The Office of the Comptroller of the Currency (OCC), Federal Reserve Board of Governors and Federal Deposit Insurance Corporation (FDIC) released joint final regulations on the Community Reinvestment Act. With CRA motivating 82 percent of Housing Credit investment, changes to CRA could have a significant impact on Housing Credit demand, and ultimately our nation’s ability to produce and preserve affordable housing.
Several of the key changes highlighted in the summary document relate specifically to the Low-Income Housing Tax Credit and affordable housing and are consistent with AHTCC recommendations, including:
Provide greater clarity and consistency in the application of the regulations.
The rule addresses feedback on the need for more clarity and consistency in the application of the CRA regulations. To achieve this objective, the rule
- adopts new metrics and benchmarks used by the agencies to assess retail lending performance that translate into performance conclusions.
- encourages CD activities that are responsive to the needs of LMI individuals and communities, small businesses, and small farms by clarifying what activities will receive CRA credit (such as affordable housing), providing for a public list and approval process to confirm an activity’s eligibility, and evaluating CD activities in light of their impact.
Adds metric and impact factor to evaluate bank CD investments under the CD Financing Test.
- adds additional metric to CD financing evaluations, focusing on certain CD investments relative to deposits for banks greater than $10 billion, to enable examiners to evaluate bank investments under the Low-Income Housing Tax Credit and the New Markets Tax Credit programs. Strong bank performance under the metric would be a basis for positive consideration.
- creates an impact factor to recognize the important affordable housing and community development contributions of Low-Income Housing Tax Credit and New Markets Tax Credit investments.
In addition, the final regulations increase weighting of community development (CD) financing activities, also consistent with AHTCC recommendations:
Adjusts retail lending performance ranges while maintaining high standards; also increases weighting of CD financing activities.
- adjusts standards to make “Low Satisfactory”, “High Satisfactory”, and “Outstanding” conclusions under the Retail Lending Test more achievable while still maintaining appropriate and locally calibrated standards.
- for large banks, gives equal weight to retail activities and CD activities (compared to a proposed 60 percent retail/40 percent CD split). The equal weight was broadly supported by stakeholders to encourage banks to focus on CD activities in addition to retail activities by providing additional emphasis in the banks’ ratings.
CRA was enacted in 1977 to ensure banks meet the credit needs of the communities in which they do business, including low- and moderate-income neighborhoods. Though banking has changed significantly over time, CRA’s implementing regulations have not been significantly revised since 1995, and do not take into account major changes like the advent of online banking. In recent years, the federal banking agencies – the Federal Reserve, OCC, and FDIC – have engaged to modernize CRA, leading up to the Notice of Proposed Rulemaking (NPR) issued in May 2022. The AHTCC submitted comments in August 2022 in response to the NPR, as did many of our members and partners, to share our concerns with the framework as written and share recommendations for supporting affordable housing.
The AHTCC will be reconvening a CRA Working Group to review the regulations, analyze their potential impact on affordable housing investment, and discuss any response that may be warranted. If you are interested in joining the AHTCC’s CRA Working Group, please email Selia Koss at firstname.lastname@example.org. We will also be providing a webinar to our members in the coming weeks.