I recently met with Marcia West, Regional Organizer for the National Community Reinvestment Coalition (NCRC) [1], in Washington, DC, to explore how economically distressed communities should respond to the foreclosure and housing crises in America, to expand credit access for working-class residents - to learn what leaders of Northeast Ohio may do to improve access to loans for housing and community development for us common folk. The short answer is "Expand the Community Reinvestment Act to Bring Billions of Dollars in Safe and Sound Investments to America's Neighborhoods" - go to Expand CRA [2] to learn more and contact your representatives... SPREAD THE WORD!
CRA encourages banks to respond to a variety of needs in low- and moderate-income communities, including the financing of affordable rental housing, sustainable homeownership, small business creation, and economic development projects.
NCRC is an association of more than 600 community-based organizations that promote access to basic banking services including credit and savings, to create and sustain affordable housing, job development and vibrant communities for America's working families. Their mission is "To increase fair & equal access to credit, capital, and banking services/products because discrimination is illegal, unjust and detrimental to the economic growth of underserved communities in the United States and around the world."
The City of Cleveland is a member of NCRC, and our CDCs should be active members as well - I am compiling a list of NCRC member organizations concerned with the sustainability of this region - all should be vocal and active supporting expanding CRA!
TODAY, they need the help of the CITIZENS OF NORTHEAST OHIO and the entire community development world to contact CONGRESS - IN THIS LAME DUCK PRE HOLIDAY SESSION - and tell our representatives to PASS HR 6334, the American Community Investment Reform Act of 2010, introduced in the House on September 29 to EXPAND THE COMMUNITY REINVESTMENT ACT!
To rebuild the Northeast Ohio economy - and make it socially-just and sustainable here - we must address the still-snowballing foreclosure, credit, lending and housing crises that have decimated middle- and lower-income family wealth and stability in America... and pounded many neighborhoods of Ohio this past decade, and especially since 2007.
As predatory lenders flooded America with unethical subprime financing, under too-lax regulation, with an absence of adequate systemic Federal oversight - largely at arm's-length from mainstreet banking - they inflated credit and housing bubbles, and a massive percentage of American families fell under unsustainable, often unethical housing burdens, exorbitant fees and crippling debts (compounded by lax, high interest auto, credit card and consumer loan debt), breaking the financial stability, confidence and backs of American citizens, pushing America into recession and high unemployment, driving much of the American working-and-below-class into insolvency and onto the streets... their houses to be boarded up, land-banked, demolished or otherwise disposed-of by the unjust systems that over-indebted and mis-leveraged the working-class in the first place.
While we may battle many challenges in rebuilding Northeast Ohio, most important to the stability of our economy and the well-being of residents here is stopping the decimation of the wealth of our families and neighborhoods from the harm of foreclosure-related corruption... unjust business, legal and political leadership.... AND their predatory lending systems.... while expanding the flow of investment, loans and capital to low-and-middle-income residents of poor and underserved communities, who have been especially hard hit by the credit crisis now upon them.
We need to reestablish bankability for those citizens disembanked from our neighborhoods and society, against their good will and best means, when those means are sufficient to in fact sustain citizens under fair housing and lending terms and conditions.
One of the most important Federal government tools for ensuring fair, equitable flows of loans, capital investments and services from banks in America to the communities they serve is the Community Reinvestment Act [3], which rates banks on their performance lending to underserved populations [4].
Low CRA ratings may impact banks' ability to expand or merge, and the CRA has clearly had an impact on banks in Northeast Ohio, encouraging them to expand services in poor areas, to underserved people, to improve their standing with CRA.
See how your bank rates here... mine got just "satisfactory", and I agree. [4].. we are shopping for a new bank and now are most impressed with Key Bank, which consistently ranks "outstanding" with CRA.
From the CRA website: "The Community Reinvestment Act (CRA), enacted by Congress in 1977 (12 U.S.C. 2901) and implemented by Regulations 12 CFR parts 25, 228, 345, and 563e, is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate."
While CRA encourages fair lending by banks to low and middle income residents of poorer neighborhoods - urban and rural - and so CRA increases banks' exposure in supposedly high-risk communities, to high-risk customers, CRA fair lending programs have driven over $1 TRILLION in private investment into underserved communities, at no direct cost to taxpayers (referred to as deficit-neutral), and loans from CRA-rated institutions are not cratering with the rest of the American credit and real estate economies, during this brutal recession... they are NOT in fact high-risk nor speculative, but productive. From CRA [5]:
- CRA encourages banks to respond to a variety of needs in low- and moderate-income communities, including the financing of affordable rental housing, sustainable homeownership, small business creation, and economic development projects.
