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

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
141
Abstract Views
1,426
Rank
370,717
PlumX Metrics