| Neighborhood Reinvestment Corporation
April 5, 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 N W
Washington DC 20552
Dear Officials of Federal Bank and Thrift Agencies:
In accordance with the request for comments regarding the Advance
Notice of Proposed Rulemaking (ANPR) Regarding the Community
Reinvestment Act of 1977, published in the Federal Register on April 18,
2004, the Neighborhood Reinvestment Corporation submits the following
comments for consideration.
Background Information Regarding the Neighborhood Reinvestment
Corporation:
The Neighborhood Reinvestment Corporation is a public nonprofit
corporation established by an act of Congress in 1978 (P.L. 95-557).
Neighborhood Reinvestment’s mission is to strengthen distressed
urban, suburban and rural communities across America, through a national
network of local community-based partnership organizations composed of
community residents, private sector and local government entities –
known collectively as the NeighborWorks® network.
In pursuing its mission, Neighborhood Reinvestment:
• provides technical assistance, training, information services and
other resources and funding (that is leveraged many times over by
private sector funding) to its affiliated NeighborWorks® network
members, and also provides training, information services and other
resources to the broader community development industry;
• coalesces public and private support for local, regional and national
community reinvestment efforts;
• contributes to public policy discussions concerning affordable housing
and other means of transforming communities and improving the lives of
lower-income families; and
• monitors changes in the field, assesses the need for new approaches,
and initiates research or programmatic initiatives to address those
needs.
The NeighborWorks® network founded by Neighborhood Reinvestment has
evolved to an impressive network of 228 locally-directed nonprofit
organizations working to expand affordable housing opportunities and
support community revitalization efforts in more than 2,500 communities
across the United States -- in 49 states, the District of Columbia and
the Commonwealth of Puerto Rico. NeighborWorks® organizations operate in
our nation’s largest cities and in some of its smallest rural
communities. In FY 2004 alone, the NeighborWorks® network will generate
more than $2.2 billion in direct reinvestment in distressed communities
across the nation.
The following comments are informed by our experience in working with
these local NeighborWorks® organizations and their local, regional and
national lending partners.
Comments Regarding the Proposed Rule:
The creation of the Community Reinvestment Act in 1977 has spurred many
positive developments for the community development field. As a direct
result of this act, regulated financial institutions have produced
innovations in lending, investment and services, evidenced by billions
of dollars in additional lending activity. Some of the financial
institutions that now provide an impressive level of lending activity in
support of affordable housing and community revitalization were not
previously involved in activities that promoted community reinvestment
prior to the promulgation of CRA regulations, and now are willing and
able participants in programs that are economically sound.
Our affiliated NeighborWorks® organizations agree that the Community
Reinvestment Act has been effective in encouraging banks and thrifts to
provide vital capital to under-served communities. More specifically,
Neighborhood Reinvestment and its affiliated NeighborWorks organizations
have seen a substantial positive change in the flow of capital to
previously under-served communities and populations resulting from the
regulatory changes to CRA promulgated in the early 1990s. Mortgages,
home equity and home rehabilitation loans are more available in the
low-income communities served by NeighborWorks® organizations, as are
credit card, automobile and personal loans.
However, while the availability of credit for lower-income and
minority families has grown, the credit is often provided by subprime
lenders, at a high cost -- and an increasing number of 'predatory
lenders' have entered this market aggressively. NeighborWorks®
organizations are experiencing an increase in the number of consumers
seeking assistance after they have fallen victim to predatory lending
tactics, such as home refinance with excessive fees that strip the
homeowners of their hard-earned equity or tax-refund anticipation loans
that charge exorbitant interest rates and fees. For years, NeighborWorks®
organizations have looked to the Community Reinvestment Act to reinforce
the commitments of regulated institutions toward serving the capital
needs of low and moderate-income communities and populations. Clearly,
any regulatory changes that may be seen as having the potential to
'erode' the effectiveness of CRA would be cause for significant concern.
Toward that end, we offer the following thoughts and observations
regarding the Advance Notice of Proposed Rulemaking.
Abusive Lending Practices
We applaud the regulatory agencies for specifically stating that
predatory lending activities of financial institutions or the
institutions’ affiliates would adversely affect their CRA performance
evaluations. We believe that this change will send a clear message that
the financial regulatory agencies are paying close attention to this
issue, and will help reduce the level of delinquencies and foreclosures
brought on by abusive lending practices in the distressed communities
served by NeighborWorks organizations.
However, we would encourage the regulatory agencies to consider
widening the definition of predatory lending practices. In the
experience of NeighborWorks® organizations, many of the predatory
lending tactics involve excessive fees or unnecessary products that
serve only to reduce the already-limited assets of low-income families.
Definition of Small Institutions
This proposed change would change the performance standards for banks
and thrifts with assets between $250 and $500 million. Many of our
affiliated NeighborWorks® organizations have developed strong
partnerships with these small- to medium-sized institutions, and our
affiliates have expressed concern about the future of these
relationships if the proposed CRA changes were enacted.
The issue is particularly relevant for organizations serving rural
communities and small towns. NeighborWorks organizations have spent many
years cultivating their partnerships with the small- to medium-sized
financial institutions, and they are concerned that the proposed rule
could allow their financial institution partners’ interests in community
reinvestment to fade, and negatively affect low-income families and
communities. One affiliate serving upstate New York, (Rural
Opportunities, Inc.) has estimated that 46 of the 270 banks serving
upstate New York would be defined as small institutions, under the
proposed rule. If this proposal passed, and the affected financial
institutions interpreted this change to represent a reduction in the
commitment of the regulatory agencies to monitor their performance under
CRA, New York communities could potentially lose billions in capital
annually that has historically been stimulated by CRA.
Neighborhood Reinvestment recommends that if this change in
definition is finalized, the financial regulatory agencies issue a
strong statement indicating that this change will be re-visited if there
is any appreciable reduction in the lending, investment and services
traditionally provided pursuant to CRA.
Financial Services Landscape
We would also like to take this opportunity to comment briefly on an
important CRA-related issue not addressed in the Advance Notice of
Proposed Rulemaking.
Clearly, the financial services industry and environment have changed
dramatically since the Community Reinvestment Act was enacted in 1977,
as institutions’ assets have grown substantially and many banks and
thrifts have consolidated, and increasingly financial services are
offered over the internet. As important as the current CRA regulations
are, these and other changes sweeping over the financial services
industry could make the current CRA regulations less and less relevant
over time. For example, while financial services offered over the
internet serve consumers on a truly national basis, these institutions
are only held accountable under CRA for investment in the location of
their corporate headquarters (or their defined 'service area'). As this
trend continues, it provides previously unavailable opportunities for
financial institutions to manipulate or 'game' the system on which their
CRA rating is based. We know that this is a knotty problem and that the
financial regulatory agencies have been considering the implications of
the trend toward internet banking and loan origination. As the internet
continues to serve the financial needs of increasing numbers of
consumers, we simply want to encourage the regulators to continue to
consider the implications of this trend on CRA.
Conclusion
The Community Reinvestment Act has been a vital element in stimulating
community reinvestment across America. We appreciate the need for
regulations to keep pace with the changing marketplace, and we thank you
for your consideration of these comments and for your efforts on behalf
of underserved communities and households across America.
Please feel free to contact me (at 202-220-2410 or by email at kwade@nw.org)
or Steven Tuminaro, Director, Public Policy and Legislative Affairs (at
202-220-2415 or by email at stuminaro@nw.org) with any questions or
concerns you may have regarding these comments.
Sincerely,
Kenneth D. Wade
Executive Director
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