- Since 1996, banks have made community development loans totaling more than $407 billion. They also made small business loans of more than $581 billion in low- and moderate-income neighborhoods from 1996 through 2007.
- CRA mitigates foreclosures. CRA exams provide points to banks for foreclosure prevention efforts including counseling and loan modification. CRA exams also penalize banks for making loans that are unfair and deceptive.
- CRA-covered banks have consistently issued a smaller percentage of high-cost loans over the last several years than have independent mortgage companies not covered by CRA. In fact, according to the Federal Reserve Board, only 6 percent of all high-cost loans in 2006 were reported on CRA exams. Had CRA been applied more broadly throughout the financial services industry, one could argue that the foreclosure crisis would not have occurred.
Yet - not surprising, in these politicized times - CRA has come under attack from some right-wing extremists as a cause of the bank and housing meltdowns in America, actually caused outside CRA oversight. These attacks against CRA are part of industrial efforts to minimize government oversight of financial industries in general, and to prevent expansion of CRA to rate financial institutions currently beyond their oversight, like credit unions and subprime mortgage lenders.
As reported in the American Prospect [6], in April 2008 - "Conservatives blame the housing crisis on a 1977 law that helps-low income people get mortgages. It's a useful story for them, but it isn't true." - "The idea started on the outer precincts of the right. Thomas DiLorenzo, an economist who calls Ron Paul "the Jefferson of our time," wrote in September that the housing crisis is "the direct result of thirty years of government policy that has forced banks to make bad loans to un-creditworthy borrowers." The policy DiLorenzo decries is the 1977 Community Reinvestment Act, which requires banks to lend throughout the communities they serve."
Yet, from American Prospect, "CRA applies only to banks and thrifts that are federally insured; it's conceived as a quid pro quo for that privilege, among others. This means the law doesn't apply to independent mortgage companies (or payday lenders, check-cashers, etc.)". The author points out...:
First, consider timing. CRA was enacted in 1977. The sub-prime lending at the heart of the current crisis exploded a full quarter century later. In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted [7] by the New America Foundation's Ellen Seidman (and by Harvard's Joint Center), that activity "largely came to an end by 2001." In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law's toughest standards. Yet sub-prime lending continued, and even intensified -- at the very time when activity under CRA had slowed and the law had weakened.
Second, it is hard to blame CRA for the mortgage meltdown when CRA doesn't even apply to most of the loans that are behind it. As the University of Michigan's Michael Barr points out [8], half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA.
Most important, the lenders subject to CRA have engaged in less, not more, of the most dangerous lending. Janet Yellen, president of the San Francisco Federal Reserve, offers the killer statistic: Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts. With this in mind, Yellen specifically rejects [9] the "tendency to conflate the current problems in the sub-prime market with CRA-motivated lending.? CRA, Yellen says, "has increased the volume of responsible lending to low- and moderate-income households."
Honest Republicans agree.
Think Progress reports [10] - and starting around minute 3:50, the video above shows - outgoing South Carolina Republican Representative Bob Inglis has criticized those on the right who blamed the Community Reinvestment Act (CRA) for causing the 2008 financial crisis:
INGLIS: What I’m supposed to do as a Republican is just echo back to you Anne that yes, CRA was the cause of the financial meltdown in October of 2008. And if I said that to you I’d be clearly wrong because if you think about it, CRA had been around for decades. So how could it be that it caused the problem suddenly in October of 2008? … So therefore we can just establish it as a scapegoat. Democrats like it and we can of course put the racial hue on that and that makes it even more powerful. But if we do that, we go further away from the solution, the solution is to deal with those fundamental things, not pick up on scapegoats and run with it.
And, well-respected Republican Jack Kemp - Reagan's Housing Secretary - states above, "oh, by the way- the crisis...the financial crisis of America today was not caused by the Community Reinvestment Act. Let me just make it very very clear- the Community Reinvestment Act...I'm so sick of people in my party saying that making loans to low income people was Ipso Facto the cause of this breakdown of our financial institutions - nonsense." Oct.2008
In fact, it is in the best interests of America and all Americans to expand CRA, as currently proposed before congress... HR 6334, the American Community Investment Reform Act of 2010 [2].
The lack of CRA-type oversight beyond banking is a major reason for the rise and popping of the housing bubble, with uncreditworthy people getting loans under unethical terms from predatory lenders. Real CRA-regulated banks write real loans to real people, under really fair terms, under the watchful eyes of many regulatory agencies... and real people repay these fair loans... all with the help of CRA.
For that reason, the current bill before congress expands CRA oversight over the broader portfolio of community loan providers, to insure sufficient amounts of fair credit are provided to all citizens, so they are not entrapped in predatory loans... HR 6334, the American Community Investment Reform Act of 2010 [2].
