Ramsey, Donohue, and Sheridan Team Up to Defend the Community Reinvestment Act
False Claims Link CRA to Subprime Mortgage Crisis
Smears Undercut Act’s Role in Affordable Home Financing
By LaTanya Ramsey, John Donohue and Robert K. Sheridan
Special to Banker & Tradesman
The Community Reinvestment Act (CRA) of 1977 is one of the most important pieces of legislation for low-income families in American history.
It helped put an end to the practice of redlining, or bank discrimination against neighborhoods populated by low-income families. In Massachusetts alone, more than 15,000 low- and moderate-income residents have been able to buy their first home thanks to the CRA.
So why is the CRA under fire, and why is it being blamed for causing the subprime mortgage crisis of all things? William James, the father of modern psychology once said, “There is nothing so absurd that it cannot be believed as truth if repeated often enough.”
You need look no further than the recent Republican presidential debates for examples of absurd claims such as: “If you look at the problem with the economic meltdown, you can trace it right back to the federal government… that pushed the Community Reinvestment Act.”
The biggest issue with such comments is that they’re patently false. It’s time for those of us who actually understand the CRA to get up and dispel the unsettling – and increasingly prevalent – lie that it was responsible for the subprime mortgage debacle.
Studies by the Massachusetts Community and Banking Council show that 93 percent of all subprime loans made in our state during the height of the crisis came from lenders with no Massachusetts CRA requirements. With so little influence over subprime lenders, how could the CRA have even affected the housing bubble, much less caused it?
Federal Reserve Board economists Robert Avery and Kenneth Brevoort, in an August 2011 research paper, say it didn’t: “We find little evidence that either the CRA or the GSE goals played a significant role in the subprime crisis. Our lender tests indicate that areas disproportionately served by lenders covered by the CRA experienced lower delinquency rates and less risky lending.”
According to the economists, if the CRA had any effect, it was a positive one. Wherever you look – locally or nationally – statistics show that the CRA had nothing to do with the crisis.
We cannot allow political candidates to use the CRA as a scapegoat for our struggling economy: Too much is at stake with the 34-year-old law. Think of the programs and opportunities that will be lost in Massachusetts if the CRA is repealed:
• Affordable bank financing for thousands of homes through the Massachusetts Housing Investment Corporation – including rental, single-room occupancy, ownership, assisted living, cooperatives and senior-housing units.
• Bank and credit union branches and ATMs in low- and moderate-income neighborhoods that give residents mainstream financial alternatives to check-cashing stores and pawn shops.
• Low-cost checking and/or saving account options at 116 different banks through Basic Banking for Massachusetts.
• The SoftSecond loan program, which successfully enabled more than 15,000 low- and moderate-income first-time homebuyers to buy a home. This program, which is administrated by the Massachusetts Housing Partnership, has helped stabilize families and communities and has affirmatively engaged banks of all sizes throughout the Commonwealth.
This matters to all of us, neighborhood activists and financial services leaders alike, because the future of a law that enhances families, neighborhoods and financial institutions is at stake. If enough people believe the CRA caused the crisis, then it is reasonable to expect that lawmakers will seek to repeal or weaken the offending statute. That would be a crippling move for our nation.
LaTanya Ramsey is President of the Massachusetts Affordable Housing Alliance. John Donohue is President and CEO of Arbella Insurance Group. Robert K. Sheridan is President and CEO of Savings Bank Life Insurance.
MAHAMassachusetts Affordable Housing Alliance
1803 Dorchester Avenue
Dorchester, MA 02124
By email: email@example.com
By phone: 617-822-9100
By fax: 617-265-7503