Case Studies

More than $1 Trillion Invested through CRA

Lenders and community organizations have negotiated $1.09 trillion in CRA dollars from 1992 to 2000.  In contrast, $8.8 billion was negotiated from 1977 through 1991.

Two major factors contribute to increased commitments since 1992.  First of all, NCRC members and other community organizations are becoming increasingly sophisticated in terms of being able to articulate community needs as well as providing homeownership counseling and other types of services in partnerships with banks.

The second major factor spurring the growth of CRA agreements is the structural evolution in the banking industry.  As banks become regional and national in scope, they understand that it is important to maintain their local community lending and investing capacity.  Large banks and thrifts make multi-state agreements with networks of community groups that tailor the lending and investing to fit local needs.

Provisions of CRA Commitments

This section is designed to assist lenders and community leaders in identifying the range of credit, capital, investment, and servicing needs that can be included in a CRA commitment.  Below, are an overview and actual examples of CRA commitments that illustrate the range of programs and products that have been negotiated between community organizations-or local governments-and lenders.  These examples are organized according to seven subject areas:

Community Reinvestment Act Successes in Housing

Single-Family

Single-family housing loans, for purchase or for home improvement, are the most frequently targeted form of housing in CRA commitments:

• In agreement with the Massachusetts Association of Community Development Corporations, Citizens Bank pledged to make $10 million in affordable home mortgage loans to new immigrants over a five-year time period starting in 1999.  Fannie Mae will purchase the loans. CRA agreements should, where possible, include commitments by secondary market institutions to purchase loans so that the banks can obtain more capital for making additional CRA loans.
• In the wake of its takeover of H.F. Ahmanson's Home Savings of America, Washington Mutual signed a $120 billion CRA agreement with the California Reinvestment Committee (CRC), the Greenlining Institute, the Washington Reinvestment Alliance, and other community groups.  More than $80 billion of the ten-year commitment will be for single family lending to minorities and borrowers in low- and moderate-income census tracts.  Low- and moderate-income borrowers (under 80 percent of median family income) will receive $30 billion of the loans.
• Led by the Woodstock Institute and CANDO, the Chicago CRA Coalition of over 100 organizations signed a pioneering CRA agreement with First Chicago NBD in the summer of 1998.  First Chicago will make 35,879 affordable, single-family home loans by the end of 2004.  In each year, the bank's share of the market in low- and moderate-income areas will equal or exceed its share of the market in middle- and upper-income areas.  Subprime lending will not be included in the lending increases to low- and moderate-income areas.  In 1999, the Chicago CRA Coalition negotiated similar agreements with Old Kent Bank and Charter One.

Multi-family

• In its 1999 agreement with the Chicago CRA Coalition, Old Kent promised to maintain a LMI-to-MUI market share ratio of 1.5 for multifamily lending for three years.  In other words, the bank's market share of multifamily loans in low- and moderate-income census tracts will be 1.5 times greater than its market share of loans in middle- and upper-income communities.
• The California Reinvestment Committee (CRC) and the Greenlining Institute, as part of their 1995 $45 billion agreement with Wells Fargo Bank of San Francisco, committed the bank to apply 60 percent of the $7 billion allotted to low-income housing towards low-income rental housing construction.

Nonprofit and Minority Housing Developers

• The Washington Reinvestment Alliance, in its 1992 agreement with Key Bank, committed the bank to provide $10 million in lines of credit for community-based nonprofits and housing authorities engaged in the construction and rehabilitation of housing for low-income or first-time home buyers.  The lines of credit are also available for the construction and rehabilitation of low-income single-family, and multifamily rental housing.

Housing Cooperatives, Land Trusts, and Mobile/Manufactured Housing 

Although rare, a few CRA agreements have also included provisions  specifying loans for these types of housing.         

• The Ohio Community Reinvestment Project (OCRP), in their 1990 agreement with Dollar Savings and Trust Company, committed the bank to develop a pilot program to make loans through community land trusts to low- and moderate-income home buyers.
• The Washington Reinvestment Alliance, in their 1992 agreement with Seafirst, committed the bank to make a portion of their single-family lending goal-$1.1 billion over ten years-available for conventional and portfolio loans for the purchase and/or renovation of manufactured housing and mobile homes, including the purchase of mobile home parks by residents.

Target Populations 

Several agreements include provisions to ensure that the needs of underserved populations are met. 

• In its 1999 agreement with New Jersey Citizen Action and the Affordable Housing Network of New Jersey (now the Housing and Community Development Network of New Jersey), the Bank of New York pledged to allocate $10 million under a pilot program that would offer lower rate refinance loans to borrowers holding subprime loans.  Under the pilot, borrowers will not be required to have a minimum credit score, provided they can demonstrate 18 months of satisfactory mortgage payments.

