The Ever-Changing Landscape of LIHTC & CRA: Regulator Roulette

David Risdon • 3/25/2020
This is part 3 in our series on Low-Income Housing Tax Credit Investments (LIHTC) & the Community Reinvestment Act (CRA).

Summary

  • The market for LIHTC investments by banks remains strong but could be stronger.
  • A corporate tax cut has LIHTC projects less attractive to banks, and an increase in tax credits is only a temporary fix.
  • Additional IRS regulations and lack of agreement among bank regulators on proposed CRA rule changes is impeding progress on the situation.
  • LIHTC projects critically contribute to US affordable housing, and the government should work with constituents to grow these kinds of projects.

At the end of January 2020, Joseph Otting, Comptroller of the Currency, got grilled by several Democrats in the House Financial Services Committee about the OCC’s proposed new CRA regulations. The OCC and the FDIC have, together, notably without the cooperation of the Federal Reserve, proposed a new set of CRA regulations intended to de-mystify (i) what counts toward CRA, (ii) how CRA performance is gauged, and (iii) CRA data reporting.

 

The Fed did not like the proposals, maintaining that oversimplifying CRA performance measurement could lead to banks pouring more investment into larger projects while ignoring the needs of smaller and rural communities. The House Democrats agree with the Fed and brought these concerns to the Comptroller.

 

Fed Governor Lael Brainerd has overseen the agency’s just-released set of proposed CRA rule changes. The OCC, the FDIC and the Fed have all publicly stated their desire to come up with one set of rule changes. Comptroller Otting, however, has also expressed his desire to move ahead on his proposals without undue delay.

 

The OCC oversees all nationally-chartered (typically larger) banks while the FDIC oversees state banks that are not members of the Fed. These banks comprise approximately 85% of all CRA activity. The Fed oversees state-chartered banks that are members of the Fed. This comprises the remaining 15% of CRA activity. If the three regulators can’t agree on rule changes, then CRA rules will vary based on the type of bank making the investment. An additional layer of complexity on top of an already complex web of regulations.

 

David Risdon is a Senior Managing Director within Cushman & Wakefield’s Special Opportunities Group, which specializes in assisting banks with regulatory compliance monitoring, data validation, data migration and loan portfolio due diligence. 

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