|
NON-PROFIT HOUSING ASSOCIATION OF NORTHERN CALIFORNIA
February 26, 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
RE: Comments Regarding Revisions to the Regulations Implementing the
CRA
Dear Officials of Federal Bank and Thrift Agencies:
The Non-Profit Housing Association of Northern California (NPH) 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.
The membership of NPH, currently about 500, draws together the main
public, private, and non-profit partners active in the creation and
support of affordable housing for low-income people in Northern
California. Many of our members work in low-income communities and
communities of color which have utilized CRA to abolish redlining and
discrimination in their communities.
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 under 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, NPH 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 1,111
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, 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,
Dianne J. Spaulding
Executive Director
369 Pine Street, Suite 350
San Francisco, CA 94104
|
