PRESS RELEASE

CONTACT: Elizabeth England: (617) 495-7640

March 20, 2002

HARVARD STUDY FINDS COMMUNITY REINVESTMENT ACT FAILS TO KEEP PACE
WITH CHANGING FINANCIAL INDUSTRY

(Washington) Currently, less than 30 percent of home purchase loans are subject to intensive review under the Community Reinvestment Act (CRA) - in some markets this share is less than 10 percent. In a briefing before the Board of Governors of the Federal Reserve today, the Joint Center for Housing Studies released its comprehensive assessment of CRA. The two-year study entitled "The 25th Anniversary of the Community Reinvestment Act: Access to Capital in an Evolving Financial Services System" was funded by the Ford Foundation. The report examines CRA in the context of the changing structure of the mortgage lending and banking industries, the growth of affordable lending tools, and the resulting changes in the provision of credit to lower-income households and communities. The study also assesses the evolving relationship between mortgage lenders and community-based organizations.

"The mortgage industry is changing in ways never anticipated when CRA was enacted 25 years ago," explains Nicolas P. Retsinas, Director of the Joint Center. "In 1977 locally-based institutions dominated mortgage lending. In contrast, by 2000 the 25 largest national firms originated more than half of all home purchase loans."

The report documents the rise in lower-income mortgage lending in the 1990s and points out CRA's significant contribution to this growth. Following are the principle findings:

· Over the period 1993-2000, CRA-regulated entities originated significantly more loans to lower-income people and communities than they would have if CRA did not exist.

· For conventional prime loans assessed under the CRA and made to black households, some 61 percent go to lower-income borrowers and neighborhoods. For loans not assessed, this share is only 42 percent - a gap of 19 percentage points. For Hispanics, the gap is 17 percentage points.

· Lending not subject to detailed CRA scrutiny is the fastest growing segment of the market.

· Consolidation of the mortgage lending industry now limits the ability of community-based organizations to advocate for expanded access to capital for lower-income households.

"One path to CRA reform would be to build on CRA's traditional mortgage lending focus by updating the Act to include entities that now conduct the bulk of the mortgage lending" Retsinas explains. "Alternately, reform could maintain CRA's traditional focus on the communities where banks operate branches and reposition the Act to give greater emphasis to the provision of other financial services to lower-income borrowers and communities."

"For 25 years CRA has encouraged the entities it regulates to expand access to capital, especially to lower-income minorities," says William Apgar, Senior Scholar at the Joint Center. "If CRA is to continue benefiting lower-income people and communities, it must be modified to reflect industry changes and emerging financial services needs."

Report available online: Beginning March 20, the complete text of the report will be available at the Joint Center for Housing Studies' website at www.jchs.harvard.edu.

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