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FDIC Federal Register Citations California Association of REALTORS®
Robert E. Feldman Re: RIN 3064-XXXX Dear Mr. Feldman: On behalf of the 150,000 members of the California Association of REALTORS®, I submit the following comments on the proposed rule regarding the Community Reinvestment Act and changing the “small bank” definition to raise the threshold to $1 billion and adding a community development activity criterion to the streamlined evaluation method for small banks with assets greater than $250 million and up to $1 billion. C.A.R.’s members are engaged in the business of real estate brokerage, sales, management and financing. REALTORS are active in their communities as small businesses, homeowners, and concerned citizens. REALTORS believe that homeownership is the best way to build community participation and a better quality of life for all Americans. It is important to remember that homeownership is a ladder and that each rung is as important as the next. Renters today are the homebuyers of tomorrow. It is with this holistic view towards homeownership that REALTORS feel compelled to comment on the substantial impact that these proposed changes may have on affordable housing for low and moderate income individuals and families. According to the California Association of REALTORS® 2003 housing survey, California is not producing sufficient housing for its growing population. It is estimated that in 2004 there will be an additional 220,000 new households. However, according to the Construction Industry Research Board, less than 200,000 new housing permits will be issued (purchase and rental). Thus, 20,000 households will be left without housing of their own. This situation will strain current housing supply and force overcrowding situations as multiple households are forced to reside under the same roof. In addition, a majority of the new homes that will be constructed will be out of the financial reach of many first-time homebuyers. In August 2004, the median home price in California was $474,370 and the median household income needed to purchase the home was $111,180 assuming a 20% down payment of $94,674. As is apparent by these numbers, there are few new homebuyers that would have the financial resources to purchase housing in California. In fact, the according to the second quarter numbers for 2004, the actual median household income was $52,629 compared to the necessary qualifying income to purchase of $107,276. Thus, a household would have to make 200% of the median household income in order to qualify to purchase housing in California. According to the California Association of REALTORS® Housing Affordability Index for August 2004, these figures translate into only 18% of all households in California being able to afford to buy a home. This is a 5% decrease in affordability from one year ago and has been part of a steady decline in housing affordability in California for several years. As for first-time homebuyers, their percentage as compared to all homebuyers continues to drop. In 1999, first-time homebuyers made up 42.4% of all homebuyers. This number has steadily dropped and today, 2004, stands at only 26.0% or roughly 1 in 4 homebuyers. As purchasing a home becomes more out of reach, Californians are forced to turn to rental housing to meet their housing needs. Starting in the early 1990’s the supply of multifamily as a percentage of all homes being built has dropped significantly. In 1990, 37% of all housing permits were issued for multifamily (including rental) housing. However, in 2003 this number had fallen to 29%. Again, this is at a time when California’s rental housing needs have continued to grow due to increased population and lack of affordable housing. A major cause for this drop has been the dramatically increased amount of litigations related to multifamily construction. As a result, investors and developers are less willing to develop this form of housing, which is desperately needed by the communities. In order for investors and developers to be willing to assume the risk of possible future litigation, they require a substantial return on their investments. This level of return is only achievable by renting the units at full market rate. Low income housing tax credits (LIHTC) were created in order to encourage development of low and moderate-income rental housing. This additional incentive was devised as a means for overcoming the lower return on investment that would be received by investors on low and moderate income developments and, therefore, encourage more investments to occur. However, the average investor is typically more concerned with receiving a high rate of return rather than obtaining tax credits. As a result, the pool of investors willing to purchase the low income housing tax credits has remained relatively small. Historically, major investors in low income housing tax credits have been banks with total assets greater than $250 million. These banks viewed the low income housing tax credits as a convenient means to meet their investment requirement under the Community Reinvestment Act. According to the National Community Reinvestment Coalition, banks with total assets between $250 million and $500 million make investments of $4.5 billion for every two to three year period, which is the time between Community Reinvestment Act examinations. An additional amount equal to or greater than $4.5 billion can be assumed to be invested by banks with assets between $500 million and $1 billion. Thus, it is clear that banks with assets between $250 million and $1 billion have been significant investors in low income housing tax credits and an important partner in the creation of low and moderate income rental housing. Unless a specific “investment” criterion is created for banks with assets between $250 million and $1 billion, there is a substantial risk that the low income housing tax credit system could be severely damaged and possibly destroyed.
