Levitin & Ratcliffe Chapter on the Duty to Serve in Housing Finance

Adam J. Levitin of Georgetown and Janneke Ratcliffe the University of North Carolina at Chapel Hill's Center for Community Capital have written Rethinking Duties to Serve in Housing Finance, in Homeownership Built to Last:  Lessons from the Housing Crisis on Sustaining Homeownership for Low-Income and Minority Families (Brookings 2014).  Here is the 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.