CRA: An Examiner’s Perspective
— Assessing Community Credit Needs

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 in meeting 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 the business needs of their financial institutions.

Assessing community credit needs is an ongoing process that is essential to fine-tuning lending strategies, as well as business and community development goals. Avenues for meeting the credit needs of communities constantly change due to various factors, including a financial institution’s financial and human resource capacity, economic conditions, varying initiatives (e.g., federal, state, county and local) and natural disasters.

Due to ongoing change, it is important for financial institutions to actively network with a wide variety of organizations to ensure members of the community seek out their institution for credit (commercial and personal) and finance needs.

Coordination is a key factor in assessing and meeting credit needs under the Community Reinvestment Act (CRA). Many financial institutions designate one or more individuals to seek out federal, regional, state and local entities to provide programs or services within their assessment area. Institutions should hone in on CRA-eligible programs or services for:

• low- and moderate-income (LMI) residents;
• those within distressed or underserved nonmetropolitan middle-income geographies; or
• small businesses/farms with revenues of $1 million or less.

In assessing community credit needs, financial institutions identify direct and indirect channels. Common direct affordable housing opportunities often include guaranteed lending programs, such as the Federal Housing Administration (FHA) and the Department of Agriculture (USDA), and down payment assistance programs like the Federal Home Loan Bank, Department of Housing and Urban Development or respective state agencies.

Similarly, economic development and small-business needs may also include guaranteed lending products, such as those from the Small Business Administration (SBA) and the USDA. While these products are designed to meet the needs of LMI individuals and small businesses/farms, they are not always the best fit for the institution, considering its resources and the communities it serves. For example, some USDA products are designed for communities under certain population sizes, and USDA, FHA and SBA products require additional expertise and resources of the financial institution to administer.

Fostering strong relationships with community development organizations focused on meeting CRA community development needs enables financial institutions to keep abreast of how to best offer products and services to LMI populations and small businesses/farms that do not yet qualify for a financial institution’s lending programs.

Additionally, strong relationships with community development organizations keep financial institutions informed of investment and loan opportunities for larger-scale projects that affect their assessment areas, as well as larger regional areas that may also include their assessment area.

Individuals charged with building CRA community group relationships actively follow local news to learn about government plans for revitalization and stabilization and economic and workforce development programs that will impact LMI or nonmetropolitan distressed or underserved middle-income geographies. These individuals also follow economic development plans created with the help of local and regional economic development councils, NeighborWorks data and research through local university and college extension offices. This information may help identify opportunities to collaborate with organizations, such as small-business or homeownership counseling services and schools which primarily serve LMI populations.

Additionally, by supporting organizations that provide financial literacy and counseling, the financial institution is indirectly preparing the organization’s clients for future credit opportunities.

When determining how to meet community credit needs, financial institutions not only assess their resources for direct lending opportunities, but also continually assess the resources of the communities they serve to identify CRA community development organizations with which they can foster collaborative working relationships.