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The Community Reinvestment Act was
passed in 1977 by Congress as a way
to encourage banks to undertake lending activities in neighborhoods where
they receive deposits. Of particular
concern were low- and moderate-income neighborhoods, where customers were perceived to be high-risk
and thus were not being served by
local banks — regardless of their actual credit profile. The act aims to address that problem, while still allowing
banks to make high-quality loans.
These regulators divide banks into
three groups based on their asset size
and evaluate them differently. Banks
with assets of more than $1.122 billion
in both of the past two years are con-
sidered large banks and are required to
collect CRA-related lending data based
on their geographic CRA assessment
area (i.e., the neighborhoods where
they get deposits). Intermediate-small
banks have assets totaling more than
$280 million in both of the past two
years but less than $1.122 billion in ei-
ther of those years. Small banks have
assets less than $1.122 billion in either
of the two previous years. For the re-
mainder of this article, we’ll discuss the
large-bank regulatory framework.
Todd Sears is the chief inancial officer for Herman & Kittle Properties Inc., a full-service developer, con- tractor, property-manager and owner for apartments and self-storage located in the Midwest and Gulf Coast areas. Reach him at (317) 663-6850 or tsears@ hermankittle.com. Visit the company’s website at www. hermankittle.com.
1977; in fact, it was modified again in
2010 to support stabilization efforts for
communities affected by foreclosures.
This modification encourages banks
to make loans and provide services to
support the U.S. Department of Housing and Urban Development’s Neighborhood Stabilization Program.
CRA activity is enforced by regulations
stipulating three basic tests for large
institutions: lending activities, in-
vestments and services provided by
the bank.
“The Community C
Reinvestment Act
was passed … to t
encourage banks e b k
to undertake
lending activities i
in neighborhoods bo
where they receive
deposits.”
a branch or when an institution wants
to merge with or acquire another institution. In addition, regulators consider
public comments received regarding
CRA lending. Consequently, a favorable
CRA rating is important for most banks,
especially those that are growing.
Working with CRA loans
How do you know if you have a loan
that might be a good CRA candidate?
There are four questions to ask:
1. Where is the property or borrower
located? If it is located in a lowor moderate-income census tract
within a bank’s assessment area,
your chances of funding a CRA deal
are better. Research the area where
the property is located. The Federal
Financial Institutions Examination
Council website contains information
that provides the income category
for each census tract in the United
States (see sidebar).
2. Who does the property ultimately
serve? This may be different than
the borrower. For example, a borrower who is undertaking the redevelopment of an affordable
multifamily community in a distressed neighborhood will be evaluated based on the tenant’s profile,
not just the borrower’s.
3. Does the transaction have other
forms of public support? For example, if the transaction is part of
a larger effort by a municipality to
encourage economic development
in a neighborhood, it may already
be serving a compatible tenant
profile or be located in a low- or
