Community Reinvestment Still Matters, Why Gut it More?

New Orleans       Newsday, the big Long Island, New York newspaper, reported on a three-year investigation of real estate practices in this suburb that is well-known as one of the whitest suburbs in America.   Using a classic tactic to determine such racial discrimination, they sent out 100 teams of black and white testers in order to compare how racial differences might have led to disparate advice and steering into or away from white neighborhoods.  They found that real estate agents treated people of color unequally 40% of the time compared with white people.  In what may have seemed a throwaway comment, Newsday thought that their investigation should have been unnecessary, as another paper commented, because the work should have been done by the government or nonprofits.  Hats off to Newsday for doing the work, but shock and awe that they did not realize that no one in government is really guarding against racial discrimination in real estate, and nonprofits are drastically underfunded by HUD in the current administration on the issues of fair housing.

Case in point is the steady drive to eviscerate the Community Reinvestment Act (CRA) yet again, this time led by the Office of the Comptroller of the Currency.  Remember that the CRA since 1977 has been one of the few bulwarks against not only discrimination in housing lending based on race and ethnicity, but the only real incentive for banks to assure that they are investing and approving loans in lower income communities.

The Federal Reserve Bank is the overseer of CRA and its individual bank ratings.  The Federal Deposit Insurance Corporation (FDIC) is also a CRA player. For some spurious excuse, likely rooted in bad faith and worse politics, after years of meetings to find a path where all three agencies agreed, the OCC has broken ranks and is trying to move alone to rewrite CRA rules.  Nothing good will come of this.

According to the Wall Street Journal, the negotiations broke down over the critical issue of whether CRA activity should be measured by the number of loans made, advocated by the Federal Reserve, or the dollar amount of CRA lending in an area, which is the OCC’s position.  None of these regulators are heroes in this story, but the OCC’s position is especially suspect.  One can look at the way developers have manipulated CDBG funding in Detroit’s downtown census tracks or the way developers and rich investors are pulling trucks up for cash delivery to distort the enterprise zones, ostensibly for lower income areas, created in the Trump tax giveaway.  Dollars would presume real investment, even though not to the real CRA targets.

Additionally, OCC seems to want to use a metric that looked at lending ratios compared to bank deposits from families in lower income areas.  The last forty years have seen most banks shutter branches as part of their business model in our communities, while the number of payday lenders and check cashing outlets have exploded in lower income areas to fill the vacuum.  How could this be a realistic metric?

Hopefully, the OCC’s political game will run into some serious resistance.  In that sense we are lucky that the other agencies have not signed on.  The real problem, whether in Long Island or wherever you might live, is that discrimination of all kinds is still rife in low-and-moderate communities everywhere in the United States, and CRA is one of the few tools that still works, when it is allowed to do so.  We definitely ought to be doing some work to revise CRA, like forcing more financial institutions under its requirements and lassoing in all of the on-line, Quicken and Zillow types as well, but the OCC’s political play needs to be taken off the table ASAP.

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Self-Dealing Revenge from OCC & Treasury Targets the CRA

Greenville   Sometimes you wonder why former Goldman Sachs and banking executives flock to political jobs like running the Treasury Department or the Office of the Comptroller of the Currency, but then you realize the facts.  It’s about score-settling or figuring out how they and their buddies can make more money in banking now and in the future.  The backstory on the current push to rewrite the rules on the more than forty years of the Community Reinvestment Act or CRA that mandated fair banking and the end of redlining to force banks to invest in lower income and minority neighborhoods is full of just such conflicts of interest and self-dealing.

As the Treasury Department and the OCC propose to rewrite and dilute CRA rules the Wall Street Journal reports that the issue is messier. Steven Mnuchin was bottom fishing after he left Goldman Sachs as an investment banker and flirted with financing in Hollywood.  He had assembled a group to pay $1.5 billing to buy IndyMac from the FDIC after the highflying, lowballing mortgage chop shop suffered a run forcing the FDIC as the deposit insurer to take over.  Mnuchin hoped to paint lipstick on the pig, resell it or take it public for a killing with his buddies.  One of his buddies was Joseph Otting who he recruited to run OneWest, the name of the newly whitewashed bank.  This was all capitalism at the roulette wheel.  Mnuchin and Otting got an offer to sell to CIT Group for $3.4 billion that would allow the investors to turn a profit of over $3 billion in 2014 after only six years.

Cha-ching, here come the filthy rich, isn’t greed great.  Yes, until they realized there were rules and regulations in the new west of OneWest.  They still had a portfolio of the stinking mortgages that had given them the bank in a fire sale in the first place, meaning that they had CRA obligations.  Any time a sale of this kind happens over the 40-year period CRA as ACORN and any organization – or bank – worth its salt knows, that opens the window for Federal Reserve and other reviews of the banks lending practices.  More than just some bad mortgages were stinking up their California lending experience in their get-rich-quick scheme and several organizations including the California Reinvestment Coalition and the Greenlining group filed challenges to their lending record.  None of this is new.  Groups including ACORN and scores of others have followed the rules and negotiated agreements for bank lending that has now surpassed a trillion dollars in low income neighborhoods.

The new west robber baron wannabes, Mnuchin and Otting were offended that they were challenged.  They tried to buy the groups off, but the groups had clear demands.  Mnuchin and Otting were offended at the impunity of community groups thinking that they had the right to negotiate for loan equity in the community.  Eventually they pledged $5 billion in loans to the community, which was less than the demands, but miles more than they intended.

CRA has benefited millions of people who were able to buy homes.  Mnuchin and Otting had their feelings hurt and their entitlements challenged.  Now Mnuchin is Secretary of the Treasury and Otting is Comptroller of the Currency.  They vowed to get even, and their revenge will be diluting CRA and preventing millions from owning homes in the future because of the act’s guarantee of fair banking and procedures that assured it.

As President Trump would say, “sad!”

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