CRA: An Examiner's Perspective
Interpreting Performance Context: Affordable Housing

This article is part of a series on Community Reinvestment Act (CRA) best practices from an examiner’s perspective. Although this column focuses on CRA best practices for financial institutions, the content may provide insights for community development organizations working with financial institutions to meet credit and community development needs. As a disclaimer, this series is meant only to represent best practices; financial institutions should consider the information presented in context of the requirements or guidance of their primary regulators and their own business needs.

Performance context includes qualitative and quantitative information gathered by examination staff as part of CRA evaluations of all regulated banks. This information is essential for regulators, bankers, community groups and the public to adequately understand CRA performance. Throughout a bank’s CRA evaluation, examiners rely on performance context to evaluate the bank’s level of responsiveness to community credit needs through its retail lending and CRA community development loans, investments and services. Examiners also use performance context in the bank’s written CRA Performance Evaluation to orient stakeholders to the unique credit needs of low- and moderate-income (LMI) borrowers and geographies, small businesses and small farms, and middle-income distressed and underserved groups and disaster areas.

Quantitative data are used as performance context to describe the bank’s assessment areas (AAs) and subsequently to provide perspective on bank performance throughout the Performance Evaluation. Data from the U.S. Census Bureau, U.S. Department of Labor, Federal Financial Institutions Examination Council and other sources introduce stakeholders to key factors affecting community needs, such as family population, median family incomes, unemployment, poverty rates, median housing values and gross rents. While this information is presented at the overall AA level, it is also displayed by county to illustrate significant differences or similarities.

Through the use of quantitative information, stakeholders can begin to understand the needs of communities in assessment areas and whether there are challenges and opportunities that banks may face in meeting those needs.

Although quantitative information provides stakeholders a numerical reference point, qualitative information refines the discussion to smaller-community levels, such as neighborhoods, quadrants or zones.

One source for qualitative information is conversations that examiners conduct with community members. Examiners utilize information gathered from these discussions to provide stakeholders a focused depiction of the credit needs of AA communities.

For example, a commonly noted need is affordable housing for LMI individuals and in LMI geographies. Context sourced from these conversations can be used to assess the level of opportunity the bank has for meeting these needs through mortgage products or CRA affordable housing activities. Specifically, a community discussion may reveal that the economy of a community is growing and has low unemployment but many families continue to struggle to transition to homeownership because area wages are not keeping pace with the area’s cost of living.

The discussion may also indicate the importance of asset building and homeownership counseling in the area. Identification of a bank’s partnership with organizations providing these services may positively influence a bank’s responsiveness to affordable housing credit needs. These partnerships could be in the form of loans, investments or services provided to the organizations.

Qualitative information from these conversations could also be useful to the stakeholders’ understanding of responsiveness to area LMI renters, especially subsets of LMI renters living in poverty or those who have low fixed incomes. For example, a community discussion may indicate there are geographies within the AA in need of new affordable housing developments to replace older stock no longer habitable or energy efficient. The discussion may also demonstrate that the community needs more senior housing to meet a growing elder LMI population. Information from these discussions may lead examiners to consider that offering investments and loans to organizations working to improve housing availability for these subsets may be a better response than other CRA affordable housing activities.

In summary, performance context is a connective thread that runs through the evaluation process. Both quantitative and qualitative performance context is used to identify the needs of an assessment area and opportunities to meet these needs. In turn, examiners use the information to assist in the evaluation of bank performance and the responsiveness of its activities to the needs of its AAs.

Douglas S. Yarwood is a senior examiner at the Federal Reserve Bank of St. Louis.