The Reconstruction | October 13, 2021

Racial equity planks in a new Community Reinvestment Act can expand the American Dream

Karim Hutson

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Guest Author

Karim Hutson

When most Americans think about civil rights, we think about the violence perpetrated upon Black Americans and the nonviolence movement that finally helped usher in federal legislation in 1964 with the Civil Rights Act.

Outlawing discrimination and more protections for communities of color were a cultural and political milestone in the fight for equity and fairness. And the Community Reinvestment Act, passed in 1977, was supposed to be another crucial part of our country’s racial reconciliation. The CRA was meant to reverse the effects of redlining, a longstanding practice in which the federal government and banks restricted lending in certain neighborhoods that they deemed too risky based mainly on the race and ethnicity of residents. 

But redlining opened the gates to shameful predatory lending practices by white investors that schemed hard-working Black Americans out of their savings. It hoodwinked them into believing they could fairly and reasonably pursue dreams of real property equity and generational wealth through hard work. And those damaging disparities are felt not only in home ownership but also in how Black and Brown developers can contribute to our communities.

While the gears of bureaucracy tend to be slow-moving, we have an open window for change. Earlier this year, the Office of the Comptroller of the Currency said it will entirely rescind the most recent CRA rules passed by the previous administration. Without the reversal, Trump-era rules would have gutted even the most basic anti-redlining measures established by the CRA by weakening bank requirements to lend to lower-income communities — all amid the COVID-19 pandemic.

Instead, the office will work with the Federal Reserve Board and the Federal Deposit Insurance Corporation to propose a joint rulemaking to strengthen the law. While we await what that process will look like, the inclusion of explicit recognition of race is non-negotiable if we are to have a more equitable CRA.

Recognizing race

We founded Genesis Companies in 2004 with a commitment to strengthening the communities we work in. As a Black-owned business working in predominantly urban centers with chronically underserved residents, the CRA should be a vital piece of legislation when it comes to our work. And indeed, it has been an important law that has opened some doors.

On a basic level, the CRA has historically compelled banks to operate in lower-income neighborhoods and offer services, including loans, to homebuyers with limited means. It has encouraged banks to engage with community partners to foster local and educational programs that support individuals and local businesses.

Almost all the financing made available to Genesis Companies and our work to build and preserve affordable housing in New Jersey and New York is linked to CRA. The fact that communities of color overlap so closely with underinvested neighborhoods has meant that low-income Black and Brown Americans have benefited, including in those communities where we are active. Programs encouraged by the CRA, like the Low-Income Housing Tax Credit (LIHTC) — a tax credit that incentivizes the use of private equity to build affordable housing — are a primary source of financing for affordable housing, and standards financed by these resources are more and more focused on quality green and sustainable buildings.

But missing in all of the CRA’s pages and amendments over the years is a mention of the very thing that so many Americans hoped it would address — racial equity. Instead, it is framed as a color-blind way to give low- and moderate-income neighborhoods access to credit and banking resources so that disadvantaged Americans could reinvigorate their communities through homeownership and economic opportunity.

While a noble intent, the CRA never went far enough to specifically ensure Black and Brown Americans weren’t shut out from the promise of real estate equity, whether as owners or as entrepreneurs.

Impact investors can play a huge role in this movement. All our neighborhoods across the country are directly impacted by the laws that empower, or discourage, homeownership and development opportunities. Moreover, any investors who value access to opportunity for all and are committed to undoing generations of systemic discrimination can play an active role in undoing these harms.

The CRA’s lack of direct focus on promoting real property equity for Black and Brown Americans has limited its usefulness in reversing the effects of discriminatory lending. As a result, people of color still face systemic issues of discrimination in housing and financing today. 

In 2019, Newsday reported extensively on how Long Island real estate agents egregiously discriminated against homebuyers of color and how brokerage firms furthered segregationist activities across racial lines. The city of Oakland is currently pursuing legal action against banks for alleged discriminatory mortgage lending that forced Black and Brown borrowers into riskier mortgages that resulted in more foreclosures compared to white customers. The New York Times reported on how 75 percent of the government’s initial round of Paycheck Protection Program loans went to businesses in majority-white census tracts.

Common sense reforms

It’s time for us to imagine what an updated and modern CRA can look like, and a fundamental part of that opportunity is to finally acknowledge race more explicitly within its framework. 

For example, 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. While the CRA may boost programs like LIHTC, the overwhelming majority of affordable housing resources are typically allocated to a homogenous pool of real estate development firms with no Black or Brown ownership, even though LIHTC-financed housing is primarily inhabited by people of color.

Overcoming generations of systemic economic racism and inequality continues to challenge us today. While building upon the Civil Rights Act, our country has failed to adequately address the history of lending discrimination against Black people and other people of color that has inequitable allocation of public money and fed the persistent racial wealth gap in the United States.      

The CRA will never be truly successful for all impacted Americans if communities of color continue to be shut out from ownership at every level of real estate. A renewed CRA needs to target every income level for racial groups that have suffered from government-supported discrimination and inequity. 

Yes, regulators must engage with impacted communities. But we as Americans must keep the pressure on to bring about the common-sense reforms that will finally offer all of us a fair shake at the American Dream.

Karim Hutson is the founder and managing member of Genesis Companies, a full-service real estate development firm that specializes in financing, developing and operating mixed-income and mixed-use residential projects.