How to fix housing finance
Redlining was almost ubiquitous. The three largest banks serving Hartford, Connecticut, for example, had made more than 1,300 loans in the city’s largely white suburbs, but only 85 in the city itself. In Chicago, the four largest savings and loan associations and the two largest commercial banks have granted only 22% of their mortgages within the city, with the rest going to the much whiter suburbs. . As Gale Cincotta, a well-respected community advocate working in Chicago, told a Senate panel, “It’s easier to get a loan in Albania than in western Chicago.” So in 1977, Congress passed and President Jimmy Carter signed the Community Reinvestment Act (CRA), which required financial institutions to serve customers wherever institutions were physically present, not just in neighborhoods where they thought they could. get the most profit. .
After Carter’s defeat in 1980, the Reagan and Bush administrations effectively rescinded the law, and regulators in most cases refused to hold banks to the high standard set out in the underlying legislation. Rather than forcing lenders to seriously serve minority communities, Washington simply forced loan officers to document why in each case they chose not to lend to low-income applicants. The paltry impact was predictable. In 1960, 64% of whites owned their homes, compared to 38% of blacks, a racial gap of 27%. Thirty years later, in 1990, the gap was still 25%.
Shortly after being elected president in 1992, Bill Clinton offered me the job of being the Comptroller of the Currency, running the federal agency that regulates the nation’s largest banks. At my confirmation hearing, I promised senators that I would do everything in my power to end discrimination in the banking system, by eliminating it “root and branch”. Beyond investigating overt FHA violations and referring cases to the Justice Department for prosecution – which had hardly ever been done before – it meant making the CRA more efficient.
Kanjorski had invited me to Scranton to get a better idea of the backlash we would face if we started pressuring loan officers to accept requests that, left on their own, would have been more likely. to reject. Stopping at a local branch, we were shown to a conference room with a table stacked with thick manila folders. Each file, the branch manager explained, contained reams of paperwork that bankers had to fill out when they turned down an application, for insufficient savings, bad credit or some other reason.
Coming out, Kanjorski argued that, as skeptical as the Liberals might be about the banking community’s inability to serve minority communities, the red tape problem was real. The ARC was written to help underserved communities get loans – but banks had largely dispensed with having to give credit to applicants by going through paperwork. The system was the worst of both worlds: piles of unnecessary paperwork and nothing positive to show. So after I returned from Scranton, I took over the President’s directive to begin what became the very first comprehensive overhaul of the nation’s anti-redlining laws.