Jackson-Madison
County Branch, NAACP
March 16, 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, DC 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, the Jackson Madison-County
NAACP Branch 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 progrgss 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 smal .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. Thuss, 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 utilising 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,
Ernest T. Brooks
President
NAACP
Jacson-Madison County Branch
Jackson, TN
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