Minimizing Mortgages, Maximizing Community Service

As we noted last week, the federal banking agencies sighed a mighty sigh and heaved up a massive inter-agency proposal rewriting decades-old standards detailing which activities earn the Community Reinvestment Act (CRA) points essential for any bank’s strategic objectives and national reputation. As discussed below, the new proposal is lengthy, complex, and in some cases analytically daunting or flat-out confusing. Still one critical conclusion is clear: CRA evaluations would switch from the almost monomaniacal focus on mortgages that characterize the rule to a far wider lens encompassing many more community-development, deposit-taking, consumer finance, and small-business activities. Even where single-and multi-family mortgages count for something, the mortgages and MBS would be far more tightly circumscribed to those that meaningfully affect LMI housing, ending the blanket blessing CRA has long afforded all things GSE or FHA. This will force significant refinement in bank residential-finance strategy along with a sharp uptick in interest in innovative credit-risk mitigation and transfer options.