The Office of the Comptroller of the Currency issued a final rule Tuesday to rescind the June 2020 proposed Community Reinvestment Act (CRA) rule, setting the stage for more reform.
In a statement, the agency said the final rule would “facilitate the ongoing interagency work to modernize the CRA regulatory framework and promote consistency for all insured depository institutions.”
Fair housing advocates said the 2020 rule would have gutted the federal anti-redlining statute, while mortgage lenders called the data reporting requirements onerous. In May, the OCC announced its intention to rescind the 2020 rule.
The federal banking agencies have in recent years disagreed on how to modernize the CRA, a 1977 anti-redlining statute. In 2019, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency proposed its own revised CRA rule, under the leadership of then-Comptroller Joseph Otting, but without the support of the Fed.
Lael Brainard, who President Joe Biden recently named vice chair of the Federal Reserve Board, at the time criticized the rule, saying it was “more important to get the reforms done right than to do them quickly.”
How to reform the CRA centers around the law’s treatment of race. While the banking statute was meant to right the wrongs of federal redlining, its language was race neutral. Banks almost always pass their CRA mortgage exams, affordable housing advocates have argued. Yet bank lending to minority borrowers lags even current levels of minority homeownership, recent research from the Urban Institute found.
Laurie Goodman, founder of the Housing Finance Policy Center at the Urban Institute and Ellen Seidman, a non-resident fellow at the policy think tank, found that the share of recent bank purchase loans to minority borrowers actually lags the existing share of minority homeowners. While 24% of homeowners are minority homeowners, just 23.2% of recent bank purchase loans were made to minority homeowners.
Goodman called the finding “jaw-dropping,” during a Dec. 2 panel hosted by the National Association of Affordable Housing Lenders. She said expected the share of recent bank loans to minority borrowers to be slightly higher, “because the homeowners share reflects the history of redlining.”
“We spend a lot of time looking at the credit box, the average FICO score for banks versus non-banks, debt-to-income ratios, loan-to-value ratios, and you find that bank credit in every channel is a little more constraining than non-bank,” Goodman said. “This actually translated it into what impact it has on minority borrowers.”
The Federal Housing Administration provides the bulk of financing for low-income borrowers, borrowers of color and first-time homeowners, but large depositories have in recent years spurned those products over compliance concerns. In 2014, Jamie Dimon, CEO of JPMorgan Chase, after it agreed to pay $600 million for defective FHA and Department of Veterans Affairs loans, questioned why the bank should be “in the FHA business at all.”
“Until they come up with a safe harbor or something, we are going to be very, very cautious in that line of business,” Dimon said at the time.
HUD Sec. Marcia Fudge said in October at an industry conference that she was interested in bringing depositories back to FHA. But a recent draft defect taxonomy, according to industry stakeholders, is so vague, that it would instead keep them away.