Three keys to successful CRA reform

Abstract

A notice of proposed rulemaking was recently issued by the three federal agencies responsible for CRA enforcement - the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Federal Reserve. Westchester County saw 20% more contracts last month than in June 2020.Stephanie Keith/Bloomberg 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. 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 loans. Calling for more detailed, transparent and effective CRA rules that apply only to those financial services firms that originate a declining share of loans, now less than half, will not lead to stronger and more effective CRA compliance and enforcement. Several recent reports have documented that appraisals for nonwhite sellers and for properties in diverse communities are more likely to understate property values relative to actual sale price than is the case for white sellers and communities.