Community Reinvestment Act

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Community Reinvestment Act ( CRA , PL 95-128, 91 Stat. 1147, title VIII of the Housing and Community Development Act of 1977 12 USC, 2901 et seq. ) is a United States federal law designed to encourage commercial banks and savings associations to help meet borrower needs in all segments of their communities, including low- and income-earning environments medium. Congress passed the Act in 1977 to reduce discriminatory credit practices on low-income environments, a practice known as redlining.

The Act instructs the appropriate federal regulatory agencies to encourage regulated financial institutions to help meet the credit needs of local communities where they are hired, consistent with safe and healthy operations (Section 802.) To enforce the law, the federal regulatory body checks banking institutions for CRA compliance, and consider this information when approving applications for new bank branches or for mergers or acquisitions (Section 804.)

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Enforcement

The 1977 Community Reinvestment Act seeks to address discrimination in loans granted to individuals and businesses from low- and middle-income environments. The law mandates that all banking institutions that receive Federal Deposit Insurance Corporation (FDIC) insurance are evaluated by Federal banking institutions to determine whether banks offer credit (in a manner consistent with safe and healthy operations under Section 802 (b) and Section 804 ( 1)) in all communities where they are hired to do business. The law does not include specific criteria for evaluating the performance of financial institutions. Instead, it directs that the evaluation process should accommodate the situation and context of each institution. The federal regulations dictate the agency conducts in evaluating bank compliance in five performance areas, consisting of twelve assessment factors. This examination culminates in the rank and written reports that are part of the supervisory records for the bank.

However, the law emphasizes that an institution's CRA activities must be conducted in a safe and healthy manner, and does not require the institution to make high-risk loans that can bring harm to the institution. The CRA compliance records of an institution are taken into account by the regulatory body of the bank when it seeks to expand through mergers, acquisitions or branches. The law does not mandate other penalties for non-compliance with CRA.

Rule

The same banking institutions that are responsible for overseeing the depository institutions are also the institutions that conduct checks for CRA compliance. These institutions are the Federal Reserve System (FRB), FDIC, and the Office of Financial Currency Oversight (OCC). In 1981, to help achieve the goals of CRA, each Federal Reserve bank established the Office of Public Affairs to work with banking and public institutions in identifying credit needs in the community and ways to meet those needs.

The implementation of the CRA by this financial regulatory body is in force with Title 12 of the Federal Regulatory Code (CFR); Sections 25, 228, 345 and 563e with the addition of Section 203 relating to part of the Mortgage Disclosure Act (HMDA).

The Federal Financial Institution Inspection Agency (FFIEC) coordinates inter-agency information about CRA. Information about the CRA ratings of each of the banking institutions of the three responsible agencies (Federal Reserve, FDIC, and OCC), is publicly available from the FFIEC website. This ranking was first provided by the Clinton administration to allow for public participation and public commentary on CRA's performance.

In addition to the applicable regulatory framework, each Inspector General of a federal financial inspection agency conducts routine audits on any regulatory changes made to see if the intended purpose is truly fulfilled.

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History

The original law was passed by the 95th US Congress and signed into law by President Jimmy Carter on 12 October 1977 (Pub.L. 95-128, 12 U.S.C. ch. 30). CRA was passed as a result of national pressure to address the deteriorating condition of American cities - especially low-income and minority environments.

Community activists, such as Gale Cincotta of the National People's Action in Chicago, lead the national struggle to graduate, and then to enforce the Act. Several legislative and regulatory revisions have been put into effect.

Original action

CRA follows similar legislation passed to reduce discrimination in the credit and housing markets including the Fair Housing Act of 1968, Equal 1974 Equal Credit Appeal Act and House Mortgage Disclosure Act 1975 (HMDA). The Fair Housing Law and the Equal Credit Opportunity Act prohibit discrimination based on race, sex, or other personal characteristics. The House Mortgage Disclosure Act requires that financial institutions openly disclose mortgage lending and application data. In contrast to such measures, CRA seeks to ensure the provision of credit to all parts of the community, regardless of the relative wealth or poverty of an environment.

Before the law was passed, there was a severe shortage of credit available for low- and middle-income environments. In their 1961 report, the US Commission on Civil Rights found that African-American borrowers were often asked to make a higher down payment and implement a faster repayment schedule. The Commission also documents a complete refusal to lend in certain areas (redlining).

The accusations of "streamlining" certain neighborhoods came from the Federal Housing Administration in the 1930s. The "housing security" created by the Homeowner Loan Company (HOLC) for FHA is used by private and public entities over the years to hold the mortgage capital from an "insecure" environment. Contribute factors in direct loan shortfalls in low- and middle-income communities are limited secondary markets for mortgages, information issues related to lack of credit evaluation for low-income borrowers, and lack of coordination among credit agents.

