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

See all articles by Adam J. Levitin

Adam J. Levitin

Georgetown University Law Center

Janneke Ratcliffe

University of North Carolina (UNC) at Chapel Hill

Date Written: October 1, 2013

Abstract

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

Levitin, Adam J. and Ratcliffe, Janneke, Rethinking Duties to Serve in Housing Finance (October 1, 2013). Homeownership Built to Last: Lessons from the Housing Crisis on Sustaining Homeownership for Low-Income and Minority Families (Brookings, 2014). Available at SSRN: https://ssrn.com/abstract=2391815 or http://dx.doi.org/10.2139/ssrn.2391815

Adam J. Levitin (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

Janneke Ratcliffe

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

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