The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
S. HRG. 100-652
COMMUNITY REINVESTMENT ACT
HEARINGS
BEFORE THE
COMMITTEE ON
BANKING , HOUSING, AND URBAN AFFAIRS
ONE HUNDREDTH CONGRESS
SECOND SESSION
ON
IF FEDERALLY OR INSURED LENDERS HAVE FULFILLED THEIR AFFIRM
ATIVE OBLIGATIONS TO MAKE LOANS IN THEIR COMMUNITIES AND
IF THE FEDERAL REGULATIONS MET THEIR LEGAL RESPONSIBILITIES
MARCH 22 AND 23, 1988
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
U. S. Depository Copy
U.S. GOVERNMENT PRINTING OFFICE
85-619
For sale by the Superintendent of Documents, Congressional Sales Office
COMMITTEE ON BANKING , HOUSING, AND URBAN AFFAIRS
WILLIAM PROXMIRE, Wisconsin , Chairman
ALAN CRANSTON , California
( II )
CONTENTS
TUESDAY, MARCH 22, 1988
Page
Opening statement of Chairman Proxmire ...
8
WITNESSES
Jane Uebelhoer, legislative representative, Association of Community Organi
10
92
439
143
168
184
( 111 )
IV
Page
Richard C. Hartnack, senior vice president and head of personal banking
186
192
WEDNESDAY, MARCH 23, 1988
199
218
WITNESSES
Martha R. Seger, Governor, Federal Reserve Board .............
200
427
433
274
276
278
279
282
303
343
344
365
365
366
368
369
369
371
372
372
373
V
Page
Leland C. Brendsel, president and CEO, Federal Home Loan Mortgage Corpo
389
405
ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
31
32
43
50
46
47
87
45
53
54
58
60
64
66
67
68
>
71
72
74
76
115
118
119
134
166
167
553
COMMUNITY REINVESTMENT ACT
TUESDAY, MARCH 22, 1988
U.S. SENATE,
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS,
( 1)
2
evidence that indicates that disinvestment is still occurring in
cities, although at least somewhat more slowly than in the past.
3
MARCH 22 , 1988
STATEMENT OF SENATOR ALAN DIXON
SENATE BANKING COMMITTEE OVERSIGHT HEARING
ON
THE COMMUNITY REINVESTMENT ACT
MR . CHAIRMAN , I AM PLEASED TO BE HERE THIS MORNING AS THE
SENATE BANKING COMMITTEE BEGINS TWO DAYS OF OVERSIGHT HEARINGS ON
THE COMMUNITY REINVESTMENT ACT .
WE HAVE A GOOD GROUP OF
WITNESSES BEFORE THE COMMITTEE TODAY , AND I LOOK FORWARD TO THEIR
TESTIMONY .
I PARTICULARLY WANT TO DIRECT THE COMMITTEE'S
ATTENTION TO THREE WITNESSES FROM ILLINOIS : GALE CINCOTTA , THE
PRESIDENT OF THE NATIONAL TRAINING AND INSTITUTE CENTER , ELSPETH
REVERE OF THE WOODSTOCK INSTITUTE , AND RICHARD HARTNACK , SENIOR
VICE PRESIDENT OF THE FIRST NATIONAL BANK OF CHICAGO .
4
Page 2
I BELIEVE IT IS VERY APPROPRIATE FOR THIS COMMITTEE TO
EXAMINE HOW THE COMMUNITY REINVESTMENT ACT HAS WORKED .
I
STRONGLY SUPPORT THE ACT'S OBJECTIVES -- I THINK IT IS IMPORTANT
TO ENSURE THAT LOW AND MODERATE - INCOME NEIGHBORHOODS HAVE ACCESS
TO THE KIND OF CAPITAL THEY NEED .
REDLINING WAS AND IS WRONG ,
AND IT IS BASED ON A FUNDAMENTALLY MISTAKEN ASSUMPTION -- THAT
LENDING IS TOO RISKY IN THESE AREAS AND CANNOT BE MADE
PROFITABLE .
IN MY VIEW , WE CANNOT AFFORD TO WRITE OFF WHOLE AREAS OF ANY
CITY .
THAT PRACTICE HURTS US ALL IN THE LONG RUN .
I AM AWARE
THAT THERE IS EVIDENCE THAT INDICATES THAT DISINVESTMENT IS STILL
OCCURRING IN CITIES , ALTHOUGH AT LEAST SOMEWHAT MORE SLOWLY IN
THE PAST .
I AM ALSO AWARE THAT THERE ARE REAL QUESTIONS AS TO
HOW THE BANKING REGULATORS HAVE ADMINISTERED THE ACT .
I APPRECIATE THE OPPORTUNITY TO WORK WITH ALL OF THIS
MORNING'S WITNESSES , AND WITH OTHER INTERESTED PARTY IN AN EFFORT
TO SEE THAT THE COMMUNITY REINVESTMENT ACT LIVES UP TO ITS
PROMISE .
5
Shutters
STATEMENT OF THE HONORABLE JOHN HEINZ
BEFORE THE COMMITTEE ON BANKING , HOUSING AND URBAN AFFAIRS
I COMMEND YOU MR . CHAIRMAN FOR HOLDING THESE OVERSIGHT HEARINGS ON
THE COMMUNITY REINVESTMENT ACT .
AS THE DRIVING FORCE BEHIND
PASSAGE OF THIS LANDMARK LEGISLATION IN 1977 , YOU HAVE MAINTAINED
AN ONGOING INTEREST IN THE PROGRESS AND EFFECTIVENESS OF THE CRA .
THE CRA WAS ENACTED IN RESPONSE TO CONGRESS ' LEGITIMATE CONCERN
ABOUT ALLEGED PRACTICES OF REDLINING AND ITS CONTRIBUTION TO URBAN
AMERICA'S DETERIORATION .
IT WAS BASED ON THE PREMISE THAT BANK
CHARTERS CONFER NUMEROUS ECONOMIC BENEFITS .
IN RETURN , PUBLIC
POLICY RIGHTLY EXPECTS PUBLIC BENEFITS SUCH AS FINANCIAL
INSTITUTIONS MEETING THE CREDIT NEEDS OF THEIR LOCAL COMMUNITIES .
SINCE ITS ENACTMENT , QUESTIONS HAVE BEEN RAISED AS TO THE
REGULATORS ' COMMITMENT TO ENFORCEMENT OF THE CRA AS WELL AS THE
CRA'S SUCCESS RATE IN ELIMINATING EVEN THE MOST OBVIOUS REDLINING
PRACTICES , INCLUDING FINANCIAL INSTITUTIONS ' REFUSAL TO ACCEPT
LOAN APPLICATIONS WITHIN A DESIGNATED AREA , REFUSAL TO MAKE LOANS
SECURED BY PROPERTY WITH A DESIGNATED AREA , REFUSAL TO MAKE REAL
ESTATE LOANS UNLESS SECURED OR GUARANTEED BY MORTGAGE INSURANCE ,
THE REFUSAL TO GRANT LOANS WITHOUT BURDENSOME TERMS , AND THE
REFUSAL TO GRANT A LOAN OR PROPERTY OLDER THAN A CERTAIN AGE .
MORE SIGNIFICANTLY , THE CRA HAS PLAYED A NEW ROLE IN RECENT YEARS .
WITH THE DEREGULATION OF INTERSTATE BANKING , MORE AND MORE BANK
6
HOLDING COMPANIES ARE MERGING WITH OR ACQUIRING BANKS IN OTHER
STATES .
AS A RESULT OF THIS INCREASE , PUBLIC INTEREST GROUPS AND
NEIGHBORHOOD ACTION COMMITTEES ARE USING THE CRA TO PUBLICLY
CRITICIZE AND LEGALLY CHALLENGE BANK CREDIT POLICIES WITH RESPECT
TO LOW- AND MODERATE - INCOME CUSTOMERS AS A CONDITION TO THE
PROPOSED MERGERS .
I CAN APPRECIATE THEIR CONCERNS .
BANK DEREGULATION , THE RISE IN
BANK MERGERS AND ACQUISITIONS , EVER - INCREASING COMPETITION ,
THE DECLINE IN FEDERAL FUNDING FOR LOW - INCOME HOUSING AND OTHER
URBAN PROGRAMS HAVE TRIGGERED MUCH OF THIS COMMUNITY ACTIVISM .
HOWEVER , IN SOME INSTANCES ALLEGATIONS HAVE BEEN MADE THAT
COMMUNITY ACTIVISM HAS GONE BEYOND MERE LEGAL CHALLENGES UNDER THE
CRA .
INSTEAD , THERE ARE REPORTS OF INSTANCES WHERE SOME
COMMUNITY GROUPS HAVE USED THE CRA TO EXTRACT
APPLICATION WITH THE REGULATORY AGENCY .
AND WHILE I'M NOT OPPOSED
TO NEGOTIATED SETTLEMENTS BETWEEN THE BANK AND THE COMMUNITY , I AM
CONCERNED WHEN SUCH SETTLEMENTS MAY BORDER UPON EXTORTION AND
PERHAPS UNDERMINE THE SAFETY AND SOUNDNESS OF THE BANK INVOLVED .
MR . CHAIRMAN , I HOPE THAT OUR WITNESSES WILL ADDRESS THESE
ISSUES TODAY AS WE EXAMINE THE PROGRESS MADE UNDER THE CRA .
LOOK FORWARD TO THEIR TESTIMONY .
I
7
OPENING STATEMENT OF CHAIRMAN PROXMIRE
The CHAIRMAN. The committee will come to order.
a
area .
Second, the CRA requires regulators to rate the lenders' reinvest
ment performance and to take this evaluation into account when
deciding to approve or deny an application to change banking oper
ations
8
pass? This record, needless to say, raises questions about whether
the examination process has succeeded. This record fails the nudge
test which for me is an essential measure of progress under CRĂ .
OPENING REMARKS OF SENATOR GARN
Senator GARN. Thank you , Mr. Chairman .
a
OPENING REMARKS OF SENATOR GRAHAM
Senator GRAHAM. Mr. Chairman, I do not have an opening state
ment, but I want to commend you for scheduling this oversight
hearing and I look forward to increasing my knowledge of what
has happened under this program during the past decade.
9
n
San
n
a
St
STATEMENT OF SENATOR JIM SASSER , BANKING COMMITTEE , MARCH 22 ,
1988
MR . CHAIRMAN , THE COMMUNITY REINVESTMENT ACT WAS ENACTED
SOME TEN YEARS AGO WITH THE SEEMINGLY LOGICAL GOAL OF ENCOURAGING
FINANCIAL INSTITUTIONS TO INVEST IN THEIR LOCAL COMMUNITIES .
BANKING SYSTEM IS BUILT ON A SCHEME OF GIVE AND TAKE .
OUR
CONGRESS
CONFERS CERTAIN ADVANTAGES AND PROTECTIONS ON FINANCIAL
INSTITUTIONS , IN EXCHANGE FOR WHICH FINANCIAL INSTITUTIONS ARE
SUPPOSED TO PURSUE , TO SOME EXTENT , CERTAIN ECONOMIC AND SOCIAL
GOALS .
IT IS CONGRESS '
DUTY TO CONTINUALLY MONITOR THE SITUATION .
IT IS OUR JOB TO MAKE SURE THAT THE REGULATORS AND LENDERS ARE
DOING THEIR JOBS .
MR . CHAIRMAN , I AM PLEASED THAT THE COMMITTEE IS CONSIDERING
THE ISSUE OF NEIGHBORHOOD REINVESTMENT TODAY AND LOOK FORWARD TO
THE TESTIMONY OF THIS IMPRESSIVE LIST OF WITNESSES . THANK YOU .
10
The CHAIRMAN . Ms. Uebelhoer.
STATEMENT OF JANE UEBELHOER, LEGISLATIVE REPRESENTA
TIVE , ASSOCIATION OF COMMUNITY ORGANIZATIONS FOR
REFORM NOW
[ The complete prepared statement of Mildred Brown follows:]
ACORN
that
demanding
in
leadership
of
years
your
make
institutions
financial
credit
available
communities
our
Community
.Tinhe
Reinvestment
Act
an
is
important
of
part
legacy
great
leave
will
you
country
the
.
Testimony
presented
by
to
ACORN
the
Senate
Committee
Banking
,Honousing
and
Urban
Affairs
major
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points
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raise
will
in
and
oral
written
testimony
this
at
:
are
hearing
on
Community
The
Reinvestment
Act
Most
financial
institutions
continue
engage
to
practices
in
that
discriminate
against
income
low
racial
minorities
and
.people
federal
regulatory
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agencies
charged
enforcing
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and
CRA
lending
fair
laws
allow
financial
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discriminate
to
nd
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hairman
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nfortunately
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RA
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hen
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your
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know
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e
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ensure
banks
that
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to
their
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discriminate
also
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people
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,aracial
nd
undermine
efforts
the
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who
make
want
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credit
these
to
groups
,
that
therefore
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bligations
meet
to
credit
the
deposit
needs
moderate
and
low
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income
Congress
should
put
to
now
act
examination
the
in
teeth
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make
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the
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mericans
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nd
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8
15
Written Testimony
Mildred Brown
to
Senator William Proxmire
for
Hearings on
The Implementation and Enforcement of the
held
March 22, 1988
--
16
Good Morning, Chairman Proxmire, Senators, and distinguished guests. I am
Mildred Brown, President of ACORN, the Association of Community
Organizations for Reform Now. ACORN is the nation's largest grassroots
membership organization of low and moderate income people.
ACORN applauds you for holding these hearings into the enforcement of the
Community Reinvestment Act ( CRA) , and related issues. We hope that these
hearings will result in a major shift in the actions and practices of bankers
and regulators. When you and your Committee have heard what we have to
say, we trust that you will do whatever is necessary to ensure that banks
begin to fulfill their legal obligations to meet the credit and deposit needs
of low and moderate income Americans.
Senator Proxmire, ACORN'S 75,000 member families, and countless other
The Main Points Raised in ACORN's Testimony
Most
financial
ACORN was asked by your staff to concentrate in part on experiences with
the Office of the Comptroller of the Currency, and on our CRA challenge of
Hibernia National Bank, New Orleans.
1
17
Hibernia and The OCC
In October 1985 ACORN and Local 100, Service Employees International
Union , protested an application by Hibernia National Bank in New Orleans to
acquire a bank in Lafayette, Louisiana. After a delay of 8 months, the Federal
Reserve Board issued an order approving the merger. The order required the
bank to undertake more community reinvestment activities than had any
previous order. Hibernia was directed to make $2 million annually in FHA
insured and VA guaranteed mortgage loans to low and moderate income
census tracts and to meet with ACORN and other community groups as part of
an effort to do a complete reassessment of community credit needs. The
order also required the bank to make regular reports on their progress
towards implementing this order to the Federal Reserve Bank of Atlanta
rather than to ACORN or to the bank's normal line regulator, the southwest
OCC regional office in Dallas.
Geraldine Bell of New Orleans, Secretary of ACORN's National Association
Board, made the following remarks on the Hibernia case and the OCC at a
hearing in House Banking Committee chambers in July 1986. After quoting
Ms. Bell, I will tell the alarming story of developments in the Hibernia case
since 1986, and then contrast our experience in New Orleans with progress
made in my home town, Philadelphia.
" I would like to begin my testimony by telling you about the biggest
· outlaw in the state of Louisiana... our largest bank : Hibernia
Hibernia is a leading SBA - guaranteed small business lender in suburban
Jefferson Parish , which is nearly all white, but the bank has not made
one single SBA loans in Orleans Parish , which is mostly black.
Hibernia is a giant vacuum cleaner that sucks money out of poor and
black neighborhoods and then loans it in affluent, mostly white areas. Let
me give you just one example of this. In 1984 the St. Claude branch of
Hibernia, which is located in my neighborhood, had $ 18 million in
2
18
deposits. These deposits came mostly from the black and poor people
itving in the neighborhood. And yet, Hibernia loaned back to my
neighborhood less than 1 % of these deposits -- only $ 98,000 -- in housing
loans, which is the type of credit our community needs the most.
Now you may wonder how it is that a federally chartered national bank as
big as Hibernia could still get away with racial discrimination. After all,
it is 9 years since the Community Reinvestment Act was passed and over
20 years since the civil rights laws were passed.
The answer lies in the fact that the primary regulator of Hibernia
National Bank is an even bigger outlaw named the Comptroller
of the Currency. The Comptroller believes that banks should be
allowed to do whatever they want to do. In the name of deregulation the
Comptroller has taken it on himself to ignore the community protection
and anti- discrimination laws passed by the Congress of the United
States.
Thus, for the last few years, whenever the Comptroller's office has
examined a national bank they have simply not even bothered to look for
violations of the CRA, Equal Credit Opportunity Act nor other federal
laws which are supposed to protect communities. This has led to
increased redlining and discriminatory lending practices by national
banks throughout the country...
In city after city and every region throughout the country ACORN is
, finding that the Comptroller, and other regulators, are letting banks turn
their backs on the needs of working people and minorities.
Fortunately for us in New Orleans, we found a way to bypass the
Comptroller and file a Community Reinvestment Act challenge against
While investigating our
charges , the Fed found that the CRA exam of Hibernia which had been
completed by the Comptroller less than one year earlier was totally
Hibernia with the Federal Reserve Board.
inadequate .
Our challenge against Hibernia set several important precedents:
--Hibernia's application was blocked for 8 months and cost the bank tens
of thousands of dollars. This was the longest delay in the history of
CRA challenges.
--The Federal Reserve Board held the first public meeting ever held in
3
19
the South and only the third held since passage of CRA.
--Hibernia was ordered to increase its home lending to low and moderate
income areas.
--For the first time ever, the Federal Reserve Board took CRA
enforcement away from the Comptroller's office. "
This testimony delivered by Geri Bell in 1986 calls out some of the facts
about Hibernia and the OCC. I will briefly expand upon and update these
issues.
ACORN'S challenge to Hibernia Bank's CRA record demonstrated that the OCC
does not closely examine the national banks that it regulates on community
reinvestment issues. The OCC, in its examination of Hibernia's community
reinvestment record, gave the bank a satisfactory rating; in contrast, the
Federal Reserve Board, which was required to examine Hibernia's record just
a year later in the course of ACORN'S CRA challenge, was extremely critical
of the bank's performance. The Fed found that Hibernia had never undertaken
an assessment of the community's credit needs, had no procedure in place or
personnel to enforce CRA requirements, and was not even keeping the
necessary fair lending data.
Cause for Outrage
This story should have a positive ending. $2 million dollars of new loan
money should be flowing into our neighborhoods from Hibernia every year,
and the bank should have developed a new and highly cooperative relationship
with the low and moderate income residents in its service area . But instead
we have no evidence that Hibernia has taken a single step to comply with the
Federal Reserve order. A week ago today, March 15, ACORN leaders met with
community affairs officers at the Federal Reserve Bank in Atlanta and were
told that, incredibly, Hibernia had not even filed its first progress
report, --although the bank has been required to file a report every 90 days
for the past two years ago.
Earlier, ACORN tried to get coples from the Federal Reserve Board in Atlanta
of the reports that we assumed were being submitted by Hibernia. The head
of the examinations department said he would send the reports. But this
official was apparently told by the a Fed lawyer in Washington that anything
submitted to the Fed as the result of a Board order is proprietary
information that should be considered confidential.
This decision has
become the policy for handling the growing number of similar situations The
20
Fed has decided to shield the bank and leave the community totally in the
dark .
So ACORN members and other low income people have been treated to a
double indignity by the bankers - regulators in this case : having spent months
proving conclusively that Hibernia is a terrible bank, and apparently having
won some redress from the Federal Reserve Board, we are first told that we
will not be permitted to view evidence of the bank's progress towards
meetings its goals, and are ultimately told that the bank has not even
produced the first shred of proof that it has done a thing meet its goals.
Finally, ACORN was assured that no further applications by Hibernia would be
approved until the bank showed itself to be in compliance with the Fed order.
Sources inside the agency tell us, though, that this is not the case -- two
Hibernia applications have been approved in the meantime.
And, by the way, an ACORN member went to a Hibernia branch last week to
open a basic checking account and learned that there was an opening balance
requirement of $ 300. She was turned away by the bank employee with the
remark the " banks aren't for poor people anymore .”
Another Blunder
In the Hibernia case, the OCC, amazingly, failed to notice that the bank was
not keeping fair landing data. The Center for Community Change ( CCC) caught
the OCC in another basic flub last year. CCC discovered that Community
First National Bank of Pleasanton, Calif. , submitted their HMDA reports on
the wrong forms for three consecutive years. OCC did not even notice this
blatant error. ( See attachment )
More Problems with the OCC
Another recent experience with the Comptroller reaffirms our cynicism . The
First National Bank of Commerce in New Orleans recently made application to
the OCC to open branches in other parishes.ACORN protested this application
because First NBC's record of providing services to low and moderate income
people in their service area was abysmal . The OCC was of no help in
encouraging meetings and negotiations between ACORN and the bank , and
were repeatedly met with evasions about when OCC would reach a decision
about the application .
The agreement ACORN signed with First National Bank of Commerce
contained the bare bones of a beginning to meet the credit needs of low
5
21
income people in New Orleans. In our judgment, this agreement neither
meets those needs at the level at which First NBC is capable of meeting
them , nor at a level at which First NBC is responsible for meeting them . And
not only ACORN, but also the bank, was displeased with the OCC's role in this
process.
The Regulators Who would not attend public forums"
Three weeks ago ACORN invited representatives of each of the four
regulatory agencies to a meeting in Atlanta so that low income people could
tell the regulators their stories about how they are being treated by Atlanta
banks. One women, for example, wanted to give the details of a visit to
Citizens and Southern National Bank in which " I met with a white male vice
president of the bank. When I asked him what I needed to do to apply for the
loan, he did not give me an application. Instead, he told me that what I needed
was a " sugar daddy " . ( See attachment )
Only the Federal Home Loan Bank Board accepted our invitation to the
neighborhood meeting in Atlanta. The Federal Reserve Board and the OCC
declined on the grounds that they do not attend public forums" . But it is our
understanding that as we sit here this morning the regulators are " attending
a public forum " , a bankers' convention in Atlanta. And it is also my
understanding that these hearings were postponed from last week to this
week because the heads of the regulatory agencies were " attending a public
forum " , a bankers' convention in Hawaii.
The Big Picture with the OCC
The overall pattern of the OCC'S CRA ratings confirms that the Hibernia
situation is not out of the ordinary. In 1984, for example, only one out of the
nation's 245 largest banks received less than a satisfactory rating. Given
the facts that the Fed uncovered behind the Hibernia rating, ACORN strongly
believes that these ratings do not accurately reflect the actual performance
of banks in meeting their community reinvestment responsibilities.
It is possible to see why these ratings are so inflated when you look at the
procedures that the OCC follows. In the first place, the OCC does not carry
out separate CRA examinations; instead, examiners whose first concern is
safety and soundness are asked to tack CRA exams on as an afterthought.
Second, OCC examiners are not required to meet with community groups to
determine community credit needs, much less how well the bank is meeting
those needs. The OCC agreed to schedule such meetings in eight cities after
ACORN met with top OCC officials in 1986, but we have no reason to believe
6
22
that this will become an ongoing program .
And the Comptroller himself, at a meeting with community and consumer
representatives in April 1986 argued that competition rather than regulation
will force banks to meet their community reinvestment obligations
assertion directly counter to the mandate of the CRA.
Redlining in New York
ACORN recently filed a petition with the Federal Reserve Board to block the
takeover of Irving Trust Company by the Bank of New York. After proving
that both banks were flagrantly breaking the law, ACORN got Bank of New
York to the table to negotiate and eventually sign a major CRA agreement.
Both Irving Trust and Bank of New York were in violation of the law by
defining their service areas to exclude low income neighborhoods. And the
banks failed to meet the CRA requirements for " affirmative investment in
poor communities. Bank of New York invested only 1.8% of its mortgage
money in Manhattan's five poorest community districts where 39% of
Manhattan's residents live. Brooklyn's seven poorest districts received only
13% percent of Bank of New York's mortgage and home improvement loans,
and only 1 % of Irving's mortgage and home improvement loans
Put another way, one - third of Brooklyn's population lives in these seven
districts. Irving Trust invested $ 12 per person in the 11 most prosperous
community districts and 21 €
per person in Brooklyn's seven poorest
community districts.
Where have the regulators been ?
Success with CRA: The Other Philadelphia Story
Philadelphia ACORN negotiated two strong CRA agreements with local banks
in 1985-86: Continental Bank and Fidelity Bank. And the ACORN Housing
Corporation of Pennsylvania has seen to it that these agreements have paid
off in low income lending and housing development.
The first year performance of the ACORN /Fidelity agreement was extremely
impressive. All program goals were met, and Fidelity increased its lending
to low and moderate income communities in Philadelphia by more that ten
fold. In 1982 Fidelity made 12 mortgage loans in majority black census
tracts; after the first year of the program the bank had lent $ 18.35 million
to the targeted low and moderate income census tracts, most of which are
majority black. This $ 18.35 million included 290 first mortgages totaling
7
23
$5.5 million. Perhaps most significantly, the default and rejection rates
under this program was better than the banks' overall rates. Fidelity has
now become the main low income lender in Philadelphia .
ACORN'S program performance was the key to its success. In June, 1986,
ACORN established a loan counseling, marketing and pre-packaging center.
During the program's first year, over one- third of the low income mortgages
approved by Fidelity were referred from our center. Furthermore, people who
went through our center's counseling program had an approval rate of 76%
--much higher than the bank's overall rate.
The first year performance of the ACORN /Continental Bank program was also
very impressive. In 1985, the year prior to the agreement, Continental made
only 15 housing loans to black majority census tracts in Philadelphia. After
11 months of our program , Continental had made nearly $ 4.8 million in
housing related loans in these same areas, including 162 Title | home
improvement loans and 71 first mortgage loans. The bank had also made 13
small business loans totalling $ 400,000.
But barriers built by the Private Mortgage Insurers and secondary mortgage
market agencies are threatening our work in Philadelphia, and our other CRA
agreements. Because neither Fannie Mae nor the PMIS will look at a loan made
on a house on a block where more than 15% of the properties are abandoned
--and just about every block in our neighborhoods in Philadelphia has at least
both Fidelity and Continental have been forced to keep
have made under the ACORN agreement in they
they
all of the loans
15%
abandonment
portfolios. This seriously limits the banks' ability to keep money flowing to
reyitalize our communities.
Successes in St. Louis
Missouri ACORN has negotiated five major Community Reinvestment Act
agreement--with Boatman's, South Side National, Landmark, Mark Twain and
Missouri State Banks --plus another four agreements which deal specifically
with lifeline deposit accounts.
One example: In St. Louis, a city with serious housing problems, Boatman's
Bank, owned by the state's largest bank holding company made no home
mortgage loans in 1982 and 1983, and when the bank did begin making
mortgage loans in 1984, only 8% were made in the City of St. Louis, with the
remainder being made in more affluent St. Louis County. Furthermore, during
those same years the bank made only between 7% and 13% of its home
8
24
improvement loans in census tracts where housing values were below the St.
Louis median .
When General Bancshares Corp. applied to acquire Boatman's Bankshares, Inc.
ACORN challenged that application on CRA grounds and won a commitment
from Boatman's to invest $50 million a year in low income housing in St.
Louis. Among other provisions, the signed agreement between ACORN and
Boatmen's set up a joint ACORN -bank review committee to assess the
progress of the drawdown of the money.
Ethan A.H. Shepley, Jr., vice chairman of Boatman's, speaks very favorably of
the agreement his bank reached with ACORN, stating that the results of such
agreements can be good for a bank. " We're being held up as the heroes, and
that's super. That's the kind of publicity we love. And we've not making any
loans that we feel are bad" .
Lifeline accounts developed after negotiations with Missouri ACORN are
bringing thousands of new customers through bank doors. Charles E. Silva, Jr.
Executive Vice President of Landmark Bank reports that his bank opened
2,000 “ Pay As You Go“ accounts last year, bringing the total of lifeline
customers to 7,000. And Merchantile Bank had 2,675 " Budget Checking
Accounts " as of Sept. 1987. ( See attachment)
How the Secondary Markets and PMls are Tripping Us Up
The large secondary market agencies and Private Mortgage Insurers are
raising serious roadblocks to the implementation of CRA agreements. In
recent years the PMI companies and FNMA and FHLMC have adopted certain
underwriting criteria which effectively redline inner city neighborhoods and
unnecessarily discriminate against low- income borrowers. As a result, in
some cities the banks which are fulfilling their CRA agreements by greatly
increasing mortgage lending in inner city neighborhoods are being forced to
hold nearly all these loans in their portfolios.
In the past, community groups have found it difficult to tell just whose
underwriting guidelines are at fault: the banks', the PMI companies or the
secondary market agencies'. Traditionally they point the finger at each
other.
However, the partnership formed between community groups and banks as a
result of CRA agreements has altered this situation. ACORN groups in
Philadelphia, for example, have seen the banks with which they have
agreements place large numbers of low income housing loans in their
9
25
portfolios, and have reviewed rejection letters from the PMI companies and
FAMA. ACORN leaders are convinced that the PMI companies, FNMA and FHLMC
are to blame for most of the problems.
A sampling of the barriers we have identified:
* Prohibitive initial costs: Purchasers are often required to hold two
months housing payments in escrow in addition to downpayment and
closing costs. These lump sum costs often prevent low income people who
can meet monthly payments from buying a home.
*Minimum loan size: PMI companies admit that they have a $30 thousand
minimum loan size in certain areas, but in many places it is hard to find a
house for more than $30 thousand.
:
* Credit ratings: Increasingly, only spotless credit ratings are accepted
and only the most narrow explanations of blemishes are allowed.
* Employment history: It is required that a purchaser have two years
employment at the same job, disqualifying people who have had gaps in
employment.
* Source of income: The secondary markets and PMls refuse to consider
total annual income regardless of source. Money earned from part time
, work, public assistance, or free lance work is not counted as income. Food
stamps are not recognized as income.
* Proof of source of downpayment: It is often required that a downpayment
be in the buyer's account 90 days before settlement. Gifts are only
acceptable as downpayment if they are from the immediate family, and
gifts cannot make up more than 40 % of the total downpayment. Sweat
equity is not accepted towards downpayment.
* Abandonment ratio: Secondary market agencies and PMIS exclude
dwellings located on blocks where more than 15% of the properties are
abandoned. This redlines huge sections of many cities.
* Minimum down payment: Rather than require a percent of the purchase
price as a downpayment, as is standard practice, some institutions set a
minimum downpayment.
For example, the minimum downpayment in
Philadelphia, where you can buy many houses for $ 10,000, is $ 2,000. This
screens out people without " front end money” who would qualify on
normal percentage criteria .
10
26
* Arbitrary property standards: In Philadelphia, houses have been rejected
because they had insufficient closet space. In Dallas and New Orleans
houses that are built on wood posts do not qualify.
* Credit history: Loans have been rejected because applicants have no
credit history.
*The 3% rule: If the buyer is making a 5% downpayment, FNMA won't
permit the seller to put up more than 3% of the sales price of the house as
settlement cost. This is a serious problem in cities where house prices
are low and settlement costs are high.
* Debt -to -Income ratios: Officers of PMIs and secondary market agencies
are very inflexible on allowing exceptions to the standard debt-to- income
ratios established by their underwriting criteria. We are familiar with
cases that fell within the institutions accepted guidelines but were
rejected nonetheless.
*Zoning: The PMls and secondary markets refuse to buy or insure loans for
properties in areas with mixed use zoning if those properties do not
conform to the " highest and best use“ . This effectively redlines entire
have
urban
residential
neighborhoods
which
bordered
commercial - industrial areas for decades, since commercial uses are
ranked above residential uses.
The Root of the Problem with PMI and Secondary Market Policies
ACORN leaders have been pressing these issues with the people in charge of
these institutions. A landmark event in this campaign was a roundtable held
in Washington, DC, during Sept. 1987, jointly sponsored by the ACORN and the
American Bankers Association, and attended by community organizations,
bankers, representatives of FNMA and FHLMC, and of the PMI Industry. ( See
attachment )
1
In discussions during and after this roundtable, spokespeople for FNMA and
FHLMC admitted that they set many guidelines on intuition, pulled out of the
air from " common sense“ , and and that they recognized the need to move
more towards basing their decisions on actuarial data.
The PMI
representatives continue to insist that all of these are based on actuarial
but they won't disclose this data. The PMIs then go on to claim
defensively that FHA should insure mortgages in low and moderate income
areas, demonstrating a fundamental misunderstanding of the history,
data
27
purpose, and political realities of FHA.
The standards used by the PMIS and secondary market agencies appear to be
based on classist and racist assumptions, with the consequence that large
tracts of cities are redlined. These rules have the effect of discriminating
against low income neighborhoods and racial minorities. The decisions about
which standards will be employed are made in private but have substantial
public impact
And these arbitrary restrictions are jeopardizing ACORN's, and other
community groups', CRA agreements with banks. ACORN knows that loans to
low income people who live in the innercity are not exceptionally risky. If
the PMs and secondary market agencies continue to make decisions based on
the assumption that these loans are risky, we demand to see the data!
A Solution to the PMI Problem
Low and moderate income families who have cleared the many hurdles
necessary to become home owners should not be stopped short by arbitrary
and discriminatory policies issued behind closed doors by Private Mortgage
Insurance companies. ACORN calls on Congress, under the leadership of the
Senate Banking Committee , to extend disclosure requirements and fair
lending laws to these institutions. ACORN would like assist the committee
in this project in whatever ways we can.
A Cold Wind Blows through the Banking Regulatory Agencies
Low and moderate income people need help from our elected officials. In
bank after bank, city after city, state after state, the Community
Reinvestment Act has been ignored by the federal banking regulatory
agencies. Many banks in this country discriminate against racial minorities
and low and moderate income neighborhoods. And the regulators not only let
banks get away with this but increasingly tend to protect banks from the
criticisms of community groups. Banks are breaking the law and the
regulators are their accomplices.
For example, since early 1987, ACORN has observed a retreat on the part of
the Federal Reserve System from its prior position of encouraging
negotiations between banks and protesting community groups. This retreat
is accompanied by a new hardline attitude towards negotiations and signed
agreements on the part of an increasing number of bankers.
This backlash began appearing at the same time that the Board of Governors
12
85-619 0 - 88 - 2
28
was changing. Paul Volker, a man who knew of the CRA and reportedly
authorized the Fed's system of resolving protests after he himself was the
target of community protests, was replaced by Alan Greenspan, a man who
had never heard of the Community Reinvestment Act before to his briefing
prior to the Senate confirmation hearings. Governor Rice, the only black on
the Board and reportedly the governor most sympathetic to CRA enforcement,
Martha Seger, who
attempted to do away with Michigan's community reinvestment advisory
retired and was replaced by a Reagan appointee.
commission when she was state bank commissioner, replaced governor Rice
as liaison to the Consumer Advisory Council.
ACORN has good reason to believe that the attitude of the Federal Reserve
Board towards CRA is decaying:
* The new " Sid Sussan Rule ” : ( Mr. Sussan is the Fed staff member in
Washington, DC, who grants extensions of public comment periods on
applications.) Since July 1987, ACORN has found that extensions are no
longer routinely granted on public comment periods in order to facilitate
negotiations or meetings between community groups and banks; rather,
they are only granted if technical violations of notice requirements have
occurred. After three different community groups had their requests for
extensions denied, ACORN leaders confronted senior Fed officials who
confirmed that there had been a change in procedure, but denied that this
constituted a change in policy.
The fact that this does represent a significant policy shift was confirmed
in November 1987 when Governor Seger told a group of community leaders
at a conference on CRA in Chicago that she was not convinced that
encouraging CRA agreements was in the best interest of anyone, and that
the Board had ruled that decisions on applications had to be processed as
fast as possible in order to protect the safety and soundness of the
institutions involved.
* The secret Seger meeting: In fall 1987, sympathetic staff members in
Federal Reserve Banks and in Washington , DC, told ACORN of a private
meeting Governor Seger held with a group of bankers who felt that the Fed
was helping community groups to force banks into " extortionary
agreements. Ms. Seger and the head of the Feds Community Affairs
Division confirmed that the meeting took place. When questioned Ms.
Seger. stated that she thought the bankers had " some legitimate
complaints" .
13
29
* The First Interstate / Allied Bancshares merger: Ten community groups
from throughout the western United States formally protested this
merger and attempted to negotiate settlements with First Interstate. In
addition, four state ACORN organizations jointly attempted to negotiate
an agreement without filing a protest. Research uncovered serious CRA
violations at First Interstate banks in seven western states and at Allied
Banks in Houston and Dallas. First Interstate refused to negotiate with
any group
Rather than encouraging a negotiated settlement with the community
groups, the Fed stepped in to protect the bank from the groups. First
Interstate and Allied were asked to submit CRA policy statements to the
Fed. The documents that were submitted contained no specific goals or
courses of action : rather, they were general, legalistic statements.
The Board order approving the merger applauded these policy statements
and, in what has become an increasingly common move, ordered the banks
to make yearly implementation progress reports to the appropriate
Reserve Banks. Community groups were entirely removed from the
process.
* The Hibernia case: As explained at the beginning of my testimony, the
Federal Reserve Board has permitted Hibernia Bank to ignore and violate a
• Fed order issued as the outcome of a protracted CRA challenge. Here's a
bank the Fed was going to get tough with. They issued a relatively strong
order but two years later there is absolutely no evidence that Hibernia is
)
in compliance with that order. In the meantime, the Fed has approved
other applications by Hibernia including one to make a major expansionary
move into wealthy parishes in New Orleans.
A pattern has developed ( e.g. Hibernia, First Interstate, Bank of New York )
in which the Fed requires banks to make commitments and follow up with
reports to the Fed, rather than encouraging banks to reach agreements
directly with community groups. And the legal division at the Federal
Reserve Board has made a conscious decision not to permit the public to
see these reports. Will the Fed follow up on its orders and require banks
to report regularly and in detail on their progress towards implementing
mandated improvements ? Why should community groups who have been
cut out of this ongoing progress trust the regulators ? Why should ACORN
14
30
trust the Federal Reserve Board when we look at Hibernia ?
Philadelphias are the Exceptions; Hibernias are the Rule.
The productive partnerships created between banks and low income
communities by the ACORN CRA agreements in Philadelphia and St. Louis are
exceptional. The more typical response by bankers is the aggressive defiance
shown by Hibernia. And unless we get help from Congress in reforming
secondary market and PMI restrictions, even the Philadelphias are at risk.
So far, community groups have been asked to carry the entire load. Given the
formidable obstacles we face and our lack of resources, we've had
remarkable successes in a few cases.
But the situations in Atlanta ( see attached Atlanta Journal-Constitution
series) and New Orleans are the norm . Discriminatory lending patterns, like
those in Atlanta, are typical. And what has been the response of the
regulators ? The Fed and OCC refused in Atlanta to merely come to a public
meeting to discuss the community's complaints. In the Hibernia case, the OCC
had examined the bank for compliance with CRA and related laws less than a
year before ACORN's challenge. The OCC did not even uncover the fact that
Hibernia was not keeping fair lending records. The regulators let banks get
away with murder, before, during, and after community groups use the CRA
challenge process.
By and large banks don't give a damn about the fact that neighborhoods within
their service areas are literally falling to pieces for lack of credit. When a
community group, like ACORN, can move mountains and persuade bankers to
care, the Community Reinvestment Act has been an important resource.
We hope these hearings will be the first step towards radical improvements
in the process. ACORN urges the Senate Banking Committee to exercise the
leadership necessary to improve CRA, and require effective enforcement of
this valuable law . Low and moderate income people throughout the country
are counting on you.
15
Ame
Banric
keran
The
Daily
Financi
al
Servic
es
Newspaper
Wednesday
,1July
23
906
.CU
VOL
143
NO
191
«Y
ear
ACORN
Atypical
Nod
Fed
Gets
Bank
National
Hibernia
T
National
Southwest
with
Merger
For
Southwat
Bureau
ithal
that
back
beaten
chad
aword
stood
that
merger
the
approval
does
re
quire
Hibernia
make
periodic
to
re
compliance
its
ports
on
Fed
the
to
with
from
Acorn
lenge
community
ac
.,the
,and
group
tion
approval
received
had
.That
act
reinvestment
the
be
would
nunusual
aational
bank
w
,for
hich
usu
Bank
National
Hibernia
DALLAS
on
Orleans
New
in
received
Tuesday
1 ontinued
Page
from
C
.
claims
its
substantiate
not
could
reinvestment
its
reports
ally
act
com
pliance
to
Comptroller
U.S.
the
of
,said
asCurrency
for
pokeswoman
Washington
in.C.
,DAcorn
TO
Monday, June 30, 1986
National
.
Bank
Southwest
with
merger
Hibernia
or
tougher
examinations
and
enforcement
of
consumer
laws
.
31
Federal
the
from
Board
Reserve
its
for
32
58 THE WALL STREET JOURNAL THURSDAY, JUNE 26, 1986
Banks With Interstate Ambitions Are Challenged
By Law Requiring Commitment to Local Lending
Ry cu ANKEDURY
33
The CHAIRMAN . Thank you for a very strong statement. We very
much appreciate it.
STATEMENT OF GALE CINCOTTA , PRESIDENT, NATIONAL
REDLINING
For myself, personally, redlining is alive. I don't move very often.
A year ago, I changed my residence. I went to my local bank where
I had my mortgage, my savings account, my checking account, and
my IRA, and was offered a 5 -year balloon mortgage only. I then
went to a second, an S& L in the neighborhood - and this is 40 -per
cent down, not a 5- or 10 -percent — and was told that they couldn't
34
give me the mortgage because of Fannie Mae — they could not sell
it on the secondary market.
NEED FOR ENFORCEMENT BY REGULATORS
What we need is the regulators to enforce and deny applica
tions - enforce the CRA. We need the commercial loan disclosure.
35
We need a new CRA rating system . We need public disclosure of
ratings. And we need comment period extensions.
Center
Information
and
Training
National
NTIC
Good
Mmorning
. ym
name
Gale
Cincotta
and
a
Iis
Executive
Washington
West
Boulevard
IChicago
llinois
260607
)(3,964
43-3035
12
Director
of
National
the
Training
andf
Information
Center
which
works
with
community
groups
ain
other
dthings
, mong
eveloping
reinvestment
partnerships
with
financial
I'd
institutions
like
.start
to
by
thanking
Senator
Proxmire
and
Senate
the
Banking
Committee
for
leading
the
way
for
permanent
extension
of
Home
the
Mortgage
Disclosure
.AAct
long
with
the
Community
Reinvestment
,tAct
his
legislation
turn
can
around
housing
the
economic
and
problems
of
America's
cinner
ity
oday
Ineighborhoods
,T.-'d
like
briefly
to
TESTIMONY
OF
CINCOTTA
E
,GALE
XECUTIVE
DIRECTOR
NATIONAL
TRAINING
INFORMATION
AND
CENTER
describe
obstacles
the
that
stand
in
the
way
fulfilling
of
that
.
potential
BEFORE
THE
Next
month
,it
will
nine
be
years
since
the
first
rejection
of
SENATE
COMMITTEE
BANKING
,ON
HOUSING
URBAN
AND
AFFAIRS
abRA
anking
application
due
aCto
protest
community
by
.groups
36
".law
Today
t
statement
, hat
comes
back
me
to
both
as
p
a
romise
broken
March
22
1
, 988
apity
.and
romise
promised
RA
cinner
-Cfulfilled
residents
that
they
would
longer
no
suffer
from
arbitrary
lending
practices
forced
that
many
pneighborhoods
ainto
decline
.of
Iwere
nstead
,lattern
enders
expected
help
to
build
strong
neighborhoods
meeting
by
sound
credit
CRA
paid
bankers
needs
highest
.
possible
complement
.the
said
:It
With
your
help
oneighborhoods
,will
will
prosper
.Without
,tur
it
hey
die
.
CRA
ILair
praises
the
avitality
of
ound
,s
banking
system
,f
most
lenders
are
willing
not
return
the
complemen
t
today's
I.to
n
urban
tate
fhe
-ato,sAmerica
rt
condos
and
luxury
highrises
aforo
1
backdrop
against
declining
neighborhoods
with
housing
and
less
underlying
Ojobs
. ne
cause
clear
is
from
1986
Home
Mortgage
blame
them
on
m
" yarket
bfailure
coinmuniti
rather
es
"
failure
banks
.by
Disclosure
H
MDA
r
eports
.)(Act
Hundreds
census
of
tracts
in
low
punishment
replaced
is
by
Condition
al
approvals
force
lenders
study
to
everything
and
planning
income
America
did
receive
p
anot
enny
mortgage
in
loans
from
lenders
.reporting
nothing
do
a esult
As
several
,r
lenders
that
got
condition
al
contrast
m
upper
i
-,Byost
ncome
census
tracts
across
the
U.S.
recieved
illion
to
m
$51from
in
home
loans
approvals
the
in
early
years
CRA
of
actually
made
less
loans
afterward
a
, nd
became
the
subject
s
aof
econd
protest
.CRA
promise
The
to
redlining
end
broken
.was
Bank
Indiana
of
one
such
repeat
offender
.was
promise
The
of
has
CRA
been
broken
each
by
of
four
the
federal
banking
S
regulators
CRA
was
passed
a
,. ince
bout
50,000
banking
1980
t
,In
he
OCC
approved
their
merger
application
based
the
on
condition
that
they
develop
a RA
compliance
plan
.C
applications
have
been
to
these
agencies
of
.submitted
50,000
,these
only
eight
applications
were
rejected
due
.to
CRA
bA ank
Over
next
the
six
years
h
owever
,t
he
bank
failed
make
s
ato
ingleIn
mortgage
loan
in
the
City
Gary
.of
president
is
about
likely
as
to
see
application
an
rejected
due
redlining
to
as
he
,
1986
of
ank
Indiana
acquired
was
Bank
w
,by
One
hich
also
made
had
no
mortgage
loans
black
in
neighborhoods
Columbus
of
previous
years
.in
to
is
crash
on
ac
ommuter
extremely
T.airplane
he
low
of
odds
both
explain
may
why
many
bank
CEOs
still
ilow
-see
ncome
neighborhoods
only
protest
ACRA
between
Bank
One
three
and
cities
finally
settled
the
from
the
window
of
their
private
.plane
home
loans
in
Gary
.
wRemarkably
, hen
Federal
the
Reserve
Board
had
approved
Bank
application
over
widespread
community
protest
,One's
1
37
Bank
One
signed
3
$0
a
million
CRA
in
Gary
.agreement
In
1987
fank
or
first
year
ever
B
,the
made
One
millions
dollars
of
in
matter
.
they
asserted
that
the
lack
home
of
loans
inner
c
-to
ity
areas
was
due
complianc
e
O. RA
nly
one
lender
out
5,000
of
rating
,C"5areceived
l
to
ack
demand
."of
moining
they
that
did
comply
not
with
the
.law
fact
Invery
,e
lender
agreements
CRA
have
succeeded
where
conditional
approvals
have
..
that
Csigned
ahas
agreement
in
recent
years
ohad
"1aalready
rRA
rto
,e"2 ating
ven
though
many
admitted
they
made
little
effort
make
than
lending
Since
no
one
to
is
,blame
failed
because
they
measure
CRA
compliance
the
by
only
thing
that
counts
a
making
loans
.: ctually
loans
cin
ity
neighborh
oods
.-inner
f1984
or
texample
,Inhree
Chicago
banks
wisely
headed
C
aoff
RA
protest
agreeing
by
lend
million
$1to
53
inner
to
c
.areas
banks
Tity
he
widely
criticized
b
,were
ased
on
the
notion
that
agreements
the
would
somehow
force
banks
to
unsound
make
Instead
t
agreement
, loans
opened
s
.he
banks
the
hundreds
to
sound
of
lending
opportuni
early
ties
1988
million
$8,.B0y
loans
were
made
.in
tRemarkabl
y
hese
', amily
oans
to
lower
ncome
filbanks
-multi
housing
2
3
jumped
from
zero
1983
in
over
3$to
5
by
1988
.million
Most rtant
impo
,
best
,Athe
CRA
t
process
forced
has
some
lenders
open
to
their
down
.
one
not
these
loans
gone
has
into
default
.of
boardroom
doors
to
people
.community
Once
,inside
to
have
open
bankers
m
'the
inds
themselves
.by
neighborh
the
oods
Many
lenders
simply
refuse
discuss
to
substantive
any
efforts
improve
to
compliance
.CRA
Attached
to
testimony
is
l
amy
etter
from
one
bank
Tennessee
in
that
typifies
lenders
many
attitude
.toward
CRA
The
bank
only
provided
a
copy
their
of
CRA
Statement
after
four
written
.requests
regulators
have
steadfastly
refused
require
banks
lend
ato
s
ingle
bank
The
.
cities
inner
for
penny
also
stated
that
further
requests
information
for
they
legally
are
required
to
disclose
would
only
be
after
met
consultation
with
legal
I he
As
tated
earlier
,s
promise
t
of
CRA
been
fulfilled
,has
b
ut
has
it
been
fulfilled
only
by
community
groups
and
the
relatively
small
number
banks
of
that
agreed
to
join
partnershi
ps
.into
Ten
consul
W
. hen
attitudes
like
these
energe
,t
he
typical
response
of
regulators
be
can
summarized
four
words
a
:in
pprove
protested
years
w
,Iago
ould
never
have
guessed
that
community
groups
would
applications
.to
now
Ihe
fact
n
,t
regulators
are
now
refusing
grant
brief
delays
in
CRA
the
comment
process
that
so
community
groups
can
document
redlining
and
to
head
Cattempt
aoff
RA
protest
privately
by
discussing
concerns
their
lenders
.with
Chicago
f,In
or
sexample
ome
While
the
regulator
have
s
been
rescuing
banks
from
s
c
-a elf
reated
Black
Hole
of
Oil
Big
and
loan
cspeculation
, ommunity
groups
have
steadily
guided
banks
into
billions
well
t
- imed
comment
period
extensions
the
by
Federal
Reserve
Board
in
complaine
about
the
loans
they
made
under
In
agreement
sd fact
.CRA
,
1984
helped
establish
orderly
an
negotiation
process
between
banks
and
community
groups
stopped
that
CRA
protest
.any
T
days
are
over
. hose
Instead
of
banking
tapplications
,denying
he
regulators
are
now
NTIC
even
has
convinced
the
American
Bankers
Associati
on
stop
to
fighting
CRA
and
start
publicizi
ng
the
countless
successes
that
have
followed
from
CRA
.agreement
s
denying
process
due
citizens
to
requiring
by
them
file
aC
RA
protest
almost
soon
as
learn
they
an
application
submitted
.is
From
San
Antonio
Duluth
f
,to
rom
Miami
at
is
c
.a
rossroads
Seattle
c, First
ommunity ly
groups
have
conclusive
proven
two
.things
,
cinner
ity
neighborh
-rSecond
need
plenty
loans
.of
, esidentsoods
of
aggressiv
CRA
e
efforts
is
very
small
compared
the
to
number
that
would
regulator
if
gave
s
them
failing
CRA
grades
and
turned
applicatio
ns
these
neighborhoods
can
and
will
repay
these
loans
better
than
many
CRA
must
become
c
a rivate
ornerstone
of
public
-p
other
borrowers
.
partnerships
revitalize
to
inaer
America
ity
.-c
4
5
To
fulfill
the
promise
38
dollars
of
sound
loans
inner
c
ity
areas
.-in
lender
No
has
wCRA
,of
e
can
no
longer
approve
banks
ot
that
dose
Dillions
on
doans
Revise
comment
period
procedure
s
that
so
citizens
are
o
Mexico
to
and
Texaco
but
won't
lend
creditwort
to
hy
Americans
their
in
guaranteed
due
.process
fulfill
To
the
yard
back
promise
.own
wCRA
,of
e
can
no
longer
approve
banks
of
that
create
their
own
tiny
community
developme
nt
corporatio
ns
clean
toity
up
the
mess
they
created
closing
cinner
-by
branc
long
.ago hes
fulfill
To
the
promise
of
,CRA
w
e
can
longer
no
accept
regulators
that
explain
away
redlining
las
ack
demand
,"of
When
substanti
ve
CRA
issued
are
raised
commentin
parties
g
t
,byhese
comment
periods
should
automatic
ally
be
extended
by
least
onth
.amat
Congress
must
also
keep
its
own
end
of
the
promise
to
inner
CRA
partnersh
ips
have
provided
excellent
leverage
for
.
America
city
federal
grants
and
loans
Chicago
,Inur
o
CRA
partnershi
ps
have
created
2,000
units
of
new
low
i
ncome
-over
housing
,rental
t
ypically
even
though
every
lender
that
has
signed
C
a RA
agreement
has
immediately
been
deluged
with
sound
applications
,.'loan
using
two
dollars
for
ievery
$1private
n
funds
.public
While
some
bankers
are
getting
the
,message
most
regulators
are
Congressio
nal
action
needed
is
ensure
to
that
promise
the
CRA
of
.
not
However
,
these
partnersh
ips
can
provide
not
leverage
where
government
funds
are
percent
to
Ahousing
m
and
odest
.100
increase
federal
in
Expand
HMDA
include
to
geographic
disclosur
of
commercia
le
o
upfront
subsidies
for
low
-i
ncome
rental
housing
can
make
projects
feasible
locking
the
federal
governmen
into
t
long
t
-without
ern
debt
loans
Chicago
.
lenders
already
provide
this
data
minimal
at
.
cost
service
subsidies
.
developmen
what
t
HMDA
already
has
begun
to
do
inner
for
c
ity
housing
development
.
Revamp
CRA
grading
system
.the
O
r
"A3 ating
should
represent
average
,
more
no
and
than
out
one
four
of
lenders
should
above
average
grades
.get
won't
buy
them
and
the
mortgage
insurance
companies
won't
insure
.them
Only
those
lenders
with
above
average
ratings
should
permitted
be
to
engage
in
new
the
past
several
years
,In
annie
Mae
F
reddie
a
,Mac
nd
the
MI
companies
have
enormously
tightened
criteria
that
effect
borrowers
in
-cfter
.inner
America
ity
For
example
a
,before
redlining
hearings
the
banking
powers
such
as
interstate
banking
.
Require
public
disclosure
of
ratings
written
and
CRA
o
Senate
Banking
in
1977
FCommittee
,Mac
annie
Mae
and
Freddie
totally
Standards
on
oning
nzredlining
,revised
eighborhoo
d
yts
bconformit
orrower nt
aanalysis
downpayme
requiremen
., nd
evaluation
by
regulator
ss
.
These
6
7
39
subsidies
will
not
break
the
national
budget
.,sexample
Fmall
or
the
.country
changes
opened
upity
housing
credit
inner
for
-c
neighborho
across
ods
1985
h
owever
a
,Byedlining
lmost
every
piece
of
r
-anti
instrumen
ts
has
also
hplayed
a eavy
role
the
in
losses
experience
d
by
Fannie
Mae
and
the
companies
.MI
example
or
r
,Fesearch
of
loss
the
experienc
es
all
of
MI
companies
Moody's
by
shows
that
95
percent
mortgages
graduated
tpayments
emporary
interest
abuydowns
,,with
nd
Just
when
lenders
were
starting
reinvest
F
,toannie
Mae
Freddie
and
Mac
shut
off
negative
amortizat
schedules
ion
were
to
five
ten
times
more
likely
to
default
than
percent
rfixed
-95
ate
.loans
D
uring
their
worst
oyear
,1 ut
100
fixed
-rof
ate
mortgages
resulted
an
in
insurance
However
i,9claim
100
.n
interest
buydown
mortgages
resulted
ain
The
companies
have
followed
Tsuit
he
neighborhood
.MI
analysis
standards
used
these
companies
discrimate
against
inner
-cbyity
neighborhoods
that
don't
the
suburban
utter
Eccookie
.-fit
conomic
life
eighborhood
conformity
zoning
,annd
are
used
proxies
as
for
Lower
i
- ncome
claim
in
their
year
.worst
Loss
rates
for
percent
fixed
r
-95
ate
loans
were
the
same
loss
as
rates
for
percent
90
adjustabl
e
mortgages
w
, hich
generally
are
governed
less
by
stringent
lending
Instead
guideline
.
eliminatin
of
s
mortgage
instrument
favored
sg
by
Fannie
Mae
and
the
MI
industry
are
screaming
that
they
have
taken
b
& eating
in
recent
What
they
.years
not
do
say
that
is
their
losses
have
little
do
to
with
the
risks
typically
associate
with
d
-cinner
ity
the
early
f1980's
or
Dexample
avid
tMaxwell
,Inhen
head
of
Ticor
the
Mortgage
TCompany
MIC
,i)(Insurance
nvested
heavily
in
EPIC's
speculative
loans
.Fannie
When
was
hee
chosen
to
run
Mae
,h
tightened
loan
for
ilow
-standards
ncome
Americans
but
opened
the
door
millions
to
in
.loans
aEPIC
esult
Trin
MIC
lost
million
2$,As
24
,l1986
argely
due
a$1to
66
million
exposure
EPIC
.to
Fannie
Mae
1made
$ 83
million
profits
in
1986
despite
similarly
heavy
Next
oil
tohe
on
tspeculati
,patch
use
of
unstable
mortgage
40
oods
lneighborh
.Aarge
share
loan
of
losses
experienc
these
by
ed
companies
attribute
be
can
to
industry'
new
sd
four
letter
word
:the
investors
that
result
ayment
tpin
",shock
he
MI
companies
and
Fannie
Mae
have
placed
tight
requiremen
ts
on
percent
rfixed
-95
ate
wloans
, ncome
hich
ihouse
-lower
Americans
and
have
much
lower
.risk
NTIC
arranged
n
ahas
umber
of
meetings
between
Fannie
and
Mae
Wall
Street
"tohrough
t
securitiza
investmen
q
loans
.-ofuality ttion
practice
Inreddie
,F
Mac
has
gentrified
one
end
Main
of
Street
while
local
groups
that
have
bresulted
acommunity
in
etter
understand
ing
and
substanti
al
progress
.
Fannie
Mae
has
revamped
standards
on
letting
the
other
end
turn
s
ainto
lum
because
Wall
Street
doesn't
economic
life
,hnd
ighest ing
and
use
onconform
anbest
,zoning
feel
comfortab
csound
,with
reativelydle
structure
applicati
ons
to
neighborh
ood
conformit
that
y
will
hopefully
stop
loan
rejections
in
create
low
-income
housing
.rental
crucial
changes
are
needed
However
issues
on
borrower
creditworthiness
.of
The
companies
MI
should
be
singled
out
for
Congressi
onal
,review
which
ultimately
should
lead
toerguson
in
FMcCarron
-changes
that
house
To
inner
-c
ity
,America
Fannie
Mae
must
remove
excessive
restrictio
ns
purchasing
on
95
would
place
them
under
federal
regulation
U
. nderwriting
guidelines
of
the
companies
MI
require
am
ajor
overhaul
to
stop
discrimin
ation
ixed
rpercent
ate
onventional
mortgages
.,c-falso
Fannie
Mae
must
increase
their
flexibili
purchasing
ty
in
loans
that
exceed
inner
The
,
cities
neighborhood
analysis
standards
recently
adopted
by
Fannie
Mae
should
be
adopted
the
by
companies
.MI
against
the
Findustry
,MIannie
Mae's
charter
should
be
amended
so
they
can
purchase
c
-inner
ity
conventio
nal
mortgages
with
low
down
payments
!
Currently
standards
M, I
almost
dictate
the
denial
of
loans
in
many
inner
c
ity
not
areas
because
,-ut
they
bare
,risky
because
they
don't
look
suburbs
.like
Premium
rates
charged
by
mortgage
insurers
should
be
federally
.
regulated
From
1985
1986
to
,t
he
12
active
MI
companies
increased
without
winsurance
,MIhich
currently
required
.is
ID
conventio
nal
28-36
debt
income
guidelines
M
.to
any
c
-inner
ity
residents
pay
far
more
than
aq
uarter
of
their
income
for
.housing
Those
with
good
credit
histories
should
viewed
be
favorably
when
they
loan
ahnome
for
.apply
Finally
the
,iblatant
face
of
redlining
by
profits
million
1
1to
$4from
33
while
actually
reducing
their
volume
new
ofhe
policies
written
almost
by
Tpercent
.20
industry
is
using
the
hype
bad
of
oil
patch
loans
to
increase
ly
rates
,drastical
post
profits
,arecord
nd
increase
discrimin
ation
cagainst
ity
-inner
neighborh
with
oods
risk
.low
Mac
has
invested
in
slums
that
have
inoperativ
elevators
e
while
ilower
- ncome
borrowers
are
being
squeezed
out
of
the
housing
market
10
11
antirely
because
insurance
low
on
down
payment
mortgages
simply
became
chance
.
Not
because
it's
the
right
thing
to
do
,b
ut
because
it's
the
possible
la
to
.obtain
profitabl
thing
e
.to
do
Once
again
I
, 'd
like
to
thank
the
Committee
sending
oranking
that
message
b
ato
industry
that
often
does
not
Fulfilling
the
promise
of
CRA
requires
coordinati
on
and
regulation
of
increasing
an
ly
complex
housing
system
.finance
the
blame
for
our
housing
crisis
on
other
.each
understan
its
own
best
i
nterest d
.-self
Ultimat
ely
,
the
blame
is
placed
on
victim
:the
s
ound
inner
-c
ity
applicants
who
are
just
not
sound
enough
meet
to
arbitrary
lending
standards
that
bear
conclusion
I
,In
'd
like
to
point
out
that
for
all
the
wisdom
of
the
lenders
and
all
the
risks
cinner
ity
ods
wneighborho
,-of
e've
done
far
better
than
the
banking
and
industry
MI
in
one
crucial
:area
42
Like
hundreds
of
other
lenders
,the
old
Continenta
l
Bank
learned
the
lessons
of
energy
speculatio
n
and
Third
World
lavestment
the
hard
way
:t
hey
Oasurvived
ur
neighborho
.died
ods
to
see
n
ew
Continent
Bank
begin
to
relavest
soundly
TChicago
icor
.Min
ortgage al
Insurance
Company
led
in
industry
profits
back
in
1982
when
the
MI
companies
were
lured
Texas
to
speculati
by
ve
real
estate
with
rapidly
TMIC
learned
that
what
comes
up
often
cones
down
just
quickly
W
hile
.as
TMIC
took
the
,plunge
thers
found
h
ao
aven
of
stability
cinner
-inity
neighborhoods
that
nudged
slightly
ahead
through
self
evitalizion
efforts
.-rpgreed
Investor
aisoor
substitute
nesting
cneighborhoods
redit
needs
.'for
Iof
f
ten
years
CRA
have
proven
anything
t's
that
cinner
neighborhoods
deserve
a-,iity
12
13
1986 stment
Reinve
National
First
Bank
U
Nichols
S.
Jay
Technical
assistance
National
the
from
Training
Information
and
Center
communities
helped
across
na
the
bring
tion
balmost
a
half
illion
reinvestment
dollars
in
their
Cneighborhoods
ommitments
.to
reflect
,1987
27
October
forortgage
lend
to
mhome
,agreements
improvement
credit
business
small
.and
needs
1
Walter
Mr.
Frierson
28
P.O.
Box
,T38401
Columbia
N
AREA
BANK
COMMITMENT
:
Frierson
Mr.
Dear
California
order
Inermanent
bring
to
correspondence
our
you
pwith
a
to
conclusion
cenclosing
a,Imopy
latest
our
of
Statement
CRA
Hartford
,CT
Britain
,New
C
T
Jacksonville
,FL
Waterloo
,IA
,IL
Chicago
Chicago
,IL
NJay
& ichols
ay
Nichols
Vice
President
sab
Bank
Barnett
Waterloo
Savings
Bank
Continental
Bank
Illinois
of
Bank
of
Edgewater
American
Fletcher
National
Bank
I, N
Gary
MBanc
, errillville
One
St.O
,M
Louis
,MO
Louis
St.
,MN
Duluth
New
Jersey
Columbus
,O
H
enclosure
United
Bank
Trust
and
National
Britain
New
Bank
Indianapolis
,IN
appropriateness
.and
Sincerely
,
million
$50
,PA
Philadelphia
,PA
Philadelphia
Providence
,RI
T
,N
Memphis
,TX
Antonio
San
Landmark
Bank
National
Side
South
Bank
Duluth
of
Bank
First
Bank
Midlantic
One
C
olumbus
,Banc
Bank
Fidelity
Continental
Bank
Bank
Fleet
Tennessee
First
Bank
National
Commerce
of
Bank
Marshall
Illsley
and
Bank
Milwaukee
,W
I
Milwaukee
,WI
CITIES
17
Bank
Marine
BANKS
20
million
3
$
1m$illion
50
$
million
million
.5
$
million
25
$
12
$
million
30
$
million
25
$
million
6m$illion
million
.7
$
m$
4illion
11
$
million
million
50
$
50
$
million
10
$
million
8.6
$
million
4.5
$
million
million
5
$
million
50
$
3million
$
1
$427.3
Million
43
requested
you
B
advised
.that
ehat
owever
t
,,h
and
any
all
future
requests
from
you
any
for
f
,facts
igures
information
o
r
from
about
or
this
bank
must
be
presented
to
me
person
in
office
my
this
at
bank
you
Iwill
require
.by
appropriate
proof
positive
to
as
identity
your
event
the
in
of
such
a
presentation
r
I eserve
and
right
the
defer
to
any
and
such
all
requests
legal
to
consul
determination
for
their
of
validity
Bank
Fargo
Wells
1
3
NTIC
West
Washington
hicago
ICBoulevard
llinois
(,954
260607
)3C
43-3035
12
1987
REINVESTM
ENT
ROUND
-P
U
The
National n
Training
and
Informatio
Center
provided
technical
assistanc
e
to
community
groups
in
the
followingent
areas
in
developing
new
reinvestm
partner
1987
in
ships
Area
Bank
Commitment
Bank
Republic
m
5$ illion
Texas
Commerce
Bank
B
Mank
Union
Planters
Bank
Bank
Key
Valley
National
Bank
First
Bank
Council
Bluffs
Savings
44
San
Antonio
T
,X
San
Antonio
,T
X
San
Antonio
,X
T
,TN
Memphis
,NY
Syracuse
Moines
I
,Des
A
Davenport
,A
I
Council
Bluffs
IA
Dubuque
,A
L
Waterloo
,A
I
York
,New
N
Y
Chicago
,IL
Bank
City
Key
Cedar
Falls
Trust
Chemical
Bank
Austin
Bank
Indianapo
lis
One
,IN
IBank
, ndianapolis
Atlanta
G, A
Trust
Sun
DWashingto
, .C.
n
Bank
Riggs
Nashville
T
, N
Sovran
Bank
KLexington
,Y
First
Security
Bank
:
TOTAL
REINVESTMENT
248.2
MILLION
Results
since
:1984
1984
1985
1986
1987
TOTAL
$172.1
million
297.3
million
248.2
million
a
7 greements
a
6 greements
agreements
20
agreements
13
825.9
MILLION
AGREEMENTS
51
108.3
million
45
95 %
8
interest
buydawn
95 %
TBM
7
95 % graduated
payment
6
95 %
5
GPM
95 % negative
amortizing
دای
Claims
of
tage
Percen
95 % ARM
( Neg AM )
395 % ARM
95 % adjustable
2
rate
All 95%
All 95% loans
95 % FRM
95 % fixed - rate
All 90% loans
1
All 90%
1
2
3
5
CLAIMS EXPERIENCES OF ALL M COMPANIES FOR
MORTGAGE BOOKS OF BUSINESS BY YEAR 78-86
Source : Moody's Structured Report on MI Industry
6
NTIC
NTIC
43-3035
260607
12
)(3C
llinois
IChicago
,954
Boulevard
Washington
West
60607
llinois
,IChicago
Boulevard
Washington
West
954
23)( 43-3035
12
2
TABLE
1
TABLE
FIRST
BY
TRACTS
CENSUS
CHICAGO
TO
LOANS
MORTGAGE
OF
DISTRIBUTION
PROGRAMS
LENDING
NEIGHBORH
UNDER
ACTIVITY
LENDING OOD
YEAR
THREE
)*TRUST
NBANK
,HNATIONAL
ARRIS
CHICAGO
OF
BANK
IRST
(FORTHERN
TRUST
NORTHERN
ND
,A
BANK
ARRIS
H
CHICAGO
OF
NATIONAL
)(IN
THOUSANDS
loans
of
Number
loans
of
Amount
loan
of
Type
Percent
Total
of
fSingle
- amily
6
$ ,379,000
70
37,490,000
148
1,267,000
91
7,649,000
48
19,983,000
60
1985-1986
1982-1983
Tract
Census
Amount
/Moderate
Low
$10,323 14
Percent
Increase
Percent
of
Total
Amount
mortgage
improvement
Home
se
Mixed
u
-
Commercial
Income
Middle
Income
Upper
7
$ 2,768,000
improvement
Home
Continental
by
loans
)(1987
only
Bank
$
35,077
23
239
Income
30
50,622
34
139
40,176 56
64,701
43
61
$71,652
1$ 50,400
100
21,153
417
100
reported
mortgage
loans
f
multi
single
and
onamily
Based
.in
reports
Disclosure
Act
Home
Mortgage
annual
167
:
Definitions
$74,900,974
584
Total
than
less
income
median
with
tracts
c
:Low
oderate
/mensus
MSA
Chicago
for
income
median
of
percent
80
120
to
80
from
income
with
median
tracts
c
: ensus
income
Middle
*
MSA
Chicago
for
income
median
of
percent
of
as
programs
lending
neighborhood
under
made
Loans
.October
in
made
were
loans
irst
F
.1984
1987
October
percent
income
120
over
with
median
c
tracts
: ensus
Upper
MSA
Chicago
for
income
median
of
year
.
because
transitional
was
it
excluded
data
1984
1984
.
October
in
loans
First
90
f
- amily
Multi
mortgage
47
• AUDITING &
.
COMPLIANCE REPORT
From protests
to partnerships
Tension is easing as three Chicago banks
reinvest in communities targeted by local
C
onfrontations between com
working as partners — with productive
results. “ The Chicago story is a very
even missed a payment.
positive one,” says Perry Pero, an ex
ecutive vice -president in charge of credit
policy for Northern Trust Co.
THREE CHICAGO BANKS are working as
partners with community groups. Here,
Barry Sullivan, CEO of First Chicago
Corp., announces a $ 100 million reinvest
ment program . Seated between Robert
Lucas ( left) , president, Rehab Network,
and Richard Hartnack, senior vice presi
dent, First Chicago, is Gale Cincotta, ex
ecutive director of NTIC, the group that
spearheaded the agreements.
40
ABA BANKING JOURNAL / SEPTEMBER 1987
48
ន
utin
" BEFORE " AND " AFTER " photographs show the dramatic im
provemept that reinvestment programs can bring about. The build
years for loans to low- and moderateincome areas. First Chicago led the way
with a $ 100 million commitment.
The agreements between the banks
and the Community Reinvestment Alliance are not contracts per se , states one
ing above is one of many in Chicago that have been rehabilitated
under a special bank lending program .
loan packaging, to help pay for technical
been perfect, but it is improving, both
assistance. Loan packagers screen potential borrowers and help assemble doc-
bankers and activists insist.
about cooperating with community
According to Bruce Gottschall, executive director of Neighborhood Hous-
groups. First, banks feel their com
ing Services of Chicago, Inc. , packbanker, but rather living documents subagers are trained to know what
ject to mutually agreed changes .
documentation banks require from borBasically guidelines for each bank , the
rowers . NHS is one of the largest groups
agreements define loan categories and
loan processing procedures.
in the Community Reinvestment AlThe loans target those neighborhoods liance and one of the most active loan
where the median household income is :-packagers . “ We try to make sure all the
1.75 % or less than the median income of ..bank's questions are answered before
the Chicago metropolitan area . Loan
they're asked ,” says Gottschall.
42
Banks have two main reservations
umentation .
pliance with the Community Reinvest
ment Act is being challenged un
necessarily. Second, they feel that
community groups' approach , at least
initially, is overly confrontational...
In brief, the Community Reinvest
ment Act stipulates that banks must de
fine their service area, report their efforts
to help meet community needs for credit
and services, and make particular lend
--
49
CRA because they were not doing a sufficient job of lending to
DI
certain Chicago neighborhoods. Cincotta maintains that in
their CRA reports, banks often include philanthropic grants as
examples of compliance with the act. " CRA means hard dollar
loans, not grants," she says. Two years after the lending
agreements went into effect, however, she acknowledges the
banks are doing aa better job.
ܡ
Enter fighting. For their part, bankers fault the community
groups for being needlessly confrontational.
Williams points out that Harris first received notice of a
protest in a telegram stating the community groups' demands.
" They didn't ask if we wanted to sit down and discuss these
issues. They simply made their demands," he says.
o
2
0
0
0
The
Domino
Effect ...
there is an
alternative
Swords Associates will help you
develop those aiternatives. Our
associates are seasoned banking
professionals who are eager to help
you meet the challenges of the
changing banking environment.
