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The Community Reinvestment Act Fulfills Its Promise

by Lew Sichelman

The Community Reinvestment Act, the 1977 law that requires all banks carrying federal deposit insurance to lend in underserved neighborhoods where they have branches, has worked as originally envisioned, according to a Treasury Department report released last week.

Between 1993 and 1998 alone, Treasury said, more than $600 billion has been lent to low and moderate-income borrowers in the communities covered by CRA.

"The study is further evidence that a strong Community Reinvestment Act is critical to ensuring that all neighborhoods are part of our national economic prosperity," said Treasury Sec. Lawrence Summers.

"It takes capital to build a village," Sec. Summers added in a play on Hillary Clinton's favorite homily, "It takes a village to raise a child."

The department was required to evaluate the law's impact as part of last fall's banking legislation. A second review is required in two years. The requirements was part of a compromise between the White House and Senate Banking Committee Chairman Phil Gramm, R-Tex., an outspoken opponent of CRA.

Treasury's study focused on lending trends in 305 cities in the five-year, '93-'98 period. It found that:

$467 billion in mortgage credit flowed from CRA-covered lenders to CRA-eligible borrowers.

The amount of home mortgage lending to low and moderate-income borrowers and low and moderate-income communities rose 80 percent during that time. In 1998 alone, these institutions made $135 billion in mortgage loans to these borrowers.

CRA-covered lenders and their affiliates increased mortgage lending to low and moderate-income borrowers and communities at more than twice the rate of ncrease for other borrowers. The number of mortgage loans made by CRA-covered institutions and their affiliates to these borrowers and areas increased by 39 percent between 1993 and 1998, while such institutions' loans to other borrowers increased by only 17 percent.

Lenders covered by the CRA primarily specialize in lending to borrowers without impaired credit. And at a time when lending to low and moderate-income borrowers with faulty credit in the so-called "subprime" sector drove growth for institutions not covered by CRA, banks still were able to boost their share in prime lending to these individuals.

In 1993, such lenders accounted for 66 percent of prime mortgage loans to these borrowers and areas. By 1998, their market share had increased to 71 percent.

In 84 percent of the metropolitan areas studied, moreover, CRA-covered lenders and their affiliates increased the share of their mortgage lending to low and moderate-income borrowers and areas by as much as 12 percentage points.

The study also found that from 1996 to 1998, the first three years for which data was collected, lending by CRA-covered institutions to small businesses located in low and moderate-income communities averaged $33 billion annually. In addition, community development lending by these institutions averaged $17 billion annually.

Published: April 24, 2000

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated.

He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year.

Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association.

He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972.

The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country.

He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others.

Sichelman is married, the father of five and grandfather of eleven.

Real Estate News Network