Today the AHTCC submitted comments in response to the Federal Reserve Board of Governor’s Community Reinvestment Act (CRA) reform proposal. We thank the AHTCC CRA Working Group, which represents over 40 organizations from all parts of the Housing Credit industry, for helping to inform our comment letter. We encourage AHTCC members to also submit comments by the deadline of Tuesday, February 16, 2021, and have provided more information below.
The Federal Reserve’s proposal (see fact sheet) is an alternative to the Office of the Comptroller of the Currency’s (OCC) CRA rule finalized in May of 2020. The Biden Administration is not expected to implement the OCC’s final rule, and the Federal Reserve’s proposal is instead expected to serve as a starting point for rulemaking among all three regulators – the Federal Reserve, OCC, and Federal Deposit Insurance Corporation.
Summary of Recommendations
The AHTCC appreciates the Federal Reserve’s goal to more effectively meet the needs of low- and moderate-income communities, and recognition of the importance of affordable housing. Our comments center on two main points:
- We urge that any changes to CRA continue to incentivize robust investment in affordable housing through the Housing Credit. While the Housing Credit finances virtually all new affordable housing, CRA motivates the vast majority of these investments – meaning our nation’s ability to develop and preserve affordable housing is closely tied to and impacted by CRA. Total Housing Credit investment reached $18.3 billion in 2019, an estimated 73 percent of which came from banks motivated by CRA requirements.
- We urge that the new regulations help to address CRA-driven distortions in investment between different regions. According to CohnReznick, a national accounting firm, “the largest single determinant of Housing Credit pricing is based on the CRA investment test value of a given property’s location,” with pricing differentials of 10 to 15 percent between Housing Credit developments in “CRA hot spots” and “CRA desert” areas.
Recommendations to Sustain Housing Credit Investment
The Federal Reserve proposes to eliminate the separate investment test and instead combine loans and investment under one community development financing subtest. This approach could have the effect of reducing Housing Credit investment unless mitigating strategies are put in place. We urge the Board to retain the separate investment test, and if it is not retained we suggest the following mitigating strategies:
- Strongly encourage community development investment by rewarding large banks that meet a benchmark level of community development investments as a portion of their total community development activities.
- Allow examiners to request an explanation if institution-level community development investment decreases significantly compared to the previous assessment period.
- Expand the proposed Impact Score assessments to a five-point scale, giving Housing Credit investments and other community development investments the highest impact score.
- More fully integrate Impact Scores into the proposed assessment methodology by setting a high-impact community development benchmark at the state or institution level.
In addition to our recommendations above, we strongly suggest that any final CRA regulations are first closely analyzed to ensure they will not have a negative impact on Housing Credit investment.
Recommendations Related to Assessment Areas
The Federal Reserve requests comment on the treatment of community development activities outside of assessment areas and the operationalization of nationwide assessment areas, both of which could significantly impact current Housing Credit pricing distortions between CRA “hot spots” and “desert” areas.
- To adequately incentivize activity outside of assessment areas while providing needed certainty for banks, we believe banks should receive credit at the assessment area level for statewide Housing Credit investments made outside of an assessment area. This treatment would ensure underserved communities that are not within local assessment areas are still able to benefit from the incentive that the CRA provides, helping to limit CRA-driven pricing distortions.
- To the extent the Federal Reserve permits nationwide assessment areas for certain banks, we suggest pairing national assessment areas with incentives for serving traditionally underbanked communities. This would help to ensure banks with national assessment areas are adequately furthering the goals of CRA.
Instructions to Submit Comments
Comments can be submitted via email to email@example.com through Tuesday, February 16, 2021. Include “Docket No. R-1723 and RIN 7100-AF94” in the subject line of the message.
Formal letters should be addressed to:
Ann E. Misback, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue NW
Washington, DC 20551
We encourage AHTCC members use any of the language above or within our comment letter, or to submit a brief letter in support for our comment letter. Please contact Megan John for further assistance.