Community development and single-family mortgage lending account for the greatest dollar volume of lending that qualifies under the Community Reinvestment Act (CRA), according to analysis from the Urban Institute’s Housing Finance Policy Center [1].
The CRA was created to ensure that banks serve the needs of the communities in which they are located.
Community development CRA lending claimed the greatest dollar volume among all CRA loan types in 2018 with $103 billion in lending. This is up from $96 billion in 2016. It displaced single-family CRA-eligible lending, which ranked No. 1 in 2016.
Single-family mortgage CRA lending came in second in 2018 with $95 billion in 2018, down from $108 billion in 2016. Three researchers from the Urban Institute attributed the somewhat large decline in single-family lending to rising interest rates over the two years. The average primary mortgage interest rate rose from 3.65% to 4.54% between 2016 and 2018.
The dollar volume of single-family CRA-eligible loans rose from 12% to 13%, but the dollar volume declined.
Small business, multifamily, and small farm lending, in that order, filled out the remaining CRA lending categories for both of the two years analyzed.
While keeping its spot in third place for dollar volume, multifamily CRA lending rose substantially from $33 billion to $42 billion over the two-year period, while small business and small farm lending fell slightly.
The Urban Institute researchers also suggest the boost in multifamily lending is also partly responsible for the uptick in community development lending because when lenders create loans for affordable multifamily housing, the loan can be counted in both the multifamily and community development categories for CRA purposes.
Multifamily lending experienced a $31 billion increase between 2016 and 2018 with an $11 billion increase in low- to moderate-income areas, according to the Urban Institute.
Looking ahead, the researchers expect declining interest rates to incite increased mortgage and refinance activity this year and last year with some dampening by the impact of the coronavirus pandemic.
The Office of the Comptroller of the Currency recently released new CRA rule changes [2], which the Urban Institute has opposed in various writings since the new rule was released this May.
While some in the industry have praised the rule for its modernization efforts, others in and outside the industry are deeply critical. The Urban Institute also wrote this month that one of the impacts of the new rule would be that fewer loans would be assessed by CRA standards [3].
“Even though the banking industry has drastically changed since the CRA was enacted, the current regulations are working reasonably well,” the researchers wrote in their post analyzing CRA lending. “Any modernization efforts should be rooted in data, and as we have written elsewhere, there is no need for change in the middle of a pandemic.”
The U.S. House of Representatives last month passed a Congressional Review Act aimed at reversing the CRA. [4]
Opposing the rule from the start, Chairwoman of the House Committee on Financial Services, Maxine Waters, introduced her Congressional Review Act [5]earlier this month alongside Rep. Gregory Meeks, Chair of the Subcommittee on Consumer Protection and Financial Institutions. Seventy other members of the House co-sponsored the act.
“I am deeply concerned that the OCC’s final rule will harm low-income and minority communities that are disproportionately suffering during this crisis, effectively turning the Community Reinvestment Act into the Community Disinvestment Act,” Waters stated before the House on Monday.
The new rule “incentivizes large deals at the expense of smaller and more continuous financial transactions” according to Waters. The Office of the Comptroller of the Currency rule would reward CRA funding to institutions that were active in Opportunity Zones without ensuring that their activities specifically benefitted low- to moderate-income community members.