Two advocacy groups are pushing for a state version of the federal Community Reinvestment Act to ensure more equitable treatment of people of color by home lenders.
In Maryland, Black and Latino applicants were denied home loans at a rate 1.6 times higher than white applicants, according to data from the National Community Reinvestment Coalition from 2018 to 2020. In the city of Baltimore, Black applicants were rejected 2.1 times more than white applicants.
Only half of the top 10 mortgage lenders in Maryland were required to meet CRA guidelines, according to the coalition and Economic Action Maryland.
The federal CRA focused on the credit needs of low- and moderate-income communities, but it does not require many lenders to reinvest in communities of color. And, according to the Consumer Financial Protection Bureau, 60 to 70% of mortgages originated with institutions not covered by the federal law, including credit unions and home mortgage companies.
This significantly affects a city like Baltimore, where 33% of loans went to African American borrowers despite the city being 62% Black, according to the coalition.
“Credit unions have a significantly higher denial rate for borrowers of color than the financial institutions that are covered by CRA like banks and the non-mortgage lenders,” said Marceline White, executive director of the program.
“In a state like Maryland where we know Prince George’s County is one of the wealthiest majority-Black counties in the country, it’s disturbing to see these kinds of denial rates across the state,” White added.
Advocates say a state-level CRA would complement the federal law by assessing performance in individual counties and addressing underserved communities.
A Maryland CRA would apply to banks and credit unions with about $46 billion in assets and cover mortgage companies that made more than 68,000 loans over three years, according to the National Community Reinvestment Coalition.
“The reason why you want this is because not all banks and credit unions are doing a great job in serving underserved communities,” said Josh Silver, a senior fellow with the coalition. “So you want to encourage the ones that are behind to do better.”
President Jimmy Carter signed the CRA into law in 1977, nine years after Congress passed the Fair Housing Act, which outlawed the discriminatory practice known as redlining. The CRA focused on the credit needs of low- and moderate-income communities, as well as curbing discriminatory bank lending through loans, investments, products and services.
“The banking industry has changed dramatically since 1977 and emerging technologies as well as the growth of non-bank lenders means there is a need to modernize, expand, and strengthen CRA to meet the needs of our communities and marketplace today,” Economic Action Maryland said in its position paper.
And data shows that “race is a more significant predictor of denial than income or creditworthiness,” the group said.
Lenders subject to the CRA are overseen by the Federal Deposit Insurance Corp., the Federal Reserve Board and the Office of the Comptroller of the Currency. These regulators provide information on the banks they oversee, as well as the banks’ CRA ratings and performance evaluations.
On a federal level, banks pass their exams around 98% of the time even as “bank lending patterns continue to exacerbate existing racial inequalities,” according to Economic Action Maryland.
The advocacy group has called for establishing CRA requirements for mortgage companies and credit unions, expanding grading requirements to include “assessments of lending in distressed or underserved communities or populations,” examining performance by county, and creating stronger enforcement mechanisms.
“The banks that are doing better are required by law to make sure that they are trying to reduce these kind of lending disparities,” White said. “If they want to grow and merge with another organization, having a poor record could affect their ability to do so.”
Maryland would not be the first state to enact a state-level CRA. Connecticut, Massachusetts, New York and Illinois have extended their own regulations to non-banks and credit unions. Massachusetts was the first to do so.
After the enactment of the Massachusetts CRA, the number of both Black and Hispanic credit union applicants rose significantly from 2019 to 2020, according to the Massachusetts government.
With Democratic Gov. Wes Moore’s swearing in this year, there is hope among advocates that Maryland will join the list of states with a state-level CRA in the next year or two.
“We’re working with Economic Action Maryland and the state legislature for introducing a bill, hopefully in the next session,” Silver said of the coalition. “Obviously, we hope the legislature passes it and Governor Moore signs it.”
Moore’s office did not respond to a request for comment.