what is the purpose of the community reinvestment act


[citation needed]. ", Board of Governors of the Federal Reserve System. [27] Currently banks with assets greater than $1.061 billion have their CRA performance evaluated according to lending, investment and service tests. [4][5], The Act instructs the appropriate federal financial supervisory agencies to encourage regulated financial institutions to help meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation (Section 802.) [35] In 2003, researchers at the Federal Reserve Bank of New York noted that dramatic changes in the financial services landscape had weakened the CRA, and that in 2003 less than 30 percent of all home purchase loans were subject to intensive review under the CRA. 30). Jeffrey W. Gunther, Kelly Klemme, and Kenneth J. Robinson.

As a result, Bhutta and Ringo concluded, the law was not a major factor in the housing markets subsequent downturn. Redlining is the discriminatory practice of denying services (typically financial) to residents of certain areas based on their race or ethnicity. [107], Speaking in 2007, the 30th anniversary of the CRA, Ben Bernanke, Chair of the Federal Reserve System since 2006, stated that the high costs of gathering information, "may have created a 'first-mover' problem, in which each financial institution has an incentive to let one of its competitors be the first to enter an underserved market". Upon the addition of section 808 (12. 95128; 91 Stat. How a 40-year-old federal law is speeding gentrification, "The CRA and the Profitability of Mortgage-Oriented Banks", "Examining Community Reinvestment; Prepared Speech, Governor", "First Union Capital Markets Corp., Bear, Stearns & Co. Price Securities Offering Backed By Affordable Mortgages", Fannie Mae Announces Pilot to Purchase $2 Billion of, Fannie Mae's Targeted Community Reinvestment Act Loan Volume Passes $10 Billion Mark, "Prepared Testimony of Ms. Ellen Seidman, Director, Financial Services and Education Project, New America Foundation; Serial 110-90, Hearing on The Community Reinvestment Act: Thirty Years of Accomplishments, but Challenges Remain", "The Real Scandal - How feds invited the mortgage mess", "A Sickness on Wall St., Played Out in the Bronx", Subprime Stoked By Deregulation and Bipartisan Greed, not Community Reinvestment Act, The CRA Implications of Predatory Lending, Financial Institution Letters, FDIC's Supervisory Policy on Predatory Lending, https://www.uvu.edu/woodbury/docs/summaryoftheprimarycauseofthehousingbubble.pdf, "The Trillion-Dollar Bank Shakedown That Bodes Ill for Cities", "Commentary: Bailouts will lead to rough economic ride", "Setting the Record Straight: Blame Conservatives, not CRA, for subprime mortgage mess", "Did Liberals Cause the Sub-Prime Crisis? Reaffirming the basis for the revised rules as first proposed, Reich stated, "OTS is making these revisions to promote consistency and facilitate objective evaluations of CRA performance across the banking and thrift industries. Did the Community Reinvestment Act (CRA) Lead to Risky Lending? Immediately after, NCRC and the California Reinvestment Coalition (CRC), represented by Democracy Forward and Farella Braun + Martel, filed a lawsuit seeking to vacate the OCCs CRA rule,[82] claiming that it violated the Administrative Procedure Act and was finalized without sufficient data to support the revisions. The Office of the Comptroller of the Currency in May 2020 issued a final rule to "strengthen and modernize" existing Community Reinvestment Act regulations. "[136] Government economists and officials, including Janet Yellen, then President and CEO of the Federal Reserve Bank of San Francisco,[137] FDIC Chair Sheila Bair,[138] Comptroller of the Currency John C. Dugan,[139] and Federal Reserve Governor Randall Kroszner,[140] also hold that the CRA did not significantly contribute to the subprime crisis. [92], Former Federal Reserve chair Ben Bernanke has stated that an underlying assumption of the CRA that more lending equals better outcomes for local communities may not always be true, pointing to "recent problems in mortgage markets". "OCC Finalizes Rule to Strengthen and Modernize Reinvestment Act Regulations. In a 2018 op-ed piece, former Comptroller of the Currency Joseph Otting asserted that the CRAs outdated approach had led to investment deserts, where "CRA activity often fails to reach by preventing banks from receiving consideration when they want to lend and invest in communities with a need for capital.". Videos showing how the St. Louis Fed amplifies the voices of