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Metropolitan Milwaukee Fair Housing Council
March 30, 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 Regulatory Agencies:
I am writing to express the concern of the Metropolitan Milwaukee
Fair Housing Council (MMFHC), regarding the proposed changes to the
Community Reinvestment Act (CRA). We join with the National Community
Reinvestment Coalition (NCRC) and colleagues across the country in
urging you to reject the proposed changes to the CRA regulations because
we believe they will reduce bank investment and services in low- and
moderate-Income communities.
MMFHC is a 26 year-old private nonprofit organization which works to
promote fair housing throughout the State of Wisconsin by guaranteeing
all people equal access to housing opportunities, and by creating and
maintaining racially and economically integrated housing patterns.
MMFHC’s Community and Economic Development Program works in the arenas
of fair lending, fair growth, and affordable housing. Our fair lending
activities focus on helping to connect lenders with opportunities for
investment in central city neighborhoods, monitoring banks’ CRA
performance, and placing a special emphasis on counteracting the work of
predatory lenders.
Here in Milwaukee, indeed in communities across Wisconsin, and many
other communities around the country, we have seen that CRA has been
instrumental in increasing lending and investing. The results of the
positive changes to the CRA regulation in 1995 have been significant. In
Milwaukee, WI, CRA has made possible a wide variety of projects,
including affordable single family and duplex in-fill developments like
the Beauchamp Townhomes, Lindsay Heights, and City Homes; multifamily
rental developments like King Heights, and commercial revitalization in
our downtown, and near north, south and west side neighborhoods.
Additionally, we have seen CRA nudge lenders toward significant
efforts to reach previously underserved populations with mortgage and
home repair loan products, helping people of color and lower income
people become homeowners and remain as homeowners. As they begin to make
more of these loans, the lenders are finding that they have uncovered a
whole new profitable market. But many lenders still need that nudge, and
many lenders, including the smaller ones, still need more than a nudge
to serve the entire population of their assessment areas – not just the
more affluent folks.
Besides decreasing lenders’ attention to lower income communities,
MMFHC is concerned that the proposed CRA changes will thwart the
Administration’s efforts to improve the economic status of immigrants
and create 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.
While we are in full support of expanding data collection and
reporting for small business and home lending, the good aspects of that
proposal are overwhelmed by the proposal for an alarmingly weak standard
for predatory lending compliance and the damage imposed by the proposal
to provide streamlined and less stringent exams for banks with assets
between $250 million and $500 million. In addition, MMFHC is concerned
that 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.
Predatory Lending Standard As the coordinator of “Strategies to
Overcome Predatory Practices” (STOPP), a component of MMFHC’s Community
and Economic Development (CED) Program, the Metropolitan Milwaukee Fair
Housing Council is very familiar with the issues surrounding predatory
lending. Utilizing a coalition of community-based organizations, housing
industry representatives and government to identify and eliminate
predatory lending practices throughout Milwaukee County, STOPP helps
victims of predatory loans via its hotline, which hooks up borrowers
with financial and homeowner counseling, legal counsel, and access to
“good loans” from good lenders. Additionally, the STOPP legislative
workgroup has examined state and national legislation designed to
protect borrowers from predatory lenders and is very aware of the
lending industry’s concerns about additional regulation.
We are pleased to see that the regulators are attempting to address
the predatory lending issue. However, the proposed CRA changes set an
alarmingly low standard for what would be considered a predatory loan.
If the changes go through, banks with unconscionable loans could point
to the low standard and claim that they are not involved in predatory
lending. The proposed CRA changes contain an anti-predatory screen that
will actually perpetuate abusive lending.
CRA exams would 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, balloon payments, and many 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 served by the Administration are protected, but the
proposed predatory lending standard will not provide the necessary
protections.
In addition, MMFHC strongly agrees with the National Community
Reinvestment Coalition that 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.
Exempting banks and thrifts with $250 to $500 million in assets If
the proposed changes are enacted for banks and thrifts with assets
between $250 and $500 million, the investment and service parts of the
CRA exam would be eliminated on 36 out of the 311 banks located in
Wisconsin, and their requirement to do community development lending
would go away. This is 11.6% of all banks located in WI. These 36 banks
have $12.5 billion in assets. Across the country, 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.
Enhanced data disclosure MMFHC agrees with the proposal to 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. That change should dramatically improve
the ability of the general public to determine if banks are serving
traditionally neglected neighborhoods with small business loans. The
proposal to separately report purchases from loan originations on CRA
exams and separately report high cost lending should be used to give
examiners the data necessary to enable them to provide less weight on
CRA exams to high cost loans than prime loans and assign less weight for
purchases than loan originations.
Other Exam Procedure Updates Necessary 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.
In summary, MMFHC believes that the proposed changes to CRA will
directly undercut the Administration’s emphasis on minority
homeownership and immigrants’ 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 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,
William R. Tisdale
President and CEO
Metropolitan Milwaukee Fair Housing Council
600 E. Mason St., #200
Milwaukee, WI 53202
Cc: President George W. Bush
Treasury Secretary John W. Snow
National Community Reinvestment Coalition
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