Friday, November 19, 1999
OTTAWA - Today, the Canadian Community Reinvestment Coalition (CCRC) released its eighth position paper detailing how changes to Canada's banking laws would create $15 billion for affordable housing in Canada over the next decade.
The 16-page position paper, entitled More Money Down: The Case for a Community Reinvestment Act to Ensure Financial Institutions Help Solve CanadaÕs Affordable Housing Crisis, details the many significant barriers individuals and affordable housing developers face when trying to obtain financing from banks and other financial institutions for affordable housing. For example, financial institutions, led by the Canada Mortgage Housing Corporation (CMHC), reject mortgage applicants if their debt is greater than 32% of their income, even though there is no evidence that people with higher debt levels are more likely to default on a mortgage.
In addition, affordable housing developers often face difficulties securing financing from Canadian financial institutions, even with guaranteed CMHC insurance of the mortgage. Examples of these difficulties include: inflexible or excessive interest rates; policies that deny loans to non-customers or to non-profit organizations; and providing an inadequate portion of financing costs.
The 20-year old U.S. Community Reinvestment Act (CRA) requires financial institutions to track demand for home and affordable housing development mortgages, and approval and rejection rates, by race, gender, income and neighbourhood (small business and community development loans are also tracked). The statistics reveal whether the institution is discriminating against certain groups of applicants, and if so the institution is required to take corrective action.
As a result of the CRA, financial institutions have reinvested over $1 trillion in disadvantaged communites across the U.S. over the past decade, of which at the very least $315 billion has been for affordable housing. Under the CRA, many U.S. financial institutions have also created flexible affordable housing loan programs with low downpayments, no mortgage insurance, and reduced or waived closing cost fees. Subsidiaries of Canada's big banks, including Bank of Montreal subsidiary Harris Bancorp. of Chicago, and TD Bank subsidiary Waterhouse Financial Services, have participated in CRA lending programs to correct poor or discriminatory lending practices.
Several studies by the U.S. Federal Reserve Board and other regulators have found that banks face no increased risks in doing CRA lending, and in fact banks that do higher than average CRA lending are more profitable.
Based on the U.S. experience, and estimating conservatively, the CCRC predicts that enacting a Community Reinvestment Act (CRA) in Canada would create $15 billion in financing for affordable housing from banks and other financial institutions over the next decade.
Unfortunately, Finance Minister Paul Martin did not include adequate CRA-like measures in his June 1999 policy paper on changes to Canada's banking laws. Martin ignored not only the CCRC's recommendations, but also the Federation of Canadian Municipalities which proposed the enactment of a Canadian CRA in its June 1999 National Housing Policy Options Paper: A Call for Action as one of several key measures for solving the affordable housing crisis.
"We call on Paul Martin to close this key gap in his planned changes to Canada's banking laws," said Duff Conacher, Coordinator of Democracy Watch and Chairperson of the CCRC, "The 20-year successful model of U.S. community reinvestment laws can be, and should be, adopted by the federal government to ensure that Canada's big banks do their part to help provide affordable housing for all Canadians."
The CCRC's position paper sets out the following detailed recommendations, among others (the gaps in Martin's proposals are set out in bold after each applicable recommendation):
Canadian Community Reinvestment Coalition
P.O. Box 1040, Station B, Ottawa, Canada K1P 5R1
Tel: (613) 789-5753
Fax: (613) 241-4758
Copyright 1999Canadian Community Reinvestment Coalition