The Community Reinvestment Act (CRA) became law in 1977. It was passed by a Democratic Congress and signed by a Democratic president, Jimmy Carter. America needed that law to address the long-standing harm caused by a racist policy known as redlining, as well as broader discrimination in the housing market that hit Black households especially hard, preventing them from gaining generational wealth and exacerbating racial wealth gaps in America.
In the 45 years since the CRA’s passage, much has changed in the financial industry, and so the law needed to be updated in order to fulfill the purpose its progressive authors and supporters intended. Unfortunately, the twice-impeached former guy who became president after 2016 did not, shall we say, care much for that progressive purpose. He and his lackeys sought not to update the law, but instead to undermine it. The Biden-Harris administration has already succeeded in undoing Donald Trump’s changes. Now, the executive branch has begun the process of fundamentally reforming the law so that it works properly going forward.
Before we can talk about the present and future of the fight against discrimination in the mortgage lending market, we need to talk about the history, and that history centers on redlining. There’s no better primer on that history than Ta-Nehisi Coates' masterful presentation on the topic, which he included in a larger essay laying out the case for reparations.
Whites employed every measure, from “restrictive covenants” to bombings, to keep their neighborhoods segregated. Their efforts were buttressed by the federal government. In 1934, Congress created the Federal Housing Administration. The FHA insured private mortgages, causing a drop in interest rates and a decline in the size of the down payment required to buy a house. But an insured mortgage was not a possibility for [Black Americans]. The FHA had adopted a system of maps that rated neighborhoods according to their perceived stability.
On the maps, green areas, rated “A,” indicated “in demand” neighborhoods that, as one appraiser put it, lacked “a single foreigner or Negro.” These neighborhoods were considered excellent prospects for insurance. Neighborhoods where black people lived were rated “D” and were usually considered ineligible for FHA backing. They were colored in red. Neither the percentage of black people living there nor their social class mattered. Black people were viewed as a contagion. Redlining went beyond FHA-backed loans and spread to the entire mortgage industry, which was already rife with racism, excluding black people from most legitimate means of obtaining a mortgage.
Coates also quoted an expert with firsthand knowledge:
“A government offering such bounty to builders and lenders could have required compliance with a nondiscrimination policy,” Charles Abrams, the urban-studies expert who helped create the New York City Housing Authority, wrote in 1955. “Instead, the FHA adopted a racial policy that could well have been culled from the Nuremberg laws.”
Unsurprisingly, the neighborhoods where residents could obtain FHA-insured mortgages saw real estate values climb steadily over time, thus increasing the overall wealth of those who owned homes there. Other neighborhoods—which grew overwhelmingly Black—struggled, and their residents fell further behind economically. Many African Americans were, as Coates documented, unable to buy and keep a home as a direct result of redlining and other forms of housing discrimination.
The Brookings Institution put together a detailed analysis titled “Homeownership, Racial Segregation, and Policy Solutions to Racial Wealth Equity” that dives deep into this topic. The homeownership gap right now is jaw-dropping. While 76% of white households own a home, only 46% of Black households do—roughly the same percentage as when the Fair Housing Act (see below) became law in 1968. In largely Black neighborhoods, the average home is worth $48,000 less than in mostly white neighborhoods. Adding that disparity up nationwide produces a figure of $156 billion (that’s with a “b”), a good chunk of the existing wealth gap between Black and white Americans.
The National Community Reinvestment Coalition (NCRC)—which is made up of “community reinvestment organizations; community development corporations; local and state government agencies; faith-based institutions; community organizing and civil rights groups; minority and women-owned business associations, as well as local and social service providers from across the nation”—conducted research and produced its own thorough discussion of redlining’s history and continued impact. Their study found that a full 74% of the residential areas the Home Owners’ Loan Corporation (HOLC)—the federal agency that birthed redlining—deemed “hazardous” back in the 1930s are still “low-to-moderate” income now. Furthermore, just about 64% of those are predominantly “minority neighborhoods.”
Eight decades later, Americans of color—particularly Black and Latino Americans living in urban areas—are still suffering from the effects of the discrimination that began with federal housing policy, even though it was outlawed during the Carter presidency. This is what progressives mean when we talk about systemic racism.
