Looking to buy and refurbish? Housing in a low income census tract of Baltimore, MD.
In order to discourage the banking practice of redlining, the U.S. 1977 Community Reinvestment Act (CRA) was passed to encourage banks to provide a greater proportion of their loans to low income tracts of a community.
Under CRA rules, banks get credit if they offer a certain portion of their mortgage loans to people with lower income. This means test favours someone who has scrimped and saved for years to purchase a house over a middle or wealthier house flipper who has plans to gentrify the house and sell it for a profit.
But . . . banks also get credit for offering loans to people who live in a low-income tract. Struggling low income purchaser or wealthy gentrifying house-flipper? The law does not require the banks to discriminate based on the income of a resident living in the tract.
The result? In some areas, loans are being made to wealthier people. That defeats a purpose of the CRA. Read more about the limitations of the law and its consequences for the Washington D.C area in The Agenda: How A 40-Year-Old Federal Law Is Speeding Gentrification