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Dems Push Update Of Minority Lending Law

February 17, 2010 - by Eric Naing

A Texas Democrat wants to modernize a controversial Carter-era law designed to encourage mortgage lending to minorities and low-income individuals.

The Community Reinvestment Act monitors and rates banks based on whether they are lending to all their qualified customers. Banks at the time were hesitant to provide loans in low-income and minority neighborhoods – a fear that left many in these neighborhoods unable to own a home or business. The CRA aimed to correct this.

While the CRA certainly succeeded in forcing banks to provide loans, some criticize the act saying it played a major role in the subprime mortgage crisis.

Carl Horowitz at the conservative National legal and Policy Center lays out the argument:

[The CRA] increasingly has served as a blank check for community groups to shake down depository institutions into lowering their credit standards to reach marginally qualified borrowers. In extracting such concessions, these groups have contributed to the ongoing explosion in loan defaults and foreclosures.

CRA supporters, on the other hand, say a majority of subprime loans were issued by mortgage companies and bank affiliates not under the authority of the act and that the recent housing crisis was caused by the deregulation of the housing industry in the 90s. The CRA, in contrast, became law in 1977.

Last year, Rep. Eddie Johnson [D, TX-30] and a number of community, labor and investment organizations – including the dreaded ACORN – introduced a bill to strengthen and expand the CRA. The Community Reinvestment Modernization Act of 2009 (H.R.1479) would increase the loans leveraged by the CRA and expand its monitoring authority to non-bank financial institutions.

Opponents of Johnson’s bill say that it would only encourage more subprime loans to be issued and that it would force affirmative action quotas on lenders by making then issue loans based on race and gender.

Even though Congress has taken little action on it since it was introduced early last year, Johnson’s bill still inspires heated debate – particularly since it touches on the thorny issues of class and race.

For more context on the CRA debate, please check out Martha White’s excellent op-ed in the Washington Independent.

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