If you dream of owning a home, but don't make a ton of money, a CRA mortgage might make that dream come true. Congress passed the Community Reinvestment Act of 1977 in part to combat discrimination in mortgage lending against people living in low-income neighborhoods. Congress also wanted to encourage home buying in those areas through the CRA. CRA mortgages aren't perfect by any means, but they remain a way for income-challenged people to get a home and their slice of the American dream.
You may hear talk about a portfolio loan when you want to discuss a CRA, but don't be thrown by that. They are one and the same. Generally, the largest banks have their own CRA mortgage programs that serve residents in their areas. Some banks do not specifically advertise these loans, as only certain loan officers at a bank are able to work on them. If you believe you'll qualify, ask a bank's mortgage representative about the possibility of a CRA loan.
You are eligible for one of these loans only if you earn 80 percent or less than the median income for your area, but there are some restrictions after that. You may only qualify for a mortgage on a home you're going to live in, and you have to complete the United States Department of Housing and Urban Development's homebuyer education program. The program is available at HUD-certified agencies, or you can take the class online. The online class consists of several two-hour sessions designed to teach you how to understand your mortgage commitment. Take the class and receive a certificate before you fill out the financial information for your mortgage application.
While there are CRA programs in every state, they vary according to the individual banks. However different they are, qualifying borrowers usually get low requirements for down payments, low or no mortgage insurance premium requirements, and a seller paying closing costs. You do not have to be a first-time homeowner, and the lender usually offers more flexibility than standard mortgages. If your friends or relatives want to give you money for the down payment, that's fine with a CRA mortgage. However, you can't qualify for a CRA mortgage and a State Bond loan provided by your state's agency for housing finance.
CRA and Subprime Mortgages
Don't be scared off by the idea of a CRA mortgage, or worry that it carries some kind of stigma. While some critics blame CRA mortgages for causing the housing crisis that began in 2007, this might not accurate. According to a 2009 report by Elizabeth Laderman and Carolina Reid for the Federal Reserve Bank of San Francisco, the changes in credit scoring and the secondary mortgage market expansion led to the growth of subprime lending. They cited sources stating that over half of subprime loans were made by independent mortgage companies, which by law cannot underwrite CRA mortgages. Another 30 percent were made by affiliates of banks or thrifts, which also are not subject to routine examination or supervision, according to the report. However, CRA critics state the CRA started the lax lending standards that led to the huge increase in subprime mortgages.