Comptroller
of the Currency John C. Dugan, the federal regulator of national banks,
Wednesday rejected assertions that the Community Reinvestment Act
deserves some blame for the reckless expansion of subprime mortgage
lending.
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"CRA is not the culprit behind the subprime mortgage
lending abuses, or the broader credit quality issues in the
marketplace," Dugan said in a speech to the Enterprise Annual Network
Conference in Baltimore.
For starters, the lenders responsible for
most subprime abuses are not even subject to CRA, the law requiring
banks to lend to minority and low-income neighborhoods within their
service area. He noted that a recent study of 2006 Home Mortgage
Disclosure Act data showed that banks subject to CRA and their
affiliates originated or purchased only 6% the high-cost loans made to
lower-income borrowers. CRA loans, on the other hand, have generally
been safe and sound, he said.
For instance, single family
CRA-related mortgages offered in conjunction with organizations
associated with NeighborWorks have performed on par with standard
conventional mortgages, he said. NeighborWorks is a national nonprofit
organization created by Congress to assist community-based
revitalization efforts.
"Foreclosure rates within the
NeighborWorks network were just 0.21% in the second quarter of this
year, compared to 4.26% of subprime loans and 0.61% for conventional
conforming mortgages," he said.
He predicted that CRA lending will
help renew development in low-income areas when the credit market
stabilizes. He said over the last decade, CRA contributed to a doubling
of lending by banking institutions to small businesses and farms, to
more than $2.6 trillion, and a tripling of community development
lending to $371 billion. In addition, CRA projects often act as
catalysts for other investments, for job creation and for housing
development, and they can leverage public subsidies, perhaps as much as 10
to 25 times, by attracting additional private capital. - Bill McConnell
Bill McConnell is The Deal's Washington bureau chief.
