New CRA Regulations Support Stabilization Efforts in High-Foreclosure Areas

New CRA Regulations Support Stabilization Efforts in High-Foreclosure Areas

foreclosure sign

A final rule issued jointly by the Federal Reserve and other federal banking regulators gives financial institutions incentives to support the stabilization efforts taking place in foreclosure-stricken communities.

The rule allows financial institutions to receive favorable consideration in their Community Reinvestment Act (CRA) examinations when they lend, invest, or provide services that support the activities of the National Stabilization Program (NSP) in eligible communities designated under the NSP. The program, administered by the U.S. Department of Housing and Urban Development, provides funds to state and local governments and nonprofit organizations to purchase and redevelop foreclosed, abandoned, or vacant properties.

Delinquencies, foreclosures present "pressing need"
"There is a pressing need to provide housing-related assistance to stabilize communities affected by high levels of foreclosures," said the final rule. "High levels of foreclosures have devastated communities and are projected to continue into 2012 and beyond with damaging spillover effects for low- and moderate-income census tracts, as well as middle-income census tracts, affected by high levels of delinquencies and foreclosures."

The rule also allows financial institutions, many of which own foreclosed properties outside of their CRA assessment areas, to receive consideration for community development efforts in other NSP-targeted areas. However, institutions must have adequately met the CRA-related needs of their assessment areas in order to do so. This is not the first time regulators have been flexible about the assessment areas, as noted in the final rule. For instance, in 2006, regulators allowed institutions to receive CRA consideration for making loans or investing in areas affected by hurricanes Katrina and Rita.

Rule helps build upon federal programs already under way
The new rule meets the purposes of the CRA, while also bringing them into closer alignment with government programs like the NSP. According to the final rule, "the agencies believe that the purposes of the CRA can be served by providing CRA incentives to engage in community development loans, investments and services that meet the narrowly tailored requirements of the NSP."

The Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision issued the final rule along with the Federal Reserve. It is effective 30 days after the rule is published in the Federal Register.

January 25, 2011