Clinton Administration Changes of 1995
In 1992 the United States Congress passed a housing law requiring the Federal National Mortgage Association, commonly known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, to devote a percentage of their lending to support affordable housing. This increased Fannie Mae and Freddie Mac’s pooling and selling of such loans as securities, (i.e. securitization), and it expanded the secondary market for those loans.[2]
In early 1993 President Bill Clinton ordered new regulations for the CRA which would increase access to mortgage credit for inner city and distressed rural communities.[6] The new rules went into effect on January 31, 1995 and featured: requiring numerical assessments to get a satisfactory CRA rating; using federal home-loan data broken down by neighborhood, income group, and race; encouraging community groups to complain when banks were not loaning enough to specified neighborhood, income group, and race; allowing community groups that marketed loans to targeted groups to collect a fee from the banks.[3][5]
The new rules, during a time when many banks were merging and needed to pass the CRA review process to do so, substantially increased the number and aggregate amount of loans to low- and moderate-income borrowers for home loans. Banks set up CRA departments, a CRA consultant industry was created and new financial-services firms helped banks invest in packaged portfolios of CRA loans to ensure compliance. Established and new community groups began marketing such mortgages. The Senate Banking Committee estimated that as of 2000, as a result of CRA, such groups had received $9.5 billion in services and salaries. As of that time such groups also had received tens of billions of dollars in multi-year commitments from banks, including ACORN Housing $760 million; Boston-based Neighborhood Assistance Corporation of America $3 billion; a New Jersey Citizen Action-led coalition $13 billion; the Massachusetts Affordable Housing Alliance $220 million.[3][unreliable source?]
The number of CRA mortgage loans increased by 39 percent between 1993 and 1998. Other loans increased by only 17 percent.[7][8] Related rule changes gave Fannie and Freddie extraordinary leverage, allowing them to hold just 2.5% of capital to back their investments, vs. 10% for banks, encouraging banks to make even more loans to low income communities, often with no down payment and little documentation. By 2007, Fannie and Freddie owned or guaranteed nearly half of the $12 trillion U.S. mortgage market.[9] Due to massive financial losses, on September 7, 2008 the Federal Housing Finance Agency (FHFA) put Fannie Mae and Freddie Mac under the conservatorship of the FHFA.[10])
[edit] GW Bush Administration Changes of 2005
In 2002 there was an inter-agency review of the effectiveness of the 1995 regulatory changes to the Community Reinvestment Act and new proposals were considered.[5]
The Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency put new regulations into effect September of 2005. [11]
The regulations were opposed by a contingent of Democrats.[12]
The regulations included less restrictive new definitions of “small” and “intermediate small” banks.[2] “Intermediate small banks” were defined as banks with assets of less than $1 billion, but allows banks to opt for examination as a large bank.[11] Currently banks with assets greater than $1.061 billion have their CRA performance evaluated according to lending, investment and service tests. The agencies use the Consumer Price Index to adjust the asset size thresholds for small and large institutions annually.[5]
