July 28, 2015 | By RGR Marketing Blog

The CRA Prevents Discriminatory Lending

There was a time when discriminatory mortgage lending practices were all too common. Lenders would mark off neighborhoods they considered to be “high-risk” in red, and would deny mortgage applications from residents of those neighborhoods. This practice came to be known as “redlining.”

Originally passed in 1977, the Community Reinvestment Act was designed to eliminate discriminatory lending practices that so often barred low-income individuals from homeownership.

CFPB and DOJ Are Cracking Down on Redlining

Recently, the Department of Justice and the Consumer Financial Protection Bureau have been cracking down on lenders for redlining. Regulators say they’re seeing more potential redlining cases since the financial crisis, and while they haven’t yet brought legal action against specific lenders, but the CFPB released a statement indicating that its fair lending office had several redlining investigations open.

What Does the Community Reinvestment Act Require of Mortgage Lenders?

The CRA mandates that all lenders offer credit in all communities in which they’re chartered to do business, provided the credit they offer is in line with safe, sound operating principles.

The CRA: A Controversial Act

Since its passage, the Community Reinvestment Act has been the subject of intense debate. Some experts say it was a major contributing factor in the financial crisis of 2008, while others say it’s a necessary tool to combat discrimination and to drive community investment in low and moderate-income neighborhoods.

CRA Compliance Is a Must

Regardless of one’s opinion of the CRA, it’s not going anywhere, and lenders need to be careful to follow the letter and spirit of the law, while simultaneously limiting exposure to accusations of predatory lending practices.

How to Stay on the Right Side of the CRA

In order to create a successful Community Reinvestment Act strategy, mortgage lenders have to be careful how they approach mortgage lending in under-served communities. For starters, all mortgage brokers and associated personnel should be made aware of the Community Reinvestment Act’s finer points, so they can monitor their own transactions for compliance.

It’s also a good idea to create a compensation structure that doesn’t place too high a premium on loan amount. When bonuses are tied to lending volume, some staff members may be tempted to encourage applicants to take on more financial responsibility than they’re equipped to handle.

In addition, mortgage lenders should make sure their mortgage insurance partners are reputable and reliable. The borrower may be the one paying for the mortgage insurance, but it’s there to protect the lender against default. Statistically speaking, loans made under the Community Reinvestment Act are more likely to default than traditional borrowers, so covering the business’s assets is crucial.

If you're in the mortgage business and you're looking to give your marketing efforts a boost, consider partnering with RGR Marketing, and buying high quality mortgage leads to increase revenue and gain more prospects today.

[Photo Via: EurWeb]

Contact Us

Get started with free* leads.
Call us at 310-540-8900
Don’t take our word for it—find out for yourself how good our leads are and what a difference working with us can make.
Call us at 310-540-8900 or fill out the form below and we’ll tell you how you can get high quality leads for free*.
I authorize ReallyGreatRate, Inc. to communicate with me via email.
* Get up to 10% free leads on your first order!

Let's talk

Start making more money today

Mortgage

Solar

Home Improvement

  • I authorize ReallyGreatRate, Inc. to communicate with me via email.