February 3, 2009

A how-to guide to being a Community Reinvestment Act shake-down artist

The Community Reinvestment Act, which authorizes the four federal bank regulators to veto a bank's plan to buy another bank if it's not lending or giving enough money to the right kind of people, is one of those things that sounds too boring to worry about. But, at least 600 outfits of "community organizers" find it fascinating (and lucrative) enough to belong to the National Community Reinvestment Coalition.

Early in this decade, a leftist think tank called PolicyLink wrote up a How To guide to mau-mauing the bank's CRA flak-catchers. I've excerpted a sizable chunk below to give you an understanding of how it influenced who got mortgages and other lending, and to show you the sheer scale and pervasiveness of the CRA once you start looking into it.

As I explained on Sunday, those banks willing to play ball with NCRC, ACORN, Greenlining, the California Reinvestment Coalition, etc., are allowed by the federal government to grow via acquisitions. In contrast, banks that aren't willing to play ball with these racial activists aren't allowed to buy other banks.

Keep in mind, the government and the Obama-style community organizers don't hold a gun to the bank's heads and force them to make stupid loans. If you want to stay small (and maybe get bought up by a ballplayer), you don't have to make stupid loans. But if you want to get big through acquisitions, you have to make the kind of loans that the government and the community organizers want you to make.

Will these politically-preferred borrowers pay you back?

You've got to ask yourself one question: "Do I feel lucky?" Well, do ya, bank?

And banks like Washington Mutual (which pledged $375 billion over 10 years in CRA loans) and Bank of America (which pledged $750 billion in 2004, plus $1.5 billion in charitable donations over ten years, some of which went to community organizers) said, "Why, yes, I do feel lucky." So, they got to make lots of acquisitions ... and wound up losing lots of the taxpayers' money. The more prudent banks weren't allowed to get big through acquisitions.

Not surprisingly, the ballplayers tend to get bigger than the skeptics. Also, not surprisingly, minorities have higher mortgage default rates, and the brokest banks tend to be the biggest banks.

Finally, the CRA changed the worldview of bankers by rewarding the imprudent with approval for their empire-building while blocking the prudent. After awhile, all sorts of people assume that giving mortgages to dubious credit risks must be a great idea because that's what famous bankers with their pictures on magazine covers, like Kerry Killinger of WaMu, do.

Here are excerpts from PolicyLink's how-to guide to exploiting the Community Reinvestment Act, written before the Housing Bubble:

The importance of CRA lies in the fact that regulators do two sets of bank examinations: one for financial safety and soundness, and the other for community reinvestment. Increasingly, this biannual bank CRA examination by federal regulators offers opportunities to comment on the bank's performance to the regulators and open a dialogue with the bank about neighborhood access to capital and financial services or lack thereof.

CRA negotiations are most powerful during a bank acquisition or merger, when the regulators are carefully scrutinizing the bank's activities. The regulators look at CRA, among other issues, in deciding whether to approve a bank application to purchase another financial institution. It is also possible, however, to negotiate CRA commitments when there is no acquisition pending. When well prepared with data, community organizations can use public pressure to convince banks that they can gain financially [and otherwise] with a commitment to a community partnership.

CRA has helped community organizations win increased investments, charitable contributions, branches, and access to loans and financial services. More than $1 trillion dollars has been committed to community investments; the polices and practices of financial services have significantly changed; and the public's and media's views have shifted to support the need for equal access to capital and financial services-largely as a result of CRA advocacy.

Building On Success

Community use of the CRA began as soon as the Act was passed in 1977. Groups such as National People's Action and the Center for Community Change became important sources of knowledge and technical assistance about strategies to convince financial institutions to comply with the Act's provisions.

By the mid-1980s, community groups had successfully negotiated CRA lending, investment, and service commitments that focused on the needs of low-income and communities of color from banks and savings and loan institutions. These early agreements signaled the possibilities for success to other groups across the country.

CRA advocacy intensified in the 1990s with major CRA commitments. In 1992, Bank of America made a $12 billion commitment associated with its acquisition of Security Pacific Bank. The funds were committed for increased lending in affordable housing and economic development and for increased services for low-income consumers. Specific dollar and targeting goals were made for housing, small business, and consumer lending. New products were developed to serve the needs of low-wealth communities. Services were made easier to access by requiring only one form of identification and a small deposit to open a low-cost checking account.

The commitments of large financial institutions can be seen by the brief history below.

Model comparisons

... Some of the questions to survey for include:

Lending Needs

  • What are the business, housing and consumer loan needs of your community?
  • What are banks doing in your community to meet community needs?
  • Are neighbors being approved for loans? If not, is it discrimination or ignorance on the part of the lending institution?
  • Does bank staff go out in the neighborhood to visit community organizations and businesses? Are they learning about community needs?

