Rethinking Duties to Serve in Housing Finance
Homeownership Built to Last: Lessons from the Housing Crisis on Sustaining Homeownership for Low-Income and Minority Families (Brookings, 2014)
41 Pages Posted: 8 Feb 2014
Date Written: October 1, 2013
In this chapter, we consider the role of duties-to-serve in the housing finance market -- the patchwork of obligations on lending institutions to reach out to traditionally underserved communities and borrowers. We review the current regulatory framework and history of various duties-to-serve, including the Community Reinvestment Act, GSE Affordable Housing Goals, and FIRREA requirements for Federal Home Loan Banks, and identifies several problems within the framework. Going forward, we argue, a fair and inclusive housing finance market needs to involve a reconceptualized set of duties-to-serve that recognize the public purposes of financial services. Accordingly, we recommend four changes to the duties-to-serve regulatory framework:
(1) duties-to-serve should apply universally to the entire primary market, regardless of institution type;
(2) duties-to-serve should apply equally to all secondary market entities;
(3) duties-to-serve must be supported by a more robust set of evaluative tools, metrics, and incentives; and
(4) duties-to-serve must have a credible enforcement mechanism.
To effectuate these changes, we suggest the creation of an independent duty-to-serve commission that would advocate for greater financial inclusion and serve as a check on financial institutions' compliance with regulatory requirements outside of prudential bank regulators. An unconflicted institutional actor with a single duty of advocating for duties-to-serve would reduce the regulatory arbitrage incentives that plague the current duties-to-serve regime.
Keywords: Community Reinvestment Act, Affordable Housing Goals, Fannie Mae, Freddie Mac, GSEs, Federal Home Loan Banks, homeownership, common carrier, duties to serve, access to credit
JEL Classification: G2, J78, K23
Suggested Citation: Suggested Citation