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Banks Lending Less in Low-Income Areas

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The federal Community Reinvestment Act (CRA) requires banks to invest and provide services in low- and moderate-income communities. But a recent report by a local housing group shows a sharp drop in CRA activity in 2007 and 2008.

During this period, the report says, 17 of the largest banks in New York City decreased lending for community development by $560 million, despite a 10% increase in deposits. Banks also reduced lending for multi-family buildings in less affluent neighborhoods by about 24%.

"There's been a dramatic drop in bank reinvestment activity because our banks have grown increasingly more distant from local community and less responsive as more of the banks consolidate and become super-regional or even global institutions," says Benjamin Dulchin from the Association for Neighborhood and Housing Development (ANHD), who helped author the report. 

ANHD advocates for affordable housing and says the report was prompted by developers complaining they were having a harder time getting their projects financed. To meet their obligations under the Community Reinvestment Act, banks often invest in affordable housing. Deb Howard from Pratt Area Community Council says a current Brooklyn project her group worked on is stalled because loans can't be obtained.  "These are affordable home ownership opportunities where we can't get the end loans we need to close out these deals," she says.

Some banks blame the decline on the recession but say lending is starting to rebound. Citibank showed some of the sharpest declines. In a written statement, the bank says, "in the first half of this year, we have either lent or invested approximately $1 billion in New York, returning Citi to a leading position in this segment." 

Housing groups say regulators need to hold banks to higher standards and look more closely at the what they deem CRA eligible lending. For instance, they say banks should not get credit for loans they made to private equity firms that overpaid for buildings in low-income neighborhoods because they thought they could dramatically raise rents and replace low-income tenants with higher income ones. Many of those buildings ended up in foreclosure. ANHD says satisfactory ratings are too easy to come by and it's rare for regulator to find that a bank has failed to satisfy its Community Reinvestment Act obligations.