More Evidence that the CRA Doesn ’t Always Help Low‐​Income Communities. But Proposed Changes Will Improve It

Diego ZuluagaThe Community Reinvestment Act issupposed to ensure that banks lend to low- and moderate-income households wherever they operate. But there are reasons to doubt its effectiveness.In theWashington Post this summer, I reported findings (from a forthcoming paper with Andrew Forrester) that more than two-thirds of recent home mortgages in the District of Columbia for which banks can get CRA points went to high- rather than low-income borrowers. This is because current CRA regulations count loans to low-income borrowersand loans made in low-income census tracts (Figure 1a). D.C. has rapidly gentrified in recent years, as young professionals flocked into historically low-income neighborhoods, and many among these “gentrifiers” have bought homes. At present, CRA regulators take loans to gentrifiers into account when they evaluate banks, even though gentrifiers are not usually underserved borrowers.Figure 1a: Loans to Low-Income Borrowersand in Low-Income Census Tracts Qualify for CRA PointsNote: LMI stands for low- and moderate-income, defined as a median family income below 80 percent of the median for the metropolitan statistical area. Yellow designates loans eligible for CRA credit (points).Gentrification, as a rule, is a good thing for both new arrivals and historic residents. A recentpaper from the Federal Reserve Bank of Philadelphia finds that gentrification benefits the original residents of low-income neighborhoods. While more-educated homeowners seem to ga...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs