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NATIONAL ASSOCIATION OF HOME BUILDERS
April 6, 2004
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/OES
Federal Deposit Insurance Corporation
550 17th Street., NW
Washington, DC 20429
Dear Mr. Feldman:
On behalf of the 215,000 member firms of the National Association
of Home Builders (NAHB), I appreciate the opportunity to respond to
the request for comment, issued jointly by the Office of the Comptroller
of the Currency, the Board of Governors of the Federal Reserve System,
the Federal Deposit Insurance Corporation, and the Office of Thrift
Supervision (the Agencies), on proposed revisions (Proposal) to the
Community Reinvestment Act (CRA) regulations.
NAHB strongly supports the goal of the CRA, which is to encourage
federally insured banks and thrifts to help meet the credit needs of
their entire communities. NAHB commends the Agencies for their efforts
to evaluate whether their CRA implementing regulations remain contemporary
with the evolution of the financial services marketplace. When the
Agencies initiated their public rulemaking by issuing an Advance Notice
of Proposed Rulemaking (ANPR) in 2001, NAHB submitted comments recommending
changes to address gaps in the present system, specifically some components
of the performance-based evaluation process and the determination of
assessment areas. NAHB also urged the retention of the current requirements
for data collection and reporting as well as maintenance of public
files.
NAHB Position
NAHB reaffirms the observation
conveyed in our response to the Agencies’ ANPR
that many segments of this country have not benefited from advances
in the operational, competitive, and legal structure of the financial
services sector. Many rural communities in particular continue to be
overlooked and do not receive adequate levels of financial services.
For example, NAHB members report instances where several banks in proximity
to an underserved community declined to finance proposed housing projects
because that community was not considered to be in their assessment
areas. Apparently, the financial institutions felt no incentive
to lend in communities considered outside of their assessment areas
since they would probably not receive CRA credit for such lending.
NAHB is disappointed that
the Agencies’ Proposal does not actively
address our concerns. However, NAHB is encouraged that additional guidance
to further clarify the CRA regulations is anticipated by the Agencies.
NAHB requests that the Agencies place a high priority on issuing guidance
to clarify the performance-based evaluation of lending, investment
and service activities. NAHB further believes that it is equally important
to clarify the rules covering the delineation of CRA assessment areas.
NAHB’s recommendations for such changes are detailed below.
Evaluating Lending, Investment and Service Activities
The current performance-based
tests provide incentives for an institution to provide financial
services and products in low- or moderate-income
geographies. NAHB believes this income-specific measure for whether
a particular community merits targeting for CRA purposes precludes
the use of other equally valid benchmarks for defining underserved
areas. For example, current regulations provide no incentives that
reflect an institution’s activity in rural areas. NAHB understands
that many projects intended to revitalize or stabilize rural communities
do not qualify under the current regulatory definition of community
development because those activities are not located in low- or moderate-income
geographies, as defined in the regulations. This is also true in the
service test, where the Agencies consider an institution’s branch
distribution among geographies of different income levels, with particular
emphasis on low- and moderate-income geographies.
NAHB believes that additional
factors should be used to determine whether a community has less
than adequate access to financial services.
Unfortunately, the Proposal retains the current regulations’ ineffective
income-specific focus because the Agencies’ cite difficulties
in incorporating “qualitative” measures of an institution’s
efforts to meet the credit needs in geographic areas that an institution
can be reasonably expected to serve. Instead, the Agencies indicate
that they may seek to clarify through interagency guidance how qualitative
considerations should be employed.
NAHB believes it is imperative for the Agencies to issue interagency
guidance in order to strengthen this part of the CRA examination by
providing greater CRA credit for initiatives that serve geographies
that previously did not have adequate access to credit. NAHB believes
such guidance should encourage institutions to establish branches or
lending relationships in more difficult to serve areas.
Assessment Areas
Federally insured financial
institutions must define one or more assessment areas, which is the
geographic area where the Agencies will
evaluate an institution’s record of meeting the credit needs
of its community. The Agencies do not review the institution’s
delineation as a separate performance criterion. However, the regulations
provide that the assessment areas must consist generally of one or
more metropolitan statistical area (MSA) or one or more contiguous
political subdivision in which the financial institution has its main
office, branches, and deposit taking ATMs. Additionally, large and
small banks must include surrounding geographies where the financial
institution has originated or purchased a substantial portion of its
loans. Consistent with the CRA regulations, a financial institution
may adjust the boundaries of its assessment areas to include only the
portion of a political subdivision that it can reasonably expect to
serve. However, the regulations provide that assessment areas can only
consist of whole geographies, should not illegally discriminate, must
not exclude low- or moderate-income geographies and may not extend
substantially beyond a state boundary unless the assessment area is
located in a multi-state MSA.
