Expanding CRA

The Community Reinvestment Act of 1977 currently applies only to banks.  Federal agencies rate banks based on the number of loans, investments, and services provided to meet the credit needs of low-and moderate-income communities.  CRA offers incentives for banks to increase their level of services in working-class and minority communities since low CRA ratings can delay bank merger applications and also result in specific improvements ordered by bank regulatory agencies.

The CRA Modernization Act expands the CRA to include bank lending through brokers, mortgage companies, insurance firms and securities companies. This would increase not only lending and investing in minority and working class communities by financial institutions; but would also enhance wealth-building opportunities for the residents of those communities.

Research documents that CRA has leveraged more than $4 trillion in loans and investments for underserved communities.  Small business lending, community development loans, and home purchase loans have all been exponentially enhanced by CRA with numbers ranging in the billions of dollars according to government data.  Research from the Federal Reserve Board, for example, indicates that CRA has encouraged banks to offer more affordable and market-rate home purchase loans than non-CRA covered mortgage companies.  An important antidote to the abusive sub-prime and exotic mortgage lending practices that are saturating our neighborhoods, if strengthened, CRA promises to provide yet more product choice to consumers.

As I commented in my release, minorities, women, and low- and moderate-income borrowers continue to receive a disproportionate amount of higher cost sub-prime loans. The CRA Modernization Act is an attempt to remedy that.