[Congressional Record (Bound Edition), Volume 155 (2009), Part 9]
[House]
[Pages 11856-11863]
[From the U.S. Government Publishing Office, www.gpo.gov]




                  PREDATORY MORTGAGES AND FORECLOSURES

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 6, 2009, the gentleman from Missouri (Mr. Cleaver) is 
recognized for 60 minutes as the designee of the majority leader.
  Mr. CLEAVER. Mr. Speaker, when Barack Obama was sworn in as the 44th 
President of the United States, there were a number of statements that 
were subliminally made to the Nation and, indeed, to the world. And one 
of the statements was that we, as a Nation, had moved significantly 
from the days of not only chattel slavery but even the days of Jim Crow 
and the bitter segregation that enveloped the entire United States.
  I can remember growing up in Texas, in Wichita Falls, Texas, and my 
father purchased a home in what was then, very clearly, what was known 
as a white neighborhood. And when my father purchased the home across 
the street from, I think, a shopping center that was going to be built, 
a strip shopping center, he had to move the home from its location to 
the east side of the tracks, where the African American community 
lived.
  He purchased the home, hired a moving company that moved homes, and 
the home in which my father lives in today, the home in which I and my 
three sisters grew up in now stands at 818 Gerald Street in Wichita 
Falls, Texas, and it has been moved, probably, 8 miles from where it 
was built, because in those days African Americans could not live on 
the other side of the tracks.

                              {time}  1745

  Now while I speak very clearly and experientially about Wichita 
Falls, Texas, please understand that was the case all over the length 
and breadth of the United States. We had problems where the banks would 
not lend money to purchase homes in certain neighborhoods. It was 
called ``red-lining,'' where if a white homebuyer wanted a home, it was 
clear that the banks would not sell them a home or would not finance 
the home in certain areas, and they would only finance homes in certain 
areas for African Americans and to some degree to Hispanics. And this 
went on in our country for years and years and then decades and 
decades.
  And then, finally, as our Nation began to experience what I like to 
call the ``Great Awakening,'' we found that Martin Luther King, Jr. and 
Whitney Young really began to change things. And things began to 
change, really, in the 1950s with Brown v. Topeka Board of Education. 
And then with the movement, the Southern Christian Leadership 
Conference, Martin Luther King, Jr., when you look at what was going on 
with the NAACP, the Urban League, and I think a beginning of an 
awakening by all of the country, things began to change, albeit very 
slowly. And we had the Voting Rights Act approved. We had the Civil 
Rights Act of 1964, 1965.
  And then by the 1970s, there was, for the first time, a very clear 
movement of the United States Congress toward creating some kind of a 
society that would allow all Americans to enjoy the benefits of 
America. And so, in 1977, the Congress of the United States put in 
place something called the Community Reinvestment Act. It is called 
CRA. And in this act, there was an attempt by Congress to address 
discrimination in loans made to individuals and businesses from low to 
moderate income neighborhoods.
  Now, this is important because finally in 1977--and I know probably 
for young people who may be watching this broadcast on C-SPAN, they 
probably are having difficulty even grasping the fact that in 1977 the 
Congress of the United States had to pass a law that would stop the 
redlining that pretty much pushed African Americans and Hispanics in 
certain neighborhoods. They don't see that as much today, although we 
are still, unfortunately, still bitterly segregated in terms of 
housing. But in 1975, to reduce discrimination, Congress moved to pass 
the Community Reinvestment Act. That was a major piece of legislation.
  And while many Americans probably don't even know what CRA is, this 
is an opportunity for you to understand what began to change the whole 
housing drama in the United States of America, the Community 
Reinvestment Act.
  This act began to cancel out, to erase, the practice known as ``red-
lining.'' And in this Community Reinvestment Act, it required that 
appropriate Federal financial supervisory agencies would regulate 
financial institutions to meet the credit needs of the local community 
in which they were chartered, consistent with, I might add, safe and 
sound operations. And that is important, and I will get to that in just 
a moment.
  The agencies that have been commissioned with the responsibility for 
regulating these agencies, I think most people would know who they are. 
They would be the FDIC, they would be the Federal Reserve, they would 
be the Office of the Comptroller of the Currency, the OCC, and the 
Office of Thrift Supervision, the OTS. And those agencies would have 
the responsibility to monitor what banks in the United States did to 
make sure that they did not arbitrarily and capriciously exclude entire 
segments of cities for loans both in terms of residential homes and in 
terms of businesses. And therein, Mr. Speaker, we began a new chapter 
in the United States.
  At this time, Mr. Speaker, I would like to yield time to my friend 
and colleague from Houston, Congressman Al Green.
  Mr. AL GREEN of Texas. Thank you so much, Congressman Cleaver. I 
greatly appreciate the history that you have afforded us. It is 
meaningful for us to understand history, because in understanding 
history, we can understand the benefits that have been accorded by way 
of the CRA. The CRA has clearly been of great benefit to all Americans, 
because when you help some Americans, you really do help all Americans. 
Dr. King reminded us that ``life is an inescapable network of mutuality 
tied to a single garment of destiny.'' Whatever impacts one directly 
impacts all indirectly. So by directly helping some, we have indirectly 
helped all Americans.
  And I regret that there are many who contend that the current credit 
crisis is based upon some of the actions that

[[Page 11857]]