The FDIC has recognized that a threshold increase to total assets of $1 billion for the small bank test would result in 95.7% of all banks supervised by the FDIC to qualify as small banks. This would leave only 4.3% of FDIC banks being required to make investments in their communities. This is an enormous decrease from the 20.9% of banks that currently qualify for the small bank test. As a result, only a small handful of banks would remain motivated by the FDIC to invest in their communities and support low and moderate rental housing. While we understand and agree that an even playing field should be preserved among all financial institutions whenever possible (state banks, national banks and thrifts), the harm that would result to the communities would be too great a price to pay. The only approach that would ameliorate the damage that such a threshold change would cause is to assign a community development requirement that specifically requires “investments” and “services” elements that would be substantially similar to the current large bank test. Any lesser test, including the less specific community development requirement currently proposed by the FDIC, would not provide sufficient incentives for these banks to continue to invest in their communities. In addition, no lesser test would sufficient protect the communities in which they serve from the potential loss of support for the affordable rental housing their citizens desperately need. We recognize and agree that a $500 million bank is substantially different from a $5 billion dollar bank. However, we equally recognize that a $50 million bank is substantially different from a $500 million bank. Therefore, it is appropriate for banks with total assets between $250 million and $1 billion to be required to make investments in their communities. However, acknowledging the differences between a mid-sized bank and a large bank, we would anticipate that a change in how each of the three required criteria of lending, investments, and services are weighed for the $250 million to $1 billion banks would be appropriate. The exact weighting of the criteria as they pertain to mid-sized banks would need to be thorough research by the FDIC and a new proposal would need to be issued for comments. To reiterate, the increased threshold can only be properly instituted if it is accompanied by a specific investment requirement for banks with total assets between $250 million and $1 billion. In conclusion, we appreciate the FDIC’s need to maintain a level playing field for all banks whenever possible. However, it must not be achieved at the expense of the communities in which the banks conduct business. Banks with total assets between $250 million and $1 billion have been important partners in creating affordable rental housing. Their continued participation in these efforts must be safeguarded by continuing to require that they met specific “investment” criteria as part of their Community Reinvestment Act activities. Thank you for your consideration of our views. If we may provide you with any additional information, please do not hesitate to ask.
October 19, 2004
Robert E. Feldman Executive Secretary Attention: Comments/Legal ESS Federal Deposit Insurance Corporation 550 17th Street, N.W. Washington, D.C. 20429
Re: RIN 3064-XXXX Dear Mr. Feldman: On behalf of the 150,000 members of the California Association of REALTORS®, I submit the following comments on the proposed rule regarding the Community Reinvestment Act and changing the “small bank” definition to raise the threshold to $1 billion and adding a community development activity criterion to the streamlined evaluation method for small banks with assets greater than $250 million and up to $1 billion. C.A.R.’s members are engaged in the business of real estate brokerage, sales, management and financing. REALTORS are active in their communities as small businesses, homeowners, and concerned citizens. REALTORS believe that homeownership is the best way to build community participation and a better quality of life for all Americans. It is important to remember that homeownership is a ladder and that each rung is as important as the next. Renters today are the homebuyers of tomorrow. It is with this holistic view towards homeownership that REALTORS feel compelled to comment on the substantial impact that these proposed changes may have on affordable housing for low and moderate income individuals and families. According to the California Association of REALTORS® 2003 housing survey, California is not producing sufficient housing for its growing population. It is estimated that in 2004 there will be an additional 220,000 new households. However, according to the Construction Industry Research Board, less than 200,000 new housing permits will be issued (purchase and rental). Thus, 20,000 households will be left without housing of their own. This situation will strain current housing supply and force overcrowding situations as multiple households are forced to reside under the same roof. In addition, a majority of the new homes that will be constructed will be out of the financial reach of many first-time homebuyers. In August 2004, the median home price in California was $474,370 and the median household income needed to purchase the home was $111,180 assuming a 20% down payment of $94,674. As is apparent by these numbers, there are few new homebuyers that would have the financial resources to purchase housing in California. In fact, the according to the second quarter numbers for 2004, the actual median household income was $52,629 compared to the necessary qualifying income to purchase of $107,276. Thus, a household would have to make 200% of the median household income in order to qualify to purchase housing in California. According to the California Association of REALTORS® Housing Affordability Index for August 2004, these figures translate into only 18% of all households in California being able to afford to buy a home. This is a 5% decrease in affordability from one year ago and has been part of a steady decline in housing affordability in California for several years. As for first-time homebuyers, their percentage as compared to all homebuyers continues to drop. In 1999, first-time homebuyers