GREATER ROCHESTER REINVESTMENT COALITION
September 28, 2004
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th St. NW 20429
Via email: comments@fdic.gov
RE: RIN 3064-AC50
Dear Mr. Feldman:
As a member of the National Community Reinvestment Coalition, the
Greater Rochester Reinvestment Coalition (GRCRC) urges you to withdraw
your proposed changes to the Community Reinvestment Act (CRA) regulations.
GRCRC was convened in 1993 to generate discussion about the lending
patterns in Rochester, NY. Since then, the Coalition has released
seven analyses of home mortgage, small business and subprime lending
data. We have used the analyses to identify strengths and weaknesses
in lending patterns and to generate ongoing discussion with the banks
in question. The Coalition also submits comments, based on the data,
to the appropriate State and Federal regulators who have oversight
of the banks.
GRCRC has a membership
of over 30 locally based not-for profits and individuals. GRCRC
monitors the community reinvestment lending
of Bank of America, JPMorgan Chase, Citigroup, Canandaigua National
Bank, M&T Bank, HSBC and Charter One.
CRA has been
instrumental in increasing homeownership, boosting economic development,
and
expanding small businesses in the nation’s
minority, immigrant, and low- and moderate-income communities including
those in the Rochester, NY metropolitan areas. Your proposed changes
are contrary to the CRA statute and Congress’ intent because
they will slow down, if not halt, the progress made in community
reinvestment.
The proposed changes will thwart the Administration’s goals
of improving the economic status of immigrants and creating 5.5
million new minority homeowners by the end of the decade. Since
FDIC Chairman Powell, a Bush Administration appointee, is proposing
the changes, the sincerity of the Administration’s commitment
to expanding homeownership and economic development is called into
question. How can an administration hope to promote community revitalization
and wealth building when it proposes to dramatically diminish banks’ obligations
to reinvest in their communities?
Under the current CRA regulations, banks with assets of at least
$250 million are rated by performance evaluations that scrutinize
their level of lending, investing, and services to low- and moderate-income
communities. The proposed changes will eliminate the investment
and service parts of the CRA exam for state-charted banks with
assets between $250 million and $1 billion. In place of the investment
and service parts of the CRA exam, the FDIC proposes to add a community
development criterion. The community development criterion would
require banks to offer community development loans, investments
or services. Banks eligible for the FDIC proposal with assets between
$250 million and $1 billion have 7,860 branches. All banks regulated
by the FDIC with assets under $1 billion have 18,811 branches.
Your proposal leaves banks with thousands of branches “off
the hook” for placing any branches in low- and moderate-income
communities.
The community development criterion would be seriously deficient
as a replacement for the investment and service tests. Mid-size
banks with assets between $250 million and $1 billion would only
have to engage in one of three activities: community development
lending, investing or services. Currently, mid-size banks must
engage in all three activities. Under your proposal, a mid-size
bank would choose a community development activity that is easiest
for the bank instead of providing an array of comprehensive community
development activities needed by low- and moderate-income communities.
The proposed community development criterion will result in significantly
fewer loans and investments in affordable rental housing, Low-Income
Housing Tax Credits, community service facilities such as health
clinics, and economic development projects. It will be too easy
for a mid-size bank to demonstrate compliance with a community
development criterion by spreading around a few grants or sponsoring
a few homeownership fairs rather than engaging in a comprehensive
effort to provide community development loans, investments, and
services.
Your proposal would make 879 state-chartered banks with over $392
billion in assets eligible for the streamlined and cursory exam.
In total, 95.7 percent or more than 5,000 of the state-charted
banks your agency regulates have less than $1 billion in assets.
These 5,000 banks have combined assets of more than $754 billion.
The combined assets of these banks rival that of the largest banks
in the United States, including Bank of America and JP Morgan Chase.
Your proposal will drastically reduce, by hundreds of billions
of dollars, the bank assets available for community development
lending, investing, and services.
