On September 26, 2018, United States Senator Elizabeth Warren (D-Mass.) introduced the American Housing and Economic Mobility Act. Among other things, the legislation expands the scope of the Community Reinvestment Act (CRA), grants $500 billion in subsidies to homeowners and investments in low-income housing projects.
Expanding CRA Coverage
A summary of the bill provided by Senator Warren’s office states, “Obligations under the Community Reinvestment Act (CRA) to provide credit to lower-income and middle-class communities are too weak.” To fortify this perceived weakness, the proposed legislation extends the scope of the CRA to include U.S. non-bank mortgage originators, bank holding companies, savings and loan holding companies, and credit unions. Currently, these institutions are exempt from the requirements of the CRA.
While commercial banks may applaud the expansion of CRA to other entities that have long been exempt, it also expands the assessment areas in which a bank’s CRA performance is evaluated. Whereas a bank’s CRA performance is currently evaluated only in areas surrounding the bank’s main office, branches and deposit-taking ATMs, this legislation would expand the assessment area to include areas where the bank is represented by an agent, issues a significant number of financial products relative to the total number of products provided by the institution, or issues at least 75% of the total loans or dollar-volume of the institution.
These changes address concerns that non-depository institutions, like private banks and non-bank mortgage originators, are circumventing CRA requirements and disproportionately rejecting protected classes of borrowers.
Special Interest Group Involvement
The Community Reinvestment Act has always contained a public component (including publishing of individual bank CRA ratings), but this aspect was expanded when the CRA was revised in the mid 1990’s. The general concept was presented as somewhat of a deregulation emphasis which would make institutions more accountable to the public rather than expanding regulatory authority.
An example is the required public comment period following the filing of a merger application. In practice, however, “public” involvement turns out to be not the general public but special interest groups. These groups are not unlike other special interest groups in Washington in that they represent their own agendas which are not necessarily aligned with the public. They also have active lobbying efforts on Capitol Hill as do other special interest groups.
Senator Warren’s expansion to the CRA would augment and reinforce the influence of these groups. Currently, although not necessarily required, as part of a merger application banks typically address public benefits of a merger. They also respond to comments or opposition to the proposed mergers as part of the regulatory approval process. Again, such opposition is limited to special interest groups rather than the general public.
The Warren bill would expand and formalize this process. The bill requires applicants to a merger or other expansionary proposals to adopt a community benefits plan following “consultation with community stakeholders.”
Public Investment in Housing and Subsidies to Homeowners
The bill invests $445 billion over ten years in the National Housing Trust Fund (HTF), which builds, rehabilitates and preserves rental housing for low-income Americans. It proposes investing an additional $25 billion in the Capital Magnet Fund, which subsidizes private investments in building new housing for lower-income and middle-class families. Another $4 billion is invested in a new Middle-Class Housing Emergency Fund, and $2 billion is invested in the Indian Housing Block Grant.
The bill also provides grants to first-time homebuyers living in formerly redlined or officially segregated areas and to those with negative equity in their mortgages. Finally, the bill puts $10 billion into a competitive grant program to incentivize local governments to reform land use rules to be eligible for these federal funds.
How to cite this blog post (APA Style):
Premier Insights. (2018, October 4). Legislation Proposed To Expand The Community Reinvestment Act [Blog post]. Retrieved from https://www.premierinsights.com/blog/legislation-proposed-to-expand-the-community-reinvestment-act.
