|
Woodstock Institute in Chicago
From: Menon, Shashi [mailto:SMenon@Lakefront.org]
Sent: Tuesday, April 06, 2004 10:06 AM
To: 'regs.comments@occ.treas.gov'; 'regs.comments@federalreserve.gov';
Comments; 'regs.comments@ots.treas.gov'
Subject: Comments on changes to CRA
Dear Officials of Federal Bank and Thrift Agencies,
I am writing from the Woodstock Institute in Chicago to comment on
the proposed changes to the regulation of the Community Reinvestment
Act. Woodstock Institute is a Chicago-based non-profit research and
advocacy group that has focused on community reinvestment policy for
over 30 years. We feel that the proposed changes to the CRA regulation
will significantly roll back policy essential for community reinvestment
and misses a critical opportunity to close loopholes and modernize the
CRA regulation.
Small Bank Limits
The proposed CRA regulation would change the definition of "small
bank" from any institution with less that $250 million in assets and not
part of a holding company with over $1 billion in assets to include all
institutions with less than $500 million in assets regardless of holding
company size. This change will dramatically increase the number of banks
considered "small" that, for CRA purposes, are not examined for their
levels of community investment and services under the streamlined small
bank CRA examination. This will disproportionately effect rural
communities and small cities where smaller institutions have significant
market share. In Illinois, it will reduce the number of institutions
covered by the comprehensive CRA exam by 63 percent, from 198 banks to
74. However in rural areas or small cities, the number of institutions
covered by comprehensive CRA will decline by nearly 73 percent. In these
communities, already struggling, banks will be less compelled to provide
innovative investment opportunities and services. Additionally, these
banks will no longer be required to report small business lending data.
This will significantly reduce available data on small business lending
despite the fact that it has been shown that small banks have a larger
share of their lending dedicated to small businesses than larger banks.
Another concern is that by removing the holding company threshold
from the definition of small bank, regulators will not only reduce the
number of institutions covered by comprehensive CRA, but also have
created a potential loophole for large holding companies to exploit when
trying to evade CRA compliance. This change raises the possibility that
large holding companies will re-form their banking subsidiaries as a
series of local "small banks" to avoid comprehensive CRA examinations.
In the Chicago area, such an institution already exists. Harris Trust
and Savings currently has 26 separately chartered institutions in the
Chicago area totaling over $30 billion in assets. Of these institutions,
19 would be considered "small" under the new CRA regulation despite
being part of Bancmont Financial Corp, a holding company with over $39
billion in assets in the United States. Of those Harris institutions not
covered, at least three serve communities with significant low-income or
minority populations. Although we do not feel that Harris has structured
its holding company to evade CRA compliance, we feel that holding
companies could use this structure as a model to avoid significant
compliance with CRA.
Woodstock feels expanding the definition of "small bank"
disproportionately harms rural communities and creates a loophole for
larger financial institutions to exploit in getting around full CRA
compliance.
Affiliate Lending and Assessment Areas
Regulators missed a significant opportunity to modernize CRA by not
requiring affiliate lending to be considered in CRA exams. As bank
holding companies increasingly use non-bank lenders to originate
mortgages, it is critical that all lending affiliates be required to
report lending in an institution's CRA exam. As currently structured,
the CRA regulation allows banks to choose which affiliate loans in a
given assessment area they want to apply toward the lending test. This
allows institutions to cherry pick the best lending affiliates for each
assessment area and exclude affiliates in assessment areas where those
affiliates might not be adequately serving the community. As holding
companies increasingly acquire non-bank lenders, often subprime lenders,
it is critical that this loophole be closed and all lending affiliates
be considered in CRA exams.
Additionally, we were disappointed to see that there was no change to
how assessment areas are considered. As technology and regulatory policy
has advanced to allow financial institutions to conduct business through
channels other than traditional branches, CRA has not advanced with it.
For example, a recent Woodstock Institute publication illustrates that
insurance banks conduct over 75 percent of their lending outside of
their CRA assessment areas. To have this level of lending not fully
considered in an institution's CRA exam gives banks another loophole to
exploit in evading full CRA compliance.
Predatory Lending Standard
By mirroring the OCC and setting a weak anti-predatory lending
standard, regulators missed a significant opportunity to make a strong
statement about predatory lending. The proposed standard allows that
loans originated based on foreclosure value of collateral rather than
borrower ability to repay can negatively affect a bank's CRA exam. This
standard misses numerous predatory practices such as packing exorbitant
fees onto mortgage loans, loan flipping, charging high prepayment
penalties, and mandatory arbitration that can strip equity from
homeowners and trap borrowers in abusive loans. Regulators should apply
a strong predatory lending standard to bank loans and to loans made by
affiliates.
Data Disclosure
We welcome additional data disclosures on CRA exams, but feel the
data need to be more fully considered in evaluations to be truly
effective. Reporting the census tract location of an institution's small
business loans will allow for greater understanding of how banks serve
traditionally underserved communities. However, the benefit of this
additional data is partly offset by loss of data for banks that would be
considered "small" under new criteria. These lenders are significant
providers of small business loans, and the loss of this data will create
a significant gap in available data. Additionally, adding data to CRA
exams to differentiate between the share of bank and affiliate loans
that are originated and purchased and those which are high interest rate
and HOEPA loans is also positive step, but these loans should not be
weighted equally. Originated, lower interest rate, and non-HOEPA loans
should be given more weight.
Woodstock Institute welcomes the additional data disclosures, but
feels that proposed changes undermine the mission of community
reinvestment by creating loopholes for financial institutions to exploit
to evade significant CRA compliance. We also feel regulators missed a
significant opportunity to modernize CRA to reflect the reality of how
financial services are provided today. We urge you to reject the
proposed changes to the definition of small banks; adopt a more
inclusive policy toward affiliate lending and assessment areas;
strengthen the proposed predatory lending standard; and maintain the
data disclosure proposal.
Sincerely,
Shashi Menon
Training & Education Manager
Lakefront Supportive Housing
312 913 0800 x 235
|