Even the discovery in 1976 of the HOLC maps that brought redlining into sharp relief was itself an accident. Historian Kenneth T. Jackson found them when he was looking for something else. Who knows if the CRA, which passed a year later, would have even become law if not for this accidental discovery, which one scholar called “the smoking gun” providing evidence that our government directly discriminated on the basis of race.
The CRA, along with a number of related laws passed in the decade that led up to it, represented the federal government’s multi-pronged effort to bring equality to the mortgage lending industry.
The CRA empowers government regulators to ensure that banks are complying with its provisions barring discrimination in lending when it comes to low-income communities in their geographic areas. As long as banks were generally brick-and-mortar institutions with physical locations, this worked reasonably well. However, thanks to new technology, i.e., “fintech,” that allows the financial industry to operate more and more virtually, geography is no longer an effective way to measure compliance. There is a real need to update the CRA for today’s world.
And that’s not just verbiage, as a 2018 study discovered: “Modern-day redlining persisted in 61 metro areas even when controlling for applicants’ income, loan amount and neighborhood, according to a mountain of Home Mortgage Disclosure Act records analyzed by Reveal from The Center for Investigative Reporting.” Bear that in mind when you read the kind of claptrap from Republicans like this conservative think tank guy, who argued that we don't need the CRA anymore, period.
Fuck a L’Orange and his minions did seek to change the CRA. Unfortunately, their goal was something other than making it work more effectively. In December 2019, Trump-appointed bureaucrats proposed reforms that would have basically gutted the law by significantly reducing the authority regulators possessed to enforce its provisions. As The New York Times editorial board noted, the proposal would have allowed, for example, the institutions that provided financing to the Baltimore Ravens’ stadium to satisfy the CRA’s requirement that they invest in the community.
The long story short is that, as per The Washington Post, banks would gain “new flexibility” from Trump’s proposed changes in how they could show they were complying with the law’s requirements. If implemented, the rules would have been “potentially another big win for the banking industry.” Rep. Maxine Waters made clear where she stood just after the proposal was released:
At the time, only one member of the Federal Deposit Insurance Corporation (FDIC), which endorsed Trump’s proposal along with the Office of the Comptroller of the Currency (OCC), stood against it. Martin J. Gruenberg argued that the new rules were “deeply misconceived” and would “fundamentally undermine and weaken the Community Reinvestment Act.” He’s the guy President Biden ended up appointing to run the FDIC after taking office, and who is leading the effort now to make real and positive reforms to the CRA.
After Trump’s plans were released, community groups and Democratic officials pushed back hard. The National Fair Housing Alliance (NFHA), which includes Black, AAPI, and Latino civil rights organizations along with consumer groups, issued a statement criticizing it harshly:
This proposal utterly fails to achieve what were supposed to be the primary objectives of rule changes: greater clarity for lenders and better results for low- and moderate- income communities and people of color. It ignores the recommendations of our groups for changes that would bring safe and affordable credit to low- and moderate-income neighborhoods, including communities of color, that are bombarded with abusive and toxic lending. The proposal fails to fulfill the CRA’s original purpose. This important tool was designed to expand financial opportunity, equity, and help spur investments in underserved areas.
In February 2020, Waters further expressed “deep concerns about the misguided proposed rule and the harmful consequences it could have for communities across the country.” The next month, Comptroller Joseph Otting—a former banking industry executive—put the rule in place for the banks under his agency’s purview. In response, the NCRC and the California Reinvestment Coalition (CRC) sued to block its implementation. Paulina Gonzalez-Brito, CRC executive director, laid out why the rule was so dangerous:
It is clear that the Trump administration is waging war against communities of color not just in the streets, but also through administrative regulation. Dismantling the Community Reinvestment Act, seminal civil rights legislation, is the latest example of the Administration’s attacks on homeowners and small businesses owned by people of color, immigrants, and women.
The OCC rule change comes at a time when millions of people are at risk of losing their homes and more than 90% of small businesses did not get access to [Paycheck Protection Program] PPP loans. This decision not only seeks to silence community voices, but coupled with the aftermath of the pandemic will increase poverty and deepen racial inequities.
