On August 5, 2022 the AHTCC submitted comments to the Federal Reserve Board of Governors, Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) in response to the agencies’ Notice of Proposed Rulemaking (NPR) on Community Reinvestment Act (CRA) reform.

Our comments emphasized that any changes to CRA should maintain at least as much of an incentive to invest in the Housing Credit as there is today. We provided the agencies with several recommendations, listed below, to accomplish this goal. Our comments were developed in conjunction with our CRA Working Group comprised of representatives from over 60 AHTCC member organizations. See a more detailed summary of our recommendations on our blog.

NPR Proposals that Will Strengthen the Housing Credit

The NPR included two key aspects that we noted in our comments will benefit Housing Credit investment and help to even pricing disparities:

• Allowing consideration for the full amount of Housing Credit investments, regardless of the share of affordable units.
• Allowing consideration of community development activities outside of assessment areas, which could have the effect of evening pricing differentials between areas with the highest and least CRA demand if there is sufficient motivation for banks to invest in the Housing Credit.

Key Recommendations to Prioritize Community Development

The NPR proposed a disproportionate focus on retail activities over community development activities, which may not provide enough incentive for banks to focus on community development activities. To better motivate community development in general, we recommended:

• Evenly weight the Retail and Community Development Test
• Require a Low Satisfactory Community Development Test conclusion for a Satisfactory rating:

Key Recommendations to Mitigate the Negative Impact of Removing the Separate Investment Test

If the separate Investment Test is not retained, we recommended the following changes to help ensure that CRA modernization does not diminish the incentive to invest in the Housing Credit:

• In addition to weighting the Community Development Test at 50%, modify the community development subtests, for which we propose two alternatives:
  • Include an Investment Subtest weighted at 20% of the total score
  • Modify the Community Development Services Subtest to include a responsiveness assessment
• Measure banks’ new equity investments over time
• Include an institution-level Equity Metric and Benchmark, and
• Include the Housing Credit as an impact review factor.

In addition to our recommendations above, we urged the Federal Reserve, OCC, and FDIC to evaluate any final CRA regulations to ensure they will not have a negative impact on Housing Credit investment.

See a more detailed summary of our recommendations on our blog.

On May 5, 2022, the Federal Reserve, OCC, and FDIC released a joint Notice of Proposed Rulemaking (NPR) to modernize CRA. The NPR had been expected after all three regulators announced intentions to develop a joint proposal building on the Federal Reserve’s 2020 Advance Notice of Proposed Rulemaking (ANPR). Learn more about the proposal on our blog.

On May 18, 2021, the OCC first announced that it would not implement its June 2020 CRA rule, and on December 24, 2021, the OCC officially rescinded the rule by issuing a new final rule. Effective January 1, 2022, the new rule returned regulations to those adopted jointly by the OCC, FDIC, and Federal Reserve in 1995, as amended. According to a press release, “this action is intended to facilitate the ongoing interagency work to modernize the CRA regulatory framework and promote consistency for all insured depository institutions.”

On February 12, 2021, the AHTCC submitted comments in response to the Federal Reserve Board of Governor’s CRA reform proposal.  Our comments centered on two main points: We urged that any changes to CRA continue to incentivize robust investment in affordable housing through the Housing Credit, and that the new regulations help to address CRA-driven distortions in investment between different regions. Additional details can be found below and on our blog.

Recommendations to Sustain Housing Credit Investment

The Federal Reserve proposed eliminating the separate investment test and instead combining 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 urged the Board to retain the separate investment test, and if it is not retained we suggested 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 requested 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.

On September 21, 2020, the Federal Reserve released a draft ANPR on CRA reform (see press release and fact sheet), which was unanimously approved by the Board of Governors with the caveat that some technical changes may be made prior to publishing it in the Federal Register. The ANPR was subsequently published in the Federal Registrar on October 19, 2020, and provided 120 days to comment.

The Federal Reserve’s proposal featured several differences from the Office of the Comptroller of the Currency’s (OCC) CRA rule finalized in May of 2020. Learn more about the proposal on our blog.

