What my experience with Habitat for Humanity tells me about the Community Reinvestment Act

I was browsing the feed for Instapundit when I saw this link, Stop Covering Up and Kill the Community Reinvestment Act. Since I view my experience with Habitat for Humanity to be relevant to a discussion about the Community Reinvestment Act, I followed the link. The Investor’s Business Daily article argues for the elimination of the the Community Reinvestment Act because it led to lower mortgage standards and subsequently higher number of mortgage defaults. Here is my argument for modification of the Community Reinvestment Act rather than elimination.

  1. The Community Reinvestment Act in its present form appears to throw money at the home ownership problem in low income areas and hopes that something good will happen. From my Habitat for Humanity experience I can tell you that this does not work. When I look at the low income community we focus on, I can see little effect from the Community Reinvestment Act. Home ownership numbers languish at the same numbers they were at twenty years ago. At Habitat we spend a large amount of time on the front end and the back end of the mortgage to make home ownership work for the families. Building houses is the fun part. Making home ownership work for low income families is hard work and it is not an option for us. We either spend the time or the home owner will fail. We take this personally. When one of our home owner fails, we fail. There is a fine line between between building a home that blesses the family and the community and building tomorrow’s ghetto. Mortgage brokers are reluctant to perform this kind of nurturing even though it is necessary for success. Low income home owners are not like the other home owners, they have more problems. At Habitat we feel we are lucky if we can break the rental mentality in a couple of years.
  2. I think that the Community Reinvestment Act would be more effective if the mortgage originators were not allowed to securitize the mortgages. This places an ownership burden on the mortgage originator that would force a small town banker mentality to this sector of the mortgage market.  The most important number for making mortgages work in low income areas is the home owner’s telephone number. If you have a personal relationship with the home owner, they will pick up the phone and listen to your advice.
  3. When we follow normal mortgage practices at Habitat, it works. When we do not follow standard mortgage practices, we frequently fail. When we get carried away with compassion, we cause more harm than good. The only difference between a Habitat mortgage and a standard mortgage should be the zero interest loan.