Critics of the CRA (Community
Reinvestment Act) have claimed the act played a key role in the subprime
meltdown, but numbers don’t support that claim, according to research recently
released by a multi-state collaboration of regional research, policy, and
The report found that, in the seven large metropolitan areas examined, lenders covered by the CRA were far less likely to make higher-cost loans than lenders (both depositories and independent mortgage companies) not covered by the CRA.
As policymakers continue to debate mortgage reform, Woodstock Institute strongly encourages them to consider expanding CRA as an affirmative obligation to make safe and sound loans to all credit-worthy borrowers, in addition to prohibiting bad unsafe and unsound practices.
An expansion of the act should:
- require that the lending activities of all holding company affiliates be included on CRA examinations and expand the CRA to cover all institutions making mortgages. A substantial share of higher-cost loans was originated by largely unregulated independent mortgage companies and bank affiliates. This higher-cost lending not covered by the CRA has harmed borrowers, destabilized low- and moderate-income communities and communities of color, and was a major force in fueling the subprime lending crisis.
- Expand the CRA to cover borrowers and communities of color. African American and Latino borrowers and communities have long been subject to disproportionately high shares of subprime lending when compared to white borrowers and communities. Extending CRA coverage to consider borrower and community race and ethnicity will be a significant step in reducing these disparities.
- Increase transparency by expanding data collection to give communities the tools to better understand the lending occurring in their neighborhoods. Improving data disclosure to include risky loan features such as adjustable rates, negative amortization, interest-only payments, prepayment penalties, yield spread premiums, and no income documentation will improve the quality of lending in low-wealth communities and communities of color.
Many of these recommendations are included in the CRA Modernization Act of 2009, which Woodstock Institute strongly supports.
For background on the history and accomplishments of CRA, see the testimony of NCRC President & CEO John Taylor.