In honor of our 50th anniversary, we invited longtime community reinvestment leader Ted Wysocki to share some thoughts on the theme of looking back to think about the future. As Ted notes, his career in the community reinvestment field dates back to working with Gale Cincotta and National People’s Action (now People’s Action) as the Chicago-based coalition advocated for Congressional passage of the Home Mortgage Disclosure Act and Community Reinvestment Act (read more on our history page). Here, he shares a few reminiscences and opinions.
I first met Woodstock Institute sometime in the mid-’70s when I worked for Gale Cincotta, historically recognized as the “Mother of CRA” at National People’s Action (NPA).
By 1983, we were collaborating to leverage the federal Community Reinvestment Act for Chicago’s neighborhoods as we negotiated with the First National Bank of Chicago [now Chase] to secure $100 million, an unprecedented commitment at the time, in new loan products for Chicago’s communities.
There’s a lot of history in those first 10 years of Woodstock’s legacy and the beginning of my community development career. But as I reflect on today’s headlines and Woodstock’s future Looking Forward, a few déjà vu moments resonate with a forehead-slapping exclamation:
Assuring equal access to credit
Regulators apparently still haven’t embraced their jobs to assure fair and equal access to credit. Legislators? I don’t even know where to start. “The best money can buy” comes to mind. Except the clients paying are doing so to weaken economic justice to advance their own greed.
Predatory lending expanded exponentially before the 2008 financial crisis. It continues today as revealed by Woodstock Institute’s campaign against pawnbrokers in Illinois charging 243% on loans in opposition to state law to limit their rates to 36%.
Last year former Woodstock senior VP Dan Immergluck published Red-Hot City: Housing, Race, and Exclusion in Twenty-First Century Atlanta. Dan is now a Georgia State University professor in the Urban Studies Institute at the Andrew Young School of Policy.
In the book, Dan tracks racialized gentrification in Atlanta, revealing warnings and lessons for cities throughout the US. He notes that local actors “could have acquired and banked land to establish significant amounts of long-term affordable housing in neighborhoods that would experience rapid increases in land values in just a few years.” Dan contends that how major redevelopment projects get done, how they are financed, and the rules under which real estate markets operate are all policy choices, and these choices can and do make a difference.
Today’s rental crisis was caused by the influx of investors acquiring foreclosed homes pricing many Americans out of the market. As Dan’s work suggests, foreclosure moratoriums for owner-occupied properties could have averted this depletion of affordable units.
And then, of course, there are interest rates. Back in August/September 1979, inflation was running over 13%. It was becoming apparent that Paul Volcker’s policy of raising interest rates was actually increasing inflation. Yet, the Fed continued to raise rates.
Mortgage interest rates then were heading towards 20% — terrifying considering many Americans are struggling to buy their first home now with rates at or above 6%. While today media coverage of the Federal Reserve Board is fairly prevalent, the Fed was a shadow force tracked by just a few policy wonks in the 1970s.
Then came Paul Volcker with his cigar and there was a new sheriff and face of the Fed in town. I have distinct memories of Volcker tangling with Gale Cincotta and the NPA’s other community leaders a few times but here’s one of the most memorable.
Volcker’s Federal Reserve vs NPA
In early 1980, Congress passed a law that gave Paul Volcker’s Federal Reserve control over almost all lenders in the US, not just the commercial banks that were members of the Fed system. Volcker used that law to require non-interest-bearing reserves resulting in rising mortgage interest rates. Guess who got hurt: millions of Americans trying to own or improve their homes, small businesses and communities throughout the country.
On April 14, 1980, community leaders in DC for the 9th annual NPA conference came knocking on the Fed door. They had fun protesting with the “Land Shark” from Saturday Night Live. But they didn’t just protest for the fun of it.
They were calling for a Federal Reserve Neighborhood Credit Policy to lower interest rates for loans targeted to owner-occupied homes and multi-family properties providing affordable housing for low- and moderate-income families. Reserve requirements would be lowered for financial institutions making “reinvestment loans.” They would be allowed to borrow from the Fed at special low rates and long terms provided that the full amount of these funds were used for “reinvestment loans.”
Stop to consider the business model flaw in predatory lending. Lenders decide that low- and moderate-income families are “risky” so they charge a higher interest rate. That makes the loan more costly and less affordable.
Without the availability of affordable credit, community reinvestment cannot proceed. CRA requires that lenders have a “continuing and affirmative obligation to make credit available.” But unless that credit is affordable, financial institutions will not be fostering community development.
Really, how many more luxury condos can the 1% buy? Is the U.S. housing industry serving the demand of foreign and corporate investors over the needs of American families for quality affordable housing?
But then, a luxury developer was elected president.
It’s way past time to revisit a Federal Reserve Credit Policy that promotes reinvesting in low- and moderate-income communities. Inflation is again knocking on our doors but income inequality is still haunting our economy.
As Woodstock Institute celebrates its 50th anniversary, we should acknowledge the value of their in-depth research and persuasive advocacy not only in the past but even more so now Looking Forward. Someone has to throw the flag, blow the whistle and call the penalty. There are necessary policy decisions to be made for an American Just Economy.