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April 3, 2004
Docket No. 04-06
Communications Division
Public Information Room, Mail Stop 1-5
Office of the Comptroller of the Currency
250 E St. SW
Washington, DC 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
To Officials of Federal Bank and Thrift Agencies:
I have seen the beneficial effects of CRA, as intended when the
initial legislation was implemented. As a concerned member of the
public, I urge you to strengthen the Community Reinvestment Act (CRA)
and avoid any actions that would dilute it.
In under-served sections of Dayton, Ohio (and I understand this has
been true in communities across the nation), the CRA has directly served
to increase access to homeownership, boost economic development, and
expand small businesses in our minority, immigrant, and low- and
moderate-income communities. Lending institutions have changed their
practices to comply with the legislation, and in turn they are better
serving their less-affluent depositors and communities.
I’m concerned that some of the proposed changes before you are
contrary to the spirit of the CRA, and I believe they could reverse the
progress made in community reinvestment.
Here are my specific recommendations:
1. Approve changes to expand collection and reporting for
small-business and home lending.
2. Reject proposed changes to streamline and reduce exams for banks
with assets between $250 million and $500 million.
3. Reject proposals for changes to CRA predatory-lending compliance
standards.
We should implement only CRA changes that would further restrict
predatory lending, and that increase the ability of our general public
to hold financial institutions accountable for compliance with
consumer-protection laws. My comments are based not only on my witness
of improved practices in my area (even representatives of local
financial institutions admit they have improved to meet CRA provisions).
We must set a climate to facilitate our Administration’s goals to
improve the economic status of immigrants and to create 5.5 million new
minority homeowners by the end of the decade. Your decisions clearly can
help or hinder achievement of these goals!
In addition, I ask you to update procedures to require financial
institutions to report for all of their affiliates and assessment areas.
I encourage you to make this a mandatory portion of the CRA, to
eliminate selective reporting which can skew reporting and hide
situations where financial practices do not meet the intent of the CRA
legislation.
Enhance Data Disclosure
I support the proposal that the federal agencies 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. And I support the proposal to
separately report purchases from loan originations on CRA exams, and to
separately report high-cost lending (per the new HMDA data requirement
starting with 2004 data).
I also ask that our federal agencies utilize the enhanced data to
make CRA exams more rigorous. The agencies must not merely report the
new data on CRA exams, but must use them to adjust weight on CRA exams
for prime loans and high-cost loans, and for loan originations and
purchases.
Eliminate Provision for Streamlined and Cursory Exams
I understand the goal to eliminate needless “red tape,” but we must
not reduce our ability to verify CRA compliance. Under current CRA
regulations, large financial institutions 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, however, will eliminate the
investment and service parts of the CRA exam for institutions with
assets between $250 million and $500 million. Together more than 1,100
financial institutions in that category account for more than $387
billion in assets.
As an example, those institutions would no longer be held accountable
on CRA exams for investing in Low Income Housing Tax Credits, which have
been a major source of safe and affordable rental housing needed by
large numbers of immigrants and lower-income populations. The track
record of financial institutions prior to CRA convinces me that
eliminating investment and service tests for more than 1,100 banks will
considerably reduce access to banking services and capital for
underserved communities.
Similarly, those institutions would no longer be held accountable on
CRA exams for the provision of bank branches, checking accounts,
Individual Development Accounts (IDAs), or debit-card services. Again,
these actions would undermine the Administration’s housing and community
development programs. Moreover, by eliminating the investment and
service tests, the federal bank agencies would eliminate its positive
verification that financial institutions meet CRA statutory requirements
to serve credit and deposit needs of their communities.
Proposed Predatory Lending Standard is Inadequate
Under the proposed anti-predatory standard, CRA exams will allow
abusive lending. Abusive lending would not lower CRA ratings when it
strips equity without leading to a delinquency or foreclosure. For
example, borrowers can have the necessary income to afford monthly
payments, but they still can lose equity (wealth) as a result of a
lender’s excessive fees or unnecessary products. The standard does not
address problems such as “packing” fees into loans, high prepayment
penalties, loan flipping, mandatory arbitration, and other abuses.
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 in the bank’s ‘assessment area’ as proposed by the
agencies. The proposed standard can be used by financial institutions to
avoid complete reporting and thus to avoid compliance with CRA’s
requirement for banks to serve low- and moderate-income communities.
Rigorous fair-lending audits and severe penalties for abuses (as
found through CRA exams) are necessary to protect homeowners. The
proposed predatory lending standard will not provide the necessary
protections, and must be rejected in its proposed form.
Update CRA Exam Procedures
I’m concerned that the proposals under consideration have failed to
close large loopholes in the CRA regulation. As noted, financial
institutions still would have the choice whether or not to include
affiliates on CRA exams. They can manipulate their CRA ratings by
excluding affiliates not serving low- and moderate-income borrowers and
excluding affiliates engaged in predatory lending. These games will end
only if we require that all affiliates be included on exams.
Lastly, the proposed changes do not update the 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 would not be scrutinized by CRA exams.
The proposed data enhancements would become much more meaningful if
you update procedures regarding assessment areas, affiliates, and the
treatment of high-cost loans and purchases on CRA exams. CRA is simply a
law that helps to improve access to capital for all Americans. CRA is
vital and should be carefully strengthened, with common-sense actions as
I noted above.
I thank you for your attention to this critical matter.
Sincerely,
Stephen J. Makovec
Cc: National Community Reinvestment Coalition
President George W. Bush
Treasury Secretary John W. Snow
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