Washington —- When Montrice Yakimov lived in a rough part of Washington while attending Howard University, every bank and credit card company turned her away after one look at her loan applications.

Yet she says as soon as she moved to an upper-middleclass Virginia community during graduate school, the offers came flooding in.

"Nothing about me changed other than the fact that I moved to Falls Church," said Yakimov, who years later is enjoying a role reversal: She now scrutinizes possible discrimination involving banks' lending as the head of Compliance and Consumer Protection at the Office of Thrift Supervision.

Yakimov's office enforces the Community Reinvestment Act, or CRA, which Congress passed in 1977 to target "redlining," a prevalent practice of systematically denying loans to residents of largely minority or low- and middle-income neighborhoods regardless of individuals' creditworthiness. Yakimov, an African-American, says it's a matter of economic justice: "When people ask me why the CRA is important, I tell them this story."

In the present context, the act may have broader implications. Beneath the din of panicking global markets, CRA supporters and critics alike are muttering that the government's handling of the 30-year-old legislation has been at least partially responsible for the housing collapse.

The measure's language was sweeping but vague, directing deposit-taking lenders to help meet the credit needs of "the entire community" —- within safety and soundness standards —- in geographic areas where they have retail branches.

But in recent years, the CRA has lost much of its potency as most borrowers have obtained loans from sources outside its scope, worrying community advocates and prompting House Financial Services Committee Chairman Barney Frank (D-Mass.) this year to begin considering an expansion to the controversial act.

Frank is supportive of a bill introduced by House Democrats last March that would "modernize" the CRA to cover all lending institutions, including mortgage brokers, mortgage companies and credit unions —- many of whom immediately voiced protest. With Frank's influential backing and the distressed economy as a backdrop, however, Democrats are seen as having enough leverage to push through what would be the most dramatic expansion of the act to date within the next year.

The federal government and community advocates have hailed the measure as an overall success since 1977: Nearly $4.7 trillion has been reinvested into underserved neighborhoods; studies show it has effectively boosted homeownership rates for low- and middle-income brackets.

But as losses mount in financial markets, a small but vocal quarter has steadily blamed the CRA for the entire meltdown.

Jim Haughey, chief economist at Reed Construction Data, calls the act a doomed piece of "social engineering" that all but guaranteed the current crisis. CRA obligations pushed banks toward shaky loans, he says, and subprime lending, once a fringe practice, became accepted over time in mainstream banking.

"There's a reason subprime loans were called 'CRA loans' by the industry at the beginning," Haughey said. "They were made to satisfy the audits."

Four regulatory agencies —- the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Office of Thrift Supervision —- periodically examine banks' lending records in neighborhoods where they have branches and assign ratings.

But the legislation only has real clout when banks appeal to regulators for mergers or expansion of services, since petitions by banks with poor CRA ratings can be rejected. Community groups are encouraged to contribute feedback about their neighborhood banks at these junctures, and banks often appease community opposition by pledging loans or new branches.

Critics such as well-known conservative economist Stan Leibowitz at the University of Texas-Dallas say this kind of bargaining is neither safe nor sound, and past efforts to reinforce this law, such as outlining numerical goals for banks, further destabilized the mortgage industry.

The majority of economists and lawyers nevertheless reject the notion that the CRA is culpable. Instead, its backers say fixing the leaky regulatory umbrella is an overdue move that could have mitigated the subprime disaster.

"The CRA was written at a time when the delivery of financial services was completely different than it is now," explained former Gov. Roy Barnes, now a consumer advocacy lawyer since leaving office in 2003. "If the CRA requirements had been in effect and applied to mortgage bankers, this subprime mess wouldn't have been nearly as bad."

In the 1970s, closely regulated insured banks and thrifts provided nearly all the credit for borrowers seeking a home loan. Over the years, three industry changes poked holes in the CRA's coverage.

First, waves of consolidation and mergers in the banking industry since 1979 have shrunk the number of lenders covered under the CRA by 10,470, or 51 percent, and banks began selling loan products wholesale to mortgage brokers instead of opening expensive branches.

Then beginning 15 years ago, Wall Street introduced a plethora of products and ways to package mortgage loans into tradable securities. With capital from third-party investors worldwide suddenly available, the unregulated mortgage industry blossomed.

Finally, despite mergers and the rise of Internet banking, regulators still only consider neighborhoods where banks have branches and ignore the considerable business banks have done elsewhere. Yakimov said her office has occasionally found discrepancies in lending patterns inside and outside certain banks' CRA assessment areas.

The result, Harvard's Joint Center for Housing Studies says, is that banks —- which the law was aimed at —- now originate no more than one-third of U.S. home loans. In some areas such as Birmingham, the CRA spotlight fell on less than 10 percent of loans originated in 2007, according to the National Community Reinvestment Coalition.

Advocates fear that discrimination and predatory loans that end in foreclosure continue mostly where regulators aren't looking.

The NCRC charged 35 companies with "old-fashioned redlining" in 2007 after reviewing fair lending records. Of the 35 lenders, the NCRC said, 26 were independent mortgage companies.

The coalition's Josh Silver is convinced that "insured banks are less likely to make high-cost loans than independent mortgage companies not covered by the CRA."

U.S. Housing Secretary Alphonso Jackson reportedly told a Chicago audience in January that lingering memories of widespread redlining in the '50s and '60s drove minorities to mortgage companies instead of banks. But one-third of recent mortgage foreclosures could have been prevented, he said, had blacks and Hispanics not been afraid to borrow from banks.

Credit unions staunchly oppose the expansion and are preparing for a fight. And Harry Dinham, former president of the National Association of Mortgage Brokers, fears that the CRA may set unrealistic standards for his industry.

"We're going to have to see how the final language reads," he said tentatively.

Fed Chairman Ben Bernanke also expressed reservations about expanding the CRA in March 2007, saying, "Recent problems in mortgage markets illustrate that an underlying assumption of the CRA —- that more lending equals better outcomes for local communities —- may not always hold."

But amid the housing crunch one year later, prospective borrowers with all credit scores are encountering much stiffer lending standards.

"If the upper-middle-income people have a cold, then the lower-middle-income people have pneumonia," warned independent journalist and NCRC board member Matthew Lee.

Lee, like many economists and government officials, believes that low-income borrowers, scapegoats in a crisis caused largely by rash upper-middle-class borrowers and speculators, will particularly struggle for loans. They say that now more than ever, the CRA —- if effectively implemented —- is needed to help deserving borrowers.

"The law can't fix the existence of underserved areas," Dinham said. "The bigger problem now is underserved people getting loans. They're being cut out of the market again, but the CRA can help get the money flowing again."