The Community Reinvestment Act Debate: A Call for Pragmatic Mortgage Lending Solutions
The ongoing debate surrounding the expansion of the Community Reinvestment Act (CRA) to include independent mortgage banks (IMBs) has become a battleground of perspectives, with Community Home Lenders of America (CHLA) and the National Community Reinvestment Coalition (NCRC) offering their insights. As the discourse unfolds, it prompts a deeper exploration into the effectiveness of the CRA and the potential consequences of extending its reach to nonbanks.
CRA’s Effectiveness Under Scrutiny
A critical evaluation of the CRA’s impact on bank mortgage lending reveals a complex picture. While community banks have demonstrated a commitment to serving underserved homebuyers, larger financial institutions, since the financial crisis of 2008, have shifted their focus to higher FICO, higher-wealth borrowers. This shift has led to a questioning of the effectiveness of the CRA in achieving its intended outcomes, with the NCRC going so far as to label the government’s enforcement of CRA as “feeble.”
NCRC’s Proposition and CHLA’s Response
As regulatory bodies embark on substantial CRA rulemaking, the NCRC has been a vocal proponent of extending the CRA’s purview to include IMBs. Citing Massachusetts as an example, where such an extension was implemented in 2007, NCRC suggests that this approach could be a way forward. However, CHLA counters this proposition by pointing to empirical evidence from Massachusetts, indicating a lag in IMBs’ performance compared to the rest of the nation post the adoption of CRA for IMBs. This raises legitimate concerns about the potential consequences of extending CRA obligations to nonbanks.
Rethinking the Approach
Amidst this debate, it becomes imperative to explore alternative, pragmatic solutions that genuinely impact mortgage lending for underserved and minority borrowers. Rather than a blanket extension of CRA obligations, CHLA proposes targeted measures to incentivize collaboration between community banks and IMBs. One such proposal includes granting community banks credit for qualifying loans purchased from IMBs, recognizing the valuable contributions of both entities in serving diverse communities.
Concrete Steps for Positive Impact
Beyond the polarized CRA debate, CHLA advocates for practical steps that could have a more tangible and positive impact on mortgage lending. These measures include reducing FHA premiums, reforming Loan Originator Compensation (LO Comp) for state mortgage bond loans, and minimizing the licensing cost for new minority mortgage loan originators. By focusing on these concrete steps, CHLA argues, the industry can collectively work towards ensuring that the goals of CRA are met effectively, without resorting to a one-size-fits-all solution.
Incentivizing Collaboration Between Banks and IMBs
One of the key proposals put forth by CHLA is the idea of granting community banks credit for qualifying loans purchased from IMBs. This approach acknowledges the symbiotic relationship between community banks and IMBs and incentivizes collaboration rather than imposing additional regulatory burdens. By encouraging community banks to engage with IMBs, this measure seeks to capitalize on the strengths of both entities to address the diverse mortgage lending needs of communities.
Moving Beyond Ideological Debates
The dialogue between CHLA and NCRC sheds light on the complexities inherent in extending CRA obligations to IMBs. Instead of adhering to an ideological stance, the industry should pivot towards solutions that address the root challenges of mortgage lending. By embracing practical measures that incentivize collaboration, the debate can evolve from a polarized discussion to a constructive exploration of how different entities within the mortgage ecosystem can contribute synergistically.
In navigating the debate over the expansion of the Community Reinvestment Act, it becomes evident that a one-size-fits-all solution may not be the panacea for addressing the challenges of mortgage lending. The complexities of the mortgage industry, coupled with the diverse needs of underserved communities, necessitate a nuanced approach. By focusing on pragmatic solutions such as incentivizing collaboration between community banks and IMBs and implementing concrete steps for positive impact, the industry can move beyond ideological debates and work towards a more inclusive, effective approach to meeting the housing needs of diverse communities. It’s time to shift the narrative from a clash of ideologies to a collaborative exploration of solutions that make a real and lasting difference in the lives of underserved homebuyers.
