Texas Community Reinvestment Update 2007

Executive Summary

In 1997, the 75th Legislature enacted House Bill (HB) 1414. This legislation formed the Community Reinvestment Work Group to develop statewide community reinvestment strategies using investment pools and other investment vehicles that leverage private capital from banks, insurance companies and other entities for community investment in Texas. As specified in the legislation, the Community Development Work Group is composed of representatives of the Texas Department of Banking, Texas Comptroller of Public Accounts, Texas Department of Housing and Community Affairs, Economic Development and Tourism Division of the Governor's Office and the Texas Department of Insurance. Title V, Chapter 395 of the Texas Finance Code requires the work group to consult with appropriate federal regulatory agency representatives of the Office of the Comptroller of the Currency, the Federal Reserve Board of Governors (FRB), the Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC). The work group monitors and evaluates community reinvestment strategies; ensures that the strategies encourage financial institutions to lend money to Texas' low-income and moderate-income families and individuals; and coordinates efforts to attract private capital through investments that meet the requirements of the Community Reinvestment Act of 1977 (12 U.S.C. Section 2901 et seq.).

Each biennium, the Community Reinvestment Work Group summarizes the effectiveness of the group's strategies developed under Chapter 395 of the Texas Finance Code.

The following agencies contributed to the 2007 update on Community Reinvestment in Texas:

  • Texas Department of Banking,
  • Texas Comptroller of Public Accounts,
  • Texas Department of Housing and Community Affairs,
  • Economic Development and Tourism Division of the Governor's Office,
  • Texas Department of Insurance,
  • Texas Association of Community Development Corporations,
  • Office of Rural and Community Affairs, and
  • Texas Low-Income Housing Information Service.

The work group met in 2006 to discuss the effectiveness of current agency community reinvestment strategies, public and private sector community reinvestment initiatives and developed new strategies for 2007-2008. The Comptroller's work group representative interviewed representatives of banks, research organizations, community reinvestment advocacy groups and federal regulatory agencies, including the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Bank (FRB) of Dallas.

This update gives an overview of the Community Reinvestment Act (CRA), describes changes to CRA regulations that became effective September 1, 2005 and highlights recent data and available studies on small business, small farm and community development lending in Texas. The update also outlines community reinvestment strategies of the state's banking, economic development, housing, and insurance agencies and gives examples of community reinvestment initiatives in Texas.

Recent Legislation

In 2005, the 79th Legislature enacted several consumer protection bills to assist Texas homebuyers and support community investment:

  • House Bill 1823 established new protections for contract-for-deed and rent-to-own buyers in Texas. This legislation gives consumers the right to convert a contract-for-deed into a traditional mortgage, stops excessive late fees and prohibits sudden termination of the "option to buy" in rent-to-own programs.
  • House Bill 525 passed as an effort to prevent the displacement of working and retired, lower income individuals and families from East Austin. The bill creates opportunities for low and moderate-income families to own homes, authorizes the city to create a development district known as the Homestead Preservation District through land trusts, land banks and tax increment financing dedicated to city-certified community housing development organizations.
  • House Bill 1099 transferred farm worker housing inspection authority to the Texas Department of Housing and Community Affairs (TDHCA) from the Texas Department of Health (TDH).
  • House Bill 1582 directed TDHCA and the Texas Savings and Loan Department to create a commission of experts to report by September 1, 2006 on mortgage foreclosure rates in Bexar, Cameron, Dallas, El Paso, Harris and Travis counties. A summary of the commission's results is included in Appendix E.
  • Senate Bill 1186 closed loopholes that denied active U.S. service members and domestic violence victims the right to terminate their apartment leases.
  • Senate Bill 356 created a land bank program for Houston, Texas, which allows Houston to sell tax foreclosed property to organizations for affordable housing development.
  • House Bill 467 expanded the Economically Distressed Areas Program (EDAP) that supplies water and sewer services to low income communities of the state. The bill makes no-interest loans and grants available from the state for impoverished areas without water and sewer services. However, there is no available funding for the program.
  • House Bill 2491 amendments made the elderly homestead exemption automatic at age 65.

From its research, the Community Reinvestment Work Group concluded that:

  • Texas' 1.9 million small businesses provide the largest source of jobs in the state.[1]
  • Texas law does not require separate disclosure of insurers' investments in low- and moderate-income communities. Life and health insurers, however, voluntarily reported in 2006 to the Texas Department of Insurance investments of $760 million in the state's economically disadvantaged areas for 2005.[2]
  • The 2006 survey of Community Development Corporations (CDCs) and Community Development Financial Institutions (CDFIs) by the Texas Association of Community Development Corporations (TACDC) identified more than $216 million in loans by CDFIs to community businesses and residents in Texas in 2005. Of 259 survey respondents, 210 reported producing affordable housing or planning to pursue housing production in 2006-07. Responding CDCs indicated they built more than 53,000 affordable housing units in 2005 with plans to construct another 5,100 units between 2006 and 2007.[3]
  • The Texas Department of Banking reported bank- and thrift-insured deposits in Texas of $402.5 billion as of June 2006. More than half of these deposits were controlled by 49 out-of-state institutions, and 654 Texas-chartered institutions control the rest.[4]
  • The Texas Department of Housing and Community Affairs (TDHCA) administers more than $400 million annually as the state's lead agency for affordable housing and community assistance programs. Ninety-two percent of the households served by TDHCA housing programs in fiscal 2005 were low-income, earning no more than 80 percent of the area median family income (AMFI).[5]
  • The Linked Deposit Program continues to provide loans to minority and women-owned businesses, child-care centers, non-profit organizations and small businesses located in state-designated enterprise zones. The program is a partnership of the Comptroller's office, approved depository lenders and the Governor's Economic Development and Tourism office.