Investment Needs

  • What investments or charitable contributions would add to the economic vitality of the community?
  • Do community-based nonprofit organizations receive charitable grants from banks?
Like, say, your community-based nonprofit organization?
  • Do community and nonprofit housing development organizations get investment support from banks?

Service Needs

  • What are the neighborhood service needs regarding branches (full service and in-store), technology, mortgage and business counseling, ATMs, etc.?
  • Are there neighborhood bank branches? Are they full service branches?
  • Does the Bank support mortgage and business loan counseling?

Analyze Data back to top

Analyze HMDA data and compare to your community survey data. The following chart comprised from HMDA data illustrates home purchase lending for Oakland, California in 1998.

Comparative Loan Denial Rates for the City of Oakland, California

Reviewing this information reveals inequities:

  • African American households received a proportion of home loans representing less than half their portion of the city population. They were denied loans more than twice as often as whites.
  • Latinos and Asian Americans got loans proportionally less than their share of the population and were denied more often than whites.
  • Applications taken from all people of color were significantly below their representation in Oakland. This means that the results of outreach efforts to potential homeowners of color were not proportionately adequate.
  • African Americans were denied 2.3 times as often and Asian Americans, and Latinos were denied 1.3 times as often as white applicants. This indicates that the bank underwriting process may unfairly judge applicants of color.

These inequities need to be addressed in negotiations. Fairness requires new products that better meet the needs of people of color, true diversity among loan officers, and focused marketing to reach the previously underserved. These needs can also form the basis of letters to bank regulators.

Mount a Campaign

  • Build a coalition to advance your campaign. The broader the coalition is, the greater its power and the more varied the issues upon which it must collaborate. If the coalition is too broad, it may not be able to agree on key issues or tactics. [Like how to divide the loot.] If it is too small, it may have too little power.
  • Prepare a list of community needs and recommendations to bank officials. Advocacy teams should include people with expertise in the issues to be discussed and those whose position or organizational affiliation will be impressive to the banker. The banker is likely to look for areas where bank products can be redirected to avoid negative publicity....
  • Be a persistent, concrete, and persuasive advocate. Financial institutions may not quickly adopt recommendations for new products and approaches to meeting community needs. Bank staff often try to exhaust community activists by extending discussions and meeting dates. Work to understand the financial sector's culture and language and to address their interests and concerns. While bankers may see themselves as open to new opportunities, the educational process takes time.
  • Persuade banks and savings and loans to expand their current lines of business rather than create new lending programs. In other words, if the financial institution does not do business lending, don't expect it to be easy to get them to agree to meet small business credit needs. Demanding new products may not be practical, and alternative approaches should be explored.
  • Explore other avenues if rebuffed by local bank officials, such as assistance from the bank's regulator, or an appeal to the CRA officer at the state or national headquarters of the bank. Obtain assistance from other organizations that have a relationship with the bank. If these methods don't yield results, more aggressive approaches may be necessary.
  • Set minimum goals between the bank and the coalition Understand that the relationship is part of a long-term process. In Stockton, California, activists failed to win an end to the Bank of America's business relationship with an anti-union corporation, but they did secure increased support for local nonprofit groups, increased marketing through local minority-owned media, and continued operation of the bank's branch in South Stockton.[So, who cares about the workers, really? The important thing is that the activists and their media allies got to "secure increased support."]
  • Do not sell the neighborhood (and its potential) short by compromising too quickly with a bank. Identify short- and long-term potential for the community and the bank.

Craft Specific Agreements

To accomplish its goals, a CRA agreement (bankers may prefer the term "community commitment") must contain clear and specific goals. In other words, the agreement or letter from the bank to community leaders must be written in a manner that is measurable and indisputable. It should be filed with the appropriate regulatory agency. Here are some examples regarding language of the agreement.

  • Avoid the general term " affordable housing ," as in "$50 million annually for affordable housing loans." While there is a specific amount of money to be lent over a specific amount of time, there is no definition of the kind of housing to be financed under the agreement.
  • Specify for whom single (one to four units) or multi-family housing (five units or more) is affordable . Specify affordable rental housing or affordable homeownerships. Specify to whom loans will be made. Consider limited equity, rent-restricted, or market-rate properties.
  • Use language that allows clear evaluation of accomplishments : for instance, "$100 million minimum annually for multi-family rental housing loans with 66 percent of loans to very low-income tenants and nonprofit housing developers."
  • Avoid calling for unspecified " charitable contributions ," as in "charitable contributions of $200,000 annually to nonprofit organizations." This language is too vague regarding community needs. [For example, a big wad of cash in a brown paper bag passed under the table from the bank's CRA Officer to the head Community Organizer is much less vague. But, if they insist on writing a check, take it. After all, it's not taxable. You're a nonprofit!]
  • Set minimum contribution amounts with mechanisms for increasing contributions: "Charitable contributions equal to 2% of net income or no less than $1 million annually, of which 40% is allocated to nonprofit organizations creating housing and fostering economic development." [Such as your nonprofit organization.] The specific targeting of those contributions to affordable housing and economic development will form an important resource for your equitable development goals.

