Community Reinvestment Act May Have Deterred Risky Mortgage Lending

Mon Jan 7, 2008 10:00am EST

* Reuters is not responsible for the content in this press release.

Traiger & Hinckley LLP Study Shows CRA Banks Were Substantially
Less Likely Than Other Lenders to Make the High Cost Loans That Helped
Fuel the Foreclosure Crisis
NEW YORK--(Business Wire)--A Traiger & Hinckley LLP study of 2006 mortgage loan data suggests
that the Community Reinvestment Act, a federal law that requires banks
to help serve the credit needs of their local communities, including
low- and moderate-income neighborhoods, deterred banks from engaging
in the kinds of risky lending practices that are provoking the
foreclosure crisis.

   Compared to other lenders in their communities, banks making loans
in their CRA assessment areas (CRA Banks) were less likely to make a
high cost loan, charged less for the high cost loans they did make,
and were substantially more likely to eschew the secondary market and
retain high cost and other loans in portfolio. Foreclosure rates were
also lower in metropolitan areas with proportionately greater numbers
of bank branches.

   The Traiger & Hinckley LLP study, entitled "The Community
Reinvestment Act: A Welcome Anomaly in the Foreclosure Crisis,"
reviewed 2006 home purchase mortgage lending in the nation's 15
largest metropolitan areas: Atlanta, Boston, Chicago, Dallas, Detroit,
Houston, Los Angeles, Miami, New York, Philadelphia, Phoenix,
Riverside, CA, San Francisco, Seattle, and Washington, DC. The study
utilized public data filed pursuant to the CRA and Home Mortgage
Disclosure Act (HMDA).

   "Without the CRA, the foreclosure crisis might have negatively
impacted even more borrowers and neighborhoods," stated law firm
partner Warren Traiger. "Apparently, the CRA's mandate that banks help
serve the credit needs of their local communities consistent with safe
and sound banking practices has resulted in CRA Banks making a greater
proportion of safe and sound loans than other lenders."

   Specifically, the Traiger & Hinckley LLP study found that:

   --  CRA Banks were 66 percent less likely than other lenders to
        originate a high cost loan;

   --  The average high cost loan made by CRA Banks was priced 68
        basis points lower than the average high cost loan originated
        by other lenders;

   --  CRA Banks were more than twice as likely as other lenders to
        hold originated loans in their portfolio; and

   --  The higher a metropolitan area's concentration of bank
        branches, the lower its foreclosure rate.


   To a much greater extent than other lenders, CRA Banks avoided
making the types of home purchase mortgage loans that provoked the
foreclosure crisis. Unfortunately, the law's impact on the subprime
crisis was limited because in the 15 metropolitan areas analyzed, the
CRA Banks' share of the mortgage market was less than 25 percent.

   While some have suggested extending CRA-like obligations to other
categories of lenders as a way of prospectively limiting the volume of
high cost loans and the problems associated with them, the study
speculates that the presence of local brick and mortar branches in a
community was at least as important a reason for CRA Banks' better
performance than fear of a less than satisfactory CRA evaluation.
Although the CRA still has a vital role to play for banks lending in
their communities, it is doubtful whether the same benefits can be
realized for other lenders without a branch nexus.

   The complete study is available at

   About Traiger & Hinckley LLP

   Traiger & Hinckley LLP is a New York City-based law firm that
advises financial institutions on compliance with federal and state
anti-discrimination laws. The firm's analytical group employs
statistical methods including linear and logistic regression analyses
to evaluate loan data.

Traiger & Hinckley LLP
Warren Traiger, 212-752-1161

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