The Community Reinvestment Act will be fully examined on Tuesday at a special forum, hosted by the Boston and San Francisco branches of the Federal Reserve, at the Mandarin Oriental Hotel in Washington, DC on Tuesday.

The event will coincide with the publication of “Revisiting the CRA: Perspectives on the Future of the Community Reinvestment Act.”

There are a lot of interesting ideas in the 21 papers contained within the publication.  Ideas have been contributed from across the spectrum of politics and market positions.  The American Bankers Association has a comment, as does the former CRA officer from JP Morgan Chase.  A representative of AON, the largest insurance broker in the country, weighs in against proposals to expand CRA to her industry.  Former heads of the OTS and the OCC have things to say on behalf of the CRA.  A “conservative with a concious,” as he identifies himself, finds three relevant areas for the CRA to be re-entrenched – in home lending, in payment services, and in consumer education.

Some of the issues that appeared in many papers include:

• More types of financial institutions, beginning with independent mortgage brokers, should come under the review of the CRA.
• Data in the Home Mortgage Disclosure Act database and the CRA small business and community development lending database need to be updated.  Those updates should become the basis for a redefinition of the goals of the CRA exam.
• Banking as an industry has changed.  More financial institutions have become national or even global.  The notion of a local commitment must accordingly be updated.
• The scale of some banks, as a result of mergers, makes them relatively insensitive to the CRA exam.  This, coupled with grade inflation on the exam scores, means that very few CRA exams bring to bear any kind of direct response from a financial institution.  A redesign of the CRA look at how it can adjust for these very large institutions.

Some urgent questions remain unsettled:

What is the purpose of CRA? Does it have an implicit, but not stated, understanding that extends to race? Does the CRA require banks to make unprofitable loans or to establish unprofitable branches.  How well do CRA loans perform?  Are loans in low-income communities best percieved as a public good, for which their under-supply is only mitigated by government intervention?

Is there a quid pro quo because of deposit insurance, the discount window, and TARP?

What is the proper role for community groups?

North Carolina is waiting on the news, upcoming any day, on the awarding of NSP grants.  The North Carolina Department of Commerce’s Division of Community Assistance had indicated that decisions might be announced this week.  The DCA plan for HUD proposed contracts by March 1st, with a caveat that it could be subject to change.

The state plans to distribute the money through three channels – one for non-profits, one for local governments, and one for set asides to community development financial institutions and the NC HFA.  Charlotte has a specific allotment, on top of its competition in the pool for other dollars.  HUD’s NSP grants will total $3.92 billion.  The Stimulus included language to add another $2 billion in funds.  In the first $4 billion, North Carolina was alloted $52.3 million.  That money can be used in the 23 counties designated for greatest need.  Here is the points system:

• Demonstration of Need: 50 points (statistics on the level of foreclosures, housing quality, poverty)
• Treatment of Need: 20 points (appropriateness of the proposed strategy in mitigating those cited needs)
• Capacity of agent (non-profit, government, or cdfi/HFA): 20 points
• Green status: 1 point
• Mitigation of fraud: 4 points
• Socioeconomic factors: 5 points

Phil Gramm has an editorial in today’s Wall Street Journal that manages to shed blame in a bunch of different directions, while notably ignoring the giant role that he played in today’s problems.

While it must be nice that he can continue to find a worldwide audience for his views, let me just offer one bit of opinion: maybe Phil Gramm is a little bit off.

You know that something is up when there is a picture of Bill Clinton signing the “Financial Services Modernization Act of 1999.”  Notably missing is a caption that recognizes that legislation by its more common name – The Gramm-Leach-Bliley Act.  Again, this act passed by a party line vote of 54 to 44 in the Senate.

And gee, who is this Gramm?  Right, Phil Gramm, former Senator from Texas and now a board member of massive financial behemoth UBS.  Of course, there he is, standing up on the center-left part of the photograph, next to Alan Greenspan.