Leverage Agreements During Mergers

Utilize the regulatory scrutiny financial institutions face at the time of mergers to forge key CRA agreements. [Does "forge key CRA agreements" reflect exactly the right choice of words here?] Documentation is a key part of the CRA process. This process usually begins by filing a letter protesting the merger: To see the type of information that would be included in a protest letter, click here

Securing Finance Products that Work

In 1998, many newspapers carried a banner headline: Bank of America pledges $350 billion for community reinvestment. When the bank pledged $12 billion in 1992 and when Wells Fargo Bank pledged $45 billion in 1996, similar headlines appeared. What difference do these pledges really make for local businesses, neighbors and community organizations?

The truth is that the commitments probably have had more and less impact than anticipated. Direct commitments result in short term impact, with increased loans and financial presence. Indirect commitments slowly change the way banks operate, with long-term implications for the community. Both are important. With community residents and their organizations holding banks responsible, there can be scores of community investments and improvements occurring. The types of equitable development financing support to target include:

Lending

  • Small business loans (less than $50,000) previously unavailable, or only available at substantially higher interest rates.
  • Mortgage loans with low down payments and reasonable interest rates available to moderate and low-income residents.
  • Monitoring and correction of discriminatory practices.
  • Financing of affordable rental housing built by nonprofit developers.
  • Mortgage financing for long-term affordability properties including LEHCs and CLT housing.

Investments

  • Corporate grant programs that support community-based organizations.
  • Bank investments in nonprofit community development loan pools.

Services

  • Bank vendor purchase programs that offer business opportunities for minority-owned businesses.
  • Retention of local bank branches.

Clarity

Having clear goals is critical to the success of a community coalition if its members expect the bank to consider its position for increased investment. CRA activism can position both the community and banks to win. There is a common interest between the community getting its financial needs met and the bank making a reasonable profit from its products.

Allies

A broad-based alliance of community-based organizations can become a powerful force. Balancing the size and diversity of a coalition is a key challenge for starting and managing a CRA campaign. Evaluate banking issues to assess which allies to recruit :

If a branch closes, reach out to seniors and merchants who need a local branch nearby.

If deposit accounts are too expensive, organize youth and low-income people who need low cost checking and savings accounts.

If lending is discriminatory, identify merchants who need small business loans; neighbors who need home purchase loans; seniors who need equity loans to fix up their houses; local and state regulators and politicians who can champion fairness in lending.

If significant capital is needed for revitalization efforts, work with labor unions who will secure construction and development contacts; congregations and nonprofit developers that have worked to develop a community plan.

Summary Targets for a CRA Commitment

Developing targets for the bank commitments is fundamental to successful CRA advocacy. Organizations should strive for the deepest commitments possible to secure resident stability and ensure development without displacement in low-income communities. Banks engaged in CRA negotiations should be pressed to adopt the targeted investment criteria:

Target

Goal

Culturally Appropriate Lending

Develop flexible underwriting that responds appropriately to cultural borrowing habits of low-income people and people of color.

Affordable Housing Lending

Single Family Housing: Target loans to purchasers with incomes at or below 80% of median income; perform secondary review of denials.

Multifamily Rental Housing: Favor developments where tenants have incomes at or below 50% of median income; priority to nonprofit housing developers; number of years that the housing will remain affordable to these tenants.

Subprime Mortgage Lending

Maintain a lending program that matches conventional loans in terms of fees charged, insurance required and other elements. Ensure cross-referrals to conventional mortgages.

Small Business Lending

Confirm at least 50% of loans at or below $50,000; perform secondary review of denials.

Consumer Lending

Match percentage of loans to low- and moderate-income borrowers to percentage of low- and moderate-income households in the bank's assessment area.

Consumer Services

Provide free or low-cost checking accounts with low opening and balance requirements.

Marketing

Utilize local minority-owned media companies; support counseling programs for loan programs.

Branch Distribution

Open more full-service branches in low-income communities and communities of color; establish a clear procedure requiring community involvement before any branch is closed.

Community Investments

Increase investments in local Community Development Financial Institutions; improve the position of equity investments for Community Development Corporations.

Capacity Grants

Institute substantial grant programs to support capacity of community organizations, including community and housing developers.

Vendor Program

Establish programs focused on purchasing from minority-, disabled-, and women-owned firms; clear accounting by type of owner

Rural Program

Support programs that include self-help housing and other forms of rural assistance.

Meetings

Agree to share specific data prior to semiannual bank meetings.

Diversity

Provide a specific plan for diversifying the bank's top executive levels.

... Maintaining Coalition

The other main challenge involves maintaining the coalition to achieve reinvestment goals. It is critical that the coalition agree on its goals, structure and process early in the Remembercampaign, and stick to the agreement. The leaders need to balance the needs of stakeholders in a manner that keeps everyone moving forward together.

