A proposal to put lending back at the center of Community Reinvestment Act examinations could also reduce the pressure on hundreds of banks to invest in affordable housing and community development.
The Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation proposal, issued July 31, would raise the asset threshold for a full large-bank CRA examination from $1.65 billion to more than $10 billion.
It would also give greater weight to activities tied directly to lending, limit the review of retail banking services to credit-related services, and generally focus examinations on a bank’s major loan products.
The agencies say those changes would bring CRA oversight closer to the law’s original purpose: evaluating whether banks meet the credit needs of the communities where they operate.
Housing advocates see a tradeoff. While the proposal could sharpen banks’ focus on mortgage lending in low- and moderate-income communities, it would reduce separate scrutiny of the investments, grants, and services that support affordable housing and homeownership.
Fewer Banks Would Face Full CRA Exams
Banks with less than $1 billion in assets would be classified as small banks under the proposal, up from the current threshold of $412 million. Institutions with $1 billion to $10 billion would be considered intermediate banks. Only banks with more than $10 billion would remain in the large-bank category.
Based on 2024 and 2025 regulatory data, 86 banks, or about 2.4% of all banks, would qualify as large banks. Those institutions hold 85.4% of total banking assets, according to the 407-page proposal.
Banks moving below the large-bank threshold would no longer receive separate lending, investment, and service tests. They would also be exempt from some CRA data collection and reporting requirements.
The agencies argue the proposal would continue to cover the institutions holding most U.S. banking assets while reducing the burden on community and regional banks. The FDIC estimates the changes would cut more than 106,000 hours of annual compliance work, saving the banks it supervises approximately $10 million per year.
Banking groups have generally supported the effort to simplify the rules. The Consumer Bankers Association said any final regulation should create an objective CRA framework that can survive changes in presidential administrations.
The proposal does not have the backing of the Federal Reserve, however. That could leave banks operating under different CRA rules depending on which agency supervises them.
The three banking regulators have typically tried to maintain similar CRA standards. Their last major overhaul, adopted in 2023, was challenged by banking groups and later rescinded.
Affordable Housing Investment at Issue
The biggest concern for the mortgage market is what the higher thresholds could mean for affordable housing finance.
The National Community Reinvestment Coalition estimates the proposal would eliminate separate community development evaluations for roughly 814 banks. Another 417 banks would move from the large-bank examination framework to the intermediate category.
NCRC estimates the changes could put more than $500 million a year in community development loans and investments at risk. That estimate is NCRC’s, not the regulators’, but it points to a potential funding gap in markets that rely heavily on local and regional banks.
Demand for Low-Income Housing Tax Credits could also be affected. Banks are major LIHTC investors, and CRA consideration is one reason they put capital into those developments. Commercial banks account for an estimated 85% of LIHTC investors, as NMP previously reported in an examination of affordable housing financing stacks.
The timing is notable. The 21st Century ROAD to Housing Act, which became law in July, raised the amount banks may invest in public welfare projects, including LIHTC developments, from 15% to 20% of capital and surplus. Banks would have more room to invest, but hundreds could have less regulatory incentive to do so.
The effect could be felt most sharply in rural and smaller markets, where there may be fewer large banks available to finance affordable housing projects.
The National Housing Conference has called for the proposal to be withdrawn. The group said the changes could reduce support for affordable housing organizations, Community Development Financial Institutions, housing counselors, and fair housing groups.
Those organizations often help prospective borrowers with credit preparation, homebuyer education, down payment assistance, and access to affordable mortgage programs.
New Limits on Community Development Grants
The proposal would also tighten the rules for grants and donations.
Banks would receive CRA consideration only when the money is used directly for a project, program, or initiative whose primary purpose is community development. Large banks would have to document that no more than 15% of a recipient’s grant was used for indirect costs.
The OCC and FDIC based the limit on federal grant guidance. They say it would help ensure that grant money reaches the communities it is intended to serve instead of being consumed by administrative expenses.
Under the proposal, banks could still receive CRA consideration for grants to nonprofits that build owner-occupied housing for low- and moderate-income households, offer financial education, or provide technical assistance to small businesses.
Housing organizations argue that the limit could make it harder for nonprofits to pay for the staff and operations needed to run those programs.
The agencies are also asking whether grants and donations should be excluded from CRA consideration entirely. That is not part of the proposed rule, but its inclusion among the questions for public comment has added to concerns about the future of bank funding for community organizations.
What Mortgage Professionals Should Watch
The CRA applies to insured banks, not independent mortgage banks or mortgage brokers. But its reach extends beyond bank originations.
CRA incentives influence affordable mortgage products, construction financing, tax-credit investments, down payment assistance programs, housing counseling, and partnerships that connect Loan Originators with borrowers in underserved communities.
Putting more weight on lending could encourage banks to compete for mortgages in low- and moderate-income neighborhoods. That could lead to more outreach, specialized products, or pricing incentives.
But increased attention to individual loans may not offset a pullback in the investments that produce affordable homes or the nonprofit programs that prepare borrowers to qualify for financing.
Whether the proposal ultimately expands access to mortgages or weakens the housing infrastructure around them will depend on what banks do with the regulatory relief.
