Federal Deposit
Insurance Corporation

October 15, 2004

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

RE: RIN 3064-AC50

The Housing Assistance Council (HAC) urges the FDIC to withdraw the proposed changes to the Community Reinvestment Act (CRA) regulations. CRA has been instrumental in increasing access to homeownership, boosting economic development, and expanding small businesses in the nation's rural, minority, immigrant, and low- and moderate-income communities.

Under the current CRA regulations, large 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 banks and thrifts with assets of up to $1 billion. Currently, there are 5,293 institutions that are examined by the FDIC; 4,185 are currently not covered by the 3-part test (under $250 million in assets). The proposed changes would reduce the rigor of CRA exams for 879 financial institutions that account for more than $392,776,762 in assets. In rural communities, 262 institutions that hold assets totaling $107,001,642 would be excluded from the more stringent exams.

The CRA can be credited with encouraging partnerships between banks and community groups that have increased the stock of affordable housing, created jobs, and rebuilt rural communities. The elimination of the investment and service tests for nearly 900 financial institutions could potentially limit access to banking services and capital for small and underserved communities. For example, these banks would no longer be held accountable under CRA exams for investing in Low Income Housing Tax Credit projects, which have been a major source of affordable rental housing for low-income rural residents. Likewise, the banks would no longer be held accountable for the provision of bank branches, checking accounts, debit card services, or. Individual Development Accounts (IDAs). Thus, creating the possibility of weakening the effectiveness of several of the Administration's housing and community development programs. Moreover, eliminating the investment and service test for a large subset of depository institutions will make it more difficult for the federal bank agencies to enforce CRA's statutory requirement that banks have a continuing and affirmative obligation to serve credit and deposit needs.

Rural residents and housing developers do not have access to the same number or the level of financial resources as urban borrowers. According to FDIC reports, while 56 percent of the nation's banks are headquartered in nonmetro areas, rural counties have an average of 4.33 banking firms compared to 10.90 for urban counties. Nonmetro lending institutions also have fewer resources to lend, as nonmetro headquartered banks . hold only 14 percent of the nation's total bank assets. There has also been some anecdotal evidence which suggests that smaller, rural lending institutions are much more conservative in their lending than larger institutions as they are much more sensitive to losses. Despite these barriers, there is evidence to suggest that CRA has had a positive impact on rural areas. Many lending institutions are involved in lower-income communities in ways they were not prior to CRA, and lower-income rural residents are gaining access to conventional mortgages as a result.

Increasing the small bank definition would have a negative impact on communities, due to the large number of financial institutions with assets of up to $1 billion. More than 95 percent of FDIC institutions in the nation have assets between $0-$1 billion; nearly 99 percent of rural FDIC institutions have assets between $0-.$1 billion; and approximately 92 percent of lenders in urban communities have assets between $0-$1 billion. Institutions with assets up to $1 billion comprise the majority of the market in rural areas and as a result of the small bank definition change, many institutions in rural communities would be less obligated to offer services and investments that benefit low-and moderate-income communities. More than 86 percent of branches in rural areas have assets between $0 and $1 billion; rural lenders with assets between $0 and $1 billion comprise more than 78 percent of the assets. There are 15 states in particular (mostly rural) that would be most affected by the small bank definition change, as all of these states have between 0 and 4 FDIC institutions with assets over $1 billion; the remaining institutions in these states would only be subjected to the small bank test under the proposed rule. Only six percent of all FDIC institutions exceed $1 billion in assets.

The proposed rule would also add a mandatory community development criterion for mid-size banks as an additional component of the streamlined small bank standards. The community development criterion would allow the FDIC to assess a bank's record of helping to meet the needs of its assessment areas. However, this test would fall short of making up for the lack of the investment and service tests to which these institutions have always been subjected. The current definition of community development focuses on activities that benefit low- and moderate-income individuals. The proposed amended definition could benefit either low- and moderate-income individuals or individuals who reside in rural areas — regardless of their income. This proposal could be detrimental to community development activities in rural areas, as institutions would get credit for "community development" activities that do not benefit rural consumers and communities most in need.

Again, HAC urges you to withdraw these proposed changes to the CRA regulations. Withdrawing the proposed changes would allow CRA to continue to play its instrumental role in increasing investment in the nation's low- and moderate-income communities.

Sincerely,

Moises Loza
Executive Director
Housing Assistance Council
Washington, DC