Community Development Innovation Review

Community groups rely on the Home Mortgage Disclosure Act (HMDA) and the Community Reinvestment Act (CRA) databases to engage in advocacy. Those databases, however, have not kept up with recent financial innovations, particularly in subprime mortgage lending, and need to be reformed.

We need to clean up the mortgage business, drive out abuses, and develop a system of consumer protection, prudential supervision, capital requirements, and transparency that restores trust and confidence in our financial system.

The collapse of the housing market has devastated neighborhoods and balance sheets alike. Millions of homeowners have defaulted on their mortgages and holders of mortgage-backed securities (MBS) have suffered massive write-downs. Banks and servicers have been increasingly called upon to renegotiate payment terms and reduce mortgage principle to slow the tide of foreclosures and stabilize the housing market. Despite such attempts to “work out” troubled mortgages, however, the foreclosure rate continues to rise at a steady pace.

The Community Reinvestment Act (CRA) was designed to correct market failures thirty years ago. The reimagining of CRA must address the remnants of twentieth-century market and government failures with twenty-first century solutions.

The Community Reinvestment Act (CRA) has proved to be a unique experiment in banking regulation. As the Federal Reserve Governor with responsibility for consumer regulation and community affairs oversight during much of the 1990s, I look back fondly on my experience.

The Community Reinvestment Act (CRA) is a comprehensive law that has leveraged trillions of dollars in loans, investments, and bank services for minority and working-class neighborhoods. The CRA was passed in 1977 in response to the refusal of some banks to make loans available in minority and working-class communities. Since that time, the CRA has placed a continuing and affirmative obligation on banks to help meet the credit needs of the local communities in which they operate.

Congress predicated the Community Reinvestment Act (CRA) on one principle and two key facts when it passed the act in 1977. The principle is core and remains true.

In light of the $150 billion bailout of AIG, there has been a renewed call for increased federal involvement in the insurance industry, including a proposal to extend something similar to the Community Reinvestment Act (CRA) to insurance providers.

The central premise of this article is that in return for access to the Federal Reserve’s Discount Window, investment banks, broker-dealers, and other financial institutions should be required to comply with an updated CRA. Fair access for all Americans to the full range of financial services is essential to restore our faith in the U.S. financial system and the health of our economy.

The current scale of mortgage delinquencies and foreclosures, particularly in the subprime market, has sparked a renewed debate over the Community Reinvestment Act (CRA) and the regulations governing home mortgage lending.