New York Raises CRA Standards for Rental Lenders

New York State's chief banking regulator is tightening the screws on banks that lend to landlords, increasing the requirements for Community Reinvestment Act credit.

Benjamin Lawsky, superintendent of New York's Department of Financial Services, on Thursday proposed "slumlord prevention guidelines" for banks that finance rental housing. The agency said it will use the new guidelines to penalize and reward banks, as it reviews how they meet their CRA obligations to lend to low-income communities.

"These guidelines will help ensure that banks are making sound loans to individuals who have taken a vested interest in their community, instead of those who seek only to drain community resources," Lawsky said in a press release.

According to the new guidelines for banks under Lawsky's jurisdiction, the state will block CRA credit to companies that lend to landlords with a high number of housing code violations, or to those that make highly leveraged loans. "Positive CRA consideration" will be given to banks that work well with government and community housing groups, and to those that monitor their loan portfolios to make sure that their landlord customers do not have many housing code violations.

The guidelines also would encourage banks to create written community outreach strategies and would require banks to improve their tracking of complaints and housing code violations against landlord borrowers.