Modernize the CRA

75251812471New Orleans US Congresswoman Eddie Bernice Johnson (D-TX) the great community and people’s advocate from Dallas has the right idea and is building support for her bill to bring the 33 year old Community Reinvestment Act (CRA) up to snuff so that it can work for the 21st century as effectively as it did when it was first passed.  Her bill is appropriately called the Community Reinvestment Modernization Act of 2009 (HR 1479).  She’s not trying to throw the baby out with the bath water but to change the bath water to do a better job cleaning the baby!

The central change in the bill is to extend the reach of the CRA requirements barring racial discrimination in mortgage lending to many of the financial institutions that have grown up in recent years and are unregulated by the Federal Reserve and do not have federally insured deposits.  One of the great ironies of the right wing blame-game around the housing meltdown of the current Great Recession has been to try to exonerate Wall Street and other get-rich-quick tactics and blame CRA for having “forced” institutions to write mortgages for homeowners unable to pay.  The truth which Johnson’s bill understands is that only about 25% of the mortgages being written at the time of the meltdown were by institutions that were in fact covered by CRA!  Most of the sub-primes for example that fueled much of the mess were totally outside of the CRA coverage.  On the conservative side of the fence, Mike Volpe who writes the Provocateur blog, is one of the few voices on the right who seems to understand that fact.  [Incidentally, some of the pundits and bloggers mistakenly claim that Countrywide was outside of CRA coverage – it was not, since Countrywide was also chartered as a bank.]

We need to bring all of these fast dealers under CRA obligations.  Many understand this.  Remember that H&R Block when trying to start a national bank voluntarily was willing to meet CRA non-discriminatory requirements (and won a charter), while Wal-Mart when trying to start a national, Utah based “industrial” bank was not willing to guarantee it would abide by CRA non-discrimination standards (and failed to win a charter.)

Johnson’s bill would bring all the non-depository institutions that are now (or will again?) write mortgages under the CRA including credit unions, insurance companies, and mortgage banks.

All such lenders would have to buckle up, disclose data so that there lending policies, procedures and impacts were clear, and therefore prove that their underwriting does not discriminate.  God knows they might even someday have to establish that they actually serve the needs of the community, rather than just their investors, but that’s a star I’ll keep wishing on.

Johnson has 60 sponsors, and as a member of the House Financial Services Committee, I’m hopeful that she will get Chairman Barney Frank to set a hearing on this bill and let it begin its progress into law.

We need to protect the CRA and extend its reach, and this bill is an important step in that direction.

More details are in the bill: Community Reinvestment Modernization Act of 2009 (H.R. 1479).

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