The internet is full of right wing bashing of the Community Reinvestment Act (CRA) as a way to blame Democrats, (liberals, the left) for the financial crisis. Of importance here is that Barak Obama apparently worked for ACORN, an organization that has long organized for CRA legislation and bank usage of it, and also helped banks get CRA loans. The issue also provides a channel for blaming the poor and racial minorities as financially irresponsible, as causing a crisis where others have to bail them out.
A January 2008 study (of 2006 data) by Traiger and Hinkley LLP found evidence that CRA’s impact may have helped lessen the financial crisis. They found, for example, that banks using CRA were "66% less likely … to originate a high cost loan" than other lenders. These loans were priced, on average, "68 basis points lower." They also found fewer foreclosures where there were brick and mortar banks in metropolitan areas. On the other hand, banks making loans in CRA (low and moderate income) census tracts made only 25% of the home loans in these metropolitan areas. This reduces these positive impacts on the total mortgage lending crisis.
The title of the report is: "The Community Reinvestment Act: A Welcome Anomaly in the Foreclosure Crisis," http://www.traigerlaw.com/publications/traiger_hinckley_llp_cra_foreclosure_study_1-7-08.pdf. An addendum is also available. The 15 largest metro areas in the U.S. were studied.
One issue now being renewed is whether CRA should be applied to other lending institutions.
Throughout it’s history, CRA has served as model legislation. It has served as a framework for community organizing for the purpose of stopping redlining (the practice of refusing to make loans in low and moderate income neighborhoods). CRA gives community organizations leverage for negotiating with banks. Organizations (and individuals) can post comments in CRA public files, and protest against poor performance in making these loans. A study of lending in Des Moines Iowa (mid 1990s) found that many banks taking deposits out of poor neighborhoods made few loans back there for homes (ie. 0-4 on a given year). Banks implementing CRA programs without working with community organizations were not much better. One big bank went from 4 to 80 loans after completion of CRA negotiations.
CRA has also been used successfully to increase lending to small businesses in low and moderate census tracts and to family farms. It served as an effective organizing tool for farm organizations in the farm crisis that flared up during the 1980s. Anyone can ask to see the CRA public file and CRA statement of any bank, but don’t expect to see much unless community organizations are active in the area.
CRA can also serve as a model for media organizing. Protests of the misuse of public airwaves can now be placed in public files, but they need more teeth, to foster negotiations between media (TV and radio stations) and the local communities they serve.
This recent study should help bring new positive attention to CRA, as well as counteracting misinformation from the right.
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