Ending the Racial Housing Gap

Black family of four standing in front of a home.
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Regulators should require banks to lend to Black homebuyers to remedy centuries of discrimination.

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What happens when a law intended to help Black communities ends up harming them?

Regulators are confronting this question as they update regulations implementing a federal law that requires banks to lend to homebuyers in low-income neighborhoods. This law— the Community Reinvestment Act (CRA)—is failing at its intended purpose of remedying historic discrimination against Black Americans. Instead, the CRA has increasingly become a vehicle for white gentrification of Black neighborhoods.

But a trio of federal agencies have a historic opportunity to restore the original objectives of the CRA as they revamp the regulations implementing it for the first time in 25 years. These agencies should require banks to lend specifically to Black homebuyers—a change advocates describe as making the law “race conscious.”

Making the CRA “race conscious” would be a major change for the 40-year-old law, which currently only requires banks to lend to homebuyers in “low- and moderate-income neighborhoods” and makes no mention of race. But such a change would protect Black homeowners by preventing white homebuyers from taking advantage of the law to gentrify historically Black communities.

The surviving legacy of “redlining” practices—where banks only provided mortgages for homes in desirable neighborhoods to white homebuyers—demonstrates the need for CRA reform. Legislation codified redlining until only half a century ago, when a series of federal civil rights laws prohibited the practice. Among these laws, only the CRA targets reversing discrimination at a neighborhood level, rather than an individual level.

Although the CRA has had some success in reducing discrimination against Black homebuyers, racial disparities in mortgage lending persist. Today, available data demonstrate that Black Americans are significantly more likely to be denied mortgage loans than their white counterparts, even when controlling for the applicant’s income.

Furthermore, the CRA has increasingly facilitated white Americans’ moves into historically Black neighborhoods—an unintended consequence of the law’s purely geographic focus. Because banks can meet the CRA’s requirements by lending to any homebuyer in a low-income neighborhood—rather than just to low-income homebuyers—they can remain in compliance while still exclusively lending to white, affluent homebuyers moving into gentrifying neighborhoods.

The consequences of this quirk manifest themselves especially in racially diverse and rapidly gentrifying regions such as the Philadelphia metropolitan area. Although the area has roughly equal white and Black populations, lenders make 10 times as many mortgage loans to white borrowers. Such lending patterns have pushed housing prices up in historically Black neighborhoods and driven out longtime residents.

The trio of federal agencies currently re-writing the regulations governing CRA compliance have an opportunity to remedy these issues by explicitly requiring banks to lend to Black homebuyers. The Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation should take two main steps to accomplish this goal.

For example, these agencies could require banks to lend to Black borrowers at a level proportionate to their representation in a community. Such a race-based requirement would ensure longtime Black residents are not disadvantaged compared to white newcomers when applying for loans.

The agencies should also extend the CRA’s coverage to middle and upper-income neighborhoods by requiring banks to make a certain percentage of loans to Black borrowers in these neighborhoods. Expanding the CRA’s reach would increase the accessibility of historically white neighborhoods to Black Americans.

These changes would help erase the profound racial-wealth disparities that exist today by helping Black Americans afford homes and move into wealthier neighborhoods. But they could also spark debate about the legality of banks using race to make lending decisions.

A revised CRA that considers race could face lawsuits claiming that the law violates the U.S. Constitution’s Equal Protection Clause. The Supreme Court has required any regulations that give racial preferences to meet the high bar of having no race-neutral alternative and furthering a “compelling governmental interest”.

Moreover, the Court has ruled that remedying general past discrimination is not such a compelling interest. Instead, the government must show that a policy that explicitly takes race into account will resolve discrimination that is currently ongoing and specific to a given location.

The trio of federal regulators responsible for implementing the CRA may be able to meet this hurdle by using the abundance of data that show continued racial disparities in mortgage lending to prove that housing discrimination currently exists in cities across the country. Furthermore, the government can argue that the failures of the current CRA demonstrate that no race-neutral alternative exists for remedying housing discrimination.

Although these arguments may ultimately fail at a Supreme Court that appears increasingly skeptical of any affirmative-action programs, regulators should still try to implement CRA reform, using as much location-specific data as possible. Decades ago, Congress passed the CRA to help end housing discrimination against communities of color. Regulators should not pass on the opportunity to restore the law to that original purpose.