ANHD 2016 Building the Community Development Movement
No CRA credit for loans that result in tenant harassment or loss of affordable housing.
The Community Reinvestment Act (CRA) states that banks have an affirmative obligation to help meet the credit needs of the low- and moderate-income communities in which they do business. The CRA examination evaluates whether the banks are meeting this obligation.
Banks are examined on their lending, investments, and services to ensure they are equitably serving lower-income customers in the areas where they take deposits. With respect to the multifamily piece of the lending test, banks are evaluated on the distribution of loans in Low and Moderate Income (LMI) census tracts. Banks can also get additional CRA credit formultifamily loans that are determined to serve primarily LMI households, typically when at least 50% of the units are affordable to LMI renters. As we learned from the financial crisis, however, such loans that are not made responsibly, often due to speculative underwriting or business dealings with bad-actor landlords, put many buildings at risk of financial and physical distress. It often also led to the harassment and eviction of lower-rent paying tenants.
ANHD has long asserted that predatory loans that lead to the loss of affordable housing should not be counted for CRA credit and, in fact, should have a negative impact on a bank’s CRA rating as they do more harm than good. After years of working with banks and regulators, DFS fully understands this. “While the quantity of lending, investment, and services drive CRA compliance,” Mr. Lawsky said, “the quality of that activity and the ultimate impact on consumers, tenants and homeowners must also be considered.”
At ANHD’s conference Mr. Lawsky said, “DFS is about to be adopting clear procedures for evaluating when a loan on a multifamily property does not contribute to community development. This loan may not receive full CRA credit, qualitatively or quantitatively under State Law. …If a multifamily loan appears to be an overleveraged or distressed building, we will require lots of additional information from the bank to ensure that the loan does in fact contribute to affordable housing. …We will continue to encourage the best practices pioneered by ANHD members by transitioning distressed buildings to responsible not-for-profit owners who are dedicated to preserving and improving affordable housing. As the housing market recovers from the financial crisis, we want to ensure that low and moderate income families do not get left behind.”
ANHD celebrates Superintendent Lawsky’s announcement as an effective way to encourage responsible lending and discourage predatory lending. This could – and should – be a model for state and federal exams nationwide.
Today’s ANHD blogger: Jaime Weisberg