made up 42.4% of all homebuyers. This number has steadily dropped and today, 2004, stands at only 26.0% or roughly 1 in 4 homebuyers. As purchasing a home becomes more out of reach, Californians are forced to turn to rental housing to meet their housing needs. Starting in the early 1990’s the supply of multifamily as a percentage of all homes being built has dropped significantly. In 1990, 37% of all housing permits were issued for multifamily (including rental) housing. However, in 2003 this number had fallen to 29%. Again, this is at a time when California’s rental housing needs have continued to grow due to increased population and lack of affordable housing. A major cause for this drop has been the dramatically increased amount of litigations related to multifamily construction. As a result, investors and developers are less willing to develop this form of housing, which is desperately needed by the communities. In order for investors and developers to be willing to assume the risk of possible future litigation, they require a substantial return on their investments. This level of return is only achievable by renting the units at full market rate. Low income housing tax credits (LIHTC) were created in order to encourage development of low and moderate-income rental housing. This additional incentive was devised as a means for overcoming the lower return on investment that would be received by investors on low and moderate income developments and, therefore, encourage more investments to occur. However, the average investor is typically more concerned with receiving a high rate of return rather than obtaining tax credits. As a result, the pool of investors willing to purchase the low income housing tax credits has remained relatively small. Historically, major investors in low income housing tax credits have been banks with total assets greater than $250 million. These banks viewed the low income housing tax credits as a convenient means to meet their investment requirement under the Community Reinvestment Act. According to the National Community Reinvestment Coalition, banks with total assets between $250 million and $500 million make investments of $4.5 billion for every two to three year period, which is the time between Community Reinvestment Act examinations. An additional amount equal to or greater than $4.5 billion can be assumed to be invested by banks with assets between $500 million and $1 billion. Thus, it is clear that banks with assets between $250 million and $1 billion have been significant investors in low income housing tax credits and an important partner in the creation of low and moderate income rental housing. Unless a specific “investment” criterion is created for banks with assets between $250 million and $1 billion, there is a substantial risk that the low income housing tax credit system could be severely damaged and possibly destroyed.
The FDIC has recognized that a threshold increase to total assets of $1 billion for the small bank test would result in 95.7% of all banks supervised by the FDIC to qualify as small banks. This would leave only 4.3% of FDIC banks being required to make investments in their communities. This is an enormous decrease from the 20.9% of banks that currently qualify for the small bank test. As a result, only a small handful of banks would remain motivated by the FDIC to invest in their communities and support low and moderate rental housing. While we understand and agree that an even playing field should be preserved among all financial institutions whenever possible (state banks, national banks and thrifts), the harm that would result to the communities would be too great a price to pay. The only approach that would ameliorate the damage that such a threshold change would cause is to assign a community development requirement that specifically requires “investments” and “services” elements that would be substantially similar to the current large bank test. Any lesser test, including the less specific community development requirement currently proposed by the FDIC, would not provide sufficient incentives for these banks to continue to invest in their communities. In addition, no lesser test would sufficient protect the communities in which they serve from the potential loss of support for the affordable rental housing their citizens desperately need. We recognize and agree that a $500 million bank is substantially different from a $5 billion dollar bank. However, we equally recognize that a $50 million bank is substantially different from a $500 million bank. Therefore, it is appropriate for banks with total assets between $250 million and $1 billion to be required to make investments in their communities. However, acknowledging the differences between a mid-sized bank and a large bank, we would anticipate that a change in how each of the three required criteria of lending, investments, and services are weighed for the $250 million to $1 billion banks would be appropriate. The exact weighting of the criteria as they pertain to mid-sized banks would need to be thorough research by the FDIC and a new proposal would need to be issued for comments. To reiterate, the increased threshold can only be properly instituted if it is accompanied by a specific investment requirement for banks with total assets between $250 million and $1 billion. In conclusion, we appreciate the FDIC’s need to maintain a level playing field for all banks whenever possible. However, it must not be achieved at the expense of the communities in which the banks conduct business. Banks with total assets between $250 million and $1 billion have been important partners in creating affordable rental housing. Their continued participation in these efforts must be safeguarded by continuing to require that they met specific “investment” criteria as part of their Community Reinvestment Act activities. Thank you for your consideration of our views. If we may provide you with any additional information, please do not hesitate to contact Janet M. Gagnon-Stovall, by phone 213-739-8272, fax 213-739-7272, or e-mail janetg@car.org. Sincerely,
President California Association of REALTORS®
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| Last Updated 11/12/2004 | regs@fdic.gov | |