Experts in correcting regulatory criti
cism , developing capital improve
ment plans, strategic planning and
more , our associates are dedicated
to assisting our clients to success.
C
SWORDS ASSOCIATES, INC.
PROFESSIONAL BANKING CONSULTANTS
44
unoe
ibag
Tric
Th
redlin
tn
agains
weapo
offers
print ing
Fine
Ziemba
Stanley
By
also
requires
act
housing
new
the
%23
%
56
%
43
50
Inconia
1
51
The CHAIRMAN . Thank you for some useful information , Ms. Cin
cotta. We deeply appreciate it.
STATEMENT OF TONY REYES, MAYOR, SAN LUIS, AZ
Mr. REYES. Thank you, sir.
example
an
as
community
our
Using
farmworkers
,we
120
than
more
helped
have
Town
San
of
Luis
S
LUI AS
homes
.f
obuild
only
given
(2)w
two
are
mortgage
regular
loans
.those
others
the
of
Some
mortgages
denied
were
are
they
because
farm
seasonal
workers
do
and
work
not
three
months
per
that
. uggest
year
you
to
s
professions
other
there
just
are
that
seasonal
as
such
farmwork
teaching
as
do
,t
However
eachers
to
seem
not
have
a
of
problem
the
employment
break
qualifying
in
loans
for
.Other
farmworkers
seasonal
the
by
told
were
finish
to
break
their
for
paying
then
and
land
they
S
BOX
OFFICE
POST
OFFICERS
INC1979
minterest
aastercard
issued
were
the
by
19
at
bank
percent
21
and
to
rate
their
.complete
homes
F
is
,turthermore
here
mortgage
no
loan
G.
SOLAREZ
JOSE
Clark
Manager
Town
officer
stationed
at
local
our
.
bank
COUNCIL
TOWN
Igthis
as
ive
example
one
only
how
of
system
banking
the
and
,Mayor
REYES
ANTONIO
MAACO
,VLUIG
CASTRO
Mayor
ice
monitoring
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ank
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56
,Ph.D.
Arnold
D.
John
Executive
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با
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,Ph.D.
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2
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58
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GOVERNORS
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85-619 0
3
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Mr.
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Senior
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241
North
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Phoenix
A
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rizona
Dear
Mr.
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:
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including
low
to а
come
to
.
differences
their
of
resolution
notes
performance
,t
Board
&The
VB
's
to
regard
with
the
credit
meeting
in
an
applicant
community
,
entire
addresstheir
programs
that
place
in
an
of
the
bank
has
umberare
directly
reports
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president
vice
executive
an
by
monitored
and
.VsB
VB
of
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ito
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providing
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c
,- ncome
onsistent
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neighborhoods
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comments
extensive
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considered
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several
VB
participates
&T
in
indicates
record
that
Salt
Lake
both
from
an
as
serving
,including
activities
development
preferred
SBA
in
participa
improveme
home
program
loan
lender
ting
nt
municipal
developme
,iocal
agency
nvesting nt
alin
by
initiated
а
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and
guarantee
loan
,sstudent
bonds
Utah's
upportingd
collaborating
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many
.with
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ood
not
Board
the
that
requests
until
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approve
.
CRA
VNB
of
record
considered
also
the
has
Board
The
VArizona
Bank
National
alley
,Valley
subsidiary
National's
activities
CRA
officer
the
monitors
compliance
full
A
t
ime
aVNB
is
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to
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and
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meeting
the
d
is
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emonstrates
"),(V
NB
and
residents
areas
service
rural
in
-income
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lowNational
has
Valley
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areas
.rural
in
performance
CRA
a atisfactory
s
5/
$265.25
C.F.R.
12
(c).See
62
needsof
to
attempt
in an
Protestants
with
met
has
the
requires
TRA
he
1CRA
§2Act
("CU.S.C.
seq
).et
2901
icompany
abBoard
of
evaluation
its
,holding
application
nank
of
record
the
National
Valley
,and
.Protestants
response
National's
Valley
account
into
taken
also
served
,t
has
Board
he
communities
be
to
assess
to
madeby
allegations
the
the
-6
-7
and
executive
VNB
committee
the
of
member
executive
the
and
convenienceneeds
that
concludes
Board
the
of
the
existing
an
has
VNB
to
program
/
approval.6
with
consistent
are
served
be
to
communities
.
National
Valley
of
committee
involves
marketing
using
which
needs
credit
community
ascertain
and
other
surveys
it
communities
serves
as
,
of
needs
credit
the
the
to
determine
Valley
that
condition
express
the
to
subject
approved
,is
and
officers
its
having
as
well
Superintendent
California
of
approval
the
obtain
National
avariety
in
participate
,directors
organizations
community
of
p,VNB
trint
radio
through
elevision
services
its
advertises
;is
media
billboard
home
and
mortgage
providing
in
active
;
loans
improvement
in
participates
FHA
Title
I
3776
section
to
pursuant
Banks
of
Financial
California
the
of
before
consummated
be
not
shall
transaction
This
the
.
Code
this
of
date
effective
the
following
day
calendar
thirtieth
lending
to
offer
designed
program
loan
CRA
a
; has
and
programs
of
date
months
effective
the
after
,o
Order
later
than
three
r
erm
loans
-t
extended
low
designated
federally
of
residents
to
,unless
Order
this
by
cause
good
for
extended
is
period
such
oderate
ncome
level
m
to
.-i
tracts
census
'to
the
Protestants
respect
With
/ PEP
6
ublic
P
ap
order
to
Board
the
requested
also
has
meeting
presented
on
testimony
issues
the
public
receive
to
hearing
or
assertions
r
a eview
,
rloan
easonable
that
aof
is
there
indicates
portfolio
VNB's
does
flthough
3(b)osection
Act
BHC
the
.Aby
this
application
the
in
resides
population
state's
of
percent
75
over
that
fact
strengthen
to
order
In
performance
CRA
its
.
Tuscon
and
Phoenix
-income
moderate
and
lowcertain
in
census
the
tracts
within
63
formal
hearing
in
require
ublic
apnot
or
meeting
this
ublic
rder
tnhe
iinstance
may
Board
,o
case
any
ap
or
meeting
he
T62.3
Rules
formal
hearing
.See
§2Board's
C.F.R.
(e)12
apublic
that
provide
also
Procedure
of
to
held
be
may
meeting
provide
to
or
application
an
to
related
issues
factual
clarify
.12
testify
to
persons
interested
for
opportunity
an
C.F.R.
earing
ah
(d)$2
.or
request
its
in
However
for
, 62.25
fact
of
questions
,PPEP
meeting
material
any
present
not
does
and
urban
between
loans
of
,gdistribution
areas
rural
the
iven
that
are
,
MSAS
Tuscon
and
Phoenix
agreed
has
VNB
its
strengthen
to
its
of
segments
education
all
in
efforts
consumer
and
marketing
expand
throughout
will
VNB
special
its
state
the
service
.area
-income
,moderate
persons
lending
and
lowto
geared
programs
areas
.Based
in
rural
,
record
of
facts
the
all
on
especially
!
!
1
OF
GOVERNORS
BOARD
GOV
ERN
DOF
AR
O
BO
-8
CORRESPONDENCE
OFFICIAL
ADDRESS
Francisco
San
of
Bank
Reserve
Federal
the
by
or
Board
FE
DE
RA
L
1
, 987
30
November
ive
ffectnors
eGover
],the
of
Board
of
order
By
,director
Toomer
G.
Barbara
Congress
Citizens
Lake
Salt
The
East
400
South
347
84111
tah
U
,City
Lake
Salt
lacruenlue
Mung
:
Toomer
Ms.
Dear
.
California
Enclosed
are
press
e
and
releas
and
Greenspan
C
:this
hairman
action
ป Vfor
oting
aHSKelley
,A. nd
eller
ngeli
eger
Johnson
Governors
the
64
System
Reserve
Federal
the
of
Governors
Board
The
,of
Corporation
National
Valley
application
the
approved
has
,Bank
resno
F
Valley
California
acquire
tPhoenix
,Ao
rizona
James
order
C.F.R.
(1
2
Procedure
of
Board's
Rules
the
Under
action
this
reconsider
to
Board
the
request
may
),you
262
Part
,262.3
Rules
Board's
the
(k)o
a
section
with
accordance
inf that
Rules
of
the
.of
note
P
lease
enclosed
is
which
copy
reconsideration
for
pteition
such
any
that
provide
Procedure
than
later
no
Board
of
Secretary
the
by
received
be
must
enclosed
the
of
date
effective
the
after
day
fifteenth
the
Order
,Very
yours
truly
McAfee
James
el
Enclosures
:
CC
Francisco
San
of
Bank
Reserve
Federal
on
✓
Corporati
National
Valley
GOVERNORS
OF
BOARD
THE
OF
SYSTEM
RESERVE
FEDERAL
OFFICIAL
CORRESPONOCNCC
ADDRCIE
the
System
Reserve
Federal
Governors
of
Board
The
National
Corporation
,Valley
of
application
the
approved
has
Valley
,tFresno
Bank
California
acquire
A
rizona
Phoenix
,o
.
California
release
and
the
order
Order
:
McAfee
J) ames
Tollyrea
San
Francisco
of
Bank
Reserve
Federal
Corporation
National
Valley
65
2
C.F.R.
(1
Procedure
of
Rules
Board's
the
Under
action
this
reconsider
to
Board
the
request
may
ou
),y
262
Part
(k)with
262.3
,a
Rules
Board's
the
of
section
in
accordance
.is
of
Rules
enclosed
the
that
note
Please
which
of
copy
reconsideration
for
petition
such
any
that
provide
Procedure
than
no
later
Board
the
of
Secretary
by
received
must
be
enclosed
the
of
date
effective
after
day
fifteenth
66
Bank deal's
OK by Fed
C2
protested
THE ARIZONA REPUBLIC
FED
Community groups
Continued from C1
requesting hearing
reconsider the approval of First
By FRANCIE NOYES
also will demand that the Senate
The Arizona Republic
hold oversight hearings, lookingat
the activities of the Federal Re
serve," he said.
Interstate's acquisition, and they
V
In a related development, the
Federal Reserve has extended its
review of a challenge against Val.
ley National Bank. Tucson -based
PÞEP Housing Development Corp.
has filed a protest against Valley
Bank, saying it discriminates
against rural customers in its
lending policies. PPEP stands for
Portable Practical Educational
Preparation .
THE ARIZONA REPUBLIC
The Economy
!
D6
Irwin
Leslie
By
distributi
loan
on
on
Bank
defends
record
VNBices
rural
lendi
ng
pract
hit
Mesa
TTribuno
empe
Daily
News
Tribune
handler
Arizohan
,/Cuesday
STTribune
eptember
Business
67
9
BOICE
JENNIFER
By
1SFriday
,11987
eptember
.
areas
ces
practi
lending
VNB'ssting
prote
residents
Rural
Citizen
Tucson
Business I
/4
wheel
the
Behind
68
69
Rural group
is protesting
VNBlending
Continued from 1F
months in loans for a program ca
tering to small, family -owned busi
nesses. As part of its five-year plan,
PPEP had asked for $ 200,000 a
year for the next five years for that
program .
• The complaint could slow VNB's
purchase of California -basedValley
Bank, Creedon said . The Commu
nity Reinvestment Act states that a
bank can't buy another bank if it is
not serving its present community.
70
Business
Tucson Citizen
Wednesday, October 14, 1987
By JENNIFER BOICE
Senators
Citizen Business Writer
their credit grievances with the
banks.
community
groups,including one in aTucson
to review
Senate
hearing in December into the
Federal Reserve Board's regula
tion of a 10 -year -old law.
Mình
đi
71
The Daily Dispatch
por and themosty cull be safe " - A. Lincola
Minority assistance group
challenges Valley National
By Dave EFT
Friday
September 4
2808
tables
NYSE
tables
Amex
tables
OTC
funds
Mutual
S987
9,1Wednesday
eptember
Econo
C my
REPUBLIC
ARIZONA
THE
72
Valley Bank accused
of rural -areas snub
been discussing with the bank
Canceled meeting has
since April the bank's lending
communities.
ruralCommunity
activitiesthe infederal
with group pushing Under
Re
for housing loans
73
SNUB
Continued from C1
Reserve) procedure go on ," he said.
Arnold, executive director of the
of other factors,” according to the
"
on
74
The Arizona Daily Star
Tucson , Wednesday, September 9 , 1987
Money
VNB practices on home loans
favor urban Arizona customers,
advocate for rural areas says
By Bob Svejcara
The Arizona Daily Star
Valley National Bank is turning its
back on Arizona's rural communities
with discriminatory practices in home
mortgage and home improvement lend
ing, a rural aid group charged.
The charges are based on a PPEP
study of home purchase and home improvement loans provided by VNB between 1981 and 1986 to selected census
tracts in rural versus urban areas of
Pima and Maricopa counties.
off. Creedon said the comparisons be
tween loans to rural and urban areas
" have no merit . "
The report compares census tracts
in the rural areas of Tolleson and Gila
Comparing two census tracts in
VNB
higher poverty rate and a higher
Hispanic minority presence than the
urban tract,” the report said .
Glendale with one west of Phoenix ,
bordering Tolleson , the PPEP re
lion for credit losses as of March and
has invested one - third of its loan and
lease portfolio ( $2.4 billion ) in high
75
Money
***
TO US
Red banner
Elizabeth Mangelsdort, The Arizona Daily Star
Protestors hold a red banner to symbol
ize their charges that Valley National Bank is " redlining" in denying
home and community development loans to rural areas. The protest
occurred yesterday outside the bank's downtown office in Tucson . It
was sponsored by the PPEP ( Portable Practical Educational Prepara
tion) Housing Development Corp.
The drizona Baily Star
Tucson, Friday, September 18, 1987
76
sa SAREPUBLIC
The Economy
Dow tumbles 31.82 points
Stocksfinish sharply lowerinactivetrading. TheDowJones
industrial average drops 31.82 points, 10 2,492.82, after a
loss last week of 84.10 points. B8.
Business
today
3
Charles Kraicai/ The Arizona Repuonc
Protesters holding signs and a red ribbon Phoenix. The group, led by a Tucson. towns by refusing to make adequate loans
line up outside the corporate headquarters
based housing development corporation ,
outside urban areas. The group is made up
of Valley National Bank in downtown said the bank discriminates against rural mostly of residents of the San Luis area.
protests 'redlining' by bank
Group
Valley National
signs and held a red ribbon to the rural residents do not get state's population, Creedon said.
protest what they call Valley their fair share of loans, Arnold In a letter sent to the Federal
defends policy
Reserve Board on Monday, Cree
National Bank's " redlining " of said.
In comparing housing-related donwrote," We feelthat thisis
Valley National Bank discrimi. loans made in comparable census tangible evidence that we have
the state's rural communities
on rural lending
77
PREDLINING
Continued from B5
ber of federal agencies when an into those communities," Farias
cout-of-state merger or acquisition is
said.
we
78
The CHAIRMAN. Thank you very much, mayor, for a fine state
ment.
STATEMENT OF SHANNA SMITH, DIRECTOR, TOLEDO FAIR
INSTITUTION OF AN AFFIRMATIVE MARKETING PROGRAM
The Bank Board did condition First Federal Savings and Loan's
application for a branch. The conditions were that they had to es
tablish a home improvement loan department of which this large
major S& L in Ohio had not had. They were to institute an affirma
tive marketing program and then have semiannual meetings with
community groups.
79
Likewise, when an advertiser and a lender uses advertising,
either on television, radio or in the print media , if onl; white
people are shown in those ads, it has a subliminal message to the
minority populations in America that we may not want to do busi
ness with you . That is also a violation of title VIII of the Federal
Fair Housing Act.
FHLBB HEARING
As a result, there was no cooperation and we filed the challenge.
Now this is when we started working with the Bank Board again.
They scheduled a hearing, told us we had to come down to Cincin
nati again , and we asked them if the hearing could be held in
Toledo because we couldn't afford — I know how you felt about
-
coming here with the expense and time-couldn't afford to go down
to Cincinnati to present it. Back and forth we went with the Feder
al Home Loan Bank Board and we finally got the meeting sched
uled in Toledo.
80
going on in Toledo have been significant. We have had lenders
build full service branch banks in the black community. First Fed
eral still does not have a branch there and has said that they will
close their doors before they sit down and talk with us as a commu
nity group in building a branch bank in the black community, al
though they have been studying it for 8 years.
instrumental
in
investigation
the
prosecution
and
at
of
least
major
seven
cases
federal
in
filed
district
against
court
lending
TESTIMONY
SHANNA
OF
SMITH
EXECUTIVE
TOLEDO
DIRECTOR
FAIR
HOUSING
CENTER
BEFORE
SENATE
THE
COMMITTEE
ON
BANKING
institutions
doing
business
the
Toledo
in
.area
of
one
In
the
Community
Reinvestment
Act
Oversight
Hearings
ov.End
,most
caes
ld
West
recent
BAssociation
uckeye
Federal
Savings
oan
6Association
,&L75
Supp
100
Ohio
(N.1F.
.D.
)1987
INTRODUCTION
Members
of
Committee
the
name
,m
y
Shanna
Smith
.is
components
the
p
a
of
rima
facie
lending
discrimination
case
were
am
I
the
established
.
Executive
Director
of
Fair
the
Housing
Center
located
Toledo
,in
Ohio
.
Fair is
Housing
Center
The
of
agency
an
Toledo
the
purposes
the
of
Housing
Fair
Center
are
identify
to
eliminate
and
forms
all
of
discrimination
housing
lending
and
in
Toledo
,the
Ohio
to
Reinvestment
Community
has
Act
The
Community
Housing
Resources
nIBoard
on
-p,anc.
rofit
corporation
organized
existing
and
under
the
State
of
.laws
Ohio
The
essential
tool in
our
discriminatory
housingand
rid
sometimes
been an
our
community
of
discriminatory
lending
practices
.
use
mechanism
protest
CRA
as a
the
have
We
threatened
used
or
to
means
drawing
of
the
to
attention
of
lenders
regulators
and
our
public
the
about
housing
and
lending
educate
laws
,
efforts
to
certain
about
concerns
lending
lender
practices
.talk
found
have
We
many
that
lenders
will
not
practices
availability
,administrative
of
legal
the
and
and
mrisk
a eaningful
way
in
us
with
absence
the
some
potential
of
their
future
business
.to
implement
Oplans
ability
ur
to
the
remedies
for
discriminatory
practices
a; nd
provide
to
counseling
referral
and
services
the
public
with
respect
housing
to
and
regulatory
protest
CRA
procedure
poses
aoften
such
18
I.
threat
to
,a
plans
those
often
is
it
nd
when
only
threaten
we
file
to
or
lending
discrimination
matters
.
Cchoose
a RA
file
actually
lenders
that
protest
communicate
to
with
in
earnest
.us
agency
Our
devoted
has
substantial
attention
over
the
past
years
ten
to
problems
discrimination
the
financing
in
of
Although
we
believe
firmly
in
goals
Community
the
of
housing
disinvestment
the
and
lenders
by
low
of
moderate
income
minority
and
neighborhoods
in
City
the
Toledo
.of
The
discrimination
casein
natio
n
,
the
Heinzeroth
Mortgage
Co.
Reinvestment
Act
414
Supp
.F.6
6
N),1977
Ohio
1976
),( .D.
4
30
Supp
8
.F.
93
(N
.D.
Ohio
filed
w
as
.
successfully
and
litigated
in
Toledo
.
Our
office
has
been
deficiencies
have
we
observed
over
past
the
.decade
!
1
census
c-targeted
inner
the
inity
loans
ES
COMMUNITI
THE
HELPED
ENT
ACT
RBINVESTM
COMMUNITY
THE
HAS
.
II
the
throughout
tracts
.study
under
period
ear
-yfive
entire
?
IN
WORKED
HAVE
YOU
d
our
influence
has
CRA
the
whether
say
to
difficult
is
It
the
as
well
a
, sur
.in
agency
fashion
O
l
meaningfu
any
community
an
on
determine
to
on
needed
informati
the
have
not
dpublic
, oes
moderate
and
low
of
needs
credit
the
whether
basis
objective
as
same
the
r
,oare
orse
wbetter
met
being
oods
neighborh
income
which
with
barometer
one
just
be
may
lending
mortgage
While
credit
community
meeting
to
responsiv
lmeasure
atoender's eness
g
continuin
Two
.was
1977
in
passed
CRA
the
before
were
they
and
low
these
of
needs
credit
mortgage
residential
the
meet
to
ais
not
CRA
the
that
ndicate
i
, owever
h
observed
have
we
trends
to
indicate
Toledo
of
City
the
in
neighborhoods
income
moderate
of
failure
,indicator
The
important
vineeds
ais
tery
,most
time
of
l
period
sover
aubstantiaons
instituti
lending
regulated
ons
.of
instituti
regulated
many
concern
major
being
not
taken
is
Reinvestment
Act
Community
the
that
us
the
that
tudy
s
aFirst
completed
n
i
,measured
1986
and
banks
area
Toledo
major
of
activity
lending
mortgage
overall
we
years
few
past
the
in
observed
have
we
trend
second
The
1980-1984
period
ear
yover
-five
the
ons
associati
loan
and
savings
and
%
25
populations
of
minority
or
38
.by
them
seriously
by
enough
seriously
taken
being
not
is
CRA
the
that
indicating
income
moderate
to
ow
l
,in
stock
housing
older
with
tracts
census
In
.
greater
are
lenders
which
with
frequency
increasing
the
is
lenders
area
moderate
and
low
within
b
,close
g
to
attemptin
r
o
, ranches
closing
kept
aWe
.have
neighborhoods
income
lending
those
by
prepared
eports e
r)(Act
MDA
HMortgage
Disclosur
d
discovere
We
.-that
period
ear
yfive
the
ons
during
instituti
al
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providing
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ons
studied
instituti
11
the
of
one
only
evel
l
a
at
census
tracts
targeted
the
to
monies
loan
mortgage
the
of
areas
all
treating
was
who
ender
l
a
expect
would
one
that
ons
instituti
lending
ten
other
T.an
basis
equal
onhe
community
one
activity
lending
al
mortgage
residenti
the
of
short
far
fell
their
with
provided
being
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oods
neighborh
all
if
expect
would
ne
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tal
investmen
residenti
available
the
of
share
fair
ten
only
provided
bank
national
sizable
-3
residential
mortgage
intention
their
year
past
the
within
announced
each
have
lenders
.of
profitability
lcbranches
a,-ofack
iting
ity
inner
closing
these
of
closing
actual
the
forestall
to
managed
have
we
far
So
.CRA
the
under
protests
file
to
threatening
or
filing
by
branches
these
keeping
in
succeed
eventually
may
we
whether
of
Regardless
by
told
consistently
be
disturbing
is
t
i
branches
,to
open
to
commitment
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tbeen
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have
we
s
institutions
lending
neighborhoods
income
moderate
and
low
of
needs
credit
the
meeting
.can
elsewhere
money
more
make
they
decide
when
terminates
This
type
of
believe
is
,
we
eby
I xplained
just
minutes
ew
m
,afAs
ago
easured
only
the
investment
residential
of
mortgage
capital
loan
Community
the
inconsistent
with
the
.
act
Reinvestment
Community
the
of
purpose
Moreover
Toledo
,n
i
have
we
found
significant
disparities
Reinvestment
Act
not
has
r
a
been
esounding
success
in
City
the
of
between
services
the
of
central
city
suburban
branches
.and
Similarly
financial
, he
t
During
the
yperiod
- ear
five
we
Toledo
.
studied
,of
almost
the
products
offered
lenders
by
become
have
increasingly
directed
to
million
$800
residential
in
mortgage
money
loan
invested
the
in
contrast
t
,In
he
fees
basic
for
banking
services
entire
Toledo
area
,f
nly
(3%)o
dollars
those
made
their
to
way
escalating
been
have
with
result
the
that
moderate
and
low
income
targeted
the
low
moderate
and
income
census
.tracts
customers
p
riced
o
"are
out
f
services
.the
indicated
study
the
of
at
that
results
The
residential
the
mortgage
loan
level
t
aotal
commitment
under
CRA
not
being
.is
made
1985
A
by
study
American
the
Association
Bank
noted
that
the
o%*4f39,000.00
families
less
1than
$earning
per
year
had
to
it
does
Nor
lenders
that
appear
providing
are
access
equal
close
their
accounts
reasons
for
affordability
."of
services
moderate
and
low
to
income
.residents
governmental
privileges
,
some
H
. OW
III
MEASURE
YOU
DO
SUCCESS
FAILURE
?OR
services
.
to
access
cash
social
.
checks
welfare
or
security
measure
success
We
failure
or
by
standards
:two
(1)
investment
to
,capital
nd
2)(a
lenderswill not
the
Despite
access
believe
We
REGULATORY
THE
OF
WHICH
AGENCIES
HAVE
WORKED
YOU
WITH
AND
.
IV
WOULD
YOU
IMPLEMENTING
HOW
EFFECTIVENESS
THEIR
ASSESS
IN
m
a inimum
the
what
at
term
"credit
CRA
?
under
Community
the
Reinvestment
The
.
Act
equal
office
Our
dealt
has
with
Office
Comptroller
the
of
experience
Our was not
Comptroller
the
with
Currency
of
refused
office
Comptroller's
The
development
The
of
mutual
this
trust
commitment
and
provide
to
us
with
a
c
on
hallenge
n
ahearing
to
ational
bank's
remove
decision
does
it
to
affluent
neighborhoods
.the
-6
83
are
-5
black
engage
Americans
more
which
market
investment
capital
that
from
h
- alf of
first
duringthe
,
applicants
and
1987
that
conducted
not
has
Federal
First
%,to
3
dropped
e
had
percentag
.is
loans
mortgage
r
hat
tesidential
,in
other
any
than
meetings
the
(5),since
1982
meeting
nnual
-a
semi
required
the
ut
,b
all
at
eetings
"c
m
ommunity
not
were
conducted
that
.of
CRA
the
intent
In
been
1979
First
Federal
Savings
Federal
First
which
during
lectures
structured
as
were
rather
made
officials
not
has
Board
Bank
Loan
Home
Federal
the
with
experience
Our
and
neighborhoods
regarding
comments
offensive
.
minorities
Loan
Bank
Loan
Home
Federal
the
with
applied
Toledo
of
Association
predominantly
in
offices
branch
open
to
permission
for
Board
that
Federal
First
with
problems
other
and
these
of
Because
,had
1979
since
surfaced
to
we
what
of
ecause
B
uburban
s.neighborhoods
,perceived
white
ain
filed
1987
CRA
again
agency
our
engaged
any
in
Had
Board
Bank
the
.with
Board
Bank
the
protest
low
Toledo's
to
commitment
and
in
record
poor
Federal's
First
be
would
it
challenge
1979
the
since
Federal
First
of
monitoring
credit
the
meeting
not
was
Federal
First
that
discovered
have
First
that
and
neighborhoods
income
moderate
low
of
needs
it
upon
imposed
conditions
the
with
compliance
in
not
was
Federal
:on
Federal
t(1) he
First
conditions
three
imposed
b
, ut
request
(2),loan
the
department
improvement
home
a
,athe
challenge
1979
second
since
Federal
First
of
monitoring
community
interested
with
meetings
nnual
asemi
of
-scheduling
Bank
he
t,groups
conditions
these
imposed
having
it
Despite
.have
avoided
been
may
protest
.
with
compliance
Federal's
First
monitored
Board
never
me
moderateinco
and
low
any
in
Board
engaged
Bank
the
Had
.1979
in
Board
Bank
the
by
(3)the
and
,an
program
marketing
affirmative
of
institution
to
has
Board
Reserve
Federal
the
with
experience
recent
Our
credit
our
to
responsive
been
has
office
The
Cleveland
.been
acceptable
first
the
uring
d
(1)that
extent
an
such
to
deteriorated
needs
and
meaning
the
understand
to
appears
nd
arequests
,and
inquiries
home
approved
36
Federal's
First
one
but
all
1987
of
half
first
the
dapplicants
(2),touring
white
went
loans
improvement
Federal
First
1987
of
half
.the
Act
Reinvestment
Community
of
importance
minority
Toledo
the
advertised
in
with
nments
advertise
televisio
no
had
and
,once
only
newspaper
THE
CRA
IN
ARE
NEEDED
ANY
EMENTS
IF
IMPROV
WHAT
SES
?PROCES
EMENT
ENFORC
AND
ATION
EVALUA
EXAMINTION
V.
5.34
only
1986
uring
(3),or
dof
models
role
actors
ninority
ons
were
from
received
applicati
loan
mortgage
Federal's
First
just
devote
to
need
regulators
fspeaking
, ederal
Generally
CRA
under
performance
institution's
an as
to
attention
much
as
-8
-7
84
the
with
protest
aCw, inority
filed
eRA
neighborhoods
mincome
Federal's
First
approved
eventually
Board
Bank
The
.Bank
Board
lin
request
response
aender's
disapprove
or
to
an
soundness
.Examiners
and
safety
need
institution's
an
to
do
they
administrative
protest
.CRA
discrimi
lending
of
identification
the
in
trained
better
be
to
Reserve
Federal
Currency
the
of
Comptroller
The
Insurance
,and
Board
Deposit
Federal
the
Corporation
.
4
underwriting
guide
,including
lenders
by
nation
discriminatory
should
the
analyze
and
collect
that
data
the
same
and
collects
currently
Board
Bank
Loan
Home
Federal
,aIanalyzes
particular
must
agencies
regulatory
ll
.n
discriminatory
,patterns
prescreening
.lending
,and
lines
the
,as
data
applications
analyze
and
collect
as
well
. This
analyze
and
collect
currently
they
data
other
available
the
to
should
made
be
also
applications
data
community
committed
and
dedicated
more
be
to
need
Examiners
reinvestment
.
.under
Act
Disclosure
Mortgage
Home
the
public
automatically
place
to
required
be
should
Lenders
all
lawsuits
dministrative
,aand
letters
complaints
of
u
,v
treatment
nequal
iolations
unfairness
alleging
or
federal
,e
laws
state
files
CRA
their
tc.
any
.in
files
those
of
contents
the
limit
regulations
Current
institution's
specifically
an
to
relating
comments
5.
On
a
, concrete
level
we
more
its
of
needs
credit
helping
the
meet
to
performance
in
communities
.
or
community
should
be
end
studies
,aExaminer's
reports
valuations
.The
public
the
to
available
made
presently
CRA
covers
institutions
.only
chartered
publicly
is
There
no
interest
business
is
legitimate
regulatory
that
or
1.
policy
underwriting
mortgage
residential
,Any
loan
d
has
product
that
policy
,oariscriminatory
pricing
6.
.effect
prohibited
be
low
on
should
applicants
income
of
products
Examples
that
policies
such
and
are
include
:(a
increasing
community
lending
the
)
among
minimum
,w
amounts
a
refuses
hereby
loan
lender
to
c
)loan
;(b
amount
ertain
a
than
m
less
ortgage
provide
size
upon
based
rates
interest
of
tiering
the
performance
institution's
served
an
secret
keeping
by
examiners
.under
by
used
criteria
various
the
is
This
true
respect
with
particularly
to
any
loan
mortgage
,the
85
,eshould
compliance
CRA
of
indicator
an
As
xaminers
.
2
mortgage
the
loans
is
determine
number
of
if
one
(wstandard
) to
deviation
ithin
proportional
the
housing
units
-oand
owner
of
ccupied
in
low
number
moderate
income
.
areas
be
made
enforcement
should
mechanism
additional
Some
the
only
C
.available
groups
ity
urrently
com
to
challenging
of
means
performance
lender's
aeffective
3.
is
CRA
under
to
STAND
NOW
BELIEVE
FACTORS
YOU
WHATIN
DO
CRA
?
PROGRESS
UNDER
FURTHER
ACHIEVING
.
VI
THE
WAY
OF
further
achieving
in
of
way
the
factors
standing
major
The
Act
Reinvestment
Community
the are
under
progress
monitoring
aggressive
and
enforcement
efforts
by
of
lack
the
regulatory
mechanism
enforcement
any
meaningful
of
lack
the
a
, nd
agencies
.to
groups
interest
community
and
individuals
concerned
available
we
-9
-10
dntly
Congress ts
if
diminishe
significa
be
would
impedimen
These
.Irecommend
federal
made
he
Tave
just
hthe
ations
adopt
to
were
magencies
,, ust
regulator
the
hrough yt
tgovernmen
as
just
be
as
ent
Act
Reinvestm
Community
the
of
purposes
to
committed
are
community interest groups like
.
us
those
,
Conversely
aevidenced
have
that
groups
housing
fair
and
interest
community
in
role
meaningful
ore
m
a
provided
be
must
CRA
the
to
commitment
its
,
nt
enforceme
the ing
implement
By
have
improvements
we
low
the
ned
and
strengthe
ally
substanti
be
will
Act
tsuggested
, he
.in
benefit
will
country
this
neighborh
income oods
moderate
and
opportunity
this
with
me
providing
for
Committee
the
t
I hank
.
Act
ent
Reinvestm
Community
the
about
concerns
our
express
to
86
-11
NTIC
National
Training
Information
and
Center
Boulevard
Washington
West
954
,Illinois
(3Chicago
)260607
1243-3035
BACKGROUND
MORTGAGE
ON
INSURANCE
INDUSTRY
America's
mortgage
insurance
industry
inetter
abis
position
than
before
ever
to
meet
hAmericans
'help
ousing
active
12
The
insurance
providers
.
needs
posted
combined
after
profits
ax
of
cmillion
ompared
3,$1-t1986
to
133
NEIGHBORHOODS
-CITY
INNER
MI
INDUSTRY
THE
:AND
CAUSES
REPORT
A
ON
INDUSTRY
OF
LOSSES
profits
million
1982
.in
and
tBetween
,1982
1986
hese
icompanies
nsurance
' heir
coverage
rose
percent
t271
,by
premiums
earned
rose
a363
,by
percent
nd
profits
their
.
87
rose
416
increase
profits
Hpercent
did
ow
almost
.by
twice
fast
policies
jacking
y
premiums
mup
aking
a,B?as
bundle
investments
capital
and
agains
,off
nd
paying
not
.in
taxes
income
penny
a
same
the
,At
mortgage
ttime
he
insurance
industry
been
has
paying
claims
on
loans
bad
at
iever
ncreasing
-an
Almost
billion
$1rate
losses
in
were
incurred
on
..3
loans
bad
alone
1986
,in
arnumber
,tAs
of
he
esult
being
policies
fwritten
,new
down
going
are
rom
380,440
312,655
to
1985
heaviest
The
1986.
.bin
is
urden
mfalling
oderate
/on
low
families
income
require
who
dinsurance
-guaranty
low
on
ownpayment
mortgage
1988
March
hbecomes
,loans
PMI
Without
unaffordable
an
. omeownership
millions
for
dream
Americans
.of
faccounts
one
ourth The
-for
industry
all
losses
.of
companies
to
used
disaster
the
they're
.get
in
now
1980
example
or
South
t,fIn
he
had
highest
the
rate
of
million
$311
claims
in
losses
incurred
TMIC
by
1986
directly
are
attributable
one
cause
:to
mas
default
sive
appreciation
percent
4.7
lowest
a)(1home
the
nd
rate
of
unemployment
percent
(6f.07
region
)oany
in
nation
.the
Mortgage
insurers
were
happy
maximize
to
exposure
this
in
Snet
. imilary
loans
EPIC
speculative
million
,a$3on
3
loss
by
Republic
Mortgage
Insurance
Company
,in
1985
their
only
unprofitable
showing
in
past
five
years
,the
presumably
ss
"r
egion
afe
EPIC
,a
the
demonstrate
.loans
directly
attributable
isff
to
write
-othe
of
tens
insured
TMIC
heavily
South
the
in
and
1982
.FWest
rom
millions
dollars
of
in
loans
that
year
.EPIC
1984
to
,t
hey
second
the
h
ighest
-had
annual
profit
of
all
companies
.PMI
1985
,In
bottom
he
dropped
out
.t
During
Tperiod
exas
,wthis
here
wrote
TMIC
percent
15
of
general
and
awry
went
economic
South
the
in
turmoil
and
cowns
one
rystal
,baNo
ball
ut
to
is
who
that
say
conventional
The
wisdom
that
is
mortgage
insurers
should
cut
spigot
off
to
South
the
instead
and
increase
exposure
their
on
the
inhere
loans
East
,wNorth
estate
real
appreciating
are
prices
twice
at
national
the
appreciation
l,Rapid
aunemployment
nd
. ow
average
sloss
economy
atable
minimize
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of
risk
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M
eanwhile
a
. ll
homes
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PMI
companies
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raised
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ppremiums
-un
five
ercent
wmortgages
,down
hich
claimed
are
to
greatest
the
be
cause
the
pindutries
roblems
.'of
Hartford
of
will
1991
different
be
the
than
Houston
1986
insuring
?Bof
y
heavily
homes
in
rapidly
with
appreciating
estate
real
values
companies
t, he
PMI
are
themselves
setting
again
for
up
losses
claim
huge
if
North
the
goes
East
recession
into
inflated
and
home
plummet
values
,j
ust
did
they
as
Sun
the
.in
Belt
surest
guarantee
The
against
regional
economic
dislocations
increasing
is
policies
over
all
the
,country
that
so
future
losses
in
region
any
can
compensated
be
premium
huge
by
earnings
everywhere
Ielse
nstead
,.for
the
companies
tightened
have
policies
increased
and
88
fiasco
The
with
EPIC
symbolizes
deeper
the
cause
mortgage
company
:rofeal
losses
investments
estate
that
.
rom
.1986
claim
, ortgage
insurance
mF1978
ato
in
of
number
factors
contributed
to
an
increase
in
both
ratios
nd
,of
alnumber
engthening
the
years
to
homeowners
potential
of
millions
dpremiums
, riving
and
1985
Bcompletely
.the
market
of
out
r
,oetween
FHA
originations
home
all
of
hare
s'PMI
companies
tloan
, he
1986
FHA's
hile
wpercent
,to
11,78
20.4
from
dropped
mortgage
remained
at
risk
higher
.Dyears
these
, uring
highest
the
losses
occurred
in
fourth
a
of
year
mortgage
hen
ercent
p,2wof
percent
95
mortgages
and
Instead
.to
percent
13.2
percent
11.2
from
rose
share
guidelines
underwriting
and
premium
affordable
of
offering
ercent
1p90
percent
mortgages
resulted
aortgage
in
mof
.,t
PMI
he
families
ncome
i
-the
moderate
of
needs
met
that
other
In
. he
claim
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words
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claim
for
percent
90
mortgages
1980's
the
in
exceeded
claim
ith
less
Wpacking
.and
premiums
their
them
sent
companies
even
be
will
he
companies
tthem
,to
insulate
policies
new
for
rate
95
percent
mortgages
in
previous
years
.
the
in
problems
economic
regional
to
vulnerable
bore
68
.
future
(except
undeterminable
is
categories
hundreds
the
from
millions
of
losses
in
stemming
EPIC
tdegree
),from
he
involved
risk
different
in
types
loans
of
be
can
Moody's
on
based
approximated
Structured
recent
Report
PMI
industry
the
on
.
earlier
stated
was
highest
,tA8
he
default
of
level
occurred
has
during
the
or
year
mfifth
afourth
of
ortgage
much
riskier
than
percent
95ccupants
mortgages
to
o
.-owner
rational
The
approach
managing
to
risks
would
be
insuring
investor
-ostop
wned
mortgages
unsafe
and
mortgage
,I1980's
the
in
t1986
highest
. nhe
hen
likelihood
of
default
would
occur.on
loans
originated
insured
and
in
Based
1982
experience
the
on
.
mortgage
all
companies
,of
These
single
two
steps
instruments
would
probably
.
have
saved
TMIC
from
insolvency
.
specific
the
If
risks
associated
investor
with
1percent
about
mortgages
percent
90
of
in
made
would
1982
owned
umortgages
nsafe
mortgage
ainstruments
, nd
speculative
housing
values
with
depreciate
that
quickly
as
they
result
in
claim
bout
.an
1986
pA2insurance
ercent
of
a1986
result
would
1982
in
made
mortgages
percent
95
appreciate
,were
out
that
ifactored
clear
is
t
general
the
95
on
rate
claims
mortgages
percent
much
be
would
lower
figures
than
presented
industry
the
by
rationalize
to
I.their
fact
tightened
would
,istandards
tn
probably
pof
negative
50ercent
amortization
mortgages
o
O
the
approach
o
o
o
period
The
from
1957
to
for
1977
most
the
part
lacked
kind
the
wild
ospeculation
verbuilding
,rof
apid
appreciation
profusion
,and
mortgage
of
instruments
that
turn
can
premiums
quick
today
into
losses
huge
.tommorow
p,by
was
eriod
aIt
characterized
stable
home
prices
rfixed
ate
fmortgages
irst
thomeownership
,a-- ime
nd
control
quality
good
Ilenders
ronically
PMI
,t.by
he
companies
turned
have
their
backs
community
on
lending
90
However
,tclaim
percentage
types
other
for
.he
of
much
were
:mortgages
higher
85-619 0 - 88 - 4
programs
that
same
the
,offer
today
These
programs
are
targetted
-city
inner
to
neighborhoods
stable
either
with
aor
-home
slowly
values
.Their
moderate
-ippreciating
ncome
residents
have
work
hard
save
to
five
the
percent
down
payment
that
unlock
will
homeownership
.are
T
hey
not
speculating
The
lenders
involved
are
committed
to
sdeveloping
ound
aportfolio
, nd
typically
they
offer
preasonably
riced
rfixed
ate
mortgages
do
to
.-- Yet
so
in
city
after
across
tcountry
,the
he
companies
PMI
these
turning
are
Their
.
down
loans
guidelines
on
analysis
oan
vlneighborhood
aratios
borrower
,-toalue
nd
characteristics
redline
buyers
.sound
companies
the
will
continue
make
.t
o
insurance
most
homes
companies
The
could
stand
to
learn
something
from
moderate
ncome
borrowers
they
redline
:-ithe
in
order
something
get
to
for
the
run
yhave
,long
ou
to
earn
the
hard
way
.it
16
available
those
to
who
need
the
it
least
Worse
,t.:
hey
will
gauge
customers
with
premium
increase
pay
to
for
their
gambles
speculative
.on
rapidly
or
appreciating
92
The Chairman . Thank you very , very much.
POSITIVE RESULTS OF ACT
Ms. UEBELHOER. It sounds like a good idea. Actually, in our writ
ten testimony, we devote a lot of attention to success stories that
ACORN has had with the act. For example, we have agreeme
with two banks in Philadelphia, Fidelity and Continental. They
have more than met their lending commitments, and have provid
ed counseling, prepackaging, and marketing services. We'reseeing
lots of low income people moving into newly rehabbed homes and
this is directly a result of the Community Reinvestment Act and
the cooperation --wholehearted and earnest cooperation of bankers.
93
except trying to save the industry and my hope is that they are
going to get back into how they were before.
94
international basis. You lend billions of dollars across the border
and you can't lend our community that is on this side of the border
enough to even build on.” Andthey're saying, “ We make loans. We
just can't make bad loans.” We're saying, " Well, how can you do
that? How can you not even give us the benefit of a doubt?” People
are living on this side of the border and you have access to them ,
but you lend to people across the border. Why can't you even give
us a chance ? I don't think they understand that concept.
95
just don't want to get into this thing. They'll say, “ We just don't
want to, period. We just don't want to get into these typesof pro
grams that are marginal. We like to go after the safe — I guess
safe - loan type situation .” And we're saying we thought that this
act was going to help us solve that problem where they had to have
a little flexibility and allow for a little more margin for a little less
safety.
96
now in Atlanta, the persistence of race as a determining factor in
lending is consistent. It still shows up as a major factor .Redlining
hasn't gone away .
DEREGULATION
What they mean by that definition is that money flows from
what they call capital surplus areas tocapital short areas. But this
is a kind of economic double -think, when you find out what they
mean by a capital surplus area. They're talking about rural farm
lands as in Wisconsin and Minnesota and innercity neighborhoods.
They're talking about cities in the Northeast and in the Midwest.
The growth areas they're talking about are upscale markets, large
corporate markets, and foreign investments. So that their very defi
nition of a successful Federal policy of deregulation is essentially to
applaud for an increased disinvestment. I think this is a serious
issue.
97
banks coming in from New York State, from Wisconsin , from Min
nesota, and from California. This makes the process very difficult
for the groups.
FEDERAL AGENCIES HAVE REDUCED REGULATORY EFFORT
I'd like to give just a couple of examples that will support the
fact that the Federal agencies have reduced their regulatory effort
and made a lot of what I would say are arbitrary rules. For exam
ple the Philadelphia Fed basically telling people that no matter
what the HMDA patterns show , that's not sufficient to turn down
a bank, no matter what. The Atlanta Fed, I would say, is basically
making a rule that there is no such thing as race discrimination .
They had one bank there, Trust Company, that essentially admit
ted that its loan product, its mortgage product, was only appealing
to upper income mobile whites, and yet they said to the Fed, don't
apply the effects test to us. The Fed said OK, we won't do that.
They did have one loan product which was available and which
they thought might appeal to lower income people and minority
people and they refused to advertise that. The reason was that they
may actually get a lot of applications. The Fed approved their ap
plication without comment.
98
selves and file a challenge, they are criticized in the media for
blackmail.
one
clearly
is
It
most
the
of
research
set
used
by
data
organizations
-based
.community
Statement
Calvin
of
Bradford
name
My
is
Bradford
.Calvin
a
Im
S
enior
Fellow
at
the
Hubert
Humphrey
Institute
of
Public
Affairs
of
the
University
of
Minnesota
F
. ave
or
the
fifteen
years
h
I,past
engaged
in
research
, eaching
t
and
writing
the
on
issue
of
community
disinvestment
and
community
reinvestment
.extensive
h
I ave
done
research
discrimination
in
lending
.on
h
I aveexpert
served
as
an
witness
in
race
discrimination
cases
involving
access
to
hthe
Icredit
.ave
published
extensively
area
.in
I ave
h
been
consultant
a
toegulatory
and
local
governments
r
,state
agencies
community
development
groups
.and
CRA
The
also
was
drafted
in
committee
this
response
to
community
concerns
.Cincotta
Ican
recall
when
1975
in
Gale
sat
mortgage
first
on
lending
commission
in
country
.the
e
I ven
evening
one
recall
President
when
meeting
of
Home
Federal
the
Chicago
of
Bank
Loan
commission
that
told
institutions
while
required
c
awere
define
ommunity
to
when
serve
applied
they
achere
for
harter
requirement
,t
was
review
no
and
insure
to
community
that
by
served
after
lender
was
charter
the
.impose
granted
M
didn't
,heoreover
any
see
to
areason
such
T. ommunity
drive
he
c
arequirement
for
reinvestment
was
act
born
night
that
astonishment
Gale's
and
outrage
.in
99
The
HMDA
and
the
CRA
Pirst
, ome
s
brief
comments
on
history
of
the
HMDA
and
the
would
provide
u
aCRA
seful
context
for
ons
.my
HMDA observati
The
was
drafted
in
this
Committee
in
response
to
community
concerns
about
redlining
d
, nd
iscrimination
in
lending
a
,
the
disinvest
ment
by
regulated
lenders
in
m
inority
a
,older
nd
economica
lly
distresse
des
communiti
.As
it
was
first
,proposed
the
act
included
rural
areas
and
commercia
l
.lending
It
called
was
the
Home
Mortgage
Disclosure
Act
only
after
these
original
proposals
were
deleted
.t
spite
Ihe
n
its
of
ns
,limitatio
HMDA
has
been
used
by
citizens
in
over
100
communiti
es
across
the
nation
in
the
process
of
reviewing
the
performan
ce
local
of
lenders
.
s
I ubmitent
with
my
writte
statem
c
opy n
of
s
a urvey
of
created
CRA
the
,iWhen
passed
was
t
affirmative
an
alender
for
obligation
all
serve
to
its
within
people
the
and
,w
community
low
of
needs
the
on
emphasis
an
ith
moderate
income
people
my
.In
of
context
the
observations
and
remarks
field
the
w
,Iin
things
two
out
.point
this
,tould
First
hat
affirmative
obligation
is
on
tassive
not
.falls
lender
p
aIeach
requirement
the
that
local
meet
lender
p
aerson
if
needs
credit
mof
aIaze
through
way
her
or
his
fight
to
.manages
obstacles
t
affirmative
an
is
for
obligation
the
take
to
lender
initiative
.CRA
She
,t
designates
econd
financial
Federal
the
institution
regulators
empowered
agencies
the
as
enforce
to
this
.
Act
HMDA
uses
Iwhich
d
id
with
Paul
Schers
1985
.in
S
ince ten
of
public
aside
from
the
census
.data
1
have
l,a
aYou
heard
ot
about
challenges
CRA
protests
and
nd
the
HMDA
was
,passed
w
ettachm
found
about
340
uses
HMDA
A
(of
ent
11
isnd
as
ummary
that
report
)of
,a
compar
able
,data
a
side
from
the
claims
of
regulat
ors
that
they
use
the
HMDA
regula
rly
in tions
their
CRA
examina
review
.and
s
It
probab
is
the
ly
most
used
heard
have
. ot
more
hear
will
you
ou
community
alY
about
efforts
enforce
and
CRA
the
lenders
engage
to
reinvestment
in
activities
,aitself
nd
will
you
more
.hear
B
CRA
the
ut
not
does
mention
even
challenges
-or
that
for
organizations
community
2
member
,apmatter
Rohde
Steve
As
staff
this
of
. revious
,peinvestment
Committee
ar
at
out
ointed
Chicago
in
conference
Act
,the
November
last
this
responsibility
the
all
places
for
of
feet
at
enforcement
supervisory
financial
Federal
the
service
of
feet
at
for
obligations
the
places
and
agencies
Hibernia
the
of an act
delay
application
Bank
from
Orleans
New
as
harassment
.of
inally
,g
atift
that
suggests
$3
of
the
to
0,000
National
Training
Information
and
Center
Chicago
t
(ain
echnical
assistance
training
and
center
directed
Cincotta
Gale
by
)w
as
extorted
First
from
National
Bank
as
5
of
part
00,000
$in
community
gifts
resulting
from
challenge
.aCIn
,tRA
truth
he
proposal
these
for
was
funds
discussed
first
over
after
y
a ear
First
National
made
reinvestment
agreement
.its
themselves
lenders
.the
almost
,reinvestment
But
place
taken
has
the
from
entirely
raising
organizations
community
of
efforts
a
about
questions
out
,t
performance
lender's
work
to
acrying
practices
in
hange
when
finally
and
,r
fails
this
or
protest
the
to
esorting
formal
challenge
process
.protest
The
which
something
not
is
,tCRA
1972
In
he
Shore
South
applied
Bank
.was
the
with
created
community
this
from
move
to
minority
neighborhood
aChicago
in
was
dAs
,f
location
there
before
years
.aC
RA
owntown
aive
factors
several
of
result
p
a,i
owerful
ncluding
from
opposition
,
bank
only
their
of
loss
potential
the
about
residents
community
by
denied
was
application
this
Currency
of
Comptroller
.the
Neighborhood
Illinois
by
purchased
was
bank
the
Later
,and
Corporation
Development
known
best
the
as
saga
its
began
it
.
country
the
in
bank
development
raised
ACORN
by
this
challenge
.in
Wells
The
commitment
Fargo
for
million
$4
1
housing
in
loans
proved
actually
successful
so
be
to
bank
for
the
and
community
that
million
$6In
0
loaned
was
out
under
program
.the
Hibernia
case
t
,the
he
aFED
held
public
r
are
hearing
took
and
time
its
and
what
made
it
considered
be
to
toughest
its
culing
in
because
years
seriousness
issues
the
of
been
had
that
100
record
the
that
only
mandates
CRA
The
service
community
of
reviews
ar
when
account
into
taken
be
shall
anegulator
of
amerger
,application
rcquisition
insurance
for
elocation
Community
brharter
assets
,o
office
.ac
ranch
groups
this
that
discovered
fregulatory
a ormal
forced
language
review
afactor
of
been
already
had
that
an
denying
in
used
successfully
.The
application
public
,c
protest
and
hallenge
process
hearing
was
lender
and
existed
already
one
by
used
commonly
challenge
to
Othe
in
clear
made
was
right
this
. nce
another
of
applications
savings
aNew
of
challenge
successful
City
York
the
in
bank
twas
CRA
the
after
year
,first
passed
he
became
process
challenge
major
the
reinvestment
community
for
leverage
of
point
activities
.
?
Blackmail
Reinvestment
Is
alIpot
been
has
there
because
history
this
out
of
oint
about
press
and
community
banking
the
in
publicity
"bto
into
anks
CRA
lackmail
groups
the
using
conmunity
Sareinvestment
Ih. eptember
ave
10
,1attached
987
agreements
research
own
my
h
,IIn
ave
found
blackmail
the
that
seems
to
Wall
the
from
article
(A
#2).Journal
Street
ttachment
This
,C
Crutchfield
Edward
quotes
article
EO
first
of
Corporation
Union
s
, aying
Carolina
North
of
community
that
the
'u
groups
of
se
$5bblackmail
the
of
all
casts
article
The
pillion
is
."CRA
ure
lWhen
acome
assistance
.egal
side
other
the
from
program
helped
NAACP
the
chapter
Orlando
F
lorida
d
evelop
c
a,in
hallenge
to
an
acquisition
l
ocal
aof
Citizens
by
bank
Southern
,and
f
rom
Georgia
agreed
bank
t, his
fly
to
Atlanta
from
down
meet
and
with
chich
as
Act
this
with
won
reinvestment
in
"w
oncessions
banks
.community
from
won
have
groups
reviews
article
The
when
But
the
.
NAACP
the
Orlando
people
got
to
meeting
the
they
found
that
Citizens
Southern
and
brought
had
with
them
the
president
.regional
NAACP
the
of
told
He
local
chapter
that
Citizens
Southern
and
grants
makes
the
to
NAACP
Atlanta
,in
a
nd
Wells
National
First
and
Fargo
from
reinvestment
for
agreements
deals
bad
as
Chicago
of
,a
banks
from
extorted
the
depicts
it
nd
3
4
Martin
to
Luther
Center
King
that
and
Orlando
the
if
chapter
withdraw
not
challenge
could
t,did
it
hen
its
charter
.lose
Enforcement
CRA
:GThe
ames
Rules
and
community
Can
really
people
CRA
the
use
blackmail
?as
Myfirst
response
it
that
not
is
possible
to
label
blackmail
as
exercise
the
of
rights
one
been
has
given
an
by
of
act
Second
p
ai,Congress
sense
. nractical
g
iven
the
poor
quality
enforcement
oft
by
regulatory
agencies
hard
i,the
is
see
to
how
lenders
with
even
the
worst
records
would
fear
.ca hallenge
one
Not
lender
has
had
application
an
denied
since
first
the
year
the
CRA
.of
the
On
other
,ihand
t
easy
is
to
see
community
why
groups
would
resort
to
challenge
process
.the
makes
p
aItublic
issue
lender's
the
of
service
the
community
to
when
else
all
.fails
iMoreover
,t
about
is
only
the
way
community
people
have
of
first
the
When
application
acquisition
for
an
under
law
the
Marine
from
came
Bank
Wisconsin
t
,in
here
were
enough
comments
filed
require
p
hearing
Oublic
had
that
organization
ne
.ato
questioned
low
the
level
development
of
proposed
loans
women
for
Women's
the
was
Economic
Corporation
W
EDCO
a),(Development
nationally
program
known
helps
that
start
women
businesses
.small
getting
regulator
attention
some
pay
s
the
to
issues
.CRA
c
I onducted
research
some
number
on
the
business
women
of
in
Ninnesota
community
bank
the
of
acquired
being
went
and
hearing
the
present
to
data
this
supported
,w
hich
WEDCO's
hearing
the
at
W
,But
concerns
withdrew
suddenly
.EDCO
its
protest
.
101
Reinvestment
Duluth
Coalition
filed
c
hallenge
aThe
against
application
an
Banks
consolidate
Norwest
by
to
its
of
several
northern
inome
Minnesota
into
S
regional
two
banks
.people
wanted
who
statements
make
to
Norwest
about
policies
and
practices
felt
threatened
so
Coalition
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art
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But
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research
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we
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corporations
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sense
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1980
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Union
Tenants
f
challenge
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loan
and
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Federal
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CP
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later
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Tenants
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research
assive
project
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8
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nd
TCF
other
to
lenders
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levels
the
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in
communities
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in
renting
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ownership
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tax
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misrepresented
.
brochures
looked
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at
record
participation
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in
government
state
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and
programs
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city
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records
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detailed
studies
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legal
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hey
types
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borrowers
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public
programs
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corporation
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apartner
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versions
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buildings
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agencies
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e
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of
ity
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and
oformer
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etter
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member
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the
goals
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family
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HOP
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created
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ot
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people
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hen
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omment
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program
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earing
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t
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ange
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ity
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hey
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able
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omplaint
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table
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cAttachment
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ompares
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ll
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trust
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protect
to
ratings
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up
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get
to
going
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process
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ratings
high
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and
harder
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time
that
at
ven
told
were
these
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this
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and
place
take
today
at
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would
agencies
regulatory
the
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pressure
more
in
result
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do
to
the
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CRA
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job
months
of
couple
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hearings
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before
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us
any
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noticed
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s
in
udden
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territories
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north
the
to
south
or
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populations
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miners
and
loggers
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or
t
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ank
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t
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in
Director
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c
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uddenly
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in
CRA
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community
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groups
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if
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Comptroller
the
of
Currency
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ho
reviewing
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applications
these
mergers
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considered
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this
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could
important
issue
get
response
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They
eventually
had
confront
to
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Currency
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a peaking
at
engagement
Chicago
in
come
and
to
Comptroller
the
suddenly
trying
force
in
out
is
input
get
to
CRA
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community
the
from
exams
easy
not
is
the
because
Consumer
for
Handbook
Comptroller's
(as
Examinations
revised
,1987
)sApril
examiners
local
tells
till
Office
the
with
check
to
Secretary
Assistant
the
of
VNeighborhoods
,for
oluntary
Associations
consumer
Protection
HUD
at
lists
for
.and
groups
of
Washington
complain
to
staff
this
of
Committee
and
the
House
Banking
Committee
took
.It
monumental
efforts
and
athese
letter
from
legal
counsel
for
House
the
Banking
Committee
to
Even
aresponse
get
when
Comptroller
the
the
.from
comptroller
course
of
office
,t
eliminated
was
ago
years
. his
assistant
,m
city
my
In
research
y
acall
got
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from
.She
office
Comptroller's
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examiner
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taken
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about
her
tell
could
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un
records
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needs
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of
.group
state
the
in
banks
largest
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are
e
c
not
ommunity
aW
at
University
Minnesota
the
of
,b
tried
we
ut
as
contact
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many
I. nhe
tviolations
,fact
examiner
from
Comptroller's
the
office
11
104
northeastern
the
part
Minnesota
w
,of
hich
has
low
many
income
American
Indians
loggers
miners
and
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in
.industries
M
"D
Attachment
nap
r
3,i
epresents
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maps
CRA
Norwest
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d
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Dakota
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But
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t
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nd
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research
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involved
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t
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owerful
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erious
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examining
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She
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e
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e
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109
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eed
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recall
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ifeherefore
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h
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1984
In
three
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ased
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effect
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But
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ihicago
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Much
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orking
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ften
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23
24
--
Yet
mortgage
.national
markets
nothing
and
conditions
economic
.explained
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as
lending
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the
CRA
course
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ll
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- illion
hen
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he
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inority
,demands
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he
communities
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productive
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attitudes
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development
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in
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ust
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and
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what
ishis
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$ 00,000
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helps
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and
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successful
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.
ago
years
ten
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brought
Attitude
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change
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key
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private
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T
changing
in
is
key
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community
investment
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This
paper
research
of
theme
central
the
Development
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eferenced
Commercial
Economic
Rural
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Credit
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.Tending
aabove
management
the
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that
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factor
key
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urban
community
in
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development
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lending
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non
in
engages
the
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CRA
first
passed
community
m,was
ost
groups
were
concerned
about
nd
-maybe
amily
hfasingle
,multi
ousing
needs
in
local
Their
communities
local
.their
lenders
might
25
26
111
programs
and
agreements
country
the
across
some
,a
while
nd
and
groups
community
been
have
banks
from
move
able
to
one
reinvestment
agreement
program
or
another
s
ato
in
pirit
of
partnership
and
cooperation
evidence
,t
no
is
here
there
that
has
collective
any
been
historical
growth
relationships
these
.in
for
need
The
community
direct
i,diminished
has
action
ndeed
-not
increased
has
it
concern
as
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for
development
increases
communities
as
and
perceive
financing
secure
to
need
the
from
private
sector
t
a ime
at
regulatory
the
when
banking
and
environments
changing
are
in
discourage
that
ways
participation
applications
in
engage
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of
for
or
office
arelocation
office
branch
generally
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always
they
same
the
had
to
lenders
and
with
deal
could
fthey
a amiliarity
develop
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the
even
and
policies
officers
lending
the
institution
each
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two
of
concerns
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to
Add
,the
Minnesota
in
groups
These
.Duluth
COACT
Minnesota
and
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Reinvestment
groups
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trying
applications
Norwest
with
deal
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Minnesota
its
af
.into
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ew
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on
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own
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merger
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hen
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off
lender
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in
agreements
on
.
place
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cases
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nd
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norm
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develop
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development
economic
and
housing
to
order
in
capacity
which
agreements
CRA
the
implement
come
might
these
from
challenges
.
112
27
28
problems
these
All
exist
confines
within
the
of
mold
,iThis
process
agchallenge
that
into
forced
.is
froup
all
that
means
seeking
information
a
nalysis
,this
is
what
of
discovered
contacts
all
the
initiation
and
form
some
of
cooperation
coalition
or
process
take
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place
degree
t
o
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before
deadline
day
10-30
c
filing
omment
afor
or
challenge
,Of
course
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t
his
group
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out
finds
is
there
takes
,which
application
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often
time
some
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since
addition
requires
,iIn
t
understanding
some
existing
of
and
alternative
capital
credit
markets
institutions
and
so
that
critical
gaps
can
filled
be
and
that
so
existing
capital
and
credit
markets
can
called
be
upon
play
to
their
role
whenever
it
possible
.is
Conclusions
applications
filed
be
may
regulatory
various
with
agencies
all
country
sually
several
g,a.Uover
loses
roup
the
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days
period
comment
discover
they
before
application
that
.an
exists
result
The
all
of
behavior
the
activities
and
Ih
ave
described
is
even
that
though
they
are
mentioned
not
in
,the
Act
community
b
- ased
organizations
carry
load
the
enforcement
of
under
Community
the
Reinvestment
.Act
given
T
are
hey
and
less
information
that
regulators
will
accept
cmaking
aas
ase
for
denials
. nd
UD
aHVA
,The
the
secondary
mortgage
markets
not
do
provide
disclosure
HMDA
some
,a
nd
lenders
still
fail
report
to
their
loans
.properly
113
iFinally
,n
to
order
many
make
reinvestment
the
of
programs
tset
, here
work
needs
some
be
to
public
of
resources
programas
and
gsubsidies
uarantees
incentives
for
a,provide
nd
to
lenders
involved
get
economic
and
housing
development
activities
.in
withdrawal
the
With
Federal
funding
g
roups
,of
turn
must
to
the
agencies
the
and
legislatures
state
to
these
develop
carrot
stick
laws
creative
Tand
requires
his
.programs
,oailored
development
program
-t
hand
to
ften
each
of
needs
the
political
state
also
Ifiscal
t
its
requires
and
.environment
intervention
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related
process
legislative
the
to
cycle
and
rather
process
application
the
than
challenge
and
cycles
requires
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of
laws
. nd
processes
,a
Variation
their
from
state
nd
range
wa,to
hole
of
possible
existing
economic
development
program
activities
.and
30
1
full
at
operating
process
reinvestment
the
into
getting
are
capacity
building
community
and
development
the
do
to
trying
The
rules
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filing
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6
should
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processes
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epending
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ommercial
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In
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programs
,Congress
require
should
an
114
.
9
assessment
ability
the
of
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each
encourage
to
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and
banking
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There
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which
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115
Attachment # 1
A TOOL FOR COMMUNITY CAPITAL :
HOME MORTGAGE DISCLOSURE ACT
A WORKING PAPER :
Calvin Bradford
Paul Schersten
Cooperative Community Development Program
Hubert H. Humphrey Institute
September 1985
116
SUMMARY
The overall goal of the HMDA was to produce data which would be a
resource to create dialogue between the private lenders and the community
and government concerning the access to private capital markets . It was
further anticipated that where needs could be identified which could be
served by the private lending market , the HMDA would help in the
identification of these markets , the creation of programs and policies to
meet these needs , and the monitoring and evaluation of these reinvestment
In 1985 , the National Training and Information Center ( NTIC ) sent out a
survey to assess uses of the HMDA . The Cooperative Community Development
Program , at the University of Minnesota , tabulated these surveys and did
follow - up phone interviews with a sample of the respondents . This survey
was compared to the larger survey efforts funded by HUD and carried out by
NTIC in 1977 and 1979. This report compares the results of these three
surveys in order to define trends in HMDA uses and to assess the impact and
problems associated with HMDA uses .
The HMDA surveys account for at least $3.7 billion in community
reinvestment related to uses of the HMDA , with the real total probably being
substantially higher .
All of the uses identified in this survey indicate that the HMDA does
act as a major reinvestment resource , leveraging critical private sector
dollars at almost no direct expense to the government . The involvement of
community people in the assessment of their own credit needs , the analysis
of the performance of local lenders , and the development of policies and
programs to meet these needs on a basis which is economically viable for the
lenders is the best single indicator of the larger success of the HMDA as a
major stimulus for private reinvestment dollars . In addition , the HMDA has
become a critical tool in the regulation of financial institutions to hold
them accountable to serve community needs as they also seek sound and
profitable markets .
The HMDA is used by individual lenders to review their own performance .
The HMDA is increasingly used by goverrment agencies to develop programs and
monitor results in the areas of housing , community economic development , and
fair housing . The HMDA has been used by community groups in at least 38
states and the District of Columbia and in at least 117 different cities .
The report estimates that there are over 7,500 different uses of the HMDA
each year .
What is most important , however , is not something which can be
expressed simply in counts of uses or users . The use of the HMDA has
allowed people to become active citizens , not only in the political process
but in their local economies as well. The evolutionary efforts of the late
1960s and early 1970s to develop community -based economic development
117
Page ii
capacities have accelerated rapidly with the advent of the HMDA .
has made not only housing issues , but economic development issues a matter
of citizen participation and debate . The dialogue created between the
public and the lending institutions around the HMDA has drawn the lending
institutions into serving community credit needs and drawn the community
into public discussion about the role and resources of the private capital
markets .
Clearly , many of the community development and reinvestment
programs created around the country by those who have never directly used
the HMDA find their genesis in the dialogue created by the HMDA .
The programs created out of negotiations with lenders arising from HMDA
analyses have created a plethora of " public / private partnerships " .
These
programs appear to be on the cutting edge of efforts to work out the proper
roles and tensions between the citizens , the government , and the private
sector in our democratic form of government and free enterprise capitalistic
form of economy . The IMDA and the CRA provide simple tools which create
public access to lending data and which require the managers of
government -protected pools of capital to be responsible to public needs in
their control of that capital. With the aid of these tools, citizens acting
within their community interests , private lenders , and often government
agencies as well , weave together the threads of reinvestment which are
needed to repair the torn fabric of economically depressed comunities .
fabric is softened and made comfortable by the freedom which these tools
allow in hand -tailoring the cloth to fit the local community needs .
fabric is strengthened and made firm by the creative tensions between the
public and private sector goals .
The HMDA is used to create funds for economic development as well as
housing, but it is limited by several major problems. The HMDA does not
cover rural lending , the Veteran's Administration , canmercial lending , or
mortgage banking companies . These amissions seriously reduce the potential
of the HMDA to leverage private investment to meet housing and economic
development needs .
Finally , groups using the HMDA are concerned that in spite of its value
and growing regular usage , it is not a permanent law .
118
Attachment # 2
WALL STREET JOURNALd ...
1987 Dow Jones ☺ Company, Inc. All Rights Reserved.
THURSDAY, SEPTEMBER 10, 1987
Public Service or Blackmail? Banks
Pressed to Finance Local Projects
'By RICHARD B. SCHMITT
Edward E. Crutchfield Jr., First Union
stance - more than double the amount
Staff Reporter of THE WALL STREET JOURNAL
Corp. chairman and chief executive offi-
given before its settlement. The aid in
otrice
!
O naiked at setting aside
.
Attachment # 2
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TABLE
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85-619 0 - 88 - 5
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123
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124
The CHAIRMAN . Thank you , Mr. Bradford, very much. You gave
us excellent questions for the regulators when they appear before
us tomorrow .
REDLINING AND DISINVESTMENT
The first point I'd like to make is that disinvestment is still a
problem in low income communities. The second is that regulatory
enforcement of the CRA is inconsistent, at best, and, the third is
that there seems to be an emerging consensus at least on some of
the ways to strengthen the effectiveness of the CRA.
125
failing to serve on the central city markets even when there are
good customers with money to pay back the loans.
126
Second, that regulators differ enormously by regulatory agency
and also by part of the country in thelevel of energy and compe
tence with which they implement the CRA .
RECOMMENDATIONS
First, the CRA ratings need to be public and awarded competi
tively to ensure accountability and to begin to move towards a
system where the regulators will be responsible for ensuring tha
each bank contributes its fair share towards reinvestment.
Thank you.
[ The complete prepared statement of Elspeth Revere follows:]
members
and
Chairman
Mr.
morning
Good
name
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Committee
the
of
is
.
Revere
Elspeth
Woodstock
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of
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the
m
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that
so
change
charter
proposed
enforcement
monitor
the
identify
particular
,aof
CRA
to
nd
problems
the
,for
days
10
only
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Board
Bank
Loan
Home
Federal
by
allowed
period
prepared
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applications
nhe
each
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develop
to
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Require
is
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rating
(2)
therefore
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nd
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applications
regulator
those
of
contributions
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acknowledge
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more
.This
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will
financial
institutions
active
reinvestment
with
programs
.
)is
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approved
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out
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regulators
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ften
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pending
.
corment
public
encourage
parties
interested
all
to
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the
and
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financial
between
link
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organization
community
the
to
two
their
settle
discussions
between
encourage
all
not
do
Reserve
Federal
that
extent
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to
,differences
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Chicago
of
Bank
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conduct
regulators
all
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on
(5)
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manner
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imely
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they
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nor
.While
Requirements
Disclosure
Act
Reinvestment
Community
the
B.
meet
help
to
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financial
requires
now
their
of
needs
credit
the
Community
of
potential
the
realize
fully
more
to
order
In
assess
,there
communities
local
to
opportunity
little
is
needs
credit
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distressed
in
of
problems
alleviating
Act
Reinvestment
areas
or
commercial
of
needs
those
meeting
in
performance
bank
the
following
,tchanges
communities
the
recommends
Institute
Woodstock
inhe
10
.Iittle
lending
,lindustrial
addition
those
for
available
is
information
n
11
132
local
with
.banks
still
,and
days
15
FDIC
is
OC
and
Reserve
Federal
the
for
30
only
disclosure
provisions
primarily
are
.Tmortgage
hese
companies
finance
and
firms
banking
subsidiaries
are
which
nonfinancial
of
corporations
and
fall
not
do
which
communities
statistical
ametropolitan
.within
area
financial
to
institutions
(1)Adopt
requires
that
legislation
insurance
Mcompanies
. ortgage
currently
are
bankers
doing
increasing
an
their
and
,scommercial
location
the
report
annually
of
type
ize
of
sconventional
,volume
ingle
mortgage
family
lending
throughout
the
with
.Twill
loans
industrial
regulators
provide
his
information
the
or
,yet
country
bank
of
subsidiaries
are
which
those
only
loan
and
savings
community
,and
CRA
the
enforce
fully
to
necessary
local
allow
organizations
the
evaluate
needs
credit
urmet
assess
to
officials
public
and
.
