Press Release - Paying More for the American Dream III
For Immediate Release
April 23, 2009
Contact: Barbara van Kerkhove, (585) 454-4060
A report released today by a multi-state collaboration of regional research, policy, and advocacy organizations underlines the critical role that the Community Reinvestment Act (CRA) plays in promoting safe, affordable lending to lower-income borrowers and communities. The report, Paying More for the American Dream III: Promoting Responsible Lending to Lower-Income Communities and Communities of Color, examines the impact of CRA in seven metropolitan areas in the United States: Chicago; New York City; Los Angeles; Rochester, NY; Boston; Charlotte, and Cleveland.
Key findings include:
- In low- and moderate-income communities, depositories with CRA obligations originated a far smaller share of higher-cost loans than lenders not subject to CRA.
- CRA currently imposes no explicit obligation to serve communities of color. So, while lenders covered by CRA were less likely to make higher-cost loans in communities of color than lenders not covered by CRA, banks with CRA obligations still made a disproportionate share of their higher-cost loans in communities of color. In the Rochester area, loans made by lenders covered by CRA were 2.5 times more likely to be higher cost in communities of color than in other communities.
- Lenders not covered by CRA made the vast majority of higher-cost loans in the seven metropolitan areas examined. In all of the metropolitan areas examined, lenders covered by CRA had a much larger presence in the overall lending market than in the higher-cost lending market. In the Rochester area, lenders covered by CRA captured 50 percent of the total lending market, while obtaining only 33 percent of the higher cost lending market.
- CRA typically applies only to banks in the areas where a bank has a branch presence (the banks’ “assessment areas”). In all seven cities, CRA-regulated lenders acting outside their assessment areas originated a higher percentage of higher-cost loans than CRA-regulated lenders acting inside their assessment areas. Twenty-seven percent of the loans originated by banks without CRA obligations in the Rochester area were higher-cost, compared to only 14 percent of the loans made by depositories with CRA assessment areas in the Rochester MSA.
“This report shows that the Community Reinvestment Act has a positive effect on bank lending behavior,” says Jim Campen of the Massachusetts Affordable Housing Alliance in Boston. “However, it also showcases an opportunity to move toward more equitable lending outcomes by expanding CRA to include all mortgage originators wherever they lend.”
Recommendations Include:
- Expand CRA to also cover borrowers and communities of color. Black and Latino borrowers and communities have long seen disproportionately high shares of subprime lending when compared to white borrowers and communities. Extending CRA coverage to consider borrower and community race and ethnicity will be a significant step in reducing these disparities.
- Modify how CRA assessment areas are defined to reflect the true areas where banks conduct business since many banks now lend nationwide, not just from their brick-and-mortar branches.
- Expand CRA to cover all institutions making mortgages, including all bank affiliates and independent mortgage companies. Currently, CRA covers only depository financial institutions and selected affiliates. However, substantial shares of higher-cost loans have been originated by the largely unregulated independent mortgage companies and bank affiliates. This higher-cost lending not covered by CRA has harmed borrowers, and destabilized low- and moderate-income communities and communities of color.
“It is imperative that we expand federal laws that promote equitable lending and reduce higher-cost loans that destabilize communities and lead to high rates of foreclosure,” says Barbara van Kerkhove of the Empire Justice Center.
The full report can be found at www.empirejustice.org.
Collaboration
The Paying More for the American Dream series is a collaborative effort of the California Reinvestment Coalition, Community Reinvestment Association of North Carolina, Empire Justice Center, Massachusetts Affordable Housing Alliance, Neighborhood Economic Development Advocacy Project, Ohio Fair Lending Coalition, and Woodstock Institute. This is the collaboration’s third annual report examining systematic inequalities in the housing finance system and their impact on lower-income neighborhoods and communities of color. The first report, released in March 2007, examined disparities in mortgage pricing by several of the country’s largest mortgage lenders that offered both prime and subprime loans. The second report, released in March 2008 looked at the geographic lending patterns of a set of defunct subprime lenders whose loans largely fueled the foreclosure wave that is currently devastating communities across the country and found that these loans were highly concentrated in minority and lower-income communities.
About Empire Justice Center
Empire Justice Center is a nonprofit legal services organization in New York that provides support and training to legal services offices statewide, undertakes policy research and analysis, and engages in legislative and administrative advocacy. Empire Justice also represents low-income individuals, as well as other classes of New Yorkers, in a range of poverty law areas including consumer law.
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