Federal Deposit
Insurance Corporation

Neighborhood Partners of Kankakee

From: Bruce Cowhig [mailto:bcowhig@ameritech.net]
Sent: Monday, September 20, 2004 11:08 AM
To: Comments
Subject: Community Reinvestment -- RIN 3064-AC50

Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation

Dear Mr. Feldman

The proposed change in the FDIC’s Community Reinvestment Act regulations defining small banks will transfer over 400 Illinois banks to the less-stringently monitored Small-bank category. As a small Community Development Corporation, we would like to think that the relationships we have developed with lenders and mortgage officers would survive these proposed changes in the regulations. However, it would be naïve to deny that a lessening of oversight won’t have consequences. With less rigorous evaluation of community-development activities, banks will be tempted to withdraw from their community lending activities and relationships with CDCs. What impact will this have on communities?

The impact of such withdrawal in the community I know best, Kankakee, Illinois, would mean even greater reliance by low-income homebuyers on unregulated, high-interest, high-fee, mortgage brokers and mortgage bankers.

While the advent of subprime and predatory lending in the mid-1990s has increased availability of home purchase credit to low-income families, the higher fees and interest rates of subprime and predatory loans, along with the higher debt-to-income ratios permitted, have put more homeowners financially “on the edge” of foreclosure and loss of their homes. Adding to this high-cost, uncertain job prospects and cutbacks threaten the financial capacity of these homeowners to maintain these high-ratio financial obligations.

In 2002, subprime and predatory lenders accounted for at least one-third of the home purchase lending in the City of Kankakee. A withdrawal of conventional lenders from community development lending would increase this proportion, and with it, produce even more foreclosures and vacant/boarded up homes in a community suffering from an abundance of such properties already.

While some lenders see low- and moderate-income homebuyers as a good market for lending, many lenders don’t want to put forth the extra effort that is initially required to learn this market and to work with CDCs to produce valuable lending assets. The Community Reinvestment Act has served since 1977 to focus lenders on their role and obligations in community development lending, and encourage them to realize this market can be an important part of their business.

For newly-designated “Small Banks” to withdraw now from community development lending will not only stunt the renewal of our neighborhoods, but also surrender viable market share to the unregulated mortgage banking market, with devastating results for our low-income neighborhoods. I ask that the Small-bank definition proposal be rejected.

Sincerely,

Bruce Cowhig
Executive Director
Neighborhood Partners of Kankakee, Inc.