Federal Deposit
Insurance Corporation

September 20, 2004

Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation (FDIC)
550 17th Street NW
Washington, DC 20429

RE: Comments on FDIC’s Notice of Proposed Rulemaking for the Community Reinvestment Act [RIN 3064-AC50]

Dear Mr. Feldman:

On August 20 2004, FDIC published a notice of proposed rulemaking which proposes revisions to 12 CFR 345 implementing the Community Reinvestment Act (CRA). We appreciate the opportunity to comment on this proposed rulemaking. We have concerns about the proposed changes and urge you to withdraw the proposed changes to CRA regulations.

The National Housing Trust (NHT) is a national nonprofit organization formed to preserve and improve affordable multifamily homes for low- and moderate-income use. The Trust saves multifamily properties at risk of conversion to market rate housing and resolves the problems of “troubled” properties that suffer from physical deterioration and financial and social distress. We pursue our mission on behalf of the families and seniors who live in these properties. Over the past 8 years, the Trust and its affiliate, NHT/Enterprise Preservation Corporation, have saved more than 17,000 affordable apartments in 42 states, involving the acquisition and rehabilitation financing of over $200 million.

The National Housing Trust urges you to withdraw your proposed changes to the CRA regulations. CRA has been instrumental in helping to increase lending to expand and preserve multifamily housing across the nation and we urge you not to dilute its impact. We believe the proposed changes are contrary to the CRA statute and Congressional intent by slowing down the progress made in community reinvestment, particularly those investments made to preserve and improve existing affordable housing.

For example, the Trust is currently engaged with small- and mid-sized banks in the Midwest who are assisting our efforts to preserve and improve an affordable housing portfolio serving nearly 700 households, two-thirds of whom are elderly. These banks have agreed to provide subordinated bridge debt to allow the acquisition of the portfolio by the year’s end. In candid conversations, these lenders have expressed how their efforts are motivated, at least in part, by their current obligations under the Community Reinvestment Act.

Under 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 mid size banks with assets between $250 million and $1 billion to engage in only one of three activities: community development lending, investing or services. Under current regulations, mid-size banks must engage in all three activities.

The community development criterion is a poor substitute for the investment and service tests. Under the FDIC proposal, a mid-size bank may choose only one community development activity, instead of providing the array of comprehensive community development activities needed by low- and moderate-income communities. It may 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 such as investing in low income housing tax credits.

The requirement to engage in community development lending and investment help leverage limited public subsidies to provide affordable housing and community and economic development. Without this requirement, many institutions may significantly reduce their activity in low income communities because, in general, banks view such activity as higher risk and/or less profitable than more traditional investing.

The FDIC proposal would make 879 state-chartered banks with over $392 billion in assets eligible for the streamlined exam. In total, 96% percent of the approximately 5,000 state-charted banks that the FDIC 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 JPMorgan Chase. Thus, the FDIC proposal will potentially reduce, by hundreds of billions of dollars, the bank assets available for community development lending, investing, and services.

In sum, the FDIC proposal is contrary to the CRA’s statutory mandate of imposing a continuing and affirmative obligation to meet community needs. The proposal is likely to slow community reinvestment, particularly investments made to preserve and improve existing affordable housing.

Sincerely,
Michael Bodaken
Executive Director

cc: National Community Reinvestment Coalition (Fax 202-628-9800)
President George W. Bush (Fax 202-456-2461)
Senator John Kerry (Fax 202-224-8525)
Senator John Edwards (Fax 202-228-1374)