Lower Interest Loans

Below market interest rates for housing loans are also included in CRA commitments.  With the advent of subprime lending, community groups have also secured promises from lenders that curb excessive costs from subprime loans.

• U.S. Bank has opened an "Alternative Loan Division" that will make subprime home equity loans to borrowers who do not qualify for prime loans.  In the fall of 2000, U.S. Bank promised the California Reinvestment Committee that all home equity operations of the bank will adhere to pricing guidelines consistent with fair lending laws.  In addition, the bank promises to implement fair lending guidelines for business relationships with New Century and other subprime lenders.

Distress 

Distressed properties are properties that are under the threat of foreclosure due to missed loan payments.  Some CRA agreements contain provisions committing the lender to exercise greater forbearance for distressed properties in low- and moderate-income and minority neighborhoods.

• ACORN, Philadelphia, in a 1986 agreement with Fidelcor, committed the bank to exercise greater forbearance prior to foreclosure.  Specifically, the bank agreed to allow a moratorium on payments of up to six months where the failure to make payments is caused by circumstances beyond the control of the borrower, and there is a reasonable prospect that the borrower's situation will improve.  The bank also agreed to allow repayment agreements permitting up to two years for a borrower to catch up on delinquent payments. 

Loan Counseling

Even with concessions on loan terms and flexible underwriting criteria, low-income and minority individuals sometimes require counseling and education in order to be creditworthy for housing loans.  A number of lenders in CRA agreements have committed to support loan counseling programs.

• In its 1998 agreement with Inner City Press/Community on the Move, Equity One committed to paying up to $250 for credit counseling for borrowers 31 days late on loan payments.  Equity One is a subprime lender that specializes in offering loans to people with blemished credit histories.  A commitment to paying for credit counseling is an indication that the lender will not seek to profit from delinquencies and foreclosures.

Community Reinvestment Act Successes in Business and Economic Development

Specific Loan Targets

While housing loans have been the primary focus of CRA agreements, community groups are increasingly using CRA agreements as a tool to promote economic development.  CRA agreements include provisions setting dollar targets for small businesses, minority and women-owned enterprises, micro businesses, and economic development projects.

Small Business 

Small business, while one of the main employment generators in the country, has traditionally faced problems accessing credit.  A number of CRA agreements contain provisions committing lenders to target small businesses in low- and moderate-income areas.

• U.S. Bank made a pledge to the California Reinvestment Committee in 2000 that it will seek to make 50 percent of its small business loans in amounts of less than $50,000.  Start-up businesses and micro-enterprises typically need the smaller loans of $50,000 and less.
• In its 2000 agreement with community groups and public officials in Massachusetts, Sovereign Bank will offer a guaranteed second look program to applicants for small business loans not meeting traditional underwriting criteria.  The second look will ascertain if Sovereign can make a loan after considering mitigating circumstances and/or providing credit enhancement.  In addition, the bank will provide a discount (50 basis points below the prime rate) to small business borrowers receiving technical assistance.

Minority- and Women-Owned Business

• In 1999, The Detroit Alliance for Fair Banking persuaded Michigan National Bank to target African-American businesses for loans under $500,000 including micro-loans up to $35,000.  The bank will conduct second reviews of denied loans.  The bank will promise that it will utilize the exemption under Regulation B for special purpose programs to report the number of loans made to minority business owners as well as those denied and loans made after second reviews.

Community Reinvestment Act Successes in Consumer Loans

Consumer Products

While not the primary focus of the CRA, community organizations have used CRA agreements as a means to increase access to consumer loan products for low-income and minority individuals.

• Seafirst Bank, in its 1992 agreement, with the Washington Reinvestment Alliance, agreed to provide $1.5 million annually for consumer loans with modified underwriting criteria and terms for low-and moderate-income individuals in Washington state.
   

Community Reinvestment Act Successes in Farm Loans

Addressing Farm Needs

Many small, family farmers and minority farmers have trouble accessing credit from lenders.  However, only a few CRA agreements have focused on rural credit needs.

• The California Reinvestment Committee (CRC) and the Greenlining Institute, as part of their 1995 $45 billion agreement with Wells Fargo Bank of San Francisco, received the bank's assurance that it will meet the housing credit needs of rural Californians.  Wells Fargo will continue to provide site development and construction loans for projects involving the FHMA and CHAFA as well as supporting self-help, or "sweat equity, housing projects.

• Norwest Bank in Iowa, in their 1990 agreement with Iowa Citizens for Community Improvement, agreed to provide $16 million in new loans to agricultural producers.  Fifty percent of this amount is targeted for farmers owning less than 500 acres and having a net worth less than $150,000.  Loans are available for crop production expenses, purchase of livestock and feed, purchase of machinery and equipment, land purchases and refinancing of existing debt.  In addition, the bank agreed to restructure debt where restructuring is cheaper than foreclosure or forced liquidation.  Specifically, the bank agreed to consider writing down the term of the loan, reducing the existing rate on the loan, extending the repayment period, and exercising forbearance.