In October 2020, New Jersey Democratic Sen. Bob Menendez called for Congress to overturn the new rule, to no avail. On the Senate floor, he explained:
It would lead to a new form of modern-day redlining, all with the federal government’s blessing. It’s no wonder why civil rights groups, including the NAACP and the Leadership Conference on Civil and Human Rights, have fought so hard against this new rule. They do not want banks to be given the green light to discriminate against minority and low-income consumers.
The only way to get rid of that rule, apparently, was to elect a different president. Thankfully, we did. We also had to inaugurate him—which we did, despite the best efforts of The Man Who Lost The Election And Tried To Steal It.
The Biden-Harris administration has been undoing the damage done by the former guy's people. First, they reversed the previously issued rule, and now we have the Federal Reserve, Office of the Comptroller, and the FDIC working together on a proper modernization and updating of the CRA. That process has now begun, with the formal publication of a new proposal in May which kicks off the period of public comments required before it can be adopted. The proposal contains the following elements:
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Expand access to credit, investment, and basic banking services in low- and moderate-income communities.
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Adapt to changes in the banking industry, including internet and mobile banking.
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Provide greater clarity, consistency, and transparency.
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Tailor CRA evaluations and data collection to bank size and type.
Not only does this proposed update to existing regulation include financial incentives for banks to invest in neighborhoods affected by climate change, it also strengthens CRA's core mission of addressing lending discrimination in an era when banking transcends geography, as Politico explained: "Under the new rule, large banks would have the responsibility to lend to people with lower incomes not only in areas around their physical branches but also in places where they have a concentration of mortgage and small business loans. They will also be evaluated based on their lending nationwide." The regulation’s strength derives in part from the fact that the aforementioned Gruenberg along with Federal Reserve Vice Chair Lael Brainard, who has served as the “point person” for the Fed on CRA reform, were deeply involved in its drafting.
Along with other Democrats like Sen. Sherrod Brown of Ohio, Rep. Emanuel Cleaver of Missouri praised the proposal, and noted that it will help with the housing crisis (which is growing worse and worse, especially for the economically vulnerable who, thanks to inflation-fueled increases in home prices—are getting stuck in non-prime mortgages):
The proposed rule announced today—which has been created with feedback from critical stakeholders and will be subject to additional public input in the months ahead—will help to address our nation’s affordable housing crisis and support low- and moderate-income communities by expanding access to credit, investment, and basic banking services, ensuring local banks have internet and mobile banking, and maintaining a unified approach from the federal government, rather than a bureaucratic patchwork of government oversight. From the urban core to the most rural towns, updating the CRA will benefit communities all across Missouri, and I look forward to continuing my work with the Biden Administration to ensure the financial system is not leaving disadvantaged communities behind.
It is vitally important that the administration worked with the “critical stakeholders” Cleaver cited. It must continue to do so going forward. The Trumpers, on the other hand, completely ignored community groups and civil rights organizations. Shocking, I realize. One such group, the NCRC, had stated in March that it was "pleased that the federal bank agencies will be proposing an interagency rule implementing the Community Reinvestment Act (CRA) in the near future."
In response to the new proposal issued in May, the NCRC offered praise, but also made some specific suggestions regarding areas that needed strengthening: “The agencies proposed important improvements in the CRA regulations including expansion of geographical areas on CRA exams, more data to scrutinize bank performance and increased rigor on parts of CRA exams. However, they did not sufficiently address racial inequities in the CRA reform. They were also inconsistent in addressing CRA ratings inflation.” In summary, the NCRC called the proposal “a good start,” while noting that “several improvements need to be made.” The group’s statement concluded: “This is the biggest opportunity since 1995 to update the CRA regulations in a way that significantly bolsters reinvestment in formerly redlined and underserved communities. We must help the agencies get this right.”
Updating the CRA to finally put an end to redlining is an issue of profound importance to Black and Latino households in particular, and to marginalized communities more broadly, including those in rural areas. The actions Democrats are taking—and the commitment to fighting racism, helping close racial wealth gaps, and holding corporations accountable that underlies them—stand in direct contrast to those of Trump.
If you are a member of or care about those communities (and one would hope that all of us fall into one or the other category), here’s another example of how the Democratic Party, despite its faults, remains far superior to the alternative.
Ian Reifowitz is the author of The Tribalization of Politics: How Rush Limbaugh's Race-Baiting Rhetoric on the Obama Presidency Paved the Way for Trump (Foreword by Markos Moulitsas)
