From: William Bay [mailto:impact@impactseven.org]
Sent: Tuesday, March 30, 2004 5:45 PM
To: Comments
Subject: Oppose CRA Regulations
William Bay
147 Lake Almena Drive
Almena, WI 54805
March 30, 2004
Executive Secretary Robert Feldman
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Dear Executive Secretary Feldman:
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 Congress for Community Economic Development,
Impact Seven, Inc.urges you to withdraw the proposed changes to the
Community Reinvestment Act (CRA) regulations. CRA is 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. While we support the third proposal, the first two
proposals
are quite damaging. 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 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. In this year, the 40th anniversary
of
the Civil Rights Act and the Economic Opportunity Act, we think it
is
especially important to recommit ourselves to proven strategies like
CRA
that provide economic opportunities for all.
Sincerely,
William Bay
President, Impact Seven, Inc.
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