Community Reinvestment Act Successes in Building Community Capital

Support for Community Development Credit Unions (CDCUs)

CDCUs are member-owned and controlled nonprofit financial institutions that bring both credit and financial service to people and communities with limited access to mainstream financial institutions.  Community groups have committed banks to support CDCUs in a number of ways.

• In the 1999 agreement involving New Jersey Citizen Action and the Affordable Housing Network, Sovereign bank pledged to invest $1 million over the next three years in alternative lending vehicles such as CDCUs, micro loan funds, and CDFIs.
• The East Harlem Coalition for Fair Banking (Brooklyn New York), in its 1990 agreement with Banco de Ponce, committed the bank to provide a $100,000 deposit to the Union Settlement Federal Credit Union at five percent interest for two years.

Grants to Community-Based Organizations

CRA agreements contain provisions committing lenders to provide grants to community-based organizations.

• In its 1997 agreement with the California Reinvestment Committee and the Greenlining Institute, Home Savings of America pledged to make charitable contributions of at least 2% of after tax income.  At least 80 percent of this will benefit underserved communities.  Home Savings will make at a minimum $72 million of charitable contributions over the next 10 years.
• The Community Reinvestment Association of North Carolina, in its 1996 agreement with First Union Bank, has ensured that the bank will provide $50,000 annually for three years in grants supporting community-based initiatives such as homeownership counseling, banking training, and assessing community needs.

Community Reinvestment Act Successes in Banking Services, Branch, and Staff Policies

Banking Services

A pervasive problem in low-income and minority neighborhoods is the lack of access to basic banking services, forcing communities to use private check cashing outlets that often charge high fees.  CRA agreements have committed banks to offer basic banking services at low cost to their communities.

Offer Basic or Lifeline Checking

Lifeline checking offers accounts with low, or no, fees and minimum balances.

• Comerica's 2000 pledge with the Detroit Alliance for Fair Banking includes several educational and financial literacy programs.  For example, the bank's Youth Incentive Savings Program establishes about 40,000 student savings accounts annually.
• In its 1999 agreement, Citizens Bank established a goal of increasing its number of Basic Banking accounts 10 percent annually.  It opened 10,604 of these accounts in 1998.  Citizens' savings account will have a $1 monthly service fee that will be waived if the customer maintains a balance of $100 or more.  The checking account will have a $2.50 monthly fee that includes 12 or fewer transactions.  Free savings and checking accounts will be available to children under the age of 18 and to seniors over the age of 62.

Bilingual Initiatives 

In communities where English is not the prominent language, banks have committed to hire staff that reflect the varied languages spoken in the community.

• The Fair Lending Coalition, in its 1991 agreement with Norwest Bank, committed the bank to hire and train bilingual staff at all branches where language barriers might pose an impediment to customer service.

Diversify Board

Some lenders have committed to appoint women or minorities to the board.

• Native Action and other Northern Cheyenne Reservation organizations, in their 1992 agreement with First Interstate, committed the bank to maintain at least one Northern Cheyenne Tribal member as a board member.

Community Reinvestment Act Successes in Needs Assessment, Marketing, and Community Accountability

Credit Needs Assessment

To ensure that a lender is offering loan products and services that are most appropriate to the specific credit needs of a community, many CRA agreements contain commitments by lenders to conduct a needs assessment of the community.

• The D and N Savings Bank, in its 1990 agreement with the Flint Coalition for Fair Banking Practices ( Michigan ), agreed to pay 20 percent of the costs of a multi-lender credit needs assessment of low- and moderate-income areas in Flint .

• The Shelby County Community Reinvestment Coalition, in a 1990 agreement with Union Planters National Bank, committed the bank to focus more of its advertising efforts towards making new and existing customers in targeted census tracts aware of the bank's products and services.  Specifically, the bank agreed to advertise on/in radio stations targeting minorities, in minority newspapers, post information in low- and moderate-income neighborhoods, advertise in neighborhood association newsletters, and advertise the bank's real estate lending services in minority real estate publications.

Reports and Disclosure

• In its 1998 agreement, First Union pledged to address issues related to credit scoring.  In quarterly advisory council meetings, the bank will provide data on income levels, underwriting characteristics, property condition, and other risk factors.  The bank will provide average credit scores for each of its products.  First Union will consider funding research on delinquency issues.  In connection with its purchase of the Money Store, First Union will provide information on defaults by loan product and by the census tract locations of the defaults.