Banking Agencies Release Proposed Revisions to Community Reinvestment Act (CRA) Regulations
May 10, 2022
On May 5, the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) issued a Notice of Proposed Rulemaking (NPR) to amend regulations implementing the Community Reinvestment Act of 1977 (CRA). In a statement accompanying the NPR’s release, recently-confirmed Federal Reserve vice-chair Lael Brainard said, “This is the first time in decades we have made substantial changes to the CRA regulation. It is essential to get reform right.”
CFPB Director Suggests Nonbank Mortgage Lenders Should Be Considered
While the CRA applies to all FDIC-insured banks, according to Politico, Consumer Financial Protection Bureau Director Rohit Chopra, who sits on the FDIC board, suggested that policymakers should also consider the obligations of nonbank mortgage lenders, who are not subject to CRA. He said, “Given that the public subsidizes mortgage lending by these nonbanks, federal policymakers should continue to consider ways to ensure all mortgage lenders are serving all qualified applicants, especially in neighborhoods that have been historically excluded.”
Comments are due August 5, 2022. CREFC plans to respond to the NPR and will set up a working group in the near future. Please see here for CREFC’s February 2021 response to the Board’s Advanced Notice of Proposed Rulemaking.
According to the accompanying Fact Sheet, the NPR seeks to:
- Expand access to credit, investment, and basic banking services in low– and moderate–income (LMI) communities;
- Adapt to changes in the banking industry (including mobile and internet banking) by modernizing assessment areas while maintaining a focus on branch–based areas;
- Provide greater clarity, consistency, and transparency in the application of the regulations through the use of standardized metrics as part of CRA evaluation and clarifying eligible CRA activities focused on LMI communities and under–served rural communities;
- Tailor CRA rules and data collection to bank size and business model; and
- Maintain a unified approach among the regulators.
Additional key details include:
- No new data collection or reporting for small and intermediate banks; existing data would be used whenever possible.
- Establishing four tests for Large Banks:
- Retail Lending Test;
- Retail Services and Products Test;
- Community Development (CD) Financing Test; and
- CD Services Test.
- CD Activities: Eligibility of qualifying activities would be expanded in certain areas, including for mission–based entities and Native Land Areas. A non–exhaustive list of, and confirmation process for, qualifying activities would provide increased certainty and clarity on what qualifies for CRA credit.
- Performance Conclusions and Ratings: Under the proposed rule, the agencies would assign a bank, except a small bank, conclusion scores across different performance tests. These scores would be incorporated into a single score at the institution level to arrive at the bank’s overall statutory rating assigned by the agencies.
Key CREFC Focus Areas
CREFC will carefully analyze the NPR over the coming weeks and engage membership on a variety of relevant questions in the proposal, including:
- Financing Affordable via MBS. Should the proposed approach to considering mortgage-backed securities (MBS) that finance affordable housing be modified to ensure that the activity is aligned with CRA’s purpose of strengthening credit access for low- or moderate-income individuals?
- For example, should the agencies consider only the value of affordable loans in a qualifying mortgage-backed security, rather than the full value of the security?
- The agencies might also limit consideration of qualifying MBS to the initial purchase of a mortgage-backed security from the issuer (not subsequent purchases of the security). Should only the initial purchase of a MBS be considered for affordable housing?
- Maintaining Affordability. Are there alternative ways to ensure that naturally occurring affordable housing activities are targeted to properties where rents remain affordable for low- and moderate-income individuals, including properties where a renovation is occurring?
- Activity Outside Facility-Based Assessment Areas. The agencies propose to give CRA consideration for community development financing activities that are outside of facility-based assessment areas. What alternative approaches would encourage banks that choose to do so to conduct effective community development activities outside of their facility-based assessment areas? For example, should banks be required to delineate specific geographies where they will focus their outside facility-based assessment area community development financing activity?
If you have any questions or would like to be involved in CREFC’s response to this NPR, please contact Sairah Burki.