Process of Gutting the Community Reinvestment Act Gains Steam

Little Rock       Any time the head of the American Bankers Association says that it’s a good thing that any part of the government is looking at rewriting and revising the 1977 Community Reinvestment Act, known popularly as the CRA, it’s very bad news for lower-income and racially diverse communities.  Sad, but true, that’s exactly the reality we’re facing now.  According to, Rob Nichols, president of the American Bankers Association, said in a statement to Reuters that, “The current framework is holding back investment in communities the law is intended to serve, while failing to account for significant innovations in the banking sector, including the opportunities presented by mobile technologies.”

If that doesn’t sound like a pile of hooey, I’m not sure does.  Mobile technologies?  Trust me on this, there is nothing in the CRA that addresses what platform might be used to facilitate equal lending without discrimination on race, ethnicity or income bias, it just says you can’t do it, and if the Federal Reserve or if any of the regulatory agencies charged with policing the CRA catch you, then there’s trouble coming.  Reading Nichols’ statement Jane Citizen would think that the law in 1977 mandated that you had to be sitting on a leather chair in a branch bank – remember there used to be lots and lots of branch banks in the 70s – but that’s not the case.  So, much for the innovations point, and I can’t imagine what the ABA thinks is holding back investments “in communities the law is intended to serve” other than more conservative restrictions many banks imposed to punish our communities after their reckless greed imploded the real estate market, coming to a head in 2008.

The CRA is more than 40 years old and bankers and their political friends in Congress have been steadily pulling its teeth throughout that period.  The supposed “burden” of CRA is having to keep the records, which they do anyway for their own internal purposes, and, worse for them, transparently reporting the data on borrowers.  Then it is reviewed and compared locally, regionally, and nationally and discrimination is more easily determined by regulators, if they are interested, and they are graded so that consumers know where they are least likely to face discrimination when they apply for a loan.  How hard is that?  The rub for the bankers is that they are supervised, and when the regulators step up and do their job, there can be penalties.  Others want special breaks for so-called community banks to allow them to discriminate more broadly, but lord knows why anyone thinks that would be a good idea?

The Office of the Comptroller of the Currency (OCC) has now put the process of rewriting or revising the CRA in motion by asking for public comment over the next 75 days.  The Federal Deposit Insurance Commission and the Federal Reserve also have critical roles in supervising banks and CRA implementation.  Some published reports indicate that there is less than total consensus between OCC, FDIC, and the Federal Reserve on this process, which, thankfully, has been slowing this gutting job to date.

Our best hope now is that if they stumble long enough and control of Congress changes, community organizations, advocates, and anyone who is committed to a more equitable America may once again prevail in saving not only the letter of the Community Reinvestment Act, but it’s spirit as well.


Sketchy Financing for Apartments and Private Markets Seems Like Deja Vu

Sonoma     Ten years on from the Great Recession of 2008, you wonder what we learned from that crisis, and who really learned it.  I mean really learned it!

Here’s a couple of scary examples that I’ll share in the “misery loves company” vein:

In the “who’s on first, what’s on second” vein, get this.  The major money center banks JP Morgan Chase, Citigroup. Bank of America, Wells Fargo and six others reportedly met with representatives of the Federal Reserve to lobby against Congressional meddling and regulatory backtracking on the Volcker rules, arguing that they wanted to keep them and they had worked so why the mucking around.  When the foxes are saying that the chickens are interring with them, you know the world of finance – and government — is upside down.

That doesn’t scare you?  How about this?  A Wall Street Journal item on the back pages in the “Heard on the Street” column pointed out that banks have been increasing their loans and exposure in financing private equity and private credit lines for business “in indirect ways that are hard to track.”  Whoa, Nelly!  That’s not good.  Going farther, they note that “loans to nonbank financial companies have been the fastest-growing element in global cross-border lending for the past two years.”  There are some $6 trillion of such loans. Nonbank financial companies already define a black hole of largely invisible and virtually unregulated activities with folks like KKR Capital Markets and Jeffries Financial Group.  Add to that the fact that many of these loans are also offshore.  When you wake up screaming in the middle of the night, write those names down and worry about these problems until you pass out again and pretend along with lawmakers that this is “no problem.”

But of course, there’s not just meddling and shadow financing, there’s outright fraud like we saw from mortgage brokers last time around.  The biggest investigation of mortgage fraud since 2008 involving the FBI, the US attorney, and the Inspector General for the Federal Housing Financing Agency which is supposed to oversee Fannie Mae and Freddie Mac is looking at a potential heist in multifamily housing that was curiously exempted in the Dodd-Frank rules after 2008.  Essentially, Fannie and Freddie have been allowing almost a self-certification system by borrowers of their own balance sheets.  One outfit being investigated was claiming cashflow from rented apartments that Freddie didn’t inspect rigorously before guaranteeing the loan and getting away with it by putting radios in vacant apartments and other shenanigans to inflate the rental cashflow statistics.  Once they get the loan it can be “take the money and run time” because, get this, again hidden in a Wall Street Journal article, “Mortgages with full or partial interest-only repayment periods made up 75% of multifamily loans bought by Fannie Mae and Freddie Mac” in 2017.

So sure, this is complicated and way trickier than balancing our home checkbooks but with the Developer-in-Chief in Washington ignoring all of the fine print of government, especially among his developer tribe, if we’re not worried, it may be because we’re not paying enough attention.