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.
CRA Is Vital for Communities
- 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.
CRA Should Be Preserved and Expanded
Expanding CRA would further increase safe and responsible loans and investments to traditionally underserved communities. CRA should be strengthened in order to bolster the accountability of banks to the communities they serve, address persistent racial disparities in lending, particularly for small business loans, and require greater transparency from the federal regulatory agencies, including more public hearings before banks mergers.
CRA Expansion Will Put America on the Road to Economic Recovery.
- Had CRA been applied to independent mortgage companies and other non-bank institutions, it is likely that our nation would not be confronted with the current economic crisis. CRA has a clear and powerful mandate: serve community credit needs safely, fairly, and responsibly.
- Government loans, investments, guarantees, and subsidies for the financial services industry during the current crisis will total more than $12.8 trillion. In an effort to safeguard against future economic crises of this scale and magnitude, CRA must be applied more broadly throughout the financial services industry.