HMDA
or
CRA
either
to
subject
are
companies
holding
These
corporations
be
must
the
to
subjected
same
banks
requirements
as
loan
savings
and
.This
institutions
financial
particular
of
performance
be
should
data
associations
companies
F. inance
longer
o
lenders
just
resort
last
of
,n
ow
cnd
through
compiled
and
,acollected
source
the
to
available
made
entral
data
is
asimilar
in
tape
computer
on
public
HMDA
that
way
the
to
manner
sportion
a
.make
loans
commercial
the
of
ignificant
indicate
Estimates
ocompanies
% f
15
least
at
that
loans
commercial
all
finance
by
made
,are
.
disseminated
and
collected
.to
CRA
subject
not
are
they
yet
r(2)Deview
a
establish
agency
analyze
to
board
irect
egulatory
conclusion
,IwInould
reiterate
to
like
Community
the
that
results
make
and
data
the
organizations
local
to
available
a.Such
Reinvestment
Act
extremely
been
has
an
valuable
community
to
tool
in
included
is
board
review
bthe
(Heing
bill
)Kennedy
4022
R
by
considered
community
and
.organizations
efforts
development
disinvestment
Yet
law
to
subject
is
country
the
,many
contributing
not
are
available
to
,little
present
At
is
information
its
realize
only
will
Act
Reinvestment
Comunity
The
reinvestment
efforts
.
communities
rural
in
problems
disinvestment
the
.document
t
.Athe
Institutions
Powers
New
and
Reinvestment
Community
C.
the
of
all
by
enforced
consistently
and
fairly
is
it
when
potential
full
anks
,binto
time
present
their
expand
to
seeking
.are
fields
new
activities
wnd
,aregulators
credit
extend
who
all
to
applied
equally
is
it
when
hen
subjected
,there
Conversely
not
which
lenders
many
are
laws
banking
to
local
both
monitor
adequately
to
available
is
information
public
sufficient
those
meeting
in
institutions
financial
of
performance
the
and
needs
credit
:
regulations
and
needs
.
the
for
.IwThank
morning
this
you
with
speak
to
opportunity
ould
to
happy
be
questions
any
answer
.
new
the
on
take
to
privileges
.now
seek
they
that
powers
12
13
133
,largely
remain
still
problems
in
institution
financial
every
while
because
to
(3)Expand
Act
Disclosure
Mortgage
Home
the
of
reporting
include
SUMMARY
EXECUTIVE
,Loans
homes
remodeling
purchasing
construction
housing
new
for
and
essential
rehabilitating
are
buildings
apartment
acquiring
and
the
economy
health
vitality
the
to
turn
in
and
neighborhoods
of
financial
,rBcities
1983
and
1980
etween
regions
. egulated
residential
the
in
loans
$1institutions
billion
t0.4
a
made
of
otal
:
NEED
IN
PARTNERS
PChicago
,"preport
Need
in
the
resents
artners
.This
area
metropolitan
study
distribution
the
of
Institute's
comprehensive
Woodstock
findings
loan
savings
of
and
banks
500
over
by
made
were
which
loans
these
ANALYSIS
RESIDENTIAL
OF
-YAFOUR
EAR
AND
CHICAGO
IN
LENDING
SUBURBS
ITS
.in
1983
and
1980
between
area
metropolitan
Chicago
the
associations
inequalities
housing
of
distribution
the
in
huge
documents
report
This
market
by
solely
explained
be
cannot
that
area
Chicago
the
throughout
credit
many
W
and
communities
. hile
prices
selling
in
differences
or
factors
received
thers
,osuburbs
dollars
millions
thousands
and
loans
of
report
,tI11ttle
. nhis
nothing
virtually
received
some
and
particular
and
,bwclass
lack
ncome
hite
working
-idescribes
middle
many
the
Need
,"rin
eceiving
which
PHispanic
are
artners
Chicago
neighborhoods
thrive
,oto
sometimes
r
neighborhoods
for
credit
their
housing
inadequate
survive
.to
even
1AUGUST
, 986
dMajor
: uring
1980–1983
years
,the
that
are
report
this
of
findings
more
dollars
loan
loans
and
type
every
of
received
suburbs
The
compared
to
of
$5city
unit
housing
per
,345
did
than
average
an
-the
price
.
differences
by
in
explained
entirely
POGGE
JEAN
hey
Textreme
.were
ending
lChicago's
differences
,Among
neighborhoods
of
igh
ahper
to
Park
Washington
in
unit
ow
13
$1lranged
from
HOYT
JOSH
.$1in1,431
Loop
the
REVERE
SPETH
EL
more
or
much
as
received
neighborhoods
Chicago's
of
four
Only
are
Areas
hese
Tthe
Community
.credit
suburb
average
as
residential
Side
Near
the
and
Park
incoln
LO.North
'Hare
,Loop
in
communities
Hispanic
and
black
hree
-tthe
thirty
of
one
single
Every
.of
lending
categories
lowest
two
the
within
fell
Chicago
communities
nd
integrated
ispanic
Hwhite
of
Aubstantial
sa,number
ittle
LLawndale
(,as
outh
SBridgeport
such
levels
income
varying
with
ow
"Lin
the
communities
black
joined
Square
aVillage
Lincoln
) nd
.Need
credit
residential
f
"oin
artners
PacCredit
are
ategory
, nd
1
of
indicators
considered
can
which
be
characteristics
and
Factors
.
and
urnover
toccupancy
wner
o
amily
fi,housing
ncluding
-demand
single
in
lending
of
level
differences
large
the
explain
not
,do
income
.
neighborhoods
Chicago
1
453
27-8070
60604
,CI()3L12
HICAGO
JACKSON
W.
INSTITUTE
WOODSTOCK
V
134
cannot
d2be
that
ifference
,athe
unit
housing
per
$,179
city's
BY
Multifamily
buildings
Chicago
received
atin24
otal
million
$2of
only
loans
ere
housing
per
50
Tunit
.4$m,ain
hey
were
effectively
locked
VISTA
OPPORTUNITY
:OF
credit
the
of
market
.out
report
reconnends
that
community
organizations
,fThe
inancial
gInstitutions
, overnment
officials
policymakers
and
work
all
increase
to
the
ANALYSIS
AN
OF
AND
1983
1984
flow
of
credit
those
to
neighborhoods
communities
and
It
need
.in
identifies
opportunities
community
for
organizations
to
forge
partnerships
with
flenders
; inancial
institutions
to
develop
programs
and
marketing
efforts
ensure
that
creditworthy
all
borrowers
have
access
the
to
credit
they
lto
;need
ocal
and
state
officials
to
link
government
deposits
reinvestaent
performance
creation
to
and
special
lending
initiatives
;of
regulators
to
actively
enforce
Community
Reinvestment
;the
Congress
aAct
nd
permanently
to
extend
Mortgage
Hong
Disclosure
.the
Act
RESIDENTIAL
LENDING
THE
IN
/BOULDER
DENVER
SMSA
1FEBRUARY
, 987
135
BY
POGGE
JEAN
1
DDSTOCK
5INSTITUTE
3L12
CJACKSON
HICAGO
460604
)(3,IWEST
27-8070
vi
REPORT
SUMMARY
completed
acjust
of
study
omprehensive
,has
Change
Community
for
Center
,Dmetropolitan
Washington
the
in
lending
1982
and
.1981
area
three
The
.C.
examination
of
acvolumes
omplete
for
time
first
the
provide
report
this
.,Din
suburbs
its
Washington
and
research
The
.C.
lending
residential
cathe
,preport
Flows
"Money
resents
Womprehensive
entitled
here
,race
income
terms
in
lending
of
analysis
statistical
housing
and
arVolumes
as
used
be
are
III
and
II
to
designed
.eference
characteristics
interested
in
and
regulators
organizations
,lfor
enders
community
flows
performance
.Vcredit
provides
II
olume
community
rankings
monitoring
III
Volume
the
.for
area
in
institutions
financial
regulated
106
each
for
Profiles
Lending
Community
contains
Advisory
36
the
of
Columbia
.District
the
of
Commissions
within
Neighborhood
INTRODUCTION
repairs
improvements
to
homes
sell
purchase
to
Credit
finance
,and
older
buildings
apartment
can
rehabilitate
and
businesses
small
start
to
economy
between
difference
the
anmake
of
death
,or
life
eighborhood's
Wor
are
metropolitan
.of
region
awloans
hole
chen
that
ity
economy
the
homes
,are
repairs
to
made
visible
needed
-results
the
area
an
in
are
and
lively
buildings
,athere
areas
commercial
nd
vacant
few
signs
of
the
exhibits
credit
being
denied
area
,aBy
-unsed
.well
contrast
,hBthe
up
boarded
sare
ome
uildings
.in
future
confidence
and
hope
of
lack
customers
.and
few
dstores
merchandise
out
-show
maintained
,aated
nd
not
are
make
,While
work
economies
to
needed
are
of
activity
loan
types
all
savings
and
loan
banks
documented
by
regularly
are
loans
housing
of
Act
Disclosure
Mortgage
the
Home
mandate
Through
.
associations
FINDINGS
improvement
and
number
the
,hshow
mortgages
family
single
of
amount
ome
under
made
and
loans
amloans
building
).(,the
partment
ultifamily
Veterans
Federal
and
programs
mortgage
Administration
Housing
hof
having
,importance
viable
addition
temployer
he
.Inealthy
the
out
nation's
rule
to
seem
would
capital
within
neighborhoods
.
disinvestment
systematic
of
possibility
.
tract
census
each
for
in
patterns
distribution
lending
examination
this
of
findings
The
monitor
this
to
data
efficient
way
use
there
no
was
recently
Until
SWashington
.I.C
disappointing
and
surprising
,are
particular
nMSA
the
response
thoughtful
and
consideration
serious
demand
conclusions
two
.The
,almost
continues
city
central
the
of
redlining
that
is
first
years
ten
metropolitan
or
regions
to
large
throughout
credit
housing
of
flow
the
availability
increase
the
remedies
to
apply
time
problem
in
areas
diagnose
annually
REserve
Federal
has
Board
hof
1980
,tSince
owever
.he
credit
Tcomputerized
.into
his
form
for
the
country
entire
data
HMDA
processed
all
lenders
regulated
examination
of
lending
the
permit
data
ized
computer
over
found
astudy
eliminate
.Tafter
problem
this
tohe
passed
was
legislation
District
when
to
credit
housing
of
flow
the
in
difference
marked
Columbia
District
of
suburbs
,tIsurrounding
1981
.compared
nhe
the
to
.received
suburbs
the
less
substantially
than
unit
housing
per
dollars
loan
,whousing
1982
In
of
amount
overall
the
and
tighter
became
credit
hen
,
years
several
over
cooperation
n
,iHMDA
Institute
oodstock
Wdata
computerized
Utilizing
the
Association
and
Planning
Housing
Washington
Metropolitan
with
!
-ix
,twidened
diminished
lending
;Dgap
lost
tracts
census
he
istrict
tracts
.
suburban
than
more
dollars
loan
proportionally
136
,D.c.
Washington
expect
would
One
lenders
for
place
easy
an
be
to
one
SMSA
1980
highest
the
of
has
area
metropolitan
The
make
.
loans
housing
,$2t3,344
country
the
in
incomes
household
imedian
;experienced
has
government
major
its
remains
;asteady
federal
the
nd
,expansive
growth
associations
and
loan
banks
savings
amust
regulated
(Hll
),1975
MDA
Tamount
data
loans
. hese
residential
their
of
and
dollar
number
report
the
Comparison
of
all
whows
1982
with
hen
decreased
lending
,s1981
an
between
differences
the
to
relates
conclusion
second
The
. hen
trend
alarming
tighter
Wand
became
lending
amount
overall
the
of
available
lending
housing
lenders
regulated
,cfrom
diminished
entral
city
proportionately
lose
to
tended
tracts
tlending
.more
suburbs
, he
Tthan
hus
supply
money
the
of
tightening
city
central
hit
1982
in
than
harder
in
those
and
District
distributions
the
in
lending
of
predictors
iIn
,osuburbs
allevel
repay
to
ability
was
the
oan
ncome
.r
suburbs
District
Iamajor
contrast
,bthe
. ny
made
were
loans
where
of
predictor
,tCto
expectations
ontrary
. he
observed
was
pattern
disturbing
more
much
no
almost
had
level
apincome
as
.Ieffect
lending
,of
nstead
redictor
the
metropolitan
of
rest
area
.
cen
District
characteristics
the
of
analysis
Distributions
Lending
of
Predictors
housing
of
.Number
expected
be
Aunits
s
important
t,might
most
he
characteristic
housing
distribution
influencing
was
lending
of
the
.received
units
of
number
housing
Census
with
tracts
more
city
both
in
loans
central
suburbs
and
years
the
.of
studied
these
supporting
analysis
statistical
the
of
results
Specific
.conclusions
below
presented
are
Suburbs
versus
District
.Tgreater
Age
the
in
units
housing
older
of
number
he
effect
little
had
city
amount
larger
The
received
loans
new
of
.on
housing
suburbs
the
in
built
between
1975
1980
and
associated
was
greater
with
suburban
inore
lending
the
census
msuburbs
.and
,In
tracts
housing
newer
more
attracted
general
in
housing
.
1981
tracts
census
to
loans
the
scentral
,Unlike
city
uburban
mrket
housing
more
were
forces
influential
distributing
lending
.in
137
with
District
compared
study
The
of
types
four
on
suburbs
the
:convent
single
ional
and
,Flending
loans
family
HA
mortgage
VA
improvement
,ahevery
.In
loans
multifamily
ome
nd
of
type
suburban
to
compared
when
poorly
fared
,District
studied
loan
tracts
census
,careas
1981
in
made
loans
mortgage
family
single
conventional
For
.ensus
$632
of
average
an
received
District
the
in
tracts
while
unit
housing
per
an
8tracts
$suburban
of
average
,lI85
1982
in
nending
.received
unit
per
,but
decreased
areas
%wboth
28
of
average
an
lost
tracts
city
central
hile
Owner
:occupancy
%of
22
about
lost
tracts
.suburban
loans
/Vome
FHA
in
,ahAdding
-fimprovement
multi
does
lending
amily
nd
A
.received
balance
this
Dan
tracts
little
change
to
, istrict
1981
In
suburban
while
housing
units
per
1,000
all
kinds
12
of
loans
average
.tracts
units
housing
average
1000
per
loans
18
of
dollar
The
an
received
.mounts
further
highlight
difference
this
received
.Lending
Income
and
contained
1980
The
in
city
central
-i8ncome
low
more
many
;5proportionately
suburbs
the
than
tracts
%ocensus
f
1
-X1
-xii
only
in
differing
1982
,ttracts
comparable
of
end
the
by
So
4.$wo
2,000
lending
$2m. illion
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occur
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METHODS
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Mortgage
Home
examined
study
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1982
and
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-study
of
time
period
the
at
available
year
two
recent
included
and
housing
containing
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data
these
files
computer
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general
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1980
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U.S.
census
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from
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variations
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examine
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edian
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1981
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predictor
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eincome
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8ncensus
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the
of
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units
housing
number
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t
i,of
was
lending
amount
with
associated
138
unique
and
housing
individual
of
influence
;and
race
income
as
such
the
that
expected
ust
JPopulations
was
it
as
.Lending
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.C.
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issue
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escriptions
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.-This
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loans
.28
of
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location
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Over
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tract
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of
strength
the
show
.
characteristics
i
-xiv
-xiii
SUMMARY
EXECUTIVE
which
regression
used
out
carried
was
analysis
,multivariate
Finally
different
census
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of
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independent
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estimating
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volume
on
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Wreport
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,iWith
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ompletes
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1983
for
1984.
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dDevelopment
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epartment
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-eand
ousing
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he
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illion
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explained
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in
the
of
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made
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ighborhood
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ome
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ow
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ocal
municipalities
nd
.,aladvocacy
CONCLUSION
institutions
financial
different
149
from
reports
lending
Residential
confidence
are
of
expressions
the
in
decisions
credit
Residential
.,iits
future
housing
and
for
Loans
ts
tborrower
neighborhood
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.Dhese
report
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for
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1984
and
1983
uring
alenders
made
investment
,an
loans
residential
in
substantial
totaled
that
.$1by
billion
were
M.255
loans
the
of
ost
mortgages
family
single
made
associations
loan
and
.Asavings
apartments
lthough
%o
26
up
make
the
f
only
,there
steck
housing
region's
Denver
were
made
loans
multifamily
421
and
buildings
apartment
for
only
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represented
loans
%o
13
loan
the
f
multifamily
of
majority
The
dollars
the
,
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savings
by
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apartment
rehabilitating
acquiring
houses
remodeling
and
purchasing
to
the
turn
in
and
neighborhoods
of
vitality
the
to
essential
are
buildings
regions
,
cities
and
economy
the
of
health
associations
loan
and
,
far
and
serious
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findings
study's
this
of
The
implications
been
have
credit
unavailability
consistent
of
Treaching
effects
. he
commodity
necessary
.
housing
and
expensive
and
1970
,tBetween
1983
he
area
metropolitan
Denver
ap
had
henomenal
percent
.Fof
boom
-thousing
wo
ifty
at
existing
stock
the
years
15lthough
than
less
was
1984
.Abeginning
old
new
the
of
most
construction
the
in
was
unincorporated
and
suburbs
Denver
around
areas
the
in
constructed
were
units
new
40,000
over
year
13
this
during
city
.Aenver
,Dperiod
boom
housing
the
in
shared
it
received
itself
lthough
139
of
type
his
.Tnegative
neighborhoods
on
effects
drastic
have
to
shown
an
of
abandonment
and
deterigration
produces
investment
dis
systematic
share
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proportionate
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than
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echos
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irected
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re
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egulators
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Community
by
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Force
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Reinvestment
the
Three
focus
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disparities
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of
analysis
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race
and
between
relationship
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is
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focus
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of
characteristics
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of
apercentage
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clear
between
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and
urban
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received
.
residential
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that
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companion
,Lender
volumes
Performance
and
report
research
The
its
meant
.Rankings
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Profiles
Lending
Community
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which
against
enchmark
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as
serve
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.can
measured
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-XV
minority
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shown
has
disinvestment
with
Experience
effect
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but
credit
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first
often
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communities
other
on
impact
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has
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the
of
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their
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Ncommunities
inety
lenders
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ver
%o,-.local
60
those
f
mlenders
studied
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loan
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Tade
we
successful
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to
lending
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World
the
Loan
and
Savings
Federal
volume
,mhighest
studied
lender
loans
191
ade
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$15.4
totaling
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nd
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amade
Denver
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uch
26
only
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in
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40
aver
%represented
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1983-84
its
lenders
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also
comparison
lender
The
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expand
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TRACKING
BUSINESS
CHICAGO'S
:
BUCKS
confidence
decisions
credit
Residential
of
expression
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are
in
report
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this
berrower
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ithe
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.housing
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ts
nd
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Denver
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and
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ubstantial
commitment
to
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/aoulder
Denver
the
metropolitan
1983-84
their
through
.Warea
lending
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makes
Institute
eedsteck
community
Isoferies
the
for
recommendations
te
Force
Task
Reinvestment
work
and
conuitment
this
on
build
address
ways
find
to
lenders
with
the
needs
credit
particular
communities
these
of
that
populations
and
are
BY
ATCH
-HDAVID
FLAX
.These
underserved
:
include
1.
regarding
/lthe
Community
discussions
ender
credit
unique
and
diverse
be
ainitiated
should
populations
and
communities
various
of
needs
as
.
2
most
the
design
partnerships
be
should
to
developed
/lender
Community
efficient
effective
,cost
to
ways
financing
term
long
provide
for
tnd
families
income
low
of
needs
credit
,athe
elderly
the
he
products
lean
prudent
identifying
in
step
first
needs
these
address
.to
,1987
SEPTEMBER
140
disabled
.
These
serving
successfully
lenders
Income
lew
in
needs
credit
the
3.
aleadership
assume
to
encouraged
be
should
areas
in
beth
rele
lenders
other
encouraging
participating
and
reinvest
te
in
partnerships
community
.development
FOUNDATION
FORD
THE
BY
PROVIDED
FUNDING
subsidy
,iAs
limited
more
become
resources
other
and
dollars
t
is
far
benefits
their
as
te
found
be
ways
that
imperative
stretch
to
used
philanthropic
should
dellars
.Pbeublic
possible
and
.
lending
sector
private
leverage
that
their
ensure
should
governments
state
and
local
Foundations
5.
.and
in
this
reinvestment
reward
information
The
encourage
depesits
evaluating
institutional
aas
used
be
should
creport
in
riterien
related
should
program
develop
ships
;fbanking
oundations
relation
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local
;and
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investment
develop
should
governments
state
initiatives
reinvestment
encourage
te
pregrans
deposit
linked
special
served
populations
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fer
,
develop
should
policymakers
lecal
and
organizations
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Community
services
financial
the
ensure
as
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safeguards
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legislative
,trbanking
he
eality
Interstate
aindustry
becomes
and
changes
affordable
continue
access
have
to
all
of
residents
communities
services
deposit
and
,credit
)
5L312
INSTITUTE
CWOODSTOCK
JACKSON
(3,IW.
)460604
27-8070
HICAGO
SUMMARY
EXECUTIVE
concentration
extreme
the
part
asmall
to
,credit
city
the
of
limits
anumber
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CMDO
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essential
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1
141
economic
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Community
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public
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Disclosure
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CMDO
The
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findings
.While
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in
lending
,the
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than
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described
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serious
raise
and
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effective
answered
and
broad
by
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best
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questions
Tcommercial
Municipal
Chicago
. he
legislation
disclosure
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future
to
efforts
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am
as
for
odel
Ordinance
Depository
,through
legislation
such
enact
draft
and
strengths
its
both
shortcomings
.its
142
143
The CHAIRMAN . Thank you very, very much.
Mr. Fishbein.
STATEMENT OF ALLEN J. FISHBEIN, GENERAL COUNSEL ,
AGENCY ENFORCEMENT
Mr. FISHBEIN . CRA has been plagued from the start by a weak
enforcement. In fact, I think it would be accurate to say that the
agencies literally have had to be dragged kicking and screaming
into performing their responsibilities under the law.
144
once every 6 years and, in some cases, with the luck of the draw , it
could be 10 or 15 years or more before an institution is examined .
1
...
145
ceived from their supervisory personnel. These supervisors tend to
be safety and soundness personnel.
RECOMMENDATIONS
In terms of recommendations, they are really four fold. One is
expanding the regulatory enforcement resources. We think exami
nation cycles should be on an 18-month rotating basis for CRA and
civil rights purposes, that are conducted be consumer examiner.
Thank you.
!
1
1
,Mr.
Morning
.Good
Committee
the
of
members
and
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My
Counsel
Iam
and
Fishbein
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f
a
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ormer
FISHBEIN
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ational
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rofit
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ased
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hat
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research
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development
community
of
areas
the
in
groups
sCenter
alThe
tanding
ong
consumer
reinvestment
nd
-has
.,a
credit
on
146
monitoring
in
interest
implementation
the
Community
of
Reinvestment
dAct
federal
other
and
regulatory
- isinvestment
anti
IMPLEMENTATION
AND
THE
OF
ENFORCEMENT
,wrequirements
addition
In
lectured
and
training
provided
have
.e
sponsored
seminars
and
conferences
at
CRA
on
banking
various
by
federal
financial
the
by
well
as
associations
trade
industry
BEFORE
supervisory
.institution
agencies
published
also
have
We
a
COMITTEE
THE
BANKING
,HON
OUSING
URBAN
AFFAIRS
AND
Conference
U.S.
the
with
conjunction
in
publications
of
series
U.S.
Mayors
the
Housing
of
Department
Development
Urban
and
reinvestment
neighborhood
on
techniques
and
strategies
for
,1988
22
MARCH
.
needs
credit
community
assessing
opportunity
Iabefore
the
ppreciate
present
to
you
of
views
Community
for
Center
Change
implementation
the
on
enforcement
and
Reinvestment
Community
the
Act
).(Cof
RA
These
acIt
at
come
.hearings
CRA
of
enforcement
the
in
point
ritical
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enacted
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since
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has
Act
2
-
3
-
crippled
enforcement
weak
by
agtreat
,iaccomplished
deal
been
has
successes
,dis
Yet
the
have
ithat
occurred
tespite
clear
Oalmost
of
interest
continuing
the
and
. versight
outset
from
effectiveness
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that
has
CRA
of
due
limited
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weak
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enforcement
agencies
federal
the
by
charged
with
responsibility
the
. he
Act
Uimplementing
nfortunately
tpicture
,for
that
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committee
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federal
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ensuring
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with
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.
intended
congress
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in
manner
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law
CRA
that
emerges
almost
working
is
regulators
of
spite
in
the
.and
them
of
because
not
extent
the
To
law
has
stimulated
Summary
neighborhoods
urban
in
lending
new
rural
growth
slow
and
focused
attention
public
increasing
70s
and
1960s
the
During
been
has
it
communities
efforts
tribute
a
the
to
hundreds
of
restricted
the
lending
that
practices
mortgage
discriminatory
on
left
grass
,w
groups
community
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often
have
roots
hich
perform
to
.Disinvestment
cities
nation's
the
to
credit
of
flow
by
banks
amajor
as
viewed
increasingly
was
lenders
depository
other
and
fde
-role
acto
examiners
bank
regulatory
of
face
the
in
inaction
.
147
the
necessitated
and
deterioration
neighborhood
to
contributor
t
, here
g
aclearly
is
rowing
strengthen
to
need
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revitalize
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areas
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expenditure
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CRA
of
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gaining
are
institutions
greater
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agency
to
records
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their
examiners
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,Ceries
asresult
enacted
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ongress
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and
complaints
CRA
to
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groups
.by
The
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and
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neighborhood
curb
to
designed
were
all
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institutions
financial
frequently
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aresult
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by
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indeed
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egislative
the
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Home
than
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lending
in
(1975
Act
)aDisclosure
CRA
nd
of
many
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helped
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of
forms
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all
. hatever
performance
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enforcement
in
modest
improvements
occurred
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enactment
oreover
enacted
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CRA
after
years
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first
the
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virtually
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of
past
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indifference
six
or
five
communication
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laws
these
of
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helped
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to
communities
local
their
and
lenders
formation
the
stimulate
local
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partnerships
reinvestment
involving
lgroups
institutions
ocal
community
,alending
nd
.governments
A
that
fear
we
this
will
trend
continue
. nd
strong
without
years
and
immediate
action
by
Congress
.
5
-
increasingly
banks
as
cater
customers
upscale
.to
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currency
the
of
,Comptroller
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These
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of
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and
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Loan
Home
the
o
financial
encourage
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recent
years
regulator
Existing
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uch
ys
local
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and
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ay
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t
consistent
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sound
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.with
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.of
agencies
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Additionally
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the
requires
assess
to
believe
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implementation
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of
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can
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record
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reform
E
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xpanding
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and
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ncluding
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agency
2); reater
accountability
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Rrequirements
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rating
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;system
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take
and
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records
acting
when
requests
on
by
facilities
deposit
new
open
to
permission
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institutions
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,4) eforming
and
application
the
review
protest
process
.to
another
one
acquire
or
merge
the
disclose
to
institutions
their
of
location
geographic
housing
enactment
The
Community
the
of
Reinvestment
in
Act
1977
lending
related
,h
been
ave
helping
in
instrumental
some
curb
to
turning
important
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represented
older
nation's
for
point
urban
discrimination
forms
overt
more
the
.of
neighborhoods
against
redlining
example
,"tFor
shun
lenders
whereby
practice
he
certain
on
areas
geographic
impose
,or
basis
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subtle
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more
that
report
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groups
effect
.
depository
that
states
cinstitutions
(CRA
ommercial
,banks
urban
lending
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to
serve
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remain
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banks
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, ontinuing
nd
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cassociations
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ave
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to
credit
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of
needs
growth
.charges
communities
T
hese
slow
and
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indicates
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research
recent
by
supported
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wide
communities
local
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in
chartered
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.they
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T
hrough
directed
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Act
four
the
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federal
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ederal
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ffice
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levels
lending
areas
many
in
exist
to
continue
communities
white
largely
and
predominately
-city
inner
minority
counterparts
.
148
of
Importance
The
communities
Local
to
CRA
-7
least
at
that
estimated
have
others
and
feature
important
Another
it
that
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commitments
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to
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raise
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b
. illion
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of
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institutions
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reinvestment
commitments
These
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of
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oming
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ccan
.Titizens
,agencies
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the
application
apending
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on
revitalization
activities
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.
institution's
performance
CRA
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is
outright
.While
applications
protested
of
denials
,especially
rare
recent
in
,CRA
years
settlement
in
resulted
sometimes
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the
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financial
applicant
between
agreements
party
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of
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:
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o
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agencies
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will
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Paul
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the
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ome
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aesult
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y
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149
has
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ften
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As
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race
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ach
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merits
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Congress
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credit
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Despite
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were
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150
markets
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ace
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engaged
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oulder
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ashington
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ll
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number
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ender
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research
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1985
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Housing
Fair
filed
has
10
-
also
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are
problems
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credit
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filed
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have
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protests
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of
numbers
increasing
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in
151
,
deposits
for
competition
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rate
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affluent
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then
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lender
lawsuits
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have
to
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and
neighborhoods
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r
checks
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s
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discouraged
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-2
13
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.to
See
.
2
Attachment
Improvements
Significant
Enforcement
CRA
in
Needed
Are
factors
Several
contributed
have
the
to
enforcement
weak
of
152
,CRA
fact
In
the
of
recognition
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enacted
was
to
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basic
change
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the
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of
view
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.T
supervise
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institutions
Committee's
Banking
Senate
he
final
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that
legislation
the
on
report
:
stated
CRA
become
to
legislation
(t)new
for
need
The
his
arises
agencies
regulating
because
,
systematic
lack
programs
affirmative
lenders
encourage
to
home
credit
their
of
needs
the
to
priority
give
areas
.
protests
CRA
the
of
Many
filed
been
have
that
past
in
involve
interstate
years
few
applications
,ibanking
which
n
seek
groups
community
acquiring
the
have
to
spell
institution
was
CRA
of
enactment
The
rebuke
ac
to
ongressional
the
unwillingness
their
for
regulators
to
regulatory
existing
use
institutions
financial
encourage
authority
the
meet
better
to
commitment
its
out
serve
to
credit
the
of
needs
moderate
and
low
needs
credit
indeed
And
communities
local
their
of
agencies
,t
. he
15
14
-
Comptroller
of
et976
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ourt
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financial
performance
standards
substantive
set
to
responsibility
their
punted
the
of
inadequacy
The
the
tlaces
process
ag,pexamination
on
burden
herefore
reater
,who
examiners
their
left
are
difficult
admittedly
make
to
by
provided
sanction
.regulatory
CRA
pending
on
action
Agency
CRA
judgments
,about
performance
assessing
for
element
important
more
even
an
becomes
applications
regulators
ofnd
commitment
CRA
enforcing
to
,athe
is
it
.
industry
banking
the
by
carefully
watched
the
Unfortunately
,e
sanctions
formal
of
use
through
ither
,is
approvals
conditional
or
applications
of
minimal
so
denial
to
threat
little
poses
it
that
an
even
with
institution
became
CRA
since
years
the
In
,mbeen
effective
have
applications
40,000
than
by
on
acted
ore
would
TFRB
,i
occ
the
from
thus
that
appear
.,a
F
nd
DIC
an
FHLBB
to
thing
one
means
rating
outstanding
something
and
examiners
only
have
them
of
nine
,but
combined
agencies
regulatory
four
the
bank
commercial
different
.to
examiners
denied
been
grounds
CRA
.on
,at
denials
these
of
All
to
least
,involved
knowledge
.our
applications
branch
The
Protest
CRA
and
Review
Application
Process
Improved
Be
Must
And
Federal
the
CRA
for
application
first
it
deny
to
yet
has
Board
Reserve
related
issues
.
it
that
in
laws
protection
consumer
among
unique
is
CRA
specifically
an
take
to
agencies
regulatory
the
directs
institution's
record
compliance
of
account
into
determining
in
p
a ending
approve
to
not
or
.whether
application
expansion
account
to
helps
Perhaps
CRA
of
aspect
this
why
for
enforcement
misunderstood
is
by
inadequately
so
and
lenders
implemented
the
by
agencies
regulatory
.
on
rest
to
,the
again
Once
come
has
enforcement
for
burden
shoulders
the
community
groups
.of
increasingly
In
frequent
160
.
weak
CRA
record
admittedly
30
-
31
-
cpublic
,onommunity
numbers
groups
submitting
been
have
comments
records
CRA
the
institutions
of
applications
with
pending
before
various
agencies
Ucomments
.the
sually
these
indicate
opposition
may
charges
These
the
from
stem
many
that
fact
protests
CRA
negotiated
result
settlements
which
in
community
the
groups
.to
complaint
agree
eventually
their
withdraw
pending
the
of
approval
to
until
application
as
time
such
applicant
makes
commitments
improve
to
lending
its
performance
low
to
moderate
income
and
predominately
Tareas
.minority
he
protests
challenges
they
srave
,h"aCoRA
called
are
become
important
means
an
agencies
which
by
institutions
spot
the
with
1%).
community
by
used
usually
is
process
challenge
CRA
The
communication
the
with
at
attempts
previous
after
groups
have
institution
if
or
failed
perceived
the
is
as
number
The
challenges
CRA
of
that
been
have
with
filed
the
record
.having
apoor
cime
Mounting
t
a
is
consuming
hallenge
161
organizations
grassroots
local
for
activity
draining
resource
and
be
,to
effective
community
a
For
group
or
little
.with
staff
no
to
energy
considerable
devote
must
it
its
against
case
documenting
.
institution
the
1986
,i
contrast
By
n
received
FRB
the
Almost
h
- alf
one
of
112
the
protests
CRA
that
filed
been
with
the
FRB
1978
since
occurred
have
in
past
the
years
alone
.two
agencies
T
other
he
increases
report
protest
CRA
in
activity
well
.as
be
to
challenges
CRA
require
agencies
The
research
.
analysis
and
statistical
by
supported
decision
is
regulatory
a
await
than
rather
challenges
CRA
of
attributable
to
know
reasons
F
,t
regulators
the
irst
hey
.two
application
the
of
regardless
unlikely
an
deny
to
extremely
are
merits
of
protest
the
their
.petition
that
know
,t
Second
hey
action
agency
ability
delay
to
their
from
comes
leverage
primary
interested
Sin
primarily
are
they
. ince
application
an
on
to
institutions
financial
from
commitments
substantive
obtaining
,the
records
lending
their
improve
limited
this
use
groups
local
-32
33
-
.If
applicants
with
negotiations
into
enter
to
leverage
they
arbitrary
and
unfair
the
of
complain
also
protestants
in
manner
agencies
the
which
complaints
their
.process
few
a
are
Here
dispute
their
resolve
successfully
to
able
are
quite
they
their
withdraw
to
willing
support
and
protest
approval
prompt
the
.Fhis
application
pending
the
,tof
extortionist
being
from
ar
:
examples
Regional
The
York
New
of
Office
approved
FDIC
the
an
O
means
effective
most
the
been
has
process
settlement
negotiated
application
delegated
under
,eauthority
in
officials
though
ven
in
improvement
encouraging
for
many
of
performance
lending
the
protest
CRA
a
knew
office
that
earlier
submitted
be
would
financial
institutions
.
same
,Cthat
procedures
FDIC
Under
day
protested
applications
. RA
,but
authority
delegated
under
approved
cannot
reviewed
be
must
Directors
of
Board
FDIC
the
by
Washington
in
,D.C.
Although
aside
set
eventually
was
application
the
of
approval
delegated
,apparent
complained
groups
local
the
after
it
FDIC
that
was
162
own
their
of
unaware
officials
.were
matter
this
on
procedures
o
.applications
banks
national
by
protested
,the
1986
In
Atlanta
County
arequest
approved
Office
Regional
Shelby
the
by
Community
apublic
for
Committee
Reinvestment
hearing
by
application
an
on
,FaMtmonths
.bank
Bank
Tennessee
emphis
Sirst
ix
later
he
same
hby
Fairfield
earing
office
arregional
for
denied
equest
oan
(Cn.c.
Action
),sUnited
olumbia
Carolina
South
by
application
regional
,tANational
that
after
months
six
Bank
pproximately
. he
denied
office
shis
econd
hearing
apone
for
ublic
,trequest
by
Savannah
Community
the
Reinvestment
S
Alliance
( avannah
,G
)o
n
A
Union
First
by
application
.an
Georgia
of
Bank
There
was
no
34
-
35
distinguishing
for
basis
legitimate
the
between
;all
requests
Reform
CRA
of
the
rating
system
O
standard
the
met
three
in
out
set
regulations
.occ
clearly
and
biased
The
handling
arbitrary
aCRA
of
o
lmeasurement
aender's
of
performance
CRA
comparably
to
relative
Bank
Loan The
Home
the
before
pending
.protest
Cincinnati
of
institutions
excellant
1
(sized
-verage
#2
good
,#4-3-a
Reinvestment
County
Shelby
protested
Committee
application
an
by
,#5must
effort
rating
standards
);Climited
poor
-RA
developed
be
levels
different
the
between
distinguish
to
examiners
permit
Savings
Federal
Leader
T
he
Association
Loan
.and
group
has
difficulties
numerous
encountered
that
information
obtaining
in
under
required
is
Disclosure
Mortgage
Home
.the
Act
current
the
rating
CRA
shifted
be
should
c
a
omparative
permit
to
system
the
with
individuals
and
eperformance
contacts
;ofxaminer
a
as
required
be
should
institution
the
outside
organizations
have
They
.
record
CRA
institution's
an
assessing
of
component
routine
numerous
encountered
also
failure
Bank's
District
the
of
examples
procedures
FHLBB
follow
to
regarding
handling
the
protested
of
application
the
Reform
review
protest
CRA
and
process
-public
the
improve
procedures
notice
applications
pending
;for
o
applications
presentation
and
the
arguments
oral
.of
163
public
the
expand
to
period
comment
opportunity
ample
ensure
application
the
in
more
;dparticipate
process
evelop
clearly
Enforcement
CRA
in
Improvements
for
Recommendations
substantive
judging
for
standards
defined
need
and
protests
the
enforcement
we
CRA
approaches
four
recommend
major
and
reform
to
;agency
applications
pending
hearings
public
for
on
orders
strengthen
existing
the
:process
factual
cnd
issues
CRA
discuss
should
,aapplications
onclusions
;applications
conclusions
supporting
basis
rated
poorly
by
agency
oE
enforcement
xpanded
on
-s
ite
frequent
more
--
institutions
should
more
;develop
denied
be
defined
clearly
;afull
exams
,s-tagency
examiner
consumer
and
CRA
ime
pecialized
exams
.CRA
policies
future
in
role
their
and
agreements
regarding
;sforce
consumer
of
units
eparate
with
affairs
community
and
over
control
ecompliance
;direct
exams
xemption
bank
the
of
examination
function
Paperwork
the
Reduction
.from
Act
Office
Accounting
General
the
request
Committee
a
conduct
to
audit
-sRA
full
cale
agencies
four
the
ivil
,ac'Cof
rights
nd
0
consumer
compliance
programs
.
Conclusion
37
-
3
-6
that
hope
We
legislative
these
consider
will
Committee
this
cebb
ainertain
is
There
enforcement
to
flow
and
agency
.
session
current
the
during
proposals
,bistake
compliance
consumer
and
amCRA
be
would
it
believe
we
ut
,that
Chairman
.Mr.
testimony
written
formal
my
concludes
without
enforcement
CRA
in
improvements
substantial
anticipate
to
glad
be
of
members
other
or
you
questions
any
answer
to
Iwill
directives
statutory
explicit
wACongress
,.from
eccordingly
,the
4022
H.R.
in
embodied
are
that
proposals
reform
CRA
support
have
may
Committee
.the
H.R.
Community
,a4026
1988
of
Act
Banking
Benefits
nd
the
,woseph
4022
H.R.
hich
has
Jintroduced
.been
Rep
by
Kennedy
n
a
features
of
umber
improvements
and
reforms
agency
the
the
in
enforcement
process
IhCRA
ave
my
in
discussed
.that
testimony
financial
federal
four
the
of
each
require
would
bill
Kennedy
The
affairs
community
responsibility
have
would
,wand
hich
the
of
recommendations
to
authority
have
would
the
make
of
head
. The
applications
pending
of
disposition
the
on
agency
bill
also
agencies
requires
evaluations
the
disclose
to
and
CRA
ratings
each
for
institutions
the
of
Lsupervises
revamps
,i.it
tastly
system
rating
CRA
the
authorization
limits
and
for
holding
bank
into
enter
to
companies
activities
-band
non
anking
in
engage
with
those
to
interstate
.banking
records
CRA
superior
164
separate
a
establish
to
agencies
division
regulatory
consumer
of
Attachmen
1
t
of
Flow
The
Capital
Housing
,Ira
Goldstein
J.
the
in
.
8
Studies
Lending
Mortgage
Jnista
:A,VPogge
Opportunity
and
1983
of
Analysis
ean
.
1
Islands
. ortgage
Institute
of
MOpportunity
:Woodstock
.
2
.
9
.
10
1980-1983
1
986
.,from
Woodstock
Institute
.
3.
Distribution
Credit
Housing
of
Regulated
from
Financial
Institutions
Chicago
the
in
SMSA
1980-1983
,from
.1
986
Hopkins
University
Johns
the
,.1987
.
11
., nne
A
Shlay
Woodstock
Institute
.Money
the
Where
:L
Flows
ending
Ranks
of
Institutions
Financial
Regulated
P
' erformance
within
aryland
Cirginia
VMWashington
-Dthe
in
,1SMSA
.1982
985
C
redit
,A
.Shlay
Color
on
nne
Impact
The
Segregation
of
.
1986
.
7
,Ahe
nne
Neighborhood
That
In
Not
:T.Shlay
Effect
of
165
?:
Lend
Lender
Do
Where
Residential
Tract
Census
Institute
Policy
for
Studies
,t
he
Hopkins
John
,1987
.University
Woodstock
Institute
.
:
Flows
Credit
Backyard
within
Profiles
Lending
Baltimore
the
1981
from
SMSA
.
1984
.
1985
.
5
Institute
for
Studies
,Policy
1981-1984
from
.SMSA
The
Tale
:A
Cities
Three
of
166
Attachment 2 - A
MONEY &
BANKING
Busmessweek
3/2/871
LEANING ON BANKS
TO LEND TO THE POOR
Activists citing unfair practices are holding up mergers
The wave of bank mergers is a boon terstate merger applications they could
T
to some unlikely constituencies.
hold hostage. " The advent of interstate
FINANCE
167
Attachment 2 - B
STATE OF THE STATES
Neal R. Peirce
Neighborhood Challenges to Big Bank Mergers
PHILADELPHIA — The Constitution's 200th anniversary.is , communities, and the total comes to $5 billion, according to
capturing the headlines here this summer, but some of the Allen J. Fishbein of the Washington -based Center for Com
most interesting action is unfolding in the city's neighbor- munity Change. In many ways, that's arguablymore benefi
hoods.
1862 NATIONAL JOURNAL 1/18/87
168
The CHAIRMAN . I want to thank all of you for your very fine
statements .
PRINCIPAL PROBLEM
Miss REVERE. Well, I think there is a problem in each of those
areas. We have found — and this probably relates to your earlier
question to the previous panel — that the bankers we've worked
with, negotiated with, find that they can make loans to the kinds
of neighborhoods we're concerned about, the formerly disinvested
neighborhoods, and derive a reasonable profit from those loans. So
partly it's an educational process with bankers.
169
was, which was a surprise to us, that Congress has a division of
banks and they can tell the Comptroller what to do. I presume she
was referring to this committee.
170
ommendation was that CRA needed a higher priority within the
Federal Reserve System .
171
mendous amount of very valuable financing - valuable because in
each case it's directed toward particular local needs — and I'm sure
you're well aware of the Chicago agreements where we've dealt
with problems like the mixed use buildings and multifamily hous
ing, whereas other types of lending are more crucial in other parts
of the country .
172
they're sound and to build the proper public resources and other
types of programs that are needed to make sure those loans are
sound.
STATEMENT OF JOHN M. KOLESAR, PRESIDENT, AMERITRUST
THE AMERITRUST EXPERIENCE
AmeriTrust Development Bank is a State-chartered subsidiary of
the AmeriTrust Corp. devoted exclusively to providing financial
services for economic and community development efforts through
out greater Cleveland, with a particular emphasis on Cleveland's
low and moderate income neighborhoods. Unlike a bank communi
ty development corporation , we are a full service commercial bank.
We accept demand deposits and we make commercial loans.
173
mine their credit needs. We helped them shape their requests into
conventional loan packages, and then we served as advocates
throughout the credit review process inside the bank.
174
Of almost equal importance when lending in these low income
areas is the question of the pricing of credit . As all of you are well
aware most of the agreements coming out of the recent wave of
CRA protests include provisions for very concessionary pricing on
the lending side. I object to that practice both on theoretical and on
practical grounds. First of all, on theoretical grounds, I don't be
lieve that we do anyone any favors by pretending that something is
economically viable when in fact it is not. And second, and I think
of greater importance, is my conviction-I call it my economic ver
sion of toughlove—that concessionary pricing is counterproductive
in the long run. The entire purpose of community reinvestment
should be to bring low and moderate income communities back into
the economic mainstream. That goal is ill -served, in my opinion, by
artificial pricing which tends to aggravate urban blight by concen
trating subsidized housing and commercial ventures in low income
areas. Nonetheless, we certainly acknowledge that some projects
need a nudge in order to make them work and so we do have sort
of a two-tiered pricing practice whereby when a neighborhood non
profit organization is the borrower we will reduce our conventional
rates by at least 50 basis points in order to give those projects the
nudge that they often need. Others are done on a case-by -case
!
basis.
members
the
of
,Committee
morning
g
ood
Chairman
Mr.
Although
Iam
in
today
here
my
.
Kolesar
Jack
is
name
My
Chief
of
Officer
Executive
and
President
as
capacity
Ameritrust
Cleveland
in
Bank
oDevelopment
,IOccasionally
hio
are
which
hats
other
two
wear
to
pertinent
of
subject
the
,President
Kolesar
M.
John
of
Testimony
these
hearings
.
force
chairman
special
a
of
task
Iserve
as
Development
AmeriTrust
Bank
Bankers
Association
Consumer
the
of
on
,and
issues
Iconsumer
Reinvestment
Act
Community
the
On
Governors
Board
advising
of
honor
the
have
System
Reserve
Federal
Consumer
member
a
as
their
of
Advisory
,Housing
Banking
on
Affairs
Urban
and
175
.
Council
Senate
States
United
appreciative
eof
,tIamspecially
herefore
opportu
the
effective
the
concerning
Committee
this
before
testify
to
nity
of
Cness
Act
Reinvestment
Community
the
RA
rivate
,p)(sector
,1988
22
March
and
prescriptions
its
with
comply
to
initiatives
potential
refinements
CRA
.of
BANK
DEVELOPMENT
AMERITRUST
OF
EXPERIENCE
POSITIVE
THE
cs)(-aiAmeritrust
hartered
ADB
Bank
Development
state
exclusively
of
,dsubsidiary
Corporation
Ameritrust
the
evoted
community
and
economic
for
services
financial
providing
to
adevelopment
throughout
,with
Cleveland
greater
efforts
income
moderate
and
Cleveland's
low
emphasis
on
particular
1
1
2
3
bUnlike
community
aank
development
corpora
.
neighborhoode
,wull
tion
f
a
.are
bank
commercial
service
e
demand
accept
We
months
e
fxperience
a
only
ew
'After
very
some
learned
we
important
surprising lessons
admittedly
and
.
learned
We
-
.
loans
commercial
make
we
and
deposits
bank's
credit
the
dilute
to
necessary
not
was
it
that
.
loans
these
approve
to
order
in
standards
within
unique
are
hWe
industry
owever
,the
due
to
our
make
to
order
in
pricing
market
below
engage
necessary
Sometimes
referred
as
to
Robin
,the
Bank
Hood
.them
feasible
financially
And
market
the
that
discovered
we
deposits
draw
wo
corporations
largest
the
from
institu
and
Cleveland
in
tions
lend
funds
those
housing
for
and
Neither
was
it
than
these
in
credit
for
greater
much
was
areas
we
had
.
anticipated
commercial
development
neighborhoods
Cleveland's
.in
expan
an
consider
to
us
compelled
volume
unexpected
The
176
responsibility
bank's
in
invest
to
moderate
and
low
income
these
fund
.loans
,this
communities
unit
individuals
two
of
consisted
who
three
in
engaged
activities
simple
:fairly
assumption
tenuous
admittedly
that
on
Based
,we
our
opened
,1-a986
23
April
on
Bank
Development
AmeriTrust
as
doors
rmed
development
neighborhood
on
Calling
organizations
.
1
staff
5,acwith
the
from
harter
Superintendent
of
Ohio
determine
their
credit
needs
;to
holding
,a
Banks
$3
initial
of
million
our
from
capital
nd
.9
.
company
these
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184
The CHAIRMAN . Mr. Hartnack, go ahead .
STATEMENT OF RICHARD C. HARTNACK , SENIOR VICE PRESI
185
est subsidy, more risk capital and more skilled entrepreneurs. Con
tinued attention toeradicating some of the forces that destroy the
inner city are equally as important as trying to reinvest in the city.
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22
March
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million
$1ahave
of
5
in
snd
ponsored
maneighborhood
oderate
income
Thousing
.-low
hese
developments
represent
total
a
1,500housing
units
throughout
Chicago
.of
Typically
C
project
investment
%,aroject's
20
fEF
pocovers
total
development
mwcost
a, ith
ix
conventional
of
city
-sand
ubsidized
financing
funding
the
.
costs
project
remaining
generated
2positive
54,000
$income
of
.in
1987
ofor
Sover
time
care
with
institution
,aand
an
s
committed
generating
to
profit
shareholders
w
,our
e
have
experience
aghad
ood
community
with
reinvestment
important
i,.Ht owever
is
remain
to
cognizant
several
of
key
points
:
Chairman
iin
,Mr.
t
interesting
is
to
that
note
Chicago
First
involved
been
has
partnerships
CEF
the
several
Tways
.in
hrough
First
our
Chicago
Neighborhood
Development
Corporation
,willion
e
have
mcommitted
$1will
to
CEF
the
investment
fund
the
by
end
1988.
of
Through
Neighborhood
our
Lending
Division
have
,wacked
e
private
been
lender
bthree
-on
CEF
housing
developments
more
,wlso
ith
in
approval
tAprocess
.the
hrough
FCNDC
,w
e
provided
equity
initial
the
technical
and
assistance
needed
complete
ato
project
that
targeted
eventually
was
investment
for
CEF
the
.by
First
tfigures
he
provided
Ij, ust
should
regarded
be
not
Ebenchmarks
very
.as
isnique
bank
ustill
position
acommunity
,in
nd
reinvestment
programs
have
short
fairly
T
hus
,o.histories
bjective
standards
as
appropriate
to
investments
expectable
and
returns
probably
are
practicable
not
.at
time
this
Chicago's
First
Point
View
of
Chairman
that
ow
I've
presented
as,nMr.
ynopsis
First
Chicago's
of
community
reinvestment
history
Irole
,and
'd
like
into
go
to
what
experience
our
has
taught
about
us
copportunities
hallenges
,the
conflicts
and
community
reinvestment
.of
thing
one
For
have
,w
e
learned
that
possible
B
aitis
for
ank
to
expand
community
its
reinvestment
activities
safely
moderately
and
profitably
experience
.Our
indicates
most
that
savings
and
loans
banks
prudently
ecan
,in
fficiently
effectively
and
more
do
the
neighborhood
reinvestment
arena
than
they
currently
are
.doing
honest
be
To
got
,w
e
sto
start
aoff
low
our
with
Neighborhood
Lending
program
because
awittook
us
hile
learn
to
tbusiness
individual
,the
he
communities
concerns
aand
, nd
needs
players
involved
.the
competitors
bank
and
-sfrom
tate
.in
out
FChicago's
, irst
Third
support
community
of
reinvestment
necessarily
must
fewer
that
mean
resources
available
are
support
to
strategic
initiatives
A.other
s
contributing
move
domestic
2%owe
f
earnings
our
tFoundation
support
,to
he
community
activities
comes
cost
the
at
support
lower
of
and
cultural
health
maintenance
activities
.
Community
Our
Reinvestment
experience
clearly
also
has
shown
us
that
the
credit
investment
and
needs
less
of
advantaged
communities
keen
.remain
4/30/85
At
o21
year
ne
program's
the
inception
,after
approved
w
had
e
cnly
applications
tfor
$aotal
.2
Lmillion
.3of
ess
three
than
years
hlater
owever
,w
e
umulatively
ocapproved
)(have
ver
tapplications
otal
or
million
$3a,f150
6
.of
financed
have
We
approximately
1,300
units
ahousing
,ll
inner
the
in
of
city
Chicago
.(Comparable
figures
available
not
are
commercial
properties
.)for
Roughly
per
fifty
the
cent
volume
dollar
approved
our
of
loans
has
in
been
fand
- amily
multi
,wprojects
ith
remainder
the
divided
between
single
family
ommercial
fcmixed
ixed
asset
decline
O/use
ur
rate
been
roughly
30
%.has
programs
programs
,aOur
the
nd
banks
other
of
established
have
that
similar
responses
Community
Reinvestment
assisting
,are
Act
meet
to
needs
the
these
Ycommunities
.ofet
much
more
remains
be
:to
done
8
7
189
Second
profitability
t,fhe
the
of
enterprise
critical
is
financial
total
I.total
institution
does
succeed
community
,inot
ts
reinvestment
program
will
have
not
much
lof
ong
effect
may
A.-aasting
you
s
Maware
r.
oChairman
,be
ur
organization
currently
is
dealing
with
challenges
posed
by
current
the
and
upcoming
fa
)(1urther
990
deregulation
has
what
of
been
banking
ulong
nit
.nndertaken
state
e
iW
upast
,have
year
acquisition
the
of
two
suburban
holding
bank
companies
critical
to
success
the
strategy
our
.Tof
is
his
an
expensive
proposition
one
but
critical
feel
maintain
to
are
ifwe
improve
or
share
market
our
face
the
in
increasing
of
competition
both
from
and
bank
non
1
1
income
moderate
and
low
of
needs
deposit
credit
profitable
less
relatively
hard
imagine
pdisinvestment
.Iis
not
is
a• troblem
still
Nto
eighborhood
.and
communities
people
leveling
of
context
the
from
oth
,bhere
conclusion
inevitable
The
of
the
standpoint
nd
,a
competitors
financial
all
for
field
playing
responsibility
the
that
s
,ireinvestment
of
neighborhood
needs
u
a
,is
be
not
should
nd
not
communities
tonique
in
reinvest
all
on
fall
must
responsibility
Eof
. qual
banks
,like
unds
eposit
'for
ddeposits
consumer
accept
that
institutions
neighborhood
,while
Additionally
of
visibility
raised
has
CRA
the
.or
loans
consumer
make
that
should
atougher
be
requirements
that
CRA
believe
people
Iknow
some
FChairman
Chicago
irst
,.Mcost
r.
banks
for
powers
expanded
accompanying
credit
and
cost
the
servicing
of
that
believe
e
adview
takes
.W
ifferent
including
,--with
providers
all
for
CRA
compliance
of
is
public
the
needs
deposit
CRA
increased
of
that
focus
the
believe
e
limited
,b
to
.W
anks
not
but
least
to
done
the
who
have
others
-and
banks
those-on
should
be
compliance
productively
can
we
leaders
,tof
level
the
to
up
everyone
gets
.Ihen
date
f
for
.talk
all
standard
raising
the
about
sector
private
increasing
the
meet
loans
savings
and
banks
Can
,ndo
can
that
believe
not
they
or
?W
themselves
by
all
requirements
e
through
commitment
CRA
their
evince
to
not
prefer
organizations
Ifthese
communities
in
reinvest
can
they
which
ways
many
are
tactivity
, here
lending
.costly
difficult
most
and
,tbe
frank
ilending
which
--sohe
direct
besides
should
have
try
to
.
so
do
:afLet
ideas
ew
just
list
me
rofit
plenders
non
-invest
by
produced
loans
in
to
agree
can
Companies
:mnsurance
surveillance
CRA
ito
;fund
companies
utual
-i;fthe
companies
ncluding
inance
brokers
,amortgage
lenders
nvestors
nd
retail
companies
cautomobile
purchases
finance
that
stores
;card
redit
. rokerage
on
b;houses
,aso
nd
companies
FHANA
originate
%obankers
75
nearly
mthe
currently
, fortgage
Chairman
Mr.
conventional
single
in
made
morgages
%ofamily
25
over
and
all
f
consumer
supply
%ocompanies
25
approximately
the
.Ffinance
country
this
all
and
ocredit
14
almost
for
account
%commercial
,afnd
U.S.
the
in
they
management
cash
for
deposits
collect
firms
Securities
loans.1
industrial
accounts
that
checking
and
savings
combined
.Tas
function
hey
loan
in
commercial
the
competing
us
with
,dbroker
paper
irectly
have
and
charters
bank
acquired
',w-b"nthey
hich
anks
.Aon
market
nd
they
deposit
insured
offer
can
that
so
insurance
federal
for
eligible
are
be
to
products
for
allow
that
mechanisms
delivery
can
develop
•Or
they
not
are
products
standard
where
areas
in
needs
specialized
to
tailored
.
appropriate
accounts
.
Enforcement
Regulatory
CRA
many
providers
.Ifinancial
banks
like
looking
are
,tnhese
Increasingly
service
Chairman
,tMcompete
to
subject
not
are
.Yareas
directly
us
with
r.
hey
et
do
and
CRA
the
serve
to
responsibility
any
acknowledge
general
in
not
and
CRA
with
experience
Bank's
the
ave
on
spoken
hChairman
ow
I,n
that
Mr.
ould
,Iwfor
application
further
need
and
success
its
of
perceptions
our
on
our
and
apparatus
regulatory
CRA
the
of
impressions
our
you
provide
to
like
.
enforcement
CRA
with
experience
: he
,1source
Today
.TBankors
Tomorrow
of
Banks
its
and
Industry
Services
Financial
Instituto
.,C1987
hicago
Reinvestment
Woodstock
The
Community
in
Role
9
10
190
CRA
in
involve
logically
to
private
group
sector
another
is
There
accept
that
.Tnstitutions
nactivities
of
group
the
'i-bis
on
his
ank
/o-l'drike
and
.Tfunds
consumers
to
loans
make
group
his
eposit
,ithe
include
would
to
addition
subject
already
loans
savings
and
banks
n
tprimary
, he
know
you
As
Comptroller
Office
Currency
of
bears
the
.We
banks
national
CRA
of
oversight
for
responsibility
regulatory
been
have
has
examination
each
and
OCC
the
by
annually
approximately
examined
investigation
specific
included
compliance
CRA
of
.W
all
passed
have
e
such
Conclusion
Msummary
Chairman
r.
RA
vC
a,Inital
is
effective
and
means
encouraging
of
regulated
those
community
to
aassist
,reinvestmen
lthough t
actual
the
enforcement
CRA
of
benefit
could
increased
professional
.from
ization
However
, RA
must
C
applied
be
selectively
.not
regulation
should
examinations
.
offer
Iwould
observations
following
the
examination
this
process
:on
the
as
viewed
entry
of
price
services
financial
market
.to
Thank
.you
Eas
• xaminations
more
become
intense
community
groups
have
increased
their
focus
CRA
compliance
.on
lacks
o•Trhe
to
unwilling
is
standards
objective
,aOCC
share
ny
cwith
- ompliance
non
or
compliance
.constituting
law
the
little
•There
be
to
seems
treatment
the
in
difference
banks
accorded
examinations
CRA
on
.based
general
inRA
While
beneficial
had
,C
has
effects
Chicago's
neighborhoods
on
our
inhese
participants
industry
banking
,tthrough
market
are
effects
beneficial
based
community
of
work
more
examinations
the
to
due
than
groups
191
.
themselves
following
Iwould
suggest
for
considered
be
examination
the
improving
of
with
:
CRA
compliance
banks
•Assist
better
to
their
meet
requirements
CRA
sharing
by
with
mon
objective
easurable
,them
CRA
compliance
for
I.criteria
nsist
reasonable
movement
compliance
meeting
towards
standards
aas
regulatory
of
condition
required
when
.approvals
reflect
•Atdjust
to
standards
of
volume
.Isheer
participants
CRA
is
CRA
more
be
might
there
day
one
that
imagine
to
-rpossible
elated
available
funds
than
productively
be
could
prudently
used
.or
S'based
the
• tandardize
gathering
of
process
community
organizations
testimony
about
pcompliance
aCRA
by
articular
that
,tbank
ensure
o
resulting
the
sdata
verifiable
is
tatistically
iconsistent
nternally
,valid
representative
constituencies
and
all
of
community
the
.within
12
11
192
The CHAIRMAN . Thank you, sir.
193
the other major banks in Cleveland has indicated an interest in
doing a development bank per se.
194
The CHAIRMAN. I shouldn't have said it quite that way. I love
Chicago, even though the Cubs are going to have lights, I still love
Chicago.
195
in that community about what the bank's commitment is, but be
cause --- as we found - it's good business. We discovered a market
there that we didn't know existed before, at least not to the extent
we found it .
之
☆
196
EFFECTS OF CLOSURES OF INNER CITY BRANCHES
Mr. HARTNACK. We don't have branch banking in Illinois in the
way that I think most people think about it. So we're certainly not
planning on closing inner city branches. I'm not aware of people
that are in our market having such plans.
197
Our second measure is a comparative one in terms of the
amounts of dollars that we are investing in low income housing in
Cleveland vis -a -vis other Cleveland banks, including our lead bank.
The measure that we use for that is really two - one is HMDA data
that's available, although by and large we find that to be not terri
bly reliable. What we find to be far more reliable, however, is that
Cleveland State University goes into our county recorder's office
and records title transfer data by lender for each census tract in
the city of Cleveland that gives us a much more accurate figure
than the HMDA Disclosure Act of what all lenders are doing in
low income areas . That's what we use as our comparative measure
on how we measure up to the other lenders in Cleveland.
198
The committee stands in recess until tomorrow at 10 o'clock .
COMMUNITY REINVESTMENT ACT
WEDNESDAY, MARCH 23, 1988
U.S. SENATE,
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS,
( 199)
200
Governor Seger, Chairmen, and Mr. Comptroller, you've heard
the charges. We'd like to hear your views and your responses. I
hope to hear both good explanations and possible pledges to im
prove performances. After all, I know that you want to see CRA
succeed and certainly we do, too.
STATEMENT OF MARTHA R. SEGER, GOVERNOR , FEDERAL
COMPLIANCE EXAMINATION PROGRAM
I want to emphasize that our compliance examination program
begun in 1977 is a specialized program . It is carried out by examin
ers who are specifically trained in consumer compliance and CRA
issues and whose primary job it is to conduct reviews and produce
reports that deal exclusively with consumer complaints and CRA.
201
We believe our examiners' efforts in this respect have been par
ticularly useful to the banks and their local communities.
COMMUNITY AFFAIRS PROGRAM
Through our community affairs program , begun in 1980 , we have
developed special expertise to work with and encourage the banks
in designing community development programs. The program's
main purpose has been to develop our own expertise in the meth
ods and techniques of sound community development lending in
order to be able to serve as a resource for banks and members of
the communities.
202
and have more frequently involved multiple protestants in several
cities, often crossing our Federal Reserve district lines.
203
I appreciate the opportunity to appear before this committee
today to discuss this important subject and I will be pleased to take
any questions the Committee might have.
Iam
be
pleased
discuss
to
today
here
Community
the
release
For
delivery
on
Reinvestment
and
Act
Federal
the
role
played
has
Reserve
in
10:00
A.M.
E
, ST
administering
.
it
, 988
23
March
1
t
deal
g
,A
time
of
ood
ahought
has
effort
nd
been
by
invested
and
Board
both
Banks
Reserve
the
trying
in
responsibilities
CRA
our
out
carry
and
effectively
.to
fairlyAs
responsible
member
Board
the
for
of
compliance
program
our
with
consumer
CRX
other
and
t
,the
laws
protection
hese
have
issues
deal
g
a
.received
attention
and
thought
own
my
of
elieve
Ibreat
appropriate
ishat
it
essential
ven
periodically
,tethat
we
stop
well
as
the
are
responsible
we
which
for
laws
.other
BMember
, oard
Governors
of
Reserve
Federal
the
System
,Iam
Consequently
do
might
we
what
learning
in
interested
very
holding
Icto
for
Committee
the
. ompliment
future
the
in
improve
Committee
Banking
on
and
,H
ousing
Affairs
Urban
hearings
timely
these
Ib
are
elieve
all
.they
us
help
will
and
United
States
Senate
abetter
.do
law
important
this
administering
of
job
,1988
23
March
Act's
mandates
,The
are
.
institution
the
of
operation
sound
and
,directed
however
financial
federal
at
instance
first
the
in
agencies
.
supervisory
basic
most
their
:In
are
they
terms
financial
the
encourage
agencies
the
That
institutions
supervise
they
credit
the
meet
to
O
communities
the
of
needs
i
serve
they
, ncluding
moderate
and
low
the
neighborhoods
income
in
.
communities
those
the
assess
agencies
That
lending
community
institutions
the
of
records
supervise
they
as
.
examinations
their
of
part
204
we
what
on
reflect
and
respect
with
doing
been
,have
law
this
to
Martha
R.
Seger
3
-
the
take
agencies
the
That
institution's
the
of
evidence
including
performance
CRA
reviewing
in
use
certain
considering
when
account
into
record
applications
.
,its
needs
comunity's
its
assess
to
efforts
institution's
,and
community
its
services
entire
the
to
credit
of
marketing
exclude
improperly
not
do
programs
lending
that
ensure
to
efforts
.assessment
discriminate
illegally
areas
or
The
geographic
any
b
a
include
also
factors
closing
and
opening
of
record
ank's
,its
offices
and
projects
development
community
in
participation
and
the
programs
loan
sponsored
guaranteed
or
government
in
,small
residential
bank's
lending
farm
small
and
business
of
board
institution's
extent
the
review
also
We
.
programs
CRA
and
policies
its
formulating
in
participates
directors
b.Ithat
the
,I elieve
fact
n
implementation
their
overseeing
CRA
assessment
the
make
to
is
criteria
these
of
intent
overall
and
management
institution's
the
integral
of
part
an
process
205
Reserve's
Federal
The
Overall
Program
.
making
decision
operational
1
,these
avhowever
play
still
banks
other
meeting
in
part
aluable
of
in
changes
These
frequency
the
were
examination
. some
factors
primary
two
by
prompted
found
,we
First
after
that
.
communities
their
of
needs
,alonger
interval
shorter
the
at
years
between
period
compliance
Reserve's
Federal
The
program
examination
to
sufficient
proved
examinations
adequate
an
assure
of
level
w
Federal
the
,I ithin
that
emphasize
to
ant
,aoversight
examinations
several
After
interval
month
18
.n
,this
System
asReserve
out
carried
is
that
program
pecialized
between
examinations
enabled
to
us
measure
progress
and
see
or
compliance
consumer
in
trained
specifically
are
who
examiners
by
bank
aparticular
within
change
cases
the
in
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215
of
COVERNORS
POARD
Attach
ment
D
C
ATTACHMENT
25
-
24
-
REPORTED
CONTACTS
COMMUNITY
OF
SUMMARY
BY
1986
RESERVE
FEDERAL
PERSONNEL
BANK
Officials
Government
1986
1987
214
247
14
9
ncluding
)(Istate
local
and
Rights
Civil
consumer
and
1987
161
35
Develop
(including
Economic
163
19
9861
42
787
787
1
3
2
8
1981
contacts
Community
Federal
by
reported
personnel
Bank
Reserve
,
examina
Act
Reinvestment
Community
of
context
the
in
primarily
Nw
TOTALS
Zt
2
8L6T
10
w
6261
1
密
0861
1
7
1
,'either
by
telephone
or
person
in
.tions
1
TOTAL
2861
1
1983
216
1984
120
186
2
157
Individuals
Private
3
Associations
Trade
216
1996
2
20
52
Community
Roots
Grass
Groups
CRA PROTESTED APPLICATIONS RECEIVED BY FRB DISTRICTS
Community
Development
Corpor
ations
217
The CHAIRMAN. Thank you , Governor Seger.
1
218
STATEMENT BY SENATOR RICHARD SHELBY
1
MARCH 23 , 1988
COMMUNITY REINVESTMENT ACT
1
MR . CHAIRMAN , I COMMEND YOU FOR CALLING A HEARING ON THIS TENTH
ANNIVERSARY OF THE COMMUNITY REINVESTMENT ACT .
IT'S TIME TO
REVISIT THIS LAW AND SEE WHETHER IT HAS HAD THE IMPACT THAT WAS
INTENDED UPON ITS ENACTMENT .
YESTERDAY'S TESTIMONY DISCLOSED SOME INTERESTING FACTS :
IN THE
OPINION OF THE BANK REGULATORS , OUR BANKS ARE DOING A
SUPERLATIVE JOB IN MEETING CRA REQUIREMENTS .
AROUND 99 %
OF
LENDING INSTITUTIONS HAVE A PASSING GRADE WHEN IT COMES TO CRA .
ONLY 8 OF THE 40,000 APPLICATIONS MADE BY FINANCIAL INSTITUTIONS
IN THE PAST TEN YEARS HAVE BEEN DENIED ON THE BASIS OF CRA .
THERE WERE OTHER INTERESTING FACTS DISCLOSED IN YESTERDAY'S
TESTIMONY .
ACORN ( ASSOCIATION OF COMMUNITY ORGANIZATIONS FOR
REFORM NOW )
PROVIDED AN EXAMPLE OF DISCRIMINATORY LENDING
PRACTICES THAT BELIE THE PREVIOUS STATISTICS .
ONE NEW ORLEANS
BANK , WHICH RECEIVED THE BULK OF DEPOSITS IN ONE BRANCH FROM THE
LOWER INCOME NEIGHBORHOOD WHICH SURROUNDED IT , LOANED BACK TO
THAT COMMUNITY ONLY ONE PERCENT OF THESE DEPOSITS .
ACORN CALLED
THIS BANK A GIANT VACUUM CLEANER THAT SUCKED MONEY FROM THE POOR
AND LOANED IT TO THE RICH .
DESCRIPTION
I THINK THAT SOUNDS LIKE AN ACCURATE
219
- 2 I WOULD NOT SUPPORT EFFORTS TO MANDATE THAT BANKS MAKE HIGH
RISK , LOW COST LOANS .
ORGANIZATIONS .
BANKS ARE BUSINESSES , NOT CHARITABLE
BUT EVERY WITNESS THUS FAR HAS TESTIFIED THAT
LOANS MADE TO LOWER INCOME CLIENTS HAVE PERFORMED BETTER THAN
THEIR LOAN PORTFOLIO AVERAGE .
CITIZENS TRUST BANK IN ATLANTA
HAS THE BEST CRA LENDING RECORD AND THE LOWEST RATE OF
NONPERFORMING LOANS .
I DO NOT BELIEVE THAT CRA REQUIREMENTS
REPRESENT AN UNREASONABLE HARDSHIP ON BANKS .
BANKS DO HAVE AN
OBLIGATION HAS THE " ECONOMIC ENGINE OF THE COMMUNITY . "
I WANT
US TO SEE THAT BANKS MEET THEIR OBLIGATION .
YESTERDAY'S WITNESSES WERE ASKED BY THE CHAIRMAN TO RATE THE
REGULATORS
WITH THE EXCEPTION OF THE CHICAGO FEDERAL RESERVE
BANK , REGULATORS WERE GIVEN AN F.
THE OFFICE OF THE COMPTROLLER
OF THE CURRENCY WAS CITED AS DOING A GOOD PR JOB BUT DOING
LITTLE IN SUBSTANCE .
I WANT TO SEE THAT REGULATORS ENFORCE CRA .
THAT 96-99%
I CANNOT BELIEVE
OF OUR NATION'S FINANCIAL INSTITUTIONS DESERVE A
PASSING GRADE .
IF WE MUST , WE CAN LEGISLATE TO PUT SOME TEETH
IN CRA .
I WELCOME HEARING YOUR SIDE OF THE STORY TODAY .
|
85-619 0 - 88 - 8
220
STATEMENT OF SENATOR D'AMATO
COMMUNITY REINVESTMENT ACT
MARCH 23 , 1988
MR CHAIRMAN , I AM PLEASED TO PARTICIPATE IN THIS HEARING
ADDRESSING THE ENFORCEMENT OF THE COMMUNITY REINVESTMENT
ACT .
COMMUNITY ORGANIZATIONS , IN PARTICULAR , HAVE A STRONG
INTEREST IN THE ENFORCEMENT OF THIS LEGISLATION .
I COMMEND
SENATOR PROXMIRE FOR HIS COMMITMENT TO COMMUNITY DEVELOPMENT
AND REVITALIZATION .
THE COMMUNITY REINVESTMENT ACT OF 1977 REAFF IRMS THE
RESPONSIBILITY OF FINANCIAL INSTITUTIONS TO MEET THE NEEDS OF
THE COMMUNITIES IN WHICH THEY ARE LOCATED .
SPECIFICALLY , THE
ACT REQUIRES FEDERAL REGULATORS TO TAKE INTO ACCOUNT THE
COMMUNITY REINVESTMENT RECORD OF BANKS AND THRIFTS WHEN THOSE
INSTITUTIONS APPLY FOR CHANGES , LIKE MERGERS AND BRANCHING .
