Expect to see more bad mortgages as a result of a House committee’s vote Thursday to create the so-called “Consumer Financial Protection Agency.” That agency, contrary to its deceptive name, will harm savers and consumers by forcing banks to make loans to people with bad credit, leaving banks with less money to pay interest. “The agency would be in charge of enforcing the Community Reinvestment Act, a law that prods banks to make loans in low-income communities.”
Government pressure on banks to make more risky loans in low-income neighborhoods was a key reason for the mortgage meltdown. Yet President Obama’s disturbing proposal would empower the new agency to enforce the Community Reinvestment Act without regard for banks’ financial safety and soundness. The Community Reinvestment Act was a key contributor to the financial crisis.
The mortgage crisis was also caused by the reckless government-sponsored mortgage giants (”GSEs”) Fannie Mae and Freddie Mac, and by federal affordable-housing mandates. But Obama’s proposed financial rules overhaul does absolutely nothing about Fannie Mae and Freddie Mac, admits Obama’s Treasury Secretary, tax cheat Timothy Geithner, even though he admits that “Fannie and Freddie were a core part of what went wrong in our system.”