Tell us
what you think
Our Sponsors
 |
Our Sponsors
|
CRA: Looking At CRA The Hard Way
Dan Russell, III was the keynote speaker for PCi's fifth annual CRA and Fair Lending Colloquium in Denver. He raised several provocative questions for the lending industry. First was why, in adopting and implementing CRA, we failed to build a true infrastructure for community development. The corollary is why CRA developed as a separate industry when it should simply be a core element of the business of banking. Russell questioned why legislation was needed at all.
Russell also questioned the motives of financial institutions in managing CRA programs. Their goal is usually to earn a satisfactory rating and to avoid adverse publicity. He challenged attendees to evaluate whether their efforts go into producing a report or program that looks good to regulators or whether their efforts really go into community reinvestment.
What CRA Should Do
The real goal of a CRA program should be community development. He asserts that financial institutions should set a goal of building the same kinds of infrastructure in low- and moderate-income communities that we already have in middle- and upper-income areas. With all that financial institutions have done under CRA, the poverty needle hasn't moved.
Finding CRA Markets
Russell challenged attendees (and those not in attendance) to take a harder look at the opportunities and credit needs in their markets. He suggested a methodology using the 2000 Census data and the PCi data base.
First, identify all the renter households in your market. This is the group of potential new homebuyers.
Next, screen this group for low-, moderate-, and middle-income renters. Russell includes middle-income to reach the market of minority non-homeowners. This is a significant market, he asserts. To support this, he described asking an audience at a National Bar Association meeting how many in the audience were not home-owners. About half the audience raised their hands. When that many lawyers don't own a home, it probably isn't income that is stopping them.
Then, compare income to the median value of housing in your market. You are now looking at how many viable candidates there are for home purchase, based on the income of the candidates.
Finally, consider credit profiles. You are looking for low-risk profiles that should qualify for mortgages. You are also looking for potential applicants who can handle a 90% loan-to-value ratio. Russell promises that you will be amazed at how large a market you can identify. If you aren't making these loans, you are missing an opportunity. Using this analysis, he estimates that there is about $3.5 billion in unmet demand in the city of Baltimore, Maryland alone.
Copyright © 2002 Compliance Action. Originally appeared in Compliance Action, Vol. 7, No. 13, 11/02
|