WASHINGTON – Low-income neighborhoods once cut off from credit are finding “bad” lending may be worse than none at all, according to Federal Reserve Chairman Ben S. Bernanke, Bloomberg News reports.
“Recent problems in mortgage markets illustrate that an underlying assumption of the [1977 Community Reinvestment Act of 1977] – that more lending equals better outcomes for local communities – may not always hold,” Bernanke said in a speech Friday. “How to try to differentiate ‘good’ from ‘bad’ lending in the CRA context is an issue that is likely to challenge us for some time.”
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The CRA establishes guidelines by which the Fed and other regulators can rate how equitably a bank serves the community, and lays out methods for boosting lending to low-income borrowers and other underserved segments of the economy.
But now, Bloomberg noted, with delinquencies on “subprime” mortgages for consumers with poor or no credit histories at a 3.5-year high of 13.3 percent, the Fed and other regulators are under fire for not doing more to prevent borrowers from getting loans they couldn’t repay.