Any coalition faces a difficult task in setting reinvestment goals. These goals must relate directly to community needs and stakeholder interests. The goals must be realistic and achievable.

Since CRA campaigns can last a number of months, conflicts arise between stakeholders' short-term needs and the longer timeline of the campaign. Even after the bank makes a commitment, tensions can continue depending on what compromises have been made. As much as possible, set ambitious goals so that all parties see benefit in the final agreement. [Make the pie big enough so every hustler gets a big fat slice.] Resist bank attempts to undercut alliances by making grant offers to key coalition members contingent on their abandoning the campaign.

... Review CRA Evaluation : All large banks and savings and loans' CRA activities are examined at least every two years by federal banking regulators. ...

Monitor Merger Applications : All financial institutions must file an application for approval of an acquisition or merger. Portions of the application are public and can contain useful information. These are announced on the regulators' web sites and, often, in newspapers.

Evaluate CRA Public Files : All regulated financial institutions must keep all complaints for two years in at least one office in every metropolitan area as well as in the bank's main office. They must also keep a record of their CRA goals and activities in the file.

Review Fair Housing and Fair Lending Practices : It is illegal to discriminate against an applicant based on race, age, gender, or disability. Fair housing councils monitor violations, and can provide information about a bank's fair lending practices.

Monitor Annual Corporate Reports ...

Examine Proxy Statements : At times of major corporate events, such as mergers, the corporation issues a proxy statement to its shareholders and the SEC that often has very useful information in it about legal suits against the bank, financial difficulties, or new lines of business.

Scrutinize Home Mortgage (HMDA) Data : All mortgage lenders must report home purchase, refinance, and rehabilitation loans on properties with one to four housing units and permanent loans for larger units. These reports include loan applications, denials, and approvals categorized by race, gender, income, and census tract. They also contain data on multifamily mortgage lending (five or more units). This is public information and can be obtained from a bank main office or any branch in a metropolitan area.

Evaluate Business Lending Data :...

Compile Community Knowledge : Members of community organizations, neighbors and others are likely to know a great deal about historical lending discrimination and the needs of the community.

Track Deposits and Market Share : ...

Monitor Newspaper Articles and Public Testimony : ...

Apply Public Pressure

Petition Public Officials

There are four federal financial regulatory agencies - the Federal Reserve Bank, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS). They each have jurisdiction over different financial institutions although some very large banks may be regulated by more than one agency. The regulators examine larger banks every two years for 1) safety and soundness and 2) CRA compliance, including fair lending issues. Smaller banks, those with less than $250 million in assets, are now examined every four to five years.) Banks with negative ratings ("needs to improve" or "substantial noncompliance") are examined more often. Nearly 99 percent of all financial institutions get rated "satisfactory" or "outstanding" for their CRA activities. Some decry this as "grade inflation."

These increasingly important examinations are publicly announced on the regulators' web sites. They create an opportunity to organize community members, forge alliances, mount a letter writing campaign, identify bank lending, investment and service problems, and call for investigation. Writers should specifically ask that their letter be placed in the bank's public CRA file to document a history of problems with the bank when regulators must review the public CRA file.

When a merger or other activity requires approval, the regulators can hold public hearings. If hearings are not scheduled, communities can press for them. Regulators can also extend the comment period on proposed mergers to give community representatives more time to respond effectively.

Bank regulators should be visiting community organizations and businesses to study banking practices. If not, community advocates may choose to contact them, requesting a meeting or series of meetings.

City council members, state legislators, members of Congress and other officials should also be participating to ensure that local community needs are met. If not, applying community pressure may be worthwhile.

Measuring Success

As banks expand beyond any one community or state, community advocates must find ways to measure appropriate levels of commitment. When a bank is located in only one state, use bank assets and net income as the base measurement. California Reinvestment Committee advocates for at least 4.5 % of assets with 2% of net income before taxes as the amount of community investment and grants. ...

More than $1 Trillion Invested through CRA

Lenders and community organizations have negotiated $1.09 trillion in CRA dollars from 1992 to 2000. In contrast, $8.8 billion was negotiated from 1977 through 1991.

Two major factors contribute to increased commitments since 1992. First of all, NCRC members and other community organizations are becoming increasingly sophisticated in terms of being able to articulate community needs as well as providing homeownership counseling and other types of services in partnerships with banks.

The second major factor spurring the growth of CRA agreements is the structural evolution in the banking industry. As banks become regional and national in scope, they understand that it is important to maintain their local community lending and investing capacity. Large banks and thrifts make multi-state agreements with networks of community groups that tailor the lending and investing to fit local needs.

Courtesy of the National Community Reinvestment Coalition (NCRC)

Provisions of CRA Commitments

This section is designed to assist lenders and community leaders in identifying the range of credit, capital, investment, and servicing needs that can be included in a CRA commitment. Below, are an overview and actual examples of CRA commitments that illustrate the range of programs and products that have been negotiated between community organizations-or local governments-and lenders. ...

Single-Family

Single-family housing loans, for purchase or for home improvement, are the most frequently targeted form of housing in CRA commitments:

  • In agreement with the Massachusetts Association of Community Development Corporations, Citizens Bank pledged to make $10 million in affordable home mortgage loans to new immigrants over a five-year time period starting in 1999. Fannie Mae will purchase the loans. CRA agreements should, where possible, include commitments by secondary market institutions to purchase loans so that the banks can obtain more capital for making additional CRA loans.
  • In the wake of its takeover of H.F. Ahmanson's Home Savings of America, Washington Mutual [Hey, where have we heard that name before?] signed a $120 billion CRA agreement with the California Reinvestment Committee (CRC), the Greenlining Institute, the Washington Reinvestment Alliance, and other community groups. More than $80 billion of the ten-year commitment will be for single family lending to minorities and borrowers in low- and moderate-income census tracts. Low- and moderate-income borrowers (under 80 percent of median family income) will receive $30 billion of the loans.
  • Led by the Woodstock Institute and CANDO, the Chicago CRA Coalition of over 100 organizations signed a pioneering CRA agreement with First Chicago NBD in the summer of 1998. First Chicago will make 35,879 affordable, single-family home loans by the end of 2004. In each year, the bank's share of the market in low- and moderate-income areas will equal or exceed its share of the market in middle- and upper-income areas. Subprime lending will not be included in the lending increases to low- and moderate-income areas. In 1999, the Chicago CRA Coalition negotiated similar agreements with Old Kent Bank and Charter One.

Multi-family

  • In its 1999 agreement with the Chicago CRA Coalition, Old Kent promised to maintain a LMI-to-MUI market share ratio of 1.5 for multifamily lending for three years. In other words, the bank's market share of multifamily loans in low- and moderate-income census tracts will be 1.5 times greater than its market share of loans in middle- and upper-income communities.
  • The California Reinvestment Committee (CRC) and the Greenlining Institute, as part of their 1995 $45 billion agreement with Wells Fargo Bank of San Francisco, committed the bank to apply 60 percent of the $7 billion allotted to low-income housing towards low-income rental housing construction.

Nonprofit and Minority Housing Developers

  • The Washington Reinvestment Alliance, in its 1992 agreement with Key Bank, committed the bank to provide $10 million in lines of credit for community-based nonprofits and housing authorities engaged in the construction and rehabilitation of housing for low-income or first-time home buyers. ...

Housing Cooperatives, Land Trusts, and Mobile/Manufactured Housing

Although rare, a few CRA agreements have also included provisions specifying loans for these types of housing. [In other words, trailer trash are a CRA afterthought. I wonder why?] ...


Target Populations

Several agreements include provisions to ensure that the needs of underserved populations are met.

  • In its 1999 agreement with New Jersey Citizen Action and the Affordable Housing Network of New Jersey (now the Housing and Community Development Network of New Jersey), the Bank of New York pledged to allocate $10 million under a pilot program that would offer lower rate refinance loans to borrowers holding subprime loans. Under the pilot, borrowers will not be required to have a minimum credit score, provided they can demonstrate 18 months of satisfactory mortgage payments.

Lower Interest Loans

Below market interest rates for housing loans are also included in CRA commitments. With the advent of subprime lending, community groups have also secured promises from lenders that curb excessive costs from subprime loans.

  • U.S. Bank has opened an "Alternative Loan Division" that will make subprime home equity loans to borrowers who do not qualify for prime loans. In the fall of 2000, U.S. Bank promised the California Reinvestment Committee that all home equity operations of the bank will adhere to pricing guidelines consistent with fair lending laws. In addition, the bank promises to implement fair lending guidelines for business relationships with New Century and other subprime lenders.

Distress

Distressed properties are properties that are under the threat of foreclosure due to missed loan payments. Some CRA agreements contain provisions committing the lender to exercise greater forbearance for distressed properties in low- and moderate-income and minority neighborhoods.

  • ACORN, Philadelphia, in a 1986 agreement with Fidelcor, committed the bank to exercise greater forbearance prior to foreclosure. Specifically, the bank agreed to allow a moratorium on payments of up to six months where the failure to make payments is caused by circumstances beyond the control of the borrower, and there is a reasonable prospect that the borrower's situation will improve. The bank also agreed to allow repayment agreements permitting up to two years for a borrower to catch up on delinquent payments.

Loan Counseling

Even with concessions on loan terms and flexible underwriting criteria, low-income and minority individuals sometimes require counseling and education in order to be creditworthy for housing loans. A number of lenders in CRA agreements have committed to support loan counseling programs.

