Analyzing Lending Practices Under CRA

Nonbanks tend to lend more to LMI borrowers than banks that fall under the CRA regulations, according to an analysis by the Urban Institute. The analysis was meant to help the Office of the Comptroller of Currency (OCC) strengthen its changes in regulations to the Community Reinvestment Act (CRA) proposed earlier this year and has been submitted as part of its Advanced Notice of Proposed Rulemaking (ANPR) on modernizing the CRA's regulatory framework.

The Urban Institute, with support from the National Association of Affordable Housing Lenders, analyzed data on both single-family and multifamily CRA lending as part of their comments to the ANPR rulemaking record. The analysis was designed around answering questions on the behavior of institutions subject to CRA versus those that don't come under this act (nonbank originators and credit unions); the difference in behavior between small and large banks; the importance of banks to the communities they served as well as low- and moderate-income (LMI) borrowers in those communities; and the relative importance of small business, small farm, and community development lending through the CRA.

For the analysis, the researchers used 2016 Home Mortgage Disclosure Act (HMDA) data and CRA files from the Federal Financial Institutions Examination Council.

The analysis revealed that though nonbanks were not subject to CRA, they did a larger share of one-to-four-family mortgage lending to LMI borrowers than the banks, who were subject to the CRA, reflecting a wider credit box for nonbank originators. "Nonbanks do the overwhelming amount of Federal Housing Administration (FHA) lending, which disproportionately encompasses lending to LMI borrowers," the analysis revealed.

However, it said that banks made 72 percent of their one-to-four-family mortgage lending in their assessment areas, even though the percentage varied according to the size of the institution, with larger banks making a larger share of lending than midsize or small institutions. Despite this, the largest banks did lesser CRA-eligible one-to-four-family lending as a share of total lending in their assessment areas compared to midsize or smaller institutions.

A higher proportion of multifamily lending was made out to LMI borrowers with a greater share of loans made out to multifamily units rather than single-family ones in banks' assessment areas, making multifamily lending a heavier contributor to meeting CRA standards than lending volumes alone would indicate, the analysis said.

To read the detailed analysis, click here.