With regulators operating under different rules implementing the community reinvestment act, some fear for complications in affordable housing finance. Photo by Matthew G. Bisanz | Wikimedia / CC BY-SA 3.0

As banks have sought opportunities to satisfy Community Reinvestment Act requirements by lending in low- and moderate-income communities, affordable housing organizations have found willing partners for their projects.

But with one of the three federal bank regulators deciding to revamp its rules implementing the CRA without cooperation from the other two, housing advocates face the possibility of working with lending partners subject to different regulatory regimes.

“I think it’s an untenable situation to have such fundamentally different rules affecting some actors with some of the same customers in the same market,” said Clark Ziegler, executive director of the Massachusetts Housing Partnership.

First Revamp in 25 Years 

Adopted in 1977, the CRA encourages financial institutions to meet community credit needs, including in low- and moderate-income neighborhoods, and prevent discrimination through redlining. The CRA had not been significantly revamped in 25 years, and stakeholders agreed that the regulations needed to be modernized.

A years-long effort by the three federal bank regulators to reform the CRA ended in May when the Office of the Comptroller of the Currency decided to issue its own rule. The Federal Deposit Insurance Corp. in December had supported the OCC’s proposed rule but then decided not to move forward.

“While the FDIC strongly supports the efforts to make the CRA rules clearer, more transparent, and less subjective, the agency is not prepared to finalize the CRA proposal at this time,” FDIC Chair Jelena McWilliams said in a statement. “The FDIC recognizes the herculean effort community banks are making to support America’s small businesses and families during this challenging time and encourages financial institutions to work constructively with borrowers affected by COVID-19.”

The other bank regulator, the Federal Reserve, had decided last year not to support the OCC proposal and planned instead to work on its own version of reform.

After issuing the final CRA rule on May 20, Comptroller of the Currency Joseph Otting, a former CEO at OneWest Bank, resigned effective May 29.

Small Banks Could Pass 

Only about a dozen Massachusetts community banks are supervised by the OCC, including Westfield Bank and Arlington-based Leader Bank. Most of these OCC-supervised banks might choose not to adopt the OCC’s CRA reform. The new rule allows small banks with assets under $600 million and intermediate banks with assets under $2.5 billion to operate under existing CRA performance standards.

Massachusetts is one of the few states that issues its own CRA rating, coordinating with the FDIC and Federal Reserve on the examinations. Because OCC-supervised banks have federal charters, the Massachusetts Division of Banks does not review these institutions.

The state will nonetheless still see the impact of CRA reform. The regional and national banks operating here are supervised by the OCC, including Bank of America, Santander Bank, TD Bank, Citizens Bank, People’s United Bank, Webster Bank and KeyBank.

Having different banks operating under different guidelines could affect organizations like the Massachusetts Housing Partnership. The MHP is a quasi-public agency that finances affordable rental housing, provides mortgage financing for first-time home buyers and assists with neighborhood development.

While much of MHP’s mortgage financing is done in cooperation with non-OCC banks, most of its multifamily projects receive financing from regional and national banks governed by the OCC.

Ziegler, who was among the 7,500 commenters who provided feedback on the OCC’s proposal before it was finalized, said he has not spoken with any bankers who were enthusiastic about the OCC’s approach to CRA reform. He added that having three agencies take different approaches to reform could create confusion for financing projects.

The banking industry has also objected to having different CRA standards. While praising some of the OCC’s reforms, the American Bankers Association expressed concerns that the rule was finalized without the FDIC and the Fed. The Conference of State Bank Supervisors, the national organization for bank regulators for U.S. states and territories, said CRA reform should not be taken unilaterally.

“While the CRA modernization is a worthy endeavor, these reforms should still create a single standard, as it has for 43 years,” John Ryan, CSBS president and CEO, said in a statement. “Having different rules from the OCC will lead to vastly different standards for state and national banks.”

Lawsuits Planned 

Some organizations plan to file lawsuits to prevent the OCC from moving forward on its own. The National Community Reinvestment Coalition, the California Reinvestment Coalition and the legal oversight group Democracy Forward have announced plans to sue the OCC over what they consider unlawful changes to the CRA.

Ziegler said he was hopeful that the three regulators could still work together on reform.

“The notion of a clear, consistent, single federal policy, to me, is a very compelling need,” Ziegler said. “And I’m certainly not going to give up on that.”

The OCC’s decision to issue its final rule during the coronavirus crisis has also raised concerns. Ziegler said MHP has been working collaboratively with lenders to keep people in their homes as the pandemic has created record-high unemployment. He added that it’s too soon to say whether the pandemic would create different needs for low- and moderate-income lending that could be affected by CRA reform.

“I think all of us are so focused right now on preventing damage and, depending on how long and how deep this crisis is, trying to figure out what it will take to keep as many people in their current housing as we can,” Ziegler said. “If this is really a deep, prolonged crisis where tenants just can’t pay their rent and homeowners get into a bigger hole than they’re ever going to dig themselves out of, that’s a huge challenge.”