the CRA might have mandated, which is totally not true. It really is 
not. And there does come a time, there really does come a time when 
every woman and every man must on truth stand. So tonight, I appreciate 
what you have said because I think we have to take the ax of truth and 
slam it into the tree of circumstance. And we just have to let the 
chips fall wherever they may, because there really is some truth in the 
notion that the truth will set you free. So let us see if we can free 
some souls as it relates to the CRA and its benefits to all Americans.
  You see, the truth is that the Community Reinvestment Act that 
Congressman Cleaver has given us a great recitation of its history, of 
the history of the act itself, the Community Reinvestment Act did not 
cause the current credit crisis. Now if you don't believe me, perhaps 
you will believe the Honorable Mark Morial. I have in my hand a copy of 
his testimony before the Senate Banking Committee on Thursday, October 
16, 2008. In his testimony, he indicates that the CRA is not the cause 
of the current crisis. This may not be enough for some people. If you 
don't believe Mark Morial and you don't believe me, then maybe you will 
believe the Honorable Ben Bernanke, who is, of course, the head of the 
Fed. He has a letter that he has written to the Honorable Robert 
Menendez, who is a member of the United States Senate. And he indicates 
that the CRA is not the cause of the crisis and that there is no 
evidence to support this.
  And if this is not enough, then perhaps a summary from the analysts 
over at the Board of Governors of the Federal Reserve system. They have 
indicated by way of a report that the CRA is not at the root of the 
current crisis.
  So the truth, you see, is this, that the CRA has been of great 
benefit, that it does not regulate lending, that it does not legislate 
and that it does not mandate. The CRA does not even apply to all 
financial institutions. And I can really understand how some people 
might conclude, based on some of the propaganda that I have heard, that 
the CRA regulates lending worldwide. But it really does not. It doesn't 
apply to all institutions within this country. For example, it doesn't 
apply to financial institutions like the defunct Countrywide, which at 
one time was one of the largest lending institutions with reference to 
mortgages in this country. It does not apply to financial institutions 
like the ruined Bear Stearns. It doesn't apply to AIG. It did not apply 
to Lehman's.
  The CRA has been an institution and, if you will, it requires lending 
institutions to lend money into areas that had been redlined, as you 
indicated, and had literally been locked out of receiving the financial 
bootstraps that many communities receive so as to lift themselves out 
of poverty by way of wealth building through home purchases, as well as 
some other things that transform houses into worthwhile neighborhoods 
to live in.
  Approximately 70 percent of the foreclosure filings from January 6 to 
September 8 took place in middle to high income, non-CRA-related 
neighborhoods. Now it is important to note that the CRA, while it does 
encourage lending, it doesn't mandate it. And the lending that did take 
place with reference to foreclosures, 70 percent of this lending that 
took place between September of 2008 and January of 2006 was in higher 
income neighborhoods, income neighborhoods that the CRA did not 
address. I will call them non-CRA neighborhoods.
  The CRA doesn't regulate. It simply says that banking institutions 
are encouraged to cover and relate to and lend to all segments of the 
communities that they serve. And they are to do so without goals, they 
are to do so without targets, they are to do so without quotas. The CRA 
doesn't encourage bad lending. It doesn't mandate bad lending. It 
doesn't condone bad lending. It doesn't generate any loans. The CRA 
does not regulate nor does it create any of these exotic loans that we 
are aware of. And many of them are at the root of this subprime crisis.
  So I'm honored to tell you, Mr. Cleaver, and I thank you for your 
history, that the CRA has been of great benefit to us. And I regret 
that there is a distortion of the facts that relate to the CRA and what 
it has meant to us. I think that we have an opportunity tonight to 
clear up some of the confusion and to make clear what the benefits of 
the CRA are and to also talk about some of the areas wherein the other 
institutions, other than the CRA--and I call it an institution, it is 
really an act of Congress--but wherein other institutions have created 
products that have created a lot of the subprime crisis that we suffer 
from today.
  So I will yield back to you and trust that as we go through this 
process tonight, we can talk about some of these products. And I'm 
prepared to talk about a few of them. I will go ahead and talk about 
just a couple if I may.
  I will talk about the exploding ARMs that were not created by the CRA 
and not regulated by the CRA. You're aware of them, the 327s and the 
228s wherein persons literally had 2 years of a fixed rate and 28 years 
of a variable rate. They had a teaser rate that would, at the end of 2 
years, an entry level rate that was usually low, at the end of 2 years 
would increase to sometimes 30 to 40 percent of what that teaser rate 
was. And there were many other products like this that the CRA had 
nothing at all to do with that have helped to create this crisis that 
we have to contend with.
  Mr. CLEAVER. Would the gentleman yield?
  Congressman, it may be of some value for you to share with us the 
yield spread premium, which is one of the critical developments that we 
find that people suffer as they are losing their homes. And what has 
happened over the past year is that in the middle of a tidal wave of 
foreclosures, people have sought to place the blame on somebody or 
somebodies. And tragically and painfully, it has fallen on the poor and 
the minorities. They are being blamed for the crisis.
  One of the people I really liked a lot, and we had a very good 
relationship, was former Congressman Jack Kemp, the former Secretary of 
the Department of Housing and Urban Development. He, of course, died, 
and I think all of Capitol Hill is mourning Jack Kemp. He was a former 
quarterback in the NFL, and he was a great guy.

                              {time}  1800

  He wrote a book where he talked about what happens to the poor and 
how the poor get blamed. I have that autographed book in my office in 
my basement in Kansas City. He lays out clearly how the poor always 
seem to get the blame. When we say that CRA caused this tidal wave of 
foreclosures, it is a way of blaming poor people because what that 
means is when the government passed the Community Reinvestment Act and 
said you cannot discriminate any more, what is being suggested from 
Capitol Hill, and you can hear it at night on the television and radio 
talk shows, is that banks and Fannie Mae and Freddie Mac were forced to 
make bad loans, and there were a lot of bad things happening, including 
the yield spread premium.
  Mr. AL GREEN of Texas. You are exactly correct. Poor people did not 
create this crisis, and people living in areas covered by the CRA did 
not create this crisis. Let us take a look at the yield spread premium. 
The yield spread premium says that if you are a seeker of a loan for a 
home mortgage and your originator can qualify you for a 5 percent loan, 
by way of example, if that originator can get you to take a loan for 8 
percent when you qualified for 5 percent, that originator will get a 
lawful kickback by causing you to go into a higher mortgage than you 
qualified for, and never have to tell you that you qualified for the 5 
percent premium.
  That premium that is paid to the originator is a part of this process 
which we now call the yield spread premium.
  This was invidious, and it did cause a lot of persons to take out 
loans that were much higher than the loans that they qualified for. But 
to further evidence the fact that poor people didn't create this 
problem, negative amortization, many people received loans that were 
negative in the sense that you could pay your principal, pay your

