BY STATE SENATOR JAMES SANDERS, JR.
President Donald Trump is about strike another blow against low-income and working class people by making potentially damaging changes to the Community Reinvestment Act, legislation which states that banks should lend a certain amount of money to people who live in the neighborhoods where the banks are located. I would suggest that those in need of a home loan get one right away, before these protective regulations all come crashing down.
Banking systems are necessary, but we must examine how much is profit and how much is greed. The primary question every bank should be asking is – can you pay back the loan at a reasonable rate, in a reasonable amount of time? That should be the bank’s primary question, not how to make the most profit without considering the needs of the poor and middle class.
There is an old proverb that says: “The best time to plant a tree is 20 years ago. The next best time is now.” In other words, get in while the getting is good. For those of you who don’t remember how bad things were before the CRA, let me remind you of the process of redlining – that is when the banks literally drew a red line around neighborhoods that they did not want to lend – minority and so-called “high risk” neighborhoods – places where people had the most need.
The CRA attempted to remove those lines and held banks accountable for who they were lending to by making them report how many loans went where and to whom. Complex grading systems analyze and rate how banks have addressed the borrowing needs of the surrounding community; all while maintaining practical lending standards, of course. A bad grade could hurt a bank’s ability to merger and restrict other activities.
The system is not perfect and has been updated nine times between 1989 and 2008; however, it is a great improvement over the old days when banks were closed to poor people and people of color, except for taking their money in the form of deposits. Even if you are a property owner who has gotten the cold shoulder from banks before, and even if you are skeptical how different things could be under President Trump, my advice to those looking to buy a home and in need of a loan is to seize your opportunity while the CRA is still around.
Although we don’t yet know exactly what Trump’s changes to the law will be, we do know what the possibilities are, and they don’t look good. Proposed changes could redefine the types of loans that could qualify under the CRA, possibly expanding it to include small business loans and infrastructure loans, and thereby diluting the amount of community development loans that cover affordable housing.
The CRA gets in the way of banks making more money and it behooves them to remove what is blocking their profits. For example, a home mortgage loan, which makes up the bulk of CRA lending, could provide a 4.25 percent interest rate, while a small business loan could earn a 5.5 percent and a infrastructure loan could pull in 7 percent. Another financial-related reason banks would like to squash the CRA is that there is more money in rentals. Banks can back big investment firms like Blackstone, which buys foreclosed homes and then rents them at a hefty price.
These possible changes to the CRA, or worse the repeal of the CRA, would be devastating to communities like Southeast Queens, which was the epicenter of the foreclosure crisis from 2008 to 2013. It would hinder new home ownership, a central part of building economic development. Communities where residents own homes and businesses are strengthened by that investment. It promotes deep roots and generational growth. We want to have that pride of ownership in this district and I have several initiatives that I will be rolling out to advance that goal, but we need the solid foundation of the CRA to help us achieve our mission.