MBA Letter to Agencies Targets Topline CRA Issues

The Mortgage Bankers Association last week sent a letter to federal regulatory agencies, discussing several topline issues it says are crucial to improving the current Community Reinvestment Act framework.

“MBA strongly supports the Agencies’ commitment to establishing a consistent and unified set of rules for all banking institutions regardless of their primary federal regulator,” the MBA letter said. “It is imperative that the final rule reflects this commitment and ensures that the aligned rule appropriately balances the benefits to LMI communities with burdens imposed on the banks.”

The letter to the Federal Deposit Insurance Corp., the Federal Reserve and the Office of the Comptroller of the Currency was in response to a joint Notice of Proposed Rulemaking issued in May. The 700-page NPR represented the first joint agency rulemaking proposing regulatory changes to CRA since 1995.

Congress enacted the CRA in 1977 to encourage regulated banks to help meet the credit needs of the local communities in which they are chartered. In 1978, the Agencies promulgated the first major regulatory framework to implement the statute. These regulations have been revised over the years, including the last major revision in 1995, and a less substantive modification in 2005.

Since then, the Agencies have embarked on various joint and individual efforts to modernize the regulations to align with the changing times, including mobile and online banking activities and programs. Such efforts included a joint OCC/FDIC notice of proposed rulemaking, a Fed 2021 advance notice of proposed rulemaking, and ultimately, an OCC final CRA rule in May 2020, resulting in inconsistent and unaligned rules from the banking agencies. MBA urged the OCC to rescind its final rule, and work with the other two agencies on a unified CRA regulatory framework, in order to establish a more efficient and streamlined CRA regulatory process for banks and community stakeholders alike. The OCC finally rescinded its final rule in 2021, essentially returning the rules to the current joint agencies’ regulatory framework.

In its letter, MBA said it strongly supports the Agencies’ commitment to establishing a consistent and unified set of rules for all banking institutions regardless of their primary federal regulator, noting anks provide a significant amount of capital and liquidity to the single-family and multifamily mortgage markets, which in turn helps support the supply of critically needed housing in this country. In 2021, banks accounted for nearly 40% of the $4 trillion in single-family mortgage originations and were one of the largest sources of capital for multifamily lending, totaling $160 billion in originations. As holders of this debt, commercial banks account for more than $5 trillion in single- and multifamily mortgage-related debt outstanding.

“MBA supports a regulatory framework that will provide greater clarity and consistency in the CRA’s application, address changes in the banking industry (including the expanded role of mobile and online banking) and create a consistent regulatory approach that applies to banks regulated by all three Agencies,” the letter said. “Furthermore, the importance of tailored data collection and reporting requirements as well as performance standards that take into account the differences in bank size and business models cannot be overstated.”

MBA said it support proposals in the NPR that are geared towards reducing the burden on small and intermediate banks by:

• allowing small banks to continue to be evaluated under the current regulatory framework;

• allowing intermediate banks to be subject only to the new Retail Lending Test while continuing to be evaluated under the current Community Development test framework;

• providing flexibility for small banks to opt into the new Retail Lending Test, and intermediate banks to opt into the new Community Development Financing Test; and

• limiting the amount of additional data collection for small and intermediate bank

Furthermore, MBA also said it supports the Agencies’ goal of achieving a more streamlined and objective CRA examination of bank lending to LMI borrowers and communities. However, the letter noted some of the proposals, while intended to promote the Agencies’ goals with as little burden as possible, have unintended consequences. For example, the NPR creates a “new and extremely burdensome CRA regime” for large banks.

“Large banks already make great efforts to serve their communities through CRA and, over the years, have developed CRA programs that promote the goals and objectives of the statute and regulations,” MBA said. “Therefore, any final rules should encourage and appropriately recognize the existing efforts made by banks to help meet the credit needs of their communities, especially LMI neighborhoods, rather than establish barriers that make compliance difficult and in effect, work against sincere efforts to achieve the stated objectives of CRA.”

MBA Also noted by issuing an NPR, rather than an advance notice of proposed rulemaking, the Agencies have provided stakeholders just one opportunity to get the final rules right. It said the 90-day comment period did not give the industry sufficient time to run the detailed data analysis that would have been helpful to the Agencies in understanding the impact of some components of the proposed rule.

“Therefore, it is imperative that the Agencies give thorough consideration to the comments and recommendations provided by stakeholders to ensure the final rule reflects abalance between the burdens of implementation and compliance for banks and the goals and benefits of the rules for the intended beneficiaries,” MBA said.