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A new report refutes criticism of the Community Reinvestment Act, and instead shows that the law motivates lenders to make better loans.

Paying More for the American Dream III, jointly published by seven regional policy groups, looks at how implementation of the CRA influenced the pricing of loans.  The conclusions reveal that when banks and thrifts were obligated to follow the CRA, they made fewer high-cost loans.  When unfettered by the CRA, their loan pricing mirrored the pilloried independent mortgage companies (i.e. IndyMac, E-Loan, First Franklin, or DecisionOne, among others).

Let’s review how the CRA works: banks and thrifts are examined by their lending to low and moderate income (LMI) borrowers or to borrowers in LMI neighborhoods. The law is enforced only in places where those banks have branches with deposits.  BB&T has CRA obligations in Raleigh or Atlanta, but not in Philadelphia.  Wells now has them in Charlotte, but it didn’t in 2007.  Not a bank or thrift? Then there’s no obligation at all.

That sorts into three kinds of lenders: banks bound by CRA, banks operating where they aren’t, and independents. This table, from the study, compares their percentages of high-cost loans to LMI groups.

Among Loans Made to LMI Borrowers, or in LMI neighborhoods, CRA-obligated lenders make fewer "high-cost" loans.CRA-obligated lenders made fewer high-cost loans to LMI groups.

Charlotte lending supports the report’s theme: without CRA, low income families would be paying a lot more for their mortgages.

The crisis on Wall Street is forcing everyone to rethink their assumptions about banking, lending, and our economy.  Have you noticed how some on the right have attempted to pin the blame for these troubles onto the Community Reinvestment Act?  First it was Rush Limbaugh, then it was Fox News.

It is simply not true, says Peter Skillern, executive director of the Community Reinvestment Association of North Carolina, in this editorial submitted for the North Carolina Editorial Forum.  AIG has struggled because of bad bets on credit default swaps.  They were not even subject to CRA regulation.  As a matter of fact, neither were the great majority of transactions at Lehman Brothers or Bear Stearns.  The culprits were negative equity, excessive housing supply, loose lending rules, and a lack of financial regulation.  That’s what our North Carolina policy leaders have known for some time.

Although North Carolina is better off than other places, there is still a lot of need for affordable and safe housing.  North Carolina’s affordable housing professionals are gathering in Durham on Thursday and Friday this week for the North Carolina Housing Coalition’s annual conference.  What is the near prospect for projects funded with tax credits?  What can developers of affordable housing do to utilize green building techniques? How can we revitalize our mobile home parks?  These are the kinds of questions that will be answered at the Durham Marriott.  Stay tuned!