CRA Impacts

The Impact of CRA

Since the passage of Community Reinvestment Act (CRA) in 1977, lenders and community organizations have signed more than 400 CRA agreements totaling more than $1.7 trillion in reinvestment dollars flowing to minority and lower income neighborhoods, according to the National Community Reinvestment Committee’s database on CRA agreements.  

CRA has leveraged a tremendous increase in home mortgage lending to minority and low- and moderate-income borrowers.  From 1993 through 2002, home mortgage lending has increased:

79.5% to Blacks
185.8% to Hispanics
29.6% to Whites   
90.6% to Low/Moderate borrowers
51.4% to Middle Income borrowers

It is noteworthy that CRA has contributed to a much greater increase in lending to minority and low- and moderate-income borrowers than whites and middle income borrowers.  Low- and moderate-income borrowers received 1.27 million home mortgage loans in 2002, which was an increase of 604,000 loans over the number of loans they received in 1993.

Likewise, the Treasury Department found that CRA-covered lenders increased their home mortgage loans to low- and moderate-income areas and borrowers by 39 percent from 1993 to 1998, more than twice the increase (of 17 percent) to middle- and upper-income borrowers and areas. (The Community Reinvestment Act: A Baseline Report, Department of Treasury, April 2000)

Using NCRC’s database on CRA agreements, former Federal Reserve economist Raphael Bostic and his colleague Breck Robinson found that CRA agreements increased bank lending to minorities and low- and moderate-income borrowers by up to 20 percent.

The number of non-government institutions funded by banks to serve low-wealth populations has grown exponentially.  According to the National Congress for Community Economic Development, there were an estimated 3,600 such groups across the United States in 1998.  Since the emergence of the first CDCs in the late 1960s, they have produced 247,000 private sector jobs and 550,000 units of affordable housing.

Nonprofit developers often tackle the most difficult revitalization projects.  Their efforts are vital to reinvestment in neighborhoods.  However, due to the nature of their work and their capacity, they cannot revitalize entire neighborhoods by themselves or reach every creditworthy person of modest means who wants to buy her first home or start her first business.  Consider that while CDCs have produced about half a million housing units since the 1960’s, the number of conventional home mortgage loans for low- and moderate-income borrowers now total more than 1 million annually and has doubled on an annual basis.

Investments in innovative community development initiatives are in the tens of billions of U.S. dollars.  In 2003, banks reported community development loans totaling $42.3 billion, which was a 50 percent increase from 2002.

The US Treasury, the Brookings Institution and Harvard University’s Joint Center for Housing Studies have all studied and affirmed the impact of the Community Reinvestment Act. The Harvard study demonstrates that without CRA, home purchase lending to low- and moderate-income borrowers and communities would have decreased by 336,000 loans.  The study reveals that banks’ lending to low- and moderate-income borrowers is higher in geographical areas where federal agencies grade banks on CRA exams than in localities where banks lend but are not subject to CRA exams.

CRA lending has proven to be safe, sound and profitable.  A Federal Reserve Survey (required by the Gramm-Leach Bliley Act, and released in the summer of 2000) found that more than 80 percent of banks reported that CRA-related home purchase and refinance lending is profitable.  If it was not profitable, home lending to low- and moderate-income borrowers and communities would not have increased twice as much as home lending to middle- and upper-income communities during the 1990s.  CRA does not mandate that a certain amount of loans be made to low- and moderate-income borrowers, meaning that the increase in lending to low- and moderate-income borrowers would not have been as great during the 1990s if such lending did not represent profitable opportunities for banks.