  • In its 1998 agreement with Inner City Press/Community on the Move, Equity One committed to paying up to $250 for credit counseling for borrowers 31 days late on loan payments. Equity One is a subprime lender that specializes in offering loans to people with blemished credit histories. A commitment to paying for credit counseling is an indication that the lender will not seek to profit from delinquencies and foreclosures.

Specific Loan Targets

While housing loans have been the primary focus of CRA agreements, community groups are increasingly using CRA agreements as a tool to promote economic development. CRA agreements include provisions setting dollar targets for small businesses, minority and women-owned enterprises, micro businesses, and economic development projects.

Small Business

Small business, while one of the main employment generators in the country, has traditionally faced problems accessing credit. A number of CRA agreements contain provisions committing lenders to target small businesses in low- and moderate-income areas....

Minority- and Women-Owned Business

  • In 1999, The Detroit Alliance for Fair Banking persuaded Michigan National Bank to target African-American businesses for loans under $500,000 including micro-loans up to $35,000. The bank will conduct second reviews of denied loans. The bank will promise that it will utilize the exemption under Regulation B for special purpose programs to report the number of loans made to minority business owners as well as those denied and loans made after second reviews.

Consumer Products

While not the primary focus of the CRA, community organizations have used CRA agreements as a means to increase access to consumer loan products for low-income and minority individuals.


Addressing Farm Needs

Many small, family farmers and minority farmers have trouble accessing credit from lenders. However, only a few CRA agreements have focused on rural credit needs.[Hicks from the sticks are a CRA afterthought. I wonder why?]

Support for Community Development Credit Unions (CDCUs)

CDCUs are member-owned and controlled nonprofit financial institutions that bring both credit and financial service to people and communities with limited access to mainstream financial institutions. Community groups have committed banks to support CDCUs in a number of ways. ...


Grants to Community-Based Organizations

CRA agreements contain provisions committing lenders to provide grants to community-based organizations.

  • In its 1997 agreement with the California Reinvestment Committee and the Greenlining Institute, Home Savings of America pledged to make charitable contributions of at least 2% of after tax income. At least 80 percent of this will benefit underserved communities. Home Savings will make at a minimum $72 million of charitable contributions over the next 10 years. ...

Banking Services

A pervasive problem in low-income and minority neighborhoods is the lack of access to basic banking services, forcing communities to use private check cashing outlets that often charge high fees. CRA agreements have committed banks to offer basic banking services at low cost to their communities.

Offer Basic or Lifeline Checking

Lifeline checking offers accounts with low, or no, fees and minimum balances.[This seems fine to me because it's not a loan that the taxpayers via the FDIC are on the hook for. This helps poor people save money rather than borrow money. This is a straightforward subsidy of calcuable, finite cost to the bank. ] ...

Bilingual Initiatives

In communities where English is not the prominent language, banks have committed to hire staff that reflect the varied languages spoken in the community.

  • The Fair Lending Coalition, in its 1991 agreement with Norwest Bank, committed the bank to hire and train bilingual staff at all branches where language barriers might pose an impediment to customer service.

Diversify Board

Some lenders have committed to appoint women or minorities to the board.

  • Native Action and other Northern Cheyenne Reservation organizations, in their 1992 agreement with First Interstate, committed the bank to maintain at least one Northern Cheyenne Tribal member as a board member.

Credit Needs Assessment

To ensure that a lender is offering loan products and services that are most appropriate to the specific credit needs of a community, many CRA agreements contain commitments by lenders to conduct a needs assessment of the community....

  • The Shelby County Community Reinvestment Coalition, in a 1990 agreement with Union Planters National Bank, committed the bank to focus more of its advertising efforts towards making new and existing customers in targeted census tracts aware of the bank's products and services. Specifically, the bank agreed to advertise on/in radio stations targeting minorities, in minority newspapers, post information in low- and moderate-income neighborhoods, advertise in neighborhood association newsletters, and advertise the bank's real estate lending services in minority real estate publications. [I wonder how much financial overlap there is between community organizers and these for-profit media?]

Reports and Disclosure ...

Where to Access Data

HMDA Data: These are available at http://www.ffiec.gov/hmda/default.htm, on the Federal Financial Institutions Examination Council (FFIEC) site.

Small Business Lending Data: Available by state, county, and MSA (Metropolitan Statistical Area) at the Federal Financial Institutions Examination Council (FFIEC) site: http://www.ffiec.gov/webcraad/craaggr.htm.

Corporate Financial Reports: These are available from the bank itself or the US Securities and Exchange Commission (www.sec.gov). Phone number (202) 942-8088.

CRA Public Evaluations: Evaluations The Federal Reserve, FDIC, Office of the Comptroller, and Office of Thrift Supervision are available at http://www.ffiec.gov/cracf/crarating/main.cfm. Other relevant data is available at

http://www.ffiec.gov/cra/

Fair Housing Information: This is available from your local Fair Housing Council or the National Fair Housing Advocate at www.fairhousing.com.

