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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
advocacy organizations.
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.
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