ON BAILING OUT ON SOMETHING THAT WORKS
In 1989, Bill Dedman, a reporter at the Atlanta Journal-Constitution, wrote a Pulitzer Prize-winning series of articles that exposed distressing disparities in mortgage lending between households of color and their white counterparts. This, of course, was no surprise to the aforementioned households of color.
Dedman’s work inspired the Community Action Lehigh Valley to take a close look at mortgage lending here in the Lehigh Valley market. We found that people of color were about five times more likely to be rejected than their white counterparts. Again, no surprise to the folks who have been treated like second-class citizens for centuries. Equally distressing, though, was that people of color were not even applying for mortgages; they knew the system didn’t work for them.
We turned the information over to The Morning Call, which did a terrific article on the data we had uncovered. Banks were, to say the least, embarrassed.
The embarrassment of the expose brought them to the table. Together, we developed some prescriptive measures to correct the problem: outreach to low- and moderate-income families to get them to apply, a homeownership counseling program that would teach people how to buy a home responsibly, an automatic internal review of rejected households in the protected class, special mortgage products with a variety of discounts, and a peer review process in which banks originating a mortgage they planned to reject would have their decision scrutinized by peers in the industry; in the process, banks were sharing each others’ rejections and turning them into approvals.
Within four years the disparity went from a factor of five to just 30%. Working together, we were literally changing the complexion of homeownership in the Lehigh Valley.
That differential stuck. A few months ago, new research was done. While 61 metro markets around the country were busted for here-we-go-again disparities, the report said that they could find “no clear evidence of discrimination” in this market.
Embarrassment was a powerful tool. But so was an obscure federal law called the Community Reinvestment Act.
After federal funding, CRA is easily the most powerful tool community development organizations like Community Action have for tackling poverty. And, believe me, if it weren’t for this law, access to credit, the life-blood of any market, would not flow as freely as it does here in the Lehigh Valley. There have been many situations in the Lehigh Valley where it was clear that CRA made access to credit possible. Any bank that would argue with me on this point is at risk of my citing specific examples… and be embarrassed again.
Those of us in the housing, community and economic development world have used CRA as effectively as any community in the country has. The Lehigh Valley is clearly a better place because of it. Each time a merger occurs, we meet with the brass of the acquiring bank and discuss their CRA-related plans. I would estimate that the result has been commitments by banks totalling, easily, $800 million.
Not surprisingly, the man in the Oval Office has targeted CRA for reform. They’re calling it “modernization,” probably because it sounds better than “turning back the clock” or “gutting” it. I don’t know if the President just likes the nineteenth century better, hates poor people, or just can’t keep himself from making the wrong policy choice over and over, but weakening CRA would be a colossal mistake.
Let me be clear: the banks in this market are terrific. I like almost every CEO or market president in the business; I like the commercial lenders, the mortgage originators, the underwriters. I consider many of them to be good friends. They all try to do the right thing. But I think it is safe to say that, given the choice, most would rather do business on the golf course than in low-income neighborhoods. Many bankers say they understand the importance of CRA but they think it is an administrative burden. I would love to be sympathetic but have you seen how much money most banks are making these days?
CRA does not require them to lose money serving poor people; in fact, safety and soundness always have and always will trump (ironic choice of words, eh?) CRA. But this law has made our communities more vibrant and more fair. How can anyone oppose that?
If you want to help fight back, go to the National Community Reinvestment Coalition’s website (ncrc.org), where you will find resources to help you comment on the proposed rules. It will only take a few minutes and, I assure you, it will make a huge difference.