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FAIR
HOUSING CENTER March 9, 2004
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th St NW
Washington DC 20429
Dear Officials of Federal Bank and Thrift Agencies:
As a member of the National Community Reinvestment Coalition, the
Fair Housing Center urges you to withdraw the proposed changes to the Community
Reinvestment Act (CRA) regulations. 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. Your proposed changes are contrary to
the CRA statute because they will halt the progress made in community
reinvestment.
The proposed CRA changes will thwart 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. Instead, the proposed CRA
changes would facilitate 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. The beneficial impacts of the third
proposal are overwhelmed by the damage imposed by the first two
proposals. In addition, the federal banking agencies did not update
procedures regarding affiliates and assessment areas in their proposal,
and thus missed a vital opportunity to continue CRA's effectiveness.
Streamline and Cursory Exams. Under the 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 million 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 needed by large numbers of immigrants and lower income
segments of the minority population. Likewise, the banks would no longer
be held accountable for the provision of bank branches, checking
accounts, Individual Development Accounts (IRAs), 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 need if they eliminate the investment and service test for a
large subset of depository institutions.
Predatory Lending Standard: The proposed CRA changes contain an
anti-predatory screen that will actually perpetuate abusive lending. The
proposed standard states that loans are 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 lending 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 lending standard
that does not address the problems of
the packing of fees into mortgage loans, high prepayment penalties loan
flopping, mandatory arbitration, and numerous abuses. Rigorous fair
lending audits and severe penalties on CRA exams for abuse lending
are
necessary in order to ensure that the new minority home owners served
by the Administration are protected, but the proposed predatory lending
standard will not provide the necessary protections. In addition,
an
anti-predatory lending 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.
By shielding banks from the consequences of abusive lending, the proposed
standard will frustrate CRA's statutory requirements that banks serve
low- and moderate-income communities consistent with safety and
soundness.
Enhanced data disclosure. The federal agencies propose that
they will publicly report the specific census tract location 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. Also
the regulators propose separately reporting high cost lending (per the
new HMDA data requirement starting with the 2004 data).
The positive aspects fo the proposed data enhancements do not begin
to make up for the significant harm caused by the first two proposals.
Furthermore, 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 originators.
Missed Opportunity to Update Exam Procedures. The agencies
also failed to close gaping loopholes in the CRA regulation. Banks can
still elect to include affiliates on CRA exams at their option. They can
thus 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 geographic 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 under-cut the
Administration's emphasis on minority homeownership and immigrant access
to jobs and banking services. The proposals regarding streamlined exams
and the anti-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 of the
agencies update procedures regarding assessment areas, affiliates and
the treatment of high cost loans and purchases on CRA exams. CRA is
simply a law that makes capitalism work for ALL AMERICANS. CRA is too
vital to be gutted by harmful regulatory changes and neglect. Thank you
for your attention in this critical matter.
Sincerely,
Michael P. Marsh, CFRE
Vice President Development and Public Relations
Fair Housing Center
1000 Monroe Street, Suite 4
Toledo, OH 43624-1954
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