<p>WASHINGTON – A comprehensive Harvard University study on the Community Reinvestment Act's (CRA) performance since 1993 both praises the Act's operation and makes a case for the need to update the Act more likely. Banker groups say they're ready for Congress to take a fresh look at CRA and consider updating it. The Joint Center for Housing Studies at Harvard University prepared the study for the Ford Foundation and took pains in its 200 plus pages to address the scope of the Act thoroughly while, at the same time, noting how the changed financial institution industry would demand Congress consider updating it if CRA is to remain relevant. "As the link between mortgage lending and branch-based deposit gathering has eroded," the report noted, "so has the scope of CRA in the mortgage lending industry. Today, less than 30% of home purchase loans are subject to intensive review under CRA. In some metropolitan areas this share is below 10%," the report said. Reacting to the study, both the National Consumer Reinvestment Coalition (NCRC) and the ABA said they looked forward to any coming debates on whether and how to update CRA, while a long-time banking observer noted that technology may have eradicated the underlying model for CRA. The study's findings The Center found CRA has significantly expanded access to mortgage capital. CRA-regulated institutions made more loans in their "assessment areas" (areas where they maintain deposit taking operations) than did out-of-area lenders or non-CRA lenders. As well, lending to Black and Hispanic borrowers by CRA-regulated institutions was 20% higher for Blacks than from non-CRA regulated institutions and 16% higher for Hispanic borrowers. The research found that while CRA did not "drive" the business decisions CRA-regulated institutions made, it remained "a factor that influences the plans of most lenders at the margin." Further the study found that products developed in part because of CRA had an element of improving the market for related products overall. "As the lower-income mortgage market has become demonstrably mainstream and more competitive over the last decade, many lenders tailored products for the CRA-eligible sub-market and deployed them as part of their standard business practices," the study remarked. "Thus while their CRA lending is most intense in their assessment areas, introduction of new products to better serve these areas have likely had positive spillover effects on lending outside of assessment areas, as well as on the lending of non-CRA regulated competitors." The study also criticized CRA, however, noting that the Act's impact on rural areas is "minimal." "This results from the fact that many rural communities are served by smaller banks that are not subject to the same degree of CRA scrutiny as larger banks," the report said. Aside from providing an overview of CRA's performance, the study also laid out some of the ground a debate over updating CRA might cover. "In light of the changing mortgage lending landscape, reform of CRA could follow either one or both of two broad paths," the report said. "One path builds on CRA's traditional mortgage lending focus and calls for extending the Act to the entities that now conduct the bulk of mortgage lending – mortgage brokers, finance companies, and the affiliates of depository banking organizations operating outside of the areas where they maintain deposit-gathering operations. The other path builds on CRA's traditional branch banking focus and proposes repositioning the Act to give greater emphasis to the provision of financial services to lower-income borrowers and communities." No matter which path CRA "reformers" take, the sides of the debate appear to be gearing up to start. Unsurprisingly, since it already backs a CRA-reform proposal, NCRC praised the report's observations about reform and called on Congress to support the CRA Modernization Act. "Two major factors are responsible for the declining reach of CRA. The first is an increase in lending by independent mortgage companies not covered under CRA," said NCRC. "The second is a jump in lending by mortgage company affiliates of banks in areas where banks do not have branches and thus are not required to undergo CRA exams." In order to remedy the erosion of CRA coverage, NCRC strongly endorses the CRA Modernization Act of 2001, which is co-sponsored by Rep. Luis Gutierrez (D-Ill.), Rep. Tom Barrett (D-Wis.) and 35 other members of Congress," the group added. "The Act would apply CRA to independent mortgage companies as well as to mortgage company affiliates of banks." But while NCRC's support for reforming the act might be predictable, James Ballentine, Director of Community Development for the American Bankers Association, indicated the banking industry would be interested in a reform debate and denied that the industry primarily wanted to weaken the legislation. "It is always difficult for a regulated industry to comment favorably on the regulations," Ballentine said, "but at the same time we definitely have an interest in making sure the regulations are as efficient, targeted and well-drawn as possible. We look forward to a congressional discussion on CRA." David John, long-time banking analyst with the conservative Washington D.C. based Heritage Foundation said technological advances demands that CRA be re-evaluated. He pointed out that CRA is rooted in the notion of a local bank branch or institution but that this model will not suit a situation where most of a bank's or mortgage company's business might come in through the Internet. "I hold credit cards issued by banks outside my home state and which I applied for on the World Wide Web," John pointed out. "How will the traditional CRA address having steadily more financial services purchased in just that way," he asked. That will be part of the discussion over whether and how best to update CRA, he said.</p>

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