WELLS FARGO & COMPANY
April 6, 2004
Jennifer
J. Johnson
Secretary
Board of Governors
Federal Reserve System
Washington, DC 20219
20th and C Streets, NW
Washington, DC 20551
Docket No. R-1181
Communications Division
Public Information Room, Mail Stop 1-5
Office of the Comptroller of the Currency
Washington, DC 20219
Docket No. 04-06
Robert E. Feldman
Executive Secretary
Attn: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Re: Community Reinvestment Act Regulations
Ladies and Gentlemen:
Wells Fargo & Company ("Wells Fargo") is pleased to
comment on the joint interagency notice of proposed rulemaking under
the Community Reinvestment Act (“CRA”) published by the
banking agencies. Wells Fargo is a diversified financial services
company with $388 billion in assets providing banking, insurance,
wealth management and estate planning, investments, mortgage and
consumer finance from more than 5,900 stores and other distribution
channels across North America. Wells Fargo commented on the advance
notice of proposed rulemaking issued by the banking agencies on July
19, 2001.
We commend the agencies for their continuing efforts to develop
regulatory guidelines for CRA compliance and welcome the opportunity
to comment on the proposed changes to CRA. Our comments stem from
a goal to promote increased sustainability for CRA programs in a
volatile economy and within a dynamic regulatory and business environment.
We believe this goal can best be furthered through greater flexibility
in how the CRA exam procedures are applied.
On the whole, it is Wells Fargo's experience that the existing CRA
regulations allow the regulatory agencies to adequately measure the
performance of financial institutions in meeting community credit
needs, particularly the needs of low- to moderate-income communities.
We do not think an overhaul of the CRA regulations is required at
this time, but we do think that some additional guidance and examiner
training could make the regulation more effective in helping institutions
meet community credit needs.
Our comments on these proposed changes are as follows:
Credit Terms and Practices
The agencies
are proposing to amend the regulations to provide that certain
discriminatory,
illegal or abusive credit practices in connection
with certain loans will be included and adversely affect an institution’s
CRA evaluation. Since fair lending is already part of the CRA examination
process, as fair lending violations can lower a bank's CRA rating
under the existing regulation, we strongly believe that any issues
regarding such practices ought to be addressed as part of the fair
lending examination or compliance examination, not the CRA examination.
Enhancement of Public Performance Evaluations
The agencies
propose to disclose additional information in an institution’s
public performance evaluation including differentiating between loans
originated versus loans purchased, identifying loans that are subject
to HOEPA, and identifying loans that were originated and purchased
by an affiliate and the identity of the affiliate if included in
the institution’s evaluation. While these changes would not
result in additional burdens on banks, Wells Fargo nevertheless does
not support these changes. For example, the regulations currently
allow equal treatment for loan originations and purchases. Likewise,
the regulations currently allow equal treatment of loans originated
and purchased by an affiliate if considered in an institution’s
evaluation. Underlying this proposal is the implication that purchases
or loans done by an affiliate are distinct and not as desirable as
originations under CRA. Wells Fargo disagrees with this implication
since the consideration of loans purchased clearly helps to sustain
an active secondary market and frees up capital that can be used
to originate additional loans that benefit the community. Wells Fargo
also believes that loans either originated or purchased by an affiliate
and included for the purposes of CRA are likewise helping to meet
the credit needs of its community.
In addition to the proposals that the agencies have presented for
comment, we believe the following recommendations could provide some
additional guidance that could make the regulation more effective
in helping institutions meet the credit needs of its community.
Performance Context Needs To Be More Strongly Considered in the
Regulatory Evaluation of the Lending Test
We have significant concerns with the application of the current
OCC Large Bank CRA Examiner Guidance that was issued in December
2000. We believe that this Guidance needs to more clearly outline
and give weight to the performance context factors that impact an
institution's lending results, particularly home mortgage (HMDA)
lending, during the exam period. This is especially important since
the CRA Lending Test component of the CRA examination process is
currently the category that carries the most weight (50%) of the
three CRA tests.
Moreover, we
believe that regulators ought to take performance context information
into account
before they draw conclusions regarding what
constitutes "Outstanding" and "Satisfactory" lending
performance. In other words, banks and examiners ought to be able
to have an opportunity to discuss prior to the start of a CRA exam
how performance context factors will be considered and applied in
the Lending Test.
Changes to Current Definition of Community Development Lending
We think that
the agencies should give full consideration for letters of credit
or other credit
enhancements that have a community development
purpose. Currently these may be provided to examiners as examples
of "other community development lending." However, it is
difficult for banks to be certain of how much consideration they
will receive for this activity since such community development-purpose
letters of credit are prohibited from being reported in the annual
filing of community development loans. Such transactions are also
excluded from Performance Evaluation tables that outline the community
development loans considered during the exam period for a given financial
institution. We think this does not give appropriate weight to these
transactions, which may benefit communities as much as conventional
loans in some cases.
We also recommend that full lending and/or investment CRA credit
be given for activities that enable community development, such as
mixed-income projects that have an affordable housing component.
Finally, Wells Fargo also believes that the agencies should give
more consideration, including community development service consideration,
to programs such as outreach centers, financial literacy initiatives,
and Individual Development Accounts since these require a significant
amount of employee volunteer time as well as financial resources.
Conclusion
Wells Fargo appreciates the opportunity to outline our reservations
concerning the proposed changes as stated above as well as provide
additional recommendations to enhance the CRA regulation. We believe
that these recommendations could be implemented within the scope
of the current CRA Exam Procedures with minimal burden but maximum
benefit for financial institutions and community organizations to
continue to develop and participate in sustainable CRA programs for
years to come.
Sincerely,
Robert M. Manuel
Senior Vice President
Wells Fargo Bank, N.A.
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