Population Data: This is available from the US Census Bureau at www.census.gov and your county and state governments. Phone number (301) 457-4608.

Local Data: This is available from your city or county planning office.


My published articles are archived at iSteve.com -- Steve Sailer

27 comments:

Anonymous said...

But, at least 600 outfits of "community organizers"...

Hundres of "community organizer" groups. The sheer amount of left wing pressure groups (not to mention the money needed to run them) is staggering.

J said...

Very professionally written manual. It is based on the childish premise that banks are the leftist caricatures: all-powerful undestructible institutions, that for pure evil racism refuse to serve colored folks. If someone had said that they were fragile operations always risking a run and on the edge of bankrupcy, maintained by effort and work, it would have been laughed off. Now that the activists have caused the sudden collapse of the banks and they have been nationalized, what? Now that the political establishment has been defeated and a black community organizer sits in the Oval Office, what? They have no program.

Anonymous said...

"Develop flexible underwriting that responds appropriately to cultural borrowing habits of low-income people and people of color."

I love that one. Can they underwrite my bad (white) habits when we become a minority?

Anonymous said...

It is interesting how Community Reinvestment logic parallels that of protectionism in trade policy. If poor people save their money in a local bank, the bank must invest the funds in the same poor community, even if it could make better investments outside the community and thus pay higher or more secure interest to savers.

So who exactly is gaining here? Not the poor savers, but certainly the activists who organize to put pressures on banks. Possibly poor borrowers gain, but not if they get in over their heads in debt.

Why not just set up a mutual lending co-operative in poor communities, to borrow from and lend to low-income people? Because the communities that need community reinvestment are incapable of organizing functional co-ops.

So the theory was that highly sophisticated banks could be pressured to make just enough risky local investments to benefit poor borrowers and race hustlers, but not enough to actually endanger solvency. The national politicians and regulators wanted a Goldilocks Affirmative Action lending program, just enough to placate minority voters, but not enough to wreck the system.

But Goldilocks does not last long in this forest. There are many more than three bears in Washington and Wall Street.

Anonymous said...

TL/DNR.

(too long, did not read)

leave the extra long blog entry style to dr. housing bubble, steve.

Anonymous said...

Dear Steve Sailer,

I run a crime family in a large metropolitan area. Recently you posted a how to guide on shakedowns. You should add that a good extortion does not bankrupt the mark. Such amateurs. Tsk.

Anonymous said...

The tree just called, and it said you're barking up the wrong one.

Anonymous said...

Steve,

You are doing an enormous public service by documenting how an economic train wreck occurred.

What would be even better is pointing out how the people who advocated all this were not really concerned with helping minorities and the disadvantaged, but rather in helping themselves (and their friends) to some of the money on the way through.

Anonymous said...

Damn, Steve. Forget your lithium this morning?

--Senor Doug

Anonymous said...

Bloody hell Steve, that is a long post. Can't you make it more pithy?

Richard

Anonymous said...

Why don't banks just lie about their efforts to loan minorities money? Wouldn't it be easier to just fudge the figures rather than actually going out and making the loans?

Unknown said...

I'm probably the last person to come across this, but in case not ...

Barack Obama, The Musical

Anonymous said...

Okay, notwithstanding my prior snarky comment, this is a good peek into the strange mental processes of the non-profit professional activist. They are people who love acronyms (PWA's--people with AIDs), who will reverentially file, catalogue, audit and comply with notebook upon notebook of regs. They'll hire someone to draft intake forms, intake counselors to fill out the forms, intake form file clerks to file the forms, an intake coordinator to supervise the whole process, and on and on.

If you ever wanted to see what kind of bizarro world it would be if the concept of profit-and-loss were removed from the human mind, spend some time at a non-profit.

--Senor Doug.

Anonymous said...

Who knew that the very public shake-downs of companies by people like Jesse Jackson had a parallel going on behind the scenes that was even more spectacular than the Nike, Texaco, Coors, Denny's extortion schemes? What small potatoes these turned out to be in comparison.
-- Victoria

Anonymous said...

Actually, this is just a practical -- and long overdue -- result of our collective realization that diversity is so wonderful that we should be subsidizing it, and banks and other corporations ought not to be excluded from that opportunity.

Anonymous said...

By the mid-1980s, community groups had successfully negotiated CRA lending, investment, and service commitments that focused on the needs of low-income and communities of color from banks and savings and loan institutions. These early agreements signaled the possibilities for success to other groups across the country.

So much for electing Reagan. Reagan was centrist, not a right winger, which is why he let this stuff fly. We haven't had a true right winger in about a century.

I hope Ted Kennedy and Jimmy Carter both live to see and suffer the results of their political careers. But I doubt either of them would regret anything.

Finally, the CRA changed the worldview of bankers by rewarding the imprudent with approval for their empire-building while blocking the imprudent.

The second imprudent should be prudent.

