Federal Deposit
Insurance Corporation

Robert E. Feldman
Executive Secretary
Attention: Comments, RIN 3064-AC97
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington DC 20429

Dear Regulators:

    Edgemont Neighborhood Coalition, Inc. wishes to comment on the proposed “Community Reinvestment Act;
    Interagency Questions and Answers Regarding Community Reinvestment.” There are many good things but
    there are also things that could be improved.

    EDGEMONT NEIGHBORHOOD COALITION, INC. 

Edgemont Neighborhood Coalition, Inc. is a nonprofit community organization located at 919 Miami Chapel Road, in Dayton, Montgomery County, Ohio. The group consists of residents of the Edgemont neighborhood, a low-income African American neighborhood in Dayton, who have associated in order to foster pride in their neighborhood and address the issues of crime, youth and adult joblessness, inadequacy of educational opportunities, affordability of utilities, and business and community development.

One issue of importance of the Edgemont Neighborhood Coalition, Inc. has been the availability of affordable financial services in the community. Edgemont has been active in Community Reinvestment Act activities in order that residents have access to mainstream financial services at mainstream prices, and not be relegated to high-cost “fringe lenders” such as payday lenders, “subprime” mortgage lenders, rent-to-own vendors and pawnshops.

In furtherance of these goals, Edgemont has commented on proposed regulations by federal agencies and has appeared as amicus curiae in court cases involving payday lending and predatory mortgage lending. Edgemont has been a party in proceedings in the Public Utilities Commission of Ohio, and has also cosponsored conferences concerning payday lenders and their effects on the community. Edgemont supports the work of the National Community Reinvestment Coalition and of the Community Reinvestment Institute Alumni Association here in Dayton.

In addition to being a community organization, Edgemont Neighborhood Coalition, Inc. functions as a small business, operating an office, community garden and community computer center.

LOCAL CONCERNS

Ohio is the center of the mortgage foreclosure epidemic, Montgomery County, Ohio, where we are located, leads the state in mortgage foreclosures. There were more than 4,300 foreclosures in Montgomery County in 2003, and nearly 4,000 filed through 2004, and 3888 to date in 2005. This is up 250% in six years.

Minority homeowners, particularly women and the elderly, in our community have frequently been the targets of predatory mortgage lending. Predatory mortgage lending is primarily found embedded in the subprime mortgage market. Even when subprime loans do not contain predatory features, their cost appears to be higher than is justified by the increased risk of loss that the lender faces. Freddie Mac also found that a good percentage of people who got subprime loans were eligible for prime loans. These features suggest that credit markets are segregated in practice and this segregation contributes to high loan cost.

Subprime mortgage lending is more prevalent in minority neighborhoods. A recent study by ACORN found that 23% of all refinance loans to African-Americans in the Dayton/Springfield area were made by higher cost subprime lenders, as opposed to 6% to whites. A study by the National Community Reinvestment Coalition found that African-Americans are more likely to get a subprime loan than whites even if the borrowers’ credit scores are the same.

The University of Dayton based study report “Predation in the Sub-Prime Lending marker: Montgomery County – 2001” examined of a random sample of mortgages associated with foreclosure filings and found that a significant minority of sub-prime loans involved with foreclosures exhibit interest rates or other features that are predatory in nature.

Studies from Pennsylvania and North Carolina showed that more than 20% of subprime mortgages will end in the filing of a foreclosure, and most of those will result in loss of a home. Foreclosed homes add to the problem of abandoned properties which blight the neighborhood and contribute to crime.

The Federal Reserve Board has found that the median value of financial assets for non-whites is only 1/5 of that of whites. The equity in a family home is the most common financial asset for African Americans. Unreasonably high cost mortgage loans attack the equity in the home, prevent upward mobility and ultimately can result in losing both the home and what the home means to the American dream.

Our neighborhoods also suffer from the proliferation of payday lenders who charge high interest rates for short term loans. They thrive in part because more reasonably priced lenders, including banks, are no longer as present in the neighborhood, and those who are do not offer reasonably priced small loans. A number of bank mergers have affected lenders with branches here, and their impact on access to financial services remains unclear.

The community is also in severe need of business development and jobs which businesses provide. Dayton has suffered job losses in the manufacturing and particularly the automotive areas. These job losses are expected to continue into the future. Business lending is an important part of neighborhood revitalization.