[[Page 11858]]

interest, but if you didn't pay enough interest, you would find that 
that which you didn't pay would be tacked on to your principal.
  So you had a loan where your principal was growing, and it was 
growing such that you could literally never pay for the loan and always 
owe more than you actually decided that you wanted to have as a 
mortgage amount.
  We also had the situation with the no-document loans. Poor people 
didn't get a lot of no-document loans, loans wherein you didn't have to 
prove that you were working. Usually these were persons said to be 
associated with some sort of business and they had difficulty verifying 
income, but no-document loans were made and they were usually in the 
subprime market, they were either the Alt-A loans or subprime because 
they were said to be riskier. But these loans were not originated 
because of the CRA. They loans were not mandated because of the CRA.
  I would also call to your attention prepayment penalties. There were 
loans that had prepayment penalties that coincided with these teaser 
rates. None of this was mandated by the CRA. The CRA did not require 
teaser rates. It did not require loans to have prepayment penalties at 
all. When these prepayment penalties coincided with the teaser rate, it 
simply meant that the person who wanted to refinance the loan when you 
were getting to that period or that time when the loan would adjust, 
would have to pay a large penalty just to get out of the loan into 
another loan. These teaser rates and prepayment penalties became a 
detriment to many people who were locked into these 327s and 228s.
  I would call to your attention also the fact that there were loans 
that were interest only. The CRA did not mandate interest-only loans. 
These loans were loans created by mortgage companies. They were loans 
that were originated by entities that were not covered by the CRA for 
the most part. And these loans, if they were covered by the CRA, 
institutions that were regulated by the CRA, the CRA did not mandate an 
interest-only loan which means you would simply pay interest, not pay 
the principal and you would continually owe after some period of time 
what you started out with as your loan amount.
  The CRA did not require credit default swaps wherein one party would 
agree to pay a second party if a third party defaulted. This is what 
AIG was infamous for, these notorious credit default swaps, not 
mandated by the CRA.
  The CRA did not cause us to conclude that hedging was a good means of 
managing risk. The CRA didn't have any mandates with reference to 
hedging and hedge funds.
  It did not require outsourcing as a risk management means.
  Some of these large institutions were literally allowing credit 
rating agencies to manage their risk because they would ask a credit 
rating agency to give them an opinion about a certain instrument, and 
they were relying on that as their risk management tool. The CRA did 
not mandate any of this.
  One really important thing, CRA did not create the circumstance 
wherein the lender was no longer concerned about whether the borrower 
could repay his or her loan. This was not in any way mandated by the 
CRA. It wasn't regulated by the CRA. It had nothing to do with the CRA. 
When this occurred, lenders no longer had to concern themselves with 
the liability associated with the loan if there was a default.
  So originators started simply originating loans so they could put 
them in the secondary market, and by getting them out in that market, 
they would get payment for the loan itself. Somebody else was now 
responsible for the loans, and the loans were bundled. The CRA did not 
mandate nor did it require that these loans be placed in these bundles 
called securities and sold to investors. The CRA had nothing to do with 
any of these things. The CRA simply said if you are a lending 
institution covered by the CRA, you must lend to all persons within 
your area of influence.
  And thank God the CRA did this because there are many persons who but 
for the CRA wouldn't have homes. There are many communities that would 
not have been revitalized by dollars that were actually made available 
to communities to revitalize them. Nursing homes received CRA moneys by 
way of loan, and the elderly, homes for the elderly received CRA 
moneys. The CRA has been a benefit to all Americans, and I just regret 
there is this notion afoot by many that the CRA somehow created a 
crisis that it had absolutely nothing to do with. The empirical 
evidence is completely contrary to this notion that the CRA created the 
crisis.
  Mr. CLEAVER. Mr. Speaker and Mr. Green, I flew into Washington on 
Monday of this week and sat next to a gentleman who serves on a board 
of a bank. When he found out that I was on the Financial Services 
Committee, we began to talk about the crisis, and I am sure that 
happens to you and all of us who end up on this committee at this 
particular time in history.
  During the conversation he said to me that at a recent bank board 
meeting, one of his colleagues on the bank board said to him: CRA is 
going to ruin this bank. It is forcing us to give loans to people who 
don't qualify.
  And he said no matter how he argued, the man would not release the 
notion that somehow the requirement that is placed on institutions to 
be fair caused the financial crisis.
  I think that the Members of Congress in 1977 who had the vision of 
creating or beginning the task of creating an America where people 
could live where they wanted would be pleased today to know that we 
have made significant progress. We have not made the ultimate progress, 
but we have made significant progress.
  Imagine this, Minneapolis, Minnesota, having an entire section of the 
city where banks are not making loans. And then as that city goes into 
decay, people would drive back and say, You know, poor people don't 
take care of their property. See what is going on over there, not 
understanding that banks were not making loans to that area. That was 
supposed to stop in 1977.
  Now there are banks in my hometown who are very active in making 
loans in the urban core. There are other banks that I think are prodded 
by the passage and the enforcement of the CRA.
  I did not have this on the airplane, but I wanted to bring it here 
tonight. This comes from chapter 20 of the Community Reinvestment Act, 
section 2901, Congressional Findings and Statement of Purpose. It 
reads: ``It is the purpose of this chapter to require each appropriate 
Federal financial supervisory agency,'' those are the agencies that I 
mentioned earlier, ``to use its authority when examining financial 
institutions to encourage such institutions to help meet the credit 
needs of the local communities in which they are chartered consistent 
with the safe and sound operation of such institutions.''
  This is in the language of the law. And in spite of the clarity of 
this statement, there are people, even unfortunate and tragically who 
are part of this body, who are still going around on TV shows saying 
that CRA caused the financial crisis.
  I would yield to my colleague Keith Ellison from Minnesota.
  Mr. ELLISON. Mr. Speaker, what else are these purveyors of confusion 
supposed to say?
  They have had an opportunity to spread deregulation all over. They 
have declined the opportunity for many years to pass an antipredatory 
lending bill. They have promoted tax breaks for the wealthiest among 
us. And now that they have had the opportunity to have a House and a 
Senate in which their particular caucus was in the majority, they have 
had a full opportunity to manifest their economic ideas, and what those 
ideas have come to has been the largest foreclosure crisis since the 
Great Depression. What these economic ideas that the poor have too much 
and the rich don't have enough is that we have had serious unemployment 
spikes higher than any that we have seen since the early eighties, 
which was the Reagan recession. What we have seen is record lows in 
consumer confidence.
  The fact is you can't expect the people who are purveying confusion 
regarding the CRA to come clean because

