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From: Angel Garcia
[mailto:agarcia@bedc.org]
Sent: Friday, April 02, 2004 10:57 AM
To: Comments
Subject: Oppose Proposed Changes to the CRA Regulations
Angel Garcia
175 Remsen Street
Brooklyn, NY 11201
April 2, 2004
Executive Secretary Robert Feldman
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Dear Executive Secretary Feldman:
Dear Officials of Federal Bank and Thrift Agencies:
As a member of the National Congress for Community Economic
Development, my organization urges you to withdraw the proposed changes
to the Community Reinvestment Act (CRA) regulations. CRA is 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. The changes proposed 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. We are concerned that 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. While we support the third proposal,
the first two proposals are quite damaging. 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 the effectiveness of the CRA.
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.
We expect that the elimination of the investment and service tests
for more than 1,100 banks will result in 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.
This may result in decreasing the effectiveness of the
Administration’s housing and community development programs. Finally,
the federal bank agencies will no longer 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 is
inapropriate 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 permit abusive lending because it does not address the
problems of the packing of fees into mortgage loans, high prepayment
penalties, loan flipping, mandatory arbitration, and other 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 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 loopholes in the CRA regulation. Banks can still elect
to include affiliates on CRA exams at their option. They can manipulate
their CRA exams by excluding affiliates not serving low- and
moderate-income borrowers and excluding affiliates engaged in predatory
lending. All affiliates should 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.
We expect that 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. In this year,
the 40th anniversary of the Civil Rights Act and the Economic
Opportunity Act, we think it is especially important to recommit
ourselves to proven strategies like CRA that provide economic
opportunities for all.
Sincerely,
Angel Garcia
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