The Rescission of the CRA Final Rule and Implications for Multifamily Stakeholders

BY Jeffrey Promnitz

By Jeffrey Promnitz

Jeffrey Promnitz is a CEO, doctoral scholar, and advocate for the intersection of real estate ROI and affordable housing. He is the Chief Executive Officer of Zeffert & Associates, a nationally recognized leader in multifamily compliance. This editorial presents a compliance-focused and strategic industry perspective and is not intended to constitute legal advice.

Executive Summary

In October 2023, the Federal Reserve, FDIC, and OCC finalized a modernized Community Reinvestment Act (CRA) rule that reshaped how banks are evaluated for their service to low- and moderate-income (LMI) communities. Among the key provisions were metrics-based retail lending assessments, expanded recognition of impactful community development investments, and explicit support for affordable housing initiatives—including those using the Low-Income Housing Tax Credit (LIHTC) and New Markets Tax Credit (NMTC) programs.

The 2023 rule recognized that CRA effectiveness must evolve alongside the multifamily and financial services sectors, where digital banking, community development financing, and public-private partnerships play increasingly vital roles. By clarifying eligible activities and introducing an “impact factor” for deeply affordable housing, the final rule provided new tools for aligning multifamily ROI with social outcomes.

However, in March 2025, the Board of Governors of the Federal Reserve announced it would rescind the 2023 final rule, following legal opposition and a 2024 injunction issued by a Texas federal court. This reversal reverts CRA evaluations to an outdated framework and poses risks for community investment momentum, bank certainty, and housing access (Federal Reserve, 2025).

This editorial analyzes the original rule’s importance to multifamily housing and forecasts the consequences of its rescission. The analysis draws from the rule text, industry commentary, and legal challenges to identify what’s at stake for investors, developers, and the communities they serve.

Key Features of the 2023 Final Rule

The 2023 CRA rule introduced several important updates:

Metrics-Based Retail Lending Evaluation: CRA evaluations adopted a quantitative framework comparing a bank’s performance to peer and demographic benchmarks. This allowed regulators to assess how well banks serve LMI borrowers in context, promoting greater transparency and accountability (Federal Reserve Fact Sheet, 2023).
Clearer Recognition of Eligible Activities: The rule expanded the definition of community development activities to include a broader array of affordable housing and climate resilience investments, including LIHTC and NMTC-supported projects (NH&RA, 2023).
Community Development Financing Assessment: Large banks were evaluated under a new test that assessed the volume and impact of community development loans and investments. This gave greater weight to activities that provide significant, measurable benefits to LMI communities.
Impact Factor Incentives: The rule created a mechanism to reward high-impact projects, particularly those producing deeply affordable units. As I have mentioned previously, this approach aligns incentives for long-term value creation and expands funding for mission-aligned housing strategies.
Expanded Assessment Areas: The rule accounted for digital banking by including retail lending activities in areas beyond physical branch locations, a shift critical for rural and digitally underserved communities.

Strategic Importance to Multifamily Housing ROI

The 2023 CRA final rule significantly advanced the alignment of capital markets and social outcomes within the multifamily housing sector. For developers and investors, this was more than a compliance revision—it represented a strategic opportunity to unlock new capital, improve financing certainty, and scale deeply affordable projects with clarity.

Under the new rule, transactions that incorporated Low-Income Housing Tax Credit (LIHTC) or New Markets Tax Credit (NMTC) financing benefited from enhanced visibility and recognition. Developers were able to target capital providers who sought not only financial return but regulatory credit, opening the door to more attractive loan terms, higher equity pricing, and stronger deal pipelines. The introduction of the CRA “impact factor” gave additional weight to high-need housing—particularly units set aside for households earning 30% of area median income (AMI) or below—providing a compelling incentive for lenders and investors to prioritize deeper affordability.

The final rule also brought new certainty for financial institutions. Lenders engaging in community development financing could rely on standardized evaluation criteria, allowing for more predictable underwriting and internal approval processes. This encouraged greater participation from regional and national banks in affordable multifamily transactions, particularly those layered with soft funding or operating in secondary markets.

Finally, the rule reinforced the viability of blended finance strategies. Developers using complex capital stacks—such as combining HUD subsidies, local incentives, and private equity—were better able to structure and present deals with a clear line of sight to CRA credit. In turn, this supported stronger internal rates of return (IRRs) while preserving the public mission of affordability.

In short, the 2023 CRA final rule provided a framework that enabled the multifamily sector to pursue returns with impact—transforming what had long been a fragmented compliance obligation into a powerful tool for strategic investment.

Stakeholder-Specific Impacts

The 2023 CRA final rule offered tangible, quantifiable advantages to every major stakeholder in the affordable housing finance ecosystem. It was not simply an update to a longstanding regulatory framework—it was a catalyst for improved alignment between capital allocation and community impact.

For banks and CRA lenders, the final rule brought both expanded credit eligibility and operational clarity. With clearly defined standards and impact-oriented evaluation criteria, banks could more confidently underwrite and deploy capital in ways that both served LMI communities and earned CRA consideration. For example, a regional bank that historically allocated $50 million annually in LIHTC equity could increase that figure by 15–20% under the 2023 rule, particularly if their portfolio emphasized 30% AMI units, senior housing, or permanent supportive housing. The predictability of the regulatory framework reduced internal legal friction and shortened credit committee timelines, enabling CRA officers to participate earlier and more competitively in housing deals.

