Cleveland Neighborhood Development
Coalition
February 18, 2004
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th St., NW
Washington, D.C. 20429
Dear Mr. Feldman and To Whom It May
Concern:
I am writing on behalf of the Cleveland
Neighborhood Development Coalition to urge 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. In
Cleveland alone, from 1991 to 2002, over $4.6 billion in commitments
were made by area financial institutions in Neighborhood Reinvestment
Program Agreements, and from 1994 through 2000, over $3 billion in home
purchase, home improvement, small business community development lending
and community development investments were made by financial
institutions with CRA agreements with the city.
Your proposed changes are contrary to the
CRA statute because they will halt the progress that has been made in
community reinvestment. In fact, they are contrary to 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 harmful elements in proposed changes
include: streamlined and cursory exams for banks with assets between
$250 million and $500 million; and a weak predatory lending compliance
standard under CRA. In addition, the federal banking agencies did not
update procedures regarding affiliates and assessment areas in their
proposal, and therefore missed an opportunity to strengthen CRA’s
effectiveness given the recent and current changes in the financial
services industry.
Under 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, which 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 this number of banks translates into considerably less access
to banking services and capital for underserved communities. These banks
would no longer be held accountable under CRA exams for investing in Low
Income Housing Tax Credits, the provision of bank branches, checking
accounts, Individual Development Accounts, or debit card services – all
of which would weaken that Administration’s housing and community
development programs.
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.
Finally, the proposed changes do not
close existing 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 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 one positive proposed change involves
enhanced data disclosure. The federal agencies propose that they will
publicly report the specific census tract locations 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. This
change 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 has proved too valuable an instrument
of neighborhood revitalization to be undermined by proposed changes, and
the Cleveland Neighborhood Development Coalition strongly urges you to
withdraw them. Thank you for your consideration.
Sincerely,
Mary Helen Petrus
Director of Policy Development
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