The future of the Community Reinvestment Act may hinge on how well affordable loan portfolios perform during the next recession.

"These are the most vulnerable loans," said Joe Belew, president of the Consumer Bankers Association. "If there is a downturn and if the CRA loan portfolio performance is dismal, it could easily discredit the entire CRA process."

Banks have committed $175 billion since 1992 to fund mortgages and small-business loans in low-income communities, according to data compiled by the Office of the Comptroller of the Currency. That's four times what the industry devoted to community lending during the preceding 15 years.

The surge in lending was made possible by scores of innovative products. NationsBank now offers 100% loan-to-value mortgages in some markets, Chase Manhattan Bank provides character loans to small-business owners, and Fleet Bank invests in community development projects through its INCITY initiative.

But none of these products has withstood the stress of an economic downturn. In fact, the economy has grown an average 2.6% a year since 1992, according to the Department of Commerce.

Recognizing this danger, regulators have sounded credit quality alarms. "While we should applaud the democratization of credit, we must be vigilant of the risk of excess," Federal Reserve Board Chairman Alan Greenspan told community development lenders this month.

The comments echoed similar warnings by Comptroller Eugene A. Ludwig. "We have recently noticed some decline in asset quality and increased delinquency patterns in some national banks' affordable mortgage portfolios," Mr. Ludwig said in April. "These patterns, while not pervasive, underscore the importance of effective credit underwriting standards."

Bankers are taking note. "We are trying to do good and get money out there," said Agnes Bundy Scanlan, senior vice president at Fleet Financial Group. "But when we see a business shut down we wonder if we did something wrong by making the loan. Did we set them up for failure?

"That would be worse for the economy and worse for us."

Another banker warned: "There is a finite limit to the amount of this business. I think we are close to it."

Although some industry officials expect delinquency problems to result in less CRA lending, no one expects Congress to eliminate or seriously curtail the law.

"It won't go away," Ms. Scanlan said.

CRA's future was not always so secure. In the early 1990s bankers were screaming about high compliance costs and Republican lawmakers were threatening to repeal the act.

At the start of his first term, President Clinton ordered the agencies to begin a sweeping revision of CRA requirements to reward lending and reduce paperwork.

The project was a lightening rod for controversy. Bankers wanted to eliminate meaningless documentation requirements and demanded protections from meritless CRA protests. Activists wanted detailed data on small- business lending and specific lending requirements.

"There was a lot of suspicion and concern," Mr. Belew said.

The result was a 275-page compromise adopted in April 1995. Half a bank's CRA grade is based on lending to the community. The rest is split between investment and service. The act also requires banks to collect data on the size and location of their small-business and farm lending.

The rules took effect for big banks in July. A streamlined version, without the data reporting requirement, became effective for small banks in January 1996.

"This has been a big success," Mr. Ludwig said in an interview. "It is not perfect but it has moved the ball forward. CRA compliance now is clearly less intrusive and less burdensome than it was."

The rewrite has clearly benefited small banks, many of which are now examined in a day rather than a week. "The process is working much better now," said Peter M. Kravitz, legislative counsel for the Independent Bankers Association of America. "Bankers are reporting that the burden from the exam process has eased considerably."

But the results for big banks are less clear. New reporting requirements for small-business loans have eaten up most of the expected savings from the 1995 rewrite.

Also, some activists are calling on Congress to expand data reporting requirements further, forcing banks to collect race and gender information on their small-business customers. Expanded data collection would cause compliance costs to rise even further, industry officials warned.

"This is a slippery slope," warned Jo Ann Barefoot, a partner at the consulting firm KPMG Barefoot Marrinan. "It is a legitimate worry."

"Remember the original CRA wasn't bad, but it got worse and worse and worse," said James D. McLaughlin, director of regulatory and trust affairs at the American Bankers Association. "We are going to be more watchful this time."

Even some banks with model CRA programs complain that the rules are too complex.

"The pendulum has swung way too far toward reporting and paperwork," said Catherine P. Bessant, president of community investment at NationsBank Corp. "I'm worried we have moved way beyond what makes common sense."

Parts of the new rules are extremely technical, she said. NationsBank employs several accountants just to figure out how much of their low-income lending counts toward the investment test, she said.

Activists also are unhappy. They charge regulators are afraid to fully enforce CRA because they do not want to offend Republican lawmakers.

"The congressional climate has had a chilling effect on actual CRA implementation," said Dan Immergluck, vice president at the Woodstock Institute in Chicago. "When you are talking about saving CRA it is hard to talk about enforcing CRA."

Both sides are floating reform proposals. Bankers want institutions with high CRA grades to be shielded from protests.

"If you have an outstanding rating you should not have an exam for two and a half years and there should not be any delays or hearings for CRA protests," Ms. Scanlan said.

Community groups want to expand the law to cover nonbank mortgage companies and financial conglomerates that own insured-depositories.

"We are going to get a series of highly concentrated financial conglomerates," said Allen Fishbein, general counsel to the Center for Community Change.

"It makes very little sense under this structure to have banks live under one type of obligation and not require other competitors to have a similar obligation."

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