Washington Report | August 10, 2018

In a meeting of housing and consumer organizations this week, we heard from Comptroller of the Currency Joseph Otting that the OCC would issue an Advance Notice of Proposed Rulemaking (ANPR) regarding the Community Reinvestment Act (CRA) before Labor Day. The Comptroller indicated the release would incorporate input from the other federal bank regulators — the Federal Reserve Bank and the Federal Deposit Insurance Corporation — as well, reflecting the agencies’ consensus areas of interest in potential changes to the CRA regulations.

The ANPR was expected after the Treasury Department, in April, issued a memorandum to the agencies recommending “regulatory and administrative changes that are consistent with the original intent of CRA, including common sense reforms that reduce the complexity and burden on banks, regulators, and community advocates.”

While awaiting the ANPR to see specifically what the regulators are considering, the following would be constructive outcomes of any revisions to the CRA rules:

• More housing capital for rural communities. While rural areas are more diverse than commonly portrayed, many lack financing for affordable housing. The Housing Assistance Council has noted: “The failure of lending activity to match up with [CRA] assessment area boundaries reflects the reality that retail bank locations are no longer the sole conduit for mortgage access,” leading to “blank spots in rural lending activities.” And Housing Credits have less purchasing power in rural communities because banks generally get greater CRA credit for investing in their more urban CRA “assessment areas,” as currently defined, even though the investment performance in them is “not materially different” than in rural places, according to a CohnReznick report.
• Increased preservation of naturally-occurring affordable housing. The inventory of “naturally-occurring” (i.e., unregulated and unsubsidized) affordable housing (NOAH) is at least 5.5 million units, about the same size as the federally-assisted supply. The stock “faces headwinds from the deterioration and obsolescence, as well as value-add investment activities that may take previously affordable multifamily rental properties out of the affordable range,” Bridge Investment Group wrote recently. Current CRA regulatory guidance regarding bank investment in NOAH preservation is “unworkably vague, inconsistently applied, and burdensome” — but readily fixable — in the view of the National Association of Affordable Housing Lenders.
• Sustained strong demand for HFA-funded affordable mortgage financing. In addition to being the primary investors in Housing Credits, CRA-defined “large banks” are major buyers of Housing Bonds and funders of Housing Bond loans, which results in lower all-in borrowing rates in CRA-driven markets, as suggested in a recent presentation by Norris, George and Ostrow, PLLC. Just recently, we heard from a state HFA that attributes CRA to ensuring strong demand for its bonds during a period when one of its state’s major cities was experiencing severe financial stress that was rattling investors.

The forthcoming CRA rulemaking is widely, and fairly, being described an “opportunity.” Since opportunities often come with risks or tradeoffs, proponents of any CRA changes — whether regulators or advocates — must be mindful as well of another law: that of unintended consequences. The ultimate goal and end result of CRA should always be more safe and sound community reinvestment in all the areas that need it.

Stockton Williams | Executive Director

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