from Mr. Royce for 5 minutes.
    Mr. Royce. Thank you, Mr. Chairman. In 1992, Mr. Pinto, the 
Democratic-controlled Congress passed the GSE Act, which 
established the current regulatory structure over Fannie and 
Freddie. And in this legislation, Congress mandated that the 
GSEs devote a percentage of their businesses to three specific 
affordable housing goals each year. As I said in my opening 
statement, these affordable housing goals first established in 
1992 led the GSEs to purchase over $1 trillion in subprime and 
alt A loans. Beyond causing the failure of Fannie and Freddie 
because these accounted for roughly 80 percent of the losses, 
the proliferation of these loans was a major contributor to the 
overall financial collapse. In my questioning to Mr. White on 
the previous panel, I detailed the illustrative lobbying that 
ACORN put on on behalf of CRA, and they used CRA to argue for 
relaxing the previously stringent standards of Fannie and 
Freddie.
    Can you comment on this connection? Is there any connection 
between CRA and these looser standards that led to Fannie and 
Freddie's collapse?
    Mr. Pinto. I didn't bring it with me, but I can point you 
to the book--I believe it is the one Gregory Saunders 
published. And he is pro-CRA. He is very much in favor of CRA. 
And he outlined the process that ACORN and others went through 
in 1992 and prior to 1992 to get the affordable housing law 
implanted in the Fannie and Freddie Safety and Soundness Act. I 
can describe it, but I would rather provide the information 
directly from that book. All I can say is that this language 
that I read from, that asked for this study was part of that 
process. And there was no missing the signal of what Congress--
at least the people who wrote this particular provision--meant. 
Because as I say in my testimony, in 1990, only 8 percent of 
the loans in the United States, conventional conforming loans 
that were used for purchasing of homes were over 90 percent. By 
2007, it was 29 percent. It went up every year.
    Mr. Royce. It was 10 percent down or 20 percent down in 90 
percent of the cases.
    Mr. Pinto. 92 percent of the cases, 10 percent or more
    Mr. Royce. 10 or 20 down as people will recall. And then 
what happened as a consequence of changing it?
    Mr. Pinto. I have the year by year, which I can provide. 
Just bear with me a second. I have too many papers. It went 
from 8 percent to 10 percent to 12 percent to 14 percent. It 
eventually got to, as I say, the 29 percent in 2007. But it was 
a year by year. It just went up and up and up and up. And 
Fannie and Freddie--
    Mr. Royce. And the usual loans then were 3 percent, were 0 
percent.
    Mr. Pinto. And in 1994, the 3 percent down loans were 
introduced as private loans. In 2000 or 2001, the 100 percent 
private loan was introduced. Fannie and Freddie were the major 
purchases of the 95 percent loan and then they became the major 
purchases of 97 and then they became the major purchases of 100 
percent. Again, on the flip side of supply, the CRA loans were 
these exact same loans.
    Mr. Royce. So what we also see during that period of time--
and you have a graph of housing bubble. And you would argue 
that by going to 0 percent down--of course I remember the 
number of loans that were being flipped at that point in time. 
I think in 2005, it was 30 percent of all loans in the United 
States according to the Fed. You had people making loans. You 
had an impetus to get the downpayments down to zero or as near 
zero as possible. You had a consequence of that where it was 
driving a bubble in housing market on top of the fact that low 
interest rates by the Fed--the Fed set the rates too low, 
underinflation rates, which was a mistake. But this on top of 
it was the icing on the cake helping drive the bubble. Let me 
ask you another question. I heard from a former employee of 
Freddie Mac that executives at the company wanted to send a 
message to the market when they began purchasing subprime and 
alt-A loans or alt-A mortgage backed securities for their 
portfolio, that these loans were okay. In other words, if we 
buy Countrywide, it is a signal to the market. They were told 
that was just part of the request, basically sending the 
message to the market that buying subprime is okay. Do you 
think there was some such strategy?
    Mr. Pinto. I do. In fact, I believe HUD was very 
instrumental in getting Fannie and Freddie to do that. I 
believe the date was not 2004. It was 1995 or 1996 when Fannie 
and Freddie got that authority and they started buying those 
securities shortly thereafter. They ended up buying--I forget 
the exact amount--30 percent of all of those securities that 
were ever issued that were subprime. And when they initially 
started doing it, I believe they received a lot of applause 
from HUD and other regulators because it was viewed as having 
exactly that potential impact.
    Mr. Royce. Thank you, Mr. Pinto. Thank you, Mr. Chairman.
    Mr. Green. Thank you. Mr. Pinto, welcome to the committee.
    Mr. Pinto. Thank you. It is a pleasure.
    Mr. Green. It is my honor to have you before us, Mr. Pinto. 
Mr. Pinto, you allege that a friend, a dear friend passed in 
2001; is that correct?
    Mr. Pinto. I believe it was 2001, yes.
    Mr. Green. And do you agree that the subprime fiasco 
developed after 2001?
    Mr. Pinto. I do not.
    Mr. Green. Do you agree that what we are calling the 
current crisis took place after 2001?
    Mr. Pinto. I do not.
    Mr. Green. When do you contend that it took place?
    Mr. Pinto. It started in 1992, as the chart in my testimony 
indicates.
    Mr. Green. I understand. And different people have 
different opinions about it. Do you agree that--well, maybe I 
shouldn't ask you this, whether you agree. Have you had an 
opportunity--some people have unique powers. Have you had an 
opportunity to talk to your friend since 2001?