In the Congressional debate on the Act, critics allege that the law would create unnecessary regulatory burdens. Partly in response to these concerns, Congress incorporated a few prescriptive details and simply directed the banking regulatory body to ensure that banks and savings associations serve the credit needs of their local communities in a safe and healthy manner. Community groups are only organized slowly to take advantage of their rights under the Act to complain about law enforcement.

Legislative revision history

The hidden table below contains the actions of Congress affecting the Public Reinvestment Act directly. The years in which the legislative revision was made appear in bold text before the Public Law imposed it. Links to codification and section notes can provide additional information about legislative changes as well.

Legislative changes 1989

The Reform of the Financial Institution, Recovery and Enforcement Act of 1989 (FIRREA) was adopted by the 101st Congress and signed into law by President George H. W. Bush amid a crisis of saving and lending in the 1980s. As part of the subsequent general reform of the banking industry, FIRREA added section 807 (12. U.S.C.Ã,§ 2906) to existing CRA statutes in an attempt to improve the areas related to the insured depository institutions exam.

The new language now requires appropriate Federal regulatory agencies to prepare written evaluations upon completion of the agency's record checks in meeting the credit needs of its entire community, including any low- and middle-income neighborhoods within it. The evaluation report is divided into sections - a secret; allows the evaluated agency to maintain the integrity of proprietary and personal information at the same time the beginning of the related database is being compiled, and the other made public; is intended to improve access and supervision of the CRS inspection process. The public section introduces a four-level CRA rating system with 'Extraordinary', 'Satisfactory', 'Need for Improvement', or 'Substantial Non-Compliance' performance, each equipped with a written synopsis of the agency's evaluation of reasoning using the facts available to support their conclusion.

According to Ben Bernanke, this law greatly enhances the ability of advocacy groups, researchers, and other analysts to "perform more sophisticated quantitative analyzes of bank records", thus affecting bank lending policies. Over time, community groups and nonprofit organizations form "more formal and more productive partnerships with banks."

Legislative changes 1991

Around the time of the introduction of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), the appropriate Federal regulatory body has reliably compiled sufficient institutional examination data to ensure inclusion in the public part of the written evaluation first established in 1989. With the passage of the Act this in December 1991, section 807 (12. USC Ã,§Ã, 2906) was amended to require the inclusion of relevant examination data in ranking CRA institutions as well.

A week earlier in the same December, existing CRA laws were amended once again after the enactment of the Refinancing, Restructuring and Improvement Corporation Act of the 1991 Resolution Resolution. This allowed the Resolution Trust Corporation (RTC) to provide each branch of the savings any association located in a minority neighborhood that the RTC has been designated as a conservator or beneficiary of a minority depositary or a women's storage institution in favorable conditions. Upon the addition of section 808 (12. USC Ã,§ 2907) to the existing CRA statutes by law, each donated depository institution is sold on favorable terms (as determined by the appropriate Federal financial regulatory body), or provided on the cost-free basis of any branch of such institutions situated in a minority to a minority depositary or women's storage institution, the amount of the contribution or amount of damages incurred in connection with such activity would satisfy the credit needs of the institutional community and would be considered during examination CRA is evaluated.

Legislative changes 1992

Although small amendments are made directly to the Community Reinvestment Act on the consideration of minorities and women's institutions & the partnership during the evaluation was first established in 1991, another part of the Federal Housing Corporation's Occupational Safety and Health Act in 1992 indirectly influenced the practice of CRA at the time which requires Fannie Mae and Freddie Mac, two government-sponsored corporations that purchase and mortgage securities, to set aside some of their loans to support affordable housing.

Legislative changes 1994

The Riegle-Neal Interstate Banking and the Branching Efficiency Act of 1994, which lifted restrictions on interstate banking, listed the Reinvestment Act Community ratings received by banks outside the country for consideration when determining whether to allow the interstate branch.

According to Bernanke, the surge in bank merger and acquisition activities follows the passage of action, and advocacy groups are increasingly using public commentary processes to protest bank applications at the Community Reinvestment Foundation . When applications are strongly opposed, federal agencies hold public hearings to allow public comment on bank loan records. In response many institutions set up separate business units and subsidiaries to facilitate CRA-related loans. Local and regional public-private partnerships and multi-bank loan consortia are set up to expand and manage CRA-related loans.

Regulatory changes 1995

In July 1993, President Bill Clinton asked regulators to reform the CRA for more consistent checks, clarify performance standards, and reduce compliance costs and expenses.