NAHB believes that this
portion of the CRA regulations also has not been effective in ensuring
that banks and thrifts address credit needs
in areas that are more difficult to serve, such as rural and other
underserved communities. Institutions have been able to define their
assessment areas in ways that have left gaps in access to financial
services. In fact, NAHB believes the regulation’s approach to
assessment areas may create disincentives for financial institutions
to provide financial services to low- and moderate-income communities
and rural areas where they have no physical presence and are not part
of their self-determined assessment areas.
NAHB therefore requests
that the Proposal be revised by incorporating a provision that requires
institutions to delineate assessment geography
wherever they deliver retail-banking services, whether or not they
have physical deposit-gathering branches or ATMs in each locale. In
addition, the Proposal should include an institution’s delineation
of its assessment area as a performance criterion to determine if the
institution is meeting the credit needs of the community. NAHB suggests
the Agencies also amend the Proposal so that the assessment areas of
financial institutions are influenced by the locations of business
and household customers in nearby geographic areas consisting of rural
and other underserved areas.
NAHB also believes that financial institutions should have less discretion
in determining which geographic areas should be included in their assessment
areas. Current CRA regulations allow financial institutions to basically
carve out the areas they choose to serve. While institutions are not
permitted to arbitrarily exclude low- or moderate-income communities
from their assessment areas, there is no similar prohibition to excluding
rural areas. Further, the
current CRA process does not address circumstances where rural areas
are consistently left out of every assessment area. NAHB believes that
the Proposal should be amended to require such an evaluation and to
require institutions that are engaging in such practices to include
rural areas in their assessment area delineation.
Finally, NAHB believes that
the Agencies should increase the level of consideration given to
a financial institution’s community
development investments, loans and services in underserved locations
outside of their assessment areas. Current Agency guidance indicates
that community development investments, services and loans provided
outside of an institution’s assessment area will be considered,
but only if the institution has adequately addressed the needs within
its assessment area. This becomes a problem when it is applied to a
financial institution with a borderless service area but a limited
physical business platform. Such entities include limited purpose and
wholesale financial institutions and other large financial institutions.
The CRA regulations confer no duty on these institutions to invest,
serve or lend beyond their assessment area. Rather, they are only obliged
to meet the credit needs of a relatively small geographic area even
though they may offer financial services on a nationwide basis. As
more financial services are provided electronically and via the Internet,
the divergence between physical location and service area will continue
to increase.
In the Proposal, the Agencies
conclude that such problems are a result of the manner in which the
CRA regulations are implemented rather than
the regulations themselves. To be sure, the Agencies recognize the
challenges inherent in directing community development resources to
underserved areas. Moreover, NAHB appreciates the efforts of the Agencies
to encourage financial institutions to look beyond their CRA assessment
areas for lending and investment opportunities. However, NAHB believes
that more can be done in this area. Therefore, NAHB endorses the Agencies’ commitment
to issue clarifying guidance on when community development activities
outside of assessment areas will be weighted as heavily as activities
inside of assessment areas. NAHB further encourages the Agencies to
clarify this issue in a way that provides ample incentive for financial
institutions to serve rural and other underserved areas.
Data Collection and Reporting and Maintenance of Files
Currently, financial institutions
are required to disclose the number and amount of their small business
and small farm loans on an aggregated
basis across a series of income categories. The Proposal would require
this data to be disaggregated and reported by census tract. NAHB endorses
the Agencies’ proposal to enhance the CRA data reporting requirements.
Reporting the specific census tract location of small businesses and
farms receiving loans will assist in the assessment of a financial
institution’s CRA responsibilities without creating an undue
burden for that institution.
Conclusion
NAHB appreciates the Agencies’ efforts
to ensure that the CRA implementing regulations continue to channel
the resources of financial
institutions to underserved areas. NAHB hopes that you will consider
our recommendations to enhance the Proposal or supplement it with additional
interagency guidance. Thank you again for the opportunity to comment.
NAHB is available to answer any questions you may have concerning this
statement or provide any additional information that may be needed.
Sincerely,
David A. Crowe
Senior Staff Vice President
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