NORTH AVENUE COMMUNITY DEVELOPMENT CORPORATION
April 6, 2004
Docket No. 04-06
Communications Division
Public Information Room, Mailstop 1-5
Office of the Comptroller of the Currency
250 E St. SW,
Washington 20219
Docket No. R-1181
Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington DC 20551
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th St NW
Washington DC 20429
Regulation Comments, Attention: No. 2004-04
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street NW
Washington DC 20552
Dear Officials of Federal Bank and Thrift Agencies:
As a member of the National Community Reinvestment Coalition, (Name
of
organization) urges you 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
minority, immigrant, and low- and moderate-income communities.
Your proposed changes are contrary to the CRA statute because
they will halt the progress made in community reinvestment.
The proposed CRA 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. Instead, the proposed CRA changes would facilitate
predatory lending and reduce the ability of the general
public to hold financial institutions accountable for compliance
with consumer protection laws.
The proposed changes include three major elements: 1) provide streamlined
and cursory exams for banks with assets between $250 million and
$500
million; 2) establish a weak predatory lending compliance standard
under
CRA; and 3) expand data collection and reporting for small business
and home lending. The beneficial impacts of the third
proposal are overwhelmed by the damage imposed by the
first two proposals. In addition, the federal
banking agencies did not update procedures regarding affiliates and
assessment areas in their proposal, and thus missed a vital opportunity
to
continue CRA's effectiveness.
Streamlined and Cursory Exams. 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
between $250 and $500 million. The proposed changes would reduce
the rigor of CRA exams for 1,111 banks that account for
more than $387 billion in assets.
The elimination of the investment and service tests for more than
1,100
banks translates into considerably less access to banking services
and
capital for underserved communities. For example, these banks would
no
longer be held accountable under CRA exams for investing in Low Income
Housing Tax Credits, which have been a major source of affordable
rental
housing needed by large numbers of immigrants and lower income segments
of
the minority population. Likewise, the banks would no longer be held
accountable for the provision of bank branches, checking accounts,
Individual Development Accounts (IDAs), or debit card services. Thus,
the
effectiveness of the Administration's housing and community development
programs would be diminished. Moreover, the federal bank agencies
will fail to enforce CRA's statutory requirement that
banks have a continuing and affirmative obligation to
serve credit and deposit needs if they eliminate
the investment and service test for a large subset of depository
institutions.
Predatory Lending Standard. The proposed CRA changes contain an
anti-predatory screen that will actually perpetuate abusive lending.
The
proposed standard states that loans based on the foreclosure value
of the
collateral, instead of the ability of the borrower to repay, can
result in
downgrades in CRA ratings. The asset-based standard falls short because
it
will not cover many instances of predatory lending. For example,
abusive
lending would not result in lower CRA ratings when it strips equity
without
leading to delinquency or foreclosure. In other words, borrowers
can have
the necessary income to afford monthly payments, but they are still
losing
wealth as a result of a lender's excessive fees or unnecessary products.
CRA exams will allow abusive lending if they contain the proposed
anti-predatory standard that does not address the problems of the
packing of
fees into mortgage loans, high prepayment penalties, loan flipping,
mandatory arbitration, and other numerous abuses. Rigorous fair lending
audits and severe penalties on CRA exams for abusive lending are
necessary
in order to ensure that the new minority homeowners served by the
Administration are protected, but the proposed predatory lending
standard
will not provide the necessary protections. In addition, an anti-predatory
standard must apply to all loans made by the bank and all of its
affiliates,
not just real-estate secured loans issued by the bank in its "assessment
area" as proposed by the agencies. By shielding banks from the
consequences
of abusive lending, the proposed standard will frustrate CRA's statutory
requirement that banks serve low- and moderate-income communities
consistent
with safety and soundness.
Enhanced data disclosure. The federal agencies propose that they
will
publicly report the specific census tract location of small businesses
receiving loans in addition to the current items in the CRA small
business
data for each depository institution. This will improve the ability
of the
general public to determine if banks are serving traditionally neglected
neighborhoods with small business loans. Also the regulators propose
separately reporting purchases from loan originations on CRA exams
and
separately reporting high cost lending (per the new HMDA data requirement
starting with the 2004 data).
The positive aspects of the proposed data enhancements do not begin
to make
up for the significant harm caused by the first two proposals. Furthermore,
the federal agencies are not utilizing the data enhancements in order
to
make CRA exams more rigorous. The agencies must not merely report
the new
data on CRA exams, but must use the new data to provide less weight
on CRA
exams to high cost loans than prime loans and assign less weight
for
purchases than loan originations.
Missed Opportunity to Update Exam Procedures: The agencies also
failed to
close gaping loopholes in the CRA regulation. Banks can still elect
to
include affiliates on CRA exams at their option. They can thus manipulate
their CRA exams by excluding affiliates not serving low- and moderate-income
borrowers and excluding affiliates engaged in predatory lending.
The game
playing with affiliates will end only if the federal agencies require
that
all affiliates be included on exams. Lastly, the proposed changes
do not
address the need to update assessment areas to include geographical
areas
beyond bank branches. Many banks make considerable portions of their
loans
beyond their branches; this non-branch lending activity will not
be
scrutinized by CRA exams.
The proposed changes to CRA will directly undercut the Administration's
emphasis on minority homeownership and immigrant access to jobs and
banking
services. The proposals regarding streamlined exams and the anti-predatory
lending standard threaten CRA's statutory purpose of the safe and
sound
provision of credit and deposit services. The proposed data enhancements
would become much more meaningful if the agencies update procedures
regarding assessment areas, affiliates, and the treatment of high
cost loans
and purchases on CRA exams. CRA is simply a law that makes capitalism
work
for all Americans. CRA is too vital to be gutted by harmful regulatory
changes and neglect.
Thank you for your attention to this critical matter.
Sincerely,
Damon M. Dorsey, President
North Avenue CDC
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