In the wake of the foreclosure crisis, safe and sustainable credit will be necessary to revitalize neighborhoods, especially in those communities that have been hardest hit. The Community Reinvestment Act (CRA) has driven trillions of dollars of safe and sound credit into low-wealth communities since its enactment in 1977. Experts from the National Community Reinvestment Coalition (NCRC), the National Urban League, National People’s Action, and more made the case at a House Financial Services Committee hearing on the CRA that expanding and modernizing this critical tool would help get America back on the path to recovery. Currently, the CRA Modernization Act of 2009 contains the important provisions critical to updating and expanding the CRA, although we expect a revised bill to be released this year.
“This law is about making capitalism work for all Americans, urban and rural, white and black, for men and for women,” said John Taylor, president & CEO of NCRC, at the hearing. “Strengthening CRA would promote sustainable housing and small business development. It would create jobs and revitalize communities across America.”
Most of the high-cost loans that spurred the mortgage crisis were made by largely unregulated lenders that did not have CRA obligations—experts at the Federal Reserve have even argued that the CRA prevented the housing crisis from being much worse than it could have been. The CRA requires banks to make loans to traditionally underserved communities that are consistent with safety and soundness, mitigating the risk of foreclosure. Critically, the CRA Modernization Act would extend CRA to all mortgage lenders, including those that made risky subprime loans.
The CRA Modernization Act would also make banks accountable to all communities they serve. Currently, banks are only evaluated on CRA performance in areas where they have bank branches, but many banks make loans through brokers who are not located in branches. The CRA Modernization Act would require that banks be judged on CRA performance in areas their brokers serve as well. Additionally, the CRA Modernization Act would require that regulators explicitly assess banks’ provision of services to communities of color, not just low-wealth communities. These changes would paint a more accurate picture of banks’ investments in their surrounding communities.
Importantly, the CRA Modernization Act would enhance data collection and disclosure, as well as provide more opportunities for public input on how well a bank is serving their community. This would allow research and community groups to detect predatory lending practices and further strengthen accountability of banks to their communities.
Prospective homebuyers will need safe and sustainable credit in order to fill the holes that the foreclosure crisis has left behind in our neighborhoods, and the CRA ensures that banks extend that credit to communities that need it most. We need to strengthen and expand the CRA so that all mortgage lenders are required to lend safely and soundly and are accountable to the communities they serve. Affordable credit and the discouragement of predatory lending will be crucial to economic recovery and preventing another meltdown.