Community Reinvestment Act
The Community Reinvestment Act (CRA) has been critical to the expansion of responsible credit for low- and moderate-income borrowers since its passage in 1977. Designed to address low levels of lending activity in low- and moderate-income neighborhoods, it has helped spur a growing range of successful affordable loan programs that reduce credit access barriers. CRA expands the overall efficiency of the banking system by incentivizing banks to tap profit opportunities in underserved markets.
The Community Reinvestment Act ensures that banks make resources available to low-income or otherwise disadvantaged communities by offering “equal access to lending, investment and services to all those in an institution's geographic assessment area-at least three to five miles from each branch. In the case of large banks with many branches, the geographic area may encompass an entire county or even a state.” This policy was created as a direct response to “redlining”, a discriminatory practice used by bankers to avoid making loans to people of color or lower-income areas.
Cry Wolf Quotes
You're wrong in stating where the problem came from. The problem came from this notion that everybody in America had a right to a house whether they could ever afford to pay their loan back. That's what the Community Reinvestment Act was all about.
The CRA, by encouraging loosening underwriting standards, may have contributed to the massive increase in foreclosure rates.
Any review of the history of the affordable mortgage movement in America demonstrates the power that CRA had in helping to shred mortgage underwriting standards throughout the industry and exposing us to the kind of market meltdown we've experienced. “If form follows, soon banks and other financial institutions operating under CRA will be cudgeled into lending to small businesses based on race and gender, which will be the opening of a new round of lower lending standards in the very risky small-business sector. The effort to save and extend CRA in the face of its role in the mortgage market's massive meltdown is testament to the unique power of this legislation to nourish an entire industry of nonprofits that, like Acorn, have been reliable supporters of politicians such as Barney Frank, Maxine Waters and a former community organizer and associate of Acorn by the name of Barack Obama.
The CRA has created opportunities for rent seeking and financial and logistical burdens for all lenders. The Act forces lenders to spend money, time, and resources on documentation, PR, and other compliance costs.
Evidence
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Federal Reserve Bank of San Francisco Shuts Down Critics of the Community Reinvestment Act
The Community Reinvestment Act had nothing to do with the subprime crisis.
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Community Reinvestment Act Did Not Fuel the Subprime Crisis
The Community Reinvestment Act did not create an overabundance of risky loans.
Backgrounders & Briefs
Good Rules: Ten Stories Of Successful Regulation
Demos looks at ten laws and rules that we take for granted.
Community Reinvestment Act Policy Brief
By Philip Ashton, UIC
The Community Reinvestment Act (CRA) has been critical to the expansion of responsible credit for low- and moderate-income borrowers since its passage in 1977.