The elimination of the service test will also have harmful consequences
for low- and moderate-income communities. CRA examiners will no
longer expect mid-size banks to maintain and/or build bank branches
in low- and moderate-income communities. Mid-size banks will no
longer make sustained efforts to provide affordable banking services,
and checking and savings accounts to consumers with modest incomes.
Mid-size banks will also not respond to the needs for the growing
demand for services needed by immigrants such as low cost remittances
overseas.
One of the FDIC banks affected by the CRA regulation is the Bank
of Castile, a bank operating in upstate NY, including the Rochester,
NY MSA. It received a Satisfactory rating in its last CRA exam.
In 2003, the
Bank of Castile made a total of 358 1-4 family unit mortgage loans
in the Rochester,
NY MSA totaling $26 million. The
Bank of Castile’s total lending marketshare was 0.7 percent
in the MSA. In comparison, Bank of Castile’s marketshare was
• 0.2
percent in the city, 0.5 percent less than its MSA marketshare;
• 0.3 percent among African-American and Hispanic households, 0.4
percent less than its MSA marketshare;
• 0.7 percent among low-moderate income households, the same as
its MSA marketshare;
• 0.5 percent among low-moderate income census tracts, 0.2 percent
less than its MSA marketshare.
All Financial Institutions (AFIs) made 29 percent of their loans
to low-moderate income households, while the Bank of Castile made
30 percent of its loans to low-moderate income households.
In 2003, the
Bank of Castile made a total of 87 1-4 family unit (owner-occupied)
home purchase
loans in the Rochester MSA totaling
$8 million. The Bank of Castile’s home purchase marketshare
was 0.6 percent in the MSA. In comparison, the Bank of Castile’s
marketshare was
• 0.1
percent in the city, 0.5 percent less than its MSA marketshare;
• 0.1 percent among African-American and Hispanic households, 0.5
percent less than its MSA marketshare;
• 0.6 percent among low-moderate income households, the same as
its MSA marketshare;
• 0.4 percent among low-moderate income census tracts, 0.2 percent
less than its MSA marketshare.
AFIs made 38 percent of their loans to low-moderate income households,
while the Bank of Castile made 39 percent of its loans to low-moderate
income households.
In 2003, The Bank of Castile made a total of 56 small business loans
totaling $10 million. Of these 56 loans, 84 percent were given to
businesses with gross annual revenues less than or equal to $1 million.
In its 2002 CRA
performance evaluation, the Bank of Castile’s
overall performance was satisfactory, with a high satisfactory in
the lending and service tests and a low satisfactory in the investment
test. Community development lending, investments and grants were
described as adequate. Given that the bank is adequately meeting
the needs of its marketplace it would be a travesty to change the
threshold and make the exam even easier, resulting in community credit
needs being unmet.
The Bank has in fact entered into partnerships with Rochester area
not for profits to improve its lending penetration. In addition,
it has participated in community development lending demonstrating
that it is possible to perform on the existing bank exams.
The Bank of Castile has created a program for area non-profits called
Community One. Features of this program include no Private Mortgage
Insurance (PMI), $1,000 down payment, no Combined Loan To Value caps,
no application fee, and reduced appraisal and bank attorney fees.
The interest rate is slightly lower than market rate. Loans can be
combined with the First Home Club and/or other grants. Households
participating in the First Home Club receive an additional $200 credit
at closing. Households with 12 months of timely payments receive
another $100.
Seven depository institutions with assets over $1 billion include
the Rochester MSA in their assessment area. In addition, many large
lenders and credit unions are active in the mortgage market. Nevertheless,
a GRCRC member illustrated the importance of the Bank of Castile’s
role in meeting credit needs. Bank of Castile assisted a single
mother of two children from Batavia by providing her with a mortgage
loan. Ms. A had some funds for down payment assistance but not
quite enough. She also had a good credit history and a low debt
load. However, her income did not qualify her for a USDA Rural
Development loan with a subsidy on the rate. Nor was her income
quite high enough to qualify her for a conventional loan due to
PMI and larger down payment requirements.
Ms. A fit perfectly into the Bank of Castile Community One loan.
