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Revisiting the CRA: Perspectives on the Future of the Community Reinvestment Act

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Revisiting the CRA: Perspectives on the Future of the Community Reinvestment Act Revisiting the CRA: Perspectives on the Future of the Community Reinvestment Act Introduction Background Foreword The 30th Anniversary of the Community Reinvestment Act: Eric Rosengren and Janet Yellen Restructuring the CRA to Address the Mortgage Finance Revolution Ren S. Essene and William C. Apgar A Framework for Revisiting the CRA John Olson, Prabal Chakrabarti, and Ren S. Essene The CRA Within a Changing Financial Landscape Robert B. Avery, Marsha J. Courchane, and Peter M. Zorn The CRA and the Recent Mortgage Crisis Randall Kroszner Articles Commentary The CRA: Outstanding, and Needs to Improve Expanding the CRA to All Financial Institutions Roberto Quercia, Janneke Ratcliffe, and Michael A. Stegman Liz Cohen and Rosalia Agresti It’s the Rating, Stupid: A Banker’s Perspective on the CRA What Lessons Does the CRA Offer the Insurance Industry? Mark Willis Bridget Gainer The Community Reinvestment Act at 30 Years CRA 2.0: Communities 2.0 The American Bankers Association Mark Pinsky A Tradable Obligation Approach to the CRA The CRA: 30 Years of Wealth Building and Michael Klausner What We Must Do to Finish the Job The CRA: Past Successes and Future Opportunities John Taylor and Josh Silver Eugene A. Ludwig, James Kamihachi, and Laura Toh The CRA as a Means to Provide Public Goods A More Modern CRA for Consumers Lawrence B. Lindsey Ellen Seidman Putting Race Explicitly into the CRA CRA Lending During the Subprime Meltdown Stella J. Adams Elizabeth Laderman and Carolina Reid Community Reinvestment Emerging from the Housing Crisis Michael S. Barr A Principle-Based Redesign of HMDA and CRA Data Adam Rust The CRA: Good Goals, Flawed Concept Lawrence J. White A Joint Publication of the Federal Reserve Banks of Boston and San Francisco February 2009 Table of Contents Editors: Prabal Chakrabarti, David Erickson, Ren S. Essene, Ian Galloway, and John Olson Introduction Foreword ...........................................................................................Eric Rosengren and Janet Yellen ........................ 1 A Framework for Revisiting the CRA .............................................John Olson, Prabal Chakrabarti, ....................... 2 and Ren S. Essene The CRA and the Recent Mortgage Crisis ................................. Randall Kroszner .............................................. 8 Background The 30th Anniversary of the Community Reinvestment Act ..... Ren S. Essene and William C. Apgar ................. 12 The CRA Within a Changing Financial Landscape .................... Robert B. Avery, Marsha J. Courchane, ............. 30 and Peter M. Zorn Articles The CRA: Outstanding, and Needs to Improve ......................... Roberto Quercia, Janneke Ratcliffe, ................. 47 and Michael A. Stegman It’s the Rating, Stupid: A Banker’s Perspective on the CRA ....... Mark Willis ....................................................... 59 The Community Reinvestment Act at 30 Years ......................... The American Bankers Association ................... 71 A Tradable Obligation Approach to the CRA ............................ Michael Klausner .............................................. 75 The CRA: Past Successes and Future Opportunities .................. Eugene A. Ludwig, James Kamihachi, ............... 84 and Laura Toh A More Modern CRA for Consumers ....................................... Ellen Seidman ................................................... 105 CRA Lending During the Subprime Meltdown ......................... Elizabeth Laderman and Carolina Reid ............. 115 Commentary Expanding the CRA to All Financial Institutions ...................... Liz Cohen and Rosalia Agresti ............................. 134 What Lessons Does the CRA Offer the Insurance Industry? ..... Bridget Gainer ................................................... 138 CRA 2.0: Communities 2.0 ....................................................... Mark Pinsky ...................................................... 143 The CRA: 30 Years of Wealth Building and What We Must Do to Finish the Job ......................................... John Taylor and Josh Silver .................................. 148 The CRA as a Means to Provide Public Goods .......................... Lawrence B. Lindsey ........................................... 160 Putting Race Explicitly into the CRA ........................................ Stella J. Adams ................................................... 167 Community Reinvestment Emerging from the Housing Crisis .. Michael S. Barr .................................................. 170 A Principle-Based Redesign of HMDA and CRA Data .............. Adam Rust ........................................................ 