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The Community Reinvestment Act is a federal law. This law requires that banks and savings and loans associations Offer Loans to people within the entire area they intend to target as their market. The CRA also forbids these institutions from redlining which means targeting only upscale areas within their market area. The reason for the CRA is to give those who live within the market areas and low income neighborhoods credit opportunities such as Home Ownership and small businesses commercial loans, facilitating affordable housing which is also advantageous to Low Income Property Sellers, as this law will attract buyers who otherwise couldn't afford a home. Since the CRA was passed in 1997 there have been many changes to its regulations and is enforced by the Federal Deposit Insurance Corporation. The first change involving the Community Reinvestment Act came in 1989 in the form of the Financial Institutions Reform Recovery and Enforcement Act. Congress enacted FIRREA and the President signed it into law following the Savings and Loan Trouble that had occurred. Public Oversight of issuing CRA ratings to banks was increased and the ratings were to be made public with a written performance evaluation that supported the ratings agencies findings. A four level CRA examination rating system including the performance levels of "Outstanding" "Satisfactory" "Needs to Improve" and "Substantial Noncompliance" was required as well. The second change involving the this act came in 1993. The President mandated a new set of regulations for the CRA increasing people's ability to obtain mortgage credit in low income and distressed areas. These new regulations went into effect in 1995 and used Federal Home Loan data from three different areas which were neighborhood, income and race. These regulations also required numerical assessments to obtain a CRA rating of satisfactory. These new regulations encouraged community groups to lodge complaints against banks that were not perceived to be extending enough credit to people in the areas of neighborhood, income, and race that they would specify and allowed these community groups that would market these loans to their targeted groups to extract a fee from these banks. Low and middle income borrowers seeking home loans and affordable housing greatly benefited because all this occurred at a time when many banks were trying to merge and had to pass the CRA review process. Many of the established community groups and new community groups began marketing these mortgages and made billions of dollars in salaries, services and lending institutions. As a result there was an increase of 39 percent in CRA mortgage loans between 1993 and 1998. The Community Reinvestment Acts regulatory changes of 1995 came under review in 2002. At this time new proposals were being considered and new regulations were put into effect by the FDIC, the Federal Reserve Systems Board of Governors, and the Comptroller of the Currency. A group of Democrats opposed the new regulations. These new regulations were a lot less restrictive in defining small and intermediate banks. These banks were to be allowed to opt for an examination as a large bank. CRA performance is evaluated according to lending, investment, and service tests of banks with more than 1.061 billion dollars in assets. Assets for small and large banks are adjusted using the Consumer Price Index annually. Although this act was initially developed to facilitate affordable housing, in some ways it has caused problems, leading to a crash in housing due to the many low income Home Buyers defaulting on loans, although notably this did not affect Home Sellers directly. This in turn has resulted in many homes being foreclosed on and lending institutions are going bankrupt. For those who have lost their homes, one has to wonder if the Community Reinvestment Act has truly brought about affordable housing. |
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