Home Lending That Works

A new bill in Congress would expand the 1977 law that got Blacks and Latinos good mortgages.

By Leticia Miranda Jul 02, 2009

When the economy plunged last fall, right-wing media pundits were quick to blame banks that made loans to so-called “high-risk” borrowers—code for Blacks and Latinos. Specifically, they blamed the Community Reinvestment Act, which banned banks from redlining and opened up neighborhoods to homeowners of color. But those were actually good loans and now Texas Senator Eddie Bernice Johnson has responded to activist demands by introducing the Community Reinvestment Modernization Act. This act would further improve the existing law by regulating the loaning practices of independent mortgage companies, credit unions, insurance firms and their branches in communities of color.

Contrary to what conservatives are saying, the original Community Reinvestment Act (also known as CRA) resulted in nearly 30 years of successful lending to communities of color. The Federal Reserve reported in 2000 that 80 percent of banks said CRA-regulated home purchase and refinance lending was profitable. Since passing the law in 1977, banks regulated under its provisions have seen $6 trillion in reinvestment dollars from serving communities of color.

While the original act has had a profound impact, supporters say more work needs to be done around closing the racial disparity in lending practices. “It’s not enough to just break it down by household income; banks have historically not loaned to communities of color. Not because of their income, but because of their race,” said Jim Carr chief operating officer of the National Community Reinvestment Coalition, which helped Johnson introduce the bill.

The bill calls on Congress to reinvest money that gets lost to payday lending companies and check-cashing institutions into a weakening business and housing economy. Payday loan centers and check-cashing companies, which are highly concentrated in communities of color, take credit away from these neighborhoods by demanding anywhere from 400 to 800 percent in interest. It’s money that could go into home loans, business loans and savings accounts at a bank, said Carr.

The proposed legislation would scrutinize the level of lending, investments and other services offered to communities of color and low-income communities by banks, the mortgage company affiliates of banks, insurance companies and securities firms. These institutions would also have to provide public information on the race and gender of the small business borrowers to whom they grant loans. These regulations would cover not only banks and mainstream credit unions, but also lending made through brokers and bank branches.

Obama has already proposed enforcing the CRA and advocates are hopeful the new act will pass the House and Senate. The bill has 45 sponsors in Congress.