[[Page 11859]]

then they would have to admit that it is their economic policies that 
have brought forth the economic malaise that America is in now.
  In fact, the Community Reinvestment Act is good economics. The 
Community Reinvestment Act says that what we are going to do is we are 
going to ask banks who draw deposits from neighborhoods to also loan to 
that neighborhood.
  The Community Reinvestment Act came about based on statistically 
documentable evidence of red-lining, which is a process whereby lenders 
and sometimes insurance companies systematically denied credit to 
certain communities, particularly low-income and minority communities. 
Importantly, the Community Reinvestment Act does not prescribe minimum 
targets nor dictate specific underwriting policies. It doesn't even set 
goals for lending or investment. Instead, it gives considerable 
discretion to bank regulators and examiners, and ensures that loans are 
made in a manner consistent, as you pointed out, Congressman Cleaver, 
with safe and sound banking practices.
  Let me just quote from somebody who ought to know a little bit about 
banking and the financial markets, and that is Fed Governor Elizabeth 
Duke. Fed Governor Elizabeth Duke is a person with a Ph.D. in economics 
who studied these issues, is not known for wild statements, and is 
essentially a paragon of reliability and stability.
  Here is her analysis. She says that the claim that the CRA, the 
Community Reinvestment Act, caused the current crisis is a 
``misperception promulgated by many who either do not know much about 
the law or don't like it.''

                              {time}  1815

  That's what Fed Governor Elizabeth Duke had to say.
  Finally, Federal Reserve Chairman Ben Bernanke has indicated, ``Our 
own experience with the CRA over more than 30 years and recent analysis 
of available data, including data on subprime loan performance, runs 
counter to the charge that the CRA was at the root of or otherwise 
contributed to in any substantive way the current mortgage 
difficulties.''
  So I have more to say, Congressman Cleaver, but let me share the mic 
with others who have much more to say as well. Thank you.
  Mr. AL GREEN of Texas. Thank you. I ask that you yield to me.
  Mr. ELLISON. I will certainly yield to the gentleman from Texas, 
Congressman Al Green, who is a stalwart advocate of consumers, 
investors, and all Americans.
  Mr. AL GREEN of Texas. Well, I thank you, my friend. I will pick up 
where you left off because I happen to have a copy of the letter that 
Chairman Bernanke sent to the Honorable Robert Menendez. This ties into 
what you said as well, Congressman Cleaver.
  In this letter he indicates, ``A recent board staff analysis of the 
Home Mortgage Disclosure Act and data sources does not find evidence 
that CRA caused high default levels in the subprime market.''
  He also goes on to say, ``The CRA statute and regulations have always 
emphasized that these lending activities be consistent with safe and 
sound operation of the banking institutions,'' clearly indicating that 
the CRA is not at fault.
  I would like to do this just for a moment and then we will come back 
to more of why it's not at fault. But I'd just like to say this. Assume 
for just a moment for the sake of wholesome argument and helpful debate 
that the CRA is at fault, just for a moment.
  Then we have to ask ourselves: As those who, by the way, have been 
saying and continue to say that it's at fault, we would have to ask 
ourselves if they had control of the U.S. House of Representatives, the 
U.S. Senate. They had control of the executive branch of the 
government, even had control of the Supreme Court, and they had all of 
this at the same time. If the CRA posed the hazard that they contend it 
poses, and they said that they made statements at the time that the CRA 
was not functioning as it should, then why didn't they do something 
when they had control of the House, the Senate, the executive branch of 
government as well as the Supreme Court?
  It would have been easy to generate legislation that could have gone 
from one House to the other. It would have been very easy to get the 
President, who apparently would have been in agreement, to sign it. But 
the truth is that the CRA was functioning well and has functioned well.
  In times of crisis, it is very unfortunate that the least among us 
will sometimes be blamed for what others have done. This is not the 
time to blame the CRA or the persons that the CRA might benefit for 
what has happened. Why? Because if we do this, we will allow ourselves 
to be distracted from the real causes--these exotic products.
  And not all exotic products are bad, but many of them are harmful and 
hurtful. These exotic products like these 3/27s and 2/28s that we talk 
about, exotic products that allowed people to get into homes, but it 
didn't enure to their becoming homeowners.
  We developed a society wherein people became homebuyers such that 
they could simply get into a home with no assurance that they could pay 
for the loan that they were purchasing.
  So we cannot allow ourselves to be distracted with this CRA stalking 
horse, if you will. We must focus on the real causes so that we can 
come up with real solutions.
  I would yield to you, Mr. Cleaver.
  Mr. CLEAVER. Thank you, Mr. Green. I think that those forward-
thinking Members of this body who in 1977 approved the Community 
Reinvestment Act did a tremendous service for all of us. It provided us 
with opportunities to buy homes--and our children.
  It is refreshing for me to know that the young pages who work here in 
the Capitol--we have two helping us tonight, Raven Tarrance and Jasmine 
Jennings. These pages will not have to suffer what my father had to 
experience and what our parents and grandparents had to experience 
because, in part, the Community Reinvestment Act will not allow banks 
to take deposits from people and then not make loans to them. And it's 
really so ludicrous that we have to argue this point because the law is 
so clear.
  I just added another section of the law here with us. The bill text 
of section 2903, Financial Institutions Evaluation, reads thusly: ``A, 
in general, in connection with its examination of a financial 
institution, the appropriate Federal financial supervisory agency 
shall, one, assess the institution's record of meeting the credit needs 
of its entire community, including low- and moderate-income 
neighborhoods consistent with the safe and sound operation of such 
institutions.''
  Now, according to recent data, we found out that 75 percent of the 
higher-priced loans during the peak years of the subprime boom were 
made by independent mortgage companies not operating under CRA, which 
means that it is absolutely ridiculous to blame CRA for the crisis when 
the institutions that ignited the crisis were not operating under CRA.
  It is so sad that a Nation that is moving in many ways far beyond 
where most of us thought it would move, at least at this moment in time 
in history, is still, in part, dealing with those who are spreading 
divisive messages that CRA, or poor people, caused this crisis.
  When you read about the Great Depression or when you read about 
recessions even in foreign countries, for some perverted reason, and 
maybe it's a part of human nature, people always look for a villain 
instead of us saying that we had a problem.
  Housing prices in the United States rose precipitously for a 50-year 
period. There was not one year during the 50-year period that the 
housing prices did not rise. There was no way that they could continue 
to go as such. And so eventually they were ballooned, and the balloon 
burst, and what we have here is a result of creating a housing market 
that was never real.
  In Washington, D.C., if you walk within a couple of blocks of our 
offices, you will find homes at $450,000 to $500,000. You go to 
California, we have

