CRA in the 21st Century.(Community Reinvestment Act still motivates mortgage bankers)
Mortgage Banking - October 1, 1999
Ellen Seidman
...Second, the 1995 revisions to the CRA regulations introduced investment and service tests to the evaluation of an institution's CRA performance. These additions have spawned a new market for investment in affordable housing and economic development securities. Fannie Mae, Freddie Mac, investment bankers and mortgage companies are offering targeted, mortgage-backed securities that enhance liquidity and increase the capital available for community development. Investors are finding that these securities--particularly the targeted, mortgage-backed securities--have very attractive characteristics. Yet, without CRA as an impetus, this market would likely not have developed.
This market development has an impact on housing credit beyond the confines of the insured depository institution industry. Data collected to meet requirements of the Home Mortgage Disclosure Act (HMDA) indicates that lenders not covered by GRA have devoted a growing proportion of their home-purchase lending to low- and moderate-income communities and borrowers. (The Federal Reserve Bank of Dallas reports that lending to low- and moderate-income areas increased from 11 percent in 1993 to 14.3 percent in 1997. Similarly, lending to low- and moderate-income borrowers grew from 25 percent in 1993 to 32 percent in 1997.)
Even though mortgage companies are not subject to CRA, mortgage bankers have responded to the improved secondary market opportunities CRA has fostered. The market for whole loans and mortgage-backed securities targeted to lower-income borrowers is booming, and mortgage companies are aggressively pursuing this business. Similar innovations are taking place in the provision of community development services by banks and thrifts, as evidenced by the recent increase in financial education initiatives in the industry.
This increased activity among banks, thrifts and mortgage companies in low- and moderate-income communities demonstrates that the new regulations have been effective in opening the doors to credit in underserved areas....
Ellen Seidman is director, Office ofThrift Supervision (OTS), in Washington, D.C. OTS, a bureau of the U.S. Treasury, regulates 1,1 15 savings associations, holding $846 billion in assets. Seidman previously served as Special Assistant for Economic Policy on the White House National Economic Council staff and as senior vice president for Regulation, Research and Economics at Fannie Mae.