Robert Rubin, Assistant President for Economic Policy, under President Clinton, explains that this is in line with President Clinton's strategy of "addressing deep-seated urban and rural community problems". Discussing the reasons for the Clinton administration's proposal to strengthen the CRA and reduce red-lining, Lloyd Bentsen, the then Minister of Finance, reiterated his belief that the availability of credit does not have to rely on a person's residence, "The only thing that should be a problem in the loan application is whether you can repay it, not where you live. "Bentsen says that the proposed changes will" make it easier for lenders to show how they comply with the Companies Reinvestment Act ", and" cut out many documents and fees for small business loans ".

In early 1995, the proposed CRA regulations were substantially revised to overcome criticism that the regulation, and implementation of their agencies through the inspection process to date, were too process-oriented, burdensome, and insufficiently focused on actual results. The CRA inspection process itself is reformed to incorporate pending changes. Information on CRA ratings of banking institutions is also available through a web page for public review. The Office of the Financial Currency Oversight (OCC) is also moving to revise the regulatory structure that allows lenders to submit to CRA to claim community development loan credits for loans made to help finance the environmental cleanup or rebuilding of industrial sites when it is part of efforts to revitalize society low and middle income people where the location is located.

In one of the Congressional hearings discussing proposed changes in 1995, William A. Niskanen, chairman of the Cato Institute, criticized both sets of 1993 and 1994 proposals for political favoritism in allocating credits, to microcredit by regulators and to the lack of assurances that banks do not is expected to operate at a loss to achieve CRA compliance. He predicted the proposed changes would hurt the economy and the banking system in general. Niskanen believes that the main long-term effect is the artificial contraction of the banking system. Niskanen recommends that Congress revoke the Act .

Niskanen, and other respondents for proposed changes, voicing their concerns during public comment & amp; the period of testimony in late 1993 to early 1995. In response to the aggregate concerns recorded at the time, the Federal financial regulatory agencies (OCC, FRB, FDIC, and OTS) made further clarifications regarding the definition, assessment, assessment and scope; simply solve many of the issues raised in the process. Agencies jointly reported their final amended rule to implement the Reinvestment Community Act in the Federal Register on May 4, 1995. The final amended regulation replaces the existing CRA rules as a whole. (See note in column "1995" from Table I. for specifications)

Legislative changes 1999

In 1999 Congress was enacted and President Clinton signed the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act . The Act revoked part of the Glass-Steagall Act which has banned a bank from offering various investments, commercial banking and insurance services since its enactment in 1933. The same bill was introduced in 1998 by Senator Phil Gramm but it can not be complete the legislative process into law. The Resistance to enact the 1998 Bill, as well as the subsequent RUU 1999, centered around the language of the law that would extend the existing type of banking institution to other areas of service but would not be subject to CRA's compliance to do so. The senator also demanded full disclosure of any financial "deal" that the community group has with the bank, which accuses such "extortion" groups.

In the fall of 1999, Senators Dodd and Schumer prevented another deadlock by securing a compromise between Senator Gramm and the Clinton Administration by agreeing to amend the Federal Deposit Insurance Act (12 USC chapter 16) to allow banks to merge or expand into other types of financial institutions. FDIC-related provisions of the new Gramm-Leach-Bliley Act, together with the addition of sub-sections Ã,§ 2903 (c) go directly to Title 12, insuring the institution of the bank wishing to be re-designated as a financial institution by The Board of Governors of the Federal Reserve System must also follow the compliance guidelines of the Reinvestment Act before any merger or expansion can take effect.

At the same time the GLB Act's changed to the Federal Deposit Insurance Act will now allow bank expansion into new business lines, unaffiliated groups enter into agreements with these banks or financial institutions as well should be reported as described under the newly added section to Title 12, Ã, § 1831y (CRA Sunshine Requirements), to satisfy Gramm's concerns.

In connection with the Gramm-Leach-Bliley Act changes, smaller banks will be reviewed less frequently for CRA compliance with the addition of Ã,§2908. (Assistance of Small Bank Rules) directly to Chapter 30, (existing CRA law), itself. The 1999 law also mandates two studies to be conducted in connection with the " Reinvestment Community Act ":

• The first report by the Federal Reserve, to be delivered to Congress on March 15, 2000, is CRA's comprehensive study to focus on default and delinquency levels, and profitability of loans made in connection with CRA;
• a second report to be undertaken by the Ministry of Finance over the next two years, is intended to determine the impact of the Act on the provision of services for the environment and low- and middle-income communities, as referred to by CRA./li>

At the signing of the Gramm-Leach-Bliley Act, President Clinton said that, "establishes the principle that, as we expand the strength of the bank, we will expand the reach of the [Community Reinvestment] Act".

