Advisor News, September 18, 2019: More Than 500 Community-Based Groups Send CRA Reform Letter to Regulators
In a letter written and submitted by the National Community Reinvestment Coalition (NCRC), the coalition of housing, consumer protection and community development organizations urged the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to drop the idea of a “one-ratio” metric from new CRA rules expected to be proposed by the agencies this fall.
“As we have stated in our comment letters regarding the Advance Notice of Proposed Rulemaking (ANPR), if a metric of this nature is determinative of the CRA rating either at the assessment area or overall, it will likely distort CRA activity in a way that is not responsive to local needs,” the letter said. “In order to boost the numerator of the ratio, banks will likely favor large dollar community development activity or purchases of mortgage-backed securities (MBS).”
“The one ratio also has the potential to interfere with sound business practices. If empirical benchmarks for passing ratings are set too high during economic downturns, banks could feel pressured to seek large deals when smaller loans or other financial assistance could better support communities and avoid over-leveraging banks. Different agency heads under various administrations could also adjust ratios that promote particular policies but do not take local credit needs into account.”
“A one ratio approach will make CRA exams less transparent and will deter public input. If the one ratio replaces existing metrics such as percent of loans to low- and moderate-income borrowers or communities, it will be harder for community organizations and members of the public to understand which needs banks are responding to and which ones they are neglecting.”
