Softer CRA standards would put borrowers at risk
Since the start of the foreclosure crisis in 2008, over 14 million homes and families have endured a foreclosure.
As bad as that was, it could have been worse. Federal laws and lending rules kept heavily regulated banks, and their borrowers, on a safer course.
Yet a decade later, Congress, bank lobbyists and the Trump administration are chipping away at these consumer protections.
The Consumer Financial Protection Bureau, which was created after the financial collapse to protect borrowers from risky and predatory behavior by lenders, has been largely neutered by a Trump appointee, Mick Mulvaney, who, when he was in Congress, called the agency "a sick, sad joke."
Earlier this year, a bipartisan effort in Congress rolled back bank reporting requirements that were added after the crisis to provide an early warning on any risky lending by banks.
Now there is an even bigger concern for those who believe in fair and equal access to credit and capital.
In August the Office of the Comptroller of the Currency took the first formal step to change how it enforces the Community Reinvestment Act. That's a 1977 law designed to prevent discrimination in lending. Bank loans attributed to CRA leading up to the 2008 collapse were safe and sound. In 2005-2006, only 6% of the subprime loans that led to the Great Recession were attributed to CRA.
The record is clear. Lenders not covered by CRA issued over 90% of the problematic loans.
Compliance with the law isn't too difficult for banks — 98% of them have passed their CRA exams since 2010. But still, the bank lobby is pushing to make the CRA rules even easier on banks.
The OCC has asked for comments on a set of ideas and questions to inform new CRA rules it will recommend after a 75-day comment period. If done thoughtfully, changes to CRA could help millions of Americans get the credit they need and deserve to buy homes and operate businesses. If bank trade associations have their way, changes could result in banks cutting services to lower-income neighborhoods and encourage the same high profit, higher-risk lending that fueled the foreclosure crisis 10 years ago. For example, if regulators do away with geographic assessment areas, then banks could stop lending to entire neighborhoods. Then riskier and higher-cost loans from less regulated fintechs and mortgage lenders would be the only option for borrowers in those neighborhoods.
That makes no sense.
The push for looser lending laws is dangerous for nearly everyone. The nation needs more homeowners and its low- and moderate-income neighborhoods need greater access to responsible credit so more people can buy homes and grow small businesses.
We need more responsible lenders, sensible rules and strong enforcement of CRA. We shouldn't forget what happened a decade ago.
The Community Reinvestment Act never forced banks to make risky loans. It forces them to be fair and responsible. It's a civil rights law put in place to end decades of intentional discrimination against blue-collar, minority and working-class Americans. It allows working people to climb the nation’s economic ladder by accumulating wealth through homeownership.
We must not turn our backs on a just economy by making it easier for banks to lend only to the well-heeled. Rather, we need to strengthen and modernize the rules to make responsible credit accessible to creditworthy people.
The 2008 financial crisis cost our nation over $10 trillion, and almost all of that was wealth stripped from families and individuals. A decade later, banks have recovered and are experiencing record profits. That’s good for our nation but only if that profitability results in more credit and capital access for average Americans. For some banks and politicians, the financial crisis seems to have faded into a bad memory. Our financial sector has recovered, however our families have not.
We need to tread very carefully with CRA reform because bank lending holds an important key to a more just economy where all hardworking Americans have the chance to fully participate in our nation’s economic growth and success.
It’s easy to forget things we don’t want to remember. It's also very dangerous.