Regulatory changes 2005

In 2002, there was an inter-agency review of the effectiveness of 1995 regulatory changes to the Community Reinvestment Act and new proposals considered. In 2003, researchers at the Federal Reserve Bank of New York noted that dramatic changes in the financial services landscape had weakened CRA, and that in 2003 less than 30 percent of all home purchase loans were the subject of intensive reviews based on CRA.

In early 2005, the OTS used new rules that - among other changes - allowed savings of more than $ 1 billion in assets to adjust the long-term 50-25-25 CRA threshold by continuing to meet 50 per cent of the rating CRA as a whole through lending activities as usual but the other 50 percent could be a combination of loans, investments, and services that require savings. The obligation to comply with 25 percent for services and 25 percent for investment is optional and means to secure a satisfactory CRA rating submitted to the discretion of the qualification book instead (See note in column "2005" of Table I. for specifications).

In April 2005, a contingent of Democratic congressmen issued a letter protesting this change, saying that they undermined CRA's ability to "meet the needs of low- and middle-income people and communities". Change is also opposed by community groups who care that it will weaken CRA.

After enacting amendments to technical regulations in the interim incorporating different formulas for metropolitan and rural zone stratification to be more in line with their extended definition under CRA in the process, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve System Governing Council (FRB), and The Office of Financial Currency Oversight (OCC) also established a new set of rules applicable in September 2005 - reflecting most of what had been initiated by OTS earlier this year (See note in column "2005" of Table I for specific). These regulations also incorporate less restrictive definitions of "small" and "intermediate" banks. "Intermediate small banks" are defined as banks with assets of less than $ 1 billion but more than $ 250 million, allowing these banks to choose either checks as small banks or large banks. Currently banks with assets greater than $ 1.061 billion have evaluated their CRA performance in accordance with loans, investments and service tests. Agencies use the Consumer Price Index to adjust the asset size limits for small and large institutions annually.

Regulatory changes 2007

The Office of Oversight of Goods (OTS) proposed revising and began requesting public comments regarding the complete alignment of the CRA rules with the CRA rules of three other federal banking institutions in November 2006. This body refers to several factors for the proposed remediation, in particular, that the CRA standard which is consistently applied to the banking and austerity industries will facilitate the objective evaluation of CRA's performance; ensure accurate assessment of banks and banks operating in the same market; and allow the public to make a reasonable comparison of the bank's CRA performance and savings.

OTS Director at the time, John Reich announced the final decision to continue and implement the proposed revisions in four major areas of existing Reinvestment Act (CRA) rules to rebuild uniformity between its rules and banking institutions other federal. Reiterating the basis for the revised rule as first proposed, Reich stated, "OTS made this revision to promote consistency and facilitate the objective evaluation of CRA performance across the banking industry and savings.The consistent standards will enable communities to make more effective bank comparisons and CRA performance sparingly. "He noted the change reinforces CRA's goals consistent with the company's performance in meeting the financial services needs of their communities.

The revision of the OTS rules is in line with the rules of other institutions by:

1. eliminates alternative weighting options for loans, investments and services under the test of large retail saving associations;
2. defines an institution with assets of between $ 250 million and $ 1 billion as "small medium saving associations" that must follow a new community development test;
3. index asset thresholds for "small" and "small to medium" associations each year based on changes in the Consumer Price Index (CPI); and
4. clarify the adverse impact on CRA ratings of savings associations in which OTS finds evidence of discrimination or other illegal credit practices.

These four changes generally reflect those made by three other federal agents by the end of 2005. The agency notes that the latitude will be provided for a short period to institutions in the context of an examination conducted after the effective date of July 1, 2007, to implement the program change in under the new rules smoothly.

Legislative changes 2008

With the passage of the Higher Education Opportunity Act into law, Pub.L. 110-315, on August 14, 2008, any appropriate Federal monetary supervisory body will now consider, as a factor in assessing and considering CRA compliance records of financial institutions, & amp; all low-cost education loans provided by financial institutions to low-income borrowers. All affected Federal financial regulatory bodies have one year after the date of issuance to issue rules in the final form to apply changes to the Federal Regulatory Code (CFR) in accordance with Title X, Subtitle C, Section 1031 of the Act.

CRA reform proposal

In 2007, Ben Bernanke advised to further enhance the presence of Fannie Mae and Freddie Mac in the affordable housing market to help banks fulfill their CRA obligations by giving them more chances to earn CRA-linked securities.

On February 13, 2008, the United States Financial Services Commission's Commission held a hearing on the Community Reinvestment Act affecting the provision of loans, investments and services to underserved communities and their effectiveness. There are 15 witnesses from the government and the private sector.

