Setting the Record Straight About the CRA

Conservatives are trying to rewrite the history of the Community Reinvestment Act (CRA). Desperate to blame the financial meltdown on liberals and poor people, they are grasping at straws, spreading lies and smearing community organizers who have been fighting the good fight against discrimination in housing and lending.

I just received a link to a helpful blog posting that debunks all the myths the Right has been hyping in recent weeks about the CRA. You can find it on the Campaign for America’s Future website. This article came my way via an email from the Working Group on Extreme Inequality, which is also worth visiting for its many ideas for fostering an economic recovery that benefits all of us.

To make the case for why we need something like the CRA, I want to share some highlights from the history of one of the groups that fought for, won, and works tirelessly on implementing the CRA in low and moderate-income communities across the country. That group is a network of community and statewide organizations called the National Training and Information Center (NTIC).

In the early 1970s, the Department of Housing and Urban Development recognized a need to address redlining in poor and minority neighborhoods. Redlining had the effect of cutting these communities off from access to capital, including mortgages. HUD arranged for inner-city residents to gain access to loans through the Federal Housing Administration (FHA). This had the potential to be a good thing. However, HUD faced private pressures to reduce oversight and relax underwriting standards, opening the door to predatory lenders. FHA offered little or no counseling to new homebuyers, leaving them more vulnerable to predatory lenders. More significantly, the federal response did nothing to keep jobs in these communities, to shore up the tax base, to slow down suburbanization and disinvestment. The results were predictable: in the mid 1970s, inner-city communities faced a wave of foreclosures.

Then, as now, community groups were on the frontlines addressing the onslaught of foreclosures that resulted from FHA’s shortcomings. Many of these groups got together and formed a national network through which they could fight for state and national level reforms to stop predatory lending and make banks more responsive to community needs. To get out ahead of the crisis, NTIC put some very significant financial reforms on the table, which led to a couple of big victories: the Home Mortgage Disclosure Act of 1975 (HMDA) and the Community Reinvestment Act of 1977 (CRA).

For over two decades, community groups leveraged these reforms to get banks to invest in low-income communities. In addition to helping people get loans, their efforts helped channel redevelopment dollars into communities that had been abandoned by Corporate America. They’ve also been able to challenge redevelopment proposals that would have led to more displacement of poor and minority residents.

But, alongside of their efforts, the banking and insurance industries were pursuing aggressive deregulation. Repealing the CRA has been near the top of their agenda. While they have not been able to win an outright reversal of CRA, they certainly have succeeded in chipping away at it, and in working their way around its mandates. In the midst of the current crisis, they still hope to do further damage to CRA.

In today’s deregulated environment in which anything goes, predatory lenders have again been having a field day. NTIC has been sounding the warnings about subprime lending since at least 2001. Those much-maligned community organizers have been working behind the scenes to try and stop the worst abuses, but only recently has the wider public taken notice (only when the crisis spread from low income to middle class communities). As a result of their efforts, these groups now have a lot of expertise in restructuring loans for borrowers who face foreclosure.  By challenging fraudulent and abusive practices, they have been able to rescue thousands of troubled loans. But they have not been able to stop the hemorrhaging, much less to reverse the cycles of predatory lending.

Predatory lenders have been allowed to capture the equity that low and moderate-income families had managed to build up over the years. The real tragedy here is that many low, moderate and barely-middle income people have lost their main source of wealth. Sadly, while conservatives try to blame the victims of predatory lending, the Wall Street bankers who are really to blame for the current mess are taking our bailout money and hoarding it instead of making loans to families and small businesses.

We’ve got to end this cycle of promising low and moderate income people a chance at homeownership as a pathway to the American Dream, only to let predatory lenders push toxic mortgage products that drain away their main source of family wealth. The system that is responsible for the current wave of foreclosures is broken. NTIC affiliates, with their experience and on-the-ground knowledge, have a lot of ideas about how to fix it.

--Sandra Hinson