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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 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

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 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

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 

Page

IV 

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 

(1) 

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 

2 

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 comVerDate Nov 24 2008 11:41 Apr 20, 2010 Jkt 054865 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 K:\DOCS\54865.TXT TERRIE
3 

munities. 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 middleand 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— 

4 

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 

5 

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 hous- ing 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 

6 

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. 

7 

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. Thirtytwo 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. 

8 

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 

9 

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 31⁄2 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. 

10 

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 reVerDate Nov 24 2008 11:41 Apr 20, 2010 Jkt 054865 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\54865.TXT TERRIE
11 

quirements. 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 

12 

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 21⁄2 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 21⁄2 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. 

13 

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. 

14 

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 inVerDate Nov 24 2008 11:41 Apr 20, 2010 Jkt 054865 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\54865.TXT TERRIE
15 

stitution. 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 deVerDate Nov 24 2008 11:41 Apr 20, 2010 Jkt 054865 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\54865.TXT TERRIE
16 

spite 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 WalMart’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 

17 

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-andtrade 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 DemoVerDate Nov 24 2008 11:41 Apr 20, 2010 Jkt 054865 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\54865.TXT TERRIE
18 

cratic 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 

19 

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 lowand 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 

20 

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 lowincome 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. 

21 

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 

22 

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 

23 

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 

24 

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 lowerincome 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 

25 

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 

26 

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. 

27 

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 WalMart 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. 

28 

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 naVerDate Nov 24 2008 11:41 Apr 20, 2010 Jkt 054865 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 K:\DOCS\54865.TXT TERRIE
29 

tional 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. 

30 

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 moderateincome 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 

31 

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 

32 

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 nearprime 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 

33 

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 

34 

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 

35 

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 

36 

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. 

37 

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. 

38 

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 

39 

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 

40 

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 

41 

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 31⁄2 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 

42 

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. 

43 

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 sinVerDate Nov 24 2008 11:41 Apr 20, 2010 Jkt 054865 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 K:\DOCS\54865.TXT TERRIE
44 

gle 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 61⁄2 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, comVerDate Nov 24 2008 11:41 Apr 20, 2010 Jkt 054865 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 K:\DOCS\54865.TXT TERRIE
45 

munity 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 imVerDate Nov 24 2008 11:41 Apr 20, 2010 Jkt 054865 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 K:\DOCS\54865.TXT TERRIE
46 

prove 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 

47 

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? 

48 

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? 

49 

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 

50 

$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, includVerDate Nov 24 2008 11:41 Apr 20, 2010 Jkt 054865 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 K:\DOCS\54865.TXT TERRIE
51 

ing 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. 

52 

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 affordVerDate Nov 24 2008 11:41 Apr 20, 2010 Jkt 054865 PO 00000 Frm 00056 Fmt 6633 Sfmt 6633 K:\DOCS\54865.TXT TERRIE
53 

able 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 

54 

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? 

55 

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 lowincome 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 lowand 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 responVerDate Nov 24 2008 11:41 Apr 20, 2010 Jkt 054865 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 K:\DOCS\54865.TXT TERRIE
56 

sible 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.] 

(57) 

A P P E N D I X 

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