The Community Reinvestment Act (CRA) was enacted in 1977 to eliminate redlining and to expand credit access to all communities, including low-moderate income earning neighborhoods. The CRA strengthened the expectation that banks serve the convenience and needs of local communities.

Currently, the CRA requires Federal financial institutions, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve, and the Federal Deposit Insurance Corporation to assess and evaluate the record of each bank in its ability to fulfill community obligations and to consider the record of evaluating applications for charters, bank mergers, branch openings, and acquisitions.

In May 2022, the Federal Reserve Board, the FDIC, and the OCC announced that they wanted to adopt changes to strengthen and modernize regulations in the CRA.  

CRA reform is a critical tool for improving racial inequality among communities of color. By holding banks accountable to the financial demands of local communities, particularly low-moderate income earning communities. The CRA is one of the most important federal policies for affordable housing and community development financing, generating hundreds of billions of dollars in loans and equity investments every year. The CRA is responsible for 75% to 85% of annual investor demand for the federal Low-Income Housing Tax Credit (LIHTC) incentive.

Among our National Housing Resource Center comments were the following proposals specific to housing counseling:

  • Recognizing lender fee-for-service payments for housing counseling services by HUD approved housing counseling agencies as an eligible activity under the Community Reinvestment Act.

This eligible activity provides significant value for the underserved population, especially low-moderate income people and people of color. While lenders recognize the value of HUD approved housing counseling agencies in addressing the troubling and persistent gaps in access to homeownership, there is a needed clarification on what form that support can take.  Lender fee-for-service payments for housing counseling services are an important avenue for supporting housing counseling and a clear statement in the rule that these payments are considered eligible supports under the CRA will provide the necessary clarity.

  • Recognizing Housing Counseling as a Vital Component of CRA Performance

Housing counseling delivered by HUD approved housing counseling agencies is a critical component in addressing the housing challenges faced by low and moderate-income people and people of color. HUD certified housing counselors work directly with the low and moderate-income populations currently targeted by the CRA and work directly with the Black, Brown, and Asian populations that we are asking regulators to include with this rulemaking.  As an example, in FY 2020, 72% of the housing counseling sessions were delivered to low and moderate-income households (80% or less of area median income) and 81% were to people of color (including 44% Black, 22% Hispanic, 10% Mixed Race, 3% Asian, 1% American Indian/Alaskan Native, 1% Native Hawaiian/Pacific Islander), based on the FY 2020 HUD 9902 Reports.

We appreciate the recognition of financial literacy and housing counseling as part of the Community Reinvestment Act process.  However, it is important to recognize the unique role and effectiveness of housing counseling.  Financial literacy helps inform people about homeownership, homebuying, and financial management.  Housing counseling has a much deeper role in helping people meet their financial goals.  Housing counseling is a personalized analysis and guidance for people through the complicated, opaque, and intimidating process of purchasing a home.  New entrants to the homebuying process are disadvantaged by the intimidating array of challenges of the process, are at risk of being taken advantage of by predatory or discriminatory actors, and can benefit from professional, independent advice from a trusted, HUD certified housing counselor.  

HUD certified housing counselors provide several critical services for new entrants to the new homebuying market: 1) a clear and plain language evaluation of the household income, debts, household budget, credit report, credit score, employment history, 2) a practical action plan to address any challenges the household has with clear steps on how to cure problems and barriers, 3) assembly of borrower documentation to facilitate loan application and appropriate representation of the financial position of the household, 4) financial information tailored to the situation of the household, 5) guidance on appropriate lender products to consider, and 5) importantly, the role of a trusted advisor who is not only familiar with the complexities of the mortgage process but also is an independent advisor who does not have a financial stake in the transaction and is professionally committed to guiding them responsibly through the process.

  • Recognize the important role housing counseling by HUD approved housing counseling agencies provides in addressing income, race, and ethnic barriers in the marketplace and provide higher value in support for housing counseling in the CRA evaluation process.  

Housing counseling is a proven tool that helps consumers get mortgage-ready through financial education, pre-purchase counseling, reverse mortgage counseling, and credit history counseling. This eligible activity provides significant value for underserved populations, especially low-moderate income people and people of color. While lenders recognize the value of HUD approved housing counseling agencies in addressing the troubling and persistent gaps in access to homeownership, there is a needed clarification in what form that support can take.  Lender fee-for-service payments for housing counseling services are an important avenue for supporting housing counseling and a clear statement in the rule that these payments are considered eligible supports under the CRA will provide the necessary clarity.

  •  Recognize lender fee-for-service payments for housing counseling services by HUD approved housing counseling agencies as an eligible activity under the Community Reinvestment Act.

Question 27 asks “Should consideration of financial literacy activities expand to include activities that benefit individuals and families of all income levels, including low- and moderate-income, or should consideration be limited to activities that have a primary purpose of benefiting low- or moderate-income individuals or families?” We view the income targeting of the Community Reinvestment Act as a vital component of the CRA and the goal of reaching underserved populations.  Allowing CRA credit for people at all income levels will undermine the central purpose of the CRA.  

  • Credit for CRA eligible activities, including housing counseling services and financial literacy activities, be limited to those populations specifically targeted by the CRA.  

We look forward to seeing how the CRA reform develops, in hopes that it will better serve communities of color. Thank you to all who submitted comments to include HUD’s housing counseling assistance program as a CRA eligible activity.

  • Addressing Appraisal Bias

The new CRA rules should address appraisal bias with the requirement of a HMDA-like disclosure for appraisal firms. Recent reports have demonstrated that appraisals for consumers of color and properties in communities of color are more likely to understate property values in comparison to actual sale prices for white sellers and less diverse communities.

The HMDA-like reports should include data on the number and share of appraisal firms provided by the census tract, the number where appraised value is less than the contract sale price, and related data. This would enable local cities, counties, hospitals, universities, and nonprofits to identify and utilize preferred appraisal firms similar to lists of minority-owned, women-owned, and veteran-owned contractors. Mortgage lenders should be encouraged to work with appraisers who have a track record of serving diverse communities. The Philadelphia Home Appraisal Bias Task Force urges this action in its July report for cities in the United States. It is critical to address appraisal bias because communities of color earn less equity than their white counterparts in their mortgages. Appraisal bias worsens racial inequities in the housing market. The disparate impact of appraisal bias is inconsistent with the Fair Housing Act.

 

Best Regards,

Cristy