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

Steve, I can think of your next book. How about collecting all this stuff and writing about the invisible shakedown parallel to the public JJ one, as Victoria indicated.

Anonymous said...

Hundres of "community organizer" groups. The sheer amount of left wing pressure groups (not to mention the money needed to run them) is staggering.

And all of the cash these community organizers need is supplied by you the taxpayer.

Anonymous said...

"
Nothin shakin on shakedown street.
Used to be the heart of town.
Don't tell me this town aint got no heart.
You just gotta poke around.
"

If you read the CRA shakedown manual with a cynical eye - well it's really a scary piece of anti-business writing. I don't think the mob could do better than these guys.


"Encourage your local restaurant owner to set concrete targets for participation in the protection fund. It may be helpful to invite the presence of Little Tony or other local protection advocates into the negotiation process."

J said...

Mr rightsaidfred said: "... a good extortion does not bankrupt the mark. Such amateurs. Tsk."

Exactly. They had no sense of reality, they imagined that banks were all-powerful. Now they have lots of bankrupt banks and they have to run them. So they have hired back the former bank bosses, they are giving them hundreds of billions of dollars to spend and turn back the wave of destruction, but they are not willing to pay them their habitual fees. There is a clear misalignment between the interest of the owner and that of the hired hand, who may feel he is not being paid what he deserves.

This is just the beginning.

Anonymous said...

"Bloody hell Steve, that is a long post. Can't you make it more pithy?"

Steve, you don't have to make your articles more "pithy," but I don't understand why you don't use the blogger codes of span-class-slash span? (I tried sending the actual code, but the system won't allow it, since it's HTML - how annoying!)

I'm sure you must be familiar with them. It gives you the opportunity to place the first one or two paragraphs of a post on the home page, while sending the rest of a long, long post to its permanent page, and the reader can simply click "Read more" to get there. It's really annoying, once having read one of your long posts and desiring the next time to read only the Comments, to have to scroll endlessly to get to the word "Comments" for that long, long post.

Also, it's annoying not to be able to scroll the home page and read all the post captions, before making a decision to scroll back to read particular posts. You make this almost impossible, when a person has to spend so much time scrolling down long, long posts, seemingly forever, before getting to the next one.
-- Victoria

Anonymous said...

I am Lugash.

Wow! My eyes popped out of my head reading that thing. I always thought that Steve was putting too much emphasis on the CRA and minority borrowers. This dispelled it though.Thank you for the insight Steve.

One question though, big banks seemed to be interested in growth through M&As rather than organic growth. With the direct and indict costs of the CRA, why do you think they pursued this stratagey?

I am Lugash.

Anonymous said...

How do you explain the high amount of lending in poor areas by outfits like Countrywide Financial and other non-banks which weren't covered by CRA?

Anonymous said...

How do we explain the other banks that failed? Easy.

1. all the big boys are doing it.
2. the actuaries all agree.
3. the quants say it is safe
4. S&P says the mortgages are AAA rated
5. the Feds ask us why we are not giving mortgages to black folks,
6. everyone knows the races are identical
7. the only reason black folks default is because of high interest rates
8. house prices are going through the roof
9. we can awlays sell our bundled mortgages to a big wall street investment bank

I mean, how long would you stand up to that, especially if you were some 3040 year old kid, with no life experience, and your bank was ready to go out of business (or be gobbled up by one of the big boys and you laid off) unless you went with the flow and peddled shit mortages to the masses? Hell, son, you are an evil white racist for NOT selling them!

Anonymous said...

Heartbreaking.


If you want to be able to grow and buy up other banks, you have to make bad loans in bad neighborhoods that likely wont get paid back, but the government will bail you out if too many of them fail and you are in danger of going bankrupt yourself.

If you play the bank game straight and only make good loans, community activists basically call you racist and can legally keep you from buying up other banks, so you have to expensively build new branches (new buildings) instead of buying the existing buildings and employees of older, failing banks.


Its the government, pushed by pressure groups, setting up a scam that MAKES BANKS do their socialist-lending-dirty work, underwritten by the taxpayer.




This remark,'
"Financial institutions may not quickly adopt recommendations for new products and approaches to meeting community needs"
.........really got my goat. Finanical institutions are businesses and there to make money, and couldn't care less about Jesse Jackson's garbage recomendations or "meeting community needs". They are there to make money, period.


M

Anonymous said...

"Steve, I can think of your next book. How about collecting all this stuff and writing about the invisible shakedown parallel to the public JJ one, as Victoria indicated."

Seconded. This, in conjunction with the decline of American human capital (from an HDB perspective, of course) via Mestizo and other Third World immigration makes for the definitive tale of our time. That is why the NY Times had their dog whistle editorial this past week--they are vulnerable and they know it.

The stage is set. The naked emperor is on his throne in the dark. The court waits--baited breath--eager to see the new fashion. Time to turn on the lights.