The Community Reinvestment Act is about to undergo its first significant modification since 1995. A
Here are three issues that should be addressed in the new rule. Some of these issues have been noted and emphasized by some observers. Others have been virtually ignored. But to take full advantage of the opportunities that are presented by this rulemaking process, all need to be highlighted.
First, as many have long argued, race must become a more central focus to maximize the impact of the CRA. The notice of proposed rulemaking that was released suggests steps in this direction, but more should be done. Service to nonwhite consumers and predominantly nonwhite communities should be a more explicit metric in determining CRA ratings.
While there are legal and political challenges to explicit race-based policies,
For example, courts have ruled that any race-conscious remedy must meet the “strict scrutiny” test, meaning that there must be a compelling interest and the policy must be narrowly tailored to meet that interest. Eradicating longstanding discrimination in mortgage markets where it continues to be documented would constitute such a compelling interest and flexible racial targets as part of CRA exams would be narrowly focused on those practices.
Second, the CRA needs to be expanded to cover nondepository mortgage bankers who now originate more than half of all mortgage
Third, the new rules should address the issue of appraisal bias that has, appropriately, attracted much attention in recent years.
Mortgage lenders should be encouraged to utilize appraisers who have a track record of serving diverse communities. Several recent
The CRA update provides an opportunity for these agencies to significantly contribute to the amelioration of that bias. The new rules should call for an HMDA-like disclosure requirement for appraisal firms.
Such reports could include information on the number and share of appraisals firms provided by census tract, the number where appraised value is less than the contract sale price, and related information. This would enable local actors, such as cities, counties, hospitals, universities and nonprofits, to identify and utilize preferred appraisal firms similar to the way they create lists of minority-owned, women-owned and veteran-owned contractors. A July 27
CRA reform has been a long time coming. It is likely there will not be another opportunity to address any shortcomings for perhaps another 27 years. Now is the time to create the rules that will maximize the intended impact of this law.