Housing

Banks Cleaning up Their Mess to Count as CRA Credit?

Financial regulators proposed yesterday to allow all activities carried out under the auspices of NSP to count toward a lender’s CRA compliance. This would only last as long as NSP […]

Financial regulators proposed yesterday to allow all activities carried out under the auspices of NSP to count toward a lender’s CRA compliance. This would only last as long as NSP is in effect.

So, for example, donating foreclosed properties in targeted areas to community developers; financing the purchase and rehab of foreclosed, abandoned, or vacant properties; or loans, investments, and services that support the redevelopment of demolished or vacant properties in those areas all would count.

My first reactions to this are mixed: On the one hand, of course, those sound like very worthy CRA-related activities and if it helps open the spigot a little for difficult-to-get-financing, that would be great.

On the other hand, it is a little uncomfortable to feel like (yet again) we’re going to the institutions that got us into this mess and patting them on the back for participating in the clean up at all. (Though it should be noted that CRA-regulated lenders were far less to blame for bad loans than those not covered by CRA.)

I can easily picture some frustrated neighborhood-level folks wondering why a bank should get credit for offloading worthless properties they’re not maintaining and making them someone else’s problem, for example.

Still, knee jerk sense of justice aside, for the most part it seems like this would be a good thing, giving additional weight to those inside these institutions who are trying to move the overwhelmed bureaucracies they are a part of toward prudent, neighborhood stabilizing lending and REO practices.

Or would it divert money away from traditional CRA activities, since CRA credit could be gained by doing things lenders are already under pressure from other quarters to do (or eventually will figure out are good for their balance sheets)? What do you think?

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