A proposed rule change by the Trump administration could jeopardize billions of dollars of housing investment in rural areas and small towns – potentially undermining the White House’s efforts to boost housing supply in order to bring down costs just as mortgage rates soar .
A 400-page rewrite of regulations under the Community Reinvestment Act – a landmark 1977 law requiring banks to invest in and provide services to local communities where they have a presence – would reclassify which financial institutions are subject to certain requirements, among other changes.
Comments on the proposal are due Oct. 13, but community development groups are pressing for an extension, and a Federal Reserve official recently detailed some of the agency’s concerns. On Friday, a group of Democrats led by Senator Elizabeth Warren called for the immediate withdrawal of the proposal.
The critics warn that if carried out, the shift could leave more than 3.1 million additional people in a so-called “desert,” a region with zero banks incentivized to provide community development financing, according to the National Association of Affordable Housing Lenders.
“This administration has clearly stated that expanding affordable housing supply is a goal of theirs,” said Sarah Brundage, president and chief executive officer of the NAAHL. “But the regulatory agenda is not aligning with that goal.”
The CRA subjects banks to different tests based on the size of their assets. The new proposal, backed by the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, would raise the “small” bank threshold to $1 billion in assets from $412 million and the “large” bank threshold to $10 billion from about $1.6 billion in assets. An intermediate tier of banks would have fewer requirements than large banks.
The expanded group of small banks would not be subject to rules about investments in community development, just retail lending. The new tier of intermediate-sized banks would have a community development test, but not an investment and service metric that large banks are graded on.
Opponents worry that the changes would mean less money getting invested in rural housing, precisely when housing affordability issues are hitting those areas the hardest.
Between 2000 and 2023, inflation-adjusted rents in rural areas increased by 31.2% while the median real income of rural renter households rose by just 5.5%, according to a report on “the deterioration of housing affordability in rural America” the White House released last year.
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“The proposal would have a disproportionate impact on rural housing investments, and we think it would remove the strong incentive that currently exists for a number of banks to invest in affordable housing,” said Emily Cadik, head of the Affordable Housing Tax Credit Coalition.
The White House contends that the new proposal would give banks more flexibility under the law and drive greater economic development. The new rules would not restrict banks’ ability to count housing tax credit investments toward their CRA obligations, an administration official said.
When the Comptroller and the FDIC backed the proposed change in July, the Federal Reserve withheld its support. Fed Governor Michael Barr told attendees at a housing affordability conference last month that the regulator wants to avoid any “unintended consequences” with the proposed rule change.
“Community banks are really important all over the country, but especially in small towns and rural areas,” Barr said. “So if you’re not careful about how you look at the levels of tiering in a proposal, you might end up reducing the amount of capital going into affordable housing in rural areas and small towns, in particular, and we want to make sure we don’t do that.”
Democrats and several community groups say more time is needed to consider alternatives.
“The OCC and FDIC should listen to communities, housing providers and lenders during this comment period and abandon changes that would make our housing crisis harder to solve,” said Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition.
Banks provide between 75% and 80% of equity for the Low-Income Housing Tax Credit program, the most important federal tool to expand the supply of affordable rental housing. The 40-year-old program has financed between 3.3 and 3.7 million affordable units, according to the Urban Institute.
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Part of the reason banks are such big players in that market is because of the requirements of CRA. Banks that fall under the proposed new threshold of $10 billion invested approximately $2 billion in LIHTC equity from 2021 through 2025, according to a recent survey by the Affordable Housing Tax Credit Coalition, a trade association.
For the most part, the White House and Congress have been keen to show they are doing something to alleviate the nation’s housing crunch: Lawmakers over the summer passed a sweeping bipartisan housing affordability bill , Congress’s signature achievement this year. And President Donald Trump often touts the benefits of his 2025 tax legislation.
That law included provisions dramatically expanding the Low-Income Housing Tax Credit. Experts estimated the changes could add the capacity to build 1.2 million more units of affordable housing in the next decade than was possible under the old rules.
Yet the latest proposal seems to undercut some of those achievements, according to its critics.
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It “could put roughly $87 billion a year in community development financing at risk, including the capital and incentives that help build and preserve affordable housing,” said Van Tol.
The Independent Community Bankers of America did not respond to a request for comment. The Consumer Bankers Association, which issued a statement welcoming the proposal in July, declined to comment for this story.
The proposed changes come at a challenging time for rural affordable housing providers. The Department of Agriculture’s portfolio of nearly 400,000 rural rental properties is “aging, and mortgage maturities will accelerate significantly from 2027 through 2041,” the department warned in a 2024 report naming LIHTC as a “primary program partner” for project preservation and rehabilitation of those units.
Cadik, at the Affordable Housing Tax Credit Coalition, said the proposal “definitely cuts crosswise” against recent improvements to boost investor appetite for LIHTC credits.
‘Too Small’
The overhaul would also tighten restrictions on community development grants and donations by requiring those funds be tied to a specific project. That, too, could hurt rural communities that have fewer other resources, according to experts.
Banks typically make one large grant that a group such as the Housing Assistance Council then uses to make several smaller pass-through grants to local operators, according to Kristin Blum, director of lending at the Housing Assistance Council, a nonprofit that supports affordable housing development in rural areas.
The scale of rural projects is often “too small for the banks to be involved in directly,” Blum said. Eliminating the middleman “means that those small projects won’t get those funds,” she added.
Brundage, at the NAAHL, warned that the affordable housing financing apparatus is a delicate one.
“If you unwind these ecosystems, even a short interruption in the pipeline” will have consequences for years to come, she said.