From: Mark Treskon [mailto:marktreskon@yahoo.com]
Sent: Tuesday, April 06, 2004 11:27 AM
To: Comments
Cc: jsilver@ncrc.org
Subject: Attention: Comments; Proposed changes to CRA
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th St NW
Washington DC 20429
April 6, 2004
Dear Mr. Feldman:
As a concerned member of the public I 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. 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 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. Thank you for your attention to this critical matter.
Sincerely,
Mark Treskon
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