Mark Masterson (October, 2008)
I have read several articles and opinion pieces by columnists that start or include a phrase like '"The roots of today's mortgage-based financial crisis can be traced back to the Community Reinvestment Act...'."
I am disgusted by the lack of facts--or the deliberate distortion of the facts--in these columns.
We did not get into this mess with banks doing $50,000 home purchase loans in East Allegheny (one of the neighborhoods on the Northside of Pittsburgh) to someone making $30,000 per year working at the local hospital.
CRA was a response to bankers who took deposits from low-income communities, then failed to make ANY loans in those communities.
When the Pittsburgh Community Reinvestment Group (PCRG) was formed in the late 1980s or early 1990s, research that was done showed that PNC (PNB at the time), Mellon (now Citizens), and Union National Bank (now National City) did NO home purchase loan in East Allegheny in the previous 5 years. That's zip, nada, not even one! The record was equally miserable for low-income neighborhoods throughout Pittsburgh.
CRA was a tool that community groups like East Allegheny Community Council used to help finance construction and rehabilitation of houses throughout the neighborhood (37 owner-occupied houses by my count). These houses were on Avery (10 houses), Lockhart (3 houses), Pressley (3 houses), Foreland (1 house), Suismon (2 houses), Middle (8 houses), Tripoli (4 houses), North (4 houses), and James (3 houses).
Without CRA, most of these houses would not have been built and a good number of those that were rehabilitated would have been torn down.
To my knowledge, NONE of these houses has been foreclosed upon: NONE as in zip, nada, no way!
The facts are that CRA was implemented to combat redlining. It was also used to combat racial bias. PCRG did a study on mortgage rejections in the mid 1990s. One thing that was striking from that study was that you were more likely to get a loan if you were a white male, age 21 and making $18,000 a year than if you were a black male age 30 and making $30,000 per year.
One of the problems with the mortgage default fiasco is that folks were buying houses and trying to flip them, and getting loans that reset in two years. When sales slowed, those were the problem loans. They also were the folks that were most likely to walk from the house because they did not live there--they were speculating on a rising market.
For a bit of a different slant on CRA--try reading these articles on the topic:
Alt A MortgagesI know this is a lot of reading--but it is worth it if you want to understand what the Community Reinvestment Act was and is designed to do.
Having worked with banks and local community organizations to develop for-sale housing, (and having developed more than 75 for sale houses using CRA with 7 of Pittsburgh's Northside neighborhood organizations like East Allegheny Community Council), I am aware of only two foreclosures--both caused not by lousy loan underwriting or refusal to pay, but by the death of one homeowner and catastrophic medical problems of another.
Two bad loans out of 75 over a decade or more...and the houses were resold to other buyers and they had mortgage insurance, so the loss to the bank was less than 20% of the outstanding mortgage. This is not a bad record.
We also used CRA to get better products into the market, like purchase-rehab loans, that have enabled many more to buy and renovate their homes, unlike when I bought my home in the late 1980s. I had to get a second mortgage at a much higher interest rate and then refinance after the renovation was completed. I incurred bank fees, the cost of two appraisals, etc. Now, for those who would like to rehabilitate one of the many homes in our neighborhoods, you can go and get one loan at the start of the process--saving money, and making homeownership and preservation much more affordable.
I just can't take sitting back seeing well-intentioned folks being mis-informed about what the Community Reinvestment Act has done in Pittsburgh and neighborhoods throughout the country.
Mark Masterson is Executive Director of the Northside Development Community Fund. Learn more about him at LinkedIn.
