NEIGHBORS HELPING NEIGHBORS INC.
From: Lisa-Nicolle Grist
[mailto:ln.grist@nhnhome.org]
Sent: Saturday, April 03, 2004 1:13 PM
To: regs.comments@occ.treas.gov; regs.comments@federalreserve.gov;
Comments;
regs.comments@ots.treas.gov
Cc: Josh Silver; Okoniewski, Julie
Subject: Proposed changes to CRA
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
April 3, 2004
Dear Officials of Federal Bank and Thrift Agencies:
I urge you to withdraw the proposed changes to the Community
Reinvestment Act (CRA) regulations. The proposed changes to CRA do not
serve a public purpose because they will neither protect the rights of
individuals nor measure the performance of corporations. The financial
services industry receives tremendous benefits from public policy; in
return it must be held accountable for serving the public.
Neighbors Helping Neighbors Inc. is a Sunset Park-based advocacy
organization serving tenants, homebuyers, and owners of small properties
and small businesses. NHN's mission is to enable low- and
moderate-income people to build assets for their families and Brooklyn
communities by securing, improving and owning their homes and
businesses. Founded by community residents in 1990, NHN focuses on the
Latino community and is open to everyone. With a staff of 10 and a
budget just over $500,000, NHN serves over 1500 families per year.
Through NHN's core programs,
* low-income tenants retain and improve their homes,
* low- and moderate-income people succeed in purchasing affordable
first homes,
* homeowners repair their homes and resolve mortgage delinquencies,
* local shopping streets become good places to conduct business,
work, shop and live, and
* community members enjoin policy makers to preserve and create
affordable housing.
NHN's work gives me special perspective and reasons for concern about
the proposed changes to the Community Reinvestment Act. Deregulation and
modernization in the financial services industry have grossly increased
the information and power advantages that corporations wield over
consumers, taxpayers and citizens. People in our community have
particularly felt the impact of predatory and abusive lending practices.
The home is the base from which families climb the socio-economic
ladder; it is a key to health, educational achievement, business
opportunities and intergenerational wealth. At NHN we work both to
prevent and to remedy the long-term damage caused by unfair financial
practices that slow, stop or reverse the efforts of disadvantaged
communities to build assets and advance the quality of their lives.
NHN is a member of city, state, and national nonprofit coalitions
that help inform us about the proposed changes to the Community
Reinvestment Act. I have carefully and critically examined the
information they provided, and agree with much of it. The following
excerpts and paraphrases are the significant points that shaped my
opinion of the proposed changes to the Community Reinvestment Act; I
hope these points will also influence your decision.
* Predatory Lending Standard. 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 in which equity is stripped but the
homeowner is able to avoid delinquency or foreclosure. This narrow
definition excludes the most common practices of high fees, prepayment
penalties and loan flipping. 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.
* The financial services industry strenuously reminds us about the
difference between sub-prime and predatory lending. However, the
likelihood of abuse at every level is great, and the ability of
consumers to protect their interests is small. Therefore any change in
public policy should significantly increase the industry's
accountability, and the proposed changes are clearly inadequate. To
emphasize this point I paraphrase from a recent Harvard report:
All too often lower-income and minority communities are distinctively
different mix of products from the mainstream. As a result of this dual
market structure, many lower-income consumers take on mortgage debt that
they cannot afford and may not even need. In addition, some borrowers
are "pushed" into accepting a 'higher-cost" subprime mortgage, even
though they have a credit history, income, or other factors that would
enable them to qualify them for a "lower- cost" prime loan. These
disturbing trends raise questions about the ability of current consumer
protection legislation to actually protect consumers from abusive
lending. Potential borrowers are often not up to the challenge of
protecting their own interests in the mortgage marketplace. The result
is a misallocation and mispricing of mortgage capital. And in extreme
cases, the current mortgage structure fosters elevated levels of
mortgage foreclosures that threaten the stability of the already weak
neighborhoods CRA exams should punish abusive lending, and the proposed
changes will not do this. 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.
* 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.
* Enhanced data disclosure. Reporting the specific census tract
location of small businesses receiving loans will improve the ability of
the general public to determine if banks are serving traditionally
neglected neighborhoods with small business loans. Reporting separately
purchases from loan originations on CRA exams and separately reporting
high cost lending (per the new HMDA data requirement starting with the
2004 data) will also be helpful. But 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
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. CRA makes capitalism work better for all
Americans. CRA is too vital to be gutted by harmful regulatory changes
and neglect.
Thank you for considering my comments.
Sincerely,
Lisa-Nicolle Grist
Lisa-Nicolle Grist, Chief Executive Officer
Neighbors Helping Neighbors, Inc.
443 39th Street, suite 202
Brooklyn NY 11232
718-686-7946 x 11
mailto:ln.grist@nhnhome.org
website: www.nhnhome.org
Cc: National Community Reinvestment Coalition
President George W. Bush
Treasury Secretary John W. Snow
Congresswoman Nydia M. Velázquez
