Community Reinvestment Act

Community Reinvestment Act

The Community Reinvestment Act (CRA) has been critical to the expansion of responsible credit for low- and moderate-income borrowers since its passage in 1977. Designed to address low levels of lending activity in low- and moderate-income neighborhoods, it has helped spur a growing range of successful affordable loan programs that reduce credit access barriers. CRA expands the overall efficiency of the banking system by incentivizing banks to tap profit opportunities in underserved markets.

The Community Reinvestment Act ensures that banks make resources available to low-income or otherwise disadvantaged communities by offering “equal access to lending, investment and services to all those in an institution's geographic assessment area-at least three to five miles from each branch. In the case of large banks with many branches, the geographic area may encompass an entire county or even a state.” This policy was created as a direct response to “redlining”, a discriminatory practice used by bankers to avoid making loans to people of color or lower-income areas.

Cry Wolf Quotes

Because the Community Reinvestment Act is really kind of a Cloward and Piven kind of scheme that really led to all of the things that, well, we're now having to bail banks out for.

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Glenn Beck, Fox News.

…the government has used regulatory and political pressure to force banks and other government-controlled or regulated private entities to make loans they would not otherwise make and to reduce lending standards so more applicants would have access to mortgage financing… the CRA was used to pressure banks into making loans they would not otherwise have made and to adopt looser lending standards that would make mortgage loans possible for individuals who could not meet the down payment and other standards that had previously been applied routinely by banks and other housing lenders... a law that was originally intended to encourage banks to use safe and sound practices in lending now required them to be innovative and flexible--a clear requirement for the relaxation of lending standards.

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Peter Wallison, AEI Online

The Community Reinvestment Act (CRA) did the same thing with traditional banks. It encouraged banks to serve two masters -- their bottom line and the so-called common good… By pressuring banks to serve poor borrowers and poor regions of the country, politicians could push for increases in home ownership and urban development without having to commit budgetary dollars. Another political free lunch.

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Russell Roberts, Wall Street Journal.

There are also subsidies to certain types of mortgages. The Community Reinvestment Act bans so-called ‘red lining’ -- requiring banks to offer mortgages in the entire geographic area in which they operate, not just to do business in suburbs. Loans in profitable areas were then used to subsidize loans in areas where banks were losing money.

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John Lott Jr., Fox News

Evidence

Backgrounders & Briefs

Good Rules: Ten Stories Of Successful Regulation

Demos looks at ten laws and rules that we take for granted.

Community Reinvestment Act Policy Brief

By Philip Ashton, UIC

The Community Reinvestment Act (CRA) has been critical to the expansion of responsible credit for low- and moderate-income borrowers since its passage in 1977.