HOUSING RESOURCES COMMISSION
Office of Homeownership*
April 6, 2004
Docket No. 04-06
Communications Division
Publication Information Room, Mailstop 1-5
Office of the Comptroller of the Currency
250 E St., SW,
Washington, DC 20219
Docket No. R-1181
Jennifer Johnson
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Robert 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 associate
member of the National Community Reinvestment Coalition, I urge
you to
withdraw the proposed changes to the Community Reinvestment
Act (CRA) regulations. Since 1985, CRA has been instrumental to my
work in Rhode Island through increased access for homeownership,
boosting community economic development, expanding small businesses
in the state’s minority, immigrant and low- and moderate-income
communities. In addition, CRA has aid efforts for asset building
strategies in underserved neighborhoods across Rhode Island. Your
proposed changes are contrary to the CRA statute because they will
halt the progress made in community reinvestment in our state and
the country.
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.
The Community
Reinvestment Act has fostered collaborative partnership that have
resulted in
housing, community economic development, neighborhood
revitalization, IDA programs, financial literacy, new bank branches
and over asset building in underserved communities across Rhode Island.
Don’t allow twenty-seven years of struggle for access to credit
to disappear and become a historical footnote to financial services
in our nation. Thank you for your attention to this critical matter.
Sincerely,
Raymond Neirinckx
Coordinator
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