Affirmed Housing Group
March 3, 2004
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th St NW
Washington DC 20429
RE: Comments Regarding Revisions to the Regulations Implementing
the CRA
Dear Officials of Federal Bank and Thrift Agencies:
Affirmed
Housing Group urges you to withdraw the proposed changes
to the Community Reinvestment Act (CRA) regulations. CRA has been
instrumental in increasing access to homeownership, developing multi-family
housing, boosting economic development, and expanding small businesses
in the nation's minority, immigrant, and low- and moderate-income
communities. Low income and people of color communities have utilized
CRA to abolish redlining and discrimination in their communities.
CRA obligates banks and thrifts to serve all communities in which
they are chartered and from which they take deposits.
The proposed
changes include three major elements: 1) increase the asset threshold
from $250 million to $500 million for banks to
be eligible for a small bank exam; 2) establish a weak predatory
lending compliance standard CRA; and 3) expand data collection
and reporting for small business lending and home lending. The
beneficial impacts of the third proposal
are overwhelmed
by the damage imposed by the first two proposals.
Additionally, Affirmed
Housing Group does not agree with the federal
banking agencies rejection of a proposal which would have tied a
bank's CRA obligations to its market share in a given area rather
than just the location of its branches. In California, Countrywide
Home Loans and JP Morgan Chase are two such entities that despite
the high number of loans made in the state have no CRA obligations.
The agencies also failed communities by continuing to allow banks
to elect to include affiliates on CRA exams at their option. Financial
institutions have the ability to 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.
Small Bank 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 will also no longer reference
affiliations with holding companies. It is expected that these proposed
changes Would create streamlined and cursory exams for 1,l 1 1 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, New Market Tax Credits and equity
investments in Community Development Financial Institutions (CDFIs).
Such investments have promoted economic development and multi-family
affordable housing development. Banks in this new category would
no longer be held accountable for the provision of bank branches
and checking/deposit accounts. Many banks with assets between $250
to $500 million are located in rural areas. Many rural banks as well
as a large subset of depository institutions will no longer be required
to have a continuing and affirmative obligation to serve the investment
and deposit needs of all the communities in which they are chartered
and from which they take deposits.
Predatory Lending
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 creates a de-facto definition
of predatory lending without taking into account other predatory
tactics. These tactics include: 1. Targeting of minorities, low-income.
and the elderly for sub-prime lending; 2. Originating sub-prime
loans to borrowers that could qualify for prime loans: 3. Prepayment
penalties; 4. Encouraging borrowers to refinance unsecured debt
as a means of increasing the loan size and related point, fees,
and commissions; 5. Selling of single credit insurance products
as part of the home loan; 6. Mandatory arbitration provisions;
7. Excessive points and fees; 8. Yield spread premium payments
or other compensations that rewards brokers for steering borrowers
to higher cost products and larger loans; and 9. Purchasing and
investing in predatory loans as part of a mortgage backed security.
Any standard that does not address the aforementioned nine tactics
will allow CRA exams to be used to cover up predatory lending practices.
Rigorous fair lending audits and severe penalties on CRA exams for
abusive lending are necessary in order to ensure that low income
and people of color borrowers are protected.
Enhanced Data Disclosure
The federal agencies propose for banks to publicly report the specific
census tracts of small businesses and small farms 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 and communities. 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 are requiring that
the information regarding small business and small farm lending be
contained in the Disclosure Statement but would not necessarily use
the data to lower ratings on CRA exams. Also data reporting on loan
purchases, originations and high cost loans will not impact a CRA
rating.
Conclusion
The proposed changes 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. Full compliance
with CRA regulations needs to occur where lending and profit making
activities take place in substantial proportion. 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 gives
ordinary the citizens the opportunity to have a voice regarding
a bank's lending. investment and service components CRA is too
vital to be gutted by harmful regulatory changes and neglect. Thank
you for your attention to this critical matter.
Sincerely
James Silverwood
President
Affirmed Housing Group
Escondido, CA
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