Lael Brainard, President Joe Biden’s nominee for vice-chair of the Federal Reserve, has big plans for the position.
In a statement following her nomination, Brainard said she would be focused in part on “supporting a growing economy that includes everyone,” “ensuring that financial markets are thriving and resilient, and the economy is sustainable for future generations,” and “serving all Americans in every community across the country, and ensuring the Federal Reserve reflects the diversity of the communities we serve.”
The inclusive-heavy language reflects what is likely to be a strong progressive policy push from Brainard and Fed leadership in the near future. That assessment is bolstered by last year’s proposed revisions to the federal Community Reinvestment Act—an effort spearheaded in part by Brainard—that seeks to “address systemic inequities in access to credit and other financial services,” specifically those borne by “minority individuals and communities.”
The Community Reinvestment Act may very well be the place in which many of the Fed’s ambitious lending goals are realized in the near future. Yet sparse data on CRA loans leave uncertain just how effective such policies would actually end up being.
The CRA was originally passed in 1977 to counteract “redlining,” the practice by which “banks and lenders withheld services from potential customers who resided in neighborhoods classified as ‘hazardous’ to investment; these residents largely belonged to racial and ethnic minorities.” With relatively toothless enforcement measures, critics say, the law has failed to aggressively promote loans to underserved communities in cities around the country.
More complicating still is the relative dearth of data surrounding CRA loans overall, with analysts unable to quantify just how an expanded loan program might help any given borrower, minority or otherwise.
The federal government “chooses not to really publish empirical performance data about CRA loans,” Ed Pinto, director of the American Enterprise Institution’s Housing Center, tells The Mortgage Note.
“By perform, I mean how they do in terms of delinquency, how they do under stress,” Pinto continued. “Those data are never made public by the federal government, ever. In fact, you can’t even identify which loans lenders are making that are CRA loans.”
Pinto said AEI is in the midst of an effort to “figure out a way to properly identify CRA loans and their performance, to do what the government doesn’t want anyone to do,” namely quantify decades of CRA data.
In the meantime, advocates have continued to argue for a more racially conscious CRA policy. “The CRA was designed to reduce the lending discrimination that’s left many Black and Brown neighborhoods impoverished,” Institute for Policy Studies fellow Dedrick Asante-Muhammad wrote recently. “Unfortunately, there hasn’t been a reduction in racial economic inequality — but if we can get the law to explicitly consider race, we can change that.”
Asante-Muhammad proposed rule-makers could “set demographic benchmarks for lending to people and neighborhoods of color,” stipulations that would “include demographic benchmarks for retail lending, retail services, community development financing, and community development services.”
Real estate developer Karim Hutson also recently argued “the inclusion of explicit recognition of race is non-negotiable if we are to have a more equitable CRA,” and that the law’s historical colorblindness has “limited its usefulness in reversing the effects of discriminatory lending.”
“The CRA should mandate that public housing agencies and banks actively diversify the pool of real estate developers they allocate public affordable housing resources to,” Hutson proposed as an example.
Pinto, meanwhile, said talks of expanding the federal law are hindered by the very fact that little empirical data exist to review either way.
“It’s very difficult to talk about changing the CRA rules from an empirical perspective because they never publish any data,” he said. “Which is convenient, because they can say, ‘We need to expand them!’”