Main Street, Research and ideas to promote an economy that works for everyone, Insights and collaborations to improve underserved communities, Federal Reserve System effort around the growth of an inclusive economy, Metrics that show progress of the affordable banking movement, Quarterly trends in average family wealth and wealth gaps, Preliminary research to stimulate discussion, Summary of current economic conditions in the Eighth District. We've updated our Privacy Policy, which will go in to effect on September 1, 2022. [101], In October 1997, First Union Capital Markets and Bear, Stearns & Co launched the first publicly available securitization of Community Reinvestment Act loans, issuing $384.6 million of such securities. 1813(z), FFIEC Links to Federal Agency's CRA Regulations, "Community Reinvestment Act and Interstate Deposit Production Regulations", "Community Reinvestment Act (CRA) Information", "Community Reinvestment Act Regulations (2005) for OCC", "Community Reinvestment (Regulation BBP)", "Federal Reserve Regulations (1995) pt. reinvestment [31], By early 1995, the proposed CRA regulations were substantially revised to address criticisms that the regulations, and the agency's implementation of them through the examination process to date, were too process-oriented, burdensome, and not sufficiently focused on actual results. Somer G. Anderson is CPA, doctor of accounting, and an accounting and finance professor who has been working in the accounting and finance industries for more than 20 years. Extensions of Credit by Federal Reserve Banks (Reg A), Limitations on Interbank Liabilities (Reg F), Privacy of Consumer Financial Information (Reg P), Transactions Between Member Banks and Their Affiliates (Reg W), This page was last edited on 21 June 2022, at 03:49. [4], Community activists, such as Gale Cincotta of National People's Action in Chicago, led the national fight to pass, and later to enforce the Act. Three federal regulatorsthe Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve Boardshare oversight of the CRA. cra reinvestment act Many of the recommendations in that book were included in the 1995 CRA reform. L. No. He charged that "approximately 50 percent of CRA loans for single-family residences [had] characteristics that indicated high credit risk", yet, per the standards used by the various government agencies to evaluate CRA performance at the time, were not counted as "subprime" because borrower credit worthiness was not considered. 95630; 92 Stat. [114], Economist Stan Liebowitz wrote in the New York Post that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards throughout the banking industry. Heres Why Its Better, Community Reinvestment Act: Final Rule to Rescind and Replace Community Reinvestment Act Rule Issued in 2020, Community Reinvestment Act: Interagency Notice of Proposed Rulemaking to Implement the CRA, The Community Reinvestment Act's History and Future, Policy Statement on Discrimination in Lending. CRA is designed as a simple test for how financial institutions are meeting obligations to serve the convenience and needs of the local market where they are located. 801. The Senator also demanded full disclosure of any financial "deals" which community groups had with banks, accusing such groups of "extortion". [58], In 2002 there was an inter-agency review of the effectiveness of the 1995 regulatory changes to the Community Reinvestment Act and new proposals were considered. L. No. [87] This would require Congressional legislation, but there were precedents in state CRA laws[88] that apply to mortgage companies and credit unions, not just banks. Housing Discrimination: What Is It, and What Can You Do About It? [78], In 2020, the OCC proposed a final rule[79] for CRA that was billed as an attempt to modernize the act to keep with changes in the financial sector, particularly the growth of digital banking. [110], According to Inner City Press, "Bronx-based Fair Finance Watch commented to the Federal Reserve about the practices of now-defunct non-bank subprime lender New Century, when U.S. Bancorp bought warrants for 24% of New Century's stock. The law does not mandate any other penalties for non-compliance with the CRA. "File a Complaint. [96], According to a 2012 study "credit markets enabled a substantial fraction of Hispanic families to live in neighbourhoods with fewer black families, even though a substantial fraction of black families were moving to more racially integrated areas. Alexander, John et al., "Effects Of Revisions To The CRA In 1995 On Regulatory Enforcement."

