The four agencies most responsible for bank regulation have issued final changes to the Community Reinvestment Act regulations. The final rule is essentially the same as announced for public comment and reviewed by MND last June and will take effect 30 days after it is published in The Federal Register.
The changes differ only slightly among the four agencies charged with enforcing them, The Office of the Comptroller of the Currency, the Federal Reserve, Federal Deposit Insurance Corporation, and Office of Thrift Supervision. They are designed to support stabilization of communities affected by high foreclosure levels and, in effect, tie CRA more closely to the programs and goals of the Neighborhood Stabilization Program (NSP) run by the Department of Housing and Urban Development.
CRA encourages federally regulated banks and thrifts to participate in meeting the credit needs of the entire community each serves, including low and moderate income neighborhoods, in a manner consistent with safe and sound practices. Such participation is taken into account by regulatory agencies when evaluating an application by the institution for new branches or acquisitions. NSP is a program authorized by Congress to provide funds to states and local governments that have experienced high levels of foreclosure or which have a high incidence of subprime mortgage loans or loans in various states of default.
The agencies introduced changes to CRA because they saw a pressing need to provide housing related assistance to stabilize communities with high levels of foreclosures which, they said have devastated communities and are projected to continue for several years with "damaging spillover effects for low- and moderate-income census tracts, as well as middle-income census tracts affected by high levels of loan delinquencies and foreclosures." One of the consequences is large inventories of vacant properties owned by banks.
The agencies revised the term "community development" to include loans, investments, and services by financial institutions that support enable or facilitate projects or activities that meet the "eligible uses" criteria established by the Housing and Economic Recovery Act of 2008 and are conducted in designated NSP target areas. The final rules provide favorable CRA consideration of activities that benefit low-, moderate- and middle-income individuals and locations in NSP target areas designated as "areas of greatest need." A major change to CRA requirements is that covered areas are now considered outside of an institution's assessment area as long as the institution has adequately addressed the community development needs inside its area.
Under the NSP, HUD has provided approximately $6 billion in two tranches to state and local governments and nonprofit organizations for the purchase and redevelopment of abandoned and foreclosed properties and an additional $1 billion will soon be available from the Dodd-Frank Financial Recovery Act. The new rule encourages depository institutions to make loans and investments, and provide services to support NSP activities in areas with HUD-approved plans. It is clear that one area the agencies are encouraging is the donation of bank-owned properties to NSP grantees.
The agencies received 34 comments during the allotted comment period. Most of these gave broad support to the agencies' proposal to expand existing CRA consideration for neighborhood stabilization activities and agencies say that the final rule reflects that support.
While NSP does not have a sunset date, it is expected to end when foreclosures are no longer a crisis. The new rule sets an end date for CRA-qualified participation at two years after the last NSP funds are required to be spent by the grantees.