[[Page 11860]]

the jumbo loans out there, with $750,000 homes that would probably 
cost, in the Midwest, $200,000 or less.
  And so we had this explosion of growth and everybody was getting 
their little piece. Everybody participated in it. People were making 
bad loans because money was plentiful and victims were plentiful. There 
were a lot of people who were steered into getting these loans. All of 
us had people in our own congressional district to tell us horror 
stories about how they ended up in a home underwater, where the 
mortgage owed on the home is far greater than the value.
  What we find right now is that those mortgages, as my colleague Mr. 
Green mentioned, have been bundled, securitized, and then sold on Wall 
Street. When we passed the Toxic Asset Removal Program, known as TARP, 
it was designed to remove the toxic assets, mainly mortgages, bad 
mortgages. Toxic assets were bad mortgages. If we could move those out 
of the market, then there would be a higher level of confidence on the 
part of investors to invest their money. Unfortunately, at the time, 
Hank Paulson and President Bush used the money for something else.
  It gives me an opportunity to say at this time, Mr. Speaker, that I 
spoke to a group of students in an MBA program from the University of 
Missouri-Kansas City a couple of hours ago on Capitol Hill. I asked 
them to raise their hands if they believed that the Congress had 
approved money to give to the banks. Two-thirds of the people raised 
their hands. I think the rest believed that they thought they might get 
a bad grade or something, or congressional punishment, if they raised 
their hands, so they didn't raise their hands. But probably most of the 
people looking at this program believed that we voted to give the money 
to the banks.
  I would remind the public that we voted to approve the Toxic Asset 
Removal Program to buy the toxic assets. It was the Secretary of the 
Treasury, acting with the President of the United States, without 
consulting Congress, who decided to move the money from its intended 
purpose that was approved right here in this Chamber and give it to 
banks.
  I think that they have been able to do that pretty much with impunity 
because most of the country probably still believes that we sat in here 
and voted to give the money to the banks. But the purpose of that was 
to remove the bad mortgages, and the bad mortgages did not come as a 
result of the Community Reinvestment Act.
  I yield back to the gentleman from Minnesota.
  Mr. ELLISON. Congressman and Mr. Speaker, let me just point out for 
our listeners that, today, about 30 percent of all homeowners are 
underwater. About 30 percent are underwater. That means that the value 
of their home is lower than the debt owed on their home.
  This is a very serious and catastrophic situation and obviously 
causing a tremendous amount of angst, consternation, fear, and 
frustration among people across our country. Obviously, when your house 
is underwater, it might be easier for you to just leave the keys and 
walk away. We urge people to try to work things out with their lending 
institution.
  But there's no doubting that the American Congress must be attune to 
the tremendous pain, difficulty, and frustration people are facing. 
When people are suffering from frustration, sometimes what they need is 
people who are in leadership to help clarify what is really going on as 
opposed to people in leadership confusing what is really going on. 
Confusing the issue is a very dangerous thing to do.
  I would submit to you that America that has done so much to overcome 
racial division and may be one of the only countries in the world to go 
from a slaveholding society to a society where a person who, based on 
color, would have been a slave himself but is now President, a person 
who would have been denied a cup of coffee 50 years before he became 
sworn in to be President, is President.
  This is a tremendous thing and a great thing for America. The credit 
goes to people of all colors: black, white, red, yellow, brown, 
everybody. But at times like this, it's important to also not allow the 
racial progress America has made to slip back by allowing some people 
to use code language and say that people of color, poor whites, are 
responsible for the problem.
  When people are frustrated, they need answers. When they need 
answers, they need clarity, not confusion from leaders, not fear-
mongering tactics assigning blame that is not there. And I would submit 
to you that all of us, people of all colors, need to stand together to 
clarify what is really going on with the CRA because, in my opinion, 
people who say that the CRA is to blame, Fannie and Freddie are only to 
blame--of course, they do have some fault on them, but they are not, by 
any stretch of the imagination, the only one. I think it is very 
important that we say together as a unified racial community that we 
will not allow racial stereotyping as it relates to what caused this 
housing crisis.
  In my opinion, saying that it's because of the CRA, knowing that the 
CRA was designed to promote racial harmony and opportunity, is a way of 
blaming people of color for the financial crisis. Now we can debate 
this issue, but I guarantee you, if you were to say, ``What does the 
CRA do?'' and you say, ``It was in response to redlining, that's why it 
was passed,'' so the question you might ask, ``Well, you mean so it was 
to try to stop racism or antidiscrimination?''

                              {time}  1830

  And the answer would have to be yes, that is what it is for.
  Mr. CLEAVER. I am so glad that you brought that issue up because, as 
I mentioned at the beginning, how I think this Nation is maturing with 
regard to the issue of race. It is unsettling then to see how there 
have been people--and I am not sure all the motivation and I am not 
sure it is important at this point, why they would continue to say day 
after day after day after day that CRA caused the crisis. It boggles 
the mind. Our colleague, Mr. Green from Texas, had mentioned earlier 
that the chairman of the Federal Reserve found it necessary to come out 
and declare that this was not a fact.
  Sandra Bernstein, the director of the Federal Reserve's Consumer and 
Community Affairs Division, stated at a hearing before our committee, 
``I can state very definitely that, from research we have done, the 
Community Reinvestment Act is not one of the causes of the current 
crisis.''
  And then Alan Greenspan, the former Chair of the Fed, pointedly did 
not blame the Community Reinvestment Act or low-income borrowers. In 
fact, his statement was, ``The evidence strongly suggests that without 
the excess demand for securitizers, subprime mortgage originators''--
undeniably the original source of the crisis--``would have been far 
smaller and defaults accordingly far lower.'' Only 25 percent of these 
subprime loans were made by CRA regulated banks.
  I yield to the gentleman from Minnesota.
  Mr. ELLISON. So it sounds like, according to Mr. Greenspan, that he 
is saying that it was this excessive demand for collateralized debt 
obligations, for the credit default swaps, which a lot of people would 
take on more risk than they were able to really absorb. These things 
really accelerated the financial crisis, according to the experts. Is 
that right?
  Mr. AL GREEN of Texas. Let me say, before I make my comment, Mr. 
Ellison, I want to give you a note of appreciation for some legislation 
that you have recently introduced to help us cope with some of the 
problems that we are contending with as a result of this crisis, some 
of your work in the area with tenants and helping tenants who are being 
evicted, rent paid but still being evicted because a person who 
purchased property is in default. You are to be highly commended for 
the efforts that you are making to help out these tenants.
  But I wanted to make this comment with reference to the evidence that 
is out there. The empirical evidence all supports the notion that the 
CRA is

