New Report: Massachusetts offers a model for expanding federal Community Reinvestment Act to independent mortgage companies

A statewide Community Reinvestment Act (CRA) for mortgage companies in Massachusetts provides a solid starting place for establishing a national policy to require nonbank mortgage lenders to serve qualified lower-income borrowers, a new report from the National Community Reinvestment Coalition (NCRC) found.

The report found that the Massachusetts experience indicates that applying CRA to mortgage companies nationwide is both feasible and likely would increase their retail lending and community development activity in low- and moderate-income (LMI) communities.

“Our analysis showed that the CRA law in Massachusetts is working as intended,” said Josh Silver, a senior policy advisor at NCRC and author of the new report. “By rewarding more lending and service in underserved communities with higher ratings, the law is encouraging those companies lagging their peers to increase their efforts. Over time, this will result in more loans and services in underserved communities.” 

Since 2007, Massachusetts has applied its statewide Community Reinvestment Act law to independent mortgage companies. Mortgage companies receiving a license to make loans in Massachusetts are examined and rated by the state’s Division of Banks. They undergo an exam that assesses their performance in making retail home loans to LMI borrowers and communities. The exam also scrutinizes and rates their community development services and investment activities. 

The report examined 50 Massachusetts mortgage company CRA exams, starting with the most recent year available, 2020, and going back to 2016. The sample suggested that the ratings used to assess retail activities and community development initiatives were based on objective criteria. A higher percentage of loans to LMI borrowers and communities was generally associated with higher ratings on the lending test. Likewise, more community development services and charitable donations resulted in higher ratings on the service test. 

Last week, the three federal regulatory agencies responsible for enforcing the federal CRA announced that they will work together on new rules to strengthen and modernize how the law is applied to banks. But the law, enacted by Congress in 1977, applies only to banks and not to independent mortgage companies or credit unions. 

“This report provides a clear model and guidance on how Congress could expand the CRA duty to serve all communities to independent mortgage companies,” said Jesse Van Tol, CEO of NCRC. “It’s long past time to modernize federal lending laws to ensure that all lenders, not just banks, have a duty to serve all of the communities where they do business. Independent mortgage companies play an important role by providing credit so families can purchase homes. For most families, that’s the biggest purchase decision they’ll ever make, and it’s also a foundation of wealth passed on from one generation to the next. Like banks, independent mortgage companies should be required to meet the credit needs of lower-income communities and that no discrimination occurs against communities of color, and they should be held accountable if they don’t. That already happens in Massachusetts, and with good results.”

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Redlining and Neighborhood Health

Before the pandemic devastated minority communities, banks and government officials starved them of capital.

Lower-income and minority neighborhoods that were intentionally cut off from lending and investment decades ago today suffer not only from reduced wealth and greater poverty, but from lower life expectancy and higher prevalence of chronic diseases that are risk factors for poor outcomes from COVID-19, a new study shows.

The new study, from the National Community Reinvestment Coalition (NCRC) with researchers from the University of Wisconsin–Milwaukee Joseph J. Zilber School of Public Health and the University of Richmond’s Digital Scholarship Lab, compared 1930’s maps of government-sanctioned lending discrimination zones with current census and public health data.

Table of Content

  • Executive Summary
  • Introduction
  • Redlining, the HOLC Maps and Segregation
  • Segregation, Public Health and COVID-19
  • Methods
  • Results
  • Discussion
  • Conclusion and Policy Recommendations
  • Citations
  • Appendix

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