WASHINGTON, D.C. October 21, 2020 (Reuters) — An overhaul of U.S. lending rules must boost incentives to promote affordable housing for low-and-moderate income families, a U.S. Federal Reserve governor said on Tuesday, touching on two issues which will take center stage if Democrats win on Nov. 3. Lael Brainard said the pandemic-induced economic slump had underscored major racial disparities in access to affordable housing which should be addressed when the central bank overhauls the Community Reinvestment Act (CRA) in coming months.
The Fed said last month it would review the law, created decades ago to promote extension of credit to low-income communities and stamp out discriminatory lending. “The core purpose of CRA remains as important as ever, especially given the national conversation we are having about racial equity in our society and the disproportionate impact that COVID-19 is having on (low-and-moderate income) and minority communities,” Brainard told the National Housing Conference virtual meeting.
In 2019, the homeownership rate for Black households was 42.1%, compared to 73.3% for White households, a gap 3.1 percentage points wider than a decade ago, said Brainard. During the pandemic, 25% of Black renters and 22% of Hispanic renters were behind on rent payments as of September, compared with 12% of White renters, according to Census Household Pulse Survey data analyzed by the Fed.
The Fed’s CRA review aims to ensure the rules are still effective, while accounting for the way technology is changing banking. It has proposed changes to promote access to housing, including by scoring mortgages by number rather than size, and by reviewing the definition of affordable housing.
Brainard is seen in Washington circles as a leading contender for Treasury Department secretary if Democratic presidential candidate Joe Biden wins the election. Biden has pledged to use financial reforms to address racial and wealth inequality, including by expanding the CRA and boosting affordable housing. Brainard has sat on the Fed board since 2014 when President Barack Obama nominated her for the post through 2026. A moderate Democrat, she has resisted the Fed board’s efforts to water down rules introduced after the 2009 financial crisis.