Congress, the banks and the bank regulators are about to complete another skirmish in their Bosnia-like campaign to save the older neighborhoods in cities like Baltimore.
It all began in 1977 when Congress enacted the Community Reinvestment Act, which in effect said to the banks: "We [the federal government] tried to save the cities and have failed. You do it!"
Of course, the banks and especially the bank regulators (the Federal Reserve, Federal Deposit Insurance Corp., Federal Home Loan Bank Board and Comptroller of the Currency) had no idea what Congress was talking about. Most regulators, who travel between their vaults in Washington to the vaults of the local banks, had never even seen a city neighborhood.
Fortunately, for them, and most unfortunately for the cities, the Community Reinvestment Act had no teeth, and for the next 12 years the banks and regulators pretty much winked at each other and built up thick paper files to show how hard everyone was working at saving the cities.
By 1989 Congress got really mad and developed a system to rate each bank (very good, good, needs to be better, bad) and to release these ratings to the public. The banks panicked, realizing that an indiscriminating public would confuse a bank's "CRA" rating with its "safety and soundness" rating and possibly withdraw its money.
Virtually every bank in the country appointed a CRA officer, mapped out neighborhoods surrounding its branches and began talking with neighborhood leaders, city housing officials and community nonprofits (who for many years had felt very lonely in their efforts to reverse the deterioration of many fundamentally sound communities).
Baltimore's major banks, in general, responded aggressively to the 1989 directive, and many bank employees, from CEOs to loan origination officers, deserve advanced degrees for the education they have received these past five years. This education was necessary because few people even today can define what "community investment" really means or should mean.
Ironically, those bankers who have made the neighborhoods their classrooms these past five years have a better understanding of the investment needs of the communities -- certainly better than the regulators and possibly even the congressional subcommittee members who are trying to limit and quantify what in the future will be considered "legitimate" CRA activity.
The bank regulators are about to impose quantifiable measures based on percentages of loans originated in given census tracts or areas surrounding the bank.
First, they should call together those lenders of goodwill who have been trying to comply with the spirit of CRA in an admittedly murky environment and ask them what they have learned about the investment needs of our older neighborhoods.
They will learn that the investment needs of older neighborhoods in a city like Baltimore are very complex and diverse. Contrary to the belief among some bank critics that there is a shortage of mortgage money available, bankers in Baltimore, partly to satisfy their CRA obligations, are desperately competing against each other in an environment where there is plenty of money but not enough demand.
Why is demand so low? Many people who could buy a home are afraid to buy in our older neighborhoods; many others do not know how to buy or do not know they can afford to buy; many cannot afford to buy (or cannot afford Maryland's high settlement costs); and perhaps most tragically, many young people whose youth and vitality could rebuild Baltimore are enticed by government-subsidized mortgages to buy in the suburbs and beyond.
In other words, the very government that is pressuring banks to invest in our older neighborhoods is offering below-market-rate mortgages to people to move out of the city.
Neighborhoods like Hamilton, for example, need strong zoning enforcement and revitalized commercial strips to assure new and existing homeowners that their investment is secure.
Neighborhoods like Waverly, where homeownership declined over the past few decades, need government sponsored tenant-conversion incentives which will generate mortgage demand from the banks.
Neighborhoods like Coldstream-Montebello need housing inspectors to force mostly absentee landlords to repair their houses and make the neighborhood more appealing for the next generation of homeowners. The past 12 years of federal housing cutbacks forced Baltimore City to reduce drastically its housing inspection department. Rotting gutters, peeling paint and crumbling front steps discourage potential homebuyers.
Other neighborhoods need more radical treatment, as the city is attempting with its comprehensives drug busts, street clean-ups and vacant house clearance.
This is the lesson the bankers learned these past five years. Neighborhood investment and renewal involve much more than numbers of loans originated.
The outcome of the current skirmish has tremendous implications for Baltimore. If "legitimate CRA" activity is limited to numbers of mortgage or small-business loans approved, we stand to lose much of the good will and, in my opinion, absolutely legitimate community investment activity that we have and continue to discover.
Is not setting aside space in a bank branch for a community police office an investment in the community? Or sponsoring after-school activities for children with few healthy recreational or cultural opportunities? Or developing homeownership classes for people who never dreamed they would be able to own their own home? Or sponsoring a marketing study for a declining commercial strip? Or serving on the board of directors of a local housing agency or community medical center? Or mobilizing your fellow loan origination officers to spend Saturday afternoon painting an elderly widow's living room? Or developing with others a summer baseball league?
These are a very small example of the kinds of obvious "investment" that have resulted from those excursions into the neighborhoods since 1989. To discourage such activities by limiting and quantifying "legitimate community reinvestment" at the very moment when we are just beginning to understand community investment makes no sense. Congress should make the regulators spend one day a week out in the neighborhoods and come back in a year with their definition of "legitimate community investment."
Vincent Quayle is director of the St. Ambrose Housing Aid Center.