Go to the EXPAND CRA website [2] for complete information on this bill, the Community Reinvestment Act, and ways to inform your representatives on this important issue. There are tools there for contacting your representatives and supporters of HR 6334.
The Community Reinvestment Act is a subtle bill that brings massive investment to low and middle class urban and rural communities simply by helping to make loans available. It leverages a private sector commitment by banks to lend to the underserved, so it is considered deficit neutral. In fact, outcomes enabled by the loans and investments resulting from the CRA grow the economy, so it increases American Gross Domestic Product and so adds to the economy.
As I have learned more about CRA, I greatly appreciate its' significance. Since 1977, CRA has worked with the MAINSTREET bank industry to insure all BANKS make credit, capital and services available to underserved people, markets and communities, like found throughout Northeast Ohio.
Citizen outrage and activism against corruption in the financial world and at home is making great impact in changing local and federal policies to help residents keep their homes, but the battle has barely begun, and more policies must be changed at home and in Washington, DC, including by passing HR 6334, the American Community Investment Reform Act of 2010 [2] to expand the CRA.
The Community Reinvestment Act (CRA) has been one of our country’s most important laws for building wealth and revitalizing neighborhoods. The law requires banks to lend responsibly and to meet the credit needs of all communities, including Low- to moderate- income and minority neighborhoods. CRA is actually an antidote to the foreclosure crisis-- if the principles of CRA are strengthened and applied more broadly to other lending institutions, our country will be better equipped to avoid a large scale financial crisis in the future.
Go to the NCRC website here [1] for more information on that pivotal organization - this is especially valuable if you are involved with government community organizing, social equity, fair housing and sustainable community development! Feel free to contact NCRC to discuss this issue and offer direct help!
Area mayors - Councilpeople - CDC Directors - County Executives - County CEOs - get on the phone to Marcia West at 202-383-7701 - email mwest [at] ncrc [dot] org - and ask how your organization may help pass this bill... don't sit on the sidelines and let this important legislation go lame... make this your hoilday gifts to your stakeholders.
Here are the NCRC recommendations on HR 6334 [11]:
CRA continues to be the primary means for ensuring safe and responsible investments in low- and moderate- income communities. Traditionally underserved areas would benefit from the expansion of CRA throughout the financial services industry.
Government loans, investments, guarantees, and subsidies for the financial industry during the financial crisis have totaled more than $23 trillion. Given this level of government support, it is reasonable to enforce an industry-wide duty to serve the capital and credit needs of America’s communities consistent with safety and soundness. Expanding and strengthening CRA would leverage hundreds of billions of dollars in additional credit and capital for America’s small businesses and responsible homeowners. We urge Congress to act to:
- Expand CRA’s coverage to reflect today’s financial system. CRA has been hampered because it was not updated as the financial industry has changed.
CRA should be applied to:
° Mortgage companies and other non-bank lenders. In recent years, lenders have evaded the law as mortgage lending migrated to non-banks, including brokers, affiliates and independent mortgage companies not subject to CRA. Such a substantial portion of the marketplace should not be exempt from good corporate citizenship under CRA.
° Wall Street investment banks and securities firms. The financial crisis demonstrated the direct impact that Wall Street’s practices had on neighborhoods and communities. These institutions should be examined by federal regulators under CRA for their impact on access to capital and credit in low- and moderate-income areas. Applying CRA to Wall Street would help the country recover from the financial crisis by requiring financial institutions to invest responsibly in the American people and businesses.
° Insurance companies. Under the Dodd-Frank law, insurance companies will now report data to a federal regulator for the first time. This gives policymakers an opportunity to identify and address the problem of insurance redlining and other impediments to accessing insurance. Applying CRA to insurance companies would ensure they are not arbitrarily denying services to low- and moderate-income communities.
° Credit unions. NCRC’s research has shown that the credit union industry lags banks at serving low- and moderate-income communities. Originally chartered to serve people of “small means,” these institutions receive significant tax breaks and should be held accountable for community reinvestment obligations.
- Close loopholes and gaps in the law. The assessment areas of banks on CRA exams should be fixed so banks’ are measured where they do the majority of their business, not just where they have branches. Banks have also bypassed the law by excluding their affiliates from the exam, shielding risky lending from CRA’s scrutiny; affiliates must be included on the exam.
- Enhance the performance-based measurement system of CRA. Creditworthy small businesses and consumers are struggling to get loans, and yet 98% of banks receive passing or excellent grades on their CRA exams. Improving CRA’s performance based measures would put an end to grade inflation, double counting and “pro forma” activities.