"Did the Community Reinvestment Act (CRA) Lead to Risky Lending? Most of the loans made by depository institutions examined under the CRA have not been higher-priced loans, and studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households. L. No. [95], Speaking to the February 2008 Congressional Committee on Financial Services hearing on the CRA, Sandra L. Thompson, Director of the Division of Supervision and Consumer Protection at the FDIC, lauded the positive impact of CRA, noting that, "studies have pointed to increases in lending to low- and moderate-income customers and minorities in the decades since the CRA's passage." [50] (See the notes in the "1995" column of Table I. for the specifics), In 1999 the Congress enacted and President Clinton signed into law the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act. Critics, such as the National Community Reinvestment Coalition, said the new rule would reduce banks' public accountability to communities by limiting consideration of bank branches and bank deposit accounts in communities. As part of the subsequent general reform of the banking industry, FIRREA added section 807 (12. She cited a study by the Joint Center for Housing Studies at Harvard University, that found that "data for 1993 through 2000 show home purchase lending to low- and moderate-income people living in low- and moderate-income neighborhoods grew by 94 percent more than in any of the other income categories". Fair lending laws prohibit lenders from discriminating based on specific protected classes during any aspect of a credit transaction.

2306), effective December 19, 1991; section 110 of title I of the Act of September 29, 1994 (Pub. Operation of Branch Facilities by Minorities and Women, [Source:Section 808 of title VIII of the Act of October 12, 1977 (Pub. 109. The securities were guaranteed by Freddie Mac and had an implied "AAA" rating. Resistance to enacting the 1998 bill, as well as the subsequent 1999 bill, centered around the legislation's language which would expand the types of banking institutions of the time into other areas of service but would not be subject to CRA compliance in order to do so. [89][90] In a 2003 research paper, economists at the Federal Reserve could not find clear evidence that the CRA increased lending and home ownership more in low income neighborhoods than in higher income ones. [66], OTS Director at the time, John Reich announced the final decision to go ahead and implement the proposed revisions in four main areas of its existing Community Reinvestment Act (CRA) regulations to reestablish uniformity between its rules and those of the other federal banking agencies. ", U.S. Department of Housing and Urban Development. U.S.C. "Community Reinvestment Act: Interagency Notice of Proposed Rulemaking to Implement the CRA. [43], Although minor amendments were made directly to the Community Reinvestment Act concerning the consideration of minority and female owned institutions & partnerships during evaluations first established in 1991, other portions of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 indirectly affected the CRA practices at the time in requiring Fannie Mae and Freddie Mac, the two government sponsored enterprises that purchase and securitize mortgages, to devote a percentage of their lending to support affordable housing. 2364), effective September 29, 1994], SEC. [134], The Financial Crisis Inquiry Commission formed by the US Congress in 2009 to investigate the causes of the 2008 financial crisis, concluded "the CRA was not a significant factor in subprime lending or the crisis". [40] Regulatory changes during the Clinton administration allowed these community groups better access to CRA information and enabled them to increase their activities. Raines also cited information that only a small percentage of risky loans originated as a result of the CRA. Assessing the Community Reinvestment Act's Role in the Financial Crisis. Feds Propose Updates to Community Reinvestment Act Regulations.

L. No. The final amended regulations replaced the existing CRA regulations in their entirety.

3874), effective October 28, 1992], [Source:Section 809 of title VIII of the Act of October 12, 1977 (Pub. More recently, some economists and policymakers have suggested the law needs to be revised to keep up with changes in the industry and make the evaluation process less onerous for banks. 95-128, 91 Stat. 6655: Housing and Community Development Act of 1977 [Community Reinvestment Act], Revisiting the CRA: Perspectives & Policy Discussion on the Community Reinvestment Act, Prepared Statement by Sandra F. Braunstein, Prepared Statement by Montrice Godard Yakimov, Overview of the Community Reinvestment Act from the Federal Register, The Community Reinvestment Act: Looking for Discrimination That Isn't There, Fannie Mae Eases Credit To Aid Mortgage Lending. 110-180, Hearing on the Role of Fannie Mae and Freddie Mac in the Financial Crisis [of 2008]", United States House Committee on Oversight and Government Reform, "FRB: FEDS Notes: Assessing the Community Reinvestment Act's Role in the Financial Crisis", Public Law 95-128, 95th Congress, H.R. However, subprime loans were so profitable, that they were aggressively marketed in low-and moderate-income communities, even over the objections and warnings of housing advocacy groups like ACORN.

