The LA Times reports that the National Community Reinvest Coalition (NCRC), an organization associated with Community Investment Act (CRA) sub-prime mortgages, and funded in part by Fannie Mae, Freddie Mac, GMAC and Lehman Brothers has filed suit against Moody's Investors Service and Fitch Ratings alleging the firms assigned high ratings to bonds backed by CRA mortgages. Another rating firm, Standard and Poors, was not charged in the suit because they have been in negotiation with the NCRC.

In a move described as establishing a "new definition of Chutzpa" a civil rights complaint was filed with the Department of Housing and Urban Development (HUD).

The complaint, filed by the National Community Reinvestment Coalition, alleges that Moody's Investors Service and Fitch Ratings enriched themselves by assigning high ratings to bonds backed by mortgages "that were designed to fail" because of "unfair payment terms and insufficient borrower income levels."

The firms "knew or should have known" that sub-prime loans disproportionately were marketed to minority consumers -- a process known as "reverse redlining" -- and that those borrowers would ultimately default and go into foreclosure at high rates, according to the coalition's complaint.

Just this week, Investors Business Daily put the blame for the financial crisis squarely on the Community Reinvestment Act and the Democrats:

The CRA coerces banks into making loans based on political correctness, and little else, to people who can't afford them. Enforced like never before by the Clinton administration, the regulation destroyed credit standards across the mortgage industry, created the sub-prime market, and caused the housing bubble that has now burst and left us with the worst housing and banking crises since the Great Depression.

The CRA should be abolished, along with the government-sponsored enterprises that fueled the secondary market for sub-primes — under pressure from Clinton, who ordered HUD to set quotas for "affirmative action" lending at Fannie Mae and Freddie Mac.

But powerful Democrats in Washington want to protect the act — along with Fannie and Freddie — and spin the sub-prime scandal as the result of too little regulation, not too much.

"Repealing or weakening the CRA would be a mistake," warns Senate Banking Committee Chairman Chris Dodd, D-Conn., who argues that the CRA should be strengthened.

Read the LA Times story here and the IBD editorial here.