by Sarah Wolak
The National Association of Affordable Housing Lenders (NAAHL) is urging federal banking regulators to reconsider proposed changes to the Community Reinvestment Act (CRA), warning that higher asset thresholds and other revisions could reduce financing for affordable housing and community development, particularly in rural areas and smaller markets.
In comments filed Tuesday with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp. (FDIC), NAAHL said the proposed rule could weaken incentives for banks to finance affordable housing, small businesses and community facilities.
“Sweeping changes to CRA could jeopardize the partnerships driving our housing, small business, and community development ecosystems, putting capital for housing supply and local economies at risk,” the letter stated. “Without the private capital catalyzed by CRA, communities could see more deals fall through, fewer business opportunities, and less support for the hospitals, childcare facilities, and schools serving LMI (low- and moderate-income) people and places that make daily life more affordable for families.”
NAAHL specifically opposed changes to bank asset thresholds that determine how institutions are evaluated under CRA. The group also raised concerns about proposed restrictions on grants to nonprofit organizations and changes to how regulators evaluate community development lending and investments.
“CRA is an irreplaceable policy that harnesses the power of the U.S. banking system to expand access to housing and economic opportunity,” Sarah Brundage, NAAHL’s president and CEO, said in a statement. “Blunt changes to CRA may have unintended consequences. With any updates to CRA, we should ensure that we are enhancing the outcomes of CRA, not suppressing them.”
NAAHL said it supports targeted updates that improve clarity, consistency and predictability in the CRA framework. It urged the OCC and FDIC to work with the Federal Reserve to establish a uniform framework that maintains meaningful community development responsibilities for banks of all sizes.
Potentially meaningful resizing of asset thresholds
NAAHL’s analysis, developed with FairPlay AI, examines how proposed changes to asset thresholds could affect banks’ community development responsibilities and the availability of financing across the country.
Under the agencies’ proposal, the threshold for small banks would rise from $412 million to $1 billion in assets, while the threshold for large banks would increase from $1.649 billion to $10 billion.
NAAHL also modeled a more substantial increase, with small banks defined as those with less than $10 billion in assets and large banks as those with at least $30 billion.
Under that alternative scenario, 3,673 banks would fall into the small-bank category and would not be subject to a community development test, compared with 2,288 under the current thresholds, according to the analysis.
More than 31 million people would newly live in census tracts with limited community development coverage, defined as areas where only one to five banks are evaluated for community development. More than 2.6 million people would newly live in areas with no banks evaluated for community development.
The group warned that reducing the number of banks subject to community development evaluations could weaken financing for affordable housing, including projects that rely on the Low-Income Housing Tax Credit. NAAHL said CRA-motivated investors provided about 80% of the equity for these projects in 2024.
Banks with less than $30 billion in assets made nearly $53.5 billion in community development loans in 2024, accounting for more than one-third of community development lending by dollar volume and nearly two-thirds by number of loans, according to NAAHL.
The group said smaller banks play an especially important role in markets where larger institutions have a limited physical presence.
Support for clearer rules, opposition to grant restrictions
NAAHL supports several proposed changes intended to make CRA implementation more predictable, including a nonexhaustive list of eligible community development activities, a process for obtaining advance determinations on whether activities qualify, and continued consideration for outstanding community development loans.
But the group opposed proposed changes to grant eligibility and documentation requirements, arguing that they could discourage banks from supporting nonprofit and community-based organizations.
CRA-qualified grants help fund housing counseling, financial education, small-business assistance and other services that can support lending and community development, NAAHL said. The organization cited a review of bank performance evaluations showing that banks provide more than $617 million in CRA-qualified grants annually.
NAAHL urged regulators to preserve eligibility for grants that support qualifying community development purposes rather than impose additional requirements for documenting how individual dollars are spent.
The group also called for maintaining the distinct roles of loans, investments and grants in community development financing, preserving flexibility for banks with different business models, and ensuring that CRA continues to prioritize low- and moderate-income communities.
NAAHL recommended that any final rule take effect no sooner than 24 months after publication and only after the agencies have issued related guidance. It also urged all three federal banking regulators to adopt a single regulation.
Hundreds of organizations oppose reduced incentives
Separately, NAAHL joined more than 475 organizations representing communities across all 50 states in urging the OCC and FDIC to maintain meaningful community development incentives for banks of all sizes.
The organizations on this list include the National Association of Realtors, National Housing Trust, Community Housing Works and several state housing authorities.
The coalition’s letter said CRA incentivized more than $430 billion in loans and investments in low- and moderate-income communities in 2024. This include nearly $168 billion in affordable housing and community development lending and investments, more than $152 billion in small-business loans, more than $100 billion to support homeownership and more than $10 billion in small-farm loans.
The signees warned that a sharp decline in CRA-motivated activity could hurt local economies, reduce jobs and worsen the affordable housing shortage, particularly in rural communities and smaller markets.
“The final rule should preserve a clear and meaningful focus on the low- and moderate-income households and communities CRA was intended to serve,” the letter said.