[[Page 11861]]

not at fault. It is unfortunate, as has been indicated, that there are 
many who would contend that the CRA is at fault; that the CRA ought to 
somehow now be eliminated because it is at fault.
  I think that what we should be doing, in addition to pointing this 
out, we should also point out that the banks that have been good 
stewards, that have been making good, decent loans using sound banking 
policies in areas where persons traditionally could not acquire loans, 
these banks ought to be commended. We should not allow the distractions 
from the other side to prevent us from giving kudos when they are 
deserved.
  So to all of the banks, those who have been making these loans and 
doing so with a good degree of safety and soundness, we want to 
compliment you.
  But we also have to remember as we do this that, in addition to 
making some of these loans, we had other things that were happening 
that were not in the best interest of good banking, and these are the 
things that the legislation that we passed today out of the House, or 
that we put before the House today, is going to address this predatory 
lending that took place. It was the predatory lending that was a part 
of the problem, people having to get the loans that they did not want. 
Because no one wants a 9 percent loan if you qualified for 7 percent or 
5 percent. You want the loan that you are qualified for. Steering 
people into the higher loans, higher interest rates, so as to make more 
money for the originator. These are the kinds of things that we have to 
deplore. These are the kinds of things that happened chiefly with 
originators that were not regulated by the CRA.
  I will yield back to the gentleman, and thank him again for yielding 
to me.
  Mr. ELLISON. Certainly. And I just want to raise this issue, if 
either gentleman would care to comment. While it is obviously true that 
the CRA did not cause this financial crisis, I hope you don't fault me 
too much for straying away and talking about what I think did cause the 
crisis.
  And what I think caused the crisis, clearly, when you have a mortgage 
originator--and many mortgage originators are good, and I thank the 
gentleman for pointing out that we are not here to indict an entire 
industry. But we are saying that the bad actors, there was no cop on 
the beat here for the people who would transgress. That when mortgage 
originators were given additional money in order to steer a homebuyer 
who was seeking a mortgage to a higher priced loan, that is the kind of 
thing that would get people into a whole lot of trouble, particularly 
when that same mortgage originator would say, ``Oh, we'll just do 
stated income.''
  ``Oh, you don't have to verify income.''
  ``We're just going to underwrite your mortgage during the teaser rate 
period and not during the entire length of the loan.''
  These are the kind of things that got people in trouble. There is one 
of our colleagues that is fond of saying: Oh, predatory lending, 
predatory lending. What about predatory borrowing? Have you heard this 
term before?
  Well, predatory borrowing, what happened is that people would get a 
financial incentive to steer you away from that lower interest rate 
loan to that higher interest rate loan and keep the cream, yield spread 
premium. This is what got people steered to the higher priced loans. So 
that is part of the problem.
  The next part of the problem is that when those mortgage originators 
did that loan, they could sell it on the secondary market where it was 
almost never scrutinized as whether it was a good loan or bad, that it 
would just be sucked up and it would be packaged up into a mortgage-
backed security. And those mortgage-backed securities would be packaged 
up into collateralized debt obligations. And some of these loans that 
were nonperforming, and there were large numbers of them, people would 
go out and buy insurance or, quote-unquote, insurance on these 
securities, but they were never required with these swaps to have 
enough money to cover if in fact the value of the security went down. 
So when they started going down and people said ``pay me,'' the 
companies that wrote these swap agreements weren't able to cover; and 
when they couldn't cover, then some of them started going under.
  Mr. AL GREEN of Texas. It is important to point out, also, that this 
credit default swap market was not regulated; that AIG had about $440 
billion plus of credit default swaps.
  It is also important to point out that the AIGs of the world, in an 
effort to cover themselves, would go to bond rating agencies and they 
were paying those agencies to rate these bonds. And, in so doing, they 
were getting products that were not totally reliable because of the way 
the payment system was working.
  Mr. ELLISON. So you mean to say, Congressman, that rating agencies 
would say that this is a AAA product, when in fact there were a lot of 
problems with the product. Is that right?
  Mr. AL GREEN of Texas. That is exactly right.
  It also promoted, as a result of this, this new industry that AIG 
became sort of the father of, in a sense, or at least the biggest 
benefactor of this credit default swap industry, such that they could 
capitalize on what became a form of gambling, if you want to know the 
truth. It really was a means by which one person was willing to bet 
that a default wouldn't take place on something that a third party was 
ultimately going to have to pay for at some point in time. It really 
was a lot of confusion that was created.
  I would like to say this and digress for just a moment, because I 
think it is important. Our chairperson, the Honorable Barney Frank, has 
been wrongfully accused in this process. And I want to stand and say 
before the world that this is absolutely untrue that he is in any way 
associated with the ills that we find ourselves having to cope with.
  I say this because at the time when all of this was taking place, the 
persons across the aisle who had the opportunity to do something about 
it, they had the House, they had the Senate, they had the Supreme 
Court, they had the executive branch of government, yet they didn't do 
anything about it. But now that the Honorable Barney Frank happens to 
have some influence because he is the chairperson of Financial 
Services, but all of this took place before he became chairperson and, 
as a result, he is trying to clean up something that took place on 
someone else's watch.
  He is dutiful and mindful of his watch, and I think we ought to let 
the world know that he has been a fine chairperson who has tried to 
clean up the problems that have been created.
  Mr. CLEAVER. The three of us serve together on the Financial Services 
Committee with our chairman, Barney Frank, who has been roundly beaten 
about the face and head by some of our colleagues and as well as some 
of the talk show folk around the Nation, and I think it is important to 
mention at this time that he is an unbending advocate for the Community 
Reinvestment Act. I also take a great deal of joy in saying that as a 
very clear sign that we are in fact moving in the right direction on 
issues of race in this country.
  When you look at Barney Frank, who is not, as the three of us, 
African American, and who has been as strong an advocate for equality 
of lending as I have ever seen in my life, and I count myself fortunate 
to have had the opportunity to serve with him. But I think it might be 
of some value for me to mention, and I think the two of you mentioned 
earlier, that Barney Frank has been chair 2 years and a little more 
than 100 days, and so all of a sudden the blame has been pushed on him, 
and secondarily us, for causing a crisis and blaming a bill that was 
actually passed in 1977.
  The truth of the matter is many people believed, and they were led to 
believe, that these were new homebuyers rushing out to buy homes. From 
1998 to 2007, 50 percent of the subprime loans were refinancings. They 
were people who simply refinanced their homes and fell victim to an 
exotic product. So

