NC HOUSING CENTER
From: SAdams7943@aol.com [mailto:SAdams7943@aol.com]
Sent: Wednesday, March 31, 2004 12:44 PM
To: regs.comments@occ.treas.gov; regs.comments@federalreserve.gov;
Comments; regs.comments@ots.treas.gov o
Cc: jsilver@ncrc.org
Subject: Comments on CRA
March 31, 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:
The North Carolina Fair Housing Center 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 North Carolina Fair Housing Center vehemently opposes two major
elements of the proposed changes: 1) the provision of streamlined
and cursory exams for banks with assets between $250 million and
$500 million; and 2) the establishment of a weak predatory lending
compliance standard under CRA.
The North Carolina Fair Housing Center supports the expansion of
data collection and reporting for small business and home lending.
However, the Center feels that the beneficial impacts of this proposal
are outweighed by the damage imposed by the first two proposals.
In addition, the Center strongly recommends that the regulatory agencies
take this opportunity to update procedures regarding affiliates,
subsidiaries and the exportation of bank services and products as
it relates to their assessment areas in their proposal, and take
advantage of this opportunity to improve 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. Further, this
would encourage further small banks to engage in payday lending and
charter renting without any opportunity for public comment.
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 increasingly larger numbers
of downsized and displaced workers, local government employees and
school teachers, in addition to traditionally underserved populations.
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. This is nothing more
than a baby step. A proper anti-predatory lending screen will look
for and downgrade lenders for the following abuses.
1. High Fees
The borrower should not be charged fees greater than 3% of the loan
amount (4% for FHA or VA loans). Points and fees (as defined by HOEPA)
that exceed this amount (not including third party fees like appraisals
or attorney fees) take more equity from borrowers than the cost or
risk of subprime lending can justify.
2. Prepayment Penalties trap borrowers in high-rate loans, which
too often leads to foreclosure. The subprime sector should provide
borrowers a bridge to conventional financing as soon as the borrower
is ready to make the transition, though prepayment penalties are
designed to prevent this from happening. Prepayment penalties are
hidden, deferred fees that strip significant equity from over half
of subprime borrowers. Prepayment penalties of 5% are common. For
a $150,000 loan, this fee is $7,500, more than the total net wealth
built up over a lifetime for the median African American family.
3. Mandatory Arbitration
Increasingly, lenders are placing pre-dispute, mandatory binding
arbitration clauses in their loan contracts. These clauses insulate
unfair and deceptive practices from effective review and relegate
consumers to a forum where they cannot obtain injunctive relief against
wrongful practices, proceed on behalf of a class, or obtain punitive
damages. Arbitration can also involve costly fees, be required to
take place at a distant site, or designate a pro-lender arbitrator.
4. Flipping
Flipping of borrowers occurs through repeated fee-loaded refinancings.
One of the worst practices is for lenders to refinance subprime loans
over and over, taking out home equity wealth in the form of high
fees each time, without providing the borrower with a net tangible
benefit. The net tangible benefit test is significant, for example,
one lender charged a borrower $10,000 in fees on an $11,000 loan
and said that the borrower benefitted from the transaction because
they reduced the interest rate of the borrower by 1%.
Rigorous fair
lending audits and severe penalties on CRA exams for abusive lending
and
unlawful discrimination are necessary in order
to ensure that the new minority homeowners are protected, unfortunately,
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. For example, several banks
have exported payday lending activities into North Carolina to the
detriment of our citizens. While banks export their usurious products
to our state they do not offer depository or other beneficial products
to our communities and the harm they do to our communities goes unchecked
and unregulated.
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).
federal agencies must utilize 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 in weighing
the relationship on CRA exams of high cost loans as compared to prime
loans and to assign less weight for purchased loans as compared to
loan originations.
Missed Opportunity to Update Exam Procedures: The agencies need
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. The proposed changes 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 must be scrutinized by CRA exams.
The proposed changes to CRA will directly undercut 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 to all communities. The proposed data
enhancements can be 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,
Stella J. Adams
NC Fair Housing Center
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