CRA: A Tool for Local Agencies

Last week aviewfromdc held the position that local housing and community development organizations needed to explore relationships with local lending institutions to generate additional funds. It is our opinion the bail out and other federal priorities will make it extremely difficult and highly unlikely local agencies will see an increase in federal funds. Nothing has occurred in the past week to change that assessment. In fact, the vents of the past week have reinforced our view that local agencies need to be more creative in seeking additional funds to serve their low- and moderate-income population.

One tool which can be used to generate additional resources is the Community Reinvestment Act (CRA). In this issue we are providing our readers with a summary of the act taken from the National Community Reinvestment Coalition web site. We also encourage our readers to visit the Federal Financial Institutions Examination Council’s web site as well. This week we would like to provide a summary of the act. For more detailed information on how an agency can use CRA for it local purposes, we recommend visiting NCRC’s site for a manual and other resources highlighting the use of CRA.

CRA is an act which was passed in 1977 to establish a framework to monitor the lending, investment and services offered by lending institutions in low- and moderate-income communities. Four federal agencies are responsible for monitoring financial institutions: the Office of the Comptroller of the Currency examines nationally chartered banks; the Office of Thrift Supervision examines savings and thrifts; the Federal Deposit Insurance Corporation and the Federal Reserve Board monitor state chartered banks.

Banks are examined according to size to determine their responsiveness to community needs. For example, institutions with more than $1 billion in assets are reviewed differently from institutions with fewer resources. They are subject to a more rigorous exam which considers the performance context of the lending institution. Those with less than $1 billion in assets but more than $250 million are subject to a streamlined test. Institutions with less than $250 million in assets are subject to five criteria in their examinations: the loan to deposit ratio; the percentage of loans in the bank’s assessment area, the bank’s distribution of loans to individuals of different income levels and businesses and farms of different sizes, the geographic distribution of loans, and the bank’s record of responding to written complaints about its lending performance in its assessment area.

NCRC has a wealth of resources available to local leaders interested in learning more about CRA and how their local banks fair under the law. They also have a section on their web site which refutes the comments of conservative commentators who blame CRA for the current mortgage crisis.

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