The federal bank and thrift regulatory agencies on Wednesday announced changes to the Community Reinvestment Act (CRA) parameters in support of stabilizing communities affected by high foreclosure levels.
The final rule was issued by the Federal Reserve, FDIC, Office of the Comptroller of the Currency, and the Office of Thrift Supervision, and it encourages depository institutions to finance development activities in areas that qualify for HUD’s Neighborhood Stabilization Program (NSP). Through the agency’s NSP initiative, HUD has provided funds to state and local governments, as well as nonprofit organizations, to purchase and rehab abandoned and foreclosed properties. The new rule revises the term “community development” to encourage depository institutions to make loans and investments, and provide services to support NSP activities in areas with HUD-approved plans. Financial institutions will receive favorable consideration under CRA requirements for their participation in efforts to stabilize local communities where there are large numbers of foreclosures and vacant homes. Federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions. CRA was initially enacted by Congress in 1974 to encourage depository institutions to meet the credit needs of their local communities by lending to borrowers in all segments, including low- and moderate-income neighborhoods. Under the new rule, financial institutions will receive CRA credit for any NSP-eligible activities, such as loans extended to grant recipients for the purchase of foreclosed homes or for a donation of REO properties to nonprofit housing organizations. The federal government has allocated nearly $7 billion for HUD’s NSP program to provide what the regulatory agencies described as “emergency assistance” to help alleviate problems brought on by the foreclosure crisis, such as growing inventories of vacant properties, depreciating home values, declining property tax bases and the destabilization of local communities. The regulators stated in the final rule that high levels of foreclosures are projected to continue into 2012 and beyond with particularly devastating spillover effects for certain hard-hit neighborhoods.