178 The CRA: Good Goals, Flawed Concept ................................... Lawrence J. White .............................................. 185 Appendix A Banker’s Quick Reference Guide to CRA .............................. Federal Reserve Bank of Dallas ........................... A1 The views expressed herein are those of the authors and are not necessarily those of the Federal Reserve Banks of Boston and San Francisco or the Federal Reserve Board of Governors. Copyright © 2009 by the Federal Reserve Banks of Boston and San Francisco Revisiting the CRA: Perspectives on the Future of the Community Reinvestment Act Foreword he Community Reinvestment Act (CRA), service industry representatives. Of course, they have enacted in 1977, has fostered access to finan- various, and sometimes divergent views, but they pos- cial services for low- and moderate-income sess a common desire to improve the regulatory system communities across the country. Together with to ensure access to financial services for all in a safe and Tother antidiscrimination, consumer protection, and sound way. disclosure laws, the CRA remains today a key element of In this volume, we capture many different perspec- the regulatory framework, encouraging the provision of tives on the past and future of the CRA, provide facts, mortgage, small business, and other credit, investments, and highlight possible reforms—all in an effort to foster and financial services in low- and moderate-income debate. Our efforts were helped considerably by the par- neighborhoods. ticipation of Ellen Seidman of the New America Founda- Yet, since the passage of the act, the financial land- tion, whose knowledge and expertise was invaluable in scape has changed dramatically. How well has the CRA identifying topics and authors for this volume. kept up over 30-plus years? Wherever one stands on the We also address the critics of the act who have answer to this question, there is a general consensus on pinned the blame for the subprime mortgage crisis on the need to reexamine this important regulation in the the CRA. There is no empirical evidence to support context of financial modernization. the claim that the CRA is responsible for the crisis, as To commemorate the 30th anniversary of the CRA, several authors in the volume make clear. First, former the Federal Reserve Bank of Boston hosted a special Federal Reserve Governor Randall Kroszner argues forum in October 2007. Researchers, regulators, bank- in a speech included in this volume that the CRA did ers, nonprofit practitioners, and community advocates not contribute to any erosion in safe and sound lend- participated in the event. The discussion began with ing practices. He specifically cites an analysis by the a speech on the legislative intent of the original act. Federal Reserve Board that revealed that 60 percent of Speakers addressed the changes and consolidation in higher-priced loans went to middle- or higher-income the banking industry, the growth of nonbank providers of borrowers or neighborhoods not covered by the CRA, financial services, the major revisions to the CRA and to and only six percent of all higher-priced loans were the examination process, innovations at the state level, extended by CRA-covered lenders to lower-income and the demographic changes in low- and moderate- borrowers or neighborhoods in their CRA assess- income communities. The event closed with a discussion ment areas. Moreover, a research paper by the Federal of the future of the CRA, including proposed alternatives. Reserve Bank of San Francisco in this volume finds Overall, this discussion underscored the need for an that loans originated by CRA-covered lenders were even deeper look at the CRA. significantly less likely to be in foreclosure than those To tackle the many-sided issue of CRA reform, the originated by independent mortgage companies not Federal Reserve Bank of Boston partnered with the Fed- covered by the CRA. eral Reserve Bank of San Francisco in assembling a team The current financial crisis challenges us to recon- of experts to share their ideas, opinions, and research. sider the entire financial regulatory system, including up- The authors who contributed to this project include dating the CRA. Proposals calling for reform have rightly academic researchers, current and former regulators, been offered in this volume. We welcome a reasoned community development practitioners, and financial debate about solutions. Eric Rosengren Janet Yellen President and CEO President and CEO Federal Reserve Bank of Boston Federal Reserve Bank of San Francisco 1 Revisiting the CRA: Perspectives on the Future of the Community Reinvestment Act A Framework for Revisiting the CRA John Olson, Federal Reserve Bank of San Francisco Prabal Chakrabarti, Federal Reserve Bank of Boston Ren Essene, Federal
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