In the past few years, as we have tried to make sense of the financial crisis and recession, plenty of blame has gone around: from Fannie and Freddie, to Wall Street, to OPEC, to the policies of more than one administration. One prominent culprit, at least among those on the right, has been the Community Reinvestment Act. The Community Reinvestment Act of 1977 (CRA) is meant to encourage financial institutions to provide services to meet the needs of the communities in which they operate and from which they accept deposits. This most often plays itself out in financial contributions to community-based non-profits providing community and economic development assistance to those in need, loans to small businesses located in those areas, and mortgage loans to qualified low-to-moderate income customers. The goal of CRA is to make sure that institutions are providing safe and sound financial products to under-served populations who qualify for them; so that the banks are reaching a largely untapped market and the consumers are not getting in over their heads.
The argument on the right has been that CRA regulations caused the foreclosure crisis by forcing banks into making bad loans to unqualified people who could not afford them. This would be a devastating indictment if it were true. According to the Federal Reserve Board, only 6% of all subprime mortgage loans in 2006 were originated by CRA-covered institutions. This means that 94% of subprime mortgages – the kinds that are decimating entire neighborhoods and driving down values everywhere – were made by independent mortgage companies not covered by CRA. Unless critics want to contend that only those 6% of CRA loans were the problem, then the data does not bear out their conclusion.
Does this mean that CRA is the answer to making sure another foreclosure crisis does not occur? No, at least not in its current form. The National Community Reinvestment Coalition recommends expanding CRA to apply to all financial institutions and all areas, collecting and reporting on higher-level data for better analysis, and imposing penalties on institutions that do not score well on CRA exams. A stronger CRA would actually assist urban planners and developers in creating sustainable mixed-use, mixed-income communities by making it good practice for financial institutions to provide sustainable business and mortgage loans to qualified people of all incomes. With lenders being a large reason why Smart Growth and New Urban communities are difficult to achieve, an expanded CRA could counteract that.
Based on what you know of CRA, what are your thoughts on its value to cities and communities? Should many financial institutions, including mortgage and insurance companies, continue to be exempt from its regulations? How can urban planning professionals partner with financial institutions to meet mutually beneficial goals?