The Consumer Financial Protection Bureau (CFPB) this week published a report analyzing state-level community reinvestment laws and ways they promote reinvestment activities for entities including mortgage companies.

The 32-page report features details about the ways state governments aim to ensure financial institutions’ lending, services and investment activities meet the credit needs of their local communities, including mortgage companies, credit unions and banks.

Seven states are primarily featured in the analysis, including Connecticut, Illinois, Massachusetts, New York, Rhode Island, Washington, West Virginia as well as the District of Columbia. The report found that those parts of the country largely followed the lead of the federal Community Reinvestment Act (CRA) in the decades following its 1977 passage.

The federal CRA has a much narrower focus on banks, while states have broader latitude to include other kinds of institutions in their own community reinvestment guidance, including nonbank mortgage companies, the CFPB explained.

“Banks now originate and hold a much smaller share of outstanding mortgage debt than they did when the legislation was originally enacted,” the CFPB said in an announcement. “In 1977, banks held 74% of outstanding mortgage debt. By 2007, this share had declined to just 28%. As of 2021, nonbank mortgage companies originated 64% of conventional home purchase mortgage loans, compared to the 25% originated by banks.”

The report includes five key findings, including details on how some states “apply an affirmative lending, service delivery, and investment obligation to mortgage companies, in addition to deposit-taking institutions.”

Some states also conduct independent performance examinations of lending, services and investments while other states include federal performance data alongside their own examinations. Certain enforcement mechanisms include limitations on mergers, acquisitions, branching and/or licensing. Some states go even further.

Certain states also go beyond the requirements of the federal CRA when evaluating lending, financial services or other investment activities in their states. State legislatures also change their CRAs depending on the realities of market conditions at a given time.

“The financial market has changed considerably since the passage of the Community Reinvestment Act, and nonbanks are now capturing a large share of the mortgage market,” said CFPB Director Rohit Chopra in a statement. “States have responded by creating reinvestment obligations for mortgage companies and have tailored state reinvestment requirements to meet the needs of their local communities.”

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