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From: Julia Sass Rubin
[mailto:juliasrubin@optonline.net]
Sent: Saturday, April 03, 2004 9:42 AM
To: regs.comments@occ.treas.gov; regs.comments@federalreserve.gov;
Comments;
regs.comments@ots.treas.gov
Subject: Proposed changes to the Community Reinvestment Act
April, 2004
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 an academic who studies access to capital in low- and
moderate-income communities, I urge you to withdraw the proposed changes
to the Community Reinvestment Act (CRA) regulations. CRA has been
instrumental in increasing access to home ownership, 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 home ownership 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,
Julia Sass Rubin, Ph.D.
Professor
Edward J. Bloustein School of Planning and Policy
Rutgers University
New Brunswick, NJ 08901
Cc:
National Community Reinvestment Coalition
President George W. Bush
Treasury Secretary John W. Snow
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