- Improve enforcement of the law. The law currently contains limited tools to ensure that problematic practices are addressed. Expanding enforcement mechanisms to include public improvement plans for correcting a poor rating overall or in any local area, limiting the ability of poor performing banks to sell to loans to the Government Sponsored Enterprises (GSEs), allowing the public to appeal CRA ratings, or pursue a private right of action to correct problems, and creating more rigorous fair lending reviews of financial institutions would improve the performance of the law.
- Expand transparency and accountability under the law. Requiring regulators to regularly hold public hearings on mergers, giving meaningful weights to CRA tests and putting them on a 1-100 point scale, and collecting data on banks’ branching patterns and deposits in communities would make the grading system more useful to the public as a measure of good corporate citizenship.
For more policy resources on the Community Reinvestment Act, please contact Dion Spencer, Director of Legislative and Regulatory Affairs on 202-464-2722 or Josh Silver, Vice
President for Policy and Research, on 202-464-2708.
Here is a sample letter they ask citizens to send to their representatives, for more background:
Dear Representative:I urge you to enact legislation that puts private capital back to work creating jobs and opportunity! The American Community Investment Reform Act of 2010 [HR 6334] would do just that. The bill leverages a private sector commitment to lend, so it is deficit neutral.
The American Community Investment Reform Act of 2010 incorporates the following principals:
- American small businesses and consumers need access to capital, credit and basic banking services to prosper.
- All financial institutions must have an affirmative obligation to serve the capital and credit needs of low income communities and communities of color in a fair manner.
- The reckless behavior of financial institutions caused the financial crisis, and the loss of millions of jobs and homes. Financial institutions must help the economy recover, not sit in the sidelines.
- Additional oversight and transparency will invigorate both the safety and soundness of the financial system, as well as its accountability to communities
Congress must finish financial reform by expanding and strengthening financial institutions’ commitment to small businesses and communities. The Community Reinvestment Act is a model for harnessing the tremendous dynamism of the private sector to promote community development and prosperity.
The financial landscape has changed dramatically since CRA was first introduced in 1977. It needs to be updated to reflect today’s financial system.
We urge you to sign onto and pass H.R. 6334 - American Community Investment Reform Act of 2010.
Sincerely,
[your name inserted here]
Northeast Ohio must help current residents KEEP THEIR HOMES and REBUILD THEIR CREDIT - we must create fair, better channels for lower- and middle-class residents to access credit - including for those whose credit was harmed when the last housing bubble popped - so regular, every-day folk may buy and maintain sustainable housing for themselves, to rebuild ond sustain our region.
Predatory lender greed flooded sickness into a festering multi-year housing bubble in America that resulted in the unsustainable migration of people and mis-deployment of natural resources around America, leaving shallow communities of empty shells - in many cases, entire neighborhoods of stable residents have been wiped out by unethical lending practices, and entire communities are being bulldozed.
If Northeast Ohio wants to maintain - and grow - a sustainable community in the millions - see a Cleveland of over 500,000 people again - then citizens choosing to live here need fair access to loans for housing... at all income levels, in all neighborhoods.
ABOUT NCRC:
Our members [12] include community reinvestment organizations, community development corporations; local and state government agencies; faith-based institutions; community organizing and civil rights groups; minority and women-owned business associations as well as local and social service providers from across the nation.
NCRC pursues its work through a variety of partnerships and programs. Our Housing Counseling Network [13] leverages the expertise of a national network of mortgage finance advisors. They work with servicers and lenders, on behalf of homeowners, to keep working families from losing their homes to foreclosure.
NCRC’s National Training Academy [14] provides training and technical assistance on topics such as understanding how to use the Community Reinvestment Act (CRA), fair lending laws, Home Mortgage Disclosure Act (HMDA), Truth in Lending Act (TILA), Real Estate Settlement Procedures Act (RESPA), Homeownership and Equity Protection Act (HOEPA), fair housing and foreclosure prevention. Our Economic Justice Campaign sites pilot innovative community partnerships to enhance the delivery of financial, technical, and social services to individual consumers, homeowners, and small business.
NCRC’s work is enhanced by two financial service advisory councils [15] consisting of the nation’s largest banks and mortgage finance companies. Quarterly roundtables examine issues involving responsible financial service-related policies, regulations and legislation, as well as innovative products, services and best practices.
NCRC represents its members before Congress, federal regulatory agencies and the press. NCRC routinely testifies [16] before the U.S. Congress, and meets with the leadership of banking and lending regulatory agencies. NCRC frequently provides expert commentary on national television, and our research [17] and policy papers have been cited in hundreds of newspapers in the US.
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