WASHINGTON (CN) – Banks and credit unions will be able to include funds used for community development activities as part of their evaluations in determining compliance with the Community Reinvestment Act, if proposed rules by major financial agencies are adopted as final.
The authors of the proposal are the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.
The act requires that all FDIC insured institutions work to meet the needs of low- and middle-income communities, and limits the ability of institutions to add or close branches or merge with other institutions if regulators determine that they are not doing so.
The proposed rules change the definition of “community development” to include loans, investments and services by financial institutions that support, enable or facilitate projects or activities that help stabilize communities that have suffered from home foreclosures and abandonment.
Under the Housing and Economic Recovery Act, this kind of community development has been through mortgages for the purchase and redevelopment of foreclosed and abandoned homes and residential properties, which are conducted in designated target areas identified in plans approved by the U.S. Department of Housing and Urban Development.
The proposed rule changes also would allow depository institutions to loan money for community development outside of their designated target area if regulators determine that the credit needs and demand for stabilization loans through the Housing and Economic Recovery Act in their target areas are being met.
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