Getting to Know CRA
You may have heard some industry buzz around CRA. So, what’s it all about? Enacted in 1977, the Community Reinvestment Act (CRA), requires the Federal Reserve and other federal banking regulators to encourage financial institutions to help meet the credit needs of individuals in the communities they serve, specifically low and moderate-income (LMI) neighborhoods. Among other things, CRA provides pricing incentives for mortgages to those who live in underserved areas and meet specific qualifications.
Who qualifies for CRA pricing?
In order to qualify for CRA benefits, lenders must issue a proportionate number of CRA loans for a given area. For instance, if 30% of the people living in a specific geocode fall into the low to moderate-income demographic, banks must issue 30% of their loans to people in that income range. This provides more opportunities for people to become homeowners in their current communities. Specifically, the following groups can qualify for CRA pricing:
- Low income - Individuals earning less than 50% of the area median income.
- Moderate income - Individuals earning 50-80% of the area median income.
- Middle income - Individuals earning 80-120% of the area median income.
CRA benefits originators and borrowers alike
In a crowded and aggressive market, CRA pricing can help originators gain a competitive edge, and increase volume. That’s because CRA products help originators close loans that might not be available through traditional programs. Additionally, CRA encourages banks to invest in communities that need low-to-moderate-income or multi-unit housing, thus making those communities more diverse and affordable.
Enhanced pricing drives affordability, and for LMI individuals, a rate decrease of even 1/8 or 1/4 percent can be the deciding factor in qualifying for a loan. In addition to providing lower rates, CRA can help LMI individuals qualify for a loan when they otherwise wouldn’t. For instance, if a borrower works with a down payment assistance program accepted by Fannie Mae or Freddie Mac, the borrower may qualify for a loan, and extra incentives will allow the lender to pay some of the closing costs. This gives the borrower more options, and the originator a real competitive advantage.
How Citi incorporates CRA enhancements
If you’re a loan originator using the Encompass Product and Pricing Service™, you can benefit from Citi’s built-in CRA pricing enhancements. Based on census tracks, these enhancements include automated geographic and qualifying income calculations. As a result, when Fannie Mae and Freddie Mac promote certain incentives to a specific income or census track, Citi automatically supports such through the Encompass Product and Pricing Service. Citi also uses geocodes to validate incentives and drive them to the consumer. Historically, loan originators didn’t always have access to CRA pricing at the time of sale. Traditionally, the originator would have to manually go to the lending bank's portal and register the loan outside of the loan origination system (LOS) to get an idea on possible pricing options. This caused unnecessary friction in the process, potentially deterring originators from researching available CRA products. Now, those pricing options are available to originators and borrowers from the start within Encompass, increasing the chances of closing another loan that might have been out of reach.
More homes for more people
CRA enhances the benefits of solutions like the Encompass Product and Pricing Service, and drives housing affordability in underserved markets. By combining better loan pricing with community development programs, more people in underserved markets can afford to buy homes and have a piece of the American Dream.