UNDER THE LAW , COMMUNITY GROUPS HAVE THE RIGHT TO CHALLENGE
THE APPLICATIONS IF IT IS BELIEVED THAT THE FINANCIAL
INSTITUTION VIOLATES THE COMMUNITY REINVESTMENT ACT .
NUMEROUS COMMUNITY GROUPS HAVE EXPRESSED A GREAT DEAL OF
DISMAY OVER THE ENFORCEMENT , OR NON -ENFORCEMENT , OF THE ACT .
THESE GROUPS CLAIM THAT REGULATORS ARE NOT TAKING INTO
ACCOUNT THE COMMUNITY REINVESTMENT RECORD OF A FINANCIAL
INSTITUTION WHEN IT APPLIES TO MAKE CHANGES.
MANY OF THESE
221
2
I AM AWARE THAT MY COLLEAGUES ON THE HOUSE BANKING
COMMITTEE ARE DRAFTING LEGISLATION TO RESPOND TO THESE
ALLEGATIONS AND , SPECIFICALLY, TO PROTECT CONSUMERS FROM
LENDERS WHICH HAVE OVERLOOKED THEIR COMMITMENT TO THE
COMMUNITY .
THE COMMUNITY REINVESTMENT ACT WAS ADOPTED TO INSURE
THAT CERTAIN LENDING INSTITUTIONS DO NOT ABANDON
LOW - TO -MODERATE - INCOME CONSUMERS FOR THE BUSINESS OF THE
AFFLUENT.
I FULLY SUPPORT THIS GOAL AND I AM PLEASED TO
REASSESS THE EFFECTIVENESS OF THIS LEGISLATION .
| ASSURE
BOTH OUR WITNESSES AND MY COLLEAGUES THAT THE MATTERS BEING
DISCUSSED HERE WILL RECEIVE MY CLOSE AND CONTINUING
ATTENTION .
THIS LAW MUST BE ENFORCED .
THANK YOU , MR . CHAIRMAN .
222
Senator D'AMATO . Thank you, Mr. Chairman .
223
The Office of Consumer Affairs reviews all CRA -related protests
filed against an FDIC -supervised bank and makes written recom
mendations to our Division of Bank Supervision regarding the dis
position of those protests.
members
,Mpleased
morning
Good
and
Chairman
.Iar.
Committee
the
of
to
m
be
OF
TESTIMONY
views
present
to
today
here
Corporation
Insurance
Deposit
Federal
the
of
(CRA
Act
Reinvestment
Community
the
of
enforcement
).Aon
detailed
are
ttached
SEIDMAN
WILLIAM
L.
questions
the
to
.answers
subject
this
on
letters
recent
your
in
contained
224
Introduction
ON
,the
1977
in
law
important
this
of
enactment
Since
to
hard
worked
has
FDIC
requires
mandate
That
encourage
to
us
State
.enforce
mandate
CRA
the
ACT
REINVESTMENT
COMMUNITY
THE
nonmember
,chartered
needs
credit
community
local
meet
help
to
banks
-income
moderate
and
lowof
those
,cincluding
residents
neighborhood
onsistent
THE
BEFORE
.
banks
those
of
operation
sound
and
safe
the
with
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BANKING
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AND
CRA
under
responsibilities
its
out
carrying
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the
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FDIC
he
importance
home
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credit
mortgage
residential
availability
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the
preventing
in
loans
rehabilitation
and
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mindful
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and
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development
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people
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ith
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it
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e
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of
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eprocess
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basis
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eaccount
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evaluated
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the
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community
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circumstances
context
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and
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Role
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The
examiners
FDIC
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xaminers
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of
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the
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help
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rtthat
information
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enforcement
the
and
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role
and
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needs
safe
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banking
sound
FDIC
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aupervised
ompliance
by
sexamination
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and
valuated
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to
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ome
branch
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oranch
specified
other
in
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CRA
the
carried
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is
program
his
out
to
instances
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decisions
making
applications
such
FDIC
,ton
due
gives
scomprehensive
, pecific
examination
detailed
and
used
procedures
of
each
by
consideration
bank's
the
performance
CRA
record
required
is
his
.Tto
all
in
federal
financial
regulators
.the
instances
,nfiled
cases
in
merely
has
ap.As
where
rotest
been
arot
of
esult
evaluations
rin
-,Cthese
elated
RA
violations
resulted
have
remedial
corrective
enforce
to
order
In
the
compliance
,iwith
CRA
1978
n
345
Part
adopted
FDIC
regulations
comprehensive
its
of
and
examination
Tprocedures
.CRA
he
major
madvisements
, emoranda
understanding
delayed
and
conditional
or
approval
of
application
,as
applications
as
.well
denials
compliance
CRA
in
effectiveness
of
measures
the
are
factors
assessment
enforcing
to
addition
In
as
CRA
examination
the
of
part
process
in
and
applications
individual
Office
ur
Affairs
Consumer
of
)(O,ocontext
CA
}
CRA
our
in
outlined
regulations
factors
those
applying
fter
,t.Ahe
rates
FDIC
accordance
in
banks
the
with
Interagency
Uniform
Assessment
Rating
.CRA
System
225
compliance
bank
enforcing
and
Monitoring
critical
is
mandate
CRA
the
with
in
evaluation
FDIC's
the
applications
bank
of
insurance
deposit
establish
,tfor
o
through
its
primarily
role
supervision
bank
.Weffective
enforcement
and
e
5-
complaints
CRA
of
processing
the
coordinates
.Such
banks
against
filed
isolated
an
reflect
not
instance
of
rtechnical
anoncompliance
with
egulation
referred
or
FDIC
by
investigated
are
complaints
federal
appropriate
the
to
b,time
rhen
is
abut
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ank's
ating
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iolations
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the
by
detected
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attention
bank's
requiring
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handling
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immediate
corrective
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all
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the
at
CRA
ine
have
efforts
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is
view
banks
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number
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receive
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number
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upervised
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be
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requirements
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of
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few
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and
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have
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protests
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to
relating
banks
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be
found
again
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applicant
the
CRA
to
as
satisfactory
than
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performance
resolve
favorably
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from
commitments
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generally
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not
do
which
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noncompliance
that
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of
denials
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only
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experience
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been
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ith
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athat
to
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roblem
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taken
approval
-rmay
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commitments
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uch
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stipulated
be
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o
than
-supervised
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less
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on
satisfactory
application
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its
had
without
approved
appropriate
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agreeing
favorably
to
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corrective
FDIC
-elated
dentified
.-rC,iresolve
problems
RA
.correct
it
to
compliance
banks
1.228
the
Of
CRA
for
examined
,20
1986
in
FDIC
by
were
ratings
satisfactory
than
less
assigned
indicate
,p.Also
figures
reliminary
otwo
about
(that
rf
)percent
42
banks
2,155
the
compliance
CRA
for
examined
inception
Act's
the
Since
denied
,tfor
has
FDIC
he
applications
three
deposit
CRA
due
tohis
.01
.Tfacilities
factors
is
total
the
percent
of
number
were
that
CRA
to
subject
.applications
FDIC
the
filed
with
of
rate
The
not
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and
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345
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226
CRA
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1987
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1986
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ank
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students
39
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ffairs
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1988
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communities
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civil
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.two
1-- 0
FEDERAL
DEPOSIT
INSURANCE
N
WCORPORATIO
, ashington
20429
DC
,1988
25
January
Dear
Mr.
Chairman
:
Thank
once
again
Chairman
,Myou
r.
and
members
the
of
giving
,fCommittee
or
us
this
opportunity
express
to
views
our
an
on
issue
special
of
importance
to
the
La an
Seelm
Sincerely
,
Attachments
Chairman
229
William
L.
Seidman
Chairman
Honorable
William
Proxmire
Committee
Banking
H,onousing
-2
.WFDIC
constraints
budgetary
certain
increased
the
believe
from
e
compliance
Additional
activity
examination
1988.
in
continue
will
1987
during
compliance
tosncluding
again
allocated
be
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iresources
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eand
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new
train
ahire
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of
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sventually
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decrease
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budget
the
by
approved
was
January
on
Board
FDIC
number
1the
,t19
988
he
during
exams
compliance
of
1988
ENFORCEMENT
GENERAL
1.
.Question
:Le
by
increase
to
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.projected
percent
60
approximately
denied
,how
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the
of
enactment
Since
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have
applications
many
or
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applications
?What
factors
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to
due
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total
of
percentage
?Does
represent
does
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the
to
subject
processed
denial
of
rate
this
the
of
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with
compliance
enforce
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goals
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1
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tand
goal
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ated
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achieve
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of
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230
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1987
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1979
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owever
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.Iissue
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eorrection
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345
Part
adopted
FDIC
the
1978
n
in
forth
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along
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:
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ase
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1985
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and
1986
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1,125
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1987.
during
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involving
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:
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granted
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amin
ofemorandum
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1987
May
In
he
,tof
FDIC's
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Supervision
Bank
implemented
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ascertain
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and
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we
whether
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of
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applications
:
Question
11.c.
.CRA
II
Ratings
assigned
were
institutions
regulated
many
How
3,4or
of
ratings
"5CRA
total
what
1986
In
of
percentage
these
received
Institutions
?rated
ratings
institutions
these
of
cach
examined
some
,oMore
1986
in
did
r
on
rely
ratings
?Oess
examinations
lprevious
of
level
low
the
can
basis
what
"than
n
sanctions
could
on
imposed
be
regulated
institutions
with
inadequate
CRA
he
.Tof
records
use
CRA
public
ratings
would
appear
reward
to
institutions
ratings
good
with
sanction
and
than
less
institutions
satisfactory
s
.Imovement
ratings
any
there
the
in
direction
public
of
disclosure
"CRA
?satisfactory
justified
be
ratings
individual
CRA
ratings
by
your
agency
?
.: nswer
AII.6
are
there
Currently
plans
no
the
at
publicly
to
FDIC
disclose
CRA
individual
,anot
ratings
we
do
believe
disclosure
such
is
at
necessary
this
he
.Tnd
time
Home
Mortgage
Disclosure
MDA
erves
(Hto
)Act
spublic
the
provide
with
important
information
enable
to
them
determine
whether
depository
institutions
appear
to
be
fulfilling
their
obligations
in
the
meeting
housing
the
of
needs
communities
and
neighborhoods
which
in
they
to
chartered
are
do
.Iindications
business
are
there
,FDIC
problems
of
e
tfhe
investigates
W
that
believe
banking
the
agencies
' upervisory
sefforts
regarding
community
proven
have
reinvestment
workable
.
effective
and
231
have
agencies
regulatory
The
that
position
the
held
long
individual
CRA
should
ratings
made
be
not
public
o
,tthe
protect
confidential
relationship
egulator
arand
regulated
the
institution
.intent
Hbetween
he
,towever
of
enacting
in
Congress
CRA
onsistent
,with
that
was
csoundness
and
safety
:
Question
Wh.d.
-6
.HOME
III
ACI
DISCLOSURE
MORTGAGE
acceptable
-uand
agreed
an
have
to
necessary
be
definition
pon
applicable
geographic
various
with
differing
regions
environments
economic
.Tthe
his
.Q:UL
uestion
considerable
present
likely
will
.
difficulties
statements
HMDA
institution's
an
of
examinations
regulatory
When
show
few
that
made
being
are
loans
housing
athat
-ino
moderate
or
low,in
areas
ncome
nd
in
loans
volume
of
areas
community
local
the
interpreted
,hother
this
is
ow
indicate
?Isending
agency
your
by
records
Tnreasonable
,i"luHMDA
patterns
cause
sufficient
institution's
an
of
denial
for
?Ithis
,application
not
f
MARKET
.THE
IV
SECONDARY
in
loans
of
volume
disproportionately
is
areas
these
compared
low
the
to
Qw.alb
.: uestion
evidence
any
there
Is
banks
that
loans
making
avoid
low
certain
in
income
areas
of
resell
to
need
the
loans
all
?because
market
secondary
?
imbalance
the
correct
to
agency
your
by
taken
are
stops
what
discussed
you
Have
situation
this
secondary
with
players
market
?Can
come
AII
:. nswer
solution
?to
aregulatory
rool
,Hfrom
atstandpoint
as
serve
statements
closer
for
egulatory
MDA
compliance
abare
concerning
problems
when
and
IT
analysis
CRA
ank's
.The
arsuspected
considered
generally
is
statement
MMDA
indication
eliable
A:I.
. nswer
alb
banks
that
evidence
any
of
aware
not
is
FDIC
The
certain
in
loans
making
avoid
dollar
and
number
the
mortgage
of
amount
bloans
aextended
in
ank's
lending
areas
income
low
need
the
of
because
all
resell
to
secondary
the
loans
have
.We
discussed
with
secondary
matter
the
market
participants
,not
no
received
have
we
oral
wbecause
complaints
ritten
,cor
this
oncerning
matter
from
bankers
either
believe
do
Wconsumers
not
.or
e
regulatory
bank
any
.
area
,bisproportionately
times
HMDA
ank's
dlow
aAt
reveal
may
statement
number
-income
moderate
or
lowloans
of
the
in
other
to
relative
areas
lending
its
in
those
needs
.of
community
on
holely
conclude
cannot
,sWe
or
lowin
loans
few
of
basis
the
owever
,that
other
to
relative
areas
income
avmoderate
been
has
there
iolation
Hstatements
. MDA
laws
lending
fair
or
CRA
capable
not
are
alone
of
.AHMDA
interpretations
conclusive
such
supporting
to
leads
which
statement
aba ank's
about
questions
as
serves
patterns
vlending
for
indicator
aluable
.Iwtor
examiners
an
causes
example
,fFDIC
research
to
examiner
hether
indeed
are
tracts
census
,wonitted
residential
abzoned
ank's
hether
,
locales
these
residents
reaching
actually
is
programs
loan
of
advertising
loans
for
demand
any
whether
and
from
emanated
has
these
,why
not
if
areas
CRA
the
Tsnhese
-inot
tie
questions
with
.Adirectly
factors
assessment
on
based
,findings
earlier
stated
remedial
in
resulted
have
factors
these
understanding
memoranda
advisements
corrective
,aof
conditional
or
delayed
nd
They
applications
of
.approval
denials
application
in
resulted
have
also
time
this
at
warranted
is
.action
232
.Iexaminers
,ocommunity
found
is
this
the
into
further
Investigate
fur
.Ifending
patterns
such
any
for
alreasons
,such
justified
be
cannot
pattern
CRA
bhe
as
serve
would
alIt
for
satisfactory
ess
asis
.Tthan
rating
FDIC
improve
bank
advise
would
seeking
by
record
its
credit
the
meet
to
():Che
:iItem
,taptraining
trained
staff
the
of
nclude
rofile
RA
training
period
.type
average
the
and
of
:INSURANCE
CORPORATION
DEPOSIT
FECERAL
:Fhe
.TResponse
ways
four
in
primarily
provided
is
training
staff
CRA
DIC
senior
iby
,bulk
-sCRA
on
conducted
ite
,sncluding
training
compliance
of
These
experienced
most
the
generally
are
individuals
.
examiners
field
more
the
handle
who
examiners
safety
and
complex
soundness
compliance
.Our
assignments
all
on
updated
examiners
these
keeps
staff
Office
Regional
.* .
CEECMA
assigned
the
to
relating
information
pertinent
work
of
scope
,
them
-related
CRA
.including
information
1February
1, 988
,tFDIC's
formally
More
Center
Training
Supervision
Bank
of
Division
he
Protection
Consumer
Corporation's
the
).M(Cadministers
CPS
School
PS
ost
years
amsupervision
with
examiners
are
attendees
two
of
inimum
'bank
:
experience
NNN
nurunw
:Dear
Chairman
Mr.
,atwo
training
above
the
to
addition
-hIn
protection
consumer
of
overview
our
.Whave
examiners
assistant
for
training
advanced
our
in
included
is
laws
e
approximately
,with
overview
this
included
which
sessions
10
had
Rinsuline
Sincerely
,
(wears
examiners
assistant
2y25
)a'eapproximately
each
ith
ttending
xperience
.
session
conducts
,tof
Also
Office
(OFDIC'S
Affairs
a)Consumer
CA
he
nnually
Affairs
and
(D21/-dBS
Office
Regional
)Ccompliance
onsumer
for
seminar
ay
/ofield
.and
examiners
r
Rights
Civil
assistants
their
Examiners
Review
to
their
seminars
training
similar
provide
then
Examiners
Review
these
of
Many
Seidman
William
L.
Chairman
.
staffs
examination
regional
respective
(b)Cnclude
:iItem
process
time
examination
of
estimate
an
RA
Proxmire
William
Honorable
athresholds
ctual
of
);$5,12by
million
00
5ith
00
(wand
institution
of
size
examination
consumer
of
subject
the
been
have
which
institutions
on
reports
Chairman
ousing
,HCommittee
Banking
on
, nd
1985-87
during
adprotests
to
procedures
supervisory
of
escription
violations
identified
.correct
1986
,a1985
1987
nd
examinations
during
:Fundertaken
Response
compliance
or
hours
for
generally
8htime
from
40
to
ours
examination
ranged
the
average
.Hours
larger
for
hours
200
to
up
and
banks
,mhsmaller
ay
owever
wcommercial
,relate
bank
savings
vs.
(e.q .holesale
of
type
the
to
more
conducted
in
examinations
asset
.to
Fsize
CRA
special
)tor
reta11
vs.
han
3yor
the
,during
cited
ears
papplication
of
each
aresponse
brotest
to
ank
twere
.Athe
higher
substantially
,hours
lso
number
was
expended
ofhere
the
)location
bank
/otype
of
rize
,swhere
and
(bseveral
ecause
examinations
considerably
the
afwere
lowers
which
1oactor
2honly
CRA
on
spent
ours
r
233
بر
3-
shows
examination
.TTable
following
he
compliance
per
expended
time
average
matters
.on
examination
compliance
CRA
hours
per
spent
of
number
average
the
the
on
information
Summary
disposition
includes
Table
enclosed
The
Protest
CRA
with
from
to
agreed
As
1987.
through
1985
FDIC
the
filed
protests
CRA
the
requested
initially
files
case
,this
staff
asyour
is
Table
for
ubstitute
.in
letter
your
Hours
Average
Exam
Per
million
$500
million
$100
$25
million
71/4
23
1/2
10
18
8
23
examination
with
to
agreed
,iAs
staff
compliance
actual
the
of
lieu
your
n
redacted
two
of
examples
have
initially
,wreports
enclosed
requested
e
.We
reports
enforcement
compliance
the
11lustrate
these
believe
.practices
FDIC
the
by
followed
acbring
correct
iTo
-rproblem
CRA
,wany
instance
encluding
ompliance
elated
.We
writing
in
and
orally
both
attention
bank's
the
to
aissue
issue
also
and
advisement
,icorrection
.amnecessary
understanding
of
fssue
emorandum
(oapproving
denying
include
sanctions
Other
compliance
of
condition
upon
r
facilities
)abnank's
CRA
the
with
depository
for
.Iapplication
extreme
,weormal
afcases
initiate
to
authority
the
have
also
proceeding
enforcement
bank
.
the
against
1985-87
.
protested
by
:Eopy
cResponse
aCis
of
prepared
CRA
to
Guide
the
nclosed
itizens
Federal
.This
Council
Examination
institutions
Financial
contains
publication
procedures
.Eexplanation
Manual
our
from
xcerpts
ageneral
CRA
FDIC'S
the
of
.FDIC
provided
also
Examinations
Compliance
for
reviewing
are
staff
revisions
.
needed
are
whether
determine
to
procedures
current
settlement
,magThe
-rrule
CRA
onitor
elated
not
does
FDIC
seneral
.Hagreements
,protest
owever
aCRA
with
associated
were
they
unless
.agreements
process
examination
regular
the
of
part
as
reviewed
are
1981-1984
:
follows
as
is
CRA
from
filed
protests
the
of
disposition
The
Bank
Applicant
Savings
Cent
Five
Boston
The
Bank
MBoston
, assachusetts
protests
No
received
received
protests
No
Approved
Application
234
,c:iCItem
notice
governing
procedures
RA
omment
(c): nclude
settlement
,and
hearings
and
extensions
of
;rmonitoring
agreements
on
eport
(1nclude
protests
of
);idisposition
applications
on
files
case
981-87
PROTESTS
SAGAINST
FDIC
UPERVISED
-CRA
BANKS
ADDRESS
PROIESTANL'S
/ADDRESS
NAME
APPLICANI'S
APPLICATION
DE
DAIE
AND
TYPE
THE
OF
SUBJECT
PROIESI
DISPOSITION
1985
of
Association
Arizona
Branch 1
,18985
April
Community
Organizations
Reform
A)NOW
(for
CORN
Bank
Arizona
The
North
101
Avenue
Ist
-
,Arizona
Phoenix
85003
ascertainment
Inadequate
community
110
of
credit
,. 985
;
needs
July
of
distribution
Georgaphic
North
917
Street
5th
application
,Arizona
Phoenix
85004
Commercial
Industrial
and
Bank
Madison
200
Avenue
T,38103
ennessee
Memphis
Informal
hearing
held
FDIC
approved
8,1985
.October
-J985
,1Branch
15
uly
Sand
-outh
Mid
Peace
proceeding
Informal
held
.
,1985
18
September
;on
Justice
Center
11428
Box
P.O.
FDIC
approved
,TN
Memphis
38111-0426
application
1November
7,. 985
1986
Waterloo
The
Citizens
Savings
Community
for
Bank
986
,1Merger
A16
-pril
Inadequate
improvement
home
with
met
Examiner
Street
Cedar
A25
Relocation
-Branch
1986
,April
23
235
1987
Reinvestment
Houston
Texas
Bank
Ilied
Alliance
Travis
108
T77251
, exas
louston
in
evidences
-HMDA
statement
held
Application
Branch
13
,1987
May
the
meet
to
failure
Ravis
c/o
&D
obinson
Attorneys
2905
Elgin
Ave
77288
,Texas
Houston
HNAACP
-ouston
Branch
Jacinto
San
,S4101
uite
233
above
as
ame
above
as
Same
77004
,Texas
Houston
Bank
leverly
Coalition Branch June
Roseland
,1987
15
Chicago
Street
357
103rd
West
needs
-Failure
credit
meet
to
withdrawn
Protest
1986
,16
September
60643
,Illinois
hicago
signed
CRA
following
bank
between
agreement
;
protestant
and
Informal
proceeding
13
,
on
held
October
;FDIC
1987
approved
application
1December
,. 987
17
1
(RUPERVISED
A
SAGAINST
-PROTESTS
FDIC
BANAS
/ADDRESS
NAME
APPLICANTS
above
as
Same
PROTESTANTS
ADDRESS
AND_DATE
LYPE
APPLICATION
OF
PROTESI
THE
OF
SUBJECT
DISPOSITION
Council
Employment
on
Same
and
above
as
236
237
The CHAIRMAN. Thank you very much, Chairman Seidman .
STATEMENT OF ROBERT L. CLARKE, COMPTROLLER , OFFICE OF
238
Mr. Chairman, since enactment of the CRA, the OCC has denied
four corporate applications because of less than satisfactory CRA
performance, but it is important to remember that denials are a
last resort. They are used only when the far more effective tactic of
conditional approval appearsto have little, if any, chance of modi
fying bank performance. Conditional approval provides the OCC
with substantial enforcement leverage by explicitly tying a bank's
objective to tangible improvement of its CRA performance — thus
benefiting the community. The OCC has approved 23 applications
with specific conditions requiring the applicant banks to strength
en their CRA records.
-2
SUPERVISORY
OCC'S
THE
AND
RESPONSIBILITIES
CRA
PHILOSOPHY
delivery
upon
release
For
Act
Reinvestment
Community
The
OF
STATEMENT
:
must
agency
Each
INTRODUCTION
,Iam
Committee
the
of
members
and
Chairman
Mr.
today
here
Comptroller
Office
of
responsibilities
the
discuss
to
Reinvestment
1977
Act
Community
under
Currency
the
of
(CRA
).T
were
banks
that
concern
of
out
enacted
was
CRA
he
239
first
their
without
communities
local
of
outside
loans
making
,athat
opportunities
lending
local
considering
were
there
nd
between
patterns
lending
in
differences
unwarranted
.neighborhoods
lenders
by
served
communities
in
It
emphasizes
obligations
'affirmative
institutions
lending
affected
the
to
,whelp
communities
local
their
of
needs
credit
the
meet
hile
sound
and
safe
.maintaining
operations
and
effective
is
approach
supervisory
this
that
believe
We
limited
our
of
use
efficient
makes
it
that
.It
resources
.Tresults
practices
sound
and
safe
to
adherence
better
in
he
decisions
management
day
every
because
effective
are
systems
guidance
their
with
.made
-4
-3
Selection
.Demands
examination
for
force
examination
our
on
examinations
of
each
in
compliance
conduct
to
impossible
it
make
EFFORTS
CRA
OCC'S
THE
or
annual
an
(the
on
banks
national
4,600
approximately
a
C
,w
developed
have
e
)bonsequently
regular
.otherwise
asis
.
resources
our
allocates
best
believe
we
that
process
selection
supervision
between
balance
right
the
strikes
It
and
safety
for
laws
other
with
compliance
for
supervision
and
soundness
high
a
encourages
it
and
regulations
with
compliance
of
degree
tthe
a
for
provides
process
selection
The
horough
.
CRA
(and
banks
national
lead
the
of
examination
and
subsidiaries
,wfhere
affiliates
)o
appropriate
with
companies
holding
all
$1bAll
than
more
assets
in
illion
other
other
.every
year
,the
CRA
the
under
responsibilities
supervisory
its
meet
To
OCC
:
;and
examinations
through
record
bank's
the
assesses
o
record
bank's
evaluation
the
during
account
into
takes
O
for
.
facilities
deposit
applications
corporate
of
astratified
using
examination
for
selected
are
banks
national
random
randomly
sample
average
T
being
of
probability
. he
,wigher
.16
is
selected
institutions
larger
ith
h
a
having
.of
institutions
smaller
than
selected
being
probability
an
provides
selected
randomly
being
with
associated
Uncertainty
under
individual
examined
been
have
banks
Compliance
the
240
the
that
way
same
in
compliance
for
incentive
of
possibility
incentive
an
provides
IRS
the
by
audited
being
compliance
for
past
the
During
,8with
year
. 00
laws
tax
income
federal
the
approximately
total
the
of
percent
40
,representing
Program
.of
banks
national
all
assets
Other
conducted
be
may
performance
CRA
of
assessments
were
that
banks
of
investigations
special
and
targeting
through
selected
not
Compliance
the
Program
Banks
.under
may
be
examinations
CRA
for
selected
actively
are
they
if
in
engaged
supervising
,or
branching
or
merger
through
expansion
the
if
examiner
discovered
has
unsatisfactory
operating
procedures
examination
commercial
the
through
into
call
could
that
question
their
procedures
CRA
.
assessed
is
CRA
the
with
Compliance
of
consideration
through
factors
of
umber
,banhey
and
oth
include
.T:positive
negative
the
by
conducted
activities
community
ascertain
to
bank
credit
marketing
;the
needs
bank's
the
of
extent
make
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approval
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241
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addition
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.and
groups
Contents
Page
Section
Introduction
I.
1
1
2
.II
Reinvestment
Community
the
of
Administration
Act
15
242
V.
1988
January
|
-2
Each
agency
must
:
INTRODUCTION
I.
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conducted
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-26
-25
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anks
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eaders
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,59
1987
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Results
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percent
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255
summarizes
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),aunder
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-28
-27
of
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ection
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otice
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business
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which
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One
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owever
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urther
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-30
-29
Use
The
Data
HMDA
of
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257
Hindication
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-32
-31
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Consequently
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applicant
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-34
-33
anot
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Interviews
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-36
-35
hconstructive
athe
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t
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1987
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contacts
with
through
regional
customer
bank
national
and
discussed
at
was
topic
Ibo
.
1986
and
1985
convened
in
the
OCC
that
conferences
group
In
.
concerns
mutual
-37
.SUMMARY
VI
CONCLUSION
AND
acomprehensive
developed
has
occ
The
that
ensure
to
program
.
community
local
their
of
needs
credit
the
meet
banks
national
extensive
maintain
We
with
contacts
banking
and
community
groups
resources
and
needs
the
understand
parties
all
that
ensure
to
of
use
examination
-sWe
on
. ite
other
programs
each
designed
to
.offer
law
the
with
comply
banks
national
that
ansure
We
our
examiners
specialized
training
to
ability
our
ensure
own
'compliance
banks
national
accurately
assess
and
efforts
consider
.accomplishments
results
W
e
the
assessments
our
of
in
,at
have
and
applications
corporate
evaluating
own
our
cInitiative
,their
aused
banks
strengthen
national
to
CRA
261
performance
.
banks
national
Most
credit
the
meet
their
of
needs
local
communities
ordinary
the
in
course
business
doing
of
. The
OCC
necessary
found
not
has
it
applications
many
deny
to
CRA
on
.resort
1979
since
four
only
-grounds
Denials
l
a ast
They
.are
effective
more
far
the
when
only
used
are
conditional
of
tactic
if
little
has
,oapproval
chance
any
bank
modifying
,
performance
262
Senator GRAHAM. Thank you, Mr. Clarke.
Mr. Wall.
STATEMENT OF M. DANNY WALL , CHAIRMAN , FEDERAL HOME
LONGSTANDING TRADITION OF COMMUNITY INVESTMENT
As you are aware, by virtue of the role trade traditionally played
by savings and loan institutions as the primary provider of home
financing, this longstanding tradition of community investment is
an important part of their function . I would remind everyone of
something that even staff didn't see fit to remind me of but it's
something that I have personal experience of back in my days in
municipal government. There is within the service corporation
statutory authority for the thrift industry a special percentage per
mitted of additional investment, a larger percentage of their asset
size, by virtue of their activity in so -called urban renewal areas.
Certainly the urban renewal program is not existent as it used to
be and certainly not in the prominence that it once was, but it does
give those service corporation entities additional impetus to be in
volved in community and community -based kinds of activities.
263
Subsequently, the Bank Board issued a memorandum for staff
guidance, AB -35, that defined the five CRA ratings and linked an
institution's CRÁ performance to its compliance with the bank
board's nondiscrimination regulations.
PROCEDURES FOR EXAMINERS AND ONGOING TRAINING
In the wake of the CRA's passage, the Bank Board also issued an
extensive procedure for examiners tofollow in conducting CRA ex
aminations. On an ongoing basis the Bank Board also included and
continues to include ČRAtraining and courses provided to its ex
aminers.
EXAMINATION AND SUPERVISORY PROCESS
In the past 2 years we have made progress in the examination
and supervisory process. We'd like to summarize quickly that proc
ess for you .
1
264
These resources also allow us to fulfill our commitment to con
duct regular examinations of our institutions on an 18-month cycle.
and
Chairman
Mr.
the
Committee
of
members
ap,itleasure
is
Home
Federal
the
discuss
morning
this
you
before
appear
to
Bank
ank
eBoard's
")(BLoan
Board
xperience
regulating
in
the
Community
the
under
thrifts
of
activities
lending
Reinvestment
Iwe
nasmuch
,Precently
1977
of
(CLAct
").95-128
.RA
ub
as
submitted
detailed
to
answers
written
specific
your
questions
,Iwould
CRA
the
of
enforcement
our
concerning
provide
to
like
,wyou
time
amthis
Bank
the
of
statement
general
tore
ith
Statement
of
community
and
CRA
the
on
perspective
Board's
.
lending
Lending
Community
of
Tradition
Longstanding
Committee
Banking
Hon
, ousing
and
are
you
tAs
,baware
industry
thrift
role
its
of
virtue
yhe
pas
as
of
rimary
lhome
,hprovider
afinance
had
ongstanding
Senate
U.S.
investment
community
of
.tradition
has
Board
Bank
The
encour
265
23988
,March
1
and
tradition
this
maintain
to
regulate
we
institutions
the
aged
the
that
believe
We
.
investment
local
increase
continue
to
determining
avaluable
is
CRA
for
tool
institution
an
whether
the
meet
to
endeavoring
community
its
of
needs
.credit
,the
CRA
the
of
passage
Before
an
established
had
Board
Bank
institutions
assist
to
Affairs
Urban
and
Housing
of
Office
in
.After
communities
their
needs
serving
enactment
the
of
,this
CRA
of
Office
the
into
expanded
was
office
Community
Investment
").(OCI
,the
passage
CRA's
of
wake
the
In
issued
also
Board
Bank
The
appointed
also
Board
Bank
aCommunity
conducting
in
follow
to
/fanor
procedure3
extensive
examiners
Federal
.Eome
Loan
Bank
(C
Officer
Investment
")a
each
tIO
available
to
made
has
Board
Bank
,t
CIO's
and
OCI
the
Through
he
Bank
also
Board
,the
basis
ongoing
an
On
examinations
.CRA
officials
state
local
cand
groups
, ommunity
industry
the
con
,and
included
investments
with
thrifts
assist
to
designed
assistance
technical
es
include
to
courses
in
training
CRA
examiners
.
its
to
provided
Loan
Home
Bank
,tcommunities
1978
In
Federal
he
local
.in
Enforcement
CRA
of
Decline
a5-y0ear
established
also
,$1System
Invest
Community
billion
wment
fund
,pThis
expired
has
rovided
Fund
").(Chich
IF
1980's
industry
thrift
,in
aware
are
you
As
early
the
involved
community
in
advances
thrifts
to
priced
specially
members
thrift
percent
our
of
forty
Over
activities
.investment
acrisis
.suffered
effort
financ
assisted
that
voluntary
this
in
participated
insured
some
condition
the
of
Because
,the
institutions
devote
to
but
choice
little
had
Board
Bank
safety
to
resources
.substantial
concerns
soundness
and
Since
.
units
housing
500,000
than
more
ing
,we
staff
examination
adequate
an
with
equipped
not
were
we
the
with
worked
,the
CRA
of
passage
After
Board
Bank
sound
and
apremium
placed
safety
to
relating
examinations
on
266
/
regulations.1
implementing
issue
to
agencies
regulatory
other
.
ness
,the
regulations
these
In
eleven
the
incorporated
Board
Bank
situation
,wof
arto
this
I esesult
that
report
egret
factors
specific
identified
agencies
the
necessary
as
for
its
of
needs
the
meeting
in
record
institution's
an
assessing
of
enforcement
the
to
resources
sufficient
allocate
not
did
consumer
.-rthat
issues
elated
,ofCRA
matter
ror
ther
.She
am,tcommunity
issued
Board
Bank
for
ubsequently
emorandum
defined
A5hat
guidance
,t-3staff
B
and
ratings
CRA
five
the
institution's
an
linked
its
to
performance
CRA
with
compliance
Board's
nondiscrimination
Bank
the
regulations
,2/
.1/2
563e
Part
CFR
.CFR
Part
2
1528
2
/23)EcOP
.123
,
examinations
CRA
on
attention
proper
focus
to
Issues
CRA
to
Attention
Renewed
These
resources
fulfill
to
us
allow
also
commitment
our
regular
conduct
,
1986
early
Since
institutions
our
of
.4/examinations
cycle
month
18
an
on
Bank
and
Board
the
Federal
Home
Loan
of
importance
the
reemphasize
to
working
been
have
System
Bank
,the
addition
In
Home
Federal
recently
has
System
Bank
Loan
Dof
Compliance
Programs
wivision
,established
ithin
.aORPOS
examination
district
to
issued
memos
Several
.
issues
consumer
CRA
of
importance
the
emphasized
staff
supervisory
and
responsibility
Division's
Compliance
the
is
It
develop
to
to
regard
particular
with
regulations
protection
consumer
other
for
procedures
policies
supervisory
and
examination
uniform
past
the
In
years
,two
.
institutions
insured
newly
and
novo
de
protection
consumer
of
enforcement
the
to
and
regulations
supervisisory
and
examination
the
in
progress
made
have
we
aprogram
establish
proce
these
of
implementation
oversee
to
summarize
to
like
would
that
you
for
progress
.We
.
process
dures
.
.1
Examination
Training
.
2
achieved
best
be
can
compliance
CRA
that
believe
We
through
(N0ETS
School
Training
Examiner
New
")9
been
have
percent
267
our
examiners
attended
have
who
,of
years
recent
In
those
through
than
rather
process
supervision
and
examination
the
application
process
.to
the
enforce
ability
Consequently
,our
recent
our
by
assisted
be
will
context
examination
the
in
CRA
with
compliance
for
institutions
financial
examining
in
trained
Bank
Loan
Home
Federal
the
within
establishment
of
System
.Bthe
,wof
forces
examination
strengthened
are
CRA
our
eecause
.addressing
NETS
our
Arevised
revising
completely
CRA
section
, versight
Policy
Regulatory
of
(OOffice
Supervision
").and
RPOS
CRA
and
materials
training
the
in
included
be
will
examinations
be
actual
the
during
covered
will
procedures
examination
transferred
,we
ORPOS
established
Board
Bank
the
Before
our
.
sessions
training
Loan
Home
Federal
the
to
examiners
many
hired
and
System
Bank
the
within
staff
,more
examiners
additional
doubling
than
resources
the
with
us
providing
and
years
two
last
S9.P.
.-64
have
banks
of
s
district
our
, everal
level
industry
the
At
come
have
we
believe
We
al
and
years
two
past
the
in
way
ong
Banks
to
Reserve
Federal
the
with
October
since
working
been
concerning
institutions
and
banks
member
for
training
provide
the
to
enforce
us
enable
will
efforts
our
that
intend
and
hope
.the
future
in
vigorously
more
CRA
compliance
.CRA
.
3
Other
apolicy
issued
has
Board
Bank
The
statement
the
encouraging
voluntarily
adopt
to
Banks
Loan
Home
Federal
asystem
similar
involved
priced
thrifts
for
advances
CIF
the
specially
of
system
thrift
in
Banks
Tinvestments
the
continued
voluntarily
. hree
Banks
and
fund
other
three
of
expiration
the
after
program
established
recently
have
program
.asimilar
268
Improvement
for
Areas
has
Board
Bank
The
increased
recently
activity
its
the
in
work
Tlull
much
still
is
alhere
after
CRA
the
of
.area
ong
to
,wbe
noted
already
As
examiner
our
heightening
are
e
done
training
ORPOS
,tIprocess
addition
Division
Compliance
. nhe
to
ways
seeking
be
will
in
industry
the
assist
achieving
establishment
internal
of
the
through
own
its
on
compliance
the
enable
to
programs
through
procedures
and
policies
compliance
its
monitor
to
industry
.Further
effectively
,more
OcI
and
Division
that
participate
to
continue
will
educa
in
tional
sessions
industry
groups
.for
-2
S,N1700
Gcreet
.W.
,D20652
Wushington
.C.
have
,we
end
this
of
office
our
within
established
, ivision
Policy
versight
Doof
aRegulatory
Supervision
and
is
ICompliance
this
Division's
Programs
responsibility
.t
uniform
develop
to
examination
supervisory
policies
and
procedures
for
enforcement
the
consumer
the
of
protection
pto
a rogram
establish
and
regulations
that
determine
are
procedures
and
policies
such
. In
implemented
well
Division
,the
addition
seeking
be
will
assist
to
ways
the
own
its
on
compliance
achieving
in
Division
The
.industry
sessions
educational
more
in
participate
will
industry
for
Pederal
Horno
Bank
Lom
System
Board
Bank
Loan
Home
Federal
Federal
Home
Loan
Montgogo
Corporation
Federal
Sevingo
and
termos
Lom
Corporation
1January
, 988
25
enable
the
will
that
programs
develop
to
plans
and
groups
Honorable
Willian
Proxmire
effectively
more
to
industry
. We
compliance
own
its
check
confident
,but
Division
the
staff
to
begun
just
Iahave
m
ayear
within
that
we
will
compliance
improved
have
programs
United
State
Senate
20510
,DWashington
.C.
well
underway
.
Proxnire
:
Senator
Dear
Iwould
the
address
to
now
like
you
that
questions
specific
October
1i987
of
letter
your
respond
to
n
,1pleased
22
letter
your
in
raised
have
.F
,t
reference
convenient
or
he
Before
Irapplications
to
. espond
specific
the
letter
your
in
,Iwquestions
some
provide
to
like
ould
intormation
answers
put
to
proper
the
perspective
.in
,tFederal
know
you
As
enforcement
System's
Bank
Loan
Home
he
several
effort
last
the
in
changes
radical
undergone
has
B
some
of
condition
the
insured
ecause
th
.of
years
institutions
have
,we
substantial
devote
to
needed
resources
soundness
and
safety
of
concerns
priority
high
very
the
to
follow
each
answers
our
and
type
bold
in
cited
is
question
.
question
,how
CRA
the
of
enactment
Since
been
have
applications
many
?Wdenied
factors
CRA
to
due
substantially
ui
solely
hat
to
subject
processing
applications
total
of
percentage
the
this
denial
of
rate
?Does
represent
this
does
CRA
,or
CRA
with
increased
would
conpliance
enforce
adequately
?
compliance
strengthen
provision
sanctions
the
of
use
examinations
supervision
.and
equipped
The
was
System
not
,tFederal
CRA
of
enactment
the
Since
Bank
Loan
Home
he
.
basis
the
as
CRA
using
application
one
denied
has
System
concerns
those
address
adequately
rto
a
as
and
have
we
esult
,more
examiners
additional
many
hired
the
doubling
than
small
,w
believe
e
anumber
is
this
that
recognize
we
While
stałt
within
staff
T
-h
newly
his
ired
the
last
years
.two
assiаilated
be
and
trained
to
needed
examination
our
into
.While
program
strides
substantial
made
have
believe
we
examination
our
enhancing
and
improving
,win
resources
are
e
.,IThus
be
to
not
like
would
we
that
point
the
at
yet
say
to
fair
is
it
believe
before
a
Ih
indicated
s
ave
,t
hat
devoted
past
recent
the
in
not
have
we
resources
sufficient
Community
of
enforcement
the
to
,oReinvestment
Act
r
issues
-r
consumer
.other
elated
,hhe
situation
this
correct
to
endeavoring
are
.TWe
owever
Home
and
Board
rederal
recognized
have
Banks
Loan
the
in
Banks
the
among
consistency
and
emphasis
greater
for
need
. То
Act
Reinvestment
community
the
ilke
statutes
enforcing
269
Loan
Home
rederil
the
segarding
of
enforcement
Board's
Bank
Community
Reinvestment
the
Act
related
CRAand
of
protests
support
anumber
are
there
that
to
tend
which
factors
of
the
later
Fsmall
,a
discussed
be
will
irst
.s
denials
of
number
,most
letter
this
in
to
judged
been
have
institutions
the
of
,bthe
records
CRA
better
or
satisfactory
have
upon
ased
taThus
ypical
,iinstitutions
n
.of
examinations
those
applicant
examination
the
of
most
recent
application
,the
thus
asrecord
least
at
reflect
will
CRA
atisfactory
performance
.negating
CRA
its
about
concern
Board
-3
the
about
questions
Unless
institution
an
of
performance
CRA
application
an
filing
a1,2orRA
*"3Cwith
rating
someone
by
raised
are
outside
the
on
typically
Board
the
performance
such
considers
no
and
satisfactory
be
to
CRA
raised
are
objections
with
internally
the
to
respect
assess
that
institutions
regulated
of
examinations
many
How
?CRA
year
each
conducted
are
compliance
,hOaverage
now
aregulated
is
often
CRA
the
with
compliance
institution's
examination
?
an
through
assessed
regular
our
through
assessed
is
CRA
with
Compliance
aFederal
Banks
Loan
Home
.Pll
process
,examination
resently
.
application
institution
,ithan
Second
an
fess
with
satisfactory
alCRA
files
record
,icompliance
application
an
withdraw
well
may
t
concerns
CRA
of
because
application
.the
Board
the
by
raised
application
with
proceeds
it
If
an
face
the
in
aCRA
of
,iWtenial
adconcern
of
threat
potential
the
.risks
hile
our
using
are
they
that
state
#6
Memo
such
scheduling
in
SP
9
attached
.is
examinations
for
memorandum
copy
(A
this
of
,SIconvenient
-6essence
that
provides
.)your
9nP
reference
insured
every
for
scheduled
are
examinations
regular
frequency
Tthe
.institution
latest
he
of
at
months
18
every
condition
of
institution
the
upon
depends
examination
receive
attention
more
requiring
institutions
those
and
.,this
schedule
examinations
u
frequent
onder
course
f
.In
year
every
examined
not
is
institution
insured
every
,2068
1986
CRA
of
issuance
the
in
resulted
examinations
withdrawals
u
,such
occur
do
no
isnfortunately
there
indicate
such
of
number
the
would
which
system
tracking
to
or
withdrawals
what
associated
are
they
degree
CRA
with
.
concerns
ratings
.
270
eof
, nforcement
Third
the
take
can
CRA
through
place
use
by
process
.applications
approvals
conditional
of
information
Further
about
enforcing
of
method
this
CRA
in
applications
be
can
process
6rthe
page
on
found
to
elating
your
quantitative
What
does
criteria
qualitative
and
agency
enforcement
regulatory
of
effectiveness
the
measure
to
use
has
enforcement
CRA
that
indicate
factors
What
?
CRA
the
of
4or
with
applications
of
approval
about
question
"5the
.What
effective
been
enforcement
CRA
that
indicate
factors
.
ratings
?
effective
been
not
has
Home
Federal
The
have
Banks
Loan
compliance
that
us
told
enforced
primarily
is
CRA
with
examination
the
through
and
ri-of
alsupervisory
for
waiting
nstead
ow
, ated
process
deal
order
in
application
an
file
to
institution
the
with
believe
We
this
that
appropriate
an
.
violation
approach
.is
examinations
CRA
crucial
be
should
determining
in
whether
violations
exist
management
working
and
with
correct
to
formal
qualitative
or
not
any
adopted
has
System
The
its
of
determine
effectiveness
the
criteria
to
quantitative
.
Act
Reinvestment
Community
the
enforcement
of
regulatory
that
indicate
which
criteria
,u
informal
se
do
We
h
owever
.enforcement
effective
relatively
be
may
CRA
of
the
The
r
consumer
elated
are
-two
CRA
of
number
the
criteria
informal
.F-rof
protests
or
number
CRA
elated
the
and
complaints
from
were
received
c1986
2,oexample
nly
inomplaints
.
then
.of
institutions
activities
CRA
In
regarding
consumers
.were
complaints
,1received
1987
such
is
this
believe
We
9
r31,2athe
*Uatings
system
Board's
nder
nd
eflect
that
fact
the
number
,gsmall
complaints
of
ariven
elatively
have
(We
institutions
.more
CRA
to
subject
are
3000
than
may
there
whether
complaints
determine
to
1987
the
analyzed
increase
i
,d
many
.e.
o
for
cause
the
particular
any
be
the
of
umber
source
anscome
are
or
ingle
from
complaints
is
institution
.at
pcomplaints
articular
directed
aThis
complaints
such
in
increase
the
attribute
We
.
case
the
not
.)to
generally
rising
is
interest
CRA
that
fact
the
-5
the
indicate
to
use
we
that
criteria
informal
second
The
the
of
majority
The
Banks
Loan
Home
Federal
input
providing
believe
that
low
the
of
level
satisfactory
than
less
ratings
.adequacy
protests
of
number
the
is
enforcement
CRA
of
(including
activity
Protest
to
deemed
are
that
protests
both
is
in
evident
and
justified
-related
CRA
of
level
low
the
,as
protests
CRA
and
complaints
consumer
the
in
discussed
is979
nonsubstantive
and
substantive
be
:1
follows
(4),as
1980
711
(0),1
35
981
983
984
985
982
the
previous
to
answer
question
.
(2).T0,13, he
1987
in
raised
protests
two
987
986yet
not
.)Thave
decided
been
since
protests
of
volume
he
"4
of
ratings
CRA
with
institutions
for
applications
Have
approved
"5bfow
een
your
?Ior
agency
so
,hby
these
can
rsmall
.is
number
5,welatively
only
a1985
hich
?
justified
be
approvals
How
of
ratings
CRA
assigned
were
institutions
regulated
many
percentage
*5"i4onrhat
?W
1986
rated
total
of
?Were
ratings
received
institutions
these
of
each
,or
1986
in
examined
institutions
some
did
on
rely
ratings
low
of
level
the
can
basis
what
?On
examinations
previous
ratings
?than
justified
be
"Cless
satisfactory
RA
,36
1987
In
ratings
received
examined
institutions
the
of
Tali
3%oless
about
to
amounts
f
. his
satisfactory
than
CRA
received
that
institutions
. In
1987
during
ratings
received
,59
1986
examined
institutions
the
of
ratings
all
f
3%oless
about
equals
also
.This
satisfactory
than
receiving
institutions
.
year
that
ratings
CRA
concern
-r
.CRA
Board
the
by
raised
been
has
Telated
hese
has
concern
whatever
correcting
institution
raised
been
.S7ince
CRA
to
relating
conditional
,8
1979
approvals
have
.the
institutions
to
granted
been
statistics
Actual
on
that
of
number
approvals
conditional
87
the
involve
s
-rince
CRA
4
o
5
,"a
obtain
to
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very
r
'5
's
re
ated
approvals
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to
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have
actions
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for
the
of
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that
likely
very
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It
.
Banks
Loan
Home
Federal
4It
involve
approvals
conditional
87
a
".5
nd
's
'8
is
a
4 pplications
that
possible
"5also
nd
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have
may
.some
without
conditions
approved
,in
course
Of
cases
,the
1986
:In
follows
as
were
assigned
ratings
271
?
,been
Yes
ahave
when
institutions
to
granted
pprovals
typically
hre
,aapprovals
owever
upon
conditioned
the
under
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rated
unsatisfactorilyby
applications
have
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with
merging
were
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applicants
involved
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institution
as,rfailing
herefore
ignificant
.
Board
Bank
concern
the
to
supervisory
that
position
the
held
long
have
agencies
regulatory
The
should
ratings
CRA
individual
,to
public
made
be
not
protect
between
relationship
arconfidential
the
and
egulator
3
95
1911
42
17
1
2
3
4
5
intent
H
,t
in
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iaposed
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records
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CRA
public
of
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sanction
and
reward
to
appear
good
with
institutions
Total
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ratings
satisfactory
than
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with
institutions
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direction
public
of
the
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movement
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individual
ratings
CRA
by
agency
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-7
-8
Loan
Home
Federal
The
does
Board
Bank
CRA
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not
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disclose
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nor
public
the
to
to
ratings
This
follows
.the
itself
same
the
institution
policy
of
nondisclosure
assigned
ratings
other
of
during
the
or
institution
the
either
to
examination
.In
public
,the
1983
Financial
Federal
Council
Examination
Institutions
considered
question
the
public
of
CRA
release
and
ratings
proposal
the
Im
attaching
.rejected
ac
opy
of
l
,tegitimate
addition
aIn
be
may
here
for
demand
reduced
mortgage
factors
economic
to
due
areas
such
in
lending
sectors
certain
facing
community
the
of
during
agiven
slayoffs
substantial
, uch
time
of
period
as
industrial
an
at
.If
plant
institution
an
in
indulging
be
to
found
is
discriminatory
practices
,the
examination
point
would
staff
achieve
to
work
and
practices
out
.such
correction
increasing
an
is
There
community
by
call
groups
expand
to
disclosure
include
to
HMDA
small
of
loans
business
.G
iven
that
fact
assessment
CRA
the
criteria
specifically
.It
suggestion
to
response
Council's
that
view
our
is
that
in
forth
set
reasoning
the
applicable
still
is
response
are
there
thus
and
today
part
our
on
plans
no
CRA
release
to
public
.
the
to
ratings
includes
institution's
an
business
lending
,small
records
include
to
HMDA
of
expansion
an
would
loans
business
small
AMDA
institution's
an
of
exaninations
regulatory
When
that
show
statenents
loans
housing
no
or
few
made
being
are
appropriate
?be
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noderate
or
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of
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volume
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that
nd
appropriate
,ibet
view
our
In
not
would
the
include
to
disproportionately
is
areas
these
in
loans
compared
low
small
of
disclosure
in
loans
business
requirement
HMDA
the
areas
other
in
loans
volume
to
local
the
of
inbalance
?
272
, for
all
of
institutions
iFirst
nsured
institutions
our
small
in
specialize
to
themselves
consider
not
do
generally
commercial
,or
business
lending
in
type
any
of
to
illustrate
Federally
i1986
-,To
. nnsured
degree
great
any
2%of
only
held
aggregate
the
in
institutions
savings
their
this
,hfow
community
your
by
interpreted
?Iis
agency
AMDA
indicate
nreasonable
lu"this
ending
,irecords
patterns
s
application
institution's
an
of
denial
for
cause
sufficient
?
taken
,what
not
If
are
steps
to
agency
your
by
the
correct
,which
loans
commercial
of
form
the
in
assets
total
includes
indicated
are
patterns
lending
unreasonable
If
Home
the
by
tDisclosure
Banks
Loan
Home
Federal
he
,Mortgage
records
Act
small
.business
loans
technical
several
are
There
HMDA
extending
in
problems
to
definition
the
simply
is
.One
loans
business
small
include
to
further
circumstances
the
examine
would
they
that
us
tell
determine
cause
the
.mere
of
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course
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of
presence
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pattern
lending
unreasonable
grounds
sufficient
be
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business
is
what
of
business
."as
loan
mall
nd
addressed
been
has
question
This
the
in
times
of
number
or
application
an
deny
concern
asto
raise
, upervisory
. For
pattern
lending
for
cause
the
determining
without
that
of
areas
certain
,investigation
example
reflect
could
vperhaps
require
would
and
,apast
highly
specific
nd
ery
,definition
of
problems
avoid
to
.complicated
interpretation
the
of
unaware
are
community
lending
institution's
an
,there
Second
appropriate
identifying
of
problem
the
is
asbusiness
that
area
geographic
provide
right
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mall
financing
.I
institution
the
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en
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its
expand
to
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Furthermore
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well
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.loans
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-priced
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.
benefit
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-10
,the
Act
Reinvestment
Community
the
of
passage
Since
nature
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by
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loans
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thrifts
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ackages
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or
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Freddie
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Conference
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:
follows
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banks
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ell
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to
come
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an
facilitates
,the
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In
No.
market
secondary
mortgage
lending
.
273
Freddie
underwriting
its
examined
carefully
very
has
Mac
contributed
have
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if
guidelines
those
see
to
guidelines
loans
certain
in
lenders
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re
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ell
of
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loans
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'amake
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lenders
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to
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the
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availability
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increase
:o
created
.can
funds
Lenders
of
supply
their
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nortgage
to
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some
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all
loans
their
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selling
by
Freddie
.Since
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ike
conduits
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assures
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market
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is
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iseliable
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for
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excuse
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often
nore
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,lIplace
fact
broad
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nenders
.in
and
loans
creditworthy
make
to
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sell
either
.
portfolio
in
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keep
or
loans
.
Industry
Preddie
purchasing
by
mandate
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fulfills
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and
blenders
large
oth
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mortgages
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Investment
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ackaging
) nd
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,F.Ito
way
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these
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investors
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of
flow
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help
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Whatever
ome
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the
that
indicates
evidence
Recent
story
way
any
in
contribute
not
.does
redlining
to
example
,For
a 53
of
limit
987
average
$with
,F1loan
Mac's
00
reddie
Mac's
5Freddie
%o,2.Aloan
flso
$ 07,000
only
was
purchased
4of
,wless
0,000
hich
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than
year
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last
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bear
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achievable
$1is
than
less
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6,000
orrower
satisfactorily
Itrust
information
this
your
answers
need
you
padditional
,Should
information
. lease
questions
19
.
borrowers
.
know
us
let
Wall
k.Danny
Chairman
Attachments
.
274
Senator GRAHAM. Thank you, Mr. Wall.
275
We really do use these grades to determine how frequently we go
in for on -site visitations. If you get, let's say, a top grade, then
we're going to go in and pay you a visit maybe every 18 or 24
months. Ifyou're one at the lower end of the scale and have glar
ing deficiencies, we're going to pay you more frequent visits, as
often as once every 6 months. Again, the emphasis is on getting
your situation improved. Rather than just kicking you out of school
because you flunked the course, we want to give you tutorials to
keep you there. And I think that's the fair interpretation of how it
works. I think that there's way too much emphasis on this distribu
tion of specific grades of one, two, three, fourand five.
276
Mr. WALL. Senator Graham, the thrift industry completed re
ports last year-we completed just under 2,200, and the percentage
was roughly the same as that indicated by Governor Seger - 98 per
cent in this case in the one through three category and in the four
and five category, the remaining 2 percent.
PUBLIC DISCLOSURE
Do anyofyou think, as suggested by several witnesses yesterday,
that public disclosure of the CRA ratings would be useful and help
ful? Would it put more pressure on those who may be ranking
three and four ? Would it be a useful tool for consumers to have in
making their decisions as to the institutions with which they work
do business?
277
and I just would be very reluctant to see the grades disclosed be
cause I think that it would put the emphasis on the wrong thing.
The emphasis would be put on the grade rather than on getting
good performance in a proactive way.
278
ple, within a particular community in a generic way, to be proac
tive would be to seek out and to bring about an interface on the
examiners' side with those community groups that can be identi
fied, to promote involvement, to encourage interchange, rather
than to provide a number which it seems to me has all kinds of
inherentand potential problems.
BUSINESS LENDING AND COMMUNITY INVESTMENT
What role should business lending play in evaluating the finan
cial institution's commitment to community investment? Who
would like to handle that ?
279
Mr. SEIDMAN. If I could just make one comment, I think in this
whole area we have to be very careful. Banks are private sector in
stitutions. They're really not public utilities. There may be a great
many public purposes that need to find support through lending,
which is essentially a governmental purpose — the SBA and others.
I think we have to be very careful not to take our private sector
banking system and try to have it deal with the kinds of things
that are fundamentally governmental social programs. It's a tough
decision and we're trying to balance it with this act, but I think we
have to keep that in mind.
1
280
provement loans are distributed geographically by census tract in
the area in which the organization operates.
281
Mr. CLARKE. Senator Graham , the only thing I would add to
what's been said is that I think people have overlooked the fact
that there are 12 assessment factors that are incorporated into our
regulations. It's my understanding that those assessment factors
were adopted as a joint effort by the bank regulatory agencies and
that they set out some very specific things that examiners aresup
posed to evaluate. For example, factor No. 2 is the extent of the
bank's marketing of special credit -related programs to make com
munity members aware of available credit services. While I would
agree with you that that is part of the process, there are specific
things that examiners are asked to do todetermine what the bank
has done in its marketing program that ultimately result in some
thing tangible. The bank has either done some marketing in those
areas of the community or it hasn't. That's going to be visible to
the examiner during the course of the examination .
282
The CHAIRMAN . Mr. Seidman, the Amalgamated Clothing and
1
Textile Workers Union recently filed a protest with the Fed regard
ing community reinvestment progress by Continental Illinois.
That's a bank your agency effectively owns. In 44 pages the union
documents striking noncompliance. It asserts that while under
FDIC control Continental has terminated major retail operations,
terminated municipal bond purchases, targeted mortgage lending
to predominantly white moderate and high income neighborhoods.
283
volved in the offers to purchase. So they are putting the pressure
on to get this thing through . We shoot to get a decision made in
most cases within 60 days. Therefore, we have typically a 30 -day
period in which we will receive comments. By the way, the com
ments or the protests can come in from many groups above and
beyond the community groups. It can be a competitor of one of the
institutions, for example , who can send in a complaint or some un
happy stockholders. So the procedure is not set up specifically to
deal with the CRA -type complaints.
85-619 0 - 88 - 10
284
Somehow, I think bankers are — they do a great job by and large.
They are very bright people and they have to pay attention to their
profit and loss very carefully, but I think that they also tend to
have some cultural lag here. I think if they understood the benefits
of this, you would get some enthusiastic action here.
285
RESPONSE TO REQUEST OF SENATOR GRAHAM FROM
Excerpts from manual for compliance Examinations
Performance standards of regulatory evaluation .
II - D
Section
COMMUNITY REINVESTMENT
extend within each local community, and ( 3) a
copy of the CRA notice. The regulation also en
INTRODUCTION
courages each bank to include in its statement a
The Community Reinvestment Act ( CRA) ( 12
description of its efforts to ascertain and help
U.S.C. 2901 et seg .) is intended to encourage
banks to help meet the credit needs of their entire
communities , including low- and moderate -in
meet community credit needs .
come neighborhoods, while preserving the flexi.
A bank must provide in each office a CRA notice,
the exact wording of which is prescribed in the
regulation . The public notice indicates that the
bility necessary to operate in a safe and sound
manner .
CRA statement is available, that written com
ments on the statement and the bank's communi
Encouragement is to be provided by the Corpora.
ty lending performance may be submitted to the
bank or the Corporation, that a file of such com
tion which is required to :
• Use its examination authority to encourage a
... banks to help meet the credit needs of its entire
ments is publicly available , and that the public
may request announcements of applications cov
ered by the CRA from the Corporation .
Each bank must keep a public file of CRA
statements in effect and CRA-related public com
ments received during the past two years.
The CRA regulation sets forth a list of factors
which the Corporation will consider in assessing
each bank's record of helping to meet community
credit needs, including those of low- and moder
ate- income neighborhoods. Banks are not re .
quired to adopt particular activities on the list
since the regulation is designed to allow each
bank considerable flexibility in determining how it
can best help to meet the credit needs of its entire
community in view of its particular skills and re
sources .
The Corporation's assessment of a bank's CRA
record will be taken into account by the Corpora
tion in evaluating a variety of applications.
In essence, the regulation encourages banks to
become aware of the full range of credit needs of
their communties and to offer the types of credit
and credit-related services that will help meet
those needs. However, the regulation does not re
quire banks to offer particular types or amounts of
credit.
BACKGROUND FOR EXAMINATIONS
Judgmental Process
In conducting a CRA examination, the examiner is
expected to adjust the CRA procedures on a case
by-case basis to accommodate banks that vary in
size, expertise and locale. Community credit
needs will often differ with the specific character
istics of each local community, and a bank should
be evaluated on the basis of its attempts to ascer.
tain , its determination to help meet, and its per
formance in helping to meet community credit
needs in the context ofits resources and local cir
cumstances.
Balanced Viewpoint
The examiner should maintain a balanced per
spective in conducting a CRA examination. The
Section II- D
Community Reinvestment ( 6-83)
286
II - D
Se' : ...
not lose sight of the intent of the statute in check
ing for techincal compliance with the regulation.
The entire examination is designed primarily to
examiner cannot normally conclude on the basis
of any one factor that a bank is or is not helping to
meet the credit needs of its local community or
communities . Nor can the examiner adequately
determine the extent to which the bank has
assess a bank's performance on the basis of any
helped and is helping to meet community credit
one source of information, data or opinion . For
that reason , the examination procedures are de.
signed to ensure that information from both the
needs .
Communication, Community Development and
Low. and Moderate-Income Neighborhoods
In assessing the record , the examiner should bear
in mind the special emphasis placed on effective
communication and community development ac
tivities. With respect to communication , the prem
bank and the community is objectively reviewed
and evaluated .
Bank's Input
The examination procedures give each bank the
opportunity to demonstrate that it is having a ben
ise is that community needs which can be met on
a safe and sound basis are more likely to be met
eficial influence on its local community or com
munities . Bankers that are helping to meet com
when the community is aware of the types of
munity credit needs are proud of that fact and will
be of substantial assistance to the examiner in
credit available and the lender is well informed
about community credit needs. Hence, efforts to
assessing the performance of their banks.
ascertain community credit needs and to publi
Examiner Encouragement
When appropriate, an examiner should encourage
a bank to improve its CRA record by discussing
with management various ways in which the bank
to identify the credit needs of, and to advertise in,
low- and moderate-income neighborhoods, are en
may strengthen its performance. The examiner
should not, however, insist on any specific action
by the bank , such as the making of a certain type
action would be appropriate in determining com
munity awareness of the bank's credit services
and local perception of credit needs.
of loan, which would interfere with the bank's
The CRA also focuses on activities ihat foster de.
responsibility for establishing its own policies.
velopment within the entire community, including
low- and moderate- income neighborhoods. Con
Examination Burden
The examiner must be careful to not unduly burden
sequently, housing- related extensions, participa
tion in community development programs, and
the bank since Congress did not intend to impose
small business financing, including loans to
small farms, are viewed favorably .
cize available credit services, including measures
couraged . The examiner is authorized to conduct
interviews with community members when such
significant new reporting or recordkeeping require.
ments on banks. The examiner should normally re
quest only required records and other existing in.
formation , but the scope of the review must always
be sufficient for an adequate assessment.
SELECTED FEATURES OF CRA EXAMINATIONS
The CRA Statement
A bank must prepare a separate CRA statement
for each local community it serves, including a
delineation of the relevant local community. It
Bank's Financial Condition and Size, Legal
Impediments and Local Economic Conditions
A bank's ability to help meet community credit
needs is influenced by its financial condition and
size, as well as by any legal impediments and the
does not necessarily follow, however, that the
statement prepared for each local community
must contain a unique list of available credits. A
local economic conditions under which it oper
bank serving several local communities may elect
to prepare statements that contain lists of credits
ates. An examiner must take these considerations
into account in assessing the bank's performance
and in providing encouragement.
which are similar or identical for the local com
munities served . Since some credit needs are
common to many local communities, such an ap
Technical Compliance with the Regulation
proach would be consistent with the intent of
CRA. There are other ways for a multi-community
bank to satisfy this requirement , The examiner
need not be especially concerned with the specif
ic method employed by a multi-community bank
The examiner will check for compliance with the
specific requirements of the regulation . However,
compliance with procedural requirements does
not imply that the bank has been serving local
necessarily mean that the bank is not helping to
so long as it makes a good faith effort to inform
members of each local community about their
community's boundaries and the types of credit
meet community credit needs. The examiner must
extended there.
credit needs . The converse is also true: noncom
pliance with a technical requirement does not
>
Section II- D
2
Community Reinvestment ( 6-83)
287
II - D
Section
Reasonableness of Community Delineation
Each bank must delineate the local community or
represented throughout a trade or market area , it
may be more reasonable to use that area as its
local community .
communities that it serves . For instance , a state.
wide branching bank would serve a number of
" local communities," the total of which would
constitute its " entire community. " Further, more
Finally , the regulation allows a bank to use any
other reasonably delineated area. A bank is thus
given substantial leeway in specifying its local
community so long as the definition is reason.
able ; that is to say, the bank can provide a sensi
than one ofice of a bank may serve the same local
community. For example, a bank may have offices
throughout a city and its suburbs and consider
that entire metropolitan area to be the local com
munity for those offices . Each community deline
ation must, of course , include the contiguous
ble rationale for the delineation and has not arbi .
trarily excluded any low. and moderate-income
neighborhoods .
areas surrounding each office or group of offices.
Because many factors influence the size and
shape of a bank's community , the regulation pro
vides guidelines to assist each bank in defining
Low. and Moderate-income Neighborhoods
In determining whether the community definition
its local community or communities.
The first guideline suggests the use of widely rec
ognized existing boundaries such as those of
SMSAs or counties for delineating a bank's local
community or communities . Such boundaries fre
quently constitute a reasonable approximation of
a bank's local community.
In general, a local community based on existing
is reasonable , the examiner must be alert to situa.
tions where low- and moderate-income neighbor
hoods are gerrymandered out of a delineated
area . Morevoer, in assessing the record of a bank,
the examiner should focus particular attention on
its performance in low- and moderate-income
neighborhoods within a local community.
Low- and moderate-income neighborhoods may
boundaries should be no larger than an entire
SMSA or a county in a non -SMSA area. If a bank
has offices in more than one such area , it will
be identified in most cases in a manner similar to
the approach taken by HUD in administering the
have more than one local community. When a
Community Development Block Grant Program .
bank has an office near the boundary of an SMSA
For this purpose, such neighborhoods are approx.
or county, it should include those portions of adja.
imated by those census tracts in an SMSA where
median family income is less than 80 per cent of
median family income for the entire SMSA. Unfor.
cent counties that it serves. In rural areas , a local
community may sometimes encompass more
than one county but, generally, banks should not
tunately, these data are not available for non
use states or regions of states to delineate local
SMSA counties.
communities. A small bank that serves an area
smaller than an SMSA or county may define its
community to be a part of the SMSA or county. A
Non-SMSA areas, especially rural areas, present a
particular problem in identifying low- and moder
ate-income neighborhoods. In those areas, the ex
bank may make adjustments in a community de
lineation in the case of areas divided by state bor
aminer may have to rely on personal knowledge of
the area, physical inspection as necessary , dis.
cussion with bank personnel or a combination of
these .
ders, significant geographic barriers, or areas that
are extremely large or of unusual configuration .
The second guideline proposes the use of effec
tive lending territory, a concept more familiar to
savings and loan associations than to commer
cial and mutual savings banks. The effective lend
Small Business Lending
Small business loans represent one type of credit
which the Corporation believes is directly related
to the purposes of the CRA. In considering small
business lending, the examiner should not be
concerned with any hard and fast or precise defi.
ing territory is that local area or areas around
each office or group of offices where an institu.
tion makes a substantial portion of its loans and
all other areas equally distant . If a bank employs
its effective lending territory, it is encouraged to
follow existing boundaries where practical .
nition of what constitutes a small business . In
One should not conclude from this guideline that
stead, the examiner should regard as small busi
ness lending any loans to local firms whose ac.
cess to credit is limited to local sources because
each office necessarily serves a separate and dis
tinct local community because each office typi .
of their size .
cally has a different, though possibly partially
overlapping , effective lending territory. If a bank is
Section II-D
3
Community Reinvestment ( 6-83)
24
288
II - D
Section
EXAMINATION OBJECTIVES
5. To assess the bank's record in helping to meet
1. To determine if the bank's policies address the
6. To develop, organize and report information on
Section II-D
Community Reinvestment ( 6-83)
289
II - D
Section
EXAMINATION PROCEDURES
mine whether the types of credit in the CRA
Limited Review
1. Determine the method used by the bank to de
actually being extended . Request an explana
statement correspond with the types of credit
tion of any difference. ( 345.4( b) ( 2) )
4. Review minutes of directors' meetings to ver
2. Assess the bank's record of performance in
5. Ascertain that the public file contains all sign
6. Ascertain that the bank's public notice con
7. Review with management the following :
• The extent to which the bank is helping to
3. Review each CRA statement in effect during
Section II-D
5
Community Reinvestment ( 6-83)
290
11 - D
Section
Expanded Review
1. Ascertain from bank personnel what steps the
- Community boundaries that are sharply
asymetrical , too narrowly drawn or so
broad that the bank fails to focus on its
2. Obtain the following :
• Minutes of the board of directors' meetings ,
3. Review minutes of director's meetings and ver
4. Review and analyze the public files for:
• Any signed , written comments received from
6. Analyze the bank's policies, procedures and
5. Review each CRA statement in effect during
Section 11-D
6
Community Reinvestment ( 6-83)
291
II - D
Section
•
Makes all CRA statements available to the
Section 11-D
• The extent of the bank's marketing and spe.
Community Reinvestment ( 6-83)
292
II - D
Section
and the extent to which the bank has not
extended such credit in those areas .
or communities and its policies , if any ,
with respect to its commitment to help
meet the credit needs of its entire com
munity , including low- and moderate -in
Reliance may be placed upon geocoding of
credit extensions , credit applications and
credit denials . Where the bank is required
to maintain logs of applications , the exami
ner will review the logs to determine the
geographic distribution of loans, applica
tions and denials . In conjunction with other
fair lending examination programs, it may
be necessary to analyze further the geo
graphic distribution of small business
loans , including loans to small farms within
Section 11-D
8
Community Reinvestment ( 6-83)
293
II - D
Section
•
The bank's origination of residential mort.
Section II- D
Pertinent factors may include:
-Purchases of state and municipal bonds,
9
Community Reinvestment ( 6-83)
294
IISection
-D
credit needs of its entire community, in
cluding low- and moderate-income neighbor.
hoods, consistent with safe and sound opera
Initial contact may be made by telephone and
suffice as adequate in some instances. An in
person interview should be conducted , how
ever, whenever considerable information is
tion .
likely to be provided , a number of people may
be interviewed at the same location or rele
vant documentation may be made available
10. Review the following with management:
for review. Outside contacts should be docu
mented either in the workpapers or in the
supervisory section of the Compliance Re
port, including the names and titles of the per
sons and /or organizations contacted and a
brief summary of their comments regarding
the bank's record of performance in the com
munity.
9. Determine if the bank's record of performance
Section II- D
10
Community Reinvestment ( 6-83)
295
A
Appendix
UNIFORM INTERAGENCY
COMMUNITY REINVESTMENT ACT ( CRA)
ASSESSMENT RATING SYSTEM
composite CRA rating . the performance cat.
egories will be weighed and evaluated according
to how well the institution meets the descriptive
characteristics listed below .
