CFPB issues new report on State Community Reinvestment Act laws, which give banks the opportunity to help meet the credit needs of lower income communities.
A press release by the Consumer Financial Protection Bureau revealed that the recent analysis of State Community Reinvestment Laws involved an examination of seven states including Connecticut, Illinois, Massachusetts, New York, Rhode Island, Washington and West Virginia. The analysis indicated that following the passage of the federal Community Reinvestment Act in 1977, several states introduced similar laws. While the federal law only pertains to banks, state laws have extended their scope to incorporate a broader range of financial institutions like nonbank mortgage companies. The data provided showed that while banks held 74% of outstanding mortgage debt in 1977, this figure had fallen to 28% by 2007. Additionally, nonbank mortgage companies were responsible for originating 64% of conventional home purchase mortgage loans in 2021.
“The financial market has changed considerably since the passage of the Community Reinvestment Act and nonbanks are now capturing a large share of the mortgage market,” said CFPB Director Rohit Chopra. States have reacted by setting up reinvestment obligations for mortgage companies and adapting state reinvestment requirements to address local community needs.” Some states impose an affirmative lending, service delivery and investment obligation on mortgage firms as well as deposit-taking institutions. Also, some states carry out independent examinations of investment-related performance while others review federal performance evaluations. According to the press release from CFPB director Chopra , these acts are constantly amended to keep pace with evolving market conditions and gather additional data aimed at gaining a deeper understanding of financial markets and catering better to state needs.
According to information obtained from The Office of the Comptroller of the Currency (OCC), it is clear that passing The Community Reinvestment Act in 1977 was primarily aimed at encouraging depository institutions’ contributions towards addressing credit requirements in low-income communities. The Act calls for federal banking agencies to assess each institution’s track record of catering to community credit needs and use this as a basis for evaluating an application for a deposit facility.
