The Daily Beast, June 5, 2019: Redlining revisited: Why the Community Reinvestment Act needs to do more to end lending discrimination
Discrimination against low- and middle-income (LMI) home buyers – something which disproportionally affects minority communities — has long been a problem in the United States. Over the past few decades, federal legislation, including the Community Reinvestment Act (CRA), has been passed to help put a stop to discriminatory practices that inhibit LMI families from becoming homeowners. While the CRA has done a great deal to improve access to credit and make homeownership a reality for more people, there is significant room for improvement to the decades-old legislation. As Congress and the private sector explore the best ways to change the CRA to further reduce housing discrimination, it’s helpful to take a closer look at the tenets of the legislation and examine its effects and shortcomings.
The Federal Reserve noted on its website that redlining was rampant prior to the passage of the CRA, as many banks refused to offer lending and other financial services to LMI neighborhoods because they deemed them high-risk investments. Therefore, the CRA was passed to establish lending practices for banks that encouraged them to lend to these communities. The legislation says that banks must “serve the convenience and needs of the communities in which they are chartered to do business” and avoid engaging in discriminatory lending practices that can block LMI communities from acquiring financing to pursue homeownership and other endeavors.
Moreover, CRA reform advocates also support mandating that non-banks, which include both predatory and non-predatory providers that increasingly offer lending to LMI communities, are also subject to CRA regulations. “ … CRA examinations cover only about 30 percent of mortgage lending … More bank, as well as nonbank, lending and investments to home buyers, small businesses and for community development should be examined so that there would be more equitable outcomes for underserved communities around the country,” Jesse Van Tol, the CEO of the National Community Reinvestment Coalition, writes to the Daily Beast. “More lenders should have an obligation to serve underserved communities in the way banks do.” Notably, NAR noted that it supports “policies providing targeted reforms for appropriately sized community banks” that allow them to meet their CRA requirements but that do not present overly bureaucratic requirements for small businesses.