Introduction
The purpose of the rating system is to provide a
uniform means for regulatory agencies to identify
Rating ( 1) -- The institutions in this group have a
strong record of meeting community credit needs .
quickly those institutions which require varying
degrees of encouragement in helping to meet
Both the board of directors and management take
an active part in the process and demonstrate an
community credit needs. This provides a compre.
affirmative commitment to the community. In
stitutions receiving this rating normally rank high
in all performance categories. Such institutions
hensive and uniform system for evaluating the
performance of federally regulated financial insti .
tutions examined under the various assessment
factors of the Community Reinvestment Act and
facilitates more uniform and objective CRA
have a commendable record and need no further
encouragement.
ratings.
Rating ( 2) - Institutions in this group have a satis
factory record of helping to meet community
credit needs. Institutions receiving this rating nor
mally are ranked in the satisfactory levels of the
performance categories. Institutions in this cat
egory may require some encouragement to help
meet community credit needs.
Rating ( 3) -- Institutions in this group have a less
than satisfactory record of helping to meet com
munity credit needs. The board of directors and
management have not placed strong emphasis on
the credit needs of the community. Institutions re
ceiving this rating have mixed rankings surround
ing the midrange levels of the performance cat
egories. Such institutions require encouragement
to help meet the community credit needs.
The rating system ranks financial institutions on a
scale from 1 through 5 with a " 5 " representing the
lowest level of performance under the Act and,
therefore, the highest degree of concern. Level
" 3 " reflects performance which is less than satis
factory.
This sytem further employs five " performance
categories" or components from which the overall
composite CRA rating is derived. The perform
ance categories represent a grouping of the
various assessment factors contained in the im
plementing regulation for the Act. Each perform
ance category is evaluated on a scale of 1 to 5
with a " 5 " representing the lowest level and there
fore the worst performance. As explained later,
each performance category includes a narrative
description for each rating level.
Rating ( 4) - Institutions in this group have an un
satisfactory record of helping to meet community
credit needs. The board of directors and manage
Overview
Each financial institution is assigned a composite
CRA rating that is based upon the institution's
performance in meeting various community credit
needs. An examiner begins to evaluate the institu
tion's record in meeting community credit needs
by first reviewing its financial condition and size,
legal impediments, and local economic condi
tions, including the competitive environment in
which it operates. The type of community in which
the institution is located will also have a signifi
cant bearing on how the institution fulfills its
obligations to the community. Community credit
ment give inadequate consideration to the credit
needs ofthe institution's community. Institutions
receiving this rating generally rank below satis
factory in the majority of the performance cate
gories . Such institutions require strong encour
agement to help meet community credit needs.
Rating ( 5 ) - Institutions in this group have a sub
stantially inadequate record of helping to meet
communiy credit needs . The board of directors
and management appear to give little considera
tion to the credit needs of the institution's com
needs will often differ with the specific char
munity. Institutions receiving this rating generally
rank in the lowest levels of the performance cat
egories. Such institutions require the strongest
encouragement to be responsive to community
credit needs.
acteristics of each local community, resulting in a
variety of ways an institution may meet those
needs. To maintain a balanced perspective ex
aminers must carefully consider information pro
vided by both the institution and the community.
Composite Rating System
The performance categories are individually as.
Performance Categories
For purposes of evaluating an institution's CRA
performance the various assessment factors and
signed a numeric rating. In assigning the overall
Appendix A
5
( 6-83)
296
A
Appendix
erate-income areas) of its community and
making meaningful contacts with a reason.
ably full range of organizations ( civil ,
criteria are grouped into the following " per
formance categories " :
1. Community CreditNeeds and Marketing
religious , neighborhood , minority , etc.) to
assist in determining the credit needs of all
Appendix A
6
( 6-83)
297
A
Appendix
institution generally has made no efforts to
listed in the statement demonstrates an af.
market its services on an equal basis to all
firmative effort to make such loans and to do
segments of its community . Marketing and
its share in meeting existing needs , consis.
credit related programs do not include a
tent with its resources and capabilities .
mechanism for reaching low- and moderate
Rating Level 2 - The institution's CRA
statement and loan portfolio indicate that it
has investigated the need for residential mort.
income areas within the delineated communi
ty . The institution's marketing effort does not
adequately focus on marketing the types of
credit for which the institution has identified a
gage loans , housing improvement/rehabilita
need ( or a need is otherwise apparent) . There
may also be some concern about the commu
nity delineation .
tion loans , small business and farm loans ,
and private , as well as government-insured ,
guaranteed , or subsidized forms of such loans
Rating Level 4 - The institution's efforts to de
within its community. It has made an explicit
termine community credit needs are very
effort to assure that its loan policies are
limited and fail to address major segments of
its community. Management has not estab
responsive to the needs found . The institu
tion's performance in this category is dis
tinguished from a 1 -rated institution primarily
in the extent to which it is marketing the
lished a dialogue with organizations repre
sentative of the community, including any
which represent low- and moderate-income or
minority neighborhoods within the delineated
availability of loans and/or in the degree to
which the types and volume of loans being
made match the community's most pressing
community. The institution's marketing and
credit related programs are limited or poorly
conceived . There may also be some concern
about the community delineation. Senior
management is unaware of special needs of
low. and moderate-income residents, small
credit needs.
Rating Level 3 -- The institution may not be
offering one or more types of credit listed in
its CRĀ statement, despite a capacity to do
business and small farms .
so . The institution's loan portfolio and other
Rating Level 5 - The institution has not under
taken any meaningful efforts to determine
community credit needs. Management has
sources, including peer analysis, may indicate
that the institution's share of loans of a type
or types identified as needed in the communi
ty, including any low- and moderate-income
areas, is marginal or somewhat below aver
age, particularly with respect to extensions
for residential housing, small business or
limited knowledge regarding the community's
demographic characteristics. The institution's
marketing and credit related programs are
either non-existent or have repeatedly exclud
farm credit.
ed low- and moderate-income areas within the
delineated community. There may also be
Rating Level 4 -- The institution's record of
some concern about the community delinea
offering and of making loans reveals that it is
doing relatively little to help meet known or
demonstrated credit needs for residential ,
small business or small farm credit, par
ticularly for residents of low- and moderate
income areas. Its participation in private, as
well as government insured, guaranteed or
subsidy loan programs is either prefunctory or
nonexistent, under circumstances where the
need for such loans has been identified and
the lender can articulate no objective support
able reason for its low level of participation.
Rating Level 5 - The institution is unwilling
to adapt its credit offerings to serve demon.
strated unmet credit needs in its commuity,
particularly for housing, small business or
small farm credit. This rating would be par
ticularly appropriate where the lender's failure
to meet these needs was cited in a previous
examination .
Appendix A
7
( 6-83)
298
A
Appendix
III . Geographic Distribution ( Assessment Factors
tion's record of opening and closing offices
and its provision for services at its office may
indicate a disparity of treatment between cer.
tain areas within its community . Such a dis
parity is isolated and not an overall intentional
pattern or practice . Management has plans to
undertake immediate steps to restore reason
ably equal service to any affected areas.
Rating Level 4 -- The geographic distribution
of credit extensions , applications and denials
reveal unreasonable lending patterns , par
ticularly in low- and moderate-income neigh
borhoods or areas of racial /ethnic concentra
tion . The geographic distribution of applica
tions may indicate a possible pattern or prac
tice of discouraging or illegally prescreening
applications . The institution's record of open
ing and closing offices and the provisions of
services at its offices may suggest a pattern
of disparate treatment of minority or low- and
moderate- income nel ghborhoods . The record
might portray an institution that has sys.
tematically sought to close or curtail services
at offices serving minority or less affluent
neighborhoods while opening new offices in
developing, majority or upper-income areas.
Rating Level 5 - The geographic distribution
of credit extensions , applications and denials
reveals extensive systematic unreasonable
lending patterns . The institution has adopted
loan policies and procedures , such as unjusti
fiably high minimum mortgage amounts or
down payments or restrictions based on the
age of property, which have or can reasonably
be expected to have a significantly adverse
impact on loan availability in low- and mod
erate-income or minority neighborhoods. The
institution's record of opening and closing of.
fices and the provision of services at its of.
fices suggest a continuing pattern of dis
parate treatment of minority or low- and mod
erate-income neighborhoods. Where this was
previously cited, management has not taken
any corrective action .
IV . Discrimination or Other illegal Credit Prac
Appendix A
8
( 6-83)
299
А
Appendix
Rating Level 3 - The institution is in less than
satisfactory compliance with antidiscrimina
tion and other credit laws .
Rating Level 4 -- The institution has an unsat
isfactory record of compliance with antidis
or implementation . Or, the institution is plan
ning to undertake a specific activity designed
to help meet community credit needs, which
has not been covered in other categories ,
within six months .
crimination and other credit laws .
Rating Level 3 - The institution is only vaguely
Rating Level 5 - The institution is in substan.
aware of the community development/redevel .
opment activities in its community . The in
stitution has taken little affirmative action to
become involved in community development
or to learn the specific features of different
programs . Management appears receptive to
becoming involved or investing in one or more
tial noncompliance with antidiscrimination
and other credit laws .
V. Community Development and Other Factors
programs but prefers to wait for a request to
be initiated by community officials . At such
time, the institution will consider possible par
ticipation. Management has periodically dis
cussed various efforts to respond to com
munity credit needs but a specific plan has
not been developed .
Rating Level 4 - Management is unaware of
the existence or nature of community develop
ment programs within its community and has
expressed no interest in pursuing this area .
Management has not developed any other pro
grams, which were not covered previously, to
help meet community credit needs. Manage
ment may be unaware of the CRA regulations '
encouragement of institution involvement in
community development/redevelopment pro
grams.
Rating Level 5 -- Management has repeatedly
demonstrated its lack of interest in determin
ing if community developments projects exist
in its community. It has not expressed an in
terest in developing its own response to com
munity credit needs .
Request
Last five years allocation of regulatory staff
resources to CRA enforcement .
Staff Hours Allocated to CRA Examinations
1983
1984
1985
1986
1987
18,346
9,156
5,141
6,211
10,620
( Source :
Appendix A.
Division of Bank Supervision Progress Reports )
( 6-83)
300
RESPONSE TO REQUEST OF SENATOR GRAHAM FROM
Factors Used by the
office of the Comptroller of the currency
in Assessing Performance under the
The Community Reinvestment Act ( CRA ) encourages banks to help meet the
credit needs of their local communities. Credit needs are unique to each
community and banks may help meet those needs in different ways . Each
bank is evaluated on the basis of its attempts to ascertain community
credit needs and its efforts in helping to meet those needs . In
conducting a CRA assessment , examiners tailor the related procedures to a
bank's size , the level of management's knowledge and expertise regarding
CRA's spirit and intent , and the characteristics of the bank's delineated
community. The Office of the Comptroller of the currency ( OCC ) assesses a
national bank's performance under CRA by considering activities conducted
as they pertain to the 12 assessment factors prescribed by 12 CFR 25.7 ( a )
through ( 1 ) . The following chart reflects these assessment factors and
the corresponding procedures used by national bank examiners .
EXAMINATION PROCEDURES
TWELVE ASSESSMENT FACTORS
1)
Bank activities that ascertain the
credit needs of its local
community .
Obtain information from a review of bank
records and interviews with bank staff .
( Studies /customers /neighborhood groups /
local government )
2)
3)
4)
5)
to make community members aware of
Review bank's marketing program .
mortgage counseling programs /
advertising / convenient hours /
credit services available .
brochures )
The extent of the bank's marketing
and special credit - related programs
The extent of participation by the
Review minutes of board of directors
bank's board of directors in
formulating CRA policies and
in the bank's CRA performance .
meetings and any other bank documentation
Any practices intended to dis
courage applications for credit
listed in the bank's CRA statement .
The geographic distribution of the
bank's credit extensions, credit
applications and credit denials .
6)
( e.g.
Evidence of discriminatory or
other illegal credit practices .
available .
( Bank staff awareness of
CRA . )
Review other fair lending examination
programs ( ECOA and Fair Housing Act ) .
( Bank staff awareness of CRA / prescreening .)
Initially rely on discussion with other
examiners , review of examination reports
and working papers of other programs.
Review bank files and interview bank
management . Additional reliance may be
placed on geocoding .
Review prior reports of examination /
other examination programs currently
being performed .
7)
The bank's record of opening and
closing offices and providing
services at offices .
Obtain information from the field or
district office or from the bank's
records . Review any public comments .
301
8)
Bank participation in local
community development and
redevelopment projects or
programs .
Review written lending policy and procedure
manuals . Interview lending officers. ( HUD
community development block grant program /
local neighborhood preservation efforts / CDC
neighborhood housing services . )
9)
The bank's origination of
residential mortgage loans ,
housing rehabilitation loans ,
home improvement loans, and small
business or small farm loans within
its community, or the purchase of
such loans originated within its
Review bank financial statements , HMDA
disclosures , lending policy and procedure
manuals. Interview bank staff.
community .
10 )
Bank participation in governmen
Review bank financial statements, HMDA
disclosures , lending policy and procedure
manuals. Interview bank staff . ( FHA /VA /
FMHA mortgage loans /SBA Loans /FHA Title I
home improvement loans )
11)
The bank's ability to meet
Review examination workpapers and
reports .
Consider safety and soundness .
( Small banks may lack resources)
12)
Other factors that bear upon the
Consider factors such as bank purchases
of state and municipal bonds , secondary
mortgage market securities or whether the
bank's policies promote efforts to assist
existing residents in neighborhoods
undergoing reinvestment and change .
-
302
Allocation of Resources by
the Office of the Comptroller of the currency
The Office of the Comptroller of the currency ( OCC ) does not gather
data on resources devoted specifically to the community Reinvestment
Estimating that 20 percent of onsite consumer activities
examination time is devoted to CRA, however , yields the following :
Act ( CRA ) .
1983
1984
1985
1986
1987
27,000
17,000
13,000
15,000
23,000
These estimates do not include offsite activities related to CRA such
as meetings with community leaders and evaluation of corporate
applications . During 1987 , occ staff met with over 70 public
interest groups to discuss CRA related issues .
Additionally , Occ
provided speakers for over 30 seminars and training sessions
sponsored by trade and state banking associations promoting
compliance with CRA and other consumer related laws and regulations .
303
Senator GRAHAM . Let me ask another question of Governor
Seger. Has the Fed ever denied an application based on CRA
grounds? The statement was made yesterday they had not.
PROMISES OF FUTURE PERFORMANCE
That's a statement of dissent which raises questions about the
diligence of the Fed in both reviewing its standards of past per
formance and applying those standards to making current deci
sions.
!
304
record of that institution both on its preapplication obligations and
those that attached at the time of application ?
GOVE
THE
OF
SYSTEMS
OF
BO
AR
D
305
R
BOARD OF GOVERNORS
FED
ERA SERVE
RLE
May 24 , 1988
MARTHA R. SEGER
MEMBER OF THE BOARD
The Honorable Bob Graham
United States Senate
Washington , D.C.
20510
Dear Senator :
During the CRA oversight hearings on March 23 , you
asked for additional comments on the Advance Bancorp , Inc. ,
order issued by the Board in October 1986 , our resource
allocations for the enforcement of CRA for a five -year period ,
and the performance standards that we use for the evaluation of
CRA performance.
I am writing to provide you with that
information .
The Advance Bancorp , Inc. , application involved a
request to form a holding company by acquiring the South Chicago
Savings Bank . South Chicago's CRA record had been less than
satisfactory over a number of examinations ; however , the trend
at that time indicated that improvement was taking place . In
connection with that application , Advance made a number of
commitments that the Board felt would serve to further improve
the Bank's record . Those commitments are enclosed ( Attachment
A ) . Advance was required to submit monthly reports to the
Federal Reserve Bank of Chicago regarding its progress in
fulfilling the commitments it had made . In the little over a
year since the application was approved Advance has reported
that South Chicago Savings has redelineated its community , is
making more consumer loans to its community, is expanding its
marketing efforts , and is generally taking steps to become more
involved in the community .
A detailed progress report is also
included in Attachment A. Advance will continue reporting to
the Reserve Bank until it is determined that each of the
commitments has been fully met and the bank's performance is
found to be satisfactory .
With respect to the resources allocated to CRA
enforcement , I have also enclosed a chart ( Attachment B )
that
shows the time spent on CRA examinations by Federal Reserve
consumer affairs examiners to be between 12 % and 13 % of the time
spent completing the entire consumer affairs examination at
State member banks. Our data do not suggest that our resource
allocations are decreasing . In fact the chart indicates that
estimated dollars devoted to that portion of the consumer
affairs examination have actually increased during this time
period from $ 707 in 1983 to $ 1,023 in 1287 for each CRA review .
306
The Honorable Bob Graham
Tage Two
Also , these data do not include the resources devoted to the
Federal Reserve's Community Affairs Program which indirectly
supports our CRA efforts .
Our performance standards for evaluating a bank's CRA
performance during the consumer affairs examination is described
in the Uniform Interagency CRA Rating System adopted by the
Federal Reserve System , the Federal Deposit Insurance
Corporation , and the Office of the Comptroller of the Currency
in 1981 ( Attachment C ) . This system employs five performance
categories or components from which examiners derive the overall
composite CRA rating .
The performance categories represent a
grouping of the various assessment factors contained in the
1
implementing regulation ( Regulation BB ) for CRA. The rating
system provides the examiner with a description of the type of
activities that are appropriate for each rating level within
each of the performance categories .
These descriptions are
standards that guide the examiner in selecting the appropriate
rating for an institution .
In addition , I am enclosing a copy
of the interagency examination procedures ( Attachment D ) which
explain in more detail the kinds of reviews undertaken by our
examiners when doing a CRA examination .
Your final question posed a distinction between a
review emphasizing the bank's " process" for addressing CRA and
one emphasizing the bank's " performance" . As I stated in my
testimony , I believe our examinations involve looking at both .
However , it is not our policy to require banks to make parti
cular kinds of loans of specified amounts in a given area in
some relationship to the demographic make -up of the area . That ,
in my opinion , would be a form of credit allocation , which the
Board has long held is properly a legislative function rather
than a function this , or any other , agency should take upon
itself .
I hope this information is helpful .
Please let me know
if I can be of further assistance .
Sincerely ,
; Plattalisca
Enclosures
307
Attachment A
STATUS REPORT ON ADVANCE BANCORP'S FULFILLMENT
COMMITMENTS :
Bank will extend its community delineation to the north and
1.
west to include 46 new census tracts of which 44 have a Black
population in excess of 80 percent and 28 of which are considered
low- income .
Bank extended its community delineation as agreed . Under this
extension , the total number of low- and moderate - income tracts
increased from 5 to 29 .
2.
Bank will increase its loan- to- deposit ratio within five
years and increase the number of loans made in its delineated CRA
community to a level providing an equivalent ratio of the number
of loan accounts both inside and outside its delineated
community .
Bank's loan - to -deposit ratio has increased .
percent on 9-30-86 ;
The ratio was 33
36 percent on 12-30-86 ; and
40 percent at
( When Applicant submitted its first application to the
Federal Reserve Board , this ratio was 13 percent . )
Number and
dollar amounts of loans made within the community have also
increased and now approximate the percentage of deposit accounts
from within the delineated community .
9-30-87 .
3. Bank will expand and enlarge the percentage of Bank's
consumer loans , including the percentage of consumer loans made
within Bank's delineated community .
The percentage of consumer loans made within the delineated
community has expanded .
As of year - end 1987 , mortgage loans
originated within the community consisted of 71.9 percent of the
number and 73.8 percent of the dollar value of the total
mortgages outstanding .
Consumer installment loans originated
within the community consisted of 76.9
percent of the number and
80.2 percent of the dollar amount of total consumer loans
outstanding .
Applicant and Bank will further study the needs of Bank's
newly enlarged designated community by conducting an independent
survey of consumer credit needs .
Bank contracted with an
independent market research company to
conduct a credit needs survey of its community . Staff from the
Federal Reserve Bank of Chicago provided guidance to the company
on the types of information needed from the survey .
308
Applicant and Bank will solicit advice from members of
community organizations and invite their participation on Bank's
5.
Community Advisory Group .
Applicant expanded the number of members on its Community
Advisory Group from 11 to 20.
The new members represent those
communities added when Bank increased its local delineation .
( See commitment 1 )
6.
Applicant and Bank will increase substantially advertising to
make known its lending program to its designated community .
Bank has substantially increased the number and types of credit
advertising over the last year . Bank has utilized community
newsletters , newspaper , ( including minority publications ) , and
minority radio stations .
7.
Applicant and Bank will participate in various community
development programs .
1
Bank has participated in and contributed towards various
community development programs, including a $ 500,000 investment
in the Community Investment Corporation's program in Chicago .
October of 1987, Bank hired a person for the community affairs
function at the bank on a full - time basis .
309
Attachment B
Federal Reserve System
Examination Resources Devoted to CRA
1984
1985
1986
1987 *
764
709
765
637
557
11
10
9
10
10
13%
12 %
12%
13%
13%
10%
9%
9%
9%
10%
1.
Year
1983
2.
Number of CRA Reviews
3.
Average Hours Spent
on CRA Review
4.
Time Spent on CRA
as Percent of Total
Onsite Examination
Time
5.
Time Spent on CRA
as Percent of Total
Examination Time
( Includes Bank and
Reserve Bank Time )
6.
Estimated System
Dollars Allocated
$ 540
$ 495
$ 513
$ 531
$ 570
to CRA Portion
of Examination
( in thousands )
7.
Average Cost Per
$ 707.00 $ 698.00 $ 671.00 $ 834.00 $ 1,023.00
* Only preliminary 4th quarter data available for 1987 .
310
ATTACHMENT C
UNIFORM INTERAGENCY COMMUNITY REINVESTMENT ACT ( CRA ) ASSESSMENT RATING SYSTEM
The purpose of the rating system is to provide a uniform means for
regulatory agencies to identify quickly those institutions which require
varying degrees of encouragement in helping to meet community credit needs .
This provides a comprehensive and uniform system for evaluating the perfor
mance of federally regulated financial institutions examined under the
various assessment factors of the community Reinvestment Act and facilitates
more uniform and objective composite CRA ratings .
The rating system ranks financial institutions on a scale from 1
through 5 with a " 5" representing the lowest level of performance under the
Act and , therefore , the highest degree of concern .
Level " 3" reflects
performance which is less than satisfactory .
This system further employs five " performance categories " or com
ponents from which the overall composite CRA rating is derived . The perfor
mance categories represent a arouping of the various assessment factors
contained in the implementing regulation for the Act . Each performance
category is evaluated on a scale of 1 to 5 with a " 5" representing the
lowest level and therefore the worst performance . As explained later ,
each performance category includes a narrative description for each
rating level .
OVERVIEW
Each financial institution is assigned a composite CRA rating that
is based upon the institution's performance in meeting various community
credit needs. An examiner begins to evaluate the institution's record in
meeting community credit needs by first reviewing its financial condition
and size , legal impediments, and local economic conditions , including the
competitive environment in which it operates. The type of community in
which the institution is located will also have a significant bearing on
how the institution fulfills its obligations to the community . Contenunity
credit needs will often differ with the specific characteristics of each
local community , resulting in a variety of ways an institution may meet
those needs .
To maintain a balanced perspective, examiners must carefully
consider information provided by both the institution and the community .
COMPOSITE RATING SYSTEM
The performance categories are individually assigned a numeric
rating. In assigning the overall composite CRA rating , the performance
categories will be weighed and evaluated according to how well the
institution meets the descriptive characteristics listed below .
FRS Compliance Handbook ( 4/82)
*
Approved, FFIEC, July 1981
II.1.55
311
Rating ( 1 )
The institutions in this group have a strong record of meeting
community credit needs . Both the Board of Directors and management take
an active part in the process and demonstrate an affirmative commitment
to the community .
Institutions receiving this rating normally rank high
in all performance categories . Such institutions have a commendable
record and need no further encouragement .
Rating ( 2 )
Institutions in this group have a satisfactory record of helping
to meet community credit needs. Institutions receiving this rating normally
are ranked in the satisfactory levels of the performance categories . Insti
tutions in this category may require some encouragement to help meet community
credit needs .
Rating ( 3 )
Institutions in this group have a less than satisfactory record
of helping to meet community credit needs . The Board of Directors and
management have not placed strong emphasis on the credit needs of the com
munity . Institutions receiving this rating have mixed rankings surrounding
the mid - range levels of the performance categories . Such institutions require
encouragement to help meet the community credit needs.
Rating ( 4 )
Institutions in this group have an unsatisfactory record of help
ing to meet community credit needs,
The Board of Directors and management
give inadequate consideration to the credit needs of the institution's com
munity .
Institutions receiving this rating generally rank below satisfactory
in the majority of the performance categories. Such institutions require
strong encouragement to help meet community credit needs.
Rating ( 5 )
Institutions in this group have a substantially inadequate record
of helping to meet community credit needs. The Board of Directors and man
agement appear to give little consideration to the credit needs of the insti
tution's community . Institutions receiving this rating generally rank in
the lowest levels of the performance categories . Such institutions require
the strongest encouragement to be responsive to community credit needs .
PERFORMANCE CATEGORIES
For purposes of evaluating an institution's CRA performance , the
various assessment factors and criteria are grouped into the following
" performance categories : "
FRS Compliance Handbook. ( 4/82 )
Approved, FFIEC, July 1981
II.1.56
312
1. Community Credit Needs and Marketing
II .
Types of Credit Offered and Extended
The institution is evaluated in this category on the types and amounts
1
of credit extended to the community and the degree to which those ex
tensions are , in fact , helping to meet the community's needs. Included
in this category are assessment factors ( i ) and ( j) plus the institu
tion's CRA statement.
III .
Geographic Distribution
The geographic distribution of the institution's loans and any prac
tices meant to discourage applications are considered in this category ,
as well as the impact of the opening or closing of any offices and the
services offered at those facilities .
Included in the category are
assessment factors ( d ) , ( e ) , and ( g ) .
IV . Discrimination or Other Illegal Credit Practices
The institution's compliance with anti -discrimination and other credit
laws are evaluated in this category . The category includes assessment
factor ( f ) . The rating to be assigned here corresponds to the institu
tion's composite compliance rating.
v.
Community Development
The institution is evaluated in this category on its participation in
conmunity development and /or other factors relating to meeting local
credit needs. Included in this category are assessment factors ( h ) ,
( k ) , and ( 1 ) .
Each of the performance categories and the level of performance
relating to each category are described in greater detail below .
PERFORMANCE CATEGORY RATING SYSTEM
I. Community Credit Needs and Marketing ( Assessment Factors ( a ) ,
FRS Corliance Handbook ( 4/82 )
Approved, FFIEC, July 1981
II.1.57
313
o Rating Level 1
The institution has actively undertaken steps to determine
community credit needs . These activities may include :
identifying the demographic makeup ( racial / ethnic groups
b)
taking into consideration comments to the public file
c)
contacting local government officials to identify any
..
a)
The institution has actively undertaken marketing and credit
related programs appropriate to the size and capacity of the
institution and the nature and location of the community .
These programs should reach all segments of its community .
Community segments would include low and moderate - income
residents, small businesses and , where applicable, owners
of small farms . Management has also established working
relationships with real estate brokers and others who
serve low and moderate- income areas and who may provide
assistance for small or minority businesses . There is
evidence that senior management is aware of community
concerns and activities.
o
Rating Level 2
The institution has undertaken activities to determine its
canmunity's credit needs . As a result of these activities ,
the institution is generally aware of the credit needs within
its community , including low , and moderate income areas .
The
institution has initiated a dialogue with cormunity represen
tatives such as local government , neighborhood , religious, and
minority organizations , or small business and small farm
organizations. The institution has undertaken marketing and
credit related programs but the programs are not ongoing or
comprehensive. Senior management demonstrates an awareness
of community concerns and activities .
FRS Compliance Handbook ( 4882 )
*
Approved, FFIEC, July 1981
II.1.58
314
o
Rating Level 3
1
The institution's activities to determine community credit
needs are limited . The institution's employees may serve
as volunteers on community organization boards and committees .
However , the institution has not established a systematic
!
method to determine how or if its employee's volunteerism
assists the institution in meeting its CRA goals . The
-
institution's advertising may be principally deposit
oriented . In addition , the institution generally has
made no efforts to market its services on an equal basis
to all segments of its community.
Marketing and credit
related programs do not include a mechanism for reaching
low- and moderate - income areas within the delineated
community . The institution's marketing effort does not
adequately focus on marketing the types of credit for
which the institution has identified a need ( or a need
is otherwise apparent . )
There may also be some concern
about the community delineation .
o Rating Level 4
The institution's efforts to determine community credit
needs are very limited and fail to address major segments
of its community . Management has not established a dia
loque with organizations representative of the community ,
including any which represent low and moderate - income or
minority neighborhoods within the delineated comunity .
The institution's marketing and credit related programs
are limited or poorly conceived . There may also be some
concern about the community delineation . Senior manage
ment is unaware of special needs of low- and morderate
income residents , small business and small farms.
o Rating Level 5
The institution has not undertaken any meaningful efforts
to determine conmunity credit neers.
Management has limited
knowledge regarding the community's demographic characteris
tics .
The institution's marketing and credit related programs
are either non - existent or have repeatedly excluded low and
moderate - incare areas within the delineated community .
There
may also be some concern about the community delineation .
II .
Types of Credit Offered and Extended ( Assessment Factors ( i ) ,
FRS Compliance Handbook ( 4/82)
Aroved, FFIEC, July 1981
II.1.59
315
o
Rating Level 1
The institution has investigated the need for different types
of credit within its community such as residential mortgage
loans , housing rehabilitation and home improvement loans , and
small business or farm loans , including the need for private ,
as well as government- insured , guaranteed or subsidized forms
of such loans . It has then made an explicit effort to assure
that its loan policies are responsive to the needs and has
examined the extent to which it and other institutions within
the corrmunity are meeting the need for such loans .
The insti
tution's CRA Statement lists the type of loans found to be
needed in the carrmunity .
The involvement by the institution
in the making of each type of loan listed in the statement
demonstrates an affirmative effort to make such loans and
to do its share in meeting existing needs, consistent with
its resources and capabilities .
o Rating Level 2
The institution's CRA Statement and loan portfolio indicate
that it has investigated the need for residential mortgage
loans , housing improvement /rehabilitation loans , small busi
ness and farm loans, and private, as well as government
insured , guaranteed , or subsidized forms of such loans within
its community.
It has made an explicit effort to assure that
its loan policies are responsive to the needs found .
The
institution's performance in this category is distinguished
from a 1- rated institution primarily in the extent to which
it is making the availability of loans and /or in the degree
to which the types and volume of loans being made match the
community's most pressing credit needs .
o
Rating Level 3
The institution may not be offering one or more types of
credit listed in its CRA Statement , despite a capacity to
do so . The institution's loan portfolio and other sources ,
including peer analysis, may indicate that the institution's
share of loans of a type or types identified as needed in
the conmunity , including any lower and moderate- income areas ,
is marginal or somewhat below average , particularly with
respect to extensions for residential housing , small business
or farm credit .
FRS Compliance andbruk ( 4782)
Approved, FFIEC, July 1981
85-619 O - 88 - 11
II.1.60
316
O
Rating Level 4
The institution's record of offering and of making loans
reveals that it is doing relatively little to help meet known
or demonstrated credit needs for residential , small business
or small farm credit , particularly for residents of low- and
moderate- income areas. Its participation in private , as well
as government - insured , quaranteed or subsidy loan programs is
either perfunctory or nonexistent , under circumstances where
the need for such loans has been identified and the lender
can articulate no objective supportable reason for its low
level of participation .
o Rating Level 5
The institution is unwilling to adapt its credit offerings
to serve demonstrated unmet credit needs in its community ,
particularly for housing, small business or small farm credit .
This rating would be particularly appropriate where the len
der's failure to meet these needs was cited in a previous
examination .
III . Geographic Distribution ( Assessment Factors ( d ) , ( e ) , and ( 9 ) )
o Rating Level 1
The geographic distribution of the institution's credit exten
sions , applications and denials indicate that the institution
is making the substantial portion of its credit available to
all areas within its community . The institution has reviewed
the geographic distribution of its credit extensions, applica
tions and denials in a manner appropriate to the size and
capacity of the institution and the nature and location of
the community .
Where that review has disclosed a very low
level of applications from or loans to a particular neigh
borhood or area , especially low or moderate- income areas ,
the institution has reviewed its marketing practices to
determine what , if any , impact they may have had on the
distribution . Where apropriate , the institution has either
revised its marketing practices or lending policies or both .
The institution's offices are reasonably accessible to all
segments of its community and banking hours are tailored to
meet the convenience and the needs of its customers. Finally,
the institution considers, in advance , the potential impact
of opening and closing offices on its ability to continue
offering equal services throughout its community .
FRS Compliance Handbook ( 4/82)
Approved, FFIEC , July 1981
II.1.61
317
o Rating Level 2
The geographic distribution of the institution's credit exten
sions, applications, and denials indicate that the lender is
making credit available to all areas within its community .
The institution has taken steps to eliminate unreasonable
lending patterns disclosed by examiners or which have resulted
from the review of the institution's policies or practices .
The geographic distribution of applications reveals no pattern
suggestive of any practice of discouraging or " prescreening"
applications . The institution's record of opening and closing
offices and the provision of services at its offices do not
reflect any disparate treatment of minority or low and
moderate- income neighborhoods. Offices are reasonably
accessible to all segments of its delineated community.
Services and banking hours are periodically reviewed to
assure accomodation of all segments of the delineated
community ,
o
Rating Level 3
The geographic distribution of the institution's credit
extensions , applications and denials may suggest unreasona
ble lending patterns . Management has not attempted to review
its lending policies and procedures or to analyze the insti
tution's lending patterns within its community .
The insti
tution's record of opening and closing offices and its pro
vision for services at its offices may indicate a disparity
of treatment between certain areas within its community .
Such a disparity is isolated and not an overall intentional
pattern or practice. Management has plans to undertake in
mediate steps to restore reasonably equal service to any
affected areas .
o Rating Level 4
The geographic distribution of credit extensions, applications ,
and denials reveal unreasonable lending patterns , particularly
in low and moderate - income neighborhoods or areas of racial /
ethnic concentration . The geographic distribution of appli
cations may indicate prescreening applications. The insti
tution's record of opening and closing offices and the pro
vision of services at its offices may suggest a pattern of
disparate treatment of minority or low- and moderate - income
neighborhoods. The record might portray an institution that
has systematically sought to close or curtail services at
offices serving minority or less affluent neighborhoods while
opening new offices in developing, majority or upper - income
areas .
FRS Compliance Handbook ( 4/82)
Approved, FFIEC, July 1981
II.1.62
318
o Rating Level 5
The geographic distribution of credit extensions, applications ,
and denials reveals extensive systematic unreasonable lending
patterns . The institution has adopted loan policies and pro
cedures , such as unjustifiably high minimum mortgage amounts
or down payments or restrictions based on the age of property
which have or can reasonably be expected to have a signifi
cantly adverse impact on loan availability in low and
moderate - income or minority neighborhoods . The institution's
record of opening and closing offices and the provision of
services at its offices suggest a continuing pattern of dis
parate treatment of minority or low and moderateincome
neighborhoods.
Where this was previously cited , management
has not taken any corrective action .
Discrimination or Other Illegal Credit Practices ( Assessment
Factor ( f ) ) .
The rating to be assigned here corresponds to the institution's
camposite compliance rating .
--
o Rating Level 1 ---
The institution is in substantial compliance with anti
discrimination and other credit laws .
o
Rating Level 2
The institution is in satisfactory compliance with anti
discrimination and other credit laws .
o Rating Level 3
The institution is in less than satisfactory compliance
with antidiscrimination and other credit laws .
O
Rating Level 4
The institution has an unsatisfactory record of com
pliance with antidiscrimination and other credit laws .
o Rating Level 5
The institution is in substantial noncompliance with
antidiscrimination and other credit laws.
FRS Compliance Handook ( 4782)
Approved, FFIEC , July 1981
II.1.63
319
V.
Community Development and Other Factors ( Assessment Factors
( h ) , ( k ) , and ( 1)
o
Rating Level 1
The institution has taken affirmative steps to become aware
of the full range of community development and redevelopment
programs within its community. It is actively participating
in the development or implementation of such programs
---
to an extent consistent with its size , capacity , and
the nature and location of the community.
In non -SMSAS ,
the institution has contacted appropriate government and
nongovernment representatives to determine the level of
carmunity development needs in its area. It has then
determined what areas are appropriate for its involvement
and has initiated such involvement or has undertaken other
types of activities not previously covered , which in the
examiner's judgment reasonably bear upon the extent to
which the institution is meeting the community credit
needs .
o Rating Level 2
The institution is aware of community development / redevelop
ment programs within its community. It has advised appro
priate community officials of its interest in participating
in such programs and is already involved in some aspects of
program planning or implementation . Or , the institution is
planning to undertake a specific activity designed to help
meet community credit needs, which has not been covered in
other categories , within six months .
o Rating Level 3
The institution is only vaguely aware of the community
development / redevelopment activities in its conmunity .
The institution has taken little affirmative action to
became involved in community development or to learn
the specific features of different programs. Management
appears receptive to becoming involved or investing in
one or more programs, but prefers to wait for a request
to be initiated by community officials .
At such time ,
the institution will consider possible participation .
Management has periodically discussed various efforts
to respond to community credit needs , but a specific
plan has not been developed .
FRS Compliance Handbook ( 4782 )
* Approved, FFIEC, July 1981
II.1.64
320
Rating Level 4
Management is unaware of the existence or nature of
community development programs within its community
and has expressed no interest in pursuing this area .
Management has not developed any other programs, which
were not covered previously , to help meet community
credit needs ,
Management may be unaware of the CRA
regulation's encouragement of institution involvement
in community development / redevelopment programs .
o Rating Level 5
Management has repeatedly demonstrated its lack of
interest in determining if community development pro
jects exist in its community . It has not expressed
an interest in developing its own response to community
credit needs .
HOUSING AND COMMUNITY DEVELOPMENT ACT OF 1980
EXAMINATION PROCEDURES
The Board shares the concern of Congress that widespread conver
sions or rental housing may reduce the housing options available to certain
citizens, particularly low - income, elderly , and handicapped tenants . There
fore , examiners should :
1. Notify State member banks and various civic, religious, and
neighborhood organizations of the sense of the Congress . The number and
types of groups. contacted with which examiners discuss the Act should be
recorded in the workpapers .
2. Ask city planning officers for a list of condominium com
versions and who is providing the financing for the conversion . If such
a project is in process and a State member bank is financing the con
version , the examiner should counsel these banks about the expression of
public policy .
FRS Compliance Handbook ( 4/82 )
Approved, FFEC, July 1980
II.1.65
321
ATTACHMENT D
COMMUNITY REINVESTMENT ACT EXAMINATION PROCEDURES
The following statement , which contains procedures used to examine
an institution for compliance with the community Re investment Act and regula
ation was developed by an interagency task force representing the Comptroller
of the Currency , Federal Deposit Insurance Corporation , Federal Home Loan Bank
Board , and Federal Reserve Board. This is the first time the four regulatory
agencies have combined their efforts to develop uniform procedures. Any modi
fications or alterations of these procedures in the future will be made on the
same basis .
INTRODUCTION
This statement was prepared with several objectives in mind .
o To provide specific examination procedures .
•
To indicate the general scope , character , and intent of the
o To provide guidance for the examination of diverse institutions
o To make publicly available a self - contained general statement on
Premises
The statement is based on several premises .
o The CRA review will be integrated into existing examination pro
o Each agency will adopt a reporting method consistent with its
o The examiner will discuss with management the overall findings
OVERVIEW
A.
Community Reinvestment Act
The Community Re investment Act is intended to encourage regulated
financial institutions 1 to help meet the credit needs of their entire
1 The term " regulated financial institution " means a conmercial bank , mutual
FRS Compliance Handbook ( 1779)
II.1.38
322
communities , including low- and moderate - income neighborhoods, while preserv
ing the flexibility necessary for the institutions to operate in a safe and
sound manner .
Encouragement is to be provided by four supervisory agencies , 2
each of whom is required :
o To use its examination authority to encourage an institution
•
To assess , in connection with its examination , an institution's
o To take that record into account in evaluating an application
Proponents of the Community Reinvestment Act were concerned among
other things with situations in which local lenders reportedly exported
local deposits to other areas despite sound local lending opportunities.
Such disinvestment was considered a threat to community and neighborhood
vitality . Lenders are , therefore , encouraged to give particular attention
to local housing and development needs of urban and rural areas . Increased
lender sensitivity to such lending needs would help preserve , rehabilitate ,
and revitalize such neighborhoods . Moreover , even though credit for local
housing and community development was emphasized, it was realized that other
types of credit provide community facilities and services necessary for
neighborhood vitality and , more generally , a healthy local community .
2 The four agencies are: Comptroller of the currency , Federal Deposit
FRS Compliance Handbook ( 1779)
II.1.39
323
B. CRA Regulation
An institution must provide in each office a community Re invest
ment Act Notice , the exact wording of which is prescribed in the regulation .
The public notice indicates that the CRA Statement is available , that written
comments on the Statement and the institution's community lending performance
may be submitted to the institution or its supervisory agency , that a file of
such comments is publicly available , and that the public may request announce
ments of applications covered by CRA from the supervisory agency .
Each institution must keep a public file of CRA Statements in
effect and CRA -related public comments received during the past two years
or since the effective date of the regulation ( November 6 , 1978 ) , whichever
period is less .
The CRA regulation sets forth a list of factors that the agency
will consider in connection with its examination in making its assessment of
each institution's record of helping to meet community credit needs , includ
ing those of low- and moderate - income neighborhoods . Institutions are not
required to adopt particular activities on the list since the regulation is
designed to allow each institution considerable flexibility in determining
how it can best help to meet the credit needs of its entire community in
view of its particular skills and resources .
The agency's assessment of an institution's CRA record will be taken
into account in evaluating a var iety of applications by the institution .
In essence , the regulation encourages institutions to become aware
of the full range of credit needs of their communities and to offer the types
of credit and credit -related services that will help to meet those needs .
However , the regulation does not require institutions to offer particular
types or anounts of credit .
BACKGROUND FOR EXAMINATIONS
In connection with examinations, the agency is required to assess
an institution's CRA record . The examiner plays a major role in this assess
ment process , with other agency personnel such as community affairs special
ists and applications staff complementing the examiner's efforts .
FRS Compliance Handbook ( 1779)
II.1.40
324
Judgmental Process
Balanced Viewpoint
The examiner should maintain a balanced perspective in conducting
a CRA examination .
The examiner cannot normally conclude on the basis of
any one factor that an institution is or is not helping to meet the credit
needs of its local community or communities .
Nor can the examiner adequately
assess a lender's performance on the basis of any one source of information ,
data, or opinion . For that reason , the procedures are designed to ensure
that information from both the institution and the community are objectively
reviewed and evaluated .
Institution's
The examination procedures give each institution the opportunity
to demonstrate that it is having a beneficial influence on its local comune
nity or communities. Institutions that are helping to meet community credit
needs are proud of that fact and will be of substantial assistance to the
examiner in assessing their performance .
Examiner Encouragement 3
Examination Burden
The examiner must be careful not to unduly burden the institution
since Congress did not intend to impose significant new reporting or record
3 The Federal Home Loan Bank Board will accomplish these items through the
FRS Compliance Handbook ( 1779)
II.1.41
325
keeping requirements on financial institutions. The examiner should normally
request only required records and other existing information , but the scope
of the review must always be sufficient for an adequate assessment.
Institution's Financial Condition and Size , and
Legal
Impediments and Local Economic Conditions
An institution's ability to help meet community credit needs is
influenced by its financial condition and size, as well as by legal impedi
ments and local economic conditions under which it operates .
An examiner
must take these considerations into account in assessing a lender's perfor
mance and in providing encouragement .
Technical compliance with the Regulation
The examiner will check for compliance with the specific require
ments of the regulation . However , compliance with procedural requirements
does not imply that a lender has been serving local credit needs .
The con
verse is also true: noncompliance with a technical requirement does not
necessarily mean that an institution is not helping to meet community credit
needs . The examiner must not lose sight of the intent of the statute in
check ing for technical compliance with the regulation . The entire examina
tion is designed primarily to determine the extent to which a lender has
helped and is helping to meet community credit needs .
Communication , Community Development, and
Low- and Moderate- Income Neighborhoods
In assessing the record , the examiner should bear in mind the
special emphasis placed on effective comunication and community development
activities . With respect to communication , the premise is that community
needs which can be met on a safe and sound basis are more likely to be met
when the community is aware of the types of credit available and the lender
is well informed about community credit needs. Hence , efforts to ascertain
community credit needs and to publicize available credit services , including
measures to identify the credit needs of, and to advertise in , low and
moderate- income neighborhoods , are encouraged . The examining staff is autho
rized to conduct interviews with community members when such action would
be appropriate in determining community awareness of the institution's credit
services and local perception of credit needs .
CRA also focuses on activities that foster development within the
entire community , including low , and moderate - income neighborhoods .
Conse
quently , housing -related extensions , participation in community development
programs , and small business financing, including loans to small farms, are
viewed favorably .
FRS Compliance Handbook ( 1779)
II.1.42
326
SELECTED FEATURES OF CRA EXAMINATIONS
This section is designed to provide the examiner with a better
understanding of selected features of the CRA examination . Each agency will
provide additional training and instructional aids as needed to carry out
the purposes of the CRA examination .
The CRA Statement
An institution must prepare a separate CRA Statement for each local
community it serves , including a delineation of the relevant local community.
It does not necessarily follow , however , that the Statement prepared for each
local community must contain a unique list of available credits .
A lender
serving several local communities may elect to prepare Statements that con
tain lists of credits which are similar or identical for the local connu
nities served . Since some credit needs are common to many local communities ,
such an approach would be consistent with the intent of CRA . There are other
ways for a multi-community lender to satisfy this requirement. The examiner
need not be especially concerned with the specific method employed by a
multi -community institution so long as it makes a good faith effort to inform
members of each local community about their community's boundaries and the
types of credit extended there .
Reasonableness of Community Delineation
Each institution must delineate the local community or communities
that it serves . For instance , a statewide branching institution would serve
a number of " local communities , " the sum total of which would constitute its
" entire community . Further , more than one office of an institution may
serve the same local community. For example , an institution may have offices
throughout a city and its suburbs and consider that entire metropolitan area
to be the local community for those offices . Each community delineation must ,
of course , include the contiguous areas surrounding each office or group of -offices .
Because many factors influence the size and shape of a lender's
community , the regulation provides guidelines to assist each institution in
defining its local community or communities.
The first guideline suggests the use of widely recognized existing
boundaries such as those of SMSA's or counties for delineating an institu
tion's local community or communities . Such boundaries frequently constitute
a reasonable approximation of the institution's local community .
FRS Compliance Handbook ( 1779)
II.1.43
--
327
In general , a local community based on existing boundaries should
be no larger than an entire SMSA 4 / or a county in a non - SMSA area.
( The
agencies have used such areas to approximate relevant markets for evaluating
the competitive effects of mergers and holding company acquisitions .)
institution has offices in more than one such area, it will have more than
one local community .
When an institution has an office near the boundary
of an SMSA or county , it should include those portions of adjacent counties
that it serves . In rural areas , a local community may sometimes encompass
The second guideline proposes the use of effective lending terri
tory , a concept more familiar to savings and loan assocations than to commer
cial and mutual savings banks .
The effective lending territory is that local
area or areas around each office or group of offices where the lender makes a
substantial portion of its loans and all other areas equally distant .
If an
institution employs its effective lending territory , it is encouraged to
follow existing boundaries where practical.
One should not conclude from this guideline that each office neces
sarily serves a separate and distinct local community because each office
typically has a different, though possibly partially overlapping, effective
lending territory .
If an institution is represented throughout a trade or
market area , it may be more reasonable to use that area as its local commu
nity .
Finally , the regulation allows an institution to use any other
reasonably delineated area. An institution is thus given substantial leeway
in specifying its local community so long as the definition is reasonable;
that is to say , the institution can provide a sensible rationale for the
delineation and has not arbitrarily excluded any low- and moderate - income
neighborhoods .
4 Except in the New England states , a Standard Metropolitan Statistical
FRS Compliance Handbook ( 1779)
II.1.44
1
328
Low - and - Moderate Income Neighborhoods
In determining whether the community definition 1s reasonable , the
examiner must be alert to situations where low - and moderate - income neighbor
hoods are gerrymandered out of a delineated area . Moreover , in assessing an
institution's record , the examiner should focus particular attention on the
lender's performance in low - and moderate - income neighborhoods within a local
community .
Low - and moderate - income neighborhoods may be identified in most
cases in a manner similar to the approach taken by HUD in administering the
Community Development Block Grant Program . For this purpose , such neighbor
hoods are approximated by those census tracts in an SMSA where median family
income is less than 80 percent of median family income for the entire SMSA .
Unfortunately, these data are not available for non - SMSA counties, and the
latest complete census income data by SMSA census tract were collected in
1970 .
Small Business Lending
Small business loans represent one type of credit which the
agencies believe is directly related to the purposes of the CRA .
sidering small business lending , the examiner should not be concerned with
any hard and fast or precise definition of what constitutes a small business.
Instead , the examiner should regard as small business lending any loans to
local firms whose access to credit is limited to local sources because of
the firms ' size .
EXAMINATION OBJECTIVES
1.
2.
To determine if the institution's policies address the intent of the
To encourage sensitivity and responsiveness of the institution to come
minity credit needs . 37
3. To determine that the institution 18 complying with the requirements of
4.
To determine the reasonableness of the institution's delineation ( s ) .
FRS Compliar :e Hay JSX 150)
11.1.45
329
5.
To assess the institution's record in helping to meet the credit needs
6. To develop , organize and report information on the institution's record
EXAMINATION PROCEDURES
The following steps should be performed at each examination :
Ascertain from institution persomel what steps the institution has taken
or plans to take which indicate whether it is helping to serve the credit
needs of its local community or communities .
2.
Obtain the following:
Minutes of the board of directors' meetngs, particularly those deal
ing with the adoption , review and revision of all CRA statements .
b.
The institution's Files of Public Comments and recent CRA Statements .
Comment letters received by the supervisory agency .
d. The institution's loan and investment policy and procedural manuals,
3.
Review minutes of directors ' meetings and verify that the board has :
Adopted a CRA Statement for each delineated conmmity .
Reviewed each Statement at least annually .
Acted upon any material change in each Statement at the first reg
ular meeting of the Board following the change .
4.
Review and analyze the Public Fles for :
Any signed written comments received from the public during the past
two years that specifically relate to any CRA Statement or to the
institution's performance in helping to meet the credit needs of its
cammunity or communities. Determine that the caments do not contain
any material specifically prohibited by the regulation . However , the
examiner shall consider letters containing any such material.
Examiners will be supplied information to help indicate which areas may
be low - and moderate - income neighborhoods .
FRS Compliance Handbook ( 5/80 )
II.1.46
330
b. Any responses to the commentors that the institution may have made .
c.
All CRA Statements in effect during the past two years .
Inherent in the process of reviewing public files is the
option of contacting commentors and / or community members to the
extent deemed necessary .
5.
Review each CRA Statement in effect during the past two years and :
a. Ascertain if the institution's delineation of its local community or
2. Community boundar ies that are sharply asymetrical , too narrowly
3. Whether any low and moderate - income neighborhoods have been
4.
Public comments specifically relating to the reasonableness of
the institution's delineation ( s ) .
5
5.
Any relevant information obtained from other work programs that
If a question remains regarding the reasonableness of the community
delineation , a review of the community boundar ies drawn by comparable
local institutions may provide useful information .
b.
Review and analyze for completeness specific types of credits within
Determine that a copy of the CRA Public Notice is included .
d.
Analyze any of the following optional information that the institu
1.
A description of how its efforts , including special credit
FRS Compliance Handbook ( 1779)
II.1.47
331
2. A per iodic report regarding its record of helping to meet com
3.
A description of its efforts to ascertain the credit needs of
4. Any other material the institution may have included .
6. Analyze the institution's policies, procedures , and operating practices
Provides the CRA Public Notice in a manner specified by the regula
tion .
b.
Makes all CRA Statements available to the public as provided by the
c . Makes the Public Comment files readily available for public inspec
7.
Review the institution's credit underwriting and appraisal criteria and
8.
Assessment Factors
Activities conducted by the institution to ascertain the credit needs
of its community , including the extent of the institution's efforts
to communicate with members of its community regarding the credit
services being provided by the institution .
Ascertain from institution records and through the interviewing
process the extent to which the institution has continunicated with
members of its local community or otherwise has attenpted to deter
mine such needs .
Pertinent factors may include :
1. Management review of written , signed public comments received in
2. Studies conducted or reviewed by the institution concerning local
3.
The extent of the institution's efforts to conmunicate with
FRS Compliance Handbook ( 1/19)
II.1.48
332
coalitions of neighborhood organizations, local civil rights ,
consumer , minor ity , and non -English speaking groups , housing
counseling service centers , community development corporations ,
nonprofit housing development corporations , and local develop
5. The institution's review of the local government's Community
6.
b.
Economic forecasting, as developed or used by the institution .
The extent of the institution's marketing and special credit -related
programs to make members of the community aware of the credit ser
vices offered by the institution .
Review the institution's marketing program and determine if it is
adequately designed to encourage applications for loans in its com
munity , particularly low and moderate - income neighborhoods.
Pertinent factors may include :
1. Any working relationships the institutions may have with real
2. Mortgage counseling programs and programs of management assis
4.
Credit and credit - related services in low and moderate - income
5. Use of institution representatives for seeking out potential
6.
Advertising the types of loans the institution is willing to make
FRS Compliance Handbook ( 1/19)
II.1.49
333
8. Use of informational brochures and participation in other educa
c.
The extent of participation by the institution's board of directors
Review other fair lending examination programs , particularly as they
pertain to interviewing and prescreening. Additionally , ascertain
the following:
Whether administrative loan personnel and loan officers are aware
of the CRA and the requirements of the implementing regulation.
2.
Whether lending officers are aware of the institution's delinea
tion of its local community or communities and its policies , if
any , with respect to its commitment to help meet the credit needs
of its entire community , including low- and moderate - income
neighborhoods.
3. Whether loan officers are aware of the types of credit the bank
4.
Whether public contact personnel are aware of the availability
of the institution's CRA Statement ( s ) and Files of Public
Connents .
5. Whether the institution is prepared to extend types of credit in
6.
The extent to which the institution is willing to make loans in
7.
Whether loan officers or other public contact personnel prescreen
The geographic distribution of the institution's
334
denials which would signify failure to serve selected areas of local
communities , particularly low- and moderate - income neighborhoods .
Initial reliance may be placed upon discussion with other examiners,
review of reports of examination , and review of working papers from
other programs performed . For those institutions located in Standard
Metropolitan Statistical Areas ( SMSA's ) , additional reliance may be
placed upon other fair lending examination programs for ascertaining
the volume and location of housing - related credits .
For loans made outside SMSA'S, particularly with respect to institu
tions that are not located in such areas , interview management and
review internal files to determine the extent of housing -related
lending in low and moderate - income neighborhoods and the extent to
which the institution has not extended such credit in those areas .
Reliance may be placed upon geocoding of credit extensions , credit
applications, and credit denials. Where the institution is required
to maintain registers or logs of applications , the examiner will
review the registers or logs to determine the geographic distribution
of loans, applications and denials. In conjunction with other fair
lending examination programs , it may be necessary to analyze further
the geographic distribution of small business loans, including loans
to small farms within the institution's local comdinity .
f.
Evidence of prohibited discriminatory or other illegal credit prac
Review the prior reports of examination and , in conjunction with
other examination programs, determine the extent to which the insti
tution is currently complying with the law .
g.
The institution's record of opening and closing offices and provid
Information can be provided by the supervisory authority or obtained
from the institution's records .
Ascertain the impact of such activ
ities through the interviewing process and the review of public
conments with particular focus on low and moderate- income neighbor
hoods .
h.
The institution's participation , including investments, in local
Review written lending policy and procedural manuals and interview
lending officers to ascertain whether current programs include , or
if the institution has considered involvement in , programs for sat
isfying potential credit needs such as the following :
O HUD's Community Development Block Grant Program .
o Local neighborhood preservation efforts .
FRS Compliance Handbook ( 1/79)
II.1.51
335
o Community Development Corporations .
o Financing for Local Development Corporations.
o Neighborhood Housing Services .
Investments in, or coordination with , Minority Enterprise Small
Business Investment Corporations ( MESBIC's ) or Small Business
Investment Corporations ( SBIC's ) in providing loans to business
for which equity or subordinated debt is provided by MESBIC or
SBIC .
o Purchase of securities of State and local housing agencies .
i.
The institution's origination of residential mortgage loans , housing
Review the institution's financial statements , other appropriate
records including Home Mortgage Disclosure Act Statements , its
written lending policy and procedural manuals , and interview lending
personnel to ascertain whether the institution has originated or
purchased such loans or has plans to do so .
j.
The institution's participation in governmentally - insured, quaran
This information may be obtained in ways similar to the ones in
assessment factor ( i ) above. Examples of such government loan pro
grams include :
o FHAVA / FMEA mortgage loans to members of its connunity or commu
FHA Title I home improvement loans .
SBA loan guaranty programs .
o Similar programs conducted by State or local agencies.
k.
The institution's ability to meet various community credit needs
The financial condition of the institution may be ascertained from
discussion with other examiners or review of examination work papers
and reports .
Small institutions may not have the specified staff or financial
resources needed to participate in some loan programs.
FRS Compliance Handbook ( 1/79
1
II.1.52
336
Legal restrictions on permissible activites, interest rates, and
hranches may affect a lender's ability to help meet community credit
needs .
Adverse economic conditions caused by local or general economic dif
ficulties may force an institution to temporarily curtail its lending
activities .
Other factors may affect an institution's ability to help meet com
munity credit needs .
1. Other factors that in the agency's judgment reasonably bear upon the
Pertinent factors may include :
Purchases of state and municipal bonds, secondary mortgage market
securities or such other activities when they further special
purposes in the community , such as the construction or rehabili
-
tation of low and moderate - income housing or other neighborhood
or conmunity development , or are issued by municipalities or
...
other local public financing units which do not have access to
the capital markets .
b. Whether the institution's policies promote efforts to assist
c. Any other relevant factors .
9. Determine if the record of performance of the institution's facilities
10.
Review the following with management :
a.
The extent to which the bank is helping to meet the credit needs of
b.
Suggestions that might better enable the institution to help meet
d.
Deficiencies or exceptions in policies or practices . 3 /
Procedural violations of the regulation .
FRS Compliance Handbook ( 1/19 )
II.1.53
337
11. The examiner staff 3 / will prepare a narrative statement for the Examina
a.
Reasonableness of Community Delineation ( s )
Under the above heading , discuss the reasonableness of the community
delineations , including any suggestion made to management .
b.
Assessment
Under the above heading , provide a narrative assessing the institu
tion's record of performance in helping to meet the credit needs of
its entire community , including low and moderate - income neighbor
hoods , consistent with safe and sound operation of the bank .
developing this narrative , give particular consideration to each of
the assessment factors ( ( a ) through ( 1 ) of the CRA regulation ) .
The
narrative should include any suggestions made to management that
might better enable the institution to help meet such credit needs .
c. Noncompliance and corrective Action - CRA Regulation
Include under the above heading each violation of the regulation .
If there are no violations , so state .
Example format follows :
o Delineation of Community . The institution has not usert
o corrective Action
Management has stated that the insti
o Community Reinvestment Act Statement .
12. For Agency use only , the examiner staff 3 / will assign a rating of 1 to 5
FRS Compliance Handbook ( 4/82)
II.1.54
338
1
!
ATTACHMENTD
BOARD OF GOVERNORS
R
VE
CO
O O
no
as .
.0$
paule
MOER
CA 84-5
ASI
DIVISION OF CONSUMER
AND COMMUNITY AFFAIRS
August 16 , 1984
TO OFFICERS IN CHARGE OF BANK EXAMINATIONS AND
CONSUMER AFFAIRS SECTIONS AND TO COMMUNITY AFFAIRS OFFICERS
The purpose of this letter is to transmit supplemental examination
instructions for the Community Reinvestment Act ( CRA ) portion of the Consumer
Affairs Examination . These supplemental instructions are designed to provide
examiners with additional guidance when evaluating a bank's record of opening
or closing branch offices for purposes of the CRA assessment . We believe these
instructions are needed since there is a growing trend among banks to close
branch offices , particularly those located in inner -city communities, and
subsequently to consolidate services outside of the communities that the closed
branches had served . Such closings can have a cumulative negative effect ,
particularly if banks do not take steps to minimize the impact of the closings
less
on the neighborhoods and if the neighborhoods affected are already in
than -stable or a declining position .
Branches often play an important role by providing banking services
that are both convenient and necessary for the residents and businesses in a
community .
In recognition of this , examiners should be sure to consider the
" bank's record of opening and closing offices and providing services at offices "
as a factor in assessing a bank's performance under the CRA as contemplated by
the present rating system
The enclosed examination instructions should be used to supplement
existing examination procedures , and are specifically aimed at Assessment
Factor ( 9 ) of Regulation BB , The institution's record of opening and closing
offices and providing services at offices, ( Compliance Handbook, page 11.1.51) .
Please distribute the enclosed materials to all consumer affairs examiners .
Sincerely ,
sound lilline
Jerauld C. Kluckman
Associate Director and
Community Affairs Officer
Enclosure
339
Examination Instructions to Supplement Interagency
Community Reinvestment Act Examination Procedures
These instructions are intended to supplement existing examination
procedures for the Community Reinvestment Act , specifically those relating to
branch openings and closings ( Assessment Factor ( 9 ) of Regulation BB ) .
Supplemental Examination Instructions
The purpose of these instructions is to provide examiners with points
to consider when determining whether or not the bank's policies and actions in
opening and closing branches are appropriate ( Assessment factor ( y ) ) .
Examiners should recognize that changes in the way banks deliver services are
likely to occur because of cost concerns and technological advances . However ,
it is anticipated that most bank managers will endeavor to minimize the impact
on its community of branch closings and , in particular , the impact on low- and
moderate - income or minority areas in the bank's community . The closing of a
branch is not necessarily the equivalent of a reduction or withdrawal of service
from the community if a bank provides alternative means of meeting the needs of
that community .
The examiner should review the bank's record of and future plans for
opening and closing branches and determine what factors the bank's management
uses to determine which branches to close , which to leave open , and where to
open new branches . The bank's approach can be determined through interviews
with bank personnel knowledgeable about the bank's policy on opening and
closing branches .
Information can also be obtained through reviews of minutes
of board of directors meetings , other bank records , the Reserve Bank's files ,
and interviews with representatives of public organizations with a particular
focus on low- aici mode . Cei w
and minority neighborhoods .
Examiners should
340
-2
also consider any information from interviews with community representatives
about the attitudes of the community toward any actual or prospective branch
closings .
The examiner's review of the bank's branch record should include at a
minimum a review of the following items :
O
Any actions the bank has taken to minimize the impact
of branch closings by trying to continue to offer
services by alternate means , such as providing a way
for customers to continue to obtain credit , installing
ATM's or night deposit facilities , or by promoting
continued productive use of the branch building.
Any attempts the bank has made to prevent closing
any branches by adjusting hours , services , facili .
ties , finding alternative sites suitable to community
residents , or the like in an attempt to make the
branch viable .
The bank's written plan for opening or closing its
branches , if applicable .
( Also review minutes of
board of directors meetings for discussion of same . )
The bank's system to account for expenses , income
and profitability of branches and the application of
this system to branch closings .
( Also review minutes
of board of directors meetings for discussion of same . )
Any studies that may have been done to determine
whether other financial institutions adequately serve
neighborhoods where bank branches are or will be
341
---
.3
located or closed .
( Also review minutes of board of
directors meetings for discussion of same . )
How and when customers are notified when a branch
in their neighborhood will be closed .
After the review of each of the above is completed the examiner
should weigh the information to determine whether the bank's branch opening and
closing policies are reasonable or whether they unnecessarily have a dispropor
tionate effect on low- and moderate - income neighborhoods . That determination
should then be used to determine the component rating the bank will receive for
Performance Category III , Geographic Distribution under the Uniform CRA Rating
System .
Examiners should place notes and other documentation supporting this
portion of the CRA assessment in the examination workpaper package .
342
The CHAIRMAN. Thank you very much, Senator Graham .
I just have one more question I'm going to ask Mr. Wall.
343
So a number of things are happening to try to be responsive to
those market situations as well as the economic realities that have
occurred since that 1979 date.
STATEMENT OF J. EDWARD CARLTON , JR., SECRETARY / TREAS
URER OF THE MORTGAGE INSURANCE COMPANIES OF AMER
ICA
Mr. CARLTON . Thank you, Mr. Chairman .
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its
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nd
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s
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ee
l).occurring
Exhibit
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etween
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illion
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ayment
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hen
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Mortgage
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if
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ote
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erm
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Note
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XIV
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Exhibit
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from
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1986
to
pand
x1982
Exhibit
rovides
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loan
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that
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4ote
loans
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of
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1986
In
4
,$
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income
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finds
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140
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the
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iered
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and
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Exhibit
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privately
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insured
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igher
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This
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nd
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ertain
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Study
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within
limits
.FHA
349
receiving
borrowers
to0,000
were
loans
$6
over
percent
,w
42
hile
of
borrowers
had
the
over
40,000
$
.incomes
direct
insurer
the
has
with
contact
and
borrower
best
in
is
these
that
believes
MICA
FHA
with
trends
unless
continue
will
credit
overall
evaluate
to
position
the
of
worthiness
1
particularly
true
is
This
of
view
in
.
it
retarget
to
acts
Congress
transaction
.
insurance
public
and
private
Both
fairly
maintain
and
standards
flexible
loans
the
insure
only
can
the
by
them
to
sent
FHA
that
fact
the
recently
were
limits
loan
$101,250
to
raised
high
in
cost
consistently
been
has
areas
shown
regarding
.It
FHA
lender
.
,iormer
that
limits
loan
n
fHouse
athe
of
words
Housing
tSubcommittee
,.ceiling
Chairman
he
floor
the
becomes
have
also
field
housing
the
in
players
important
Other
been
motivations
business
their
by
forced
to
contribute
present
the
targeted
be
should
FHA
believes
MICA
are
benefits
its
that
so
inequalities
the
in
.New
system
increased
steadily
have
homes
addition
it
Idirected
to
imperative
is
income
lower
that
.n
people
that
ensure
want
who
builders
home
and
price
to
able
be
will
they
their
sell
the
to
FHA
pushed
have
generally
homes
of
inventory
.Likewise
market
the
of
end
higher
,whose
agents
estate
real
system
be
incentives
the
into
built
lenders
attractive
it
make
to
loans
FHA
nontargeted
the
to
to
low
those
make
balanced
.
loans
oarket
sgroups
hand
other
amthe
on
,toperate
basis
hould
hereby
n
depend
also
profits
be
will
loan
mortgage
that
certainty
the
on
compete
to
loans
conventional
.enabling
easily
more
FHA
with
expansion
continued
,have
approved
asupported
to
program
FHA's
of
agent's
.Beal
market
active
more
and
broader
ar
estate
ecause
providing
in
active
more
is
FHA
If
at
those
to
credit
mortgage
lender's
lsike
on
,iincome
the
apbased
ercentage
of
price
exist
,the
home
the
can
incentive
business
and
uncertainty
reduce
to
homeownership
of
margin
simply
,ithe
only
not
would
t
more
provide
astabilizer
as
act
would
it
but
buyers
those
to
credit
low
that
for
and
F
risk
the
much
takes
am
of
out
luidity
. arket
market
income
for
attractive
it
makes
in
active
more
be
to
sector
private
the
attractive
many
are
also
There
that
benefits
consumer
an
as
act
,iFHA
addition
In
the
to
targeted
is
tit
market
income
lower
he
.f
regain
could
sector
private
in
FHA
to
lost
has
it
volume
the
of
some
an
enable
would
This
spread
better
to
insurer
the
last
two
years
.
more
,therefore
and
risk
its
on
.take
end
lower
the
at
loans
risky
arboth
As
from
credit
mortgage
of
availability
overall
the
esult
,expanding
increase
will
sector
public
and
private
ability
the
.
home
their
own
to
people
income
low
more
for
.
testify
to
opportunity
the
for
you
Thank
if
know
me
let
Please
350
direction
the
in
point
.homebuyers
financing
insured
FHA
larger
of
EXHIBITI
RATES
OSURE
FORECL
AND
DELINQUENCY
Percent
1.2
1.0
351
0.8
wa
)
0.6
0.4
0.2
0.0
1955
1960
1965
1970
1975
1980
1985
ASSOCIATION
MSOURCE
BANKERS
. ORTGAGE
352
EXHIBIT II
Illustration of the Cost to the Homeowner
1986 purchase price :
$ 95,000
$ 100,000
In a Declining Market
1986 mortgage amount :
$ 94,090
$ 86,563
$ _ ( 7,527 )
1988 market price :
Less brokerage fee and
closing costs ( 8 % )
1988 mortgage
$ 94,267)
Less
$ _ ( 7.704 )
30 -year fixed ) :
amount ( 12%
$ 12,704
Net sales proceeds :
Total Loss to Homeowner :
III
EXHIBIT
RATES
DELINQUENCY
DELINQUENT
DAYS
90+
LOANS
RATES
DELINQUENCY
U.S.
TOTAL
RATES
DELINQUENCY
TROUBLE
SPOT
353
Porcent
Percont
20
2.0
1987
1.6
1.6
1.0
1987
1.0
1980
0.6
0.5
1962
1955
0.0
0.0
OIL
PATCH
RUST
FARM
BELT
BELT
:MORTGAGE
SOURCE
ASSOCIATION
BANKERS
IV
EXHIBIT
RATES
LAIM
CFORECLOSURE
/L-TOALUE
KIGHER
CAUSES
EQUITY
OWER
RATIOS
VLOWN
HIGHER
1985
to
1975
Years
Origination
for
loans
atio
%Ra985
95
, 0nd
Incidence
Claims
12
11
10
9
8
BIV
0
L%9
6
cumulative
VRITTEN
825XLIV
3
LI
Wizy
0
1975
1976
1977
1978
1979
1981
1980
1982
Year
Origination
Loon
ISloane
,and
arker
BTSource
emple
: nc.
*
1983
1984
1985
354
L%95IV
POLICIES
100
PER
CLAIKS
EXHIBIT
V
-Year
Three
!FHA
Endorsements
1983
and
1982
for
Rates
Clalm
Loss
Than
Percent
10
Percent
10
Greater
or
Downpayment
Income
Borrower
Than
Loss
%
7.5
%
1.3
%
5.4
%
1.6
Borrower
Under
$ 0,000
4
$40,000
More
or
Than
Less
Percent
10
10
Percent
Greater
or
Income
4$ 0.000
%
5.8
More
or
:FHA
Source
. 983
1986
September
through
clalms
Include
1'rates
355
Downpayment
VI
EXHIBIT
Rates
Claim
ear
-Industry
YTwo
Insurance
Mortgage
Private
Downpayment
Than
Less
10
Percent
Percent
10
or
Greater
Downpayment
Income
Borrower
More
or
10
Percent
Greater
or
%
1.7
%
0.7
$40,000 1.6
%
More
or
%
0.8
Borrower
Income
%
1.3
%
1.2
loane
Temple
&,BISnc.
arker
Prepared
by
%
1.6
%
0.8
356
Than
Less
Than
Less
Percent
10
$40,000
Under
4$ 0,000
VII IBIT
EXH
Rates
Claim
YThree
- ear
Industry
Insurance
Mortgage
Private
Downpayment
Than
Less
Percent
10
Percent
10
Greater
or
Downpayment
income
Borrower
,
Than
Less
%
3.3
Than
Less
$ 0,000
4
More
or
%
3.3
10
Percent
Greater
or
Percent
10
%
4.4
%
2.0
%
4.4
%
1.7
$40,000 4.4
%
%
2.3
Borrower
Income
More
or
STemple
,I&Bby
nc.
loane
arker
Prepared
357
Under
$40,000
EXHIBIT
VIII
Ratio
VLoan
-tby
Issued
Policies
ofoalue
Distribution
1975-87
toalue
Loan
-V
Ratio
Percent70
of
under
%and
80
t85
%81
o
to
%86
90
60
%
90
Over
50
358
40
30
10
2000000000
20
0
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
nc.
I,S&by
loane
arker
BTemple
Prepared
1975-1987
IX
EXHIBIT
Income
nts
Borrower
by
Endorseme
of
Distribution
Administrat
Housing ion
Federal
Income
Borrower
Annual
70
of
Percent
$2Less
than
0,000
3to
$29,999
0,000
more
$40,000
or
Endorsements
60
50
359
40
30
20
10
0
1982
nc.
IBby
,&STemple
loane
arker
Prepared
1983
1984
1985
1986
1982-1987
EXHIBIT
X
Amount
Loan
Insured
by
nts
Endorseme
of
Distribution
Administrat
Housing ion
Federal
"Insured
Amount
Loan
60
Percent
of
Endorsements
$4Less
than
0,000
$549,999
to
0,000
6or
$ 0,000
more
50
40
360
30
20
10
0
1982
nc.