    Mr. Pinto. I will use the same quote as the Secretary 
stated, ``I don't channel these people.''
    Mr. Green. If you haven't talked to your friend--in court 
we have something known as hearsay, which is not admissible in 
court. Admissible here. But it seems to me that you are 
introducing something that we might call ``never said.'' Your 
friend never said the things that you have attributed to her. 
Do you agree that she never said these things about the CRA 
since she died in 2001 and you have indicated that these 
things--much of it took place since her death?
    Mr. Pinto. What I had stated--and I have not indicated that 
she would be in favor of--
    Mr. Green. But did your friend say these things?
    Mr. Pinto. She said the things that I have in quotation 
marks. Anything that is not in quotation marks--
    Mr. Green. But did you not indicate that your friend would 
be opposed to CRA now?
    Mr. Pinto. I believe that she would ask you to find out 
what happened because the same thing has happened with CRA--
    Mr. Green. Did she say those words to you?
    Mr. Pinto. She said them with respect to FHA.
    Mr. Green. Did she say those words with reference to CRA?
    Mr. Pinto. She was saying them with reference to FHA.
    Mr. Green. So your answer is, she did not?
    Mr. Pinto. She has not said anything to me since 2001. She 
probably hasn't said anything to you either.
    Mr. Green. Well, she never said anything to me when she was 
alive. But it seems to me that you are communicating with her 
quite well. My concern is that you would take what you see as 
conjecture of a person who is no longer with us, who was 
supportive of something and attribute words that this person 
may or may not agree with. I will tell you that I think that is 
a little bit of a stretch when you start to quote people who 
cannot speak for themselves. I call that ``never said'' when 
you are talking about persons who are no longer with us. But be 
that as it may, let me ask you, Ms. Kennedy. You quoted some 
statistical information with regards to low-income tax credits. 
You gave some numbers. I would like for you to repeat them and 
give us your source, please.
    Ms. Kennedy. The source of $400 billion a year in loans to 
low- and moderate-income persons or--and/or in low- and 
moderate-income neighborhoods is HMDA data, publicly available 
HMDA data. The source for the $100 billion in banks tax credit 
investments is publicly available performance evaluations of 
the banks on all of the regulators' Web sites. The source for 
the $30 billion of new market tax credit investments is the Web 
site of the Treasury.
    Mr. Green. Thank you. Ms. Andersen, you mentioned credit 
unions as institutions that should be given some consideration 
to--with reference to CRA. Credit unions usually say that they 
are performing quite well and they make loans in these low- and 
moderate-income areas, hence they should not come under the 
purview of CRA. What would your response be to these 
contingents?
    Ms. Andersen. I would say that all depository institutions 
have a responsibility to their communities and serving their 
communities. Through CRA, I am serving my community. We don't 
know that credit unions are serving their communities. It is a 
documentation issue.
    Mr. Green. All right. And, Mr. Stegman, I had to terminate 
your testimony before you finished. There was something more 
that you wanted to add. I will allow you some time.
    Mr. Stegman. Thank you, Mr. Chairman. Just a few things. If 
we keep in mind that CRA-eligible loans refer to loans that are 
made to families with incomes under 80 percent of the area 
median income to really make the argument that families of very 
modest means drove housing bubble to the point where prices 
doubled and tripled over 3, 4, 5 years in these markets is 
simply unsustainable. That argument just doesn't hold water at 
all. The Fannie Mae losses on the alt-A portfolios which are 
disproportionately responsible for losses are not to families 
with incomes under 80 percent of median. They don't involve 
income certification. They are to people with high credit 
scores and liar loans predominantly. The 2005 decision to allow 
these toxic securities to count as--towards affordable housing 
goals is quite contrary to historic kind of policy and the 
intent of Congress under the 1992 law. So it just strikes me--
and lastly the issue of innovation and CRA regulations 
requiring innovation, there is nothing in the regulations there 
is nothing implicit or explicit between CRA regulations and how 
examiners conduct their examinations that lead to liar loans; 
to option pick-a-pay loans; to debt income ratios of 60 percent 
or more for mortgages that don't have escrow accounts, that 
have exploding ARMs. There is just no connection between CRA 
and what examiners encourage and look for in order to get an 
outstanding grade.
    Mr. Green. I am going to have to thank you for your 
testimony. I will remind members, you as well, that the 
entirety of your testimony will be made a part of the record. 
Friends, I know that there is much more that can be said and 
probably should be said. But at this point, I have to say that 
we would like to include certain statements for the record. 
Without objection, the statements of the following 
organizations will be made a part of the record: the 
Independent Community Bankers of America; National People's 
Action; the National Association of Federal Credit Unions; the 
Credit Union National Association; the National Alliance of 
Community Economic Development Associations; and finally, the 
Association For Neighborhood and Housing Development.
    We thank all of you for your testimony. The Chair will note 
that some members may have additional questions for the 
witnesses which they may wish to submit in writing. Without 
objection, the hearing record will remain open for 30 days for 
members to submit written questions to the witnesses and to 
place their responses in the record.
    Mr. Cleaver. Mr. Chairman, after you gavel the meeting 
closed, as a former judge, I would like to ask you after the 
meeting adjourns to explain the difference between a study and 
a law.
    Mr. Green. All right, sir. Thank you very much. The hearing 
is now adjourned.
    [Whereupon, at 1:53 p.m., the hearing was adjourned.]
















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