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Independent mortgage banks (IMBs) transact more home loans in low- and moderate-income (LMI) neighborhoods and predominantly minority neighborhoods than and banks, according to a new report coordinated by the Urban Institute on behalf of the Mortgage Bankers Association (MBA).

The report, titled “An Assessment of Lending to LMI and Minority Neighborhoods and Borrowers,” examined lending activity at both the national level and in states that have implemented or are considering extending Community Reinvestment Act (CRA) requirements to IMBs.

“Comparing lending by banks (who are subject to the CRA) with lending by IMBs (who are not subject to the CRA, except in Massachusetts), we find that IMB lending to LMI neighborhoods, predominantly minority neighborhoods and LMI predominantly minority neighborhoods is much higher than bank lending in those neighborhoods,” the report said. “At the national level, LMI borrowers receive less than their proportionate share of mortgage lending, as measured by existing homeowners, while minority borrowers receive more mortgage lending than their share of current homeowners.”

CRA was implemented in 1977 in response to decades of redlining practices by banks and thrifts against LMI and predominantly minority communities. Credit unions and IMBs were not part of the CRA regulations because most mortgage credit was provided by banks and thrifts when the law went into effect. By 2022, however, IMBs accounted for 60% of all mortgage originations, which spurred calls to extend CRA to include IMBs. New York, Massachusetts and Illinois have state-based versions of the CRA that cover nonbank mortgage lenders, though only Massachusetts has implemented that part of the statute.

However, the new report questioned the need to enact new laws when IMBs are already more responsive than banks to these specific customer demographics.

“Meanwhile, despite the fact that IMBs are currently examined under CRA rules only in Massachusetts, IMBs are significantly more active in LMI and minority lending than their bank counterparts,” the report said. “The data and analysis in this report may prove useful to the states as they continue their deliberations.”