[11][29] Information about the CRA ratings of individual banking institutions from the three responsible agencies (Federal Reserve, FDIC, and OCC), is publicly available from the website of the FFIEC. [47] The CRA examination process itself was reformed to incorporate the pending changes. A similar bill was introduced in 1998 by Senator Phil Gramm but it was unable to complete the legislative process into law. Critics of the CRA, including some conservative politicians and pundits, allege the law contributed to the risky lending practices that led to the financial crisis of 2008. "Community Reinvestment Act (CRA). U.S.C. [39][35][36], In Congressional debate on the Act, critics charged that the law would create unnecessary regulatory burdens. We also reference original research from other reputable publishers where appropriate. 808. ", American Banker. The Home Mortgage Disclosure Act requires that financial institutions publicly disclose mortgage lending and application data. L. No. [4], The Woodstock Institute, a Chicago-based policy and advocacy nonprofit, found in an analysis of 1996 Chicago-area survey data that low income areas still lagged behind in access to commercial loans. 95128; 91 Stat. Judicial System, Civil Rights Act of 1964 and Other Milestones in Civil Rights Law, Equal Credit Opportunity Act (ECOA) Definition. In general, the Fed's role in Community Development is to: Below, you will find Federal Reserve System videos. ", American Banker. 3488), effective August 14, 2008], [Source:Section 805 of title VIII of the Act of October 12, 1977 (Pub. He stated that better ways to accomplish the goals would be vigorous enforcement of anti-discrimination laws, of antitrust laws to promote competition, and federal funding of worthy projects directly through an "on-budget and transparent process" like the Community Development Financial Institutions Fund. 1148), effective October 12, 1977; as amended by section 909(1) of title IX of the Act of October 28, 1992 (Pub. He noted the changes reinforce CRA objectives consistent with thrifts' performance in meeting the financial services needs of their communities. I am asking the independent financial regulatory agencies to develop appropriate actions, consistent with safe, sound and prudent lending practices, to encourage financial institutions to play a greater role in meeting the credit needs of their communities. ", National Community Reinvestment Coalition. Some economists have questioned if the CRA was or at least had become irrelevant, because it was not needed to encourage banks to make profitable loans to a variety of borrowers. [115] In a commentary for CNN, Congressman Ron Paul, who serves on the United States House Committee on Financial Services, charged the CRA with "forcing banks to lend to people who normally would be rejected as bad credit risks.

[74], On June 24, 2010, the Office of the Comptroller of the Currency (OCC), Federal Reserve System, Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS) jointly published proposed revisions to the rules implementing the Community Reinvestment Act. Should CRA Stand for "Community Redundancy Act"? There were 15 witnesses from government and the private sector. To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions (Section 804. Heres Why Its Better. The public section introduced a four-tiered CRA examination rating system with performance levels of 'Outstanding', 'Satisfactory', 'Needs to Improve', or 'Substantial Noncompliance', each supplemented with a written synopsis of the agencies' evaluation reasoning using any available facts to support their conclusions. Consistent standards will allow the public to make more effective comparisons of bank and thrift CRA performance." "Community Reinvestment Act: Final Rule to Rescind and Replace Community Reinvestment Act Rule Issued in 2020. 1548), effective July 21, 2011], SEC. First, I am requesting that financial regulatory agencies determine what further actions are necessary to halt the practice of redliningthe refusal to extend credit without a sound economic justification. ", "Analysis of the OCC's Final CRA Rule NCRC", "OCC Announces Final CRA Rule Changes, Moves Alone, Without FDIC or Federal Reserve NCRC", "NCRC Submits Comment Letters on Proposed Changes to CRA NCRC", "Community Reinvestment Groups Sue Trump Administration For Unlawfully Gutting Anti-Redlining Rules NCRC", "RULING: Federal Court Rejects Trump Admin's Effort to Evade Accountability for Unlawfully Gutting Anti-Redlining Protections NCRC", "NCRC Welcomes OCC Final Rule to Rescind its Disastrous 2020 CRA Rule NCRC", "Regulators expect to release CRA revamp as soon as this month", "Why the Community Reinvestment Act should be expanded broadly across the financial industry NCRC", "Massachusetts CRA for Mortgage Companies: A Good Starting Point for Federal Policy NCRC".
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