On April 15, 2008, an FDIC official told the same committee that the FDIC is exploring offers incentives for banks to offer low-cost alternatives to payday loans. By doing so, they will get a good consideration under the responsibility of the Community Reinvestment Act. Recently started a two-year pilot project with an initial group of 31 banks.

Congresswoman Eddie Bernice Johnson introduced a new law - ( Community Reinvestment Modernization Act of 2009 ) - on March 12, 2009 to expand CRA coverage to include non-bank financial institutions, such as credit unions. There have been other efforts to legislatively "modernize" the Community Reinvestment Act in previous Congress sessions, such as in 2000 / 2001 and 2007, among others. The United States Financial Services Commission Committee held a hearing on 16 September 2009 on "Proposals to Modernize the Reinvestment Act" with 10 witnesses, including Johnson. Another hearing was held on 15 April 2010 on "Perspectives and Proposals on Reinvestment Community Act" with eight witnesses.

On June 24, 2010, the OCC, Federal Reserve Systems, Federal Deposit Insurance Corporation (FDIC) and OTS shared jointly proposed revisions to regulations implementing Reinvestment Community Actions. These institutions, with the National Credit Union Administration (NCUA), set up the Federal Financial Institutions Audit Board (FFIEC), which coordinates the arrangements of financial institutions, including the implementation of the Community Reinvestment Act. The proposed revisions to the CRA rules are intended to revise the term "community development" to "incorporate loans, investments and services that support, enable or facilitate projects or activities" that meet the criteria described in the 2008 Housing and Recovery Act (HERA) and carried out in designated target areas identified under the Environmental Stabilization Program established by HERA and the American Recovery and Reinvestment Act of 2009 (ARRA). Among other things, this will expand the reach of people served to include middle-income households.

In 2009, the Federal Reserve Bank of Boston and San Francisco published Reviewing CRA: A Perspective on the Future of the Reinvestment Community Act, which gathers the views of various academic researchers, regulators, community development practitioners and representatives of the financial services industry on how to improve CRA forward.

The Obama administration has stepped up its oversight of the provision of credit for the poor and African American environment. The lenders have been investigated for not operating in such areas, whether they have stopped service there or never operated there before. Former Atlantic association editor Daniel Indiviglio attributes the increase in non-compliance with CRA with the tightening of lending terms.

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Criticism

Effectiveness

Some economists question whether CRA - or at least has become - irrelevant, therefore it is not necessary to encourage banks to provide loans that benefit borrowers. In a 2003 research paper, economists at the Federal Reserve could find no clear evidence that CRA increased lending and home ownership more in low income environments than in high-income neighborhoods. A 2008 Enterprise Competitive Institute study yielded similar findings.

Former Federal Reserve chairman Ben Bernanke has stated that the underlying assumption of CRA - that more loans equals better outcomes for local people - may not always be true, pointing to "recent problems in the mortgage market". However, he notes that at least in some instances, "CRA has served as a catalyst, encouraging banks to enter underserved markets they may have ignored".

The Woodstock Institute, a Chicago-based nonprofit and advocacy policy, was found in an analysis of Chicago area survey data of 1996 that low-income areas are still lagging behind in access to commercial loans. Most small business loans made by CRA-arranged banks go to higher income areas; 16.6% in low-income areas, 18.4% in low- and middle-income areas; 21.8% in middle-income areas and 23.1% in high-income areas.

In a 1998 paper, Alex Schwartz of the Fannie Mae Foundation found that CRA agreements "consistently succeeded in fulfilling their goals for mortgages, investing in low-income housing tax credits, grant-making to community-based organizations, and in opening (and keeping open) bank branches within the city. "In a 2000 report to the US Treasury, several economists concluded that CRA had the desired impact on improving access to credit for minority consumers and low to mid-term incomes.

In a 2005 paper for New York University Legal Review, Michael S. Barr, professor at the University of Michigan Law School, presented evidence to show that CRA has overcome market failures to improve access to credit for low-income, medium, and minority with a relatively low cost. He argues that CRA is justified, has resulted in progress, and should proceed.

Speaking to the Congressional Committee in February 2008 on Financial Services who heard about CRA, Sandra L. Thompson, Director of the Consumer Protection and Consumer Division at FDIC, praised the positive impact of CRA, noting that, "research has shown improvement in lending to low- and middle-income customers and minorities within decades since the CRA section. "He cites a study by the Joint Center for Housing Studies at Harvard University, which found that" data for 1993 to 2000 show home purchase loans for low- and middle-income people living in low-income neighborhoods and medium-sized enterprises grew by 94 percent - more than any other category of income ".