[[Page 11862]]

these are people who already had loans and there were crooks out there 
ready to take advantage.
  By the way, the three of us were in a hearing today trying to stop 
another problem from arising. There is no lack of ingenuity for 
wrongdoers, and there are people now ready to take advantage of people 
trying to get their mortgages modified and they are doing all kinds of 
tricks.
  So I am pleased that we have this opportunity to stand before our 
colleagues and you, Mr. Speaker, to try to clear up the problems that 
have been created by people who have given the wrong information about 
the Community Reinvestment Act.

  Testimony of Hon. Marc H. Morial, President and CEO, National Urban 
                        League, October 16, 2008

       Chairman Dodd, Ranking Member Shelby, thank you for this 
     opportunity to testify today to set the record straight about 
     what I call the Financial Weapon of Mass Deception: the ugly 
     and insidious and concerted effort to blame minority 
     borrowers for the nation's current economic straits.
       This Financial Weapon of Mass Deception--as false and 
     outrageous as it is--has taken hold, thanks to constant and 
     organized repetition and dissemination throughout the media 
     and political circles.
       This is not a harmless lie, an innocuous stretching of the 
     truth for some fleeting political advantage. It is an 
     enormously damaging and far-reaching smear designed to shift 
     the blame for this crisis from Wall Street and Washington, 
     where it belongs, onto middle class families on Main Street 
     and Martin Luther King Boulevard who are most victimized by 
     their excesses.
       For years, the National Urban League and others in the 
     civil rights community have raised the red flag and urged 
     Congress and the Administration to address the predatory 
     lending practices that were plaguing our communities. For 
     example, in March of 2007, I issued the Homebuyers Bill of 
     Rights in which I called upon government to clamp down on 
     predatory lending and other practices that were undermining 
     minority homebuyer. Unfortunately, my call went unheeded 
     until disaster struck.
       Now that disaster has struck, many of those who caused it 
     are trying to blame the minority community and measures that 
     helped to clear the way for qualified minorities to purchase 
     homes--most notably the Community Reinvestment Act (CRA). In 
     fact, it was the failure of regulatory policy and oversight 
     that led to this debacle.
       Let's start with the plain and simple facts:
       1. Wall Street investors--not Fannie Mae and Freddie Mac--
     were the major purchasers/investors of subprime loans between 
     2004 and 2007, the period for which this data is available.
       2. While minorities and low-income borrowers received a 
     disproportionate share of subprime loans, the vast majority 
     of subprime loans went to white and middle and upper income 
     borrowers. The true racial dimensions of the housing crisis 
     have been reported in a number of outlets, including the New 
     York Times.
       3. African-Americans and Hispanics were given subprime 
     loans disproportionately compared to whites, according to 
     ComplianceTech, leading experts in lending to financial 
     services companies. Also, African-American borrowers are more 
     than twice as likely to receive subprime loans as white 
     borrowers.
       Furthermore, according to a detailed analysis by 
     ComplianceTech:
       In each year between 2004-2007, non-Hispanic whites had 
     more subprime rate loans than all minorities combined;
       In 2007, 37.3% of African American borrowers were given 
     subprime loans, versus 14.21% of whites, according to 
     ComplianceTech. More than 53% of African-American borrowers 
     were given subprime loans compared with 21% of whites, 
     according to the National Urban League's Equality Index 
     published in our 2008 State of Black America report;
       The vast majority of subprime rate loans were originated in 
     largely white census tracts, i.e., census tracts less than 
     30% minority;
       The volume of subprime rate loans made to non-Hispanic 
     whites dwarfs the volume of subprime rate loans made to 
     minorities;
       In each year, the white proportion of subprime rate loans 
     was lower than all minorities, except Asians;
       Upper income borrowers had the highest share of subprime 
     rate loans during each year except 2004, where middle income 
     borrowers had the highest share;
       Contrary to popular belief, low income borrowers had the 
     lowest share of subprime rate loans;
       It is becoming clearer everyday that a large number of 
     people who ended up with subprime loans could have qualified 
     for a prime loan. That's where the abuse lies;
       Non-CRA financial services companies were major originators 
     of subprime loans between 2004 and 2007, the period for which 
     data is available.
       These facts are unequivocal. They are clear. They are 
     indisputable.
       Yet these facts are being buried in an avalanche of false 
     accusations, scapegoating and downright lies being spread by 
     the purveyors of the Financial Weapon of Mass Deception. 
     Conservative commentators from Fox News commentator Neil 
     Cavuto to ABC News analyst George Will to Washington Post 
     columnist Charles Krauthammer have fanned out across the 
     airwaves, talking points in hand, telling the world that this 
     crisis is NOT the result of a failure of regulation but the 
     fault of minority borrowers who bit off more than they could 
     chew.
       Charles Krauthammer tells us that ``[f]or decades, starting 
     with Jimmy Carter's Community Reinvestment Act of 1977 . . . 
     led to tremendous pressure to . . . extend mortgages to 
     people who were borrowing over their heads. That's called 
     subprime lending. It lies at the root of our current 
     calamity.''
       George Will tells us that regulation: ``criminalize[d] as 
     racism and discrimination if you didn't lend to unproductive 
     borrowers. Fannie Mae and Freddie Mac existed to gibber--to 
     rig the housing market because the market would not have put 
     people into homes they could not afford.''
       And even right here in the halls of Congress, echoes this 
     same, false refrain, as we heard from Rep. Michele Bachmann 
     of Minnesota (R-Minn), who added Congressional weight to this 
     myth when she quoted an Investor's Business Daily article 
     from the floor of the House that said banks made loans ``on 
     the basis of race and little else.''
       As seen in the attached internet blogs from highly 
     trafficked sites, this baseless blame game has turned into 
     vicious attacks on African-Americans, Hispanics, Jews and 
     Gays and Lesbians.
       In the last few weeks, I have undertaken an aggressive 
     campaign directed at the nation's financial leaders to dispel 
     this myth. In letters to Treasury Secretary Henry Paulson and 
     Federal Reserve Chairman, Benjamin Bernanke, I have asked 
     that they both publicly refute claims by some conservative 
     pundits and politicians that most of the defaulted subprime 
     loans at the root of the crisis were made to African-
     Americans, Hispanics and other so-called ``unproductive 
     borrowers.''
       On the basis of hearsay, rumors and misinformation, seeds 
     of division are being sown all across the United States in a 
     volatile political environment where Americans are terrified 
     by the economic situation. History provides too many lessons 
     on the consequences of singling out only certain segments of 
     the population as culprits for a country's woes for us not to 
     do all within our power to stop this ugly and insidious smear 
     campaign in its tracks.
       I urge you, in the strongest possible terms, to join me in 
     standing up to this big lie, this Financial Weapon of Mass 
     Deception. It is your duty to stop the precious waste of time 
     and energy being spent on blaming the victims and force a 
     healthy debate on what must be done to curb too much Wall 
     Street greed and too little Washington oversight. This 
     hearing is an important step toward that end and I applaud 
     you for holding it.
       I call upon you to join with me to ensure that innocent 
     people in our community who look to you for protection are 
     not further scapegoated, victimized and exploited by 
     unscrupulous and greedy players and those who do their 
     bidding.
       I call upon you to not allow yourselves to be distracted by 
     the attempts to undercut the Community Reinvestment Act and 
     undermine regulatory reform.
       I call upon you to stay focused and to take strong and 
     positive steps to strengthen our communities and the nation's 
     financial foundation through regulatory reform.
       I call upon you to do your part to disarm this false and 
     dangerous Financial Weapon of Mass Deception.
       In this time of global crisis, we must bring Americans 
     together and not continue to divide ourselves with false 
     racial arguments.
       Please enter my testimony into the record.
                                  ____


