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ALEXANDRIA AFFORDABLE HOUSING CORPORATION
From:
NGrandquis@aol.com [mailto:NGrandquis@aol.com]
Sent: Sunday, September 12, 2004 9:29 AM
To: Comments
Cc: kenb@EFEDCU.ORG
Subject: RIN 3064-AC50 Comments on Proposed Regulations
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th St. NW 20429
RE: RIN 3064-AC50
Dear Mr. Feldman:
As a member of the National Community Reinvestment Coalition and
Board president of the Alexandria Affordable Housing Corporation, I urge
you to withdraw your proposed changes to the Community Reinvestment Act
(CRA) regulations and follow the example of the Federal Reserve Board
(FRB) and the Office of the Comptroller of the Currency(OCC). Last year,
I served as a US Department of Treasury/New Market Tax Credit
Reader/Reviewer and CRA ratings are a consideration in the scoring
criteria which makes retaining the three part performance based test
even more important. Also, to proceed defining banks with assets of up
to $1 billion as "small" and to exempt them from the three way test I
see as essentially turning back the clock 37 years to an era where
redlining and exclusionary lending practices were prevalent. I know the
FDIC does not want to risk a return to those times and since there are
now many profitable loans, investments and services available to banks
in this regard and demand is increasing.
During my six year tenure as Community Investment Officer of a
FHLBank (that covered 5 states) I found that financial institutions with
assets of $1billion or more typically have entire Community Investment
departments that have developed CRA lending as a market niche. They know
how to manage loans, services and investments as a valuable profit
center. However, banks with assets between $250 million and $1 billion
generally do not have community investment departments and need the
current three way tests to encourage them to develop this expertise and
participate in economic development projects, particularly, in rural
areas. If they are given the option of choosing just one community
development criterion (and a simplified choice at that) they will not
have this incentive and I believe there will be a significant reduction
in loans/services/ investments most noticeable in rural areas where the
needs are still pronounced.
It is hard to understand why the Agency has proposed such regulations
when it has been demonstrated that all three components are not only
safe and sound business practices but actually enhance a bank's Return
on Equity (ROE). In addition, I recall the time and effort the Federal
Reserve put into developing these performance based CRA regulations
sometime ago and see no reason why that effort should just apply to
banks with assets over $1 billion when it is clearly needed and has been
effective in mid sized banks. The positive impact of CRA has been
quantified and empirically verified by the Joint Center for Housing
Studies at the JFK School of Government, Harvard University (contact
Nicolas P. Retsinas/former HUD/FHA Commissioner) so the proposed
revisions could actually halt the progress that has been made.
Additionally, the current regulations clearly pose no burden on these
banks as the overwhelming majority of their CRA ratings are satisfactory
or better.
The three part performance based CRA tests have resulted in increased
homeownership, expanded economic development partnerships and small
business start ups all over the country and especially in the Nation's
minority, immigrant, and low-and moderate-income communities. The
proposed regulations will encourage activity that is easiest for the
bank instead of encouraging them to seek out the full range of
profitable CRA opportunities available. Specifically, the proposed
community development criterion could result in significantly fewer
loans and investments in affordable rental housing, Low-Income Housing
Tax Credits, community service facilities such as health clinics, and
economic development projects.
It will be too easy for a midsize bank to demonstrate compliance with
a community development criterion by spreading around a few grants or
sponsoring a few homeownership fairs rather than engaging in a
comprehensive effort to provide the community development loans,
investments, and services currently required. The elimination of the
service test could, also, have harmful consequences for low-and
moderate-income communities. CRA examiners will no longer expect midsize
banks to maintain and/or build bank branches in low-and moderate-income
communities. Midsize banks will no longer need to make sustained efforts
to provide affordable banking services, and checking and savings
accounts to consumers with modest incomes. They would no longer have an
incentive to respond to the growing demand for services needed by
immigrants such as low cost remittances overseas.
Also, it would appear that the revisions could take banks that have a
number of branches “off the hook” for placing new and more importantly
maintaining branches in low-and moderate-income communities. As I
understand the data, all banks regulated by the FDIC with assets under
$1 billion currently have 18,811 branches and FDIC supervised banks with
assets between $250 million and $1 billion in assets have 7,860
branches. If a bank's corporate headquarters opted to and the bank chose
to satisfy the criterion in another manner a significant number of these
branch banks in lower income neighborhoods could be closed if the
service test is eliminated. This could have a devastating impact on
smaller communities and neighborhoods that need increased services not
less.
Another area of concern, is the elimination of the small business
lending data reporting requirement for midsize banks. Midsize banks with
assets between $250 million and $1 billion will no longer be required to
report small business lending by census tracts or revenue size of the
small business borrowers. Without data on lending to small businesses,
it is impossible for the public at large to review a bank's
responsiveness to the credit needs of minority-owned, women-owned, and
other small businesses. Data disclosure has been a key factor for
increasing access to credit for target groups precisely because it is
publicly disclosed and banks know the can claim CRA credit for it.
Congressman Richard Baker stated in a speech for the Federal Housing
Finance Board that, "America was built on the backs of small
businesses," and I am confident the FDIC's intent is not to promulgate
regulations that could have the effect of decreasing access to credit
for women and minority owned small businesses.
Lastly, I do not understand why the proposed regulations state that
community development activities in rural areas can benefit any group of
individuals instead of only low-and moderate-income individuals. Since
there are a number of rural residents that are affluent, the proposed
revisions could have the unintended effect of diverting community
development activities away from the low-and moderate-income rural
communities/consumers that CRA targets. As I read it, loans banks make
to affluent individuals, just because they reside in rural communities,
would meet the CRA test and no other lending, services or investments
would be required of the bank (even if there is no benefit to a low
income community which they currently get CRA credit for). That means
what would be left over for low-and moderate-income rural residents are
the crumbs of a shrinking CRA pie of community development activity and
no incentive for banks to seek out or participate in profitable lending
opportunities that benefit targeted groups most in need.
In sum, it would appear the proposed regulations are ill advised at
this time and serious consideration ought to be given to withdrawing
them. As mentioned previously, two other regulatory agencies, the FRB
and the OCC, did not propose regulations for the banks they regulate
because they recognized the potential harm they could cause. Thus, I ask
the Agency to follow their example and pray you do not go forward with
the proposed regulations until you have had ample time to study the
negative impact on the economy that would be generated. I appreciate the
opportunity to comment and know the intent was not to encourage banks to
return to exclusionary lending practices of the 1970s but was simply a
case of misinformation regarding the effectiveness of CRA. A study of
data clearly demonstrates the value of CRA loans/services/investments
add not only to communities' economic health but to a bank's bottom
line.
Sincerely,
Nancy Grandquist Fields
Nancy Grandquist Fields, Board Chair/president
Alexandria Affordable Housing Corporation
2558 Loblolly Lane
Alexandria, Louisiana, 71303
Tel: 318.442.7458
Cell: 318.308.1116
Fax: 318.442.7141
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