Community Reinvestment Act Proposed Changes to OCC
Office of the Comptroller of the Currency (OCC) Reference: Docket ID OCC‐2010‐0011
250 E Street, SW., Mail Stop 2‐3
Washington, DC 20219.
Dear Sirs,
Last week we submitted suggestions for improvement in the regulatory implementation of the Community Reinvestment Act (CRA). There is an additional important suggestion that we failed to include in our original document.
Many loans made to small businesses are structured to include personal guarantees from principals. A significant percentage of those loan guarantees are secured by liens on the personal residence of the guarantor. The Regulation has been interpreted to disqualify any small business loans that have been secured by residential property unless such collateral has been taken as “an abundance of caution”. Therefore, a very substantial volume of small business lending is not recognized in CRA small business loan data. This can seriously reduce the recognized lending and precipitate a significant disparity between what is reported and what small business lending is really occurring. This is detrimental to the accuracy of CRA performance ratings. How can regulators understand the true small business credit market when the reported activity omits a very substantial volume of small business lending? Moreover, how can they evaluate the true performance of individual banks when those banks own small business lending omits much of their small business lending for this technical reason? Banks are allowed to collect and request such disqualified loans be included in their performance ratings, but this just promotes inconsistency. Some banks will avail themselves of this option and others will not.
Community Reinvestment Act Proposed Changes to Federal Reserve System
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
Washington, DC 20551 Reference: Docket No. R‐1386
Dear Sirs,
GeoDataVision has been working with community and regional banks as well as community organizations with respect to the Community Reinvestment Act (CRA) since 1994. In our capacity as consultants we have worked with more than 700 banks helping them to delineate and map their Assessment Areas, analyze their CRA performance and understand their communities’ need for credit services. Our experience gives us an in‐depth understanding of the Regulation, how it has been applied and how it can be improved to be more effective. The following are our suggestions for improving the regulatory implementation of the CRA.
- Assessment Area delineation: Changes in banking practices and technology have made the implicit assumption that banks primarily derive their deposits from the neighborhoods surrounding their branches obsolete. Today, widespread use of the Internet to attract deposits and remote deposit capture technology, increased use of brokered deposits for deposit gathering and developments in the secondary market, not only for mortgages but for government guaranteed loans (e.g., SBA small business loans) translate into a geographic area for funds much wider than the traditionally defined branch oriented approach. The Regulation needs an alternative for banks that employ non‐traditional funding sources. Regulators rightly have touted the “flexibility” inherent in the application of the CRA, but have taken a rigid and outdated approach to the delineation of Assessment Areas. We suggest that banks be given an alternative Assessment Area delineation method that corresponds to the geographic dispersion of the majority of their deposits or declare themselves to be a “brokered deposit bank” in cases where the majority of deposits are raised from brokers in which case the bank will be allowed to delineate “focus” areas based on where the majority of their lending activity is located.
More Aggressive Fair Lending and CRA Examinations Announced by Obama Administration
January 14, 2010
"Justice Dept. Fights Bias in Lending"
The headline above published in the New York Times announced the Obama administration’s
initiation of a more aggressive enforcement of Fair Lending laws. The article announced,
Under federal civil rights laws, a lending practice is illegal if it has a disparate impact on minority borrowers, and the Obama administration is signaling that it intends to make the enforcing of fair lending laws a signature policy push in 2010.
Bank Size Threshold Lowered for 2010 CRA Exams!
On December 23, 2009 the Federal Financial Institutions Examination Council (FFIEC) published the new asset size thresholds for banks to be examined under the Community Reinvestment Act (CRA).
For the first time since the inception of the size standards, the size limits actually decreased!
Asset size for any bank is determined by the year-end balance sheet for the two most recent calendar years. Effective for exams conducted after January 1, 2010 the size thresholds (determined by the December 31, 2008 and 2009 balance sheets) will be:
CRA changes in the Treasury's plan
The recently released Treasury plan for regulatory reform includes some potentially significant CRA changes including more aggressive enforcement and a new Agency to evaluate banks' CRA performance:
The appropriate response to the crisis is not to weaken the CRA; it is rather to promote robust application of the CRA so that low-income households and communities have access to responsible financial services that truly meet their needs. To that end, we propose that the CFPA should have sole authority to evaluate institutions under the CRA.
Change in Call Report, with major implications for Community Reinvestment Act.
A change in the Call Report announced by the FDIC effective April 1, 2009 has potential major implications under the Community Reinvestment Act. The change pertains to Loans Secured By Real Estate
and can be found at A58-a in the Call Report Glossary. The revision now employs a formula to determine if a loan is wholly or substantially secured by a lien or liens on real property.
The formula states:
