A Maryland CRA Law Would Help Underserved Communities and Support Economic Development
Economic Action Maryland and the National Community Reinvestment Coalition — released reports this month advocating for a statewide community reinvestment act in Maryland, that they say would help increase homeownership and other financial lending opportunities for residents and business owners, especially people of color. Both groups and other housing advocates plan to push for the legislature to pass a bill next year. Del. Melissa Wells (D-Baltimore City) introduced legislation this year to propose a state-level community reinvestment act, but withdrew it.
The proposed act would apply to roughly two dozen state-charted banks and seven credit unions that include Cecil Bank, EagleBank, Sandy Spring Bank, HAR-CO Credit Union, and Post Office Credit Union of Maryland Inc.
If enacted, a Maryland Community Reinvestment Act (CRA) law would apply to banks and credit unions with about $46 billion in assets. It would cover mortgage companies that made over 68,000 loans in 2018-2020. These assets and lending activity are considerable resources that should have a CRA obligation for reinvesting in underserved neighborhoods.
Unfortunately, the Federal CRA law has not significantly reduced inequalities and discrimination in Maryland. Between 2018-2020 in Maryland, some statistics from Economic Action’s policy brief and a 20-page paper found that Black applicants were denied at all financial institutions at a rate 1.6 times higher than white applicants; credit unions denied Black and Native American applicants slightly more than two times more frequently than white applicants; although Black residents account for 29% of the state’s population, about 20% received single-family loans; in Baltimore City, where the Black population was 62%, about 33% of those residents received those same loans; and in Montgomery County, where the Latino population was 18%, about 10% of those residents received single-family loans.
According to a June 20, 2023 whitepaper by Josh Silver of the National Community Reinvestment Coalition (NCRC), a Maryland CRA law would:
(1) Help narrow racial and equity gaps in lending. In Baltimore City, 33% of the loans went to African Americans whereas they constituted 62% of the population.
(2) Plug gaps in the federal law. While Federal CRA law applies to banks, other state laws in Massachusetts and Illinois also apply to mortgage companies and credit unions. A state law would address needs and neighborhoods not explicitly addressed by the federal CRA. Maryland’s Commissioner of Financial Regulation could conduct separate exams for counties, assessing performance more rigorously in Baltimore City and underserved rural counties. Federal CRA exams usually rate performance on a metropolitan level that hides poor performance most often occurring in the underserved counties.
(3) Increase loans, investments, and services in communities of color and modest-income neighborhoods across the state in both urban and rural areas. While some gaps have narrowed modestly, underserved communities continue to be overlooked. For the state as whole, lending institutions made 32% of their loans to low- and moderate-income (LMI) borrowers during 2018-2020 while 31.6% of the population was LMI. A significant disparity, however, emerges in the City of Baltimore where LMI borrowers received 58% of the loans but were 73% of the residents.
(4) Would apply CRA to institutions with tens of billions of dollars which offer tens of thousands of loans. State-chartered banks have about $38 billion in assets and state-chartered credit unions have almost $8 billion in assets. The top ten independent mortgage companies issued almost 68,000 home purchase loans in Maryland in 2018-2020.
(5) Would channel significant increases in loans and investments to Maryland’s neglected communities. Moreover, a state CRA law is needed to address sizable racial and income disparities in access to loans. In the state as a whole, lenders made 20% of their single-family loans to African Americans from 2018 through 2020 while 29% of the population was African American. The gap is even wider in Baltimore, a city that is 62% Black but where just 33% of loans went to African American borrowers.
(6) Could have the examiners consider the sustainability of lending by considering default and delinquency rates. This is particularly important for vulnerable and underserved communities and is often overlooked by federal CRA exams.
(7) Could contain provisions that counter CRA ratings inflation and that would motivate improvements in performance to communities of color. On a federal level, banks pass their CRA exams about 98% of the time. Banks that fail their exams cannot receive deposits from a state agency. The Commissioner could also adjust fees based on ratings received.
Finally, a state CRA is one of the most effective economic development strategies a state can undertake. Studies have shown that the federal CRA has increased lending and banking services in modest income communities. A state CRA law could build on this success. A rigorous Maryland CRA would homeownership and small business ownership, and benefit the state many times over in terms of higher gross domestic output, higher tax revenues, and reduced dependence on the state safety net.
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