NATIONAL FAIR HOUSING ALLIANCE
April 6, 2004
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
Dear Ms. Johnson:
On behalf of
the National Fair Housing Alliance’s Board and
members nationwide, I urge you to withdraw the proposed changes to
the Community Reinvestment Act (CRA) regulations and to offer instead
changes that would improve and expand CRA. 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. The proposed changes will
work against the statute’s intentions by impeding community
development and investment.
The National Fair Housing Alliance (NFHA), a consortium of 100
private, non-profit fair housing organizations, state and local
civil rights groups, and individuals, was founded in 1988 to lead
the battle against housing discrimination. NFHA works to ensure
equal housing opportunity for all people through leadership, education
and outreach, membership services, public policy initiatives, advocacy,
and enforcement. NFHA and its members are dedicated to assuring
that communities have equal access to credit and related services.
The proposed
CRA changes are contrary to the Administration’s
goals of improving the economic status of immigrants and creating
5.5 million new minority homeowners by the end of the decade. The
changes would limit the barriers to predatory lending and reduce
the ability of the general public to hold financial institutions
accountable for compliance with consumer protection laws.
The proposed changes include three major elements: 1) provide streamlined
and cursory exams for banks with assets between $250 million and
$500 million; 2) establish a weak predatory lending compliance
standard under CRA; and 3) expand data collection and reporting
for small business and home lending. It is only the third element
that would be helpful in advancing the purpose of the CRA statute;
the first two proposals would damage the expanded access to credit
that CRA has created.
The National Fair Housing Alliance (NFHA) is the voice of fair housing.
NFHA works to eliminate housing discrimination and to ensure equal
housing opportunity for all people through leadership, education,
outreach, membership services, public policy initiatives, advocacy
and enforcement.
1) Streamlined and Cursory Exams
Under the current CRA regulations, large banks with assets of at
least $250 million are rated by performance evaluations that scrutinize
their level of lending, investing, and services to low- and moderate-income
communities. 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. Likewise, these banks
would no longer be held accountable for the provision of bank branches,
checking accounts, Individual Development Accounts (IDAs), or debit
card services. Thus, the effectiveness of the Administration’s
housing and community development programs would be diminished.
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.
2) Predatory Lending Standard
The proposed
CRA changes contain an anti-predatory screen that could 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.
Recommendations
NFHA would like to recommend that these CRA changes be withdrawn
and a new proposal be issued that would improve CRA.
• Update
exam procedures by closing the loopholes in the CRA regulation
with regard to bank
affiliates. Banks can still elect
to include affiliates on CRA exams at their option, which means that
they may exclude affiliates not serving low- and moderate-income
borrowers and those engaged in predatory lending. Federal agencies
should instead require that all affiliates be included on exams.
In addition, updated regulations should 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 is not scrutinized by CRA exams.
• Enhance data disclosure. A beneficial element included in the proposed
regulations should be even stronger to make exams more rigorous.
The federal agencies propose to report publicly the specific census
tract locations 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. In addition the proposal includes separately
reporting purchases from loan originations on CRA exams and separately
reporting high cost lending (per the new HMDA data requirement starting
with the 2004 data). In addition to reporting the new data, the federal
agencies should 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.
• Give
CRA credit to regulated financial institutions for offering international
remittance services to low- and moderate-income
individuals. The Inter-American Development Bank estimates that remittances
will reach $40 billion by the end of 2004. This is a significant
amount that is often unnecessarily subject to high fees. These fees
significantly decrease the value of the remittances and affect immigrant
communities. If CRA credit were given for these transactions, more
legitimate financial institutions would get involved and the fees
for transmittal would decrease.
The proposed
changes to CRA would harm the very communities intended to benefit
from the
statute – those that have been historically
redlined by financial institutions. It is no secret that many communities
remain redlined today – but today the red lines are manifested
by discriminatory policies. The proposed streamlined exams and predatory
lending standard threaten CRA’s statutory purpose of the safe
and sound provision of credit and deposit services. The proposed
data enhancements would become much more meaningful if the agencies
update procedures regarding assessment areas, affiliates, and the
treatment of high cost loans and purchases on CRA exams.
Thank you for your attention to this matter.
Sincerely,
Shanna L. Smith
President and CEO
|