In a statement before the same hearing, New York University economics professor Larry White stated that regulators' efforts to "lean" banks in a vague and subjective way of lending were "improper instruments for achieving that goal." In the world of national banking companies, this policy is more likely to encourage institutions out of the environment. He stated that better ways to achieve goals are enforcement of anti-discrimination laws, strong antitrust laws to promote competition, and viable federal funding of projects directly through "on-budget and transparent processes" such as the Community Development Fund..

According to a study in 2012, "the credit market allows most Hispanic families to live in environments with fewer black families, although most black families move to more racial areas.The net effect is credit markets, increased racial segregation" >.

Good practice and profitability

According to a 2000 US Treasury Department study of loan trends in 305 US cities between 1993 and 1998, $ 467 billion of mortgage loans run from CRA lenders borrowed to borrowers and low- and middle-income areas. In that period, the total number of loans to poorer Americans by CRA qualified institutions increased by 39% while loans to richer individuals by CRA's closed institutions increased by 17%. The share of total US borrowing for low- and middle-income borrowers increased from 25% in 1993 to 28% in 1998 as a consequence.

In response to concerns that the CRA will reduce bank profitability, a 1997 research paper by economists at the Federal Reserve found that "[CRA] lenders are active in low-income neighborhoods and with low-income borrowers looking favorable like other mortgage-oriented Commercial banks."

Concerns over time during the 1995 regulatory changes led to an increase in the inability of financial institutions to expand through mergers or acquisitions because regulatory refusals based on poor unfounded CRA compliance. During the 1993-97 period, one of the governing bodies, the Federal Reserve Board, actually approved more apps than the average percentage of them without a detailed CRA review. Of the 1,100 cases of mergers or acquisitions, the FRB reviews the average per year in which the linked agencies are targeted by the CRA, only 70 average cases are identified with potential CRA problems regardless of public opposition or internal reports raising concerns. On average, 22 of these were eventually identified as CRA compliance being the main reason for withdrawal of applications or refusal of FRB.

In October 1997, First Union Capital Markets and Bear, Stearns & amp; Co launched the first publicly-available Public Reinvestment loan securitization, which spent $ 384.6 million from the securities. Securities are secured by Freddie Mac and have an implied "AAA" rating. Public offerings are several times oversubscribed, especially by money managers and insurance companies who do not buy them for CRA credits.

In October 2000, to expand the secondary market for affordable community-based mortgages and to boost liquidity for CRA's eligible loans, Fannie Mae committed to buy and secure a 2 billion dollar loan from "MyCommunityMortgage". In November 2000, Fannie Mae announced that the Department of Housing and Urban Development ("HUD") will soon require it to dedicate 50% of its business to low- and middle-income families. "It says that since 1997 Fannie Mae has made nearly $ 7 billion in CRA business with a storage agency, but the goal is $ 20 billion. In 2001, Fannie Mae announced that they had earned $ 10 billion in loans to the Community Reinvestment Act (CRA ) targeted more than a year and a half ahead of schedule, and announced its goal to finance more than $ 500 billion in the CRA business in 2010, about one-third of the loans are anticipated to be financed by Fannie Mae during that period.

Speaking in 2007, CRA's 30th anniversary, Ben Bernanke, Chairman of the Federal Reserve System since 2006, stated that the high cost of gathering information, "may have created the problem of 'first mover', in which every financial institution has an incentive to let one of its competitors become the first to enter underserved markets ". Bernanke notes that at least in some instances, "CRA has served as a catalyst, encouraging banks to enter underserved markets that they may have ignored". In the same 2007 speech, Bernanke also noted that, "financial institution managers found that this portfolio of loans, if properly borne and managed, could be profitable" and that loans "typically do not involve a disproportionately higher rate of failure".

Housing advocacy group

The CRA Rule gives the rights group community to comment on or protest against bank non-compliance with CRA. Such comments can help or hinder the planned expansion of the bank. Groups initially only slowly take advantage of these rights. Regulatory changes during the Clinton administration allowed these community groups to gain better access to CRA information and enable them to improve their activities.

In an article for the New York Post, economist Stan Liebowitz wrote that community activist intervention at an annual bank review resulted in them earning large sums of money from banks, because poor reviews can lead to frustrated mergers and even legal challenges by the Department of Justice. Michelle Minton notes that Chase Manhattan and J.P. Morgan donated hundreds of thousands of dollars to ACORN around the same time they applied to join and needed to comply with CRA rules.

According to the New York Times, some of these housing advocacy groups provide early warnings about the potential impact of lower credit standards and lead to an increase in the value of unsupported real estate that causes low- to middle-income people. The swelling mortgage rental property threatens to require a substantial lease increase from low- and middle-income tenants who can not afford it.

