Share Our Selves
From: Karen McGlinn [mailto:kmcglinn@shareourselves.org]
Sent: Tuesday, April 06, 2004 4:16 PM
To: Comments
Subject: Preserve CRA and Investment in Underserved Communities
Karen McGlinn
Executive Director
Share Our Selves
1550 Superior Ave.
Costa Mesa, CA 92627
April 6, 2004
Executive Secretary Robert Feldman
FDIC
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
As a member of the National Community Reinvestment Coalition, (Name
of organization) 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 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 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 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,
Karen McGlinn
Executive Director
Share Our Selves
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