Proposed changes to CRA pose threat to vulnerable communities, critics say most

23rd December 2019   ·   0 Comments

By Ryan Whirty
Contributing Writer

Proposed changes to a crucial federal home-ownership program could cripple the communities of color across the country and in New Orleans specifically, said Marc Morial, president of the National Urban League and former mayor of New Orleans.

After a year and a half of soliciting public input and testimony, two federal agencies under the purview of the Trump administration, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, recently released a joint proposal calling for significant changes and updates to the Community Reinvestment Act of 1977, which requires banks to meet the credit needs of all the communities in which they operate.

The agencies’ stated motivation for the proposed alterations to the CRA is to stimulate bank investment in low- to middle-income communities on an increased level, a move the agencies assert will increase home ownership and economic development in vulnerable communities. However, critics such as Morial and the National Urban League believe the changes to the CRA programs will make it easier for banks to pass over lower-income residents – especially people of color – as they attempt to improve their lives by purchasing homes or starting business.

Instead, Morial and others say, the restructuring of the CRA will only help the rich investors and those development companies that exploit lower-income communities and make such businesses even wealthier at the expense of communities’ most vulnerable populations.

“The CRA should be modernized by strengthening it,” Morial told The Louisiana Weekly last week. “We should be incentivizing and forcing banks to do business in lower-income communities of color.

“We have a crisis of affordable housing in many American communities, including New Orleans,” he added. “You want banks to do business in the communities they reach. You need to maximize bank investment in home ownership and community development.”

Morial said New Orleans is full of struggling communities and neighborhoods of color that will be financially, economically and socially crippled by the proposed CRA changes. Such gentrification of formerly diverse communities – and the accompanying redlining, or forcing out, of people of color from their own neighborhoods – has devastated the financial and economic well-being of lower-income communities across the city.

“It will allow investment in luxury condos along Canal Street, as opposed to the communities next to them,” he said. “You haven’t invested in development, you’ve invested in gentrification. You didn’t improve the community, you removed the community.”

Cashauna Hill, executive director of the Greater New Orleans Fair Housing Action Center, noted that other experienced groups adept at applying the CRA in a positive way, such as the National Community Reinvestment Coalition, have objected to the proposed changes. She agreed that the CRA needs to be updated – it was last significantly revised in 1995 – but added that the suggestions of the organizations that traditionally have successfully applied the act and helped the communities that need it have been shunned or tossed aside.

“While many groups agree that improvements to the CRA are necessary,” Hill told The Louisiana Weekly, “the proposed revisions don’t take any of that input – or the experiences of these groups and the communities they serve – into account.”

According to several sources and investigations like one in 2018 by the Center for Investigative Reporting, home ownership by Black families today is lower than it was a half-century ago when the federal Fair Housing Act outlawed racial discrimination in housing. In addition, nearly three-quarters of white families own their own home, while just roughly 40 percent of Black families do so.

In addition, more than 60 U.S. cities were found to suffer from substantial redlining, with people of color being rejected for home loans at significantly higher rates than whites. That includes New Orleans, where, according to a 2016 report issued by advocacy group and community development organization Prosperity Now, only 43 percent of African-American households in New Orleans own their own homes; that figure drops to 33 percent for Latino households. Those figures are compared to that of the white population, which has a 54-percent ownership rate.

In addition, the Center for Investigative Reporting study found that in New Orleans and Metairie, Blacks are 3.2 times more likely to be rejected for conventional home mortgages as whites, while Latinos were 1.6 times as likely than whites to be denied such loans.

“In New Orleans and across the country, African-Americans prospective borrowers face much higher denial rates for mortgage loans than do white prospective borrowers,” Hill said. “Black prospective borrowers are denied more often than white prospective borrowers even when they have similar incomes and credit histories. In fact, the denial rates for Black borrowers goes up as their incomes increase.

“With those kinds of barriers in place, African-Americans are already at a disadvantage when seeking to become homeowners. Anything that fails to address those barriers will continue to harm communities of color. Not only do the proposed changes fail to address the current barriers to Black homeownership, but they actually create more barriers and make it more likely that African Americans will continue to be locked out of homeownership opportunities.”

However, Bryan Hubbard, deputy comptroller for public affairs for the Office of the Comptroller of the Currency, said the OCC and the Federal Deposit Insurance Commission want to make the CRA changes for the betterment of vulnerable and at-need communities, by closing loopholes in the current regulations that inflate banks’ positive CRA ratings, and by stressing the importance of having bank branches in lower-income neighborhoods.

“The OCC encourages all stakeholders to submit their comments to help make a final rule as strong as possible,” he said in a statement to The Louisiana Weekly. “The proposal takes specific steps to refocus the credit that banks receive for CRA activities on low- and moderate-income people and areas.”

Hubbard also asserted that the proposed changes to the CRA will also boost “small businesses and farms that are important to the people of Louisiana for jobs and services by raising the threshold for qualifying loans for the first time in 25 years from $1 million to $2 million dollars.”

Hubbard said the changes, if implemented, will actually increase pressure on banks to enhance their communities by “including multiple objective measures that banks must meet that examiners would use to evaluate how much of a bank’s retail lending is targeted to low- and moderate-income people and areas and what the impact of a bank’s lending and investment is in each community the bank serves and at the overall bank level.”

Hubbard added that the new measures will allow examiners and CRA monitors to more closely and rigorously scrutinize banks and assign the financial institutions stricter ratings regarding their adherence to the CRA.

“The measures consider both the units and dollars of a bank’s CRA activity,” he said. “In addition, the proposed rule would require examiners to use their judgement and consider performance context regarding the unique facts and circumstance relative to the bank and the communities it serves in assigning a final rating.”

But critics such as Hill and Morial remain very skeptical of the possible benefits of the changes being touted by the OCC and FDIC. For one, Morial questions why the third federal agency tasked with enforcing the CRA – the Federal Reserve – didn’t join with the OCC and FDIC in the latter’s proposal. The Federal Reserve plans to release its own proposals on possible changes to the CRA at a future date.

Morial said he’s suspicious of any CRA recommendations that aren’t brought forth by all three agencies, because in a matter as important as this, unity of purpose and clarity of goals are crucial.

“We only have two of three agencies involved,” he said. “Everyone should be a part of it. We shouldn’t have different parts of the CRA process using different standards. That’s not a good way to set public policy. It should not be patchwork.”

He added that the National Urban League and other advocacy groups and figures must continue to pressure the agencies involved with the CRA and to the banking institutions they regulate to remain committed to not just the wording of the CRA, but to the spirit and ultimate goals of the legislation overall.

“Elected officials, community leaders and advocates need to come together and speak publicly about it,” he said. “They need to write their comments [to the FDIC and OCC], to weigh in and be part of the effort to push back on these changes. The worst thing is to be silent.”

Hill agreed, adding that the Trump administration’s misguided attempts at modernizing the CRA need to be countered and tempered by input from folks on the ground in the battle for community development.

“Civil rights groups have identified solutions and ways to improve the CRA to ensure that everyone has equitable access to homeownership,” she said. “The administration must be willing to act on the recommendations of those groups.”

This article originally published in the December 23, 2019 print edition of The Louisiana Weekly newspaper.