CRA: How Are We Doing?

PCi's annual CRA and Fair Lending Colloquium was the place for discussing where CRA has taken the banking industry and where the industry should head in the future. Much has been accomplished, but there remains much to do.

A speaker from the Neighborhood Housing Services drew an analogy of CRA evolution to that of the Peace Corps. The first step in the low- and moderate-income neighborhoods was credit starvation. Either no credit was available or what was available was on unreasonable and unaffordable terms.

Now, these neighborhoods have access to credit but malnutrition is the issue. The problem is the quality of credit that is out there. Too much of it comes from predatory lenders - tempting consumers with the credit equivalent of tasty snacks at the cost of good nutrition.

Today's CRA programs should be designed to deal with the credit quality issues. To do this, he recommended some changes in how we look at CRA. Simply looking at whether or not an institution made loans in an area should not be the end of the analysis. We should also be looking at the quality of credit.

CRA examinations should include evaluations of sub-prime loans and give close attention to whether any predatory lending is occurring. He took the additional step of suggesting that examiners look at whether customers borrowing on sub-prime terms could be up-qualified to prime credit. Needless to say, the 2004 HMDA information will provide interested parties with the rough tools to begin this type of analysis. Expect interest groups to perform data analysis to compare rates and terms by neighborhood and by race or ethnicity.

The consumer advocacy groups are also urging that the scope of what is reviewed in the CRA examination be expanded. They believe that the examiners should look at the entire holding company, particularly mortgage lending affiliates, to draw a picture of the entire company's performance of meeting community credit needs. This is based in part on some concern that lending that is inconsistent with CRA's purposes, such as high end lending and predatory lending, may be funneled through an affiliate to make the bank's performance appear solid.

Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 8, No. 14, 1/04