The Community Reinvestment Act (CRA) is a federal law that was first passed in 1977. Its purpose was to assure that banks did not discriminate against individuals or businesses within their communities, including underserved markets such as low and moderate-income (LMI) neighborhoods. The Federal Reserve System (FRS), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) all evaluate how banks are fulfilling the CRA.
Since banks can get fined for not serving these areas of their community, we’ve put together a guide on what you need to know about the Community Reinvestment Act and how you can increase your minority and LMI lending.
We’ve already established that the FRS, FDIC, and OCC all evaluate whether or not you’re fulfilling CRA requirements. But what does that exactly entail? To receive credit under the CRA, your bank’s loans, investments, and services must be focused on improving the circumstances for LMI individuals as well as their neighborhoods. The CRA classifies low-income communities as having a median family income of less than 50% of the area median income, and moderate-income communities as having a median family income of at least 50% and less than 80% of the area median income. The Federal Financial Institution Examination Council (FFIEC) publishes a report on median family income every year so these numbers are updated. Examiners will conduct lending, investment, and service tests to evaluate your bank’s performance in respective assessment areas. These evaluations are customized to reflect the characteristics and asset size of your bank. The CRA categorizes banks as small, intermediate-small, and large and also differentiates limited-purpose and wholesale institutions. The CRA assessment areas are based on where you have branches and deposit-taking ATMs, or the surrounding geographies in which you have originated or purchased loans.
The examiners will then give you the following ratings:
Once your bank has been examined, the examiners will prepare a written evaluation of how you’ve met (or not met) the credit needs of your area. This evaluation is not only considered when banks request to merge or plan to expand but also made available to the public.
The evaluation generally contains:
The public is even encouraged to submit comments on how you’re meeting the credit needs of your community, which are then taken into consideration during your next CRA examination.
HomeTraq is helping banks serve underserved markets so they not only avoid hefty fines but also make a lasting impact on their communities. Real estate services are greatly needed in local low and moderate-income (LMI) neighborhoods. These areas are currently underserved by both local real estate companies and financial institutions. According to the CRA, activities that support community development include:
When banks partner with HomeTraq, they can offer their clients on-demand home showings without all the hassles. In the same way, you use Uber or Lyft to quickly find a driver to get a ride, potential homebuyers can use HomeTraq to quickly find agents to easily schedule a home showing in an average of 3-5 minutes. Banks can then get in front of every mortgage and potential referral opportunity: every time their clients view a home, the bank will receive an instant notification. This puts an end to banks losing mortgage business from their own customer base because of agent referrals. Google, Instagram & Facebook advertising methods enable HomeTraq and local banks to specifically promote on-demand real estate services in these underserved markets to fulfill the need. Banks receive CRA credit by simply promoting home showing services to current and potential customers in these areas while winning more mortgage business by facilitating on-demand home tours. Even when potential buyers do not end up buying a home in the LMI neighborhood, CRA credit is issued to the bank for the marketing and promotion of services in these communities. All real estate brokers and agents do not serve customers in all geographic areas which contributes to the underserved problem in these targeted areas. HomeTraq is committed to LMI and underserved neighborhoods and proactively solicits more service providers for these areas. HomeTraq onboards more real estate brokers and agents as needed in specific neighborhoods as demand increases.
Some banks offer buyers special Down Payment Assistance (DPA) programs, with some based on borrower specific criteria (income or minority status) and others on the location of the property in an LMI or “majority-minority” census tract. Some DPA programs are also based on a combination of both borrower-specific criteria and property location. By using FFIEC census tract information, HomeTraq can promote your specific DPA programs to potential homebuyers who apply for a loan for homes that are located in an LMI or “majority-minority” area. Simply share with HomeTraq your DPA program criteria and we can help customize your customer’s home touring experience by promoting and highlighting homes that help them qualify for your DPA programs.
So what are you waiting for? Let’s talk about how HomeTraq can provide you with the best leads.