WASHINGTON - Regulators have agreed on a framework for Community Reinvestment Act reform that includes tough, objective standards to measure lending to people with low income, sources say.

In a big victory for the industry, many community banks with less than $250 million in assets would be exempt from new guidelines, resulting in significantly lower compliance costs from them.

Opposition Likely

But larger institutions are likely to oppose the heavy emphasis on objective measurements. What's more, documentation requirements might increase for these insitutions, even though the CRA changes were intended in part to reduce red tape.

The cornerstone of the draft proposal, developed by four banking agencies, is a series of measurements that examiners will use to gauge the extent of low-income lending by an institution.

For example, regulators will compare a lender's market share in low- and moderate-income census tracts with its overall market share.

Officials confirmed that general agreement had been reached on CRA reform, but declined to comment on specifics. They said many details are not final and changes are likely before the proposal is released.

Clinton Directive

In July, President Clinton asked the banking agencies to rewrite CRA, which requires banks to serve their entire communities, including low income areas. The regulators were instructed to emphasize lending performance but cut documentation burdens. He asked them to finish work by Jan. 1.

Regulators now hope to release a proposal for public comment by the beginning of December. A final rule is not expected until next year.

Under the plan, examiners would use three measurements of lending performance to come up with an overall lending rating on a five-grade scale: outstanding, high-satisfactory, low-satisfactory, needs to improve, and substantial noncompliance.

For example, in order to be judged "outstanding," market share in poorer areas would have to exceed a lender's overall market share.

Similar, although less rigorous and quantifiable analyses, would be performed in two other areas: bank services and investments.

Evaluation in the three areas would then be combined to come up with a final CRA grade. The four ratings in this final category would remain as they are now: outstanding, satisfactory, needs to improve and substantial noncompliance.

The agencies are also considering a number of more subjective measures to balance the measurements in coming up with a final rating. But the bulk of the final CRA rating is expected to come from the lending tests.

Under the proposal now being developed, large banks would also have the option of publishing plans detailing their strategy for meeting their community reinvestment obligations. This would give banks the chance to develop more creative plans for compliance.

But adopting this approach would not allow banks to circumvent tough scrutiny through objective measures. Lenders would be required to address similar issues to those in the statistical tests.

Comptroller Eugene A. Ludwig and Federal Reserve governor Lawrence B. Lindsey are the architects of the proposal. They have been working with Andrew Hove, acting chairman of the Federal Deposit Insurance Corp., and Jonathan L. Fiechter, acting director of the Office of Thrift Supervision to develop the plan.

Community groups are expected to strongly protest the less stringent requirements planned for smaller banks, and will argue that it lets too many of them off the hook. Some 86% of banks and thrifts have less than $250 million in assets. Community banks lobbied heavily for the exemption.

Under the plan being considered, small banks that meet just a few standards would receive automatic satisfactory CRA ratings and be exempt from further review. To opt out, small banks must have:

* No evidence of discrimination.

* No legitimate complaints from community groups.

* A "reasonable" loan-to-deposit ratio.

* A majority of their loans extended in their community and have a "good" loan mix.

Regulators are also considering adding a third tier. Under this approach, institutions with fewer than $100 million in assets that meet the small-bank tests would be exempt from further scrutiny. Banks between $100 million and $250 million in assets would have a somewhat tougher test.

How CRA lending

Would Be Gauged

Under a draft proposal, regulators would use the following criteria to measure compliance with rules on low-income lending:

* The ratio of the lender's market share in low- and moderate-income sensus tracts to its overall market.

* The percentage of the lender's total loans that are made in low- and moderate-income census tracts.

* The percentage of census tracts in the lender's market where loans have been made.

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