ANHD 2016 Building the Community Development Movement
The Community Reinvestment Act (CRA) is one of the most important laws we have to hold banks accountable to our communities to lend and serve equitably and finance community development. Because of it, trillions of dollars in lending has made its way into the communities most in need. In NYC alone, over 300,000 units of affordable housing have been built over the past 30 years that would not have been possible without private investment leveraged by the CRA.
Banks are typically evaluated every 2-4 years on their CRA performance. Regulators are currently revising the CRA Question & Answer (Q&A) publication that helps banks and examiners determine which loans, investments, and services are eligible for CRA credit and how they impact their rating. The proposed changes are very disappointing. They barely skim the surface of what is needed to bring the CRA into the 21st century to reflect today’s banking world. The job is not yet done.
One proposed change deserves particular scrutiny: The consideration of Community Development Lending on the Large Bank test. Currently, large banks are first rated on the distribution and volume of mortgage and small business loans and then their community development lending can impact that rating. The proposed Q&A alters the weight of that impact.
While we are pleased that the proposed change would establish some consistency among all three agencies, unfortunately it would also allow “strong community development lending to compensate for weak retail lending performance.” While quality community development lending deserves credit, it should not substantially raise the rating of a bank that makes loans inequitably to lower-income borrowers and communities or in any way discourage the retail lending that our communities depend on.
Community development lending is vital to supporting neighborhoods and should be recognized and encouraged. There are many ways to do so, such as by changing the investment test to a community development test that considers both investments and loans. Regardless of how it is done, quality must be taken as seriously as quantity. We have seen first-hand the damage caused when irresponsible multifamily lending threatens the tenants and the stability of the entire community. Predatory loans that lead to poor conditions or the eviction of lower-rent paying tenants must not get any CRA credit.
And there’s more we can do to strengthen the CRA:
Create additional assessment areas where banks make large numbers of loans outside of their branch network
Cover all mortgage lenders under the CRA. Most of the subprime lending that created the predatory loan crisis was made by non-covered entities
The service test should be expanded to more effectively evaluate how banks are meeting the needs of the unbanked and under-banked, including evaluating the dollar amount of deposits by income level of customers and communities and benchmarking other service metrics.
Loan modifications and other foreclosure responses should be systematically reported on and evaluated as a part of the CRA exams.
ANHD will be submitting comments by the May 17th deadline and we encourage all our members to weigh in – now is the time to be heard and make CRA work for our communities!
Submit your comments to 3 agencies:
1. Office of the Comptroller of the Currency (OCC)
2. Federal Reserve Board (FRB)
3. Federal Deposit Insurance Corporation (FDIC)
Click here to see the Q&A.
Blogger – Jaime Weisberg
ANHD blog team: Benjamin Dulchin, Moses Gates, Ericka Stallings, Jaime Weisberg, Barika Williams. Anne Troy, editor.
This is to express my staunch support of the Responsible Banking Act, & to urge, as ANHD recommends, that its provisions be respected and enforced by the Mayor & N.Y City. Further, I strongly oppose proposed CRA Q & A changes which would perpetuate skewed CRA ratings, crediting and rewarding banks for community development investment as a substitute for necessary retail lending to LMI communities. Also, I urge that CRA service test be strengthened and expanded to include evaluation of banks’responsiveness to execute loan modifications and other affordable solutions that enable sustainable homeownership.