Regulators Publish Final Revisions to CRA Rules

The four agencies mostrnresponsible for bank regulation have issued final changes to the CommunityrnReinvestment Act regulations.  The finalrnrule is essentially the same as announced for public comment and reviewed by MND lastrnJune and will take effect 30 days after it is published in The Federal Register.</p

The changes differ only slightlyrnamong the four agencies charged with enforcing them, The Office of thernComptroller of the Currency, the Federal Reserve, Federal Deposit InsurancernCorporation, and Office of Thrift Supervision. rnThey are designed to support stabilization of communities affected byrnhigh foreclosure levels and, in effect, tie CRA more closely to the programsrnand goals of the Neighborhood Stabilization Program (NSP) run by the Departmentrnof Housing and Urban Development.</p

CRA encourages federallyrnregulated banks and thrifts to participate in meeting the credit needs of thernentire community each serves, including low and moderate income neighborhoods,rnin a manner consistent with safe and sound practices.  Such participationrnis taken into account by regulatory agencies when evaluating an application byrnthe institution for new branches or acquisitions.  NSP is a programrnauthorized by Congress to provide funds to states and local governments thatrnhave experienced high levels of foreclosure or which have a high incidence ofrnsubprime mortgage loans or loans in various states of default.</p

The agencies introduced changesrnto CRA because they saw a pressing need to provide housing related assistancernto stabilize communities with high levels of foreclosures which, they said haverndevastated communities and are projected to continue for several years withrn”damaging spillover effects for low- and moderate-income census tracts, asrnwell as middle-income census tracts affected by high levels of loanrndelinquencies and foreclosures.” rnOne of the consequences is large inventories of vacant properties ownedrnby banks.  </p

The agencies revised the termrn”community development” to include loans, investments, and servicesrnby financial institutions that support enable or facilitate projects orrnactivities that meet the “eligible uses” criteria established by thernHousing and Economic Recovery Act of 2008 and are conducted in designated NSPrntarget areas.  The final rules providernfavorable CRA consideration of activities that benefit low-, moderate- andrnmiddle-income individuals and locations in NSP target areas designated asrn”areas of greatest need.”  Arnmajor change to CRA requirements is that covered areas are now consideredrnoutside of an institution’s assessment area as long as the institution hasrnadequately addressed the community development needs inside its area.</p

Under the NSP, HUD hasrnprovided approximately $6 billion in two tranches to state and local governmentsrnand nonprofit organizations for the purchase and redevelopment of abandoned andrnforeclosed properties and an additional $1 billion will soon be available fromrnthe Dodd-Frank Financial Recovery Act.   The new rule encourages depositoryrninstitutions to make loans and investments, and provide services to support NSPrnactivities in areas with HUD-approved plans. It is clear that one area the agenciesrnare encouraging is the donation of bank-owned properties to NSP grantees.  </p

The agencies received 34rncomments during the allotted comment period. rnMost of these gave broad support to the agencies’ proposal to expandrnexisting CRA consideration for neighborhood stabilization activities and agenciesrnsay that the final rule reflects that support.</p

While NSP does not have arnsunset date, it is expected to end when foreclosures are no longer arncrisis.  The new rule sets an end daternfor CRA-qualified participation at two years after the last NSP funds arernrequired to be spent by the grantees.

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