Issue Paper: Domestic Access to Capital

Sufficient, Sustainable Livelihood for All: Domestic Access to Capital
NOVEMBER 2007

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 which will further sustainability. The multitudes around God’s global table are all recognized as neighbors rather than competitors or strangers (pg. 17).

As the U.S. domestic economy grew in the latter half of the 20th century, there was a concern that more people be provided opportunities for access to credit, specifically in the area of mortgage lending for housing. Congress enacted the Community Reinvestment Act, with regulations first issued in 1977 and 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]

Over the last decade there was an increase in people living in credit nightmares. Although many institutions and legislatures have addressed the practices leading to the nightmare and progress has been made, too many today are still suffering. [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 unnecessary;

• Forcing credit insurance;

• Prepayment penalties; and

• Refusing to report good credit.

Concerns regarding these abuses and the steering of minorities toward the subprime market contribute to the problem today. [5] 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—be 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 concerning community reinvestment come 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. One consultant used by the faith community is CANICCOR – a California-based organization, provides social evaluations of the financial sector’s performance. These assessments include trends in lending to low income and minority borrowers for housing. The financial institutions have come to value CANICCOR’s analysis and are willing to meet with CSR representatives to dialogue about solutions to their challenges in this area.

Lawsuits have been 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.

Social Criteria Investment Screens
None currently apply to this paper.

Resolutions Guidelines for ELCA

• We support fair-lending community reinvestment policies.

• We support a general program goal for housing loans to low and moderate income people, with the focus on minorities, so that an institution would achieve average industry levels 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 higher standards in securitizing loans as well as 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/