Community Reinvestment Act Update

Community Reinvestment Act Update

The Office of the Comptroller of the Currency (“OCC”), the Board of Governors of the Federal Reserve System (“Board”), and the Federal Deposit Insurance Corporation (“FDIC”), collectively the “Agencies,” recently adopted as final amendments to the Interagency Questions and Answers Regarding Community Reinvestment (“Questions and Answers”) under the Community Reinvestment Act (“CRA”).  Although the federal CRA applies only to depository institutions and addresses all types of lending, this Memorandum will discuss only those Questions and Answers related to residential mortgage lending.  If you wish to see the Questions and Answers, they can be found on the Federal Financial Institution Examination Council’s (FFIEC) website at


This memorandum will address only the recent additions to the Interagency Questions and Answers which were effective July 25, 2016.


Q.  How do examiners evaluate whether a financial institution has been “responsive” to credit and community development needs?


A.  There are three important factors that examiners consider when evaluating responsiveness: quantity, quality, and performance context.


For example, investing in a community development organization that specializes in originating home mortgage loans to low- or moderate-income individuals would be considered more responsive than the investment of the same amount in a single-family mortgage-backed security where the majority of the loans are to low- or moderate-income borrowers.


Q.  What is meant by “innovativeness”?


A.  “Innovativeness” is one of several qualitative considerations under the lending, investment and service test.


Q.  What do examiners consider when evaluating the innovativeness or flexibility of an institution’s lending under the lending test applicable to large institutions?


A.  Examiners will consider whether, and to the extent to which, innovative or flexible terms or products augment the success and effectiveness of the institution’s community development loan programs or, more generally, of its loan programs that address the credit needs of low- or moderate-income geographies or individuals.  Historically many institutions have used innovative and flexible lending practices to customize loans to their customers’ specific needs in a safe and sound manner.  However, an innovative or flexible lending practice is not required in order to obtain a specific CRA rating.


In connection with a mortgage or consumer lending program targeted to low- or moderate-income geographies or individuals, consistent with safe and sound lending practices, an institution may establish underwriting standards that utilize alternative credit histories, such as utility or rent payments, in an effort to evaluate low- or moderate-income individuals who lack sufficient conventional credit histories and who would be denied credit under the institution’s traditional underwriting standards.  The use of alternative credit histories in this manner to demonstrate that consumers have a timely and consistent record of paying their obligations may be considered as an innovative or flexible practice that augments the success and effectiveness of the lending program.


Q.  How should annual measurable goals be specified in a strategic plan?


A.  Annual measurable goals must be stated with sufficient specificity to permit the public and the agencies to quantify what performance will be expected.  However, institutions are provided flexibility in specifying goals.  For example, an institution may provide ranges of lending amounts in different categories of loans.  Measurable goals may also be linked to funding requirements of certain public programs or indexed to other external factors as long as these mechanisms provide a quantifiable standard.