New Reports Explore Post-Recession Access to Credit and Sustainable Homeownership

Two reports released last week take a look at the issue of access to credit and preserving homeownership as a cornerstone of asset building in the wake of the recession. The foreclosure crisis had a particularly devastating impact on low-income families and communities of color, resulting in a significant widening of the racial wealth gap. These new reports seek to outline some key considerations for ensuring that homeownership remains a feasible goal for all families—and in particular for those that were hit hardest by the housing collapse.

The first report, “Getting On the Right Track: Improving Low-Income and Minority Access to Mortgage Credit after the Housing Bust,” explores policy options for boosting access to credit among low-income communities and communities of color in the wake of the predatory lending practices that triggered the housing crisis. The authors, from the Joint Center for Housing Studies at Harvard University, argue that a return of private mortgage capital to the market is essential for developing liquidity and assuring access to loans by underserved communities. Furthermore, the authors emphasize the importance of loan terms that beneficiaries can easily understand – a reform that resonates with the Consumer Financial Protection Burueau’s commitment to disclosures that enable consumers to fully comprehend the risks and costs of their mortgages.  

The other report looks more specifically at one piece of the puzzle, the Community Reinvestment Act (“CRA”). The CRA was passed in 1977 to reduce redlining and incentivize FDIC-insured banks to meet the credit needs of the communities where their branches were located, provided they engaged only in “safe and sound” lending practices. In the 1990s, federal regulators began considering a bank’s level of lending to low- and moderate-income borrowers in assessing CRA compliance, though the Act did not create quantitative lending targets.

 “Debunking the CRA Myth – Again,” by Carolina Reid and other researchers, actively refutes recurring contentions that the CRA has motivated banks to make risky loans to low- and moderate-income borrowers, thus triggering the recession. On the contrary, the report argues, “the CRA may have actually promoted responsible lending and the origination of good loans…even as overall mortgage lending standards deteriorated during the subprime crisis.” In fact, nearly half of all subprime loans between 2004 and 2006 originated with institutions not even subject to the CRA, while only 6% of subprime loans were extended by CRA lenders to lower-income borrowers (1.3% of all mortgages made during this period). Rather than misplacing blame for the subprime crisis on the CRA, the authors conclude, we should be conducting additional research and demonstration projects to evaluate how the CRA could become more effective in creating opportunities for sustainable homeownership for low-income families.

Both reports are worth a read and shed some light on some important concerns as the housing financing system is restructured. As my colleague Hannah Emple noted recently, the history of homeownership in the United States has been marred by exclusion and discriminatory practices. The silver lining of the housing crisis may be to provide an opportunity to rectify some of the modern policies and practices that have contributed to ongoing inequities.