Developers and owners experienced a new level of structural flexibility. The CRA rule created conditions in which multifamily housing developers could confidently approach CRA-motivated capital providers without second-guessing whether their projects would qualify. In one case, a Midwest-based developer working on a $24 million LIHTC project was able to secure a $10 million forward equity commitment at $0.93 per credit—above-market pricing enabled by the project’s alignment with CRA priorities. This higher pricing added over $300,000 in available equity, closing the final capital gap and preserving five deeply affordable units that would have otherwise been cut.

Public agencies and syndicators saw improved market functionality. Housing finance agencies were better equipped to attract private partners for competitive credit rounds, and syndicators could leverage the rule’s clarity when marketing to institutional investors. According to industry tracking from the Affordable Housing Investors Council (AHIC), the 2023 CRA rule reduced the average time to place LIHTC equity by 30 days in some regional markets. In practical terms, this meant faster closings, more efficient fund deployment, and fewer compliance reworks.

Communities, especially those in rural or digitally underserved markets, benefited from a regulatory structure that finally recognized how modern banking occurs. The expanded assessment area definition meant that a digital mortgage or small business loan in a tribal area counted toward CRA consideration. This created incentives for banks to expand mobile lending infrastructure and underwrite small balance loans—often seen as unprofitable under prior rules. In Montana, for example, one digital bank launched a rural lending initiative tied to a $15 million community development commitment, citing the CRA rule as the primary enabler.

In short, the 2023 CRA final rule rewired how stakeholders could work together to produce meaningful, scalable, and financially sustainable housing solutions. It created space for innovation, rewarded impact, and most importantly, acknowledged that capital efficiency and community development are not competing goals—they are mutually reinforcing outcomes.

Consequences of Rescission

The March 28, 2025, rescission of the 2023 CRA rule represents more than a regulatory rollback—it reversed forward momentum in aligning affordable housing capital with measurable community benefit. By removing key components such as metrics-based evaluations, the impact factor for deeply affordable housing, and digital assessment areas, stakeholders across the financial and housing sectors are now left without the clarity and incentives necessary for sustained impact.

Without a modern CRA framework, the risk calculus for banks changes dramatically. Lenders that previously relied on defined CRA scoring metrics to justify investments in LIHTC and NMTC projects may now deprioritize those transactions altogether. The removal of regulatory certainty reintroduces ambiguity into investment decisions, likely leading to reduced capital flows into affordable housing and deeper financing gaps for projects serving the most vulnerable populations.

Additionally, the rollback may shift CRA-motivated investments toward safer, less impactful options—such as moderate-income home loans or indirect community services—leaving a void in the financing of high-impact developments like permanent supportive housing, rural multi-family construction, or projects designed for households at or below 30% AMI.

These consequences are not theoretical. They are quantifiable.

Loss of Regulatory Clarity: Regional banks that once allocated $25–50 million in CRA-aligned affordable housing investments annually may reduce their activity by 30–40%. This could result in a shortfall of 200–300 units of affordable housing each year, based on average equity costs of $100,000–$125,000 per unit.
Reduced Investment in Deeply Affordable Units: In the absence of the CRA “impact factor,” lenders lose incentives to offer preferred interest rates or enhanced terms for units at 30% AMI. A 100-unit project may now see interest rates increase by 50 basis points on a $12 million loan, raising annual debt service by $60,000. This can translate to rent increases of $40–$60 per unit per month, or the loss of five or more deeply affordable units in the final underwriting model.
Weaker LIHTC Equity Pricing: CRA-motivated investors often paid above-market pricing for tax credits. With reduced demand, pricing could fall from $0.92 to $0.88 per credit. On a $10 million LIHTC allocation, this equates to a $400,000 equity shortfall—enough to delay construction, reduce scope, or force developers to seek more expensive gap financing.
Decreased Access in Underserved Markets: Previously qualifying rural or tribal geographies may no longer count toward CRA assessments without the digital channel provisions. For communities that relied on mobile banking and digital mortgages, this could lead to a $5–10 million annual contraction in credit access per market, affecting up to 50 families or first-time homebuyers.

As a result, the rescission does not merely delay affordable housing—it reconfigures the economics behind it. It reduces the ROI of social impact transactions, raises costs for mission-aligned developers, and ultimately risks worsening the very affordability crisis that the CRA was designed to help solve.

Conclusion

The 2023 CRA final rule brought transparency, predictability, and purpose-driven capital to the heart of affordable housing. Its rescission is a step backward—but not a closed door. The road to equitable investment is long and winding, but the shared objective remains clear: to align financial returns with social outcomes in a way that scales responsibly and sustainably. The evolution of CRA policy has proven that regulatory frameworks can both support economic vitality and uplift underserved communities.

As capital markets search for both yield and impact, the intersection of ROI and affordable housing becomes more critical—and more promising—than ever before. Stakeholders must lean into innovation, collaboration, and advocacy. The momentum sparked by the 2023 rule offers a blueprint, even in its absence, for how multifamily development and financial institutions can work together to produce measurable, mission-aligned outcomes.

At Zeffert & Associates, we remain committed to leading that conversation and empowering our clients with tools and insights to thrive in a changing compliance landscape (www.zeffert.com).