According to Inner City Press, Bronx-based Fair Finance Watch remarked to the Federal Reserve about the practices of non-bank non-bank subprime New Century, when US Bancorp bought warrants for 24% of New Century shares, the Fed, rather than taking any action on the New Century, just waiting until US Bancorp sells some warrants, and then says that the issue is disputed. "However, subprime loans are very profitable, so they are marketed aggressively in low- and middle-income communities, even over objections and warnings of housing advocacy groups such as ACORN.

Predatory loans

In a 2002 study exploring the relationship between CRA and predator-borne lending, Kathleen C. Engel and Patricia A. McCoy noted that banks may receive CRA credits with loans or intermediary loans in low-income areas that would be perceived as a risk of casual borrowing practices. Banks governed by CRA may also inadvertently facilitate this lending practice by financing lenders. They note that the CRA rules, such as those governed by Fannie Mae and Freddie MAC, do not penalize the banks involved in this lending practice. They recommend that federal agents use CRA to impose behavioral sanctions that directly or indirectly improve predatory lending practices by lowering the CRA ratings of any bank that facilitates in this lending practice.

The FDIC has tried to address this issue by "stopping harassment practices through checking and oversight processes, encouraging banks to fairly serve all members and areas of their society, and providing financial information and education to help consumers make the right choices." The current FDIC policy states that "predatory borrowing can have a negative impact on the performance of bank CRAs."

Competition also plays a role in lending practices. To get market shareholders lower their standards.

Relationships recognized with the 2008 financial crisis

Economist Stan Liebowitz wrote in New York Post that CRA's strengthening in the 1990s encouraged the relaxation of loan standards across the banking industry. He accused the Federal Reserve of ignoring the negative impact of CRA. According to the Manhattan Institute scholar, Howard Husock, CEO of a medium-sized bank reported that 20% of agency-linked CRA mortgages are in arrears in their first year and perhaps 7% will end up with foreclosures. In comments to CNN, congressman Ron Paul, who works at the US Financial Services Commission Commission, accused CRA of "forcing banks to lend to people who would normally be rejected as a bad credit risk." In the Wall Street Journal opinion article, economist Russell Roberts writes that CRA subsidizes low-income housing by pressuring banks to serve poor borrowers and poor areas of the country.

Other economists have examined this issue and concluded that CRA did not contribute to the financial crisis, especially the columnist and recipient of the Nobel Prize Paul Krugman, Tim Westrich of the American Progress Center, Robert Gordon of American Prospects, Ellen Seidman of New America Foundation, Daniel Gross of > Slate , Dean Baker from the Center for Economic and Policy Research, and Aaron Pressman from BusinessWeek . Professor of law Michael S. Barr, Treasury official under President Clinton, stated that approximately 50% of subprime loans are made by independent mortgage companies that are not regulated by CRA, and 25% to 30% are derived from only a portion that is governed by CRA subsidiaries and bank affiliates. Barr notes that institutions fully regulated by CRA make sub-prime loans "probably one in four", and that "the worst and most widespread violations occur in institutions with fewer federal oversight".

According to Edward Pinto's American Enterprise Institute colleague, Bank of America reported in 2008 that its CRA portfolio, which is 7% of mortgages owned housing, is responsible for 29% of its losses. He alleges that "about 50 percent of CRA loans for single family residence... [have] characteristics that indicate high credit risk"; however, as per the standards used by various government agencies to evaluate CRA's performance at the time, "subprime" because the creditworthiness of the borrower is not considered. Krugman argues that the Pinto category of other "high risk" mortgages improperly includes non-high-risk loans, which are just like the appropriate traditional mortgages. Gene Epstein of the disputed Krugman claims by Barron and the articles he quoted as false and misleading. Another CRA critic, Joseph Fried, acknowledges that "some CRP subprime loans may have occurred, although there is no CRA, for that reason, the direct impact of CRA on subprime lending volumes is uncertain." A study by economists, Agarwal, Benmelich, and Bergman, found that banks undergoing CRA-related regulatory exams risked additional mortgage loans.

The Financial Crisis Investigation Commission established by the US Congress in 2009 to investigate the causes of the 2008 financial crisis, concluded "CRA is not a significant factor in subprime lending or crisis". Ben Bernanke, then chairman of the Federal Reserve, writes that experience and research are contrary to "allegations that CRA is at the root of, or contribute in any substantive way, to current mortgage difficulties." Economists and government officials, including Janet Yellen, then President and CEO of the Federal Reserve Bank of San Francisco, FDIC Chairman Sheila Bair, Currency Financial Supervisor John C. Dugan, and Federal Reserve Governor Randall Kroszner also argued that CRA not significantly contributing to the subprime crisis. According to Yellen, the former Chairman of the Federal Reserve, an independent mortgage company makes risky loans "higher" at more than twice the rate of banks and interest rates; most of the CRA loans are responsibly made, and not the "more expensive" loans that have contributed to the current crisis. During the 2008 House Committee on Oversight and Government Reforms heard about the role of Fannie Mae and Freddie Mac in the financial crisis, including in relation to the Community Reinvestment Act, when asked whether CRA provided "fuel" to increase subprime lending, CEO Fannie Mae Franklin Raines said it might be a catalyst that encourages bad behavior, but it's hard to know. Raines also cites information that only a small portion of the risky loans come from CRA.

