Informing the public about the Federal Reserve
Did the Community Reinvestment Act (CRA) contribute to foreclosures and the financial crisis? And, is the CRA being reformed?
The Federal Reserve Board has found no connection between CRA and the subprime mortgage problems. In fact, the Board's analysis (102 KB PDF) found that nearly 60 percent of higher-priced loans went to middle- or higher-income borrowers or neighborhoods, which are not the focus of CRA activity. Additionally, about 20 percent of the higher-priced loans that were extended in low- or moderate-income areas, or to low- or moderate-income borrowers, were loans originated by lenders not covered by the CRA. Our analysis found that only six percent of all higher-priced loans were made by CRA-covered lenders to borrowers and neighborhoods targeted by the CRA. Further, our review of loan performance found that rates of serious mortgage delinquency are high in all neighborhood groups, not just in lower-income areas.
The Fed, in collaboration with the other financial regulatory agencies, is currently considering what can be done to make CRA a more effective regulatory incentive and how CRA can be revised to address the new community needs that have emerged in the wake of the foreclosure crisis. As part of this regulatory initiative, the agencies held CRA hearings and invited written comments on how to improve CRA in June 2010. In December 2010, the agencies published amendments to the rule to encourage financial institutions to participate in activities aimed at revitalizing areas designated by the Department of Housing and Urban Development for funds under the Neighborhood Stabilization Program.