Fair Lending Laws Are A Protection for All

Guest Editorial by Peter Skillern

In a steady drumbeat from conservative activists like Rush Limbaugh, the Community Reinvestment Act is being blamed for the banking crisis.  According to their line of argument federal laws and regulation passed by liberals forced banks to make bad loans to minorities and low-income people.  These borrowers defaulted, causing the credit crisis on Wall Street.  To assign blame and prevent future problems, they argue that Congress should repeal this law.  This is a false and cynical attack that assigns blame based on race and class and does not help the credit markets.  For these critics, the mortgage crisis is an opportunity to repeal an important fair lending law.

The Community Reinvestment Act (CRA) passed in 1977 is part of other civil rights legislation to address discrimination in lending.  It states in part, “regulated financial institutions have continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered.”  Nowhere in the law or regulations are banks instructed or encouraged to make unsafe or unsound loans.  CRA evaluations by regulators are to look for and penalize risky and reckless lending.

CRA Not The Cause
CRA advocates, such as the Community Reinvestment Association of North Carolina, have pushed hard for banks to be inclusive of minority and low-income families for banking services and loans.  We have also loudly opposed unfair, unsafe, subprime and predatory lending practices.  Responsible banks such as BB&T have an outstanding CRA rating, but did not make subprime loans.  BB&T’s stock price is also doing well.  CRA does not encourage banks to make bad loans or cause them to collapse.

To argue that Bears Stearns, Lehman Brothers and AIG Insurance Company failed because of CRA fails to recognize that this law does not cover these firms in any shape, form or fashion.

Likewise Fannie Mae and Freddie Mac are not subject to CRA.  They do have goals established by Congress to serve low and middle income households. But there is no mandate to buy subprime loans which do not have common sense underwriting such as a requirement to document borrower income.

Wachovia Bank and Washington Mutual were covered by CRA.  It was not CRA loans that caused these banks to crash, but adjustable rate mortgages made on over-inflated home prices with out sound underwriting.

CRA is not the common link among these financial institutions failures.  Management that chose profits in the short term rather than safety and soundness in the long term caused this meltdown.  It was not regulation that caused banks to make bad loans, but the lack of regulatory enforcement that allowed irresponsible lending.

Borrowers of All Colors
To blame minorities and poor people for the mortgage crisis feeds a false stereotype that they are undeserving and untrustworthy.  African-American and low-income borrowers disproportionately received high cost, subprime and predatory loans.  Correspondingly, they also are disproportionately represented in foreclosures nationwide.  Poorer neighborhoods will be hardest hit.  Yet they remain a minority.

The majority of subprime loans and foreclosures involve households that are white and middle to upper income.  To blame people of color is to scapegoat based on racial bias rather than the facts that people of all color and income have been hurt by mortgage loans that no one should have made or taken.

Rather than repeal the Community Reinvestment Act, it should be expanded in the regulatory reform expected next year.  If financial institutions of all stripes and types are to benefit from a taxpayer bailout, then all should have an affirmative obligation to responsibly and safely provide quality financial services to Americans regardless of their race and class.

Peter Skillern is Executive Director of the Community Reinvestment Association of North Carolina a nonprofit bank watchdog agency. www.cra-nc.org