src: slideplayer.com

See also

• Fannie Mae
• Freddie Mac
• Federal Housing Administration

src: c8.alamy.com

References

Note

src: ced.sog.unc.edu

External links

• Public Law 95-128, 95th Congress, H.R. 6655: Housing and Community Development Act of 1977 [Community Reinvestment Act]
• Review CRA: Perspective & amp; Discussion on Community Reinvestment Policy, joint publication by Federal Reserve Bank of Boston and San Francisco, Federal Reserve System. Researchers, regulators, bankers, nonprofit practitioners, and community supporters contribute. Published: February 2009.
• "The Community Reinvestment Act: Thirty Years of Achievement, but Challenges Happen, 13 February 2008. This trial before the Complete Financial Services House Committee examines the impact of CRA on providing loans, investments and services under an underserved community. the success of CRA, the trial hopes to examine the challenges that prevent the law from becoming more effective for the future. | Hearing Hearing: 110-90 (PDF).
• Ready Testimonial, Member Statement & amp; Transcript

  '

  • Statement Prepared by Sandra F. Braunstein, Director of the Consumer and Public Affairs Division, Federal Reserve Agency (FRB)
  • Statement prepared by Ann F. Jaedicke, Deputy Financial Supervisor for Compliance Policy, Office of Financial Currency Supervisory (OCC)
  • Statement prepared by Sandra L. Thompson, Director of the Consumer Protection and Supervision Division, Federal Deposit Insurance Corporation (FDIC)
  • Ready Statement by Montrice Godard Yakimov, Managing Director of Compliance and Consumer Protection, OTS Office
  • Statements Compiled by Ellen Seidman (PDF), Director of Financial Services and Education Projects, The New America Foundation
  • Lawrence J. White's Ready Statement (PDF), Professor of Economics, New York University - Stern Business School
  • Statements prepared by Michael S. Barr (PDF), Professor, University of Michigan School of Law
  • Statement by Congressional Member Marchant (PDF)

• The Federal Financial Institution Inspection Agency (FFIEC), contains detailed information on CRA and its implementing regulations, including CRA National Aggregate Report for 1996 to 2009
• The CRA's Sept. 19, 2002 Credit Performance and Profitability Survey. Section 713 of the Gramm-Leach-Bliley Act of 1999 (Public Law 106-102) directs the Federal Reserve System Board of Governors to study and report to Congress on the extent of default, the extent of the violation, and the profitability of the lending activities undertaken in accordance with the Community Reinvestment Act of 1977 (CRA). The Council requested 500 largest retail banking organizations to voluntarily complete a comprehensive survey focusing on CRA lending activities and prepare reports that summarize survey responses. The Council is directed to make reports and supporting data available to the public (linked above).
• Overview of the Community Reinvestment Act of the Federal Register.
• Truth in Lending Acts Amendments of 1995.
• George Benston, Community Reinvestment Act: Seeking Non-Discrimination, Policy Analysis Cato Institute No. 354, October 6, 1999.
• Seidman, E., "CRA in the 21st Century", originally published in mortgage banking, Washington, D.C., October 1, 1999.
• Steven A. Holmes, Fannie Mae Facilitate Credit To Help Mortgage Loan, New York Times, September 30, 1999.
• Luci Ellis, Housing crisis: Why is that happening in the United States? Working Paper No. 259 for the Bank for International Settlements, September 2008
• Traiger & amp; Hinckley, LLP., Community Reinvestment Act: A Welcome Anomaly in Crisis Foreclosure, January 7, 2008
• Invite Reinvestment Community by economist Jim Campen, Dollar & amp; Sense, Nov/Dec 1997.
• CRA Does Not Cause Sub-Prime Messages
• It's Still Not CRA, newamerica.net; accessed September 23, 2014.
• "Fed's Kroszner: Do not Blame CRA", wsj.com; accessed September 23, 2014.
• "Study Details How The Big Bank Avoids Lending Loans According to the Community Reinvestment Act", video report by Democracy Now! , August 12, 2010; accessed September 23, 2014.
• "Effectiveness of the Reinvestment Act", fas.org; accessed September 23, 2014.

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