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DAYTON COMMUNITY REINVESTMENT INSTITUTE
March 8, 2004
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th St., NW
Washington, DC 20429
As a member of the National Community Reinvestment Coalition, Dayton
Community Reinvestment Institute 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: I) 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 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 lending 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 current items in 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 or 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 portion of their loans beyond their branches; this
non-branch lending activity will not be scrutinized by CRA exams.
The proposed charges 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,
Dean Lovelace
Dayton City Commissioner
City of Dayton, Ohio
Office of the City Commission
101 West Third St
P.O. Box 22
Dayton, OH 45401
Cc: National Community Reinvestment Coalition
President George W.
Bush
Treasury Secretary John W. Snow
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