OK, Maybe The Community Reinvestment Act Is A Problem

The effect that the Community Reinvestment Act (CRA) on the housing is one of the touchier questions in the financial crisis debate. The act was designed to encourage more minority lending, and though it doesn’t require banks to lend out to shaky borrowers, banks make certain CRA commitments in order to get regulatory approval for acquisitions.

A possible effect of this is that banks wishing to grow via acquisition end up with an outsize volume of these commitments.

So what’s the effect at national banking giant Bank of America (BAC).

On the company’s conference call, CFO Joe Price said the CRA book accounts for 7% of the total in residential mortgages, but 24% of the losses.

That alone doesn’t put all the problem on the CRA’ shoulders, but obviously the losses in this portfolio are way out of proportion.

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