,I&Sby
loane d
arker
BTemple
Prepare
1983
1984
1985
1986
1982-1987
XI
EXHIBIT
Income
Borrower
by
Issued
Policies
of
Distribution
Industry
Insurance
Mortgage
Private
Income
Borrower
Annual
70
of
Percent
$20,000
than
Less
$320.000
to
9,999
more
$40,000
or
60
50
361
40
30
20
10
0
1982
1983
nc.
IBTemple
,S&by
loane
arker
Prepared
1984
1985
1986
1987
1982-1987
gEXHIBIT
XII
Amount
Loan
Insured
by
Issued
Policies
of
Distribution
Industry
Insurance
Mortgage
Private
Amount
Loan
Insured
80
of
Percent
$4Less
than
0,000
$5$49,999
to
0,000
6
$ 0,000
more
or
70
60
362
50
40
30
20
10
0
O
1982
ISBTemple
,& nc.
loane
arker
by
Prepared
1983
1984
1985
1986
1987
1982-1987
-
XIII
EXHIBIT
rs
Borrowe
to
ions
Originat
MI
and
FHA
FHA
MI
of
Detroit
Chicago
Atlanta
Ana
- anta
SAnaholm
100
100
80
80
100
100
Porcentage
Originallons
1
HI
80
40
40
40
20
20
20
O
0
60
THE
60
60
60
al
modu
40
0
1982
1983
1984
1984
1983
1982
1986
1985
1085
20
363
Omaha
City
Oklahoma
Momphis
Houston
1986
1985
1984
1983
1982
1086
1085
10821083
1086
100
ol
100
Porconlage
100
Originallons
80
80
60
60
40
40
100
80
80
60
60
til
tull
ml
tuoll
40
40
20
20
20
20
0
0
0
0
ol
Toledo
Seattle
Rochester
Philadelphia
100
Porcentage
Orlginations
80
100
100
100
80
80
80
60
60
liht Vul
LOCO
uu t
60
60
40
40
40
40
20
20
20
20
0
0
0
1986
1985
1984
1983
1982
1984
1983
1982
.loans
limits
FHA
within
to
restricted
are
data
:Mi
Note
.MICA
and
FSource
: HA
1986
1985
1984
1983
1982
1986
1985
1986
1985
1984
1983
1982
XIV IT
EXHIB
0,000
$
6
Under
Loans
MI
and
FHA
01
FHA
Chicago
Atlanta
Itc
Originallons
80
00
00
60
40
40
.40
.
1
20
92
1984
1983
1982
20
20
0
80
60
40
20
20
0
0
1983
1984
1086
1085
Philadelphia
ol
100
Percentage
Originations
80
100
80
80
60
60
40
40
20
20
-
0
1984
1983
1982
1986
1985
1984
1983
1982
MILE
1984
1983
1982
1986
1985
1086
1085
Toledo
Seattle
100
100
80
BO
80
60
60
60
60
40
40
40
40
20
20
20
20
0
0
1982
1986
1985
1984
1983
O
1982
1983
llmits
within
loans
to
restricted
are
data
M.FHA
:i
Note
.F
MICA
and
: HA
Source
1985
1986
1984
Omaha
100
Rochester
100
1983
1982
H li
M
te HO
Itlle
100
40
0
Oklahoma
City
Memphis
60
1982
20
1986
1985
1984
1983
1982
-1986
1985
1984
1084
10821083
1985
1986
1984
1982
1983
1085
1086
364
Het
Originallons
80
00
40
1986
1985
1984
1983
1982
Houston
Percentage
100
ol
80
0
1086
1085
Detroit
100
100
100
8
-Santa
Anaheim
Ana
Percontage
100
of
365
The CHAIRMAN . Thank you very much, Mr. Carlton , for a fine
statement.
STATEMENT OF DALE P. RIORDAN, EXECUTIVE VICE PRESIDENT,
ADMINISTRATION AND CORPORATE RELATIONS, FANNIE MAE
Mr. RIORDAN . Thank you, Mr. Chairman .
NEW GUIDELINES
In 1985, Fannie Mae, among many other financial institutions,
began to experience significantdifficulties on delinquencies and we
took a look at our experience and our credit and appraisal guide
lines particularly; as a result we tightened up the income and
credit requirements for loans that had low borrower equity. We
also specifically ceased buying particular kinds of ARM's,those for
instance without any payment caps or any interest rate caps and,
we reduced some other high risk factors that we believed were a
problem in connection with low equity loans.
366
a number of changes at their request. These include reintroducing
the specific antiredlining language that was in our guidelines,
eliminating restrictions relating to certain zoning restrictions on
nonconforming use, emphasizing our flexibility on past credit prob
lems, and so forth. And we have also included affirmative rather
than neutral language encouraging our lenders to sell us mort
gages to assist neighborhood revitalization efforts.
FORECLOSURES
On the second point, Mr. Chairman , you asked in your letter in
viting us to testify whether the high foreclosure rates in States like
Texas would preclude secondary market activity to low income bor
rowers. Theanswer is definitely no. Fannie Mae's business in these
States, we think, demonstrates forcefully one of the primary bene
fits we provide, and that is our consistent support of all areas of
the country, no matter what the economic circumstances are.
367
contributed $50,000 to help finance a couple of new franchises of an
effort that's called the Home Ownership Protective Effort, or
HOPE . Essentially that is counseling for home owners whose mort
gages are delinquent due to borrowers being unemployed or under
employed.
i
members
and
Chairman
:Mr.
Committee
the
of
Riordan
is
,EPresident
xecutive
My
Vice
Dale
name
for
Administr
corporate
Relations
and
ation
Fannie
.at
Mae
Fannie
Mae
is
,p
owned
rivately
ublicly on
f
corporati
managed
a
with
ederal
charter
and
Departmen
the
by
regulated
are
We
Housing
of
Urban
.
t
)Developme
,(H
issues
UD
timing
and
nt
the
of
debt
is
our
coordinat
by
OTreasury
congressi
us
limits
charter
ed
ur
.the
onal
exclusive
smaking
ato
econdary ly
home
mortgages
in
market
both
--family
single
multifami
.and
purchase
m
ortgages
e
ly
.W
over
from
throughou
lenders
r
,3,500
country
the
eplenishi
funds
with
them
tng
borrowers
additiona
lend
.to
l
Mae
Fannie
nation's
the
is
investor
largest
mortgages
,win
ith
outstanding
billion
$9we
3.5
end
the
;at
1987
of
and
issue
also
guarantee
mortgage
securities
-b40
acked
a
nd
BS
$),(M
were
there
1
billion
outstanding
MBS
the
at
of
end
year
last
.T
,F
annie
ogether
portfolio
purchases
Mae's
and
finance
MBS
out
one
about
every
of
United
the
in
mortgages
.eight
States
of
Statement
a
opportunity
this
I ppreciate
to
Fannie
discuss
views
Mae's
on
the
RIORDAN
P.
DALE
Community
Reinvestment
(Csupport
).Act
WRA
e
goals
its
.fully
Through
our
368
the
of
SENATE
STATES
UNITED
o
2
3
role
in
its
views
Mae
Fannie
how
supporting
Second
the
how
,a
CRA
of
objectives
in
issue
this
addressed
have
we
nd
ROLE
MAE'S
FANNIE
SUPPORTING
IN
OBJECTIVES
CRA
.
business
and
guidelines
underwriting
our
standard
Mae's
Fannie
guidelines
underwriting
support
help
the
objectives
CRA
special
,aof
our
do
s
targeted
programs
and
lowto
Fannie
,the
Third
role
played
has
Mae
areas
depressed
in
such
o
-income
.moderate
households
Texas
.
as
Guidelines
Underwriting
A.
fhe
Fourth
s
a
rom
econdary
changes
,t
perspective
market
and
o
can
think
we
improvements
that
assure
to
made
be
the
lhistory
athe
has
issue
this
with
involvement
.Our
n
1970s
,Iong
prompted
that
concerns
the
to
response
in
housing
,f
CRA
laws
air
,Fannie
opportunity
housing
equal
and
n
a
with
met
Mae
umber
of
to
guidelines
underwriting
our
strengthen
to
groups
community
requirements
specific
The
of
.
laws
these
of
goals
the
complement
'records
lenders
regulated
of
consideration
mandating
CRA
in
entire
communities
their
of
needs
credit
the
meeting
from
arose
--
practice
the
that
and
rconcerns
lder
edlining
-i"oof
lower
ncome
accelerating
was
neighborhoods
urban
and
disinvestment
in
decay
these
areas
.
special
,(3)ancome
and
the
ddressed
borrowers
-i
lower
of
concerns
language
affirmative
in
acceptable
out
spelling
by
from
variations
.rbelieve
guidelines
credit
general
Wesponsive
e
was
this
a
and
.
start
promising
369
,hence
.liquid
saleable
more
are
we
Because
suppliers
largest
one
the
credit
mortgage
of
,
guidelines
loan
our
are
mortgage
by
viewed
lenders
industry
an
as
strong
provides
This
.
standard
lenders
for
incentives
conform
to
follow
closely
or
-to
underwriting
our
guidelines
e
, ven
originating
may
they
though
be
portfolios
their
for
own
.loans
Ву
,automatically
guidelines
our
following
loans
their
are
more
adopted
,t:at
things
other
Among
we
changes
that
time
(1) he
eguidelines
redlining
defined
xpressly
cautioned
,our
that
lenders
interpreted
not
should
be
permitting
as
such
nd
p
a ractice
,a
race
that
stated
p;factor
aredictive
not
was
assessment
for
risk
lenders
loans
us
sell
to
neighborhoods
older
in
;(2)encouraged
,we
1981
Beginning
changes
significant
made
we
way
the
in
did
guidelines
underwriting
our
abalance
strike
delicate
between
providing
affordable
funds
home
to
managing
and
buyers
credit
to
want
We
widest
cast
.
risk
possible
over
net
universe
the
worthy
credit
of
borrowers
maintaining
while
standards
assure
that
business
respond
to
threat
the
severe
.of
losses
In
to
order
w
acompany
as
,survive
e
efficient
more
developed
doing
of
methods
business
. hese
included
T
shifting
buying
from
loans
for
only
portfolio
issuing
,and
MBS
retooling
company
the
to
adapt
Rmarket
volatility
than
underwriting
., ather
purchased
loan
every
investor
confidence
mortgages
our
in
in
and
itself
company
.the
strike
don't
we
If
right
,the
defeated
wbalance
have
will
e
our
compromising
by
help
to
ability
future
our
.purpose
borrowers
If
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1980
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Congress
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this
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we
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-priority
highest
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.them
372
evolution
The
ppublic
-of
rivate
partnerships
address
to
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.point
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But
the
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e
through
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Chairman's
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message
Tin
report
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chronicles
Fannie
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the
needs
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Tincomes
. ogether
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formation
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Office
Lowofncome
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-and
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Fannie
Mae's
iInitiatives
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Lowand
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Moderat
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i
Housing
Initiatives
home
buyers
and
renters
who
most
are
need
in
this
of
.”
assistance
O.David
Marwell
December
1987
373
Maxwell
O.
David
Chairman
and
Officer
Executive
Chief
Introduction
Table
of
Contents
Introduction
7
9
13
.
Park
Concord
15
einanced
tax
for
enhancement
-fCredit
xempt
developments
housing
rental
..
17
einanced
tax
for
enhancement
-fCredit
xempt
-family
.single
mortgages
19
374
.
Mortgages
Efficient
Energy
21
OPE
).(Home
H
Effort
Protective
Ownership
HomeSight
23
25
.at
Klahanie
Townhomes
Park
Lake
27
Program
Subdivision
King
Luther
Martin
National
Temple
.
29
31
Rental
ncome
-City
iLow
York
New
.Housing
Program
Rehabilitation
33
.mortgage
bonds
revenue
of
-ePurchase
tax
xempt
.
Program
Loan
Rehabilitation
Seafirst
Walk
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Program
.
35
37
39
.
Commons
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Wood
Mae
Foundation
Fannie
The
41
45
5
Offices
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Fannie
49
.
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49
389
The CHAIRMAN. Very good. Thank you.
Mr. Brendsel.
STATEMENT OF LELAND C. BRENDSEL, PRESIDENT AND CEO,
390
apartment buildings. That made multifamily financing available in
inner city neighborhoods. In fact, when we were recently told that
a minimum loan amount was a barrier to inner city lending, multi
family lending, we eliminated that minimum.
ILeland
and
Brendsel
is
name
My
.Chairman
Committee
the
of
Members
and
Mr.
Federal
Mortgage
Loan
Home
Executive
Officer
of
the
Chief
and
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opportunity
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ppreciate
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etter
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the
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C.
LELAND
BACKGROUND
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CORPORATION
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all
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credit
mortgage
that
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efforts
congressional
.in
communities
all
borrowers
391
THE
BEFORE
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prosperous
depressed
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locations
rural
Community
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lender
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ffordable
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1987
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investors
mortgage
392
aable
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booklet
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1987
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William
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Federal
Loan
Home
Mortgage
Corporation
CONCLUSION
Operations
/7703
59.8510
Freddie
that
believe
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the
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Mac
market
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part
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solution
,1988
17
March
the
Tredlining
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problem
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and
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So
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credit
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By
persuading
.GCincotta
Ks
ale
Chairperson
National
People's
Action
Washington
W.
954
Blvd.
,IL
Chicago
pension
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Mac
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riple
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Bradford
happy
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you
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dated
November
letter
his
,1987
.18
quite
isery
It
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clear
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bis
Bradford
Mr.
vpossesses
athat
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thank
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1759
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PO
,V22090
Reston
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There
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DURING
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least
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asecured
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ultifamily
mfive
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.units
housing
3
TABLE
TABLE
2
PURCHASES
ORIGINATIONS
MAC
FREDDIE
AND
MULTIFAMILY
HOUSEHOLDS
U.S.
OF
PERCENT
RENT
THAT
1973
Lowest
percent
20
%
49
%
46
percent
60
362
-0
percent
860
80
100
percent
dollars
of
-billions
1983
1982
1983
1984
1985
1986
1987
%
56
%
47
1
3
5
9
6
%
37
%
28
%
24
%
18
%
12
Mac
Freddie
by
Estimated
e
:
Source
$7.5
.$1
397
percent
-40
20
40
Originations
to
).(ipercent
n
louwN
Quintile
Purchases
of
Ratio
Conventional
Multifamily
Originations
Mac
Freddie
Multifamily
Purchases
Mortgage
Year
American
Housing
Survey
:
Source
.
Development
Urban
Housing
of
Department
U.S.
and
Mac
Freddie
3938W
1
1
2
4
Table
Guidelines
Underwriting
Mac's
Freddie
to
Revisions
1988
perceptions
.based
risk
of
always
be
realistic
on
"Sound
should
underwriting
factors
risk
on
based
are
perceptions
of
hthat
,oRedlining
when
owever
ccurs
unfavorable
based
terms
loan
automatic
predict
,odo
risk
when
r
reliably
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actor
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on
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example
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rrace
acial
" edlining
called
factor
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using
is
risk
predict
not
.Rdoes
illegal
.under
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"aFederal
redlining
is
nd
terms
are
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or
factors
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sownership
composition
racial
indicate
to
used
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as
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equally
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.factors
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unfavorable
loan
of
terms
use
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relate
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is
hich
,loan
:following
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1988
the
in
included
be
will
language
The
REQUIREMENTS
PROPERTY
underwriter
the
consider
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report
appraisal
"Wshould
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reviewing
hen
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of
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just
estimated
and
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value
whether
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estimate
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evaluating
. hen
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supported
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in
data
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Freddie
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Mac
any
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foster
to
guidelines
these
."
above
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is
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redlining
SECONDARY
AND
INCOME
STABLE
398
,it
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value
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risk
the
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In
one
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orrower's
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scoring
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rge
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ANALYSIS
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asic
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emphasized
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or
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debt
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and
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rpractice
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interpreted
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perceived
race
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tc.
thnic
3942
Bulletin
Freddie
&
Sellers
order
In
considered
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he
Servicers
Guido
1
Volume
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:be
Owned
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Savings
Number
87-12
Freddie
:A11
TO
Sellers
Mac
Servicers
and
,1987
30
September
Several
changes
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our
atond
'GServicers
uide
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have
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fourth
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the
,into
update
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be
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receive
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fourth
quarter
update
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the
discussed
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areas
:detail
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this
in
following
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Freddie
by
Mac
unplanned
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must
specified
limits
the
by
Mac
Freddie
for
399
:
concessions
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Mac
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ccupied
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ection
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1403
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and
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owever
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3108
nd
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2001
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charge
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April
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ortgages
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nd
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88-5
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,tTo
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Mac
Freddie
:All
TO
1February
, 988
19
responsible
,will
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.TSeller
project
the
for
plan
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management
present
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,for
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the
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.
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mortgage
Freddie
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submitting
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before
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years
Mac's
,FDuring
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few
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acceptance
tremendous
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to
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ontinuing
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mortgages
to
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3802
3702
ections
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eliminated
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beneficial
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:both
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below
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when
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where
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in
investors
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institutional
•Private
fees
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400
following
effective
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,the
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all
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and
immediately
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orthcoming
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nd
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ortgages
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nd
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amount
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and
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ercent
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,F.Ais
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amount
Development
Community
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the
of
enactment
rand
aesult
As
5.February
after
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on
closed
mortgages
all
for
effective
increased
is
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unit
per
maximum
multifamily
,tAct
1987
ofhe
.
1988
than
more
be
not
must
mortgage
ultifamily
mamount
aThe
of
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:unit
per
limit
applicable
following
the
continue
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as
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the
of
percent
1.5
refund
to
STRUCTURES
NONELEVATOR
)(7310
section
fee
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BTreddie
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for
fee
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nonrefundable
the
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greater
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of
or
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after
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April
the
988
or
on
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balance
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principal
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the
of
continue
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of
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the
to
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or
of
ransfer
ercent
April
1,closed
before
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Plan
for
balance
principal
unpaid
the
1988
.
401
The CHAIRMAN . Thank you very much, Mr. Brendsel. Your state
ment will be printed in full in the record .
now .
So the point is that both FHA and private issuers need to do
more, not less. What's your reaction to that?
402
April 6 , 1988
Mortgage
Insurance
Companies
The Honorable William Proxmire
Chairman - Banking, Housing and
Room 350 Dirksen Senate Office Building
403
group of Philadelphia banks you described in the hearing as to their experience
with the private insurers in economic terms. They should include a report of
all mortgage loans originated not just in Philadelphia communities but their
entire insured loan portfolio and present their insurance experience. In other
words, how many loans did they insure, how much premium was collected, and
howmuch was paid in claims. These facts will provide a better understanding
of their declaration you described.
Sincerely ,
e Strand Cultanta,
J. Edward Carlton , Jr.
/ smb
-2
404
INQUIRER 3/13188
Agency
provides
advice
The council will help families de
termine the house price they can
afford to pay beforethey buy, thus
reducing the potential for financial
strain later, Jones said .
Budget strategy
for home buyers
By Linda S. Wallace
500 to be aided
Inquirer Staff Writer
Gene Austin is away. His
column will resume when
be returns.
405
OBSTACLES FOR LOW - INCOME BUYERS
The CHAIRMAN. Mr. Brendsel, as you know , community groups
allege your institutions have set up obstacles for homeownership by
lower income buyers. They say you have imposed tighter restric
tions, sometimes officially but more often unofficially. The result is
that lenders are reluctant to make loans to low income borrowers.
a
us .
DEFAULTS
The CHAIRMAN. Mr. Riordan, yesterday two bankers told us that
their lending efforts in low -income neighborhoods are profitable
and they expect the default rate will match or better that of the
overall bank holding company. Is this forecast consistent with your
experience? In recent years you've had plenty of experience with
defaults. Do your data show whether or not these loans were con
centrated in low -income neighborhoods?
406
The CHAIRMAN . So that your data shows that the low -income
neighborhoods, the minority neighborhoods, the ethnic neighbor
hoods, have no poorer default rate than the white neighborhoods
and the high income neighborhoods?
407
Further, it does not take into account the business competition
from Fannie Mae as well as private secondary market purchasers.
Finally, it does not reflect whether lenders making loans in the
ZIP code are utilizing the secondary market.
MORTGAGE ACTIVITY IN 1987
Twenty-five higher-income areas
Twenty -seven lower-income areas ..
Total for fifty-two areas..
Number of home
Number of FHA
72.998
73,307
18,241
19,510
Note: The analysis is conducted on the basis of three-digit ZIP codes selected by the Senate Committee on Banking, Housing, and Urban Affairs.
Average gross income in 1982 was supplied by the Committee to distinguish higher- and lower-income areas. The ZIP codes included in the higher
income areas are the following: 017, 085, 100, 140, 152, 190, 209, 232, 276, 334, 358, 450, 571 , 640, 662, 708, 750, 774, 778, 801 , 882,
911, 940, 970, and 990. The lower-income ZIP codes are: 024, 075, 104, 135, 155, 195, 218, 227, 275, 279, 324, 360, 451 , 573, 656, 661,
677, 712, 754, 766, 780, 808, 879, 932 , 936, 974, and 987 .
408
mately 110,000 versus 21,000) . Thus, while it appears we purchased
fewerloans in the lower-income area, we actually purchased more
after controlling for the number of structures.
a
DU
Washington
The
Post
G
HOUSIN
NATION
THE 'S
pine
co
12
,1988
March
F4
HOUSING
NATION'S
THE
Crisis
Insuranc
Mortgage
Private
INSURANCE E
EMORIGAG
दि
bcrises
elt
-and
farm
the
of
F4
F
, rom
HARNEY
CWILLIAM
IOYOULTER
sgagee
Crisiranc
Insu
Mort
ased
-· alifornia
bCTMIC
Co.
Insurance
aor
with
two
year
next
the
3
409
Harney
R.
Kenneth
By
inhbuy
ouse
plan
yato
f ou
Wstates
purchasers
-patch
.oil
hen
-hit
hard
in
jobs
their
lost
areas
1982-84
stopped
,they
paying
the
.When
mortgages
their
recoup
to
tried
insurers
mortgage
the
selling
by
losses
their
were
,they
homes
foreclosed
often
had
houses
.The
stuck
25
by
value
cash
in
declined
percent
.to
40
COMMENTS
in
the
to
sunbelt
the
havens
pursue
his
.wealthy
T
brazen
disregard
the
of
Community
Reinvestment
Act
is
not
sole
cause
our
of
concern
.
*
to
lending
study
prepared
bank
hicago
for
C
a
aAccording
,had
1985
in
group
Ccommunity
committed
only
f
% ontinental
0.3
o
of
its
residential
assets
that
to
nd
,a
lending
money
in
1983
% was
1.7
only
in
loaned
predominantly
minority
neighborhoods
%to
6.6
only
while
w. ent
low
income
neighborhoods
Committee
this
of
examining
in
applaud
We
use
the
work
the
enforcement
and
Community
the
Reinvestment
Act
.of
This
statute
as
serves
protections
few
the
working
men
of
women
and
one
have
to
their
credit
.to
equal
All
ensure
access
too
notronger
is
There
example
better
the
sneed
aof
for
C.R.A.
direction
curbing
la
commercial
of
many
the
than
banks
recent
application
Continental
by
Illinois
Bancorp
purchase
to
Grand
State
ABank
.Canyon
Arizona
in
.C.T.W.U.
formally
has
protested
the
,which
merger
this
before
now
is
.Federal
Board
Reserve
410
*
While
record
investment
of
community
the
in
appears
troubling
,Continental
meager
pursued
has
aggressive
and
.
lending
of
areas
riskier
into
strategy
Illinois
Continental
remember
all
We
its
for
dramatic
.1984
in
government
Federal
the
by
bailout
pIn
a
ackage
.5
U4estimated
,at.753
billion
nited
2taxpayers
$States
assumed
controlling
a
and
loans
bad
billion
interest
to
Continental
in
the
then
was
what
Have
bank
largest
eighth
.Today
country
in
more
owns
still
T.D.I.c.
Continental
%othe
60
f
.than
Illinois
85-619 0 - 88
•dThere
flow
outward
been
has
ramatic
dollars
from
ot
1987
A
of
beginning
the
t
C
,Continental
example
for
. ontinental
$18took
had
in
billion
1.2
but
assets
foreign
total
in
$only
.9
deposits
foreign
in
.billion
placement
The
more
$1of
than
funds
new
of
billion
banks
Japanese
in
course
the
during
1985
of
of
transfer
roprosents
funds
Asian
the
tuol
enormous
to
en
.Gonomy
14
Comptroller
ottice
Both
and
currency
the
of
of
Continental's
authority
have
Board
Reserve
Toderal
C.R.A.
over
Wour
hile
we
.believe
posturo
hearings
these
and
protest
that
p
ublic
problems
the
of
many
light
to
brought
have
, in
case
this
regulatory
and
xcoptic
is
attention
tho
most
In
C.R.A.
in
.Aausnion
oversight
outside
no
is
there
towns
and
communities
throughout
of
problems
the
members
,wwith
country
know
e
this
discriminatory
lending
practices
isolated
are
not
or
Chicago
to
Continental
.
411
,contact
information
more
For
Patterson
Bill
(202
.)6
38-7071
2
-
ancreated
Recently
was
negotiations
affirmative
of
model
in
ew
AGREEMENTS
LENDING
:NEIGHBORHOOD
FINANCING
AND
NEGOTIATING
DEVELOPMENT
COMMUNITY
that
key
.A
Chicago
City
is
approach
this
of
aspect
com
the
,
developers
estate
real
for
spokesmen
as
acting
are
groups
munity
negotiate
to
lenders
estate
real
with
table
bargaining
the
at
sitting
introduction
the
regulations
-uWith
land
of
se
century
this
,in
develop
astandard
become
have
agreements
negotiated
urban
of
feature
apcommunity
financing
privately
-cfor
inner
of
redevelopment
lan
ity
.
neighborhoods
been
have
negotiations
these
in
actors
primary
The
estate
real
regulators
sector
public
and
W1987
(developers
). eiss
revitali
financing
neighborhood
for
negotiated
of
strategy
The
Re
afederal
by
possible
made
is
zation
Community
the
called
law
more
In
recent
neighborhood
,organizations
times
representing
and
owners
property
(Cessentially
Act
).Tinvestment
-cCRA
legally
requires
he
hartered
RA
also
have
residents
made
voices
their
mheard
- aking
decision
the
in
geographic
the
in
money
loan
to
institutions
depository
financial
companion
.Tits
deposits
their
draw
they
which
from
areas
and
CRA
he
in
,even
However
community
cases
where
groups
engage
(Hpassed
),wAct
by
ere
MDA
the
legislation
Disclosure
Mortgage
Home
constructive
proposing
without
redevelopment
or
development
new
oppose
i,"to
n
ras
the
edlining
esponse
-1ssue
mid
iu
aCongress
970s
negotiations
in
involvement
Community
expressly
documented
patterns
by
disinvestment
of
groups
community
various
which
-term
long
promote
to
designed
development
neighborhood
for
strategies
.institutions
neighborhoods
city
central
certain
in
lending
HMDA
The
performance
lending
the
that
so
patterns
of
disclosure
public
requires
banking
subsidi
institutions
,aof
mortgage
their
snd
banks
avings
and
.can
officials
public
groups
community
by
evaluated
be
aries
it
utilize
and
data
HMDA
to
access
obtain
can
Citizens
an
challenge
,Nconference
EGOTIATED
at
presented
originally
was
paper
This
the
PARTNERSHIPS
NEW
OF
CHALLENGE
THE
DEVELOPMENT
the
,s-by
ponsored
in
Policy
Land
of
Institute
Lincoln
,Massachusetts
Cambridge
June
on
.T6,1authors
1988
February
986
in
updated
was
paper
The
he
are
Lincoln
the
to
research
their
of
support
financial
for
grateful
of
;the
Land
Institute
,School
Policy
and
Planning
Urban
;and
Chicago
at
Illinois
of
University
Neighborhood
for
Center
the
State
.Development
University
Wleveland
thank
to
wish
e
,Cespecially
Tech
Institute
Massachusetts
the
of
Susskind
Lawrence
Professor
.CRA
record
lender's
institutional
can
federal
cause
Cchallenge
A
RA
to
or
branches
new
add
lenders
for
deny
permission
regulators
.or
institutions
other
acquire
with
merge
Reinvestment
Chicago
the
by
used
been
have
models
two
These
aborganizations
Alliance
community
of
,ncoalition
road
eighborhood
University
Harvard
and
nology
,for
constant
providing
of
encouragement
this
project
.
networks
citywide
development
groups
,a.spring
Ind
the
n
412
norganizations
, eighborhood
developers
with
bargaining
direct
often
3
-
distinctive
most
The
feature
model
this
negotiated
of
urban
based
it
that
18
development
initiative
private
on
primarily
no
-agency
agovernment
implements
or
formulates
pfor
neighborhood
rogram
sby
.Itrategies
,reinvestment
nstead
managed
and
created
are
commun
maker
af1) sormal
rule
negotiations
context
,sfor
the
etting
the
of
enforcement
cCommunity
;2)through
Act
aReinvestment
sontri
-fenforcement
fact
to
,tbutor
inding
hrough
Dis
the
of
Mortgage
Home
iown
and
Act
,closure
Chicago
of
case
the
n
extensive
more
he
tcity's
arivate
creates
.-m"dp-process
ublic
ecision
rivate
aking
413
;3)informal
patterns
lending
mercial
,aan
negotiations
in
broker
s
; snd
Chicago
Mayor
with
case
af4)was
the
of
acilitator
i
5-
6
-
Informa
(Canner
;NEagreements
1982
and
Training
ational
isman
dollar
and
number
the
residential
five
of
amount
categories
lending
Development
;N1979
1979a
Center
tion
Economic
ational
).and
Law
-irHA
(Fgovernment
loans
,oVmortgage
Administration
nsured
eterans
cFarmers
Administration
Home
onventional
,h)mortgage
loans
ome
CRA
the
,tWhen
Department
U.S.
was
passed
he
Urban
and
Housing
of
(Hnd
,a)fDevelopment
this
community
to
contracts
18sued
oresaw
UD
mortgage
nccupant
,a-oImprovement
on
loans
on
nd
dis
.Whe
dwellings
,tmultifamily
latter
of
exception
the
ith
CRA
and
HMDA
using
for
manuals
develop
to
organizations
based
in
strategies
reinvestment
neighborhood
(Nimplementing
Training
ational
one
with
properties
on
loans
mortgage
to
apply
categories
closure
." 1
units
four
;Urban
1979b
Center
Information
and
U.S.
Housing
of
Department
1979a
).,1Development
979b
979c
CRA
The
1977
March
was
introduced
in
Proxmire
William
Senator
by
,tousing
Wisconsin
he
Committee
Senate
the
of
Hchairman
Banking
on
congressional
akey
Affairs
Urban
and
HMDA
of
.supporter
1975
in
annually
must
aCinstitution
adopt
its
outlines
that
statement
RA
institutions
financial
that
,--
was
bill
His
two
assumptions
on
based
,should
sector
public
than
rather
be
cap
of
suppliers
primary
the
414
, nd
record
lending
aCcommunity
post
must
premises
its
on
notice
RA
CRA
the
and
statement
'bwhich
publicizus
its
of
availability
oth
athat
, nd
development
economic
and
housing
for
ital
operating
public
over
powers
regulatory
federal
encourage
to
structure
financial
market
).(Ulending
1977
Committee
Senate
policies
.s.
favorable
various
the
among
responsibilities
enforcement
of
delegation
The
-1
cities
in
experiences
These
country
the
across
rep
indicate
described
the
of
viability
and
licability
urban
negotiated
model
challenge
,oactual
threat
rKA
t·Cgovernment
he
on
based
statement
,the
and
bank's
lending
data
cCRA
HMDA
with
oupled
une
of
reasons
two
.TF,ihe
development
for
important
is
model
tirst
community
reinvestment
for
loans
enough
initiate
to
been
often
has
,tdisinvested
enactment
its
Since
he
.projects
areas
in
development
rbetween
aboutlines
as
sector
public
the
for
ole
roker
citizen
lenders
private
,bcoalitions
formally
and
informally
y
through
and
negotiate
to
groups
community
by
nationwide
used
been
has
CRA
banks
(Clocal
anner
with
agreements
lending
neighborhood
Implement
N1982
1979a
;and
ational
Information
Center
Training
Center
).
1979
Development
Law
Economic
and
-HMDA
and
CKA
the
and
information
for
tools
providing
negotiation
and
stabilize
that
the
equalize
bargaining
in
power
of
bases
.
process
1llustrates
,iof
Second
tased
power
growing
-bthe
community
organizations
negotiated
.Nineighborhood
development
urban
organi
vurban
aital
play
communities
many
in
role
,bzations
y
organizing
1.
FICURE
exclusively
than
needs
local
meeting
in
flexible
and
accountable
more
the
Currency
Comptroller
of
bank
National
Federal
,member
bank
State
of
al
(W986
efforts
Vgovernmental
1987
Metzger
and
;M.1et
eiss
idal
ayer
Board
Reserve
Federal
Board
Reserve
Mowns
D1984
;CBlake
).1981
1983
Kotler
and
ayer
unningham
Insurance
Deposit
Federal
insured
federally
bank
,State
public
anegotiated
of
possibilities
the
reveals
model
The
Federal
ambut
not
of
ember
Corporation
;Mutual
Board
Reserve
savings
utilizes
that
partnership
private
of
expertise
growing
the
both
bank
-bresources
neighborhood
untapped
previously
the
and
organizations
ased
Board
Bank
Loan
Home
Federal
Loan
and
Savings
;Federal
,
Loan
and
Savings
State
institutions
financial
local
.of
insured
federally
National
the
of
Administrator
Administration
Credit
Union
;State
Union
Credit
National
Union
Credit
Deposit
Insurance
Federal
other
All
depository
Institutions
de
model
the
of
effectiveness
The
:1pends
of
presence
the
on
,t)achrough
rules
enforceable
of
ontext
;2)trained
framework
CRA
dprofessionals
,the
research
with
evelop
financial
disseminated
idely
negotiating
;3)wment
skills
,and
Corporation
;4)actively
education
policy
and
Information
community
mobilized
1
11
415
actual
pnd
,aresidents
services
undertaking
roviding
development
33
-
legitimize
;athe
5)pgroups
to
support
ublic
, nd
process
brokering
REFERENCES
abasis
provide
success
the
facilitate
that
subsidies
and
programs
for
neighborhood
leyding
agreements
.of
nlikely
"UGets
1985.
Activist
Give
to
Banks
Chicago
eff
,JBailey
this
use
to
Opportunities
model
urban
negotiated
of
development
Annual
Report
.
Bank
1982
Buckeye
.
.on
Chicago
.S.Bloch
in
Partnership
"ULaunched
,1nique
usan
985
and
acquiring
for
strategies
expansion
national
interstate
adopted
Fraser
(Fooper
entities
financial
other
with
;Cmerging
1986
and
lorida
Development
-Wide
City
.CANDO
Corporation
.
1985
nare
groups
with
presented
being
).Aeighborhood
,ar1984
esult
s
Annual
Report
.
Credit
and
Act
Reinvestment
Community
The
982
.,.1lenn
G
Canner
institu
financial
with
agreements
lending
to
negotiate
opportunities
416
banking
interstate
new
leverage
or
CRA
the
either
of
,using
tions
Plan
.
Development
Chicago
1984.
,City
China
of
.S.
Fraser
1Banking
and
Deregulation
Donald
and
erry
, 984.
KCooper
.V.
Neighborhood
Kotler
Milton
Building
and
. ames
,J1983
Cunningham
arising
the
from
finance
and
development
urban
over
conflicts
resolve
..1981
Development
Urban
and
Neighborhoods
,A. nthony
Downs
:" R.
CRA
Ithe
Steps
,EInnovative
Eisman
in
.mplementing
1982
ugene
New
Financial
the
,R986.
(eFlorida
.)1L.
and
Housing
dichard
"FLags
National
985
in
Program
for
.,M1irst
errill
Goozner
10
,Michael
.Kieschnick
. aking
1986
Revolution
Financial
T
the
in
Sides
.
Alternatives
Policy
for
Center
National
35
-
34
-
Jean
,L984.
Swift
and
arry
Neighborhood
Reinvestment
.1D.
Pogge
.Jennifer
Blake
L.
Keys
of
Growth
the
to
,N1981
saMayer
nd
.eil
Housing
of
Department
U.S.
Development
Urban
and
.A1979a
ssessing
.1988
Weiss
A.
.Role
Marc
and
he
Tohn
of
J
T.
,Private
Metzger
Gale
.Disinvestment
,ACincotta
Naparstek
and
J.
U
. rthur
rban
:1976
Lraft
.D1979b
Strategies
.Reinvestment
Materials
ocal
,H1977
Banking
on
Committee
Senate
.U.S.
Affairs
Urban
and
. ousing
Tof
he
Role
Group
-S.1Mortgage
Urban
Study
Investment
uburban
975
TNational
"Community
.1979
Center
Law
and
Development
Economic
.he
Act
Disclosure
Mortgage
Home
and
Department
U.S.
for
Prepared
Housing
of
G
:A
. uidebook
1979b
Reinvestment
Strategies
.
Urban
and
Development
,Jds
(ePalmer
Sawhill
V.
Isabel
and
.)L.
ohn
.
1984
.
Group
Research
Reinvestment
Philadelphia
1986
.
Reagan
The
Annual
Report
.
Need
:in1986
.,JPogge
Revere
Elspeth
and
Hoyt
ean
Partners
.osh
Subcommittee
/BResearch
Bank
the
.of
Committee
Research
1uckeye
981.
Community
:A.
Builders
of
Rise
The
The
American
1987
,M
Weiss
. arc
TDevelopment
",A.
1987.
,Mechnology
.Weiss
Metzger
T.
John
and
arc
417
al
AStimulating
.,eVidal
:1986
Development
Community
.ntvis
418
BOA
RD
GOVE
BOARD OF GOVERNORS
1
FED
ERA !ESERVE
R
May 23 , 1988
MARTHA R. SEGER
MEMBER OF THE BOARD
The
Honorable William Proxmire
Chairman
Committee on Banking , Housing , and
Dear Mr. Chairman :
Thank you for your letter of March 31 containing
written questions in connection with the hearing held on
March 23 on the Community Reinvestment Act .
I am pleased to
enclose my responses to your questions .
Sincerely ,
jilatha Isagen
Enclosure
1
419
.
1.
1
Y
CRA requires your agency to assess u lender's
perfonance in neeting local credit needs .
What steps do
your examiners take as part of the regular CRA examination
to determine local credit needs ?
A routine part of the Federal Reserve's CRA examination
process is what we call " community contacts . "
That means
our examiners go outside the confines of the bank being
examined and into the local communities to talk to people
representatives of neighborhood organizations , government
officials , businesspeople , merchants and realtors .
The aim
is to gain a balanced , realistic view of the state of the
local economy , and how good a job financial institutions in
the area are doing in helping to meet needs for credit .
With this information , examiners can more meaningfully
assess whether the bank's efforts to ascertain and address
community credit needs are on target .
2.
Your testimony states that extensions of the public
comment period are given when groups can nake the case that
an extension is necessary .
What standards do you use to
detenine vbether or not a group has made the case?
How
does your agency communicate these standards to the
interested community groups ?
The Board abides by rules specifying that the public
comment period can be extended beyond 30 days only on " a
lo
id.hip . 0
or other meritoriuil ',
420
·
2
A brief extension would be in order , for example , where the
application has not been promptly made available for
inspection , or there has not been adequate public notice of
the application .
But it would not be granted if the
commenter simply wants more time to collect additional
information , or to conduct further negotiations with the
bank .
Depending on the type of application , notice is
published in newspapers serving the same locale as the bank
or banks that are party to the application , as well as in
the Federal Register . Those notices state the duration of
the comment period and direct questions about the
application process to Reserve Banks .
The Reserve Banks ,
and especially their community Affairs staff , have made it
known in their work with community groups that extensions
are warranted under these very narrow circumstances , and are
the exception rather than the rule .
3.
CRA examination procedures provide examiners with
general descriptions of the attributes that warrant an
institution's receiving a particular rating .
What
quantitative measures do examiners use to determine which
rating an institution should receive ?
How do you assure
that these standards are applied consistently ?
A uniform , comprehensive rating system for evaluating
bank CRA performance was developed by federal regulatory
agencies
110
itting out 5 performance categories based
421
3
on the assessment factors contained in the CRA's
implementing regulation .
To maintain consistency in
applying this system , our examiners receive extensive
training in the interagency - approved examination procedures ,
which are set out in our Compliance Handbook .
We also
regularly review examination reports , on a sample basis , .
here in Washington to ensure that these procedures have been
closely followed .
The standards contained in the rating system are
primarily qualitative in nature , rather than quantitative .
The rating system gives the examiner a description of the
type
but not specific amount
of activities institutions
should be engaged in to merit ratings on the i through 5
scale within each of the performance categories .
Our examiners do utilize techniques when conducting
examinations that lead to quantitative , substantive
information about the bank's performance .
For instance , as
appropriate , examiners may look at HMDA data to determine
the extent of the bank's involvement in providing
housing - related credit , or the number and size of its
participations in downtown revitalization projects in order
to gauge its support for community development efforts .
The
rating criteria , however , are not quantitative , largely
because they must apply to all banks in all communities .
The examiner's job is to assess the bank's overall
performance in helping meet local credit needs , consistent
with CRA's broad mandate .
visat :
295. Ily requires
422
taking into account the bank's financial condition and size ,
legal impediments , and the prevailing local economy ,
including the competitive environment in which it operates .
The nature of the community itself
whether predominately
urban or rural , and many other special characteristics will have a significant bearing on how a bank addressess its
obligations .
Given these factors , general quantitative
measures for performance designed to be used in all banks
are not particularly useful .
4.
In your testimony you indicate that the geographic
distribution of commercial and small business lending is an
important aspect of evaluating an institution's CRA
performance .
How do your examiners determine such
distribution ?
A
major emphasis in examining for CRA is to try to
ensure that the institution is serving the community where
it is
located
primarily , through the extension of credit .
When it comes to business loans , our examiners ' initial
concern is not so much to pin-point the exact location of
each of those loans , but rather to determine whether the
bank being examined is actually making small business loans
within the boundaries of the defined community.
They may do
this by checking loan files and comparing addresses of
business loan recipients with the delineated community map .
They may also ask our " community contacts "
for their views on how wel ?
O
outside the bank
are meeting
423
5
credit needs of the business community .
For small and rural
banks ( which include most of those supervised by the Federal
Reserve ) , it is often relatively easy to identify the
location of local businesses financed by the bank being
examined .
In addition to this overview of a bank's loan
distribution , a more complete review of lending patterns may
be undertaken when the examiners check for compliance with
other laws governing the extension of credit .
The unique
circumstances of each case , however , will determine to what
extent our examiners would focus on the precise geographic
distribution of business loans .
Using examination
procedures for the Equal Credit Opportunity Act ( ECOA ) ,
examiners employ random sampling and comparison techniques
to conduct a preliminary review of consumer , as well as
business , loans in the bank's portfolio .
If the preliminary
review indicates that there may be an improper distribution
of the loans , the examiner should undertake a more detailed
review .
These steps could entail expanded sampling ,
interviewing loan personnel or outside sources in greater
depth , and , in some cases , geocoding actual loans.
I would also point out that , for purposes of CRA , the
nature and degree of business lending which the bank has
been willing to undertake is often as important as the
precise distribution .
For example , we are interested in
knowing whether the bank has participated in
government- .: Jüred, guaranteed , or subsidized loan programs ,
424
6
including the SBA loan guaranty programs and similar state
or locally - sponsored programs. In an urban setting, we would
also consider favorably a bank's support for a Minority
Enterprise Small Business Investment Corporation ( MESBIC ) or
Small Business Investment Corporation ( SBIC ) .
5.
You stated that you prefer to make conditional
approvals , with commitments to improve performance , to
outright denials , when agencies have weak CRA performance
ratings .
What procedures do you have in place to monitor
fulfillment of the conditions you set?
What action has your
agency taken when the institution has failed to meet its
pledge ?
Please provide examples of such actions .
There are various ways we monitor a bank's performance
of its commitments to the Board , and our course of action
will very much depend on the degree of oversight warranted
by each particular situation .
Frequently , the Board's order
in the particular case calls upon the applicant to submit
regular progress reports to the Reserve Bank , which then
follows - up with appropriate measures .
On the other hand ,
fulfillment of a relatively simple commitment could be
determined by telephone or through correspondence ; the
implementation of a new CRA - related lending or training
program , however , might well involve more extensive , ongoing
review by the Reserve Bank .
Future CRA examinations provide
iseck " on the applicant's adherence to commitments .
425
7
These are carried out by Federal Reserve examiners for state
member banks .
The Board reassesses an institution's CRA performance
each time it submits a covered application .
This provides
strong incentive for applicants to comply with commitments
made to the Board , since they know their record of doing so
will be considered as part of future applications.
As a measure of " last resort , "
federal law gives the
gives the Board authority to pursue cease- and-desist
proceedings against a bank - or its directors and officers
for violating any condition imposed in writing as a
condition of granting an application .
Less stringent
enforcement measures , such as Memoranda of Understanding or
Written Agreements , could also be used .
To my knowledge
there have been no cases in which an applicant has
ultimately failed to address commitments to the Board in a
way that was deemed satisfactory .
6.
What is your agency's policy regarding settlements
between applicants and community groups ... do you monitor
actions under such agreements , and do you factor in the
follow through in subsequent CRA ratings ?
We very much encourage banks and community groups
to talk with each other and , as much as possible , narrow
their differences .
.
However , we do not believe it is our
to push for formal agreements , which we regard as
priväte matters between the applicant and the protestant .
426
8
As such , they are not subject to enforcement by the Federal
Reserve System
the Board .
unlike the commitments which are made to
I think it is important to make this distinction
clear , since by becoming more directly involved in private
agreements we may be seen as supporting the allocation of
credit and , perhaps , as favoring one particular community
group over other worthy ones .
On subsequent CRA examinations , we would certainly
take note of any bank activities resulting from these
agreements , which fall in line with the CRA performance
categories .
427
1700 G Street, N.W.
Washington , D.C. 20552
Federal Home Loan Bank System
Federal Home Loan Bank Board
Federal Home Loan Mortgage Corporation
Federal Savings and Loan Insurance Corporation
M. DANNY WALL , Chairman
Ed
25 MAY 1988
The Honorable William Proxmire
Chairman
Committee on Banking , Housing , and
Dear Mr. Chairman :
Sincerely ,
مد
Ilan
M. Danny Wall
Attachment
1
CRA
428
Responses to Senator Proxmire's Letter of March 31 , 1988
Questions 1 and 2 : CRA requires your agency to assess a lender's
performance in meeting local credit needs . What steps do your
examiners take as part of the regular CRA examination to determine
local credit needs ? Do your examination procedures require
examiners to solicit the views of community groups and others , as
part of the CRA examination process ? If not , how do you assess
local credit needs in order to evaluate how well an institution is
serving these needs ?
Federal Home Loan Bank examiners are directed to use CRA
examination procedures that recognize that an assessment of an
institution's CRA performance record in helping to meet the credit
needs of a local community is a judgmental process requiring a
balanced viewpoint . The prucedures are designed to ensure that
information from both the institution and the commmunity are
objectively reviewed and evaluated .
Specifically , the examiner is charged with evaluating the
institution's efforts at ascertaining community credit needs
( 12 C.F.R. 563e.7 ) .
Furthermore , the CRA examination procedures
provide the flexibility to permit the examiner to interview real
estate brokers , community action groups , religious or political
leaders , merchant's organizations , block clubs , neighborhood
groups and coalitions , local civil rights , consumer , minority , and
non - English speaking groups , housing counseling service centers ,
community development corporations , nonprofit housing development
corporations , and local development corporations . These
interviews enable the examiner to gain a better perspective of the
credit needs of the local community as well as an understanding of
the extent to which the institution has endeavored to ascertain
- and meet those credit needs .
Unfortunately , primarily due to resource and time constraints ,
examiners have not , in recent years , conducted community
1
429
interviews to any significant degree . It is our intention to
explore routinizing this procedure to a , much greater extent in the
future .
Question 3 :
CRA examination procedures provide examiners with
general descriptions of the attributes that warrant an
institution's receiving a particular rating .
What quantitative
measures do examiners use to determine which rating an institution
should receive ? How do you assure that these standards are
applied consistently?
The examiner's rating of an institution is based on an evaluation
of the performance assessment factors in the act and its
implementing regulation . Neither the act nor the regulation
proscribe any quantitative measurement criteria for evaluative
purposes , and therefore , our examiners do not employ any
quantitative measurements in assigning a CRA rating to an
institution . Enclosed for your information is a copy of our AB- 35
which identifies the standards to be used in assigning CRA
ratings .
Question 4 :
In your testimony you indicate that the geographic
distribution of commercial and small business lending is an
important aspect of evaluating an institution's CRA performance .
How do your examiners determine such distribution ?
Our examiners are directed to make an assessment of the
geographic distribution of an institution's credit extensions
pursuant to one of the CRA assessment factors so as to identify
areas where little or no lending is taking place and for which
management could give no sound justification for the lack of
lending .
This assessment would include commercial and small
business lending activity . Traditionally , our institutions have
been very involved in housing - related financing and do not make
430
many commercial or small business loans . As a matter of fact ,
only two percent of our total institution assets are in commercial
loans .
Question 5 :
-CRA conditions attached to approvals should be monitored by the
Federal Home Loan Banks just as any other conditions , such as
those relating to safety and soundness , should be monitored .
This
monitoring should take place through the normal examination
process and through supervisory reviews of institution responses
to reporting requirements i.equently imposed as part of a
If an institution does not fulfill the terms of a
condition , the Bank Board can invoke its cease and desist
condition .
authority , if necessary , to compel the correction of any
deficiencies . As part of our review of the compliance program , we
will be looking to see whether the monitoring of CRA conditions
should be strengthened .
Question 6 :
You have indicated that the Board has delegated
responsibility for CRA examinations and enforcement to the Federal
Home Loan Bank Systen . Since the system is owned and is largely
controlled by the member thrifts , how do you assure that CRA
enforcement is performed adequately and consistently? What
procedures are employed to assure consistent performance ?
As I pointed out in my remarks during the hearings , the Division
of Compliance Programs in the office of Regulatory Programs ,
1
Oversight and supervision ( ORPOS ) , was recently established for
the primary purpose of developing national standards and
431
procedures for the conduct of examinations involving , among other
things , traditional consumer protection laws and regulations ,
including CRA . We have great expectations for this new program
and believe it can fill a coordination gap that we have had in
We are confident that , given the proper
tools and training , the Federal Home Loan Banks will enforce CRA
appropriately .
this area over the years .
To assure consistency among the districts , ORPOS has established a
" peer review " program , which , in a nutshell , is a program whereby
quality assurance evaluations are conducted of the examination and
supervision functions of each Federal Home Loan Bank on a periodic
basis .
Once the foundations for our compliance program are footed
and the program is operational , we intend to include compliance
activities in the scope of each " peer review . "
Furthermore , the Division of Compliance Programs within ORPOS is
in the process of enhancing its management information system with
an eye towards developing a better database for the collection and
processing of examination statistics on the consumer affairs laws
These enhancements would provide
for a much better monitoring system than what currently exists and
enable us to spot trends and any apparent weaknesses in the Banks '
and regulations including CRA .
consumer affairs examination efforts .
Question 7 :
The Federal Reserve Board has established specialized
examiners with a separate career ladder , and maintains separate
regional offices for CRA enforcement . Are you considering
adopting such a system?
If not , why not ?
We recognize that there are many positive advantages to having
separate examination personnel conducting CRA and consumer affairs
examinations . We are looking at the programs used by the other
agencies , including the Federal Reserve Board , in developing our
own approach .
The Federal Reserve's program is well - respected
among the regulatory agencies and may very well serve as a
432
1
Certainly , one of the alternatives we will
explore is the feasibility of establishing a separate examination
program for this area .
benchmark for us .
Our new Division of Compliance Programs within ORPOS has been
charged with developing a national program for legislated areas
that address the public interest ; specifically consumer affairs ,
fiduciary activities , and
interest such as the Bank
responsible for producing
examiners and supervisors
legislated areas related to the public
Secrecy Act . This unit will be
manuals and special memoranda to
for these areas . Additionally , this
unit will work with our Bank System Office of Education to develop
national training standards for these areas .
It will also house
experts that , at the request of a District Bank , will be available
for support during complex examinations .
433
Comment
re :
Senator Graham's question
Using Senator Graham's terms , the Federal Home Loan Bank
System would view CRA " performance " of an institution as
more important than the CRA " process . " The technical
aspects of the regulation , i.e. , whether there are some
errors on the CRA statement or whether the Board has
approved the CRA statement on a timely basis each year ,
while important , are not , in our review , as important as the
institution's actual practices in helping to meet the credit
needs of its community . In that connection , we believe it
is appropriate to evaluate an institution's activities
against each of the twelve performance factors listed in the
CRA regulations .
If during an examination the examiner
finds that an institution seems to be granting a
disproportionately low amount of credit in an area where
credit demands are remaining unfilled , ( e.g. , factors e , h ,
i and j of Section 543e . 7 ) the examiner should point this
out to the institution and encourage the institution to do
more in meeting those unfulfilled credit needs .
We would ,
however , stop short from recommending or requiring specific
numbers of loans or specific dollar amounts since we believe
that involves credit allocation and is appropriately within
the realm of management's , and not the regulator's ,
responsibility . As I indicated in my earlier comments , I
believe that our examiners could do more in involving the
community in the examination process , particularly by making
contacts to determine the degree to which the community
views credit needs as being unmet and whether institutions
could do more to fulfill those credit needs .
434
The following are the total hours spent by Federal Home Loan
Bank System examiners on CRA for the years 1983-87 . These
hours are solely examination hours and do not include
additional time spent on CRA matters by supervisory
personnel , such as review of examination reports and
communication with institutions and others on CRA matters .
This supervisory time is not recorded and , therefore , cannot
be included .
Year
Hours
1983
11326
1984
6578
1985
4313
1986
10486
1987
15283
The increase in time spent in 1986 and 1987 reflects the
fact that our examination staff doubled in the past two
years , allowing us to spend more time on CRA and other
matters .
435
10 OM
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U.S. DEPARTMENTOF HOUSING AND URBAN DEVELOPMENT
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MEN
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OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING -FEDERAL HOUSING COMMISSIONER
Honorable William Proxmire
Chairman , Senate Committee
on Banking , Housing and
Urban Affairs
Washington , DC 20510-6075
Dear Senator Proxmire :
I am writing in response to your letter of March 24 , 1988 ,
in which you ask HUD to respond to several issues raised during
recent hearings on the Community Reinvestment Act . Specifically ,
a representative of the private mortgage insurance industry argued
that FHA has failed in its basic mission to assist moderate - income
home buyers . The witness was also sharply critical of Congress
recent decision to raise FHA's maximum mortgage limits in high
cost areas . He suggested instead the need to restrict FHA in
order to redirect our agency toward assisting those not served by
the private sector .
At the outset , let me note that I believe that all of us in
the mortgage insurance business -- both in government and the
private sector --can and should do more to expand the opportunities
of modest - income home buyers . Private insurers can legitimately
point to the successes their companies have had in assisting these
families ( e.g. , in the early eighties ) , just as FHA can be proud
of the successes we have had -- both historically over the 54 years
of our existence and particularly at present .
A wide variety of factors have led to the sharp reduction in
the availability of conventional low downpayment loans since 1984 .
To some extent , the actions of lenders , insurers , rating agencies
and the secondary market merely reflect an economic environment
that is sharply different than in prior years , and the need to
preserve financial stability in the lending and insuring
industries . Nonetheless , we still need to assure that moderate
income families have access to mortgage loans , and I am proud of
the role that FHA has played in maintaining that access .
During 1986 and 1987 , FHA insured roughly 2.3 million home
loans .
By comparison , private mortgage insurers ( MIS ) insured
roughly 1.1 million loans during the same period -- of which only
600,000 loans would have been within the FHA mortgage limits
during this two year period . Applying the MICA report percentage
436
Page Two
for 1986 ( the last year covered by the study ) , we estimate that
between 1986-87 FHA insured 1.3 million loans to families earning
less than $ 40,000 -- versus only 300,000 for MIs . Similarly , during
this period , FHA insured 1.1 million loans under $ 60,000 --versus
only 400,000 for MIs .
Yet while FHA can be proud of our achievements , we can't
afford to be complacent .
As recent studies have amply
demonstrated , families of modest means face severe difficulty in
qualifying for home ownership -- despite the significant gains in
affordability that have occurred in recent years . And while FHA
has a particular mandate to serve these families , the private
sector has a responsibility to do what it can
as well .
In this regard , I want to commend you for holding hearings on
the CRA at this time .
The financial distress that many lenders
and insurers face is indeed real , but this must not become an
excuse for failing to assure that all Americans have a fair
opportunity to obtain credit . You correctly noted that CRA
lending can be profitable under the proper conditions , and we need
to do more to spread this message .
For our part , FHA needs to do more to make CRA lenders aware
of our programs and to help them learn how to qualify for FHA
approval . I recently travelled to Philadelphia to meet with the
participants of their CRA program , to learn first hand what we
needed to do in order to be more responsive . As a result of our
meeting , our regional staff will be expanding their outreach and
training programs to focus more on depository lenders .
We plan to work with the Federal Reserve Board to identify
other areas of the country that need additional mortgage insurance
I see our role as helping to
strengthen and sustain successful CRA programs , and then building
upon these models to the point that we encourage greater private
sector participation throughout the nation .
coverage and offer our assistance .
437
Page Three
Yet , as firmly as I support the expansion of FHA in the CRA
effort , I can not agree with MICA's argument that FHA must do less
in assisting other borrowers in order to do more in this area .
And I strongly disagree with the argument that the recent minor
adjustment to FhA's mortgage limits in high cost areas will cause
us to neglect borrowers of modest means . Finally , I believe that
much of MICA's concerns about lenders who discriminate against
borrowers with low mortgage amounts has been dealt with strongly
and directly via Section 419 of the Housing and Community
Development Act of 1987 . I support this provision , and we intend
to assure that lenders comply with the law .
As you know , Congress established the current system for
setting FHA mortgage limits in 1980. For most areas of the
country , the maximum set then -- and still in effect now -- was
$ 67,500 .
However , recognizing that housing costs vary
tremendously throughout the country , Congress also authorized HUD
to establish higher limits in certain markets , calculated at 95
percent of the area's median home sales price . Even under this
alternative high - cost formula , Congress set an absolute ceiling
for single family mortgages in 1980 at $ 90,000 . Since then , home
prices in a number of areas have risen sharply , and the latest
legislation raises the absolute ceiling to $ 101,250 -- but again ,
only in areas where the price of a typical home already exceeds
this amount .
In these areas , the cost of buying a home is so high that
many families face difficulty qualifying for mortgage loans even
with two incomes . FHA has traditionally used more liberal
underwriting standards than conventional lenders , and this
flexibility gives us the ability to help families in high cost
housing markets -- just as it helps us meet the needs of lower
income families buying in the inner - city .
The problems faced by a two -income family trying to buy a
home in San Francisco or Washington , D.C. are immensely different
than those faced by a lower -income family buying in inner - city
Philadelphia -- but in one key respect they are similar .
In each
instance , the borrower will have to spend a considerable portion
of his / her income to be able to make the mortgage payments .
And
the private sector has increasingly been reluctant to make or
insure these so - called " high ratio" loans -- regardless of whether
the cause is low income , high housing costs or a combination of
both .
In my opinion , it would be tragic if we were to adopt an
approach that pitted one group of struggling home buyers against
another -- especially when FhA has the unique ability to serve each .
Ultimately , I see our mission to be one of assuring that all
Americans have access to mortgage loans . Especially in light of
the recent tightening of underwriting by the private sector , we
now have an even greater responsibility to ensure that FHA is able
to handle cases that do not meet conventional standards .
438
Page Four
I see little justification in ignoring the needs of families
trying to buy homes in high cost areas merely in order to improve
our performance in inner - city lending . We can -- and must -- do more
to support lending to families at the margin . But it would be
seriously wrong to conclude that only those families need FHA . I
look forward to a time when a revived private mortgage insurance
industry expands its performance and aggressively competes with us
across the income spectrum ( as they did prior to 1986 ) . But FHA's
basic role as a support and backstop will always be needed -- and in
current market conditions , it's usefulness is readily apparent .
Again , I want to thank you for providing us with this
opportunity to comment on these issues .
Sincerely Yours ,
Umembang
Thomas T. Demery
Assistant Secretary for
Housing -- FHA Commissioner
439
Woodstock Institute
53 West Jackson Boulevard , Suite 304, Chicago, Illinois 60604, ( 312) 427-8070
Elspeth Revere
President
Jean Pogge
Executive Vice President
Josh Hoyt
Vice President
April 22 , 1988
Board of Directors
Founder
Sylvia R. Scheinfeld
Sylvia and Aaron
Scheinfeld Foundation
Senator William Proxmire
Chairman
Chalrman
Albert A. Raby
Chicago Commission on
Human Relations
Vice-Chairman
David Ramage
McCormick Theological
Seminary
Secretary
James Capraro
Greater Southwest
Development Corporation
Treasurer
Mary Nelson
Bethel New Life, Inc.
Ronald A. Grzywinski
South Shore Bank
Stanley J. Hallett
Center for Urban Affairs
Northwestern University
Elizabeth Hollander
Chicago Department
of Planning
Sokoni Karanja
Centers for New Horizons
John L. McKnight
Center for Urban Affairs
Northwestern University
Alexander Polikoff
Business and Professional
People for the Public Interest
Elspeth Revere
Woodstock Institute
Hipolito Roldan
Hispanic Housing
Development Corporation
Committee on Banking, Housing , and
Dear Senator Proxmire :
Thank you very much for holding hearings on the Community
Reinvestment Act , and for inviting the Woodstock Institute to
provide testimony . I am happy to provide a written response to
the question that you posed to me in the letter which I received
on April 11 .
Question : Bankers say that they don't make loans in certain
areas because there is no demand . Cammnity groups say the
problem is on the supply side . What do you think the major
obstacles are in getting supply and demand for loans in
balance . ..are there obstacles in the way business is done by
realtors ? lenders ? mortgage insurers? secondary market
brokers ?
Response : Bank Marketing. Banking, like many other industries,
recognizes the need to create demand for its products.
Advertisements are placed in local newspapers, radio and
television stations, loan officers regularly call on potential
and current customers to strengthen business relationships , and
the biggest and most lucrative customers are provided with
special services and favorable rates. However, these marketing
Lawrence B. Rosser
efforts rarely extend to modest income , older and inner city
Chicago Capital Fund
Sandra P. Scheinfeld
Sylvia and Aaron
Scheinfeld Foundation
communities . There are a number of reasons why this may be the
case :
1)
Banks traditionally did little marketing. However , as the
banking industry has become more competitive, the need to
expand such efforts has become evident to most financial
440
Senator William Proxmire
Canmittee on Banking, Housing , and Urban Affairs
April 22 , 1988
Page 2
institutions . In so doing, marketing programs were targeted to the
most affluent parts of the community where the profits were expected
to be greatest .
2)
For both residential and commercial lending , larger loans provide more
profit for less work . A home mortgage loan for $ 150,000 takes a
similar level of effort as one for $30,000 , but the profit is five
times as great ;
3)
There is sometimes the perception , often inaccurate , that people in
older , minority or inner -city communities are all poor or unemployed ,
and are therefore unlikely to meet bank underwriting standards or to
be profitable customers for other bank products . Two examples
highlight the problem : a Woodstock Institute study of housing lending
in the Washington , D.C. metropolitan area found that lending in the
suburbs was statistically most strongly related to income , which is to
be expected --the more money a family makes the larger loan it is able
to repay . By contrast , in the District of Columbia , the strongest
predictor of lending was race , showing that perception of risk did not
conform to the most important borrower characteristic .
A second study of the customers of a major Chicago bank in 1981
refutes the perception that minority and low - income communities do not
represent deposit customers for money center financial institutions .
During that year , for every $ 100 in deposits the bank received from
black neighborhoods, only 60 cents in mortgage loans were made ; for
every $100 collected in deposits from hispanic neighborhoods only 40
cents in mortgage loans were made .
4)
There is a perception by bankers , realtors and others that newer is
better .
This is of particular concern in commercial and industrial
lending , where loans are readily available for purchase and
development of new facilities in the suburbs, but more difficult to
obtain for expansion or rehabilitation of older , in -city industrial
buildings .
While these factors may help to explain lackluster or nonexistent
marketing to older , minority , and urban parts of a financial
institutions service area , they do not excuse it . More active and
aggressive marketing has been shown to be an effective way to help
balance the supply and demand for loans .
Secondary market . Over the last ten years , the secondary market has made
housing credit more available than ever before . Few financial institutions
continue to originate large numbers of mortgage loans for their own
441
Senator William Proxmire
Committee on Banking , Housing , and Urban Affairs
April 22 , 1988
Page 3
portfolios . This has had both positive and negative effects on meeting the
credit needs of local commnities . The benefit has been the widescale
availability of home mortgage money . The cost has been the loss of
flexibility to the local lender. The standards set by the secondary market
have now become the underwriting guidelines for most lending. This has
presented problems for communities where modest incomes make it difficult
to accumulate a 20% downpayment ; lack of recent real estate activity makes
it difficult to appraise properties on comparables ; housing prices are
below standardized minimum loan amounts ; housing stock is old and in need
of repair ; and housing stock is unusual -- for example , mixed -use buildingsand therefore does not conform to the suburban ideal , new housing for the
typical affluent family .
In the past , a local lender who knew his community and his borrowers would
make decisions based on his judgement about whether or not the loan would
be repaid . Now , due to the secondary market , the judgement must be made as
to whether the loan can be sold to investors.
Mortgage Insurers . Mortgage insurance has been a useful tool in enabling
families who cannot accumulate a 20% downpayment to purchase a home . With
soaring housing prices in many parts of the country , a large downpayment
can take so long to save that hames that were once affordable can no longer
be purchased by modest income people . However , mortgage insurance adds an
additional underwriting process to that already imposed by the lenders and
secondary market , and this process has become increasingly risk averse .
Due to losses in recent years , mortgage insurance customers who have only
5-10% downpayments are being subjected to greater scrutiny than those with
larger downpayments . This is in spite of the fact that the mortgage
insurance premium is designed to pay for the increased risk that a less
than 20% downpayment presents.
Factors that are subjected to greater
scrutiny for those with lower downpayments are breaks in employment
history , credit records with even the most minor problems, purchase of
properties needing repair or rehabilitation , older properties , and
properties in neighborhoods with few comparables . This is especially
problematic because the families that need mortgage insurance are generally
those who are only able to purchase homes in fair to good shape in older
neighborhoods . Many of these same families, especially those located in
the industrial rust belts , have experienced a period of unemployment which
hurts both their employment and credit histories .
Realtors .
Realtors are generally the first point of contact between
borrower and lender , and thus play an important role in educating the buyer
as to what type of financing is available , and from which lenders.
442
1
Senator William Proxmire
Committee on Banking , Housing , and Urban Affairs
April 22 , 1988
Page 4
Realtors often have well - formed opinions as to which financial institutions
lend in particular communities and for what types of properties and
borrowers . They may also reflect their own opinions, for both housing and
commercial/ industrial real estate purchases , as to desirable locations and
relative worth of properties under consideration .
Because realtors often are the ones with the best knowledge of local
lending conditions , it is important that they be the first stop for
financial institution marketing efforts . A more difficult obstacle to
overcome is realtor perception of the relatively lower value of in -city and
older communities .
In conclusion , I would reiterate that demand occurs when a product is
known to be available . The financial institutions have an obligation to
create markets in all parts of their service area , even though some are
viewed as less profitable than others . It is also important that the
secondary market reflect the range of local conditions and the sound loans
that they represent , and that mortgage insurance fairly assess customers
with both larger and smaller downpayments .
Thank you for the opportunity to respond to this question . I would be
happy to provide any additional information that you need . And once again
thank you for your long -term and effective leadership on the reinvestment
issue .
The impacts of the Community Reinvestment Act , in channeling
billions of dollars into local communities and changing the behavior of
financial institutions is finally becoming recognized . All of us who work
with the CRA are grateful to you for making this important tool the law of
the land .
Sincerely ,
Clapeck Revere
Elspeth Revere
President
443
ACORN
May 9, 1988
Senator William Proxmire, Chairman
Committee on Banking, Housing and Urban Affairs
United States Senate
Washington, DC 20510
Dear Senator Proxmire:
Thank you for seeking out ACORN's views on the implementation and
enforcement of the Community Reinvestment Act of 1977. Enclosed are our
responses to questions you directed to us in a letter of March 31 , 1988.
We look forward to continuing to work with the Senate Banking Committee
on these issues which are of such importance to all low and moderate income
Americans.
Sincerely,
Milchel Brown
Mildred Brown
President
Association of Community Organizations for Reform Now
Organizing and Support Center: 401 Howard Street, New Orleans, Louisiana 70130 ( 504) 523-1691
85-619 0 - 88 - 15
444
May 9, 1988
To: Senator William Proxmire, Chairman
FROM : Mildred Brown, President
RE: Responses to questions in March 31 , 1988 letter.
Q1 . Using the traditional A - B -C- D- F grading system , how would you grade sach of the regulators ?
Please include your reasons for giving the specific grade.
Al . The Federal Deposit Insurance Corporation ( FDIC) and the Federal Home
Loan Bank Board ( FHLBB ) each get a grade of " F" . On their own admission
these agencies concede that they do not enforce the Community Reinvestment
Act for the financial institutions they regulate .
1
445
The Fed is apparently telling its District offices that it is no longer a
priority to get banks to sit down with community groups; the District offices
and national staff have been directed to simply look at the CRA record as it
is presented by the bank making application. Governor Seger has made it
clear to staff that emphasis from now on will been on speed of processing
applications. This represents a significant change in the application of policy
over the last year , if not a change in the policy itself.
Q2. The private mortgage insurance companies charge that FHA is failing to discharge its
responsibility to provide mortgage insurance for low income borrowers. Does your experience
support this charge. The private companies say that FHA should be more tightly targeted to serve
only low income borrowers. Do you think such tighter targeting would help or hinder community
reinvestment ?
A2. Healthy neighborhoods have to receive extensions of all types of credit,
rather than becoming reliant on just one. Alot of FHA lending already goes on
in low income neighborhoods, and this is especially important because FHA
still insures 95% and 97% mortgages.
2.
446
• Third, Private Mortgage Insurance companies should be required to serve
low income neighborhoods. It is not just the government's job to meet the
needs of low income people. The argument about FHA is a smokescreen
sent up by PMIs to permit them to unload their responsibilities.
The private mortgage insurers are the only element of the industry that is
not required to abide by fair lending laws. ACORN strongly urges
Congress to act now to bring PMIs within the scope of these laws.
3
447
WILLIAM PROXMIRE, WISCONSIN , CHAIRMAN
ALAN CRANSTON , CALIFORNIA
United States Senate
COMMITTEE ON BANKING , HOUSING, AND
March 31 , 1988
Mr. Allen Fishbein
Center for Community Change
1000 Wisconsin Avenue , N.W.
Washington , D.C. 20007
Dear Mr. Fishbein ,
I would appreciate your answering the following question for
the written record of the Community Reinvestment Act hearing .
1. Bankers say that
they don't make loans in certain areas
because there's no demand .
Community groups say the problem
is on the supply side . What do you think the major obstacles
are in getting supply and demand for loans in balance
are there obstacles in the way business is done by realtors ?
lenders ? mortgage insurers ? secondary market brokers ?
2. How would you grade the Federal agencies , using the
traditional A-B-C -D-F system? Include reasons , please .
3. You assert that agencies have failed to spot even routine
technical violations . Please give examples .
4. You cite unfair and arbitrary handling by the agencies of
applications .
Can you give examples .
5. Please elaborate further on your recommendations for
improving CRA .
6. Is there a evidence of a shortage of commercial loans in
lower income neighborhoods ? What is the evidence ?. Would
disclosure of such loans help solve this problem?
Please submit your answer within two weeks of your receipt of
this letter , in order that the record may be published
expeditiously .
Sincerelt
Z
Pante
illaterraxmire ,
Chairman
448
center for community change
位
BOARD OF DIRECTORS
Rebecca Andrade
May 10 , 1988
Honorable William Proxmire
Chairman
Committee on Banking , Housing , and
Dear Senator Proxmire :
This is in response to the questions contained in
your March 31 , 1988 letter .
Response to question number 1
The disinvestment of older urban neighborhoods
occurs for a variety of reasons .
Disinvestment often
results from prejudice , ignorance , or sheer laziness
on the part of financial institutions as well as other
areas in the real estate transaction process .
1000 WISCONSIN AVENUE N.W. WASHINGTON , D.C. 20007 202/342-0519
449
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The findings contained in the Journal -Constitution's study
are similar to findings in studies conducted in other cities .
