Issue Paper: Domestic Access to Capital

Sufficient, Sustainable Livelihood for All: Domestic Access to Capital
NOVEMBER 2003

Background

The ELCA social statement “Sufficient, Sustainable Livelihood for All” (ELCA, 1999) [1] is a benchmark for our role as Christians in economic life. Because of sin, we have fallen short of our responsibilities to one another in this world, but we live in light of God’s promised future that ultimately there will be no hunger and injustice. This promise makes us restless with a world that is less than what God intends. In economic matters, this draws attention to:

The scope of God’s concern: “for all”;
The means by which life is sustained: “livelihood”;
What is needed: “sufficiency”; and
Long-term perspective: “sustainability” (pg. 3). 

"The vantage point of the kingdom of God motivates to us to focus on more than short-term gains. Humans, called to be stewards of God’s creation, are to respect the integrity and limits of the earth and its resources” (pg. 14). We are challenged to pursue policies and practices around sustainability. The multitudes around God’s global table are recognized as neighbors rather than competitors or strangers (pg. 17).

As the U.S. domestic economy grew in the latter half of the last century, there was a concern that more people be provided opportunities access to meet their credit needs, specifically mortgage lending. Therefore, Congress enacted the Community Reinvestment Act, and regulations were first issued in 1977.  They were revised in 1995. This Act encourages depository institutions to meet the credit needs of all communities in which they operate, including low- and moderate-income communities.[2]

During the late 1990s, there was an increase in people living in credit nightmares. According to the U.S. Department of Housing and Urban Development, there has been progress, but too many families still are suffering because of abusive practices in segments of the mortgage lending market [3]. Although in and of themselves, the following practices are not necessarily predatory in nature, excessive and/or inappropriate use of the following practices could be signs which lead to issuing a predatory loan:

• Flipping [4] and asset-based lending;

• Points fees, yield spread premiums, and interest rates;

• Steering to subprime loans, when that is not necessary;

• Forcing credit insurance;

• Prepayment penalties; and

• Refusing to report good credit.

Concerns regarding these abuses [5] and the lack of involvement in poor and minority communities have been the focus of several lawsuits, neighborhood organizing, and new governmental regulations. The most recent “Principles for Global Corporate Responsibility,” The Corporate Examiner 31, nos. 4–6 (2001)[6]. stipulate that financial services—including micro-financing, discounted loan services, and other fair lending practices—are made available to local communities, including those underserved, on a fair and equitable basis.

ELCA Social Policy
“Sufficient, Sustainable Livelihood for All” (ELCA, 1999): In its social statement, the church develops a vision of sufficient and sustainable economic life for all people, especially the poor and disenfranchised. It particularly calls for scrutiny to ensure that new ways of providing low-income people with assistance and services do not sacrifice the most vulnerable for the sake of economic efficiency and profit (pg. 12).

Corporate Response
The data for community reinvestment comes from reports available as a result of the enactment of the Home Mortgage Disclosure Act (HMDA). This public information serves as a basis for working with financial institutions.  The consultant used by the faith community is CANICCOR, a California-based organization, which provides social evaluations of the financial sector’s performance. These include lending to low income and minority borrowers for housing. The financial institutions have come to value this analysis and are willing to meet to dialogue about solutions to their challenges in this area.

Recent lawsuits filed over the predatory lending practices involved with some mergers and securing bundles of loans provided a natural platform to encourage the discussions. Financial institutions have been open to dialogue, with resolutions serving as catalysts to provoke an initial response from the companies.

Shareholder Work History
Since 1998, the community of faith-based investors (mainly through the Interfaith Center on Corporate Responsibility) has been urging companies to invest in minority communities and to ensure these investments are not predatory in nature. In 2000, the ELCA became involved with resolutions and dialogues around community reinvestment, subprime lending, and securitization of predatory loans. The discussions have encouraged the larger financial institutions to adopt policies to ensure their own loans, those they bundle to sell, and those they purchase are not of a predatory nature. Dialogue has moved toward the middle market of financial institutions. Community reinvestment has again enabled more and more creative ways to access the “unbanked” community.

Resolutions Guidelines for ELCA

• We support fair-lending community reinvestment policies.
• We support a general program goal for housing loans to achieve industry level in the market area.
• We support annual reports to shareholders on lending achievements.
• We support oversight by outside committees to ensure that no employee or broker engages in predatory practices.
• We support reports on avoidance of predatory lending practices.
• We support procedures to ensure loan screening and originator screening for predatory loans.

[1] Evangelical Lutheran Church in America. Sufficient, Sustainable Livelihood for All. Minneapolis, MN: Augsburg Fortress Publishers, 1999. http://www.elca.org/socialstatements/economiclife

[2] Federal Reserve Board. Community Reinvestment Act. Washington, DC: U.S. Congress (12 U.S.C. 2901), 1977. http://www.federalreserve.gov/dcca/cra/

[3] U.S. Department of Housing and Urban Development. Predatory Lending. Washington, DC: HUD Web site, 1999.

[4] Loans refinanced with high additional fees, rather than working out a loan that is in arrears.

[5] Center for Responsible Lending. A Resource for Predatory Lending Opponents. Washington, DC: Center for Responsible Lending Web site, 2004.  http://www.responsiblelending.org/

[6] Steering Group of the Global Principles Network. Principles for Global Corporate Responsibility: Bench Marks for Measuring Business Performance. New York, NY: Interfaith Center for Corporate Responsibility, 2001. 3^rd edition revised and released April 2003, http://www.bench-marks.org/