News and Events

Community Reinvestment Act Mitigates Damage to Communities Caused by Financial Crisis

A new study by the National Community Reinvestment Coalition finds that Community Reinvestment Act (CRA) regulated lenders avoided significant decreases in lending accompanied by the current foreclosure crisis and severe recession. The study compared home and small businesses lending and bank branching in two major metropolitan areas (Washington DC and Houston) over the volatile time period of 2006 through 2009. The Community Reinvestment Act (CRA) requires banks to serve communities, particularly low- and moderate-income communities, and by statute requires the lending be safe and sound.

The primary findings of the study include:

• Consistent with Federal Reserve research, NCRC reveals that CRA-covered lenders in geographical areas where they are examined issued a small percentage of high-cost loans. CRA-covered lenders undergoing CRA exams in Washington, DC and Houston made only 4.3 percent and 12.5 percent, respectively, of the high-cost loans in 2006, a year of heavy subprime volumes.
• Financial institutions decreased their lending but lenders not covered by CRA decreased their lending to a much greater extent. In Washington, DC, for example, CRA-covered banks issued 97,216 prime home loans in 2006 and 61,178 loans in 2008 (a drop of 37 percent over the time period). Non-covered CRA institutions issued 52,960 prime loans in 2006 and 30,973 in 2008 (a drop of 41.5 percent).
• Many large mortgage companies went out of business due to non-performing and risky loans during this time period. For example, of the 169 lending institutions that went out of business in 2007, 167 were independent mortgage companies. In contrast, banks with a greater degree of regulatory oversight were more successful in surviving adverse economic conditions and maintaining loan volumes. Regulatory oversight of CRA lenders thus helped mitigate the destabilizing effects of declines in credit.

The study also found that CRA’s impact on a neighborhood level has been uneven. CRA-covered lenders in the Washington, DC metropolitan area generally reached a larger percentage of homeowners with prime home loans in modest income neighborhoods and communities of color than predominantly white communities and upper-income neighborhoods. In the Houston area, however, this was not the case. Moreover, in both Washington, DC and in Houston, disparities in small business lending and bank branching were evident by the race and income level of neighborhood.

Click here to download PDF of Executive Summary (1.2MB)

Click here to download PDF of the FULL REPORT (2.4MB)

Click here to download PDF of the press release

NCRC Urges Obama Administration To Mandate Loan Principal Reductions By Lenders & Ignore Calls For A “Do Nothing” Approach On Housing

Washington, DC -- National Community Reinvestment Coalition (NCRC) president & CEO John Taylor today urged the Obama Administration to ignore calls by some housing experts to “do nothing” on housing recovery. Instead, Taylor said the Administration should mandate loan principal reductions by mortgage lenders to prevent more foreclosures from throwing people out of their homes and flooding the market with vacant houses.

“A civilized country cannot embrace an economic policy that ignores human suffering. We can’t just turn away from the millions of families who are facing foreclosure for reasons beyond their control,” said Taylor, who has been advocating for mandated loan principal reductions since 2007.

“In the past four years we lost $6 trillion in real estate values. Somebody has to eat that, and it shouldn’t be the people who had nothing to do with creating the economic crisis in the first place. We need big solutions for very big problems, not half way measures and certainly not intentional neglect,” said Taylor.

Federal Reserve data estimates that residential real estate values dropped from $22.9 trillion in 2006 to $16.5 trillion in 2010, and banks have refused in large measure to bear these losses by writing them down on their books. Some economists believe that if banks did so, it would hasten, not hamper, an economic recovery.

Since 2007, foreclosures have been steadily increasing and, as a result, slowing the economic recovery. The Administration tried unsuccessfully to reduce foreclosures by coaxing lenders to modify mortgages voluntarily. A new HUD effort, which gets underway today, is not expected to make a significant dent in the two million foreclosures expected this year. Housing experts estimate another four million homes compose a “shadow inventory” of failing mortgages that banks have not foreclosed on yet but will have to do so in the near future.

NCRC first called for a broad scale loan modification program in March of 2007. NCRC’s Homeowners Emergency Loan Program (HELP Now) would have the Treasury Department acquire mortgage loans at a discount through the powers granted to the Administration under TARP, or through the power of eminent domain.

This would allow for the permanent and sustainable modification of loans, including principal reductions, which could then be packaged and resold to the market. Prof. Howell Jackson of Harvard Law School has demonstrated how the government could use eminent domain in this instance.

About NCRC

The National Community Reinvestment Coalition is an association of more than 600 community-based organizations that promote access to basic banking services, including credit and savings, to create and sustain affordable housing, job development and vibrant communities for America's working families.

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Click here to download press release as a PDF

Dear Chairman Frank:

First, we would like to congratulate you and thank you for your leadership in enacting financial regulatory reform that will go a long way towards leveling the playing field for consumers, increasing the safety and soundness of our financial system and helping to curb the worst abuses that caused the economic collapse. We want to thank you in particular for including enhancements to the Home Mortgage Disclosure Act and small business lending data in financial reform.

Congressman Luis Gutierrez (D-IL) has issued this video call to action, calling on his colleagues to support our efforts to strengthen and expand the Community Reinvestment Act. We’re working with the Congressman and his colleagues to move legislation expanding and strengthening CRA in the coming months, and we thank him for his leadership on this issue.