FDIC, OCC Propose to Modernize Community Reinvestment Act Regs

The Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) recently announced proposed regulations that may affect LIHTC investments. The proposed regulations are intended to modernize the agencies’ regulations under the Community Reinvestment Act (CRA), which haven’t been substantively updated for nearly 25 years. The CRA was enacted in 1977 to encourage insured depository institutions to help meet the credit needs in their local communities, including low- and moderate-income neighborhoods. It was created as a reaction to the practice of redlining, where banks avoided making loans to low-income neighborhoods.

The affordable housing industry has an interest in these proposals because affordable housing and community development plays a role in whether financial institutions meet their CRA requirements.

Although the CRA doesn’t mention the LIHTC program, the program benefits from its ties to CRA credit. An estimated 85 percent of LIHTC investment is made by CRA-intentioned banks. In addition, the Opportunity Zone (OZ) incentive is generally applicable to low-income neighborhoods and, as such, much OZ investment potentially qualifies for CRA credit. Here are some highlights of the proposed regulations:

Qualifying activities. The proposed regulations would clarify what activities qualify for CRA credit. The list of qualifying activities in the proposed regulations included examples in affordable housing. The proposed regs include requiring regulatory agencies to publish a list of examples of qualifying activities regularly. This list would be “illustrative,” rather than exhaustive.

Assessment areas. Due to online banking, banks that receive half or more of their deposits from outside their current assessment areas would be required to make any area that contributes at least 5 percent of deposits a new assessment area. According to OCC officials, this would significantly alter assessment areas for a few banks.

Measurement. The current CRA regulations evaluate banks in different ways, based on their level of assets. The new regulations would create a performance standard for all banks that have assets of more than $500 million. The proposed regs would compare the bank’s CRA-qualifying activity with its retail deposits in each assessment area, as well as with the overall bank level for retail deposits, giving both localized and general measurements.

One significant change that could affect LIHTC investments is that banks would be evaluated on both the number of CRA-eligible loans and investments and the total amount of loans and investments to communities. The concern among affordable housing advocates is that emphasizing the dollar amount could result in deemphasizing LIHTC equity investment as compared to lending, because it’s much easier for banks to make loans, especially in high-cost areas, than it is to underwrite equity investments.

Data collection. Under the proposed regulations, banks over a certain size would be required to collect and report data on loans. Banks would also be required to collect and report data on their qualifying activities and on some non-qualifying activities.