From: Toya Jones [mailto:toya_jones@prattarea.org]
Sent: Tuesday, April 06, 2004 2:22 PM
To: regs.comments@occ.treas.gov; regs.comments@federalreserve.gov;
Comments; regs.comments@lots.treas.gov
Cc: jsilver@ncrc.org
Subject: Comments on proposed regulatory changes to the Community
Reinvestment Act (CRA
Toya Jones
1224 Bedford Avenue
Brooklyn, New York. 11216
Pratt Area Community Council
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
Dear Officials of Federal Bank and Thrift Agencies:
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,
Toya Jones
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