Nevada
Fair Housing Center, Inc.
March
11, 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 N W
Washington DC 20552
Dear Officials of Federal Bank and Thrift Agencies:
As a member of the National Community Reinvestment Coalition, I
urge 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 non update procedures
regarding affiliates and assessment areas in their proposal, and
thus missed a vital opportunity not 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 not 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 in strips equity without leading to delinquency or foreclosure.
In other words, borrowers can have the necessary income to afford
monthly payments, bun 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 nonbranch 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
Veronica
Bushell
|
