Affordable housing leaders are concerned that proposed rule changes to the Community Reinvestment Act (CRA) will weaken bank requirements to invest in low-income communities.
The proposal calls for raising the asset thresholds under CRA, which could lead to a number of banks significantly reducing their lending and investing in low-income communities.
This is troubling because CRA has been the main driver of bank investment into the low-income housing tax credit (LIHTC) and other community development programs.
The proposed rule would lower the small bank threshold from $1.649 billion to $1 billion, eliminate the intermediate small bank sub-category, and create a separate intermediate bank category covering banks with assets between $1 billion and $10 billion.
As a result, banks with assets between $1.649 billion and $10 billion that are currently subject to the large bank investment test would instead be evaluated under the intermediate bank community development test, explains the Affordable Housing Tax Credit Coalition (AHTCC). The proposed rule would also change the definitions of what qualifies as affordable housing and make other changes impacting the LIHTC program.
“CRA has been a powerful incentive for investment in the housing credit, and any changes to the evaluation framework could have significant impacts for affordable housing,” says AHTCC CEO Emily Cadik. “We are currently collecting data to assess the potential impact of the proposed $10 billion threshold and other changes on the housing credit and will be working with our partners to advocate for a final rule that puts the housing credit on the best possible footing.”
Others are also closely monitoring the proposed changes from the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corp. (FDIC).
“At this time, the industry is focused on assessing the impact of the change using survey data, and we are fortunate to have a 60-day window instead of the initial rumored 30-day response window,” says Bob Moss, founding partner of MG Housing Strategies. “With that data in hand, the plan is to formulate our response. The proposed rule change has many lenders and investors concerned and confused, especially in light of the increased public welfare investment (PWI) cap. When the time comes, we are going to need a letter written, with consistent messaging, by every housing company reading this article."
The recently enacted 21st Century ROAD to Housing Act lifted the PWI cap from 15% to 20%, which could unlock billions of dollars in additional investment in the LIHTC program. This was a big win for the affordable housing industry.
The potential CRA rule changes are also concerning for affordable housing lending.
“It’s quite simple: Fewer banks focused on community development under CRA will mean less lending and investment in communities,” says Sarah Brundage, president and CEO of the National Association of Affordable Housing Lenders (NAAHL). “Raising the asset threshold of banks defined as ‘small banks’ would reduce the number of banks incentivized to make loans and investments in affordable housing and community development.”
For instance, if the FDIC and OCC finalize a rule that defines small banks as those with less than $10 billion in assets, more than 1,500 banks, or 36% of all banks nationwide, would no longer be incentivized to provide community development loans or investments in the places where they do business. These banks provided nearly $27 billion in community development loans in one year, making up 35% of loan volume nationwide, according to NAAHL.
Brundage reports that in one year CRA incentivized more than $430 billion of private capital for affordable housing and community development, homeownership, small businesses. and small farms.