These other studies were cited in my March 22 , 1988 written
testimony to the Committee .
While this research does not necessarily indicate that the
lending institutions in these cities were intentionally
discriminating , it does suggest that underwriting and other loan
policies , practices , along with negative perceptions by both
lenders and community residents about one another pose obstacles
to increasing the supply of housing credit to these areas .
Despite the existence of many successful
Ignorance
b)
-
reinvestment partnership efforts , involving lenders , community
groups, and local governments , some bankers appear to harbor the
notions that lending in the older urban neighborhoods is somehow
inherently riskier than lending elsewhere .
The testimony the Committee heard from bankers on March 22
is hopefully an indication of a growing awareness that lending
in inner-city neighborhoods can be profitable . Both Richard
Hartnack , First National Bank of Chicago , and Jack Kolesar ,
Ameritrust Development Bank, testified about how their banks
have successfully invested in not only single family lending ,
but loans to multi - family rehabilitation projects and other
community development efforts . There is really no good reason
for lenders to continue to believe there is greater risk in
lending to the inner -city than there is to lending to the oil
patch or to third-world nations .
c)
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criteria that addresses the repayment constraints of low income
borrowers ) .
Response to Question number 2
Grading the federal supervisory agencies ' CRA enforcement is
always a difficult task for three basic reasons : 1 ) agency
enforcement is generally weak across the board ; 2 ) enforcement
levels appear to change from time to time , both from agency to
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agency and even within various regions and districts within the
same agency ; and 3 ) the lack of public information about agency
enforcement activities . However , with these three factors as
caveats , let me attempt to respond to your question by providing
our evaluation of both the positive and negative aspects of each
agency's enforcement efforts .
Federal Reserve System
Grade : D +
negative points : Few of the Consumer Advisory Council's
recommendations for improvements in CRA performance were ever
implemented by the Fed. Exams -- no evidence that Fed supervised
banks are rated any more strictly than are institutions examined
What is more , there is evidence
that exam procedures are uneven from Reserve District to Reserve
District . Applications -- The Fed has not denied an application
for CRA reasons by either bank holding company or state-chartered
member bank . Fed seldom convenes public hearings on CRA protested
applications ( only one in past 8 years ) . Moreover , as testimony
at the hearing illustrated , community groups find the Reserve
Banks increasingly arbitrary and inconsistent in the way they
process protested applications .
by the other federal agencies .
Summary : Examiner hours devoted to CRA declined much less
for FRB than other agencies . Unfortunately , FRB's enforcement
program does not appear to have resulted in tougher CRA exams .
CRA protest procedures need to be improved .
Office of the Comptroller of the currency --Grade : D
452
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chartered banks as means of encouraging them to provide advanced
notice of branch closing . Applications
negative points : Exams : New exam procedures mean that
nationally chartered banks with under $ 1 billion in assets will
be examined infrequently .
Virtually all banks examined receive
" 1" or " 2 " CRA ratings. Community group contacts not required
to be part of CRA exam . Applications : No denials on CRA grounds
in past eight years . occ has been reluctant to hold public
hearings on protested applications . Regional offices appear to
use arbitrary procedures for processing protested applications .
occ orders do not contain findings and conclusions on issues
presented by protestants .
Summary : It does not appear that recent occ efforts to
upgrade CRA exam have resulted in noticeably improvements in
enforcement . CRA protest procedures should be revised to encourage
greater community input .
FDIC
Grade : F
positive points :
The agency has had at least one meeting
in recent years with community and consumer groups to discuss
relevant issues .
Exams
-
FDIC claims it has increased emphasis
on CRA enforcement in last year .
Applications
-
negative points : Exams : The agency almost completely de
emphasized CRA and consumer exams over past eight years . Outside
contacts with community groups not required as part of exam .
Exams are infrequent , sometimes 6 years between compliance
exams , with almost every institution assured of a passing grade .
Applications : No denials on CRA grounds in over eight years .
FDIC orders do not discuss findings and conclusions on CRA issues .
Summary :
FHLBB
--
- Grade : F
positive points : Current FHLBB Chairman has indicated he
will reinstitute Community Investment Fund to encourage broader
thrift participation in community development activities . Exams
-- none. The FHLBB CRA rating system which provides for three
positive and two negative ratings has advantages over the system
used by the three banking agencies .
Applications
453
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Washington , D.c. staff has been responsive to complaints about
handling procedures on protested applications . Unlike the other
agencies , the FHLBB seems to routinely grant requests for hearings
on protested applications .
Response to Question number 3
My written testimony refers to three examples of clear-cut
technical violations of CRA and the Home Mortgage Disclosure Act
which were either untected or overlooked by federal bank examiners .
- Bank of New York -- Federal Reserve Board conceded that
bank's CRA Community delineration was too narrowly drawn and in
violation of Board regulations after issue was raised by community
protestant .
See Bank of New York ,
Federal Reserve Board
Bulletin
February 25 , 1988 .
- First National Bank of Commerce -- The bank's CRA Statement
does not list home purchase loans as one of its credit products
although bank makes over 50 home purchase loans a year .
The
office of Comptroller of the currency has yet to require the
bank to modify its CRA Statement , although it is in clear
violations of the regulations .
-
See Attachment B.
Leader Federal Savings and Loan Association
Institution
did not report mortgage lending activity in a manner prescribed
by Regulation c . Federal Home Loan Bank Board did not require
the institution to comply with reporting requirements until
violation was cited in a CRA protest filed by local community
coalition . See Attachment c .
Response to question number 4
Three examples of unfair and arbitrary handling of protested
applications by the FHLBB , FDIC , and occ were cited in my
testimony . These examples are discussed in additional detail in
Attachments D- 1 , D-2 ( OCC ) , E- 1 , E-2 , E- 3 , E-4 ( FDIC ) , and c
( FHLBB ) .
454
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Response to question number 5
In my testimony I indicated four major avenues for reforming
the CRA enforcement process which we support :
1)
the need for
expanded agency enforcement efforts ; 2 ) the need for greater
agency accountability and expanded public disclosure of bank
lending activities ; 3 ) revising the current CRA rating system ;
and , 4 ) reform of the application review and CRA protest process .
Let me elaborate on each of these areas .
1.
Improved agency enforcement
CRA enforcement needs to receive higher priority within each
of the agencies . An important method for ensuring that CRA
receives higher priority from the agencies in the future is to
require each agency to establish a separate consumer division .
At the present time , only the Federal Reserve Board has a
separate consumer division . The division does not , however had
authority to report directly to the Board on CRA factors related
to pending applications .
Another important step for improving agency enforcement
would be to exempt the banking agencies from the requirements of
the Federal Paperwork Reduction Act for information related to
CRA , fair lending , and consumer compliance exams . The Act
directs the agencies to reduce the reporting and record keeping
requirements that they impose on financial institutions .
There appears to be some uncertainty as to what extent the
banking agencies are covered by the Act .
However , the FHLBB ,
occ , and FDIC have chosen to place key reporting requirements,
such as the Fair Lending Reporting , under the Act's purview .
Consequently , the Office of Management and Budget has exerted
strong pressure on the these agencies to scale back on the
reporting requirements these agencies use to determine whether
financial institutions are in compliance with the Fair Housing
and Equal Credit Opportunity Acts .
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The pressure on the agencies to scale back on fair lending
reporting has intensified in recent years as they have expanded
reporting requirements on financial institutions in other areas ,
such as safety and soundness .
The Paperwork Reduction Act , in
effect , creates a " zero - sum " game , in which the agencies endeavor
to reduce reporting requirements in the fair lending and consumer
compliance areas , as they add safety and soundness reporting
requirements, such as expanded Statement of Condition Reports .
Greater agency accountability and expanded public disclosure
of the lending practices of financial institutions .
a)
public disclosure of CRA ratings and examination reports .
456
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b)
commercial loan disclosure .
As the Home Mortgage Disclosure Act has unquestionably
demonstrated , disclosure of information about the lending patterns
of financial institutions is an effective deterrent against
credit discrimination and relatively low-cost methods for
encouraging improved lender performance. Extending HMDA to
include reporting by depository institutions of their commercial
lending activities would provide regulators and citizens alike
with important information about lender performance and would
encourage these institutions to better meet local credit needs .
c)
Annual Reporting to Congress .
Each agency should be required to report annually to
Congress on the number of examiner hours devoted to consumer
compliance , CRA , and fair lending for the preceding year .
Detailed reporting on the resources devoted to consumer and CRA
exams would provide Congress with a useful measure of the how
seriously the agencies are taking their enforcement
responsibilities in these areas .
3.
Reform of the CRA rating system
The inadequacy of the current rating system was discussed
in my testimony .
We would prefer to see a rating system that
would measure a bank's CRA performance relative to the performance
of other banks of a similar size and with similar resources .
Institutions should be rated on a five-tiered scale
that would use the following definitions : # 1 - excellent or
outstanding ; # 2 - good ; # 3 - average ; # 4 - limited effort ; # 5 poor . Under this system , most institutions would receive a # 3
-
CRA rating , with institutions devoting resources greater than
their peers receiving higher grades .
Further , we favor a system that would prohibit the Fed
from approving any application by a bank holding company to
acquire another BHC or bank , or to engage in new powers in
securities , insurance , real estate , or any other area in which
applications are required under Section 4 ( c ) of the Bank Holding
Company Act unless the applicant and its subsidiary banks have
excellent or good CRA rating ( s ) under the revised rating system .
457
- 10 -
These reforms are incorporated into a CRA Enforcement
Amendment that has been sponsored in the House Banking Committee
by Reprs . Kennedy , Garcia , Fauntroy , Schumer , Mfume , and Flake .
A copy of the Section -By -Section Summary of the Amendment is
included as Attachment F.
4.
Unfortunately , the current application and protest procedures
do not seek to maximize citizen involvement in the CRA process .
We favor reforms that would accomplish the following :
a)
provide better public notice of pending applications .
458
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CRA record of applicants . Agency order should contain precise
information setting forth the conclusions and the facts supporting
the conclusions on the issues raised by a protested application .
The agencies should hold hearings on any protests raising
substantial CRA issues .
Lastly , although over 100 negotiated lending agreements
have been occurred over the past three years, the agencies have
yet to publish guidelines for their examiners on how to weigh
performance of institutions in implementing the terms of these
agreements . Guidelines spelling out the method the agency will
take to ascertain performance and solicit community comment are
needed . These guidelines should discuss the weight that
implementation of agreements will have on future applications by
affected institutions .
Response to question number 6
Access to credit is vital to the growth of small firms. Yet ,
many small firms encounter difficulty in obtaining certain types
of financing from commercial banks , especially longer term
credit and start-up and expansion financing .
According to a 1982 Federal Reserve Board bank survey ,
commercial banks believe that they provide 75 % of the total debt
of their small business borrowing customers . Other research
indicates that small businesses are usually limited to banks
located within the immediate community as their potential sources
of credit .
At the same time , several surveys of small businesses
reveal that many small firms are dissatisfied with services
offered by local banks . For example , a poll of 1,047 small
businesses in New York taken by Chemical Bank in 1983 indicated
that 52 % of those surveyed rated the services provided by local
banks from fair to poor. A total of 65 % of the respondents said
that they thought the banks are more interested in servicing big
business instead of small companies .
459
12
-
-
The National Federation of Independent Business has conducted
a series of surveys of its members which reveal that small
businesses assign highest priority to a personal relationship
with their banker and credit availability . Yet , when asked to
rate the actual performance of their banks , the surveys rate
banks relatively poorly in cultivating personal relationships .
Other studies indicate that small business lending activity
varies widely between commercial banks , even commercial banks of
similar size operating in the same or similar communities .
sincerely,
DATA:174
Allen'J . Fishbein
General Counsel
Enclosures
460
UNIVERSITY OF MINNESOTA
Hubert H. Humphrey Institute of Public Affairs
TWIN CITIES
E
Senator William Proxmire
Chairman
United States Senate
Committee on Banking , Housing , and Urban Affairs
Washington , DC 20510-6075
Dear Senator Proxmire :
This is in answer to the question you asked me in your
letter of March 31 , 1988. The question was about the obstacles
in the way of getting the supply and demand for loans in balance .
First , I would like to suggest that there is no natural
level of supply and demand . People have needs for credit . These
needs can become a real demand for credit if there are credit
instruments that people in need can afford .
obstacles to serving the " needs "
Thus , the main
of people for housing and
business credit are related to loan product development and
marketing of these loan products .
There is a point where the
private lending industry simply cannot serve local needs because
of the risks involved or because the returns on a loan product
are simply too low , and they represent such a significant portion
of the portfolio of a given lender that these risks pose a threat
to the security and survival of the institution .
I place the question in this context because the level of
demand and supply is constantly changing . The many lending
agreements that community groups have developed with lenders ,
beginning in the early 1970s , before there was a community
Reinvestment Act , almost always have the effect of changing the
definitions of what demand can be met by changing product
development and marketing processes of local financial
institutions .
Moreover , even the questions of risk and low rates
of return are not absolutes . The ability of community groups and
lenders to engage public agencies and use public and foundation
funds for insurance , interest rate subsidies , and grants , as well
as the ability to use both public and private funds for training ,
counseling , and the creation of sound community -based developers
and skilled lending officers all show how the creative use of
these resources can radically change the definitions of demand
and supply .
In testimony before your committee on March 22 , Gale
Cincotta listed a range of successful agreements and programs ,
1
461
many of which found ways of reducing alleged risk and reducing
the costs of lending for both the lenders and the borrowers . On
that same day , the statements of Richard Hartnack , of First
National Bank of Chicago , and Jack Kolesar , of Ameritrust
Development Bank , attest to the ability of these programs and
efforts to reduce risk and increase the supply of lending in
areas previous defined as having no effective demand by existing
banking standards .
For lenders , there are many obstacles in the way of creative
product development and marketing .
The first obstacle is their
attitude about older , rural , and inner -city communities .
Changing this attitude has been one of the most important
activities of community groups .
These groups have often resorted
to renting buses to take lenders on tours of the communities they
fear , but which they generally have never seen .
A new report on
the banks of West Virginia * confirms the literature and
experience of community reinvestment activities that the
perception of risk by lenders , a perception not based in
objective analysis or data , remains the main obstacle to creative
community lending .
Other obstacles are created by deregulation and the
increased levels of competition in the financial industries .
This contributes to management practices to reduce all lending to
large individual corporate or foreign loans or to standard
products with the most upscale or most broadly - based markets .
This discourages lenders , and especially local lending officers ,
from engaging in the more varied and often hand - tailored lending
techniques and products that may be required in some rural areas ,
older areas and areas of economic distress .
In the housing markets , major lenders do not solicit
minority real estate brokers as much as they solicit white
brokers in upscale communities .
Major lenders do not engage in
" calling "
on local businesses in inner -city communities and
It is this marketing that really attracts
business - and until this marketing in older , inner - city ,
minority communities .
minority , and rural communities is an active part of the banking
industry's behavior , there will be a large gap between the supply
of loans and the real demand that can be developed at reasonable
risk and reasonable rates of return .
Historical patterns in the real estate industry also create
obstacles to more creative lending in the housing markets . The
profession of realtors developed early in this century with a
code of ethics that required the segregation of the races . Those
prejudices have given way vary little over time . Even today , in
most cities with large minority populations , the realtors remain
separately camped in white and minority areas , with little
overlap . In most cases , the major realtors , with the best access
to the widest range of mortgage lenders , concentrate and focus
.
2
462
their business in white and newly developing communities .
Minority realtors and minority neighborhoods are left 'mainly in
the hands of mortgage bankers who have little incentive or desire
to engage in creative lending . These mortgage bankers operate as
agents for the secondary market , and they limit their lending to
the products most desired by that secondary market .
That brings us to the secondary market .
In response to the
efforts of your committee and pressure from community
organizations and with some behind - the - scenes prodding from the
Justice Department , FNMA and Freddie Mac both made major
revisions in their underwriting standards by the time of your
secondary mortgage market hearings on December 19 , 1978 . But ,
as
I noted in my statement before this Committee on March 22 , 1988 ,
a great many of these revisions have eroded over time , leaving
little left .
FNMA has - in response to extreme pressure by the
National Peoples Action and ACORN - made some effort to return
some of the anti -discrimination language and guidelines which it
had eliminated in recent years . But FNMA is still not back to
where it was ten years ago , and it has made only some very minor
efforts to begin to deal with the rigid standards it applies to
credit underwriting and the purchase of loans with reduced
interest rates . Freddie Mac has essentially acknowledged that
this issues raised by the community groups deserves some review
In addition , we find that many lenders have developed the
impression that FNMA and Freddie Mac have certain standards for
minimum loan sizes , types of properties , zoning , and neighborhood
value trends that discriminate against older neighborhoods and
properties in areas with lagging local economies .
Both FNMA and
Freddie Mac claim that most of these alleged standards are not
correct . Neither corporation has done much to communicate with
lenders to insure that these incorrect perceptions are corrected ,
except in cases where community groups force the lenders to
contact FNMA or Freddie Mac to check out the standards .
Generally , this is symptomatic of the erosion of anti
discrimination efforts on the part of both major secondary market
entities .
The final report of the National Housing Task Force **
indicates the major role that community -based developers have
played in creating a supply of affordable housing . Yet FNMA and
Freddie Mac still use processes and terms that favor large
private builders and developers . The limited ability to sell
loans in the secondary market is a major obstacle for non -profit ,
community -based developers of affordable housing .
In spite of
major efforts to get a better response from FNMA and Freddie Mac ,
only limited progress has been made . Ironically , the head of
FNMA was a member of the Task Force . Moreover , FNMA is a
corporation with an obligation in its charter to help meet the
3
--
463
nation's housing needs .
The restrictive standards in the secondary market are
reflected in the private mortgage insurance markets as well . In
spite of many proven programs to make loans to moderate and lower
income people in distressed rural and inner -city communities , the
inability of people to get access to private mortgage insurance
is a major obstacle to increasing the supply of loans in these
areas .
There is a kind of domino effect in the lending markets
and SBA insurance standards . In order to keep the lender's own
capital as liquid and secure as possible , no lender wants to make
a loan that cannot be insured or sold . Thus , restrictive and
discriminatory standards in these industries are translated into
restrictive and discriminatory standards in the lending industry .
As realtors depend upon lenders for their business , these
restrictive standards are finally translated into restrictive and
discriminatory standards in the real estate industry as well .
In a note of tragic irony ( and reflecting the limited
experience of the members of the Task Force in reinvestment
activities and the history of redlining ) , the National Housing
Task Force report recommends that single - family housing for lower
income people is too risky for the private sector to handle .
report recommends that HUD take on these risks by relaxing some
of FHA's standards and limitations and set aside special reserves
for the increased losses it will suffer . This harkens us all
back to the disasters of the early 1970s when an inundation of
high risk FHA lending contributed to the destruction of minority
communities all across the country .
Cities like Chicago ,
Cleveland , and Detroit , to name a few , are still struggling to
overcome the damage done by that last effort to save poor people
through dumping their communities into the quagmire of FHA's
abusive practices .
Of course , all of this takes place in an environment which
is already racially discriminatory . While HUD has remained the
great silent and invisible agency in this Administration , the
Secretary has raised an unusually loud voice to point out the
persistence of racism in the housing markets of the nation .
pointed out in the March 22 , 1988 , hearings , studies by community
groups and academics as well continue to find race as a major
factor in explaining the supply of loans in minority communities .
This past week , the Atlanta constitution / Journal ran a series of
articles on discrimination in lending in that rapidly growing
metropolitan area . I consulted on that study and can vouch for
the carefulness and accuracy of the methods used .
With controls
for income and growth , the study found levels of lending by the
major banks to be from two to thirty -eight times higher in white
communities as compared to minority communities with a similar
range of incomes and level of growth .
4
1
that begins with the secondary markets and the mortgage insurance
464
Yet , the FED , which has several times received CRA
challenges from groups in this region claiming racial
discrimination in lending , decided in the Trust Company Bank
case , for example , that this was not a problem . ( In the Hibernia
case , where the FED did find that low levels of lending in
minority communities were a problem , the FED has done nothing to
make that bank comply with an order to change its practices . )
As
the Constitution / Journal articles reveal , Trust Company Bank
makes three loans per 1,000 homes in white middle and upper
income neighborhoods for every one such loan in similar black
neighborhoods .
On the business side , the record of Trust Company stands as
a clear statement of the overall problem in business lending .
Sun Prust is the third largest bank in the state . It had the
best record of SBA lending to women and minorities , with 20% of
its SBA loans from 1982 through the first half of 1987 going to
businesses owned by these people . But this amounts to just five
loans each year to a rapidly growing market segment which is
presently estimated at well over 100,000 businesses . When a
lender of this size , with banks all over the state , cannot find
more than a handful of minority and women - owned business to
serve , it is hard to imagine that it is just benign
" inefficiencies " in the market that produce this gap between a
clear demand and a minuscule supply .
Finally , there are obstacles caused by the lack of funds and
support for community -based developers , community action groups ,
and local business development programs and organizations . As
the study in West Virginia also concludes , more lending could be
done if the local businesses were more sophisticated in their
credit applications . The successful experiences here in the
United States , and in other countries , in various forms of small
business incubators suggest that peer support , management
support , and access to financing all can play an important role
in developing successful new businesses in communities with
economic problems .
While the obstacles that exist in the real
estate , lending , secondary market , and insurance industries
represent the most fundamental roadblocks to defining and serving
the potential demand in rural , minority , and older , urban
communities , the parallel need to built the local capacity to get
loans out is a growing concern for those involved in community
reinvestment . But experience has shown that where there is a
will on the part of the private sector and the local government
to respond to community initiatives , this capacity can be
developed by the local community and a more aggressive and
creative financial community - in all its institutional forms .
5
465
I hope this provides you and your Committee with a full
response to your question .
Sincerely ,
We buelt
Calvin Bradford
Senior Fellow
* Mountain Association for Community Economic Development ,
Commercial Bank Lending Patterns and Economic Development in West
Virginia : Berea , Kentucky , January , 1988 .
** National Housing Task Force , A Decent Place To Live :
Washington , D.C. , March 28 , 1988 .
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466
FEDERAL DEPOSIT INSURANCE CORPORATION , Washington, DC 20429
OFFICE OF THE CHAIRMAN
May 16 ,
1988
Dear Mr. Chairman :
Enclosed are answers to the questions raised in your letter of
March 31 , 1988 , requesting information for the written record of the
Committee's recent hearing on the Community Reinvestment Act .
with best wishes .
Sincerely ,
fum Sermon
L. William Seidman
Chairman
Honorable William Proxmire
Chairman
Committee on Banking , Housing
Enclosures
467
Question 1 :
CRA requires your agency to assess a lender's performance in meeting local
credit needs. What steps do your examiners take as part of the regular CRA
examination to determine local credit needs ?
Answer :
FDIC examiners do not perform an independent analysis of the credit needs of a
bank's community . We deem those needs to be reflected in the bank's overall
performance in responding to local loan demand . The FDIC assesses a bank's
performance in meeting local credit needs by considering the bank's activities
under the assessment factors outlined in Part 345 of its Rules and Regulations ,
as well as its Statement of Policy on the CRA .
The assessment factors include , but are not limited to , activities conducted
by the bank to ascertain the credit needs of their communities and the bank's
marketing of its services ; the types of credit offered and extended by the
bank to the community ; the geographic distribution of the bank's loans ; the
impact of the opening or closing of any offices and the services offered at
these facilities ; the bank's compliance with anti -discrimination and other
credit laws ; and the bank's participation in community development in order to
meet local credit needs .
The FDIC Manual for Compliance Examinations contains examination procedures
for evaluating these assessment factors .
Further guidance for evaluating
a bank's performance is provided by the Uniform Interagency CRA Assessment
Rating System , which also is included in the Manual for Compliance
Examinations. Copies of each of these documents are enclosed . Additionally,
in assessing a lender's performance , examiners draw on their own knowledge and
awareness of the community and its credit needs .
Question 2 :
Do your examination procedures require examiners to solicit the views of
community groups and others , as part of the CRA examination process ? If not ,
how do you assess local credit needs in order to evaluate how well an
institution is serving these needs ?
Answer :
As set forth in the FDIC's Manual For Compliance Examinations, examiners are
authorized , but are not required , to conduct interviews with community members
and groups . The purpose of such meetings, however , is not to assess local
credit needs , but to determine community awareness of the bank's credit
services and local perception of the bank in meeting community credit needs .
We assess a bank's success in serving local credit needs by reviewing , among
other things , its advertising of credit services in low- and moderate- income
areas , participation in community development programs , and small business
financing .
Question 3 :
CRA examination procedures provide examiners with general descriptions of
he attributes that warrant an institution's receiving a particular rating .
468
- 2 -
What quantitative measures do examiners use to determine which rating an
institution should receive ? How do you assure that these standards are
applied consistently?
Answer :
In conducting a CRA examination , examiners evaluate banks on a case -by - case
basis taking into account an institution's size , expertise and locale.
Community credit needs often differ with the specific characteristics of each
local community . Banks are evaluated on the basis of attempts to ascertain
and help meet community credit needs in the context of local circumstances
Question 4 :
In your testimony you indicate that the geographic distribution of commercial
and small business lending is an important aspect of evaluating an
institution's CRA performance .
distribution ?
How do your examiners determine such
Answer :
Small business loans represent one type of credit which the Corporation
believes is directly related to the purposes of the CRA . While we do not have
a precise definition of small business lending , small business loans are
regarded generally as any loans to local firms which , because of their size ,
have limited access to sources of funding .
The FDIC's Manual For Compliance Examinations contains directions for
examiners in reviewing and assessing the geographic distribution of a bank's
loan portfolio , credit applications and credit denials . Essentially ,
examiners first review a bank's delineation of its community for
reasonableness , especially to ascertain that small businesses and low- and
moderate - income neighborhoods have not been arbitrarily excluded .
a bank's internal credit files and other records is then conducted .
A review of
This
review is to determine whether there is any indication of a geographic
distribution of credit extensions , applications and denials signifying failure
to serve certain areas of the defined community , particularly small businesses
and low- and moderate - income neighborhoods. In this context, examiners also
review the reports of examination and workpapers from other examination
programs ( e.g. , fair lending examination reports ) .
Question 5 :
You stated that you prefer to make conditional approvals , with commitments
to improve performance , to outright denials , when agencies have weak CRA
performance ratings . What procedures do you have in place to monitor
fulfillment of the conditions you set ? What action has your agency taken when
the institution has failed to meet its pledge ?
examples of such actions .
Please provide specific
469
- 3 -
Answer :
The FDIC usually works with a bank to resolve any existing CRA problems prior
to taking action on the bank's application . In situations where a bank with a
less than satisfactory CRA rating files an application , the FDIC does not
approve the application unless the bank agrees to resolve the CRA problem .
Such commitments may be informal or may be stipulated in a memorandum of
understanding . Fulfillment of these conditions is monitored through the
examination process. In every such situation documented by the FDIC , the bank
has complied with its pledge .
In May 1987 , the FDIC's Division of Bank Supervision implemented a new
Applications Tracking System which enhances our ability to track applications
that were protested based on CRA performance factors and to determine whether
any CRA-related conditions imposed upon the approved applications are being
met .
Question 6 :
The Federal Reserve Board has established specialized examiners with a
separate career ladder , and maintains separate regional offices for CRA
enforcement . Are you considering adopting such a system ? If not , why not?
Answer :
In January 1987 , we reorganized the FDIC Office of Consumer Affairs .
Like the
structure at the Federal Reserve , the FDIC OCA operates independently of our
Division of Bank Supervision . It also reports directly to the Office of the
Chairman and continuously evaluates the adequacy of the Corporation's
compliance examination program .
The FDIC also has consumer / compliance specialists assigned to each of its
eight Regional Offices . Within these offices there are a number of field
examiners who work primarily on compliance examinations , which include a
review of a bank's compliance with the CRA . To improve our current operations ,
we are studying several options , one of which is the development of a larger
core group of examiners for the compliance area , including CRA. We have not
yet determined which option would be the most cost effective or result in the
most efficient use of resources .
Under our current structure , we have been allocating more resources to
compliance examinations since 1985 , and we are providing more training for an
increasing number of examiners . We plan to continue our emphasis in both
these areas .
Question 7 :
What is your agency's policy regarding settlements between applicants and
community groups ... do you monitor actions under such agreements , and do you
factor in the follow through in subsequent CRA ratings ?
470
- 4
Answer :
The FDIC reviews such settlement agreements as part of the regular examination
process . Generally , however , the FDIC does not monitor CRA- related settlement
agreements unless they are associated with a CRA protest . The situation
leading up to and resolved by the agreements is among the factors we consider
in determining the bank's CRA rating .
471
Comptroller of the Currency
Administrator of National Banks
Washington , D.C. 20219
May 17 , 1988
The Honorable William Proxmire
Chairman
Committee on Banking , Housing , and
Urban Affairs
United States Senate
Washington , D.C.
20510-6075
Dear Mr. Chairman :
The following information is provided in response to your letter
which posed the following questions for the record of the Community
Reinvestment Act hearing .
1. CRA requires your agency to assess a lender's performance in
meeting local credit needs . What steps do your examiners take as
part of the regular CRA examination to determine local credit
needs ?
During the assessment of a national bank's performance under the
Community Reinvestment Act ( CRA ) , our examiners review written
comments contained in the bank's CRA public file that specifically
relate to the bank's performance in helping to meet community
credit needs . Minutes from board of directors meetings also are
reviewed for discussions of community credit needs and activities
designed to meet those needs .
Our examiners determine from bank records and through interviewing
bank officers and employees the extent to which the bank has
conducted activities to ascertain the credit needs of its
community .
The process may include evaluating studies conducted
or reviewed by the bank concerning local credit needs , bank
management review of public comments received in response to the
bank's CRA statement , and the extent of the bank's efforts to
communicate with members of its community regarding the credit
services it is providing .
Examiners may also review CRA statements of other banks and
savings and loan associations within a community , to compare the
types of credit being offered , and learn about credit activity in
the community . Examiners also ensure that the types of credit
listed correspond to the types of credit actually extended by the
institution .
1
472
- 2 -
1
2 . Do your examination procedures require examiners to solicit the
views of the community groups and others , as part of the CRA
examination process ? If not , how do you assess local credit needs
in order to evaluate how well an institution is serving these
needs ?
Examiners may solicit the views of members of the community to gain
a balanced perspective in order to assess performance under CRA .
Outside contacts are a desirable supplement in certain
circumstances to complete an analysis of a bank's performance when ,
in the judgment of the supervising office , either : ( 1 ) they are
necessary to supplement or verify information obtained from a bank ,
without which the examiner cannot reach conclusions with reasonable
confidence about the bank's CRA performance or compliance with fair
lending requirements , or ( 2 ) they are warranted as an efficient way
to secure information about overall credit needs and lender
activities in a given community , as background for the analysis of
all of that community's national banks . Examiners also are
instructed to contact a person or organization who has raised a
substantive concern about the bank's CRA performance in a written
CRA comment .
CRA examination procedures provide examiners with general
descriptions of the attributes that warrant an institution's
receiving a particular rating . What quantitative measures do
examiners use to determine which rating an institution should
receive ? How do you assure that these standards are applied
consistently ?
It is difficult to apply quantitative standards to a qualitative
process such as rating a bank's performance under CRA .
The Uniform
Interagency Community Reinvestment Act Assessment Rating System
provides the regulatory agencies with a uniform means to identify
those areas where an institution can improve its performance in
helping to meet local community credit needs . The system also
facilitates uniform and objective composite CRA ratings .
Each financial institution is assigned a composite CRA rating that
is based upon the institution's performance in meeting various
community credit needs . This system requires rating five
" performance categories " or components from which the overall
composite CRA rating is derived . The system is not quantitative in
that the basis of each respective component rating is an examiner's
judgment of the institution's performance based on how well the
institution meets the descriptive characteristics given for the
five component ratings . The component ratings are then evaluated
to reach the composite CRA rating.
473
- 3 -
In your testimony you indicate that the geographic
distribution of commercial and small business lending is an
important aspect of evaluating an institution's CRA performance .
How do your examiners determine such distribution ?
The banks are responsible for conducting their business in such a
manner as to demonstrate performance under CRA and for documenting
that performance . Therefore , much of the necessary information on
the geographic distribution of credit activities is often readily
available from the bank being examined . Also , a major portion of
our safety and soundness examinations involves a qualitative and
quantitative review of a bank's loan portfolio .
examinations are conducted concurrently , the CRA examiner has
direct access to pertinent information regarding commercial and
small business lending generated in the loan portfolio analysis .
If separate examinations are conducted , the work papers and loan
portfolio evaluation results are available for the CRA examiner to
use in developing a clear sense of the bank's lending patterns .
5.
1
474
4
7.
Is it an important issue if a bank draws its service area in
order to avoid being charged with redlining for terminating
services or avoiding servicing lower income Native Americans ?
Were an institution to delineate its local community or service
area in such a manner as to avoid servicing lower income Native
Americans , the OCC would be concerned . An institution's
delineated local community is an important element of the overall
review of performance under the Community Reinvestment Act .
I appreciate the opportunity to provide the above information .
I can be of further assistance , please do not hesitate to contact
me .
Sincerely ,
muman
Robert L. Clarke
Comptroller of the Currency
475
ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
" SECONDARY MARKET LENDING PATTERNS"
FannieMae
April 11 , 1988
Mr. Barton Naylor
Investigator
Committee on Banking , Housing
Dear Bart :
In response to your request to Annette Fribourg , we have
compiled an analysis of our 1987 business data for the zip
code pairs you provided .
As you discussed with Annette ,
we
with regard to methodology , we made adjustments to the
1982 income data in order to make a more consistent
comparison between the income figures provided and 1987
portfolio purchase data . The adjustments and assumptions
we made
regarding the
I
also point
would
out
1
reviewing this data , please remember that the
In
designated high- income areas generally represent a more
highly populated , urban / suburban environment , while the
designated low- income zip codes are predominantly rural
Rural areas
areas with smaller populations .
Fifty Years of Opening Doors
for American Home Buyers
85-619 0 - 88 - 16
476
Mr. Barton Naylor
April 11 , 1988
Page 2
FHA ,
VA ,
and FmHA loans are also more popular in rural
areas than conventional loans .
The significant military
presence in some of the zip code prefixes suggests higher
VA loan activity .
I suggest that you also consider the
level of government loan activity in these zip code areas
in order to obtain a full picture of how housing needs are
being met .
the information we present does not take into
account the size of the housing stock . Thus , while we
might purchase twice as many loans in location A than B ,
Finally ,
if A has five times more housing
relative support of B is greater .
units than B ,
our
I hope this information is useful to you and that you will
not hesitate to contact Annette Fribourg if there is any
further information we can provide .
sincerely ,
Dale
DPR / rm
Enclosure
477
ADJUSTMENTS AND ASSUMPTIONS
The zip code pairs were intended
to reflect high- income and
low - income areas , based on 1982 mean Adjusted Gross Income ( AGI ) .
The populations for those zip code areas are represented by the
number of federal income tax returns for each zip code prefix .
In order to compare our 1987 portfolio purchase data to the 1982
mean
AGI ,
we made
a
number
of
adjustments
and assumptions .
First , we converted 1982 AGI into 1982 Gross Income ( GI ) , because
underwriting guidelines are based on gross income . We did this by
determining that nationally in 1982 the AGI was 96.6 percent of
gross income. Second, we brought the 1982 gross income figures up
to 1987 levels by using the rate of income growth in each state .
The state rate of income growth does not necessarily reflect the
peculiarities of each locality, but income growth rates for
localities through 1987 are not available at this time . The state
income growth rates are listed below . Third , we assumed in our
calculations that the relationship between personal income and
gross income remains the same over time . Finally , in determining
the affordable loan amount for the computed gross incomes , we
assumed the borrower chose a 30-year fixed rate mortgage with a 10
percent interest rate .
COMPARISONS
In general , the zip code prefixes do not represent purely
Also , the designated
high- income or purely low - income areas .
high - income
zip code
prefix
generally
represents a more
urban / suburban environment, while the low - income zip code prefix
is a predominantly rural area. In the less populated , more rural'
areas , loans are more likely to be " government " ( FHA , VA , and
FMHA ) rather than conventional loans.
These , as well as the
specific factors listed below , account for the difference in the .
amount of business conducted in each area . Thus , the number of
loans and total unpaid balance ( UPB )
figures should not be
considered alone , but rather
478
FEDERAL
RESERVE BANKOF
PHILADELPHIA
Community and Consumer Affairs
April 25 , 1988
Mr. Calvin Bradford
Senior Fellow
Hubert Humphrey Institute
Dear Mr. Bradford :
I have read with considerable interest your prepared testimony for the
Senate Banking Committee's recent hearings on the Community Reinvestment
Act .
Please be advised that the reference ( on page 15 ) to this Office is
materially inaccurate . · There is no " rule " such as is reported in the
first sentence of the reference. And the following sentence , as well as
the concluding comment in the paragraph , are also in error .
It is disappointing to observe these mistakes by a respected source ,
especially in the context and because they could have been avoided by a
simple request for clarification . Moreover , it is misleading to attribute
to another statements which have not been made by the person and which are
at variance with reality .
Sincerely yours ,
:
Ameland
Frederick M. Manning
Assistant Vice President and
FMM / bcf
Ten Independence Mall, Philadelphia, PA 19106, ( 215) 574-6000
479
The
Color
of
The Atlanta Journal
THE ATLANTA CONSTITUTION
Mayl-5.1988
-
AttachmentA-l
Atlanta blacks losing in
home loans scramble
Banks favor
white areas
THE COLOR OP PHONEY
First of four parts
by 5-1 margin
By Bill Dedman
Where Atlanta's black
nelghborhoods are
FULTON
COBB
DEKALB
DOUGLAS
ROC
KDA
LE
GWINNETT
CLAYTON
FULTON
7e Areas50% black or more .
Aroas less than 50 % black .
Source: 1980 U.S. Bureau ofthe Census figures
Where hanks
-
-
rarely lend
FULTON
COBB
LE
GWINNETT
DEKALB
DOUGLAS
FULTON
2
LOANS Continued on Page 15A
CKDA
A
480
CLAYTONC
Areas where less than 10 percent of owner-occupied homes
received mortgages from banks or savings and loans.
Areas where 10 percentor more of owner -occupied homes
TIM LEE /Staft
481
With the banks and savings and Robert Warwick, vice president of
are caused by factors beyond their
control , including poor quality loans largely absent,. home finance the Federal Home Loan Bank of At
sales in in metro Atlanta's black areas has lanta, which regulates savingsinsti
housing and lackof home
black neighborhoods, fewer applica- become the province of unregulated tutions. " It's perfectly obvious."
" It's institutional racism ," said
tions from blacks, and limitations in mortgage companies and finance
the federal lending data. They companies, which lenders say com- Marvin Arrington, president of the
pointed out that lending patterns monly charge higher interest rates Atlanta City Council.“ While we are
are influenced by realestate agents,
appraisers and federal loan
programs.
patting each other on the back
than banks and savings and loans.
ine two iending studies form about being a great city and a city
482
Measuring impact of race
ple who come from outside are the study divulged application lig.
483
Law requires fair lending
lowest of any bank its size in the
away . "
" We're talking about disinvest
484
Neighborhoods say they need
Neighborhood leaders say they their homes grow in value faster.
investment by financial institutions don't want to cut those profits.
The Census Bureau said in 1984
now more than ever because feder“ We're not asking the banks to the income of a typical white family
al housing aid is rapidly dwindling do anything that's not banking. We in America was there the median
– from $ 33 billion in 1980 to less just want them to make money on income of a black family, but the
than $8 billion in 1987, according to the Southside too, ” Mrs. Brazen median household net worth of
a study by the National Association said.
485
Ranking lenders on black vs. white loans
Comparing lending tomiddle-income neighborhoods
Black:White
Rank
How the rankings were determined:
Institution
Sources: Home Mortgage Disclosure Act reports byfinancial institu
tions, 1985-86; U.S. Bureau of the Census, 1980: Atlanta Regional
Commission census update, 1987.
Ranking lenders on black , working - class loans
Measurement of bank lending to black and /or low -income neighborhoods
Institution
Rank
Score
How the rankings were determined:
0-100
1.
Citizens Trust Bank *
2.
Mutual Federal Savings and Loan *
3. Liberty Federal Savings and Loan
4.
5.
6.
7.
8.
9.
10 .
11.
Anchor Savings Bank
DeKalb Federal Savings and Loan
California Federal Savings and Loan
First Federal Savings and Li an
First Union Bank
Decatur Federal Savings and Loan
Home Federal Savings and Loan
C& S Bank .
12.
Georgia Federal Bank
13.
Bank South
14 .
• Black -owned institution
Sources: Home Mortgage Disclosure Act reports by financial institu
tions, 1985-86 : U.S. Bureau of the Census, 1980 ; Atlanta Regional
Cornmission census update, 1987 .
score .
486
THE ATLANTA CONSTITUTION
For 119 Years the South's Standard Newspaper
nes
Attachment
Cox, Chairman 1950-1957 - James M. Cox Jr., Chairman 1957-1974
A -2
Publisher
Bill Kovach
Dennis Berry
Editor
PAGE 14A, WEDNESDAY, MAY 4, 1988
If it's not redlining, prove it
The chairman of a local bank has al- is devastating. Home ownership is the main
ready said it best: “ Those numbers ... are
vehicle by which American families accu
damning,” said Frank Burke of BankSouth . mulate wealth . The practices of the city's
“ Those numbers are mind-boggling.”
487
Jim Minter , Senior Editor
The Sunday editorial page is prepared by the editorial
Attachment
5-1-88
Redlining : an economic war
waged on black communities
A3-
A
tlanta's black neighborhoods are under attack, and under
attack from some unlikely sources: the city's most repu
488
Attachment
A -4
hind
11
ROB NELSON -PICTUREGROUP
A pattern of discrimination that touched even black officials: Lomax in front of property
The Return of “ Redlining
An Atlanta bank exposé revives a tindery issue
Jhe Sunday, May 1, edition of The tern of discrimination persists — a subtle,
Atlanta Journal and Constitution led institutional discrimination that shuts the
ning of a series of articles accusing Atlan-
Bankers generally deny that racial red
ta's banks of discriminating against
blacks. According to the painstaking anal
lining exists. They say the problems are
economic. " Banks are not worried about
ysis of computer data provided by the
banks themselves, lenders were five times
color of skin ,” says George Stone, first
deputy commissioner of the Chicago De
more likely to give mortgage and home partment of Housing. " They're worried
improvement loans to whites than to
blacks. The paper quoted an Atlanta mayoral candidate, Fulton County Commission chairman Michael Lomax,who had to
approach three banks before he was able
fair — and damaging. Lee Sessions, execu
tive vice president of C & S bank , said,
" Anything that is perceived as a problem
to get a $115,000 home-improvementloan.
is a problem."
Lomax asked, " If I, a powerful black elect-
about capacity to pay back loans. " Still,
some lenders concede the result is un
Few defaults: The next step is Atlanta's to
ed official, can't get a loan , what black take: the city has pledged to work with
person can ?”
banks to develop better investment in the
The series hit Atlantans hard. Atlanta predominantly black south side of town. If
City Council president Marvin Arrington
recalls that when he read the first article
that doesn't work, boycotts could result.
City leaders say lawsuits could be in
on Sunday, " I sat there with my head in my the works and that Atlanta might even
hands, with tears running outof my eyes.” pull funds from banks with bad investment
The news was especially jarring since At- records. Arrington hopes that won't be
lantahas built an image asa bastion ofgood
necessary . " We're not here to beat up on
race relations and opportunity for blacks. anybody," he said ata meeting with bank
The timing couldn't be worse. Atlanta
hopes to showcase its achievements during
the Democratic convention there in July.
ers. " We're looking for solutions."
It's unclear how much even well- inten
tioned institutions will be willing to do.
The series also underlined the fact that Mortgages in some poor urban areas actu
" redlining " -denying loans in ethnically have low default rates. But they yield
neighborhoods — is alive and well, and not less profit and often require government
just in Atlanta. Similar investigative
methods used for the articles have turned
up inequities in Chicago, Washington ,
D.C., Denver and Baltimore. A hot topic in
subsidies to make them work. Still, banks
have absorbed much bigger losses on sup
posedly high -profit ventures like loans to
the Third World and to the oil patch . In
the 1960s and '70s, the issue of redlining comparison, equal-opportunity lending
had largely died down thanks to federal | looks like a smart investment.
action and bank efforts to promote minor. JOHN SCHWARTZ with Frank S. WASHINGTON
ity interests. Despite that progress, a pat
489
Attachment
B
ACORN
October 12 , 1987
Alan Fishbein
Center for Community Change
1000 Wisconsin Avenue , N.W.
Washington D.C. 20007
Alan ,
Enclosed is a copy of the CRA statement from First National Bank of
Commerce ( New Orleans ) that we discussed on the phone last week . Note
that it was written in 1979 and appears to be unchanged since then .
To refresh your memory , the interesting thing about this statement
is that it does not include home purchase loans , yet the bank is
active in the market . The HMDA reports for 1984 , 1985 and 1986 show
that the bank makes , on average one home purchase loan a week . That
data is enclosed as well . If you need copies of the actual HMDA reports
just let me know .
The bank called us last Friday to try and schedule a meeting with us , so things
a
Do you have any copies of bank CRA statements
that display a more aggressive posture towards CRA ? I think that
could be useful for us here .
are moving forward ,
Thanks for your assistance .
Sincerely ,
Mab
Merle Malakoff
Organizer
Malaboff
Association of Community Organizations for Reform Now
Organizing and Support Center: 401 Howard Ave., New Orleans, Louisiana 70130 504-523-1691
12.41
Member
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Attachment
WIDDOUTH
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andJUSTICE
PO BOX 11428
MEMPHIS , TN 3811 - 0428
Senator William Proxmire
530 Dirksen Building
United States Senate
Washington, DC 20515
February 11 , 1988
Dear Senator Proxmire :
I have been informed that you are considering holding hearings in March on the
performance of the various financial regulatory agencies in enforcing the
Community Reinvestment Act. I would like to offer the recent experiences of the
Shelby County Community Reinvestment Coalition in challenging Leader Federal
Savings& Loan Association's application to open a new branch in Shelby County ,
Tennessee . The regulatory agency in question is the Federal Home Loan Bank
Board and particularly the Cincinnati District Office.
The FHLBB allowed Leader Federal Savings& Loan Association to submit
inaccurate and incomplete Home Mortgage Disclosure Statements and then allowed
them to drag their feet in responding to our requests for complete and accurate
HMDS's and to finally deliver the accurate information to us several days before
a scheduled oral argument. In Nashville their 1985 HMDS is completely missing .
ONE - SIDED BANK EXAMINATIONS
After our Coalition's initial complaint against Leader Federal and a one hour
oral argument, the Cincinnati office initiated a " regular examination" of Leader
Federal and never bothered to even interview those community leaders who had
complaints about Leader Federal's CRA performance.
NEW APPLICATIONS ALLOWED WHILE QUESTIONS WERE PENDING
While a decision was still pending on our Coalition's initial complaint, the
Cincinnati office of the FHLBB allowed Leader Federal to file three more
applications to open new branches even though the regulations are fairly clear in
stating that when there are regulatory issues outstanding they should not do so .
492
page 2
Proxmire
AR FORMS NOT REQUIRED OF SAVINGS& LOANS
Although the regulations clearly mandate that Savings& Loans are to file AR
Forms with the regulators and make them available to their members, Leader
Federal never has filed such forms, claiming an exemption for institutions which
do not have transactions with affiliated parties. Leader Federal clearly has had
transactions with affiliated parties and has never been challenged on this by the
FHLBB.
GENERAL FAVORITISM SHOWN
In our challenges we have found the FHLBB's regulations inconsistently applied
to us and to Leader Federal with obvious favoritism shown to Leader Federal.
I would like to expand on some of these points for your further information and
also offer you access to copies of the correspondence which will document these
problems.
INCOMPLETE HOME MORTGAGE DISCLOSURE STATEMENTS
Leader Federal submitted Shelby County HMDS's for 1984 and 1986 which
include large portions ( over 20% intially in 1986) of their lending in a lump
category called " Shelby County " even though Shelby County is thoroughly divided
into census tracts and HMDA requires that lending be delineated by census tract.
When we called this problem to the attention of Leader Federal and the FHLBB in
August of 1987 Leader was allowed to drag out correcting their 1986 HMDS even
though there was an oral argument on their CRA record scheduled in Memphis for
September 15. We repeatedly made the point to the FHLBB that Leader Federal
should be required to fully and correctly present their HMDS before an oral
argument be scheduled. Our request was denied by Mr. Lassiter, the Supervisory
Agent of the Cincinnati District, in a letter dated September 10 .
493
: page 3
Federal HMDS in existence . Which one is the correct one is probably anybody's
guess. The figures on Leader's 1985 HMDS for conventional loans within minority
census tracts are at such variance from the figures for the year before and the
year after that it is very doubtful that they are correct. When we asked for a
" special investigation " of Leader's HMDS's we were told orally that such an
investigation would take place , but later found out that the FHLBB was
conducting a " regular examination " of Leader Federal and to this date we still
have no assurances that Leader Federal's 1985 and 1984 Shelby County HMDS's
are correct. In 1986 Leader Federal first submitted a HMDS which did not include
any Home Improvement Lending. When we challenged them on that a HMDS with
just Home Improvement Lending appeared several weeks later dated for the same
date as the original . Since it is common practice to submit the entire HMDS at
once , we can only conclude that Leader Federal goofed and then was allowed by
the Cincinnati office of the FHLBB to submit a back-dated HMDS to cover up that
fact. With those two versions of Leader's 1986 HMDS, a later copy to merge them ,
a half-way corrected copy labelled " Corrected 9-10-87" and a final version
labelled " Corrected 10-28-87" we have now seen five versions of Leader's 1986
HMDS.
On the basis of regulations governing the filing of branch office application
forms ( CFR 12-545.92c) we believe that the FHLBB should not have accepted
Leader Federal's three most recent applications to open new branches( December
of 1987) . According to the regulations:
The Board shall not accept an application if in its opinion the
association is not eligible or its policies, conditions, or
operations afford a basis for supervisory objection . The
Supervisory Agent shall determine that the application is
complete , the applicant is eligible , and that as a preliminary
matter there is no basis for supervisory objection to the
application, before giving direction for publication of notice .
There are a number of unresolved issues related to Leader Federal's
Community Reinvestment record which in our opinion should have been the
basis of a supervisory objection to the publication of a legal notice
concerning these applications. These unresolved issues include :
1. No final ruling by the FHLBB on our previous CRA challenge
of a Leader Federal application to open a branch in Cordova,
Tennessee .
2. Because of numerous questions about the accuracy of Leader
Federal's HMDA statements during the course of our previous
challenge , we requested and the FHLBB agreed to a special
investigation of Leader Federal's activities. Later they denied
that they ever agreed to a " special investigation " but
494
page 4
Proxmire
questions about Leader Federal's 1984 and 1985 Home
Mortgage Disclosure Statements have never been resolved .
Unless the Supervisory Agent already knew how these issues were going to
be resolved ( we have heard of no resolution ) , it seems to us that there
should logically have been a supervisory objection to acting on these
applications until these significant previously raised issues were resolved.
AR FORMS NOT REQUIRED OF SAVINGS& LOANS
According to the Regulations of the Federal Home Loan Bank Board
( 563.45) each insured institutions is required to transmit a Form AR or
Annual Report Form to its members upon request at least 20 days prior to
its annual meeting. As a member of Leader Federal Savings & Loan
Association I asked for copies of their AR Form on November 18 , 1987. I
received a reply from Ms. Frances P. Nothern, Leader Federal's Secretary ,
in which she maintained that Leader Federal was not required to file a Form
AR because of the exemption listed in 563.45 ( b) ( 3) which states that
Savings& loans which do not engage in transactions with affiliated parties
are exempted. Since Leader Federal has clearly engaged in transactions with
affiliated parties in recent years I can not understand why they have been
exempted from filing these information forms. During the same time frame I
received a very unhelpful letter from Mr. Michael Doebereiner of the
Cincinnati office of the FHLBB which simply said that Leader Federal had
not filed a AR Form and was not required to do so.
GENERAL FAVORITISM SHOWN
1. The place for the postponed September 15 oral argument was first set
for a hotel owned by a prominent Leader Federal Board member without any
input from the Coalition.
2. In a letter addressed to myself on August 25 , Kimberly Jackson of the
Cincinnati office requested that the Coalition " please submit a list of the
individual( s) who will be representing the Coalition at the presentation, as
well as a list of the individual( s ) who will be in attendance at the oral
argument. We would appreciate having the list on or before September 1 ,
1987." We submitted that list of attenders and presenters on September 2
only to find that Leader Federal was given the opportunity to review our
list and comment on it. We were given no comparable opportunity and in fact
found out through a September 8 letter from Mr. Ross, Leader Federal's
President to Mr. Lassiter that Leader Federal was only at that time
assembling its list of attenders. In addition we were denied the right to
have additional interested members of the community present at the oral
argument.
3. During a September 9 phone conversation , Mr. Tucker of the National
office of the FHLBB told me that the Cincinnati office had assured him that
there were portions of Shelby County which were untracted ( thus excusing
Leader's lump sums on their HMDS) in spite of my September 3 letter to Mr.
Lassiter which included a map of Shelby County clearly showing all areas
tracted .
495
:
page 5
Proxmire
4. In the public record Mr. Lassiter has taken pains to refer to the
September 15 hearing delay as being the result of our request even though
that delay was obviously decided on by Mr. Ross and Mr. Lassiter and then
conveyed to us as a foregone conclusion. Mr. Lassiter's letter to me dated
September 11 begins " In response to your request for an extension of time
for the oral argument.... I am rescheduling the oral argument for 9:00 a.m.,
Thursday, September 17, 1987 , at the Wilson World Hotel." The only
extension of time I requested related to Leader Federal's inadequate HMDS
and that request had already been denied on September 10. It was clearly at
either Mr. Ross's request or at the initiative of Mr. Lassiter that the oral
argument was postponed, yet Mr. Lassiter for some reason distorted the
record to indicate that my request was responsible for the delay. The only
logical explanation of this convoluted attempt to change the facts was that
it was an attempt to protect Leader Federal from any adverse publicity
relating to their request for a delay in the oral argument.
5. The regulations which govern the oral argument process clearly state
that the date and time of such oral arguments must be mailed to each
participant ten days in advance and that " the Supervisory Agent shall
ensure that the time and place of any oral argument is reasonably
convenient to the protestants. " On September 11 by letter and September 13
by phone call Mr. Lassiter attempted to change the September 15 date to
September 17. The September 15th hearing date was postponed because
Leader Federal requested a two-day delay in order to meet with us .Mr.
Lassiter willingly assented to a two day delay even though the regulations
talk very specifically about a written 10 day notice of date, time and place.
When we vigorously protested that two day delay ( which we construed solely
as an effort to throw a Coalition of twelve different organizations off
balance by a last minute change of schedule) the hearing was finally
postponed further until October 16. We were not informed of the place of the
scheduled October 16 hearing until we received an October 9 letter. The
place for the November 3 hearing was changed by letter dated October 27.
When a Coalition of twelve different organizations has to coordinate its
efforts against a constantly moving target ( in terms of place of hearing as
well as ever - changing HMDS's) it causes a great deal of frustration and
confusion. As a Coalition we did not appreciate such crude efforts which
seemed very indicative of a one - sided approach by the Supervisory Agent.
All in all we do not believe that we have been playing on a level playing
field , and we would appreciate any efforts you might make to convince the
FHLBB to treat CRA complaints more seriously and fairly.
Thank you for your attention to this matter, I can be reached during office
hours at ( 901) 452-6997 if you have any questions about this material. I am
also willing to provide copies of our correspondence with the FHLE
further document these items.
LAULTH
Sincerely yours ,
Hubert Van Tol
( for the Shelby County Community Reinvestment Coalition)
cc: Senator Jim Sasser
496
1
Attachment
2109 BULL STREET
POST OFFICE BOX 2267
D -l
PALMETTO LEGAL SERVICES
COLUMBIA , SOUTH CAROLINA 29291
TELEPHONE ( 803 ) 799-9668
February 26 , 1987
Vernon E. Fasbender
Director of Analysis
Comptroller of the Currency
Southeastern District
Peachtree Cain Towers
Suite 2700
229 Peachtree Street , NE
Atlanta , Georgia 30303
Re :
86 -SE-02-073-South Carolina National Bank
Dear Mr. Fasbender
On behalf of Fairfield United Action , we are formally redesting you
to reconsider and reverse your earlier decision not to hold a public
hearing in the above referenced matter . In light of our December
24 , 1986 submission it should be absolutely clear that the issues
raised by Fairfield United Action of racial discrimination and
failure to serve the low and moderate income community are substan
tial and deserve the fullest possible consideration . Fairfield
United Action has more than met the burden of providing a prima
facie case that South Carolina National has been involved in be
havior which makes it an unacceptable institution to expand its service
area into this predominantly minority and low and moderate income
community .
To deny Fairfield United Action and other concerned parties the
opportunity of questioning representatives of the South Carolina
National Bank concerning their wholly inadequate and nonresponsive
answer to the very serious , factually substantiated complaint violates
the Community Reinvestment Act ; denies complaintants due process ;
will render any favorable decision with respect to SCN's request for
merger arbitrary and capricious and unsupported by facts on the
record . South Carolina National fails entirely to provide any fac
tual rebuttal of the statistics which show gross disparities its
lending practice with respect to blacks and for loan availability in
low and moderate income communities served by South Carolina
National .
To deny complaintants the opportunity to publicly address these
issues would constitute a failure by the Office of the Comptroller
--
497
Vernon E. Fasbender
Page Two
February 26 , 1987
to meet its responsibilities under the Community Reinvestment Act
and violate fundamental principals of administrative procedure and
due process . The only possible justification for not holding a
hearing is if the Comptroller has concluded to summarily reject
South Carolina National's request for a merger based upon Fairfield
United Action's written submission .
Sincerely yours
Tukal bresthethed
Michael Gregg Pritchard
Attorney for Complaintants
sh
сс
Senator Ernest F. Hollings
Robert N. Jenkins , Esquire
Anne McClain Johnson , Esquire
T. Steven Lynch , Esquire
498
GEORGIA LEGAL SERVICES PROGRAMS
115 EAST YORK SIRECT- 2ND FLOOR
ICMAT::.. JW .
HP
*
3
Y
Attachment
: CDR
SVERRY
D- 2
- CUNNEHAT, JR .
September 23 , 1987
Mr. Cliéton pocie , Deputy Comptroller
0 : 33ra ni -ne comptroller of the Currency
Soucnsaster : District
Margris One Tower , Suite 500
295 ? eachtree Center Avenue , N.E.
Atlanta , Georgia 30303
Re : Proposed Merger of First Union Bank
Dea : r . Poole :
his letter is to request a reconsideration of your office's
decisica 200 to grant a public hearing in regard to the above
-atten
the members of the Savannah Reinvestment Alliance and this office
feed that a public hearing is vitally necessary for a number of
reasons . For instance , most of the members of our lower income
Comunities
cannot
20 :0cisi ,
حد:
afford
to
COin e
to
sould urge your osfice to reconside : this
499
.:: . Ciston Poole
September 23 , 1987
Page 10
opposition to what they feel was an arbitrary denial of a public
hearing . We will send copies of these petitions once they have
all been collected .
Thank you for your consideration and I look forward to hearing
from you .
Sincerely ,
44
Murphy A. Cooper , III
Attorney at
MAC : mbd
Enclosure
500
Attachment
È -1
COMMUNITY LEGAL AID SOCIETY , INC.
Main Office
October 27 , 1987
L. William Seidman , Chairman
Board of Directors
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington , D.C. 20429
RE :
Phantom Merger of Delaware Trust Company
and Interim Delaware Trust Company
Dear Vs. Smith:
I am representing the Delaware Community Reinvestment Action Council
( " DCRAC" ) in a protest that was filed with the New York Regional Office of the Federal
Deposit Insurance Corporation ( " FDIC " ) on October 20, 1987 , at approximately 9:20 a.m.,
in regard to an application filed by Delaware Trust Company for a phantom merger with
Interim Delaware Trust Company. I am enclosing a copy of the Protest Comments filed
on behalf of the DCRAC with the New York Regional FDIC office.
On behalf of the DCRAC , I am formally requesting that the FDIC Board of
Directors set aside the approval of the above mentioned application which was made by
the New York regional office under delegated authority on October 20, 1987 at
approximately 12:45 p.m.
It is my understanding that if a protest is filed with the FDIC before the
processing of an application is completed, the application cannot subsequently be
approved by a regional office under delegated authority . In the instant case , it is our
position that the protest comments filed by DCRAC on October 20, 1987 were filed with
the FDIC prior to the completion of the processing of Delaware Trust's application for a
phantom merger. Delaware Trust's application was technically approved by the FDIC on
October 20, 1987 at 12:45 p.m. after the FDIC received written verification from
Delaware Trust of its final publication. Because the protest materials were received by
FDIC before completion of the processing of Delaware Trust's application , it appears
that the New York regional office should not have approved the application under
delegated authority. Upon receipt of the protest materials the regional FDIC office
should have forwarded the application along with the protest materials to the FDIC
Board of Directors in Washington , D.C. , for any further action.
Furthermore, during my telephone conversations with Frank Francisco,
Applications Officer, FDIC New York Regional Office, on October 15 , 16, and 19, 1987 , I
informed Mr. Francisco that the DCRAC intended to file written comments on Delaware
Trust's application outlining what we believed to be serious violations of the Community
Reinvestment Act ( " CRA " ) . In fact, on October 15th when Mr. Francisco informed me
that the deadline for filing Comments was on October 15th, I immediately requested a
two week extension to accomplish the filing of the Comments . I explained to Mr.
Francisco that because the FDIC " Listing of Pending Applications Subject to the
NEW CASTLE CO. Main Office . 913 Washington Street , Wilmington , DE
The United View
501
Community Reinvestment Act" received by this offfice does not indicate deadlines for
filing Comments, we were unaware of any deadline for filing comments on Delaware
Trust's pending application .
On October 16, 1987 , Mr. Francisco informed me that my request for a two week
extension had been denied. However, he further informed me that under the procedures
followed by the New York Regional Office our protest comments would be considered by
the FDIC if filed before Delaware Trust's application was processed and approved.
Moreover, during a telephone conversation with Mr. Francisco on October 19, 1987, I
informed Mr. Francisco that we would be filing Comments on Tuesday morning, October
22 , 1987. During our conversation on October 19th , Mr. Francisco also informed me that
Delaware Trust's application had not yet been approved.
It is clear that the FDIC had knowledge as early as October 15 , 1987 , that the
DCRAC would be filing protest comments outlining significant CRA violations .
Furthermore, because the application was not officially approved at the time the FDIC
received our protest materials, it is clear that the subsequent approval of the application
should not have been made under delegated authority by the New York Regional Office,
and in fact, violated the FDIC's own procedures. In addition, it should be clarified that it
is my understanding from Mr. Michael Piracci, Assistant Director of the New York
Regional Office, that the FDIC did not consider DCRAC's protest comments prior to
approving the application on October 20, 1987 .
For the above reasons, we are again requesting that the FDIC Board of Directors
immediately issue an order recinding the approval of the application by Delaware Trust
to establish a phantom merger with Interim Delaware Trust. Furthermore, DCRAC is
requesting that Delaware Trust's application be denied until such time as Delaware Trust
provides assurances to the Delaware communities that it will adopt new policies and
practices for more effectively carrying out its federally mandated community
reinvestment responsibilies in low and moderate income neighborhoods.
If you require any additional information , please do not hesitate to contact me.
Thank you in advance for your consideration of our request. I look forward to a prompt
response from the FDIC.
Sincerely ,
Muil R. کرZale
MERRIL L. ZEBE, ESQUIRE
MLZ / cls
cc : State Representative James H. Sills , Jr. ,
502
Attachment
E - 2
FEDERAL DEPOSIT INSURANCE CORPORATION
Re : Delaware Trust Company
Application for Consent to Merge ( phantom )
ORDER AND BASIS FOR CORPORATION APPROVAL
Pursuant to Section 18( c ) and other provisions of the Federal Deposit
Insurance Act , an application has been filed on behalf of Delaware Trust
Company , Wilmington , Delaware , ( Operating Bank ) , an insured State nonmember
bank with total assets of $1,053,893,000 and total deposits of $ 906,837,000 ,
for consent to its merger with Interim Delaware Trust Company ( New Bank ) under
the charter of Delaware Trust Company and with the title Delaware Trust
Company .
Formation of Interim Delaware Trust Company and the merger transaction are
being effected solely to enable a bank holding company ( Meridian Bancorp
Inc. ) , to acquire all of the outstanding Delaware Trust Company stock .
Following consumnation of the phantom merger , Delaware Trust Company will
operate the same banking business at its existing locations . The proposal ,
per se, will not significantly effect the competitive structure of banking in
the market served by the Operating Bank . Operating Bank has indicated it will
increase services available to its communities including low and moderate
income neighborhoods . Emphasis will be placed upon increasing commercial and
consumer loan generation , trust services and credit card programs .
All
factors required to be considered pertinent to the application have been
favorably resolved . There have been no protests to this proposal .
The transaction shall not be consummated before the thirtieth calendar day
following the effective date of this Order or later than six months after the
effective date of this Order , unless such period 18 extended for good cause by
the Corporation. Until the proposed transaction becomes effective, the
Corporation shall have the right to alter , suspend or withdraw its approval
should any interim development be deemed by the Board of Directors to warrant
such action .
By Order of the Regional Director of the New York Regional Office , acting
pursuant to delegated ' authority for the Board of Directors of the Corporation .
Dated at New York , New York , this
20
I
day of celebe , 1987.
hand to
Edward T. Luty
Regional Direktor
503
Attachment
E -3
COMMUNITY LEGAL AID SOCIETY , INC..
Main Office
L. William Seidman
Chairman
Board of Directors
Federal Deposit Insurance Corp.
550 Seventeenth Street, N.W.
Washington , D.C. 20429
RE :
Phantom Merger of Delaware Trust Company
and Interim Delaware Trust Company
Dear Mr. Seidman:
This letter is written on behalf of the Delaware Community Reinvestment Action
Council ( DCRAC) in response to the November 4, 1987 letter sent to the FDIC by
Timothy Demers , counsel for Meridian and Interim Delaware Trust Company.
In the November 4, 1987 letter, Mr. Demers indicates that DCRAC's Protest/
Comment was not received in the proper time to be considered by the FDIC. However,
the facts clearly show that DCRAC'S Protest/Comment was filed with the FDIC before
the application was officially approved. I am enclosing a copy of our receipt from
Federal Express which indicates that the Protest/Comment was filed on October 20,
1987 , at 9:20 AM . Furthermore, the memorandum and attached chronology of events
regarding the application , dated October 22, 1987 , prepared by Edward T. Lutz , Regional
Director, which was sent to Janice Smith, Director of the Office of Consumer Affairs,
clearly show that the application was not offically approved until 12:45 PM on October
20 , 1987 , after the FDIC had received written verification of publication from Mr.
Demers.
Mr. Demers further suggests that because DCRAC has been involved in
negotiations with Meridian and Delaware Trust as a result of a ProtestComment filed by
DCRAC with the Federal Reserve that the FDIC should disregard DCRAC's Protest /
Comment filed against Delaware Trust with the FDIC . Clearly, the FDIC has obligations
under its own regulations and procedures to consider any Protest/Comment filed with the
FDIC alleging violations of the Community Reinvestment Act and must consider any such
Protest /Comment on its own merits regardless of any similar proceedings initiated with
another federal regulatory body .
NEW CASTLE CO. Main Office , 913 Washington Street , Wilmington , DE
TheUnitedWay
504
It is DCRAC's position that the FDIC did not comply with its own procedural
requirements and erroneously approved Delaware Trust's application underdelegated
authority despite the timely filing of a Protest /Comment by DCRAC. For the reasons
previously set forth in my letter dated October27, 1987 andas set forth above, DCRAC
is respectfully requesting that the FDIC rescind the approval of the application filed by
Delaware Trust to establish a phantom merger with interim Delaware Trust and deny
Delaware Trust's application until such time as Delaware Trust provides assurances to
' the Delaware communities that it will adopt new policies and practices for more
effectively carrying out its federally mandated Community Reinvestment responsibilities
in low and moderate income neighborhoods.
Sincerely ,
memil R. Zebe
MERRIL L. ZEBE, ESQUIRE
MLZ/cls
cc:
State Representative James H. Sills , Jr. ,
505
FDIC
Office of the Executive Secretary
NOVEMBER
1987
CERTIFIED - RETURN RECEIPT REQUESTED
Mr. William C. Lickle
Chairman and Chief Executive Officer
Delaware Trust Company
900 Market Street
Wilmington , Delaware
19801
Dear Mr. Lickle :
Subject :
Delaware Trust Company
The Board of Directors of this Corporation has today rescinded the Order
issued on October 20 , 1987 , by the Regional Director ( Bank Supervision ) for
the FDIC'S New York Region approving the application of Delaware Trust
Company , Wilmington , Delaware , for consent to merge with Interim Delaware
Trust Company, Wilmington , Delaware . This rescission is based on the need to
consider a comment filed pursuant to the Community Reinvestment Act .
A copy of the Order evidencing this rescission is enclosed .
Sincerely ,
( 83.7ed ) Hoyle L. Robinson
Enclosure
506
FEDERAL DEPOSIT INSURANCE CORPORATION
Re :
Delaware Trust Company
Application for Consent to Merge ( Phantom )
RESCISSION OF ORDER APPROVING APPLICATION
On October 20 ,
1987 ,
the Regional Director
( Bank Supervision )
for the
FDIC's New York Region , acting pursuant to delegated authority , issued
an Order ( " Order " ) approving the application of Delaware Trust Company ,
Wilmington , Delaware , for consent to merge with Interim Delaware Trust
Company . This phantom merger is part of a plan by which Meridian Bancorp .
Inc. intends to acquire all the outstanding stock of Delaware Trust Company .
The Order states , in part : " There have been no protests to this proposal. "
Following the issuance of the Order , it was discovered that a written
comment protesting the application had been received shortly before the
Order was issued .
The comment raised issues relating to the applicant's
compliance with the Community Reinvestment Act .
FDIC regulations require the FDIC , in evaluating a merger application ,
to consider comments received , as well as the applicant's record of
performance under the Community Reinvestment Act .
Because the comment
in question was not filed within the 30- day comment period prescribed
in the FDIC's regulations , the FDIC did not consider the comment before
formal action on the application was completed . The Board of Directors ,
in its discretion , has decided that , under the specific circumstances
of this case , the Order should be rescinded to permit the FDIC to consider
the comment received on October 20 , 1987 .
Accordingly , it is hereby ORDERED , that the Order dated October 20 , 1987 ,
issued by the Regional Director ( Bank Supervision ) for the New York Region ,
approving the application of Delaware Trust Company , Wilmington , Delaware ,
for consent to merge with Interim Delaware Trust Company , is hereby
rescinded .
By order of the Board of Directors .
10th
day of November , 1987 .
Dated at Washington , D. C. ,
FEDERAL DEPOSIT INSURANCE CORPORATION
( Signed) Hoyle L. Robinson
By: Hoyle L. Robinson
this
507
Attachment
F
[ REVISED 3/31/881
SECTION- BY - SECTION SUMMARY
OF THE CONSENSUS VERSION
OF CRA ENFORCEMENT AMENDMENTS
[ Sponsored by :
Mr. Kennedy , Mr. Garcia , Mr. Fauntroy , Mr.
Schumer , Mr. Mfume , and Mr. Flake . )
offered as an amendment in the nature of a substitute to
Section 201 of the " Depository Institutions Act of 1988. "
Subtitle A -- Community Reinvestment Act
Enforcement Provisions
Section 201 :
Short Title :
" Community Benefits Amendments of
1988."
Section 202 :
Findings and Purposes .
Section 203 :
Amendments to the Bank Holding Company Act of 1956 .
( a) ( 1)
The Federal Reserve Board may not approve any
following applications unless a bank holding company ( BHC ]
achieves a minimum Community Reinvestment rating :
of the
-applications by a BHC to acquire another bank or BHC
( except for federally approved acquisitions of troubled
institutions ) ;
-applications by a bank to acquire another bank and
this does not
include simple bank-bank mergers , which are not governed by the
thereby become a bank holding company ( note :
Bank Holding Company Act ) ;
-applications for new powers in securities , insurance ,
real estate , or any other area in which applications are required
under Section 4 ( c )
of the Bank Holding Company Act ;
-applications for interstate banking activities under
Section 3 ( d ) of the Bank Holding Company Act ;
( a) ( 2 )
The minimum rating is defined as a " 1 "
or a " 2 " ( good ) .
[ excellent ) ,
However , a bank holding company with a " 3 "
( average ] rating may have its application approved if it makes
commitments to improve in the future ( see below ) .
