To the Editor:

Jennifer Tescher's Viewpoint article on the CRA vis-a-vis subprime lending ["How to Shape the Next Version of CRA," Oct. 31] was slightly off the mark.

If a careful study is made, it will be noted that the vast majority of subprime loans were made to individuals who could not afford either (a) the home they were purchasing, (b) the loan they were seeking to refinance, or (c) the monthly payments for the loan. The subprime loans were simply made for the purpose of generating loan volume, without regard [to] the repayment ability of the borrowers.

While the Community Reinvestment Act is clearly not a direct cause of the subprime lending crisis, it has to be considered within the framework of an indirect cause. If a fair-to-good percentage of subprime loans were secured by properties located within low- to moderate-income areas, as is suspected to be the case, it can then be argued that the loans were originated simply for the purpose of earning CRA recognition and the supporting CRA scoring credit. In effect, a lender placed CRA scoring credit, and irresponsible mortgage lending, ahead of safe and sound underwriting and the building of a quality loan portfolio.

Ms. Tescher is correct in, and is to be applauded for, advocating that the CRA be extended to include all financial services companies, not just banks and thrifts. This writer has long argued that the CRA law, and its regulations, should be extended to all significant financial entities, particularly mortgage banking companies and credit unions. The latter category is a no-brainer, considering the fact that the credit union customer base now extends beyond serving people of "modest means." This raises the question of exactly how much mortgage credit is extended to people of "modest means." Once compiled, the figures should be interesting.

There will never be an amended CRA law that will please the financial services industry. However, future changes in the law should extend CRA responsibilities to all major originators of mortgage credit. It will only be through the extended scope of coverage that the public will be able to assess the extent to which the various types of financial entities are truly lending within low- to moderate-income areas.Barry J. Zadworny
Senior vice president, compliance
Roma Bank
Robbinsville, N.J.

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