Local
Economic & Employment Development [LEED] Council
From: Ted Wysocki [mailto:tedwysocki@prodigy.net]
Sent: Friday, March 26, 2004 6:54 PM
To: Comments
Subject: CRA Comments
March 26, 2004
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th St NW
Washington DC 20429
Dear Mr. Feldman:
As a member of
the National Community Reinvestment Coalition and a former member
of the Federal
Reserve Board’s Consumer Advisory
Council, 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.
Oppose
Proposal for Streamlined and Cursory Exams.
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. 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 Standards Inadequate
The proposed CRA changes also 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.
Support
Enhanced Small Business Loan 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.
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.
Don’t
Undercut CRA!
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. Reconsider your proposed changes and issue new rules that
will make CRA more effective.
Sincerely,
Ted Wysocki
President & CEO
Local Economic & Employment Development [LEED] Council
Chicago, IL
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