Senator Elizabeth Warren (D-MA) introduced legislation intended to increase the supply of lower- and middle-income housing, incentivize communities to revise their zoning laws to facilitate housing construction, and provide substantial grants to first time home buyers with an emphasis on loans in formerly segregated neighborhoods. The bill would materially expand the scope of the Community Reinvestment Act of 1977 (the “CRA”). The CRA requires depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations.
Senator Warren’s bill, titled the American Housing and Economic Mobility Act, would among other things:
- Expand the Scope of Covered Institutions – The CRA currently applies to insured banks and thrifts. Under the bill, the scope of the CRA would be broadened to include U.S. non-bank mortgage originators, bank holding companies, savings and loan holding companies, and credit unions.
- Revise the “Assessment Area” – Currently, a bank’s CRA performance is assessed on activities that occur in or that serve the institution’s assessment areas. An assessment area is generally limited to the area or areas surrounding a bank’s main office, branches and deposit-taking ATMs. Under the bill, the term “assessment area” would be expanded to include each community, including a state, metropolitan area and urban or rural county in which the institution: (i) maintains deposit-taking branches, ATMs or retail offices; (ii) is represented by an agent; (iii) issues a significant number of loans or other products relative to the total number of loans or other products made by the institution; (iv) has issued not less than 75% of the loans of the institution; or (v) has conducted not less than 75% of the business of the institution.
- Require the Submission of “Community Benefits Plans” – The CRA does not currently require an applicant to a merger or other expansionary proposal to submit a community benefits plan, nor is such a plan required by the Federal Reserve under the Bank Holding Company Act or by any of the federal banking agencies under the Bank Merger Act. However, the CRA would, if amended by Ms. Warren’s bill, explicitly require the adoption of a community benefits plan and consultation with “community-based organizations and other community stakeholders” in developing such a plan.
- Significantly Alter Procedures Applicable to Financial Holding Companies – The bill would amend notification procedures under Section 4(k)(6) of the Bank Holding Company Act to require prior notice filings and opportunities for public comment on certain acquisitions. In reviewing any prior notice filing, the Federal Reserve would be required to consider, among other things, the overall CRA rating of the financial holding company and any improvement plans.
Lofchie Comment: In her latest bill, Senator Warren takes aim at restrictive zoning policies that diminish the housing supply. (See Section 101(b).) San Francisco is commonly pointed to as a paradigm for such policies. The bill also provides for housing grants in areas where there is a shortage of housing and where rents have risen particularly fast over the last three years. (See Section 102(e) of the bill.) So what zoning policies should San Francisco adopt to be awarded some of the benefits provided for under the proposal? The bill could reward San Francisco by directing subsidies to ameliorate problems that – according to the bill – were created in the first place by the San Francisco zoning laws.