COMMENTS ON THE PROPOSED Q&A

THE NEED FOR COMPLIANCE WITH PREDATORY LENDING LAWS

We applaud your decision to add an anti-predatory provision to the CRA regulations that will penalize banks for illegal, abusive, and discriminatory loans. Predatory lending flourishes in the absence of banks. Moreover in many cases, rather than make fairly priced loans themselves, bank owners form conglomerates containing subprime lenders which may engage in predatory practices.

We therefore ask that you add a Question and Answer indicating that a bank will automatically undergo a fair lending exam to test for compliance with federal anti-predatory and anti-discrimination law when the bank or one of its affiliates makes a high concentration of subprime loans to minorities, the elderly, women, low-income borrowers or to communities recovering from natural disasters and experiencing shortages of credit.

The most effective way to expand access to credit to underserved borrowers is implementing rigorous and comprehensive CRA exams that maintain the focus on meeting the credit and deposit needs of low- and moderate-income borrowers and communities. If you are responsive to our comments on the proposed Question and Answers, CRA exams will become more rigorous.

LOW COST BANKING SERVICES AND BRANCHES

FOR LOW AND MODERATE INCOME CUSTOMERS

The proposed questions on community development services provide an important emphasis on low-cost banking services for low- and moderate-income consumers. Low-cost checking accounts, electronic transfers, and remittances provide critical alternatives to payday loans and other high cost fringe products. Low cost banking services enable low-income consumers to save and build wealth in contrast to usurious products that strip wealth. Once these proposed questions are finalized, we hope that the agencies provide CRA points for low cost banking services and also penalize banks on CRA exams for abusive products such as bounce protection, whose wealth stripping features are not advertised clearly to consumers.

We ask that you clarify the CRA exam criterion for mid-size banks with assets between $250 million to $1 billion that assesses their provision of services through branches and other facilities. You must clarify that this exam criterion includes an examination of the number and percent of branches in low- and moderate-income communities. Placing branches in low- and moderate-income communities is vital since a recent Federal Reserve study shows that racial disparities in high cost lending is less when banks conduct the lending through branches as opposed to using brokers.

PROMOTE MIXED INCOME HOUSING AND COMMUNITY DEVELOPMENT LOANS

We oppose the proposed question and answer that provides CRA points for financing middle- and upper-income housing developments in distressed rural middle-income census tracts. Elsewhere in the existing Question and Answer document and in your proposed questions, the agencies provide credit for mixed-income housing developments. Mixed-income housing helps to overcome segregation by income and is an activity worthy of CRA points if the housing contains a significant number of low- and moderate-income families. We therefore urge you to eliminate the possibilities of banks receiving significant CRA points for financing middle- and upper-income housing. We urge you instead to provide points for mixed-income housing.

We applaud your proposed question and answer that reiterates that mid-size banks must offer community development loans, investments and services. Mid-size banks cannot ignore one or more of these activities. We also recognize that qualitative factors on CRA exams can be important, but we ask that you add a provision to your proposed questions stating that qualitative factors will not be employed by examiners to excuse low levels of community development lending, investments or services.

NATURAL DISASTERS

The hurricane disasters of 2005 provide a test of society’s inclination and ability to help poor people and minorities who are the victims of natural disasters. Government must take the lead but much also must come from the private banking sector.

While our area is a long way from the Gulf Coast, it is subject to tornados that have damaged or destroyed nearby communities. We appreciate that the federal banking agencies have clarified how banks will receive favorable consideration in their Community Reinvestment Act (CRA) exams for financing community development activities in geographical areas impacted by natural disasters. While we are pleased that the federal agencies direct banks to focus on low- and moderate-income families in areas impacted by disasters, we are concerned that other proposed questions divert bank financing to middle- and upper-income housing. The agencies must implement CRA in a manner that maintains the law's central objective of ending redlining and expanding access to credit for low- and moderate-income families and communities.

We are pleased that the agencies are proposing that banks will receive points on their CRA exams for financing community development in geographical areas impacted by disasters for up to one year after the expiration of official federal or state designation of disaster status. Community development financing takes considerable time to plan and implement, meaning that the one year of additional time is important for geographical areas like the Gulf Coast region that have been devastated by natural disasters. We also applaud the agencies for providing more "weight" or credit to community development activities that are most responsive to the needs of low- and moderate-income individuals that have been impacted by the natural disaster. Your proposal to provide CRA points for investments that benefit families displaced by disasters promises to be very beneficial to areas receiving a large influx of families resettling in the wake of Hurricane Katrina and future natural calamities.

Thank you for consideration of our comments.

Sincerely,
Stanley A. Hirtle
Attorney for Edgemont Neighborhood Coalition
Advocates for Basic Legal Equality
333 W. First St. #500
Dayton OH 45402