Fighting Deregulation with Community Investment

On May 24, President Trump signed legislation to roll back critically important regulations on the financial industry. The consumer protection measures, which were put in place under the former Obama administration as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, have now joined the long list of public-interest regulations to be terminated by this administration.

When Obama signed Dodd-Frank into law in 2010, the mortgage meltdown that had begun in 2008 was in full swing, the government was bailing out the big banks that had caused the crisis with taxpayer dollars, and Americans were furious enough that legislators were able to push through the most significant changes to financial regulation since the reforms that followed the Great Depression. These include the Volcker rule, which keeps banks from taking speculative investments, and the creation of the Consumer Financial Protection Bureau—which is responsible for regulating consumer financial companies like banks, lenders, and credit unions. The act also created stipulations for banks to create plans to wind themselves down, instead of filing for bankruptcy, in the event of another economic collapse.The so-called Economic Growth, Regulatory Relief and Consumer Protection Act undermines the reforms introduced by Dodd-Frank. The GOP has been particularly keen on eliminating the Dodd-Frank requirement for increased oversight of mortgage lenders who manage more than $50 billion. The law raises the oversight threshold to lenders who manage more than $100 billion, reducing the number of lenders from 38 to just 12.

The law also lifts regulations on smaller lenders who close on under 500 mortgages a year; these lenders would no longer have to report on racial or income metrics for their customers. It has been shown that smaller companies are often the worst culprits of racially discriminatory lending practices, so the removal of these reporting requirements would deal a big blow to efforts to ensure equity in lending.

The act also includes a decrease in leverage ratios and capital requirements, allowing for more loans with less reserve money backing them up. Smaller banks will receive exemptions to allow for more speculative activity (at present, the Volcker Rule prevents banks from taking excessive risks with customers’ funds). Exemptions are lifted on manufactured homes around “in-house” financing, which will reduce the options for lower income homeowners—all in the name of deregulation and an Ayn Rand-style vision of the “free-market.” The result will undoubtedly be more speculative investing and increased market volatility around mortgages and other lending.

For the socially responsible investing community, this means we have an imperative to invest more heavily in affordable housing, which is already an integral part of our community investment portfolio. Housing is essential for a stable family life, as well as an important platform for growing individual wealth and financial security in our country. New construction is used as a market cycle indicator, since the resources and labor used to build and renovate housing is a huge market force—and the lending for these projects is a mainstay of banking. In the year 2016 alone, housing costs increased at twice the cost of inflation, and for 2017 the median home price in the United States reached $199,200.

Housing isn’t just an important aspect of our economic system; it is also the foundation for healthy, resilient communities. Natural Investments continues to invest in groups that are making strides in affordable housing markets, and our advisors conduct rigorous due diligence before making any investments in this or any other space. Many of us stay politically engaged in our local communities around issues of economic justice; here in Asheville, N.C., I work with Just Economics, which has the country’s largest living-wage certification program, to build awareness among employers and employees about the importance of living wage.

As socially responsible/impact investors, we understand that regulating financial services is not only good for people and communities, but also for maintaining a strong and vibrant economy.

Evan Quirk-Garvan

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