She was able to receive a grant for some down payment and closing
costs and up to $6000 to have minor rehab done on the house after
purchase. The Bank of Castile is one of few banks that will accept
this grant despite the fact that the rehab money drives up the
total loan to value ratio. The no PMI helped her buy more of a
home instead of about $45.00 per month going to PMI. Without Community
One, Ms. A would not have been able to purchase the home she felt
suited her needs. The current CRA regulations provide the incentive
for banks like Castile to develop innovative and fiscally responsible
products like Community One that help low-moderate income people.
In order to further
understand the potential impact of the FDIC’s
proposal on community development activities in New York State, an
analysis of FDIC 2004 Statistics on Depository Institutions data
was conducted for institutions active in 2004 in the state of New
York. This analysis indicates that by changing the FDIC “small” bank
threshold (See Table A):
• The number of “large” FDIC regulated institutions
active in New York State would decline by 55 percent and the number
of “small” institutions would increase by 76 percent
•
These “small” banks would make up 74 percent of FDIC
regulated institutions state-wide, substantially more than the
current 42 percent
•
These “small” banks would control over $16.6 billion
in assets, a 364 percent increase from what the current “small” banks
control
•
In urban areas, the number of “large” FDIC regulated
institutions would decline by 51 percent so that over 72 percent
of FDIC institutions would be “small” banks
•
In rural areas, the number of “large” FDIC regulated
institutions would decline by 75 percent to the point where over
86 percent would be “small” banks
As
the above analysis shows, FDIC banks with between $250 million
and $1 billion in assets have a strong presence in New York LMI
and
rural communities. These institutions have contributed significant
levels of community development lending and have originated a considerable
number of small business loans. The FDIC’s proposal to shift
these banks to “small” status would threaten CRA activities
and deliver a devastating blow to community development efforts statewide.
Another destructive element in your proposal is the elimination
of the small business lending data reporting requirement for mid-size
banks. Mid-size banks with assets between $250 million and $1 billion
will no longer be required to report small business lending by
census tracts or revenue size of the small business borrowers.
Without data on lending to small businesses, it is impossible for
the public at large to hold the mid-size banks accountable for
responding to the credit needs of minority-owned, women-owned,
and other small businesses. Data disclosure has been responsible
for increasing access to credit precisely because disclosure holds
banks accountable. Your proposal will decrease access to credit
for small businesses, which is directly contrary to CRA’s
goals.
Lastly, to make matters worse, you propose that community development
activities in rural areas can benefit any group of individuals
instead of only low- and moderate-income individuals. Since banks
will be able to focus on affluent residents of rural areas, your
proposal threatens to divert community development activities away
from the low- and moderate-income communities and consumers that
CRA targets. Your proposal for rural America merely exacerbates
the harm of your proposed streamlined exam for mid-size banks.
Your streamlined exam will result in much less community development
activity. In rural America, that reduced amount of community development
activity would earn CRA points if it benefits affluent consumers
and communities. What’s left over for low- and moderate-income
rural residents are the crumbs of a shrinking CRA pie of community
development activity.
In sum, your proposal is directly the opposite of CRA’s statutory
mandate of imposing a continuing and affirmative obligation to
meet community needs. Your proposal will dramatically reduce community
development lending, investing, and services. You compound the
damage of your proposal in rural areas, which are least able to
afford reductions in credit and capital. You also eliminate critical
data on small business lending. Two other regulatory agencies,
the Federal Reserve Board and the Office of the Comptroller of
the Currency, did not embark upon the path you are taking because
they recognized the harm it would cause.
If your agency was serious about CRA’s continuing and affirmative
obligation to meet credit needs, you would be proposing additional
community development and data reporting requirements for more
banks instead of reducing existing obligations. A mandate of affirmative
and continuing obligations implies expanding and enlarging community
reinvestment, not significantly reducing the level of community
reinvestment.
CRA is too vital to be gutted by regulatory fiat and neglect. If
you do not reverse your proposed course of action, we will ask
that Congress halt your efforts before the damage is done.
Yours truly,
Ruhi Maker, Esq.
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