Regulators may end CRA credit for loans to wealthy: OCC’s Otting

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ATLANTA — Loans to high-income earners living in lower-income neighborhoods may no longer get Community Reinvestment Act credit under a proposed revamp of the law, a top regulator said Friday.

Currently, banks can get CRA credit if they originate mortgages to anyone who lives in a low- to moderate-income neighborhood. But on a tour of neighborhoods here affected by the law, Comptroller of the Currency Joseph Otting said regulators are considering limiting such credit to loans for lower-income borrowers.

“One of the issues we want to evolve is the issue of banks getting credit for mortgages to people of medium-to-high income just because they happen to be in an LMI area,” Otting said on Friday. “CRA mortgage lending should be to LMI people.”

Separately, Otting said the Office of the Comptroller of the Currency is considering a suggestion from Operation Hope CEO John Hope Bryant, who attended the tour with Otting, to award CRA credit for investments made in Opportunity Zones. Loans made in Opportunity Zones currently qualify for special tax credits.

Both ideas are being looked at as the OCC, Federal Deposit Insurance Corp. and Federal Reserve Board work on crafting a joint proposal to reform CRA policy. Yet Otting said there is no guarantee that either the LMI mortgage or the Opportunity Zone provision will be included. The proposed rulemaking is expected to be issued as early as this fall.

Discussing the possible LMI change, Otting used himself as an example. He said although his income level would not qualify him as a low- to moderate-income borrower, a bank would get CRA credit for issuing him a mortgage because he lives in a distressed neighborhood of southwest Washington, D.C.

The tour of low- to moderate-income neighborhoods of Atlanta was sponsored by the OCC and Operation Hope. It highlighted both commercial and residential areas that have benefited from CRA-qualified loans and investments originated by banks and nonprofit partners.

Bryant said he suggested linking Opportunity Zone investments to CRA credit because it would help expand where banks can conduct CRA lending. There is about an 80% overlap between areas that qualify for CRA credit and the census tracts that are designated as Opportunity Zones.

“The CRA has to be about business development for emerging markets and underserved parts of America,” Bryant said in an interview during Friday’s bus tour.

Opportunity Zones were approved as part of the federal income tax cut that became law in December 2017.

The tour of Atlanta, which was attended by representatives from national, regional and community banks, was intended to raise awareness of the OCC’s efforts to push through reform of the CRA, said Bryan Hubbard, an agency spokesman.

The CRA, which became law in 1977, was last revised in the mid-1990s. Regulators, community advocates and bankers have said the law needs updating to reflect the new world of digital banking, and to give banks better understanding of what types of financial transactions will qualify for CRA credit.

The OCC and Operation Hope have scheduled four additional tours of CRA areas this month, in New York, Washington, Los Angeles and Albuquerque, N.M.

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CRA Regulatory reform Mortgages Affordable housing Joseph Otting OCC