The OCC released its final rule on CRA reform (see the press release) in late May 2020. While the final rule includes some improvements from the OCC and FDIC proposed rule that the AHTCC and our partners recommended – including new specifications about the use of multipliers, the treatment of Housing Credit investments, and the expansion of deposit-based assessment areas – several of the overarching concerns we noted in our comments on the proposal remained. Most significantly, the final rule repealed the separate investment test, included a ratio evaluation approach with a very expansive list of CRA-eligible activities, and did not provide benchmarks for the overall CRA evaluation measure or a specific community development minimum, which the rule stated would be released after another Notice of Proposed Rulemaking.

Prior to the final rule, the FDIC joined the OCC in releasing a Notice of Proposed Rulemaking (NPR) on CRA modernization on December 12, 2019, but the FDIC did not join the OCC in issuing the final rule. On the day the OCC released its final rule, FDIC Chairman Jelena McWilliams said in a statement that the agency was “not prepared to finalize the CRA proposal at this time.”

Read more on our blog.

In April 2020, the AHTCC submitted comments in response to the OCC and FDIC’s Notice of Proposed Rulemaking (NPR) on CRA reform. Above all, we urged that any changes to CRA preserve the incentive it provides for investment in the Housing Credit and maintain our current ability to produce homes that are affordable to low-income households. More details about our recommendations can be found below and on our blog.

Support community development through the CRA evaluation methodology:

• Revise the list of activities that qualify under the community development test.
• Require a minimum level of activity in the three activity categories which receive double weighting under the proposal (investments, loans to community development financial institutions [CDFIs], and loans to affordable housing).
• Provide further guidance on the performance context review of community development activities.

Set community development thresholds that meet community needs:

• Utilize bank-provided data and re-publish a proposed rule that outlines the methodology used to determine the community development thresholds.

Evaluate banks’ consistent support of low-income households:

• Consider originations of loans or investments in affordable housing in addition to balance sheet activity or factor decreases in originations into the evaluation methodology
• Provide credit for the full amount of community development investments at the time of commitment.

Incentivize proven community development tools where they are needed most:

• Allow those activities which receive double weighting under the proposal (investments, loans to CDFIs, and loans to affordable housing) across a state be eligible for CRA credit if the bank has an assessment area within the state and received a satisfactory rating in the previous rating period.

On December 12, 2019, the OCC and FDIC released a Notice of Proposed Rulemaking (NPR) on CRA reform, which was officially published in the Federal Register on January 9, 2020. Comments on the proposed rule were initially due on March 9, but the comment period was extended to April 8, 2020. Read more on our blog.

On September 9, 2019, the AHTCC and 27 community development stakeholders signed a letter urging the FDIC, Federal Reserve Board, and OCC to issue uniform CRA regulations.

In November 2018, the AHTCC submitted comments in response to the OCC’s Advance Notice of Proposed Rulemaking (ANPR).

In our comments, we urged that any changes to the CRA continue to support robust investment in the Housing Credit, to ensure that our nation’s primary affordable housing delivery mechanism is at least as efficient and effective as it is today. Specifically, we encouraged the OCC to retain a separate investment test, which is the primary feature of CRA that incentivizes community development investments like the Housing Credit, and to expand CRA assessment areas to encourage investment in underserved areas and help even out Housing Credit pricing differentials. Further, we support efforts to allow for more timely and transparent examinations.

Prior to submitting our comment letter, representatives from the AHTCC participated in a listening session at the OCC during which we also expressed our suggestions.

Read more on our blog.

On August 28, 2018, the Office of the Comptroller of the Currency (OCC) released an Advance Notice of Proposed Rulemaking (ANPR) to significantly alter CRA regulations. Comments were due November 19, 2018.

The OCC’s decision to issue the proposal alone was a notable diversion from previous CRA proposals, which were jointly adopted by all three regulators. While the OCC only oversees roughly 20 percent of banks, those banks represent 70 percent of financial institution assets and the vast majority of institutions that invest in the Housing Credit, meaning the proposal could have significantly impacted Housing Credit investment, even without corresponding changes from the other two regulators.

Read more on our blog.