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524 Dissenting Statement

families, which in part it fulfi lled by selling subprime and other NTMs to Fannie and
Freddie. In a 2000 report, the Fannie Mae Foundation noted: “FHA loans constituted
the largest share of Countrywide’s activity, until Fannie Mae and Freddie Mac began
147
accepting loans with higher LTVs and greater underwriting fl exibilities.” In late
2007, a few months before its rescue by Bank of America, Countrywide reported that
it had made $789 billion in mortgage loans toward its trillion dollar commitment. 148

6. The Community Reinvestment Act
Th e most controversial element of the vast increase in NTMs between 1993
149
and 2008 was the role of the CRA. Th e act, which is applicable only to federally
insured depository institutions, was originally adopted in 1977. Its purpose in part
was to “require each appropriate Federal fi nancial supervisory agency to use its
authority when examining fi nancial 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 operations of such institutions.” Th e enforcement
provisions of the Act authorized the bank regulators to withhold approvals for such
transactions as mergers and acquisitions and branch network expansion if the
applying bank did not have a satisfactory CRA rating.
CRA did not have a substantial eff ect on subprime lending in the years aft er
its enactment until the regulations under the act were tightened in 1995. Th e 1995
regulations required insured banks to acquire or make “fl exible and innovative”
mortgages that they would not otherwise have made. In this sense, the CRA and
Fannie and Freddie’s AH goals are cut from the same cloth.
Th ere were two very distinct applications of the CRA. Th e fi rst, and the one
with the broadest applicability, is a requirement that all insured banks make CRA
loans in their respective assessment areas. When the Act is defended, it is almost
always discussed in terms of this category—loans in bank assessment areas. Banks
(usually privately) complain that they are required by the regulators to make
imprudent loans to comply with CRA. One example is the following statement by a
local community bank in a report to its shareholders:
Under the umbrella of the Community Reinvestment Act (CRA), a tremendous
amount of pressure was put on banks by the regulatory authorities to make loans,
especially mortgage loans, to low income borrowers and neighborhoods. Th e
regulators were very heavy handed regarding this issue. I will not dwell on it here
but they required [redacted name] to change its mortgage lending practices to meet
certain CRA goals, even though we argued the changes were risky and imprudent. 150
On the other hand, the regulators defend the act and their actions under it,
and particularly any claim that the CRA had a role in the fi nancial crisis. Th e most
frequently cited defense is a speech by former Fed Governor Randall Kroszner on

147 Fannie Mae Foundation, “Making New Markets: Case Study of Countrywide Home Loans,” 2000,
http://content.knowledgeplex.org/kp2/programs/pdf/rep_newmortmkts_countrywide.pdf.
148 “Questions and Answers from Countrywide about Lending,” December 11, 2007, available at http://
www.realtown.com/articles/article/print/id/768.
149 12 U.S.C. 2901.
150 Original letter in author’s fi les.