            Board of Governors of the Federal Reserve System


                  division of research and statistics

     Date: November 21, 2008.
     To: Sandra Braunstein, Director, Consumer & Community Affairs 
         Division.
     From: Glenn Canner and Neil Bhutta.
     Subject: Staff Analysis of the Relationship between the CRA 
         and the Subprime Crisis.
       Summary: As the financial crisis has unfolded, an argument 
     that the Community Reinvestment Act (CRA) is at its root has 
     gained a foothold. This argument draws on the fact that the 
     CRA encourages commercial banks and savings institutions 
     (banking institutions) to help meet the credit needs of 
     lower-income borrowers and borrowers in lower-income 
     neighborhoods. Critics of the CRA contend that the law pushed 
     banking institutions to undertake high risk mortgage lending.
       In this memorandum, we discuss key features of the CRA and 
     present results from our analysis of several data sources 
     regarding the volume and performance of CRA-related mortgage 
     lending. In the end, our analysis on balance runs counter to 
     the contention that the CRA contributed in any substantive 
     way to the current crisis.

[[Page 11863]]

     
                                  ____
         Board of Governors of the Federal Reserve System,
                                Washington, DC, November 25, 2008.
     Hon. Robert Menendez,
     U.S. Senate,
     Washington, DC.
       Dear Senator: Thank you for your letter of October 24, 
     2008, requesting the Board's view on claims that the 
     Community Reinvestment Act (CRA) is to blame for the subprime 
     meltdown and current mortgage foreclosure situation. We are 
     aware of such claims but have not seen any empirical evidence 
     presented to support them. Our own experience with CRA over 
     more than 30 years and recent analysis of available data, 
     including data on subprime loan performance, runs counter to 
     the charge that CRA was at the root of, or otherwise 
     contributed in any substantive way to, the current mortgage 
     difficulties.
       The CRA was enacted in 1977 in response to widespread 
     concerns that discriminatory and often arbitrary limitations 
     on mortgage credit availability were contributing to the 
     deteriorating condition of America's cities, particularly 
     lower-income neighborhoods. The law directs the four federal 
     banking agencies to use their supervisory authority to 
     encourage insured depository institutions--commercial banks 
     and thrift institutions that take deposits--to help meet the 
     credit needs of their local communities including low- and 
     moderate-income areas. The CRA statute and regulations have 
     always emphasized that these lending activities be 
     ``consistent with safe and sound operation'' of the banking 
     institutions. The Federal Reserve's own research suggests 
     that CRA covered depository institutions have been able to 
     lend profitably to lower-income households and communities 
     and that the performance of these loans is comparable to 
     other loan activity.
       Further, a recent Board staff analysis of the Home Mortgage 
     Disclosure Act and other data sources does not find evidence 
     that CRA caused high default levels in the subprime market. A 
     staff memorandum discussing the results of this analysis is 
     included as an enclosure.
       As the financial crisis has unfolded, many factors have 
     been suggested as contributing to the current mortgage market 
     difficulties. Among these are declining home values, 
     incentives for originators to place loan quantity over 
     quality, and inadequate risk management of complex financial 
     instruments. The available evidence to date, however, does 
     not lend support to the argument that CRA is to blame for 
     causing the subprime loan crisis.
           Sincerely,
                                                     Ben Bernanke.

  Mr. Speaker, I yield back the balance of my time.

                          ____________________