Let’s not get into Phil Gramm’s comments about what he thinks of his fellow Americans, or what possible role UBS has played in the current crisis through its massive hedge fund and investment bank platform.

Gramm’s editorial then proceeds through a series of tricky logic games that are as much artful dodge as they are an attempt at policy. First, he defends the bill that is known by his name, GLB, for its value in repealing the Glass-Steagall Act.  GLB was hardly just about “deregulation,” and certainly not at the level of individual mortgages. It’s principal impact was to remove firewalls between banks, insurance companies, and securities firms.  Without G-L-B:

• There could never have been an AIG as we knew it, at least not the kind of firm that lost $10 billion on exotic trades out of one office in London.
• There never could have been a Merrill Lynch that was originating tons of subprime mortgages.
• Bank of America wouldn’t have been reporting quarterly losses in the billions over collateralized debt obligations and structured investment vehicles.

But to Gramm, that is almost an afterthought, because his analysis goes no deeper than to ruminate on the lack of damning evidence against “deregulation.”  After all, he says, there was no Glass-Steagall in Europe and there was no financial disaster then, either.  He did not mention that Zimbabwe has little financial regulation, (oh, and a lot of inflation) either, but I guess he just didn’t want to include all of the deregulated economies in the world.

Gramm manages to suggest that the Community Reinvestment Act is one of the architects of this crisis.  Again, its faulty logic.  What he is saying is not that CRA loans went bad, but that the mere existence of the loans gave the lenders “an excuse and regulatory cover.”

Now, mind you, we’re in a period where GLB has given us “deregulation,” but I guess if you are having it both ways, then have it both ways.  Some good analysis (by Republicans, too), both here and here, shows that CRA loans are not the root cause of the CRA crisis.  Randall Krosner, a Bush appointee and a visiting scholar at the American Enterprise Institute, points out that only 6 percent of “higher-priced” loans went to low-income borrowers by CRA-regulated banks.

CRA loans were designed to be sustainable, and by their very nature, they didn’t have the exotic option-ARM and interest-only features that led to so many foreclosures.   Gramm is talking, but he isn’t saying anything.

This year’s winner of the prestigious World Press Photo Award goes to Anthony Suau for his picture of a police officer in Cleveland, Ohio during a foreclosure eviction.

The World Press Photo of the Year for 2008: Detective Robert Kole must ensure residents have moved out of their home, Cleveland, Ohio, March 26,2008.

The picture was taken during a two-day assignment by Suau.  He rode along with a team of officers as they did a long round of foreclosures evictions.

A couple of years ago, this kind of assignment would have been relatively impossible to imagine: sure, officers had some evictions, mainly for tenants and mainly at the beginning of the month.  Here, its an all-day piece of work that appears to be going on during the 26th day of the month.  So its full-time, all the time, for officers like Kole.

In Detroit, Wayne County Sheriff Warren Evans announced in early February that his staff would cease to evict homeowners.  In Ohio, Representative Marcy Kaptur has suggested that homeowners should go ahead and stay in their homes, in spite of orders for them to leave. ACORN is attempting to disrupt or halt auction sales at courthouse steps in Baltimore, and protested actions in Raleigh, St. Louis, Oakland, and Cleveland.

Anthony Suau is a decorated war photographer who has published great work on the fall of Eastern Europe and the Soviet Union.

In the wake of Obaba’s Homeowner Affordability and Stability Plan, many people are wondering if throwing a lifeline to borrowers will have its intended impact.

The big banks appear to like the plan.  So does Fannie Mae.  The market was mixed.  Bank stocks fell on the day, but overall, the Dow was about even. The Wall Street Journal’s Editorial Page is already coming out against the idea.

The doubt stems from research that shows that a high percentage of modified loans still end up delinquent, in default, and potentially in foreclosure.  John Dugan, Comptroller of the OCC, recently published research that shows that more than half of all loans modified in 2008 ended up in default.  The research only covered first lien loans.  So, that is some pretty (more…)