( b)
A BHC with a " 3 " rating may get preliminary approval of
1
85-619 0 - 88 - 17
508
its application .
It then has two years to take actions to
improve its rating to a " 2 " or better .
After six months , the
Board shall review the BHC to determine whether it has
implemented the programs and policies that will enable it to
improve its CRA performance within two years .
( d)
No affiliation of a bank and a securities firm is
permitted if it would diminish the availability of credit or
deposit services in low- income areas .
( e)
A securities firm wishing to acquire a bank with a poor
CRA rating may do so only if it makes commitments to improve the
acquired banks rating to " good " or " excellent " within two years .
( f)
Imputed ratings : The imputed rating of a BHC is the
rating assigned to the subsidiary with the least favorable
rating , except as provided .
( i ) Any commitments made by the applicant for future
performance are required to be made public .
( j)
Continuing enforcement :
If at any time the applicant
BHC receives a CRA rating of " 4 " [ limited effort ] or " 5 "
( poor or
substantial noncompliance ) , or if the applicant fails to fulfill
commitments to improve , then the Board is required to give the
applicant an additional 18 months to improve its performance and
fulfill its commitments . If the regular CRA exam after 18 months
does not show improvement , the Board shall impose civil penalties
proportionate to the size of the institution . [ No requirement to
divest of the new activities is imposed , but the Board retains
its authority to issue cease and desist orders . )
2
509
( k)
Definitions .
Section 204 :
Amendments to the National Housing Act .
This section applies similar provisions to savings and loan
holding companies .
Section 205 :
Amendments to the Community Reinvestment Act of
1977 .
Section numbers in this part refer directly to the
Community Reinvestment Actl
CRA Section 807 : Notice of examinations . The regulators
are required to publish notices of all CRA examinations in local
newspapers .
CRA Section 808 : The regulatory agencies shall collect
information regarding the performance of depository institutions
in meeting the credit needs of their local communities .
CRA Section 809 :
The regulatory agencies are required to
prepare written evaluations of CRA performance , which must be
disclosed publicly . ( Currently , all CRA ratings and reports are
kept secret - even from the banks themselves . )
Sources and
sensitive subjects are not required to be disclosed if the
judgement of the regulatory agency is that such information
should be kept confidential .
CRA Section 810 : Each Federal Reserve bank is required to
prepare and publish a " community profile " for each community
within its district .
These community profiles are intended to
give an accurate estimation of the specific credit needs of
particular commuities . CRA evaluations should reflect an
institution's record of meeting those specific community needs .
( The Federal Reserve has already published detailed and
professional community profiles for several communities . )
CRA Section 811 :
Performance Rating System .
( a ) The regulatory agencies shall jointly develop
rating guidelines for assigning numerical ratings under CRA .
The goal of the rating process shall be to measure the extent to
which the institution is committing financial and managerial
resources to community reinvestment activities .
3
1
510
needs are more extreme , shall be held to an equivalent , but no
higher , level of resource commitments as institutions in more
prosperous communities .
A numerical rating shall be assigned at the
( b)
completion of an examination based on the guidelines established
under ( a )
above .
( c)
Performance Scale :
CRA ratings shall measure the
bank's community reinvestment performance on a comparative basis
relative to the performance of other banks with similar
The rating scale is defined as follows :
resources .
excellent
1
2
good
3
average
limited effort
4
5
--
poor or substantial noncompliance
This is the same language and the same rating scale that
was approved by the Committee as the Oakar - Schumer amendment to
the Interstate Banking Act in 1985. The language was
substantially changed from H.R. 4022 to accomodate the concerns
raised by several Members about creating a " quota system " under
which some banks MUST fail . While current levels of performance
may imply that some banks OUGHT to fail , this provision does not
create an explicit or implicit " quota system . "
Most banks will
probably fall in the good - to - average range , and some will
therefore have to commit to improve their performance in the
NOTE :
future .
CRA Section 813 :
In evaluating CRA performance , the
regulatory agencies may take into consideration the activities of
the parent holding company and the activities of nonbank or
nonthrift affiliates which help to meet the credit needs of local
communities and low- income neighborhoods .
Subtitle B -- Agency Reforms
Section 211 :
Consumer Divisions .
4
--
511
( Note : The Federal Reserve already has a separate division
of consumer affairs that is responsible for CRA examinations .
This provision does not create any new bureaucracy . It simply
allocates an existing task to specialized examiners . )
Section 212 :
Community Review Boards .
Each Federal Reserve Bank shall establish a " Community
Review Board . " These boards shall be comprised of 16 unpaid
members , including 4 bankers , 4 representatives of community
organizations , 4 representatives of consumer groups , and 4
representatives of civil rights organizations.
5
512
ATO
All Federal laws against discrimination 5-1-89
: 1 The Community Reinvestment
Act of 1977 – Banks have " continuing and affirmative obligations to help
i meet the credit needs of their local
communities , including low- and
moderate- income neighborhoods,
gion, race, color, national origin,
receipt of public assistance, or efforts
to exercise consumer rights. The law
requires notification of denial in writ
ing, with the reason specified if the
consumer requests.
consistent with safe and sound oper-
The Falr Housing Act - Part of
ation ."
Citizen rights under Community Reinvestment Act
Citizens have a right to fair aciuus
to credit services, deposit services
and other services provided by banks
and savings and loans.
Citizens have a right to make their
credit needs and service needs
known to a lender and to expect the
513
How study of home loans in
metro Atlanta was carried out
The Atlanta Journal-Constitu- metropolitan area's median income. owner-occupied housing units to be
tion study of lending patterns These groups were ( 1) tracts with gin with; and, because their rates of
tracked home-purchase and home median incomes above 122 percent growth or decline could not be de
improvement loans made by every of the area median, which were extermined, 33 tracts outside the sev
bank, savings and loan association , cluded because no non -white tracts en-county Atlanta Regional Com
and large credit union in metro At had income above that level; ( 2) mission area.
Janta from 1981 through 1986.
i The newspaper used the federal
After these deletions, the study
tracts below 70 percent of the area
median, which were excluded be focused on 64 middle-income tracts:
Freedom of Information Act to ob cause many of these households 39+ white, 14 black and 11
tain the information on computer would not be able to afford home- integrated .
tape from the federal government, ownership; and ( 3) the remaining
All lending comparisons were
which compiles it from lenders' re- " middle-income" tracts,which were based on an estimate from census
ports. These institutions are re. further separated into three groups dataof the number of one to four
quired to report the location of of “ lower-middle," " middle-middle "
family structu ' es eligible for mort.
each loan by census tract under the and " upper-middle " tracts. ( The gages in each census tract. This es.
federal Home Mortgage Disclosure metro area's median income at the timate was achieved by adding the
Act. The reports were compiled by time of the 1980 census was number of households in free-stand
the Federal Financial Institutions $ 18,355.)
514
Therefore the figures leave out
loans made by separate mortgage
companies owned by banks, unaffil
iated mortgage companies, life in
surance companies and individuals,
which altogether make more than
half the home-purchase loans. Con
gress recently expanded the law to
require reporting, beginning with
this year's loans, by bank- owned
mortgage companies.
Bill Dedman researched and wrote series on home loans.
The people who worked on the series
" The Color of Money" was
researcived and written over a
veloped by Calvin Bradford
and Charles Finn of the Hubert
period of five months by Jour.
H. Humphrey Institute of Pub
nal-Constitution staff writer Bill
lic Affairs at the University of
Dedman. A native of Chattanooga, Tenn . , Dedman , 27 ,
joined the Journal-Constitution
together have nearly 20 years
in 1987 .
community economic develop
The project was supervised
by Hyde Post, assistant city
editor for special projects, and
copyedited by Sharon Bailey.
Dwight Morris, assistant managing editor for special projects, supervised the analysis
of lending data.
ment .
Minnesota. These researchers
of experience in the field of
Research
assistance
was provided by Stan Fitter
man , a graduate student in
city planning at Georgia Tech .
The Journal - Constitution
also adapted some methods
and ranking systems used by
515
A tale of two neighborhoods,
one black and one white
By Bill Dedman
516
The small shopping centers
'They always find the small- nearGresham Park are not being
A look at Gresham Park , MacLendon
d
ul
Dr
N.
Gresham Park residents in south Dekab earn more money, are better-educated and live in newer homes than
residents of the McLendon areain north -central DeKalb- but they receive one-eighth as many of their home-pur
chase loans from banks and savings and loans. One possible reason: Most residents of Gresham Park are black.
Gresham McLendon
78
HillRs d .
Park
% minority
t .
ot lvd
B
Sc
McLondon
al
ri
mo
Ponce de Leon Ave
Me
.
Dr
Gresh : im
Rdr.
dle
Can S.
.
285
)
Note: Loan figures-are for 1986-87. Amounts for home
Sh
purchase loans by banks and savings and loans do not
oa
Fla
t
ls
lde
Bou
include unregulated morgage companies owned by them .
20
est
.
Rd
rcr
Sources: Loan data from Real Estate Data Inc., which
compiles information on real estate sales from county
records. Demographic data from the U.S. Bureau of
the Census, 1980.
សិ
Ad
i
517
Fulton's MichaelLomax : ' If I can't
get a loan ,what black person can ?
By Bill Dedman
over 10 years, the Fletchers would
have paid back $ 11,764.82.
In Fletcher's Mechanicsville
" I had remarried ,and we decid
518
that turned him down, but he did
No white - owned institution re
519
Poor may be left behind by
take cash. For example, the Atlanta Housing Au
thority, landlord for 15,000 low-income house.
holds, has required tenants to pay by check or
as institutions court
the wealthier clients
By Bill Dedman
money order since 1986 .
520
Many low-income Atlantans hare no checking
account. Of residents with annual incomes below
$ 15,000, the number without checking accounts
may be 46 percent, according to a market study
done last year for Trust Company Bank and a
neighborhood coalition.
me down to the bank v open a savings account
when I was a kid. It took 10 years for my balance
to get over $ 100, and when I was a teenager I
must have written three checks a month . But
eventually I'm going to make the bank a profit.
Banks don't seem to want that anymore.”
521
Southside treated like
Blacks may shun some home- loan lenders
because they're shunned first, critics say
By Bill Dedman
branches in black and integrated
522
ville, but not in East Atlanta or the
West End.
In effect, lending money to ho
523
Location of bank
and S& L branches
Areas less than 50%
black
GWINNETT
KDA
LE
COBB
ROC
...
DEKALB
FULTON
DOUGLAS
FULTON
CLAYTON
DAVE WINK /Staff
Where blacks bank .
Ranking banks by share of non -white customers
Share of
Non -white
Institution
DAVE WINK/ Staff
524
flected Hoyt's views as late as 1975.' usually don't refer homebuyers to loan, my nayments would have been
In that year,“ The Dynamics of banks and savings and loans. One $280 a munth, " Cullins said.
Change," a HUD publication, de
reason is that the banks don't come
fined racial change, or the fear of around looking for business.
525
man of Bank South, Frank Burke,, quired to disclose the information from the Northside.
said he was not aware that his to the public. But two of the largest
“ He called me and asked for di
branches in black areas were closed savings institutions in Georgia did. rections. He said he didn't work
on Saturday. He said he is mindful volunteer that information to the down here that often,” Clyde said.
of the Community Reinvestment Journal-Constitution for all their of.. “ I knew that was trouble."
Act
-
526
white Garden Hills, but by 20 per. ventional loans in white middle" It is not my intention – nor
cent in black Cascade Heights; 84 class areas, but only 22 percent of should it be the appraiser's job
percent in white Sherwood Forest, theconventional loans in compara- function — to debate the morality of
but 26 percent in black Adams Park; ble black areas where FHA and VA causes' and 'effects.'”
Whatever the cause and effect,
71 percent in white Peachtree Hills, loans predominate, according to the
6 percent in black Collier Heights. real estate records.
527
Rejection rates
Applicantsturned down for home loans
al Georgia's largest savings institutions
The Atlanta Journal-Constitution asked all banks and savings and loans
in metro Atlanta for their home loan rejection rates, but only these two
institutions provided them .
10 %
WWW
Fulton Federal
Savings and Loan
36 %
*
5 %
Georgla Federal
21 %
m . In
0908882908203
O
Percent of
Percent of
whites rejected
blacks rejected
Notes: These two institutions have offices statewide and together
control assets of $5.4 billion, or 33 percent of the assets in Georgia savings
institutions.
528
Selling lettuce, he built $3 million
firm , but can't get business loan
By Bill Dedman
-
--
529
Small -business lending
Atlanta's most active Small Business Administration lenders
% of SBA dollars
to minority &
Overall
SBA loan
%
of SBA dollars
performance
Rank
1.Trust Co.
2. Southern Fed .
3.Fulton Fed .
4.Bank South
5.C & S
6.NCNB
Score
7.First Atlanta
How the rankings were determined :
Sources: Southern Finance Project: Small Business Administration ; 1966 Sourcebook of
Demographics and Buying Power for Every ZIP Code inthe USA: Depository Institutions
PerformanceDirectory ; Federal Deposit Insurance Corp .; Federal Home Loan Bank Board.
of deposits in those areas. That's
true even if the downtown ZIP code
and bank headquarters are
al
530
Taskmyself,how is it
that so many neighbor
hoods are continuing to
fail, while so many lending
institutions are continu
ing to pass ?'
- Sen. William Proxmire ( D
Vis .) , chalrman of the Senate
Banking, Housing and Urban
Affairs Committee
5-3-88
A test that few banks
fail – in federal eyes
By Bill Dedman
May 3 ,1988
531
Law
' The regulators have been haphazard. There's a pattern of
532
SCOTT ROBINSON /Statt
'Il'e're not consumer activists – we're regula- with him are Federal Reserve examiner Robert
tors,' says Ronald Zimmerman ( right) , vice pres- Kennedy ( left) and examining officer William
ident of the Federal Reserve Bank of Atlanta ;
Estes III.
CRA after a long lull. There is still declined, causing community three years, they are really going to
groups to seek more investment by be good .”
much work to be done. "
While the annual examinations banks in their neighborhoods .
have decreased , challenges from
community groups have increased.
For example, the Federal Reserve
Bankers who haven't been chal- 'Process somewhat abused
lenged should get their records in
order before community groups
533
Law
From Page 14A
serve testified.
Proposed changes in the law
534
. Establish a procedure for
banks to notify the community and
sents the 10th District A banker by
535
Despite “ good citizen ' image, Trust
à
By Bill Dedman
The coalition filed a complaint
with federal regulators last year
against Trust Company's parent,
Sun'Trust Banks. After negotiating
unsuccessfully with the bank for a
year, the group asked the Federal
Reserve Board to stop a SunTrust
merger. The group claimed Trust
Company was redlining - not lend
ing in working-class and minority
neighborhoods — in violation of the
federal Community Reinvestment
Act.
:
SunTrust won, as has every oth
er bank challenged through com
plaints to the Federal Reserve
Board.
i Trust Company says the coali
tion picked the wrong target.
i " I think we get a bad rap," said
Jim Mynatt, first vice president of
Trust Company. " We don't have a
map up there with a redlined dis
trict."
536
speakers at our neighborhood meet
ing complained about Trust Compa
537
negotiations improved .
538
May4,1988
Bank protesters in Atlanta
By Bill Dedman
was
make ready to flex muscle
5-4-88
539
Protesters
85-619 O - 88 - 18
-
would be a start. They suggest $ 100
million a year.
.
540
no Where to report discrimination
- National Bank. ( " National" or " N.A." appears in the bank's
name.) Contact the Office of the Comptroller of the Currency,
404-331-4540 or 202-447-1600 .
bank, and changed them into dollar them in our neighborhoods. They
bills. Then they changed them back
didn't take it as a compliment,'
to pennies. Then theychanged them | Mrs. Cincotta said.
into dollar bills ....
541
which required banks to tell where that low-income and minority peo
they made home loans.
up ."
542
‘ Anybody can sit out there and
mouth off
By Bill Dedman
The back door of Taylor's olnice
on Jonesboro Road has threc pecp
holes and a slot – so former ten
ants could watch for cops and re
ceive drug deliveries, he said.
from the airport noise zone.
543
cult to obtain in some inner- city
neighborhoods.
stake in its house ? Which family is
less likely to walk away from that
loan ?” he asks. " We make 99 per
cent loans and families don't walk ."
blue around the corner. ”
544
BAS now being discussed,
the pool would include eight
Monilns of work ,
but lending pool
still bone-dry
By Bill Dedman
Constitution, and several partici
pants discussed negotiations.
banks and a total of $10 million,
or about 250 loans.
545
Trust Company spokesman.
“ We're not dragging our feet
be achieved by a combinationof
bank and government effort. The
over here ."
banks would offer an interest
rate half a percentage point be
low market rate. The Georgia
Residential Finance Authority
would push that lower by using a
mortgage credit certificate,
which provides a homebuyer a
federal income tax credit of up
to 20 percent of the annual mort
gage interest, in addition to the
normal interest deduction for
homebuyers. Homebuyers could
adjust their tax withholding at
their place of employment to re
ceive the tax credit up front.
effective incomeminimum.
-
hSelf
elp
aim
the
of
non
-profit
housing
corporations
Dedman
Bill
By
546
547
City Council calls meeting
to review lending patterns
By Bill Dedman
Staff Writer
cles were based on a Journal-Con
6 We're
to
going
ask them if
the numbers are
correct. And, if
they're correct,
what are they
going to
From Page 1
were described in a Sunday article
in the series.
day " show producers said they
called several Atlanta banks, but all
declined the opportunity to have a
representative on the program .
do
---
i
548
City Hall clout could
sweeten home-loan pot
Municipal deposits
a bargaining chip,
activists contend
By Bill Dedman
" There's no question in my
mind that I would approve an ordi
nance like this," Arrington said. " If
his 1989 campaign for mayor but
also said he was turned down by
two banks for a home-improvement
it wouldn't pass, what did Martin
loan because he lived in the wrong
Luther King Jr. live for?"
neighborhood. Lomax opposes link
ingcity deposits to bank lending.
549
practical."
more than a billion dollars in pub
black middle-income neighbor
lic deposits from local, state and
hoods.
federal governments – 6 cents of
every dollar in the bank, according
to bank annual reports.
Public deposits
Where governments put public money
Bank
10
550
Panel appointed
5
to probe banks
5-5-3
lending policies
May 5 , 1988
Black leaders take series of actions
in response to newspapers' articles
Fulton approves fair housing
ordinance. Page 1B.
1
1
551
Banks
perception of a problem, that there
must be a problem," said Lee Ses
sions, executive vice president of
552
ing that “ a couple dozen " new ac
counts have been opened at his
bank this week by former deposi
tors at white-owned banks.
Commission Chairman Lomax :
" I've been disappointed , I might
say, by some of the responses that
have occurred over the last couple
of days, and I'm heartened today to
see so many of the banks represent
ed . I feel that the banks really do
owe not only affirmative action in
regard to this but an apology to the
city as a whole for what has gone
on, whether they've known about it
or not. And I think they owe us an
apology for some of the character.
izations they've made of the black
community.'
Several Southside residents and
business executives attended the
city meeting to say they had been
turned down for loans because of
redlining. One man held a sign :
" Want to be an Atlanta bank presi
dent? Here's the only tool of the
trade you need – a 'red pencil!"
553
TOSCHOCALOL
IFORN
IA
AMEN
SACR
LAW
OF
MGC
E
OR
GE
PACIFIC
UNIV
C
ERSI
IFI
PAC
TY
THE
Social Responsibility in Bank Credit Decisions : The
Community Reinvestment Act One Decade Later
Robert C. Art
1
Volume 18
Number 4
July/ 1987
McGEORGE SCHOOL OF LAW /UNIVERSITY OF THE PACIFIC
554
Article
Social Responsibility in Bank Credit
Decisions : The Community Reinvestment
Act One Decade Later
ROBERT C. ART*
CONTENTS
I.
POLICY CONSIDERATIONS : THE PROBLEM OF “ REDLIN
1075
1077
1079
1082
1083
1085
1085
1087
1091
1095
1096
1099
1101
1101
Associate Professor of Law, Willamette University College of Law . J.D. , 1978 De
Paul University; LL.M. , 1981 Columbia University .
1071
555
Pacific Law Journal / Vol. 18
B.
V.
1104
1105
1111
1115
Costs and Effects
THE FEDERAL SUPERVISORY AGENCIES
•
•
1119
1121
1134
1138
Modifying the behavior, attitudes, and norms of the banking industry
and of banking regulatory agencies , in relation to issues of social
responsibility , is an accomplishment of major proportions. The Fed
eral Community Reinvestment Act , ' enacted in 1977 with that am
bitious goal , has succeeded to a significant extent , and is likely to
become increasingly important in coming years . The decade that has
elapsed since 1977 provides a basis for assessment of the approach,
the numerous inherent flaws, and the successes of the Act .
1. 12 U.S.C. $$ 2901-2909 ( 1982) . The Community Reinvestment Act ( C.R.A.) is Title
VIII of the Housing and Community Development Act of 1977 , Pub . L. No. 95-128, 91 Stat .
1147 ( 1977 ) .
1072
556
1987 / Community Reinvestment
Community groups were incensed with this lack of concern for the
social effects of institutional credit decisions. They pointed to evi
dence that many depository institutions systematically denied loans
to creditworthy individuals residing in disfavored neighborhoods , and
that the practice was often closely correlated with racial discrimina
tion. Some activists attributed malevolence and responsibility for
deterioration of neighborhoods to depository institutions. Many
people called for mandatory lending in neighborhoods from which
deposits were drawn - proposals which the banking industry argued
would be unworkable, counterproductive, and financially disastrous.
Board and Robert E. Barnett , Chairman of the Federal Deposit Insurance Corporation
( F.D.I.C.) ) . The traditional views of the agencies are discussed in greater detail in infra notes
133-38 and accompanying text. The similarity of views between federal regulators and the
regulated institutions may be partially due to the fact that the agencies' governing boards are
frequently elected by the institutions, and their funding is derived from the institutions . See
Note, Legislating Against Mortgage Credit Redlining: The Need for a Firmer Commitment,
12 RUTGERS L.J. 151 , 178-79 ( 1980) .
1073
557
Pacific Law Journal / Vol. 18
institution that refused to act to improve its record of serving the
credit needs of its entire community, including low- and middle - income
residents, could be denied permission to open new branch offices,
relocate offices, merge, or complete any of a number of other
transactions that routinely require regulatory approval."
15
communities in which they are chartered .” 12 U.S.C. $ 2901 ( a) ( 3) ( 1982) ( emphasis added) .
C.R.A. also instructs the supervisory agency to " encourage such institutions” to help meet
the local community needs . 12 U.S.C. § 2901 ( b ) ( 1982) . The agencies are further instructed to
" assess the institution's record of meeting the credit needs of its entire community, including
low- and moderate-income neighborhoods ... ,” and to “ take such record into account in its
evaluation of an application for a deposit facility ...." 12 U.S.C. § 2903 ( 1982) ( emphasis
added ) . The agencies understandably had difficulty determining whether a difference existed
between “ local” and “ entire " communities, and finally determined that no distinction was
intended . The mandatory language of the Act is directed exclusively to the agencies, not the
depository institutions, but the plainly apparent sanctions apply to the institutions, not to the
agencies. No definition of " credit needs" or " community ” is to be found in the Act. Depository
institutions are expected to help meet credit needs,” but no information is provided covering
specifically the method or degree of help, and the goal is qualified by the clause " consistent
with safe and sound operation of such institution[ s] ." 12 U.S.C. $$ 2901( b) , 2903( 1) ( 1982) .
See also infra note 58 and accompanying text.
1074
558
1987 / Community Reinvestment
of C.R.A. " ? The primary force for change has not been the agencies
themselves , but rather community groups which have accrued im
portant new leverage in negotiations with depository institutions . 18
I.
POLICY CONSIDERATIONS: THE PROBLEM OF “ REDLINING ”
AND
Decisions of private lending institutions can have a major impact
on communities . A spokesperson for the banking industry has de
scribed the availability of mortgage credit as " the lifeblood of the
neighborhood,” and “ absolutely essential for neighborhood preser
vation or improvement.” 19 Unavailability of private financing is
correlated with depressed housing prices , disrepair, reduced incidence
of owner-occupied dwellings , and ultimately a stigma as a declining
neighborhood . This stigma is exceedingly difficult to overcome and
may lead to further serious deterioration.20 Federal lending or mort
gage insurance does not provide an adequate or effective alternative
17. The records of each of the four regulatory agencies are discussed and compared in
part V of this Article .
1075
559
Pacific Law Journal / Vol. 18
to private credit , and in fact has at times become part of the problem
rather than part of the solution to neighborhood deterioration.21
21. Federal lending is a small fraction of the total mortgage credit market . At the end of
1984, all federal agencies , including the Federal Housing Administration , and the secondary
market agencies such as Federal National Mortgage Authority held only $ 158 billion in
mortgage debt ( less than the holdings of mutual savings banks, the smallest category of
depository institution) , as compared to $2.0 trillion held by all lenders. Fed. Res . Bd . , Financial
and Business Statistics, Table 1.54, Mortgage Debt Outstanding, 71 Fed . Res. Bull . A39 ( June
1985) . Moreover, federal programs can have counterproductive results . The F.H.A., for
example, liberalized its underwriting standards and created a high-risk insurance fund to
promote loans in urban areas faced with deterioration . 12 U.S.C. $ 8 1715e, f, 1735c ( 1982) .
In operation , the program has in many instances promoted a cycle of bad loans, fast
foreclosures, and neighborhood deterioration . Because lenders are relieved of risk, they have
no incentive to assure that borrowers are creditworthy, or to allow a defaulting borrower to
cure. To the contrary, " points " paid in advance have the effect of providing a premium to
lenders who, after originating an F.H.A. loan , can quickly declare a default, collect on F.H.A.
insurance, then lend the money again, and thus earn additional “ points.” Kratovil, Mortgage
Law Today, 13 J. MARSHALL L. Rev. 251 ( 1980 ) . J. KUSHNER , FAIR HOUSING : DISCRIMINATION
IN REAL ESTATE COMMUNITY DEVELOPMENT AND REVITALIZATION 282-85 ( 1983 ) ; Memorandum
regarding the Policies and Performance of the Federal National Mortgage Association , Comm .
Print, Senate Comm . on Banking, Housing & Urban Affairs, 95th Cong . , 1st Sess . ( Nov. 22 ,
1977) , excerpt reprinted in W. DENNIS & J. POTTINGER , supra note 5 , at 1-9; B. BOYER , CITIES
DESTROYED FOR CASH 11 ( 1973) , cited in Note , Attacking the Urban Redlining Problem , 56
B.U.L. Rev. 989, 1003 ( 1976) . See also Duncan , Hood & Neet , supra note 20, at 519-20. One
study found lenders to be seven times more likely to foreclose on F.H.A. loans than on
conventional loans . Gov. COMM'N ON MORT . PRACS ., REPORT ON HOME OWNERSHIP IN
ILLINOIS — THE ELUSIVE DREAM 54 ( 1974 ) , cited in Note, supra , at 1003. The effect of fast
foreclosure of F.H.A. mortgages has been so devastating in many urban neighborhoods that
F.H.A. programs are widely viewed as part of the problem of neighborhood deterioration
rather than part of the solution . M. PRZYBYLSKI, PERCEPTIONS OF Risk : THE BANKER'S MYTH :
AN EIGHT CITY SURVEY OF MORTGAGE DISCLOSURE DATA 237-38 ( Nat . Train . & Info. Ctr . 2d
ed . 1978) ; Mort. Bankers Ass'n of Am ., Task Force, Redlining: Solution Requires Unified
Approach II ( undated) , reprinted in MORTGAGE BANKER 46 ( Apr. 1977) [ hereinafter cited as
M.B.A.A. Task Force, Redlining) ; TRI-STATE REGION . PLAN . COMM'N , “ GREENLINING ” URBAN
NEIGHBORHOODS: A RECONNAISANCE OF ANTIREDLINING REFORMS IN NEW YORK , NEW JERSEY
AND CONNECTICUT AND SOME SUGGESTIONS FOR FUTURE ACTIONS 4 ( Inter . Tech. Rep . 3402
Jan. 1981 ) ( hereinafter cited as TRI-STATE, GREENLINING ) . Reliance entirely on public partic
ipation is unsatisfactory for reasons which extend beyond the administrative problems of
F.H.A. Large quantities of government subsidized credit in a neighborhood can create a
stigma-an indication of excessive risk , further increasing the reluctance of depository insti
tutions to extend conventional credit . W. DENNIS & J. POTTINGER, supra note 5 , at 9-72.
1076
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1
1987 / Community Reinvestment
least three elements that , though often closely related , are concep
tually distinct : racial and ethnic discrimination , geographic discrimi
nation , and neighborhood disinvestment .
A.
Racial Discrimination
redlining , and explained :
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--
ܘ ܂ܗ
561
Pacific Law Journal / Vol. 18
areas " infiltrated ”
by minority groups.26 The federal government,
acting through such agencies as the Federal Housing Administration ,27
supported and promoted the proposition that the loss of ethnic
homogeneity inevitably resulted in loss of property values.28 That
26. The mode of expression of race - based appraisal policies became increasingly veiled,
but the underlying assumptions remained , as indicated by a study tracing the code phrases
used for race in various editions of a widely used text , The Appraisal of Real Estate, published
by the American Institute of Real Estate Appraisers . The 1935 edition stated that " infiltration”
by " colored people” inevitably led to decline in property values. The term used in 1938 was
“ inharmonious racial group," and in 1960, “ people of a lower economic status and different
social and cultural background.” In 1975 reference was made to a “ shift in the economic ,
social and physical forces creating the environment,” a clause that is both apparently neutral
and inpenetrably vague. Two years later, however , in 1977 , training materials issued by the
appraisal institute contained, as an example of appropriate appraisal analysis, the following:
“ The neighborhood is entirely Caucasian . It appears that there is no adverse effect by minority
groups.” Discriminatory references were finally removed as a result of an agreement settling
a lawsuit brought by the Department of Housing and Urban Development. THE POTOMAC
INST. , Inc. , METRO . Hous. PROGRAM , LENDER'S GUIDE TO FAIR MORTGAGE POLICIES ( 1980) .
For terms of the settlement, see United States v . American Institute of Real Estate Appraisers
of the Nat'l Ass'n of Realtors, 442 F. Supp . 1072 ( N.D. III . 1977 ) , aff'd, 590 F.2d 242 ( 7th
Cir. 1978) . The appraisers' standards were held to violate the Fair Housing Act .
1078
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1987 / Community Reinvestment
assumption , when pervasively accepted , can become a self- fulfilling
prophecy.29
B.
Geographic Discrimination
A second element of the redlining controversy, and the one most
directly addressed by C.R.A. , is discrimination that focuses not
directly on the race of the applicant for a mortgage loan but rather
realtor should never be instrumental in introducing into a neighborhood ... members of any
race or nationality, or any individuals whose presence will clearly be detrimental to property
values in that neighborhood." Quoted in Zuch v . Hussey, 394 F. Supp. 1028 , 1055 ( E.D.
Mich . 1975) ; United States v . School Dist . , 521 F.2d 530, 534 ( 8th Cir. 1975) .
1079
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Pacific Law Journal / Vol. 18
on the location of the proposed collateral. Lenders generalize that
all properties within certain boundaries are unlikely to retain their
value , and hence are poor security for a loan, without regard to the
characteristics of the particular credit applicant or the specific col
lateral.33 To compensate for the perceived higher risk ,34 loans in that
area are avoided, or are offered on terms less favorable than loans
in other areas.
33. One aspect of the geographic discrimination phenomenon has been the traditional bias
of both private lenders and federal real estate credit agencies in favor of suburbs, at the
expense of urban areas, based on the assumption that neighborhoods inevitably decline as they
age. M.B.A.A. Task Force, Redlining, supra note 21 , at 50 ( “ ' Because “ healthy' also suggests
relatively new, the implication is clear that anything more than a generation old is nearing the
end of its 'economic life ” ') ; M. PRZYBYLSKI, supra note 21 , at 151-56; D. LISTOKIN & S. CASEY,
supra note 19 , at 9 .
1080
564
1987 / Community Reinvestment
institutions to withhold credit from a neighborhood that was previ
ously all white and displays no objective evidence of physical or
economic deterioration , solely because a few middle -class black fam
ilies have moved in . Another, less apparent, example would be a
decision to extend credit only on single- family dwellings, when vir
tually all of the housing in the area is multiple -family apartment
houses . 37
>
obtaining information specific to the particular loan applicant or the particular collateral . J.
GUTTENTAG &
S. WACHTER , supra note 28. “ [ 1] f black loan applicants have lower income
stability than white applicants, and if more definitive information on income stability is costly
to obtain , it is not irrational to redline based on color.” Id . at 14. Rationalizations such as
this point up the need to insert social policy judgments as a factor in private credit decisions,
and to promote at least minimal standards of equity to individuals from races or neighborhoods
disfavored by lenders who purport to be acting rationally.
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Pacific Law Journal / Vol. 18
Many policies which are facially neutral may also have the effect
of excluding from consideration disproportionate numbers of loans
on properties in certain neighborhoods . For example , imposing a
minimum loan amount or maximum age of a building to secure a
loan tends to exclude the lower-priced , older buildings which pre
dominate in some urban areas. Some lenders have even specified a
minimum building lot width which is wider than most lots in their
areas, or have limited their lending to types of structures which are
not found in certain neighborhoods. Appraisal techniques may result
in a substantially lower appraised value for a building in one location
than for similar structures elsewhere, resulting in a smaller loan.40
C.
Disinvestment
40. Lamb , supra note 28 , at 403.
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1
566
1987 / Community Reinvestment
Disinvestment is closely related to geographic discrimination , but
the two nevertheless are conceptually distinct . Disinvestment, but not
geographic discrimination , is likely to occur in neighborhoods that
are healthy, thrifty, and mature, with low turnover of real estate and
low demand for mortgage credit . Thus , surplus savings flow to other
areas where the demand is greater . Conversely , geographic discrimi
nation, but not disinvestment, is likely to be present in a neighbor
hood in which credit-worthy applicants are denied for no justifiable
reason and in which savings deposits are very low . Funds from other
areas are needed to meet local demand , but are not forthcoming.
Credit Allocation
D.
One approach to the issues of racial and geographic discrimination
and neighborhood disinvestment would be a policy of “ credit allo
cation ” -a term nearly as ambiguous and controversial as the term
" redlining.” The most extreme program of credit allocation would
consist of government-mandated extensions of credit to particular
types of loans, particular neighborhoods, or even particular borrow
ers .
45
45. All congressional committee drafting and consideration of C.R.A. took place before
the Senate Banking Committee . See Hearings on S. 406, supra note 2; S. REP . No. 175 , supra
note 22. The House of Representatives held no hearings on C.R.A. , and there were no
comparable provisions in the House version of the 1977 Housing & Community Development
Act ( of which C.R.A. is a part ) . W. DENNIS &
J. POTTINGER, supra note 5, at 9-10.
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Pacific Law Journal / Vol. 18
Less extreme forms of credit allocation , however , are so well
established they are no longer controversial. The government in many
ways promotes results which would not occur in the economists '
hypothetical free market. Residential real estate finance has been a
particular favorite of the federal government . The Federal Home
Loan Bank Act49 established our system of savings and loan associ
ations for the primary purpose of providing residential real estate
loans.so Originally, in fact, savings and loan associations were re
stricted to lending exclusively on real estate within a very short
geographic radius of a deposit-taking office.si
benefit some of the neighborhoods that were most in need of increased lending, and also too
poor to deposit enough funds to meet their own housing credit needs . Also , it was argued ,
focusing on the extent of lending near deposit-taking offices would permit or even encourage
lenders to maintain offices only in wealthy neighborhoods. See Hearings on S. 406 , supra note
2, at 251 , 265 ( statement of Garth Marston , Chairman of F.H.L.B.B. ) , 15 ( letter from F.D.I.C.) ,
294 ( statement of M. Todd Cooke , president of Philadelphia Savings Fund Society) , 299 ( state
ment of Ronald Grzywinski, a Chicago banking executive ) .
1084
568
1987 / Community Reinvestment
Whether such federal efforts are properly designated as “ credit
allocation” is a matter of interpretation . Clearly , however, the con
cept of federal government influence on private credit decisions
originated many decades prior to the Community Reinvestment Act
of 1977 .
II .
A.
A NEW MANDATE : THE ACT AND ITS ENFORCEMENT PROCESS
The Legislative Concept and Requirements
53. Senator Proxmire, the primary congressional sponsor of C.R.A. stated : “ this was not
a credit allocation plan and I certainly don't see it that way . Whatever we can do to prevent
it from being a credit allocation bill I want to do.” Hearings on S. 406, supra note 2, at 154.
1085
.
1.
569
Pacific Law Journal / Vol. 18
( 2)
56.
1086
Take such record into account in its evaluation of an appli
12 U.S.C. § 2903 ( 1982) .
570
1987 / Community Reinvestment
B.
The Regulatory Framework and Criteria
The sparse provisions of the C.R.A. have been supplemented ,
during the ten years since enactment , by a series of regulations,
examination procedures , and policy statements issued by the federal
financial supervisory agencies. Additional guidance is provided by
published rulings on specific requests for regulatory approval of
branch offices and other changes .
1977 : Defining “ Convenience and Needs of the Community, ” 95 BANKING L.J. 693 , 700
( 1978) . See also Note , The Community Reinvestment Act Regulations. Another Attempt to
Control Redlining, 28 CATH. U.L. REV . 635 ( 1979) .
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Pacific Law Journal / Vol. 18
The record - keeping and mechanical requirements of the regulations
are quite limited and not significantly burdensome.66 Each regulated
institution must ( 1 ) delineate its communities ,67 ( 2) adopt a “ Com
munity Reinvestment Statement”
( hereinafter C.R.A. Statement) ,68
( 3 ) maintain a file of public comments available for inspection by
any member of the public,69 and ( 4) post a notice in its lobby.7
Although not particulary time-consuming or expensive to prepare,
these documents are critical in defining and monitoring the institu
tion's performance .
66. The Director of the Federal Reserve System's Division of Consumer and Community
Affairs stated that “ CRA does not involve burdensome operational regulations.” Garwood ,
Regulatory Reform and Consumer Financial Services, 38 Bus. Law. 1295, 1308 ( 1983) .
1088
85-619 0 - 88 - 19
572
1987 / Community Reinvestment
erate-income neighborhoods” is clearly at the heart of C.R.A.'s
expectations, even though the Act also refers to the “ entire com
munity . '
be relatively poor: only 10, 18 , 19, and 28 percent, respectively, of their loans were made in
their ( Bronx) community . If the community was defined as the New York metropolitan area
( five boroughs and three nearby counties) , however, their lending record was exemplary: 95 ,
88 , 99, and 88 percent, respectively, of their loans went to the ( metropolitan New York)
community . McCluskey, supra note 31 , at 43 .
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Pacific Law Journal / Vol. 18
approvals; and the extent of participation by the institution's board
of directors in C.R.A. policy and performance. Another factor is
the institution's financial condition, thereby reserving the possibility
that poor performance in serving credit needs will not be penalized
if the institution is financially unable to perform better. Conspicu
ously absent is a system of weighting, or any indication of the relative
importance of the different criteria.78
78. The omission of ranking or weighting of the twelve criteria was deliberate. Community
Reinvestment Act of 1977; Implementation : Supplementary Information, 43 Fed . Reg. 47,144
45 ( 1977) .
1090
574
1987 / Community Reinvestment
Farmers Home Administration, and state and local governments offer
further possibilities for promoting C.R.A.'s purposes .
C.
Data Collection and Analysis
84. Community Reinvestment Aci Examination Procedures, in FEDERAL RESERVE SYSTEM
COMPLIANCE HANDBOOK II.1.39 .
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Pacific Law Journal / Vol. 18
institution's documents , plus substantial effort and analytic skill . An
important starting point is the information made available pursuant
to the Home Mortgage Disclosure Act of 1977 ( H.M.D.A.) , which
is applicable to lenders located in metropolitan areas.92
92.
1092
12 U.S.C. $$ 2801-2809 ( 1982) .
576
1987 / Community Reinvestment
from lower and middle-income neighborhoods, but consistently omit
mention of credit services from advertising directed at those neigh
borhoods.95 Those same banks may actively promote mortgage lend
ing in higher-income neighborhoods ( especially suburbs) , through
such means as advertising, contacts with local real estate agents, and
mailings to depositors . The result is that “ demand ," as measured by
credit applications, appears to be present overwhelmingly in the
higher-income neighborhoods . As a result , the regulations and the
>
demands of community groups place important emphasis on making
the availability of credit known through advertising and other mar
96
keting efforts to low- and moderate-income neighborhoods.”
Pa. , Application for Consent to Establish a Branch ( Denial) ( F.D.I.C. June 23 , 1980)
( hereinafter cited as F.D.I.C. Order in re Dauphin ( Denial) ] ; Application to Merge First Nat'l
Bank of Clermont County, Bethel, Ohio , into Soc'y Nat'l Bank of Cleveland , Cleveland ,
Ohio , Under the Charter of Soc'y Nat'l Bank of Cleveland, and with the Title of “ Soc'y
Nat'l Bank ,” at Supplement 2 ( Compt. Curr . Mar. 21 , 1980) ; Letter from John F. Downey,
Regional Administrator of National Banks, to Daniel J. Callahan, President, The Riggs
National Bank of Washington, D.C. ( Apr. 23 , 1981 ) ( perception of Riggs as a “ rich man's
bank ” ) . Decision of the Comptroller of the Currency on the Applications of Dimension
Financial Corp. to Charter 31 National Banks in 25 States ( May 9, 1984 ) , cited in Lobell ,
Distribution of Consumer Financial Services - Nonbank Banks and Regional Interstate Banking
Zones, 40 Bus. Law. 1075 , 1087 ( 1985) ( bank planned to " focus marketing efforts on upwardly
mobile individuals ” ; but application was nevertheless approved) . In one case, a New York
bank sent Bronx residents a “ Get Moving Kit” emphasizing the availability of residential
mortgage credit in suburban counties . Citicorp, 68 Fed . Res . Bull. 499, 501 ( 1982) ; Statement
of Roger Hayes, New York City Coalition Against Redlining, in Community Reinvestment
Act Compliance: New York City Banks, Hearing Before A Subcomm. of the Comm . on Gov't
Operations, House of Representatives, 97th Cong . 2d Sess . 2, 5 ( 1982) ( hereinafter cited as
Hearing on C.R.A. Compliance ) .
1093
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Pacific Law Journal / Vol. 18
or of approved loans is then stated per capita or per housing unit
in different areas.98 The loan portfolios of competing depository
institutions and mortgage bankers , and Housing and Urban Devel
opment ( H.U.D.) records of loans insured by the Federal Housing
Administration ( F.H.A. ) may also be used to demonstrate that other
lenders are finding demand . One technique accepted by the agencies
that provides a rough measure of unsatisfied demand is analysis of
municipal real estate registers, 99 which document each title transfer
and indicate whether a mortgage was taken by an institutional lender
or by some other party.100 Underlying this analysis is the presumption
that transactions will generally be financed by sellers only if credit
from institutional sources is perceived to be unavailable.
98. Canner & Cleaver, The Community Reinvestment Act: A Progress Report, 66 Fed .
Res. Bull . 87 , 90 ( 1980) ( stating that Federal Reserve staff has at times used a ratio of
mortgage loans to total transfers) ; National City Corp. , 67 Fed . Res . Bull. 545 ( 1981 ) ( using
number of deed transfers as a “ proxy" for demand) .
1094
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1987 / Community Reinvestment
Application of the Act, regulations and examination procedures
thus entails consideration of a broad range of factors and large
quantities of data. The sophistication and thoroughness of the parties
accumulating and analyzing data may become as important as the
standards themselves .
III .
COMMUNITY GROUPS : THE Act's BENEFICIARIES
The effect of C.R.A. in practice ( though not in official federal
policy) depends primarily on the energy, activism , and sophistication
of community groups. Community activism affects both the conduct
of a depository institution and the degree of attention focused on
that lender by the supervisory agency . It can be no mere coincidence
that of all of the dozens of formal rulings issued by the supervisory
agencies which focus particular attention on C.R.A. issues, virtually
all involve challenges brought by community groups.104 It appears
" process.” As the actual lending performance becomes more impressive, an institution will be
under less pressure to demonstrate that its efforts , procedures and internal controls are
consistent with C.R.A., and vice versa. W. DENNIS & J. POTTINGER, supra note 5 , at 9-13 to
9-14 .
4 Boston
4 New York
4
7
Philadelphia
Cleveland
O
Richmond
1
Atlanta
4 Chicago
3 St. Louis
0 Minneapolis
0 Kansas City
O
1
Dallas
San Francisco
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Pacific Law Journal / Vol. 18
likely that a similar pattern exists in cases that do not reach the
stage of a formal decision . 105
A.
Relations with Depository Institutions
Con. Adv. Coun ., FEDERAL RESERVE'S IMPLEMENTATION OF C.R.A. , supra note 63 , Table
F6.3 . A different study, focusing on protests received by F.D.I.C. , Federal Reserve Board
( F.R.B.) , and O.C.C. between enactment of C.R.A. in 1977 and September 1981 , concluded
that most protests were filed in “ the 'old' industrial sectors of the country.” Melvin , The
First Thousand Days of the Community Reinvestment Act, J. Com. BANK LENDING 53-54
( July 1982) . The states from which the largest numbers of protests originated , according to
this study, are as follows:
19 New York
11
Pennsylvania
10 Massachusetts
10
Id . at 54.
1096
Ohio
5 Illinois
5
Michigan
5 Wisconsin
30
All other states
580
1987 / Community Reinvestment
characterize the protesters' attitudes in a similar manner .) Requests
to meet with the management of an institution to discuss redlining
issues were frequently met with flat refusal or intransigence, according
to accounts written by community organizations . Vocal public dem
onstrations and campaigns to withdraw deposits were a common
reaction by the groups . 109
bankers—described as living in suburbs and not having knowledge or concern for the institu
tions ' urban neighborhoods — are frequently voiced , and many activists take pride in accom
plishing substantial changes in bank policy without previous background in banking. Id .
passim .
1097
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Pacific Law Journal / Vol. 18
good relations with community groups risk unfavorable ratings by
regulators, and, perhaps more importantly, challenges to future ap
plications. These challenges can impose substantial costs , even if
ultimately unsuccessful.
ters . 115
Although confrontation remains a strategy in redlining disputes,
many groups have come to recognize the importance of flexibility
The pragmatic importance of good community relations, and means for promoting it, is
discussed in detail in W. DENNIS & J. POTTINGER, supra note 5 , at 11-35 .
1098
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1987 / Community Reinvestment
and negotiation with banks, so that mutually acceptable results can
be reached . 116 Community groups sometimes withdraw their chal
lenges or even take affirmative steps to recommend the approval of
a lender's application to supervisory agencies. 117
B. Goals and Results
116. See, e.g., the accounts of several antiredlining campaigns in V. BENEDEK, supra note
37, at 23 , 24, 100, passim . Interviews with both community group and supervisory agency
staff members confirmed the point that the most common and successful strategy for community
groups and banks is negotiation in private settings. Telephone conversation with Tom Schraw ,
National People's Action , Chicago, Illinois ( July 3 , 1985) ; telephone conversation with James
W. Lowell, Community Affairs Coordinator, Division of Consumer and Community Affairs,
F.R.B. , Washington, D.C. ( July 3 , 1985) . They agree also that the federal agencies sometimes
facilitate or arrange such meetings , and that results should be publicly announced not as
antiredlining agreements but rather as cooperative initiatives for community improvement. Id .
1099
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Pacific Law Journal / Vol. 18
focus on increasing advertising and other efforts to market credit
services in their neighborhoods .
another instance a savings and loan association acquiesced to protestors' demands that it
commit 10% of deposits to specific types of loans. F.H.L.B.B. Board members were uncom
fortable with the quota, but chose not to interfere with the agreement. Community Federal
Savings & Loan-St . Louis , Mo. , Res . No. 79-204, discussed in W. DENNIS & J. POTTINGER,
supra note 5 , at 10-7 to 10-10. Another bank committed specific funds for real estate lending
with a 1 % reduction in interest rates in low- and moderate - income neighborhoods. In re:
Dauphin Deposit Bank & Trust Co. , Harrisburg, Dauphin County , Pa. , Reconsideration of
an Application for Consent to Establish a Branch ( F.D.I.C. Dec. 8 , 1980 ) ( hereinafter cited
as F.D.I.C. Order in re : Dauphin ( reconsideration ) ] . Other examples are cited in G. CANNER ,
CREDIT ALLOCATION , supra note 119, at 7-8 .
1100
584
1987 / Community Reinvestment
enhanced posture for negotiation with lending institutions , and op
portunities to influence the policy of both lenders and regulators. In
exercising these powers , some groups have shown considerable ex
pertise, energy, and imagination .
IV .
THE EFFECT ON DEPOSITORY INSTITUTIONS
The responses of banks and savings and loan associations to
C.R.A. have been varied . At minimum , C.R.A. has added a new
element to institutions ' relations with their regulators and with com
munity groups . At maximum, C.R.A. has promoted major changes
in lending policy .
A. Incentives to Comply
zero.126
Other factors, however, cumulatively provide substantial incentives
to depository institutions. Principal among those factors are delay in
processing the application , adverse publicity, and embarrassment.
125.
12 U.S .. 2903.
1101
585
Pacific Law Journal / Vol. 18
The delay in processing may cause arrangements for the planned
acquisition of real estate to lapse, planned construction to be dis
rupted , or competition from other institutions to arise. At minimum ,
the lender will be denied, for a period, the business advantages
comtemplated, such as an increase in market share or deposits .
128. As one illustration , fears of negative publicity caused a Tennessee bank to withdraw
an application with the O.C.C. The bank's chief executive officer was concerned that denial
of the application, caused by C.R.A. reasons, would be misinterpreted by the public, since
the Comptroller does not announce his reasons. W. DENNIS & J. POTTINGER , supra note 5 , at
10-40 .
1
1102
586
1987 / Community Reinvestment
outright deny an application. Depository institutions are subject to
extensive and sometimes highly discretionary supervision throughout
their operations.131 “ Suggestions” and “ encouragement" from su
pervisory authorities , even when not explicitly coercive , are taken
seriously . 132 C.R.A. has tended to reverse the nature of supervisory
criticism. Where once the agencies would criticize for lending locally
( if higher returns were available elsewhere ) , now the agencies will
criticize for failing to lend locally . "
131.
One representative of the thrift industry noted , in regard to C.R.A. implementation ,
that “ the supervisory agencies have rather awesome powers and broad discretion in the exercise
of those powers. This is particularly true with respect to examinations, the approval of mergers
and acquisitions, and the approval of applications for new deposit facilities.” R. Dockson,
Testimony on Behalf of the California Savings and Loan League and the Conference of
Federal Savings and Loan Ass’ns on the Community Reinvestment Act of 1977, before the
Comptroller of the Currency, F.D.I.C. , F.H.L.B.B. , and F.R.B. , 13 ( Apr. 13, 1978 ) .
1103
587
Pacific Law Journal / Vol. 18
As a result of all of these factors, depository institutions have
strong incentives to be attentive to the record of C.R.A. compliance
that they are developing , and responsive to the requests of community
activists. Even the threat of a protest tends to bring depository
institutions to the bargaining table.136
Costs and Effects
B.
Institutions have demonstrated substantial ingenuity in developing
community investment strategies. In a broad variety of permutations,
institutions have embarked on programs to lend in declining neigh
borhoods for construction, purchase, or rehabilitation , and to offer
these loans at favorable rates . Counselling services or special consid
eration is provided for loan applicants who might otherwise be
denied , and efforts are made to stimulate loan applications from
some neighborhoods.137 Some banks have formed consortia for con
centrated lending in target communities , thereby reducing the risk
assumed by each lender. 138 Many banks have participated in revital
ization programs subsidized or assisted in a variety of manners by
local and federal governments, but relying principally on private
136. Ansbury, supra note 110, at 58, cols . 1-5 ( reporting comments by a Federal Reserve
official, community groups, and bankers) .
1104
588
1987 / Community Reinvestment
capital . 139 Lenders also use programs operated by Federal Housing
Administration ( F.H.A. ) , Veterans Administration ( V.A. ) , and Small
Business Administration ( S.B.A) . Of course, many of these strategies
do entail greater administrative effort and expense than the lenders
would prefer .
V.
THE FEDERAL SUPERVISORY AGENCIES
C.R.A. mandated , and has begun to accomplish , a shift in the
attitudes and policies of the four federal financial supervisory agen
cies . The mission of the agencies , the Federal Home Loan Bank
Board , the Comptroller of Currency , the Federal Deposit Insurance
Corporation, and the Federal Reserve Board, had always been to
assure that depository institutions serve the “ convenience and needs”
of their communities.141 Prior to C.R.A. , however , the agencies
139. See, e.g. , F.H.L.B. , N.Y. , PROGRESS THROUGH PARTNERSHIP, A REPORT ON COMMUNITY
INVESTMENT ACTIVITY IN DISTRICT 2 ( N.Y. , N.J. , P.R. ) , June 1978 to Dec. 1979 ( no date) ( stating
that approximately 99 savings and loans nationally were participating in the F.H.L.B.B. Communi
ty Investment Fund, providing dozens of examples) ( copies on file at the Pacific Law Journal ) ;
Dennis, The Dual Housing Credit Market, supra note 19 ( providing 21 examples) .
9
1105
589
Pacific Law Journal / Vol. 18
interpreted this mission as requiring an exclusive focus on financial
" safety and soundness,” promoted by pursuit of maximum income
consistent with very limited risk, for the benefit of the institution's
depositors and shareholders. 142 Thus , for example, if a depository
institution located in New York ( and originally chartered for the
purpose of serving the “ convenience and needs of its community '') , 143
could earn a higher interest rate on real estate loans in California ,
the supervisory agencies would criticize the institution for failing to
export capital. 144 The detrimental impact on local loan applicants and
local neighborhoods simply did not enter the equation.
142. Scott, The Patchwork Quilt: State and Federal Roles in Bank Regulation, 32 STAN .
L. REV . 687 , 696-97 ( 1980) ; S. REP . No. 175 , supra note 22, at 33-35 .
1106
590
1987 / Community Reinvestment
concentration on “ safety and soundness," and is assigned a low
priority.147
147. A survey by F.D.I.C. of F.R.B. , O.C.C. , and F.D.I.C. managers and examiners in
1979 found that compliance with consumer protection laws and regulations was considered to
be the least important aspect of examinations. GEN . Acct. OFF ., EXAMINATIONS OF FINANCIAL
INSTITUTIONS Do Not ASSURE COMPLIANCE WITH CONSUMER CREDIT Laws 7 ( 1981 ) ( hereinafter
cited as G.A.O. , STUDY) . In 1980, some managers and examiners expressed similar views, and
.
also concerns regarding limited career opportunities in their consumer compliance role. Id. at
8. The Chairman of F.D.I.C. indicated that the agency was aware of the concerns and was
working to change the perceptions. Letter from Irvine H. Sprague, Chairman , F.D.I.C. , to
William J. Anderson, General Accounting Office ( Oct. 24 , 1980 ) , reprinted in id . 49, 55. A
study for the F.R.B. in 1978 found widespread perceptions among examiners that enforcement
of civil rights law might be inconsistent with their efforts to maintain the safety and soundness
of banks, was not considered highly important by the Federal Reserve Board, and would not
materially advance the examiners ’ careers in the System . W. DENNIS, THE DETECTION AND
CORRECTION OF CREDIT DISCRIMINATION : A REPORT TO THE BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM 9 ( 1978) . Five years later, in 1983 , another study of F.R.B. staff
found that few compliance examiners " feel comfortable" advising banks to improve C.R.A.
performance, and several “ thought that their performance in these areas was limited by the
attitude of the management of their Reserve Banks.” Con . Adv . Coun. , FEDERAL RESERVE'S
IMPLEMENTATION OF C.R.A. , supra note 63 , at 4.6.
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Pacific Law Journal / Vol. 18
Beyond these basic administrative measures , however , the C.R.A.
compliance program appears to be extremely limited . Among the
most powerful forms of “ encouragement” would be suggestions or
informal communications from agency staff to lender management,
particularly in the course of periodic bank examinations. In actual
practice, however, these enforcement powers are rarely used . Separate
studies by the General Accounting Office, isi a congressional subcom
mittee , 152 and others , 153 have found that neither informal contacts
nor examination reports are regularly and effectively used to promote
C.R.A. compliance .
NEEDS: A GUIDEBOOK FOR BANKS AND BANK EXAMINERS ( 1979) ( describing dozens of such
programs)
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recently changed . 186 When violations are identified , compliance tech
niques are mild and permissive, rarely going beyond mere moral
suasion.157
156. The Federal Reserve reported , for example, that, in 1982, its examiners conducted
1,271 interviews with government officials, community groups, and trade associations, in
connection with consumer compliance examinations. BD. Gov. FED. REs. Sys. , 69TH ANN .
REP. 159 ( 1983) . Nevertheless, a survey of community leaders by the F.R.B.'s advisory council
in 1983 found that 94% of the respondents knew about C.R.A. and were actively involved in
community development , but only 30% had ever been contacted by the F.R.B.'s community
affairs officers . Con . Adv . Coun . , FEDERAL RESERVE'S IMPLEMENTATION OF C.R.A. , supra
note 63 , at 4.5 .
4 .
91
-
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Pacific Law Journal / Vol. 18
particularly crucial because of the extremely imprecise nature of the
C.R.A. They inevitably send messages to the banking industry as to
the types of conduct that are deemed unacceptable by the regulatory
agencies, and the consequences to be expected .
158. The two compilations of data on disposition of depository institution applications
involving significant C.R.A. issues produced somewhat differing results, probably due to
differences in format and methodology. A community organization offers data that can be
summarized as follows:
F.R.B.
F.D.I.C.
F.H.L.B.B.
ON
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To consider the supervisory agencies as a whole, however, is
insufficient. Analysis of the publicly -available data regarding the
policies and the results of the C.R.A. enforcement programs indicates
distinctly divergent patterns among the four agencies.
A. Federal Home Loan Bank Board
Using as an example a single agency in a single year, the F.R.B. considered 1,597 applications
in 1982. Id . at 1.2 .
1111
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Pacific Law Journal / Vol. 18
recovery began in 1983 and 1984, but earnings are still well below
the performance of the early 1970s.163
163. Mahoney & White, The Thrift Industry in Transition, 71 Fed. Res . Bull . 137, 137
( 1985) . See also Moran , Thrift Institutions in Recent Years, 68 Fed . Res . Bull . 726 ( 1982) .
1112
85-619 O - 88 - 20
-
596
1987 / Community Reinvestment
Use of age or location of the collateral as factors in the appraisal
and loan review process is severely restricted . '70 Excluded from con
sideration are the race, color , religion , sex , or national origin of the
loan applicant and of other persons in the dwelling or its vicinity .
The Board further cautions that consideration of the income level of
the area in which the collateral is located can lead to discrimination
against minorities . 171
( 1986) .
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Pacific Law Journal / Vol. 18
by the Board. The associations withdraw applications likely to be
denied, thereby avoiding formal public denial.175 Withdrawal under
such circumstances accomplishes the same purpose as denial .
175. Telephone interview with Tom Wall, Director, Office of Community Investment,
F.H.L.B.B. , Washington , D.C. ( May 12, 1982) . Mr. Wall indicated that the institution takes
steps to improve its C.R.A. record before submitting another application .
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1987 / Community Reinvestment
with high loan-to-value ratios only upon special request.182 Finally,
some associations are admonished to increase lending in low- and
moderate-income neighborhoods183 and to consider offering additional
types of loans . 184 The F.H.L.B.B. has not hesitated to specify nec
essary changes in a depository institution's lending criteria and pro
grams. 185
The policy on granting hearings to community groups on C.R.A.
matters is fairly liberal. Any person who files aa “ substantial” protest186
and makes a timely request will be granted an opportunity for oral
argument “ at a time and place reasonably convenient to the prot
estants .
187
B. Comptroller of the Currency
182.
Id .
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Pacific Law Journal / Vol. 18
recent rulings have not been publicly released , making assessment of
current enforcement efforts difficult.
Consumer Examinations Division , Comptroller of the Currency, Washington, D.C. , to the
author ( Aug. 31 , 1982 & June 28, 1983) . The documents, in chronological order, are as
follows:
>
Approved
Conditionally ap
Nonportested
Total
28
8
4
36
11
7
Withdrawn
4
Denied
1
3
4
40
15
55
i
4
proved
Totals
1116
Protested
600
1987 / Community Reinvestment
unfavorable action by the Comptroller) , 190 and some were approved
only after the objections of “ protestants ” were satisfied . 191 Particu
larly significant is the fact that the Comptroller identified selected
bank applications for special attention on C.R.A. matters as a matter
of internal agency procedure , rather than limiting its role to reacting
to protests lodged by community groups . 192 O.C.C. appeared to apply
the " effects test” of discrimination.193 Moreover , the agency consid
ered the burden of proof in resolving protests to be on O.C.C. itself,
rather than on the protestor or the bank . 194
190. Id. Of the four protested applications withdrawn by the banks , one did so by agreement
with a community group, and another coverted to a state charter. Information regarding the
other two was not provided .
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Pacific Law Journal / Vol. 18
lified by cosmetic improvements and commitments undertaken by the
applicant during and immediately before the Comptroller's consid
eration of the application . The application was denied . 197
“ no evidence of meaningful communication with members of the community,” “ no marketing
or special credit -related programs,” policies tending to discourage loan applicants from " credit
availability between the city of Gary and its surrounding suburban communities,” and “ dramatic
disparities ” for housing-related credite between lower-income and higher-income census tracts . Id .
1118
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1987 / Community Reinvestment
were denied or conditionally approved in the early years to convey
to national banks the message that failure to maintain good C.R.A.
performance can have serious consequences . Thereafter, “ encourage
ment” provided through less drastic means received the banks' careful
attention, obviating the need for further denials. Another possibility
is that O.C.C. is no longer as committed to C.R.A. enforcement. In
the absence of current publicly available data, any conclusions would
be speculative .
C. Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation ( F.D.I.C. ) was the first
supervisory agency to deny a bank's application because of an
inadequate C.R.A. record—a decision said to have “ sent shock waves
through the banking community . ” 203 The publicly disclosed record
of F.D.I.C. rulings on bank applications is extremely limited , 204 but
does include three denials of bank applications for branch offices.205
In a fourth case, F.D.I.C. granted approval subject to certain con
ditions.206 Although community group objections play an important
objected to a bank's plan to " focus marketing efforts on upwardly mobile individuals.” The
Comptroller found that the plan did not necessarily derogate from the bank's commitment to
serve all segments of local communities . Applications of Dimension Fin. Corp. to Charter 31
Nat'l Banks in 25 States ( Compt . Curr. May 9 , 1984) , cited and discussed in Lobell , supra
note 94 , at 1087, 1087 n.71 .
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Pacific Law Journal / Vol. 18
role,207 at least one of the denials resulted from internal agency
procedures without the prompting of a community group.208
its community so as not to exclude low- and moderate - income neighborhoods , identify those
neighborhoods and communicate with their residents , and establish a loan counseling program .
F.D.I.C. Order in re : Citizens ( Branch) , supra note 204, no . 2 ; F.D.I.C. Order in re : Citizens
( Merger) , supra note 204 , no . 3 .
1120
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1987 / Community Reinvestment
Provident Savings Bank in New Jersey restricted itself to loans on
recently-constructed one- and two - family residences213—a policy that is
not invidious on its face. The effect, however , was a disproportion
ately high rate of rejection on loan applications from low- and middle
income neighborhoods , because a large proportion of the housing
stock in those neighborhoods was older and multiple-family. Minority
group applicants also suffered a disproportionately high rate of
rejection. In addition , the bank's delineation of its community un
reasonably excluded low- and middle-income neighborhoods, and the
bank failed to maintain racial and other data required by regulation .
Intentional discrimination by the bank was not conclusively estab
lished, but the bank's application was nevertheless denied.214
D. Federal Reserve Board
213.
F.D.I.C. Order in re : Provident, supra note 204, no . 5 .
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Pacific Law Journal / Vol. 18
the rules that is markedly less stringent than the other agencies .
( D.C. Cir . 1979 ) .
1122
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1987 / Community Reinvestment
agree that C.R.A. was not intended to impose mandatory government
allocation of credit, the F.R.B. at times appears fixated on the issue,
continuously reiterating its resolve not to participate in or counte
nance any form of credit allocation.219 Even when a bank is willing,
after negotiations with protesting community groups , to commit to
improve credit availability in underserved areas, the F.R.B. is careful
to dissociate itself from any provisions that might be deemed credit
allocation.220 In general , the Federal Reserve System has developed a
reputation as, at best , disinterested in antidiscrimination and other
social policy programs.221
achieve favored social objectives.” Commerce Bancshares, supra note 217, no. 1 , at 893. See
also several reports in Federal Reserve publications. Bowsher, supra note 23 , at 3 , 6. ( “ The
success of community groups in convincing the press and public that lenders were not serving
older urban areas was primarily the result of skillful publicity rather than substantial confirming
evidence. ” ') ; Canner, Redlining: Research and Federal Legislative Response, 68 Fed. Res . Bull.
610 ( 1982) ( reporting empirical studies of " alleged redlining activities ," and conceding " wide
disparities” in lending in different neighborhoods, but stating that there is " little evidence to
indicate that any neighborhood has been simultaneously redlined by all bankers ') ; T. BUYNAK ,
supra note 58 .
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Pacific Law Journal / Vol. 18
When C.R.A. was enacted , commentators expected that enforce
ment by the F.R.B. would be characterized by " leniency ." 222 Resist
ance to change became apparent in the Board of Governor's first
reference to C.R.A. in an order approving a bank application.223 The
F.R.B. announced that C.R.A. had not changed previous law or the
Board's policies , because credit needs had always been included within
the traditional “ convenience and needs” standard applied to appli
cations for bank branches and mergers.224 The F.R.B. then granted
unconditional approval of a protested merger application filed by a
St. Louis bank.225 The circumstances of the decision were so ques
tionable that it evoked immediate protests from the primary sponsors
of C.R.A. in both the House and Senate.226 The chief Senate sponsor
of the legislation wrote that the F.R.B. had “ totally misinterpreted
the affirmative obligations principle” of C.R.A. , construing it instead
as “ requiring nothing more than the absence of overt discrimina
tion . " 227
The F.R.B.'s consumer compliance examiners find few C.R.A.
related problems that they consider serious . The Federal Reserve
comparison , the F.H.L.B.B. found no violations for eight years, and 2,800 violations in the
year following institution of a revised training program . Id . In enforcing Equal Credit
Opportunity provisions, the F.R.B. has been shown to be far more solicitous of the interests
of financial institutions than the statutory rights of consumers. Comment, The Federal Reserve
and the Equal Credit Opportunity Act: A Marriage of Inconvenience, 2 ANN. BANKING L.
Rev. 301 , 307-09 ( 1983 ) .
1124
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1987 / Community Reinvestment
System uses the same numerical scale as the other four supervisory
agencies for rating C.R.A. performance by individual depository
institutions , with one being the best performance and five being the
worst . As applied by the Federal Reserve, however , virtually no bank
receives a five and only six percent receive a four or three.228 The
examiners' ability to identify C.R.A. violations is impaired by the
fact the Federal Reserve System is alone among the four supervisory
agencies in failing to develop a computer -assisted monitoring sys
tem.229 The Federal Reserve System is also alone in failing to require
registers of loan applications. 230
228. In 1982, no bank had a C.R.A. rating of five , and approximately six percent had
ratings of three or four . Discussion, supra note 158 , at 10 ( statement of Mr. Baebel, Senior
Review Examiner, F.R.B. Division of Consumer and Community Affairs) . The official report
for 1982 supplies additional detail, the usefulness of which is impaired by the fact that the
percentages add up to 105 % . “ About 79 percent of the state member banks received a rating
of 2; 12 percent, a rating of 1 ; 13 percent a rating of 3; and less than 1 percent, a rating of
4. No bank received a 5.” BD . Gov. FED . RES . Sys. , 69TH ANN . REP. 159 ( 1983) . In 1984,
the Federal Reserve Board rejected a recommendation of its Consumer Advisory Council to
revise its C.R.A. rating system . Announcement: Enforcement of Community Reinvestment
Act, 70 Fed . Res . Bull . 108 n.2 ( 1984) .
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Pacific Law Journal / Vol. 18
recitation of " commitments” that the bank chooses to make ( rather
than " conditions” that are imposed by the F.R.B. ) in the order
approving the application.234 Ten orders have referred to
commitments235 which usually relate to bank efforts to improve
marketing and communication with the underserved areas of the
community, and to training bank personnel to be aware of C.R.A.
responsibilities.236
that was less than satisfactory. All were approved, but with commitments or substantive
changes to improve C.R.A. performance. Canner, Second , supra note 219, at 816. However,
the details of these cases are not publicly disclosed.
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1987 / Community Reinvestment
An examination of the particular facts underlying decisions to
approve bank applications provides some insight into the Board of
Governors ' attitudes and standards. In a number of instances , the
decision reached appears plainly incongruent with the seriousness of
the violations and problems recited in the Board of Governors '
orders. Worthy of particular attention are the decisions on applica
tions filed by two banks: AmeriTrust Corporation of Cleveland,240
and Michigan National Corporation of Bloomfield Fields, Michi
gan.241
In the 1980 AmeriTrust case , data prepared by the bank indicated
that mortgage lending volume was eighteen times greater in high
income neighborhoods than in low- and moderate-income neighbor
hoods . Lower demand for credit in the less -wealthy areas accounted
for much of the disparity, but far from all of it . According to the
Board of Governors , even after adjusting for differences in credit
demand, AmeriTrust was 1.6 times as active in providing mortgage
loans in higher-income areas as compared to less-wealthy areas , and
twice as active in suburbs as compared to the city . Perhaps most
disturbing was the F.R.B.'s determination that AmeriTrust was twice
as active in largely white areas as compared to largely black areas
having similar income characteristics. 242
stated , the Board of Governors has “ resisted strongly any settlement of a C.R.A. protest that
contains a commitment as part of the approval of a bank holding company application that
requires the applicant to provide funds for a specific purpose. We feel that is an inappropriate
use of regulatory powers.”
An example of a formal dissociation of the F.R.B. from an
agreement between a community group and a bank , that might be construed as an allocation
of credit , is in Fed . Res . Bank of St. Louis , News Release ( Nov. 30, 1979) , cited in Canner ,
Second, supra note 219, at 820. In contrast, the F.H.L.B.B. has no hesitation in specifying
necessary changes in loan policy by a savings and loan association . See supra notes 179-85
and accompanying text.
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Pacific Law Journal / Vol. 18
Board of Governors, and the bank's advertising in black-oriented
media focused on attracting deposits, not offering credit.244 Relations
with community groups were so abysmal that AmeriTrust refused to
respond directly to their allegations, and the F.R.B.'s staff was unable
to arrange a meeting format to which both sides would agree. 245
39247 As
244.
245.
246.
247.
Id .
Id .
Id .
Id.
at
at
at
at
240-41.
239 .
240-41 .
241 .
: 248. Id . at 241 n.6. The commitments were to ( 1 ) improve staff training, ( 2) offer either
credit counselling or referrals to other organizations , ( 3) make public its real estate appraisal
standards, ( 4) “ study the feasibility of making public its lending policies,” and ( 5) make public
the commitments numbered ( 2) , ( 3) , and ( 4) . In the litigation that followed , the F.R.B.'s
decision was affirmed per curiam . Manchester-Tower Grove Community Org./ACORN v .
Board of Governors , 607 F.2d 494 ( D.C. Cir . 1979) .
1128
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1987 / Community Reinvestment
a member bank based on C.R.A. AmeriTrust was required to main
tain, for at least one year , a register of all inquiries and applications
for real estate loans made in person.249 Even this minimal requirement
was considered too harsh by two of the Governors , who argued for
approval without this “ unwarranted burden . ” ' 250 In comparison , the
F.D.I.C. and F.H.L.B.B. require loan inquiry registers as a matter
of routine , even without a specific finding of “ very serious” Equal
Credit Opportunity violations.251
249. Ameritrust ( 1980) , supra note 217 , no . 6 , at 242.
250.
Id . ( concurring statement of Governors Wallich and Caldwell) .
251. 12 C.F.R. $$ 338.4 ( 1986) ( F.D.I.C. ) , 528.6 ( 1986) ( F.H.L.B.B. ) .
252. V. BENEDEK , supra note 37 , at 36-38 .
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Pacific Law Journal / Vol. 18
systematically determine its community's credit needs , failed to mar
ket its credit services in low- and moderate -income neighborhoods, and
oriented its advertising in those neighborhoods to deposits rather
than loans. The only favorable factors were that the bank participated
in some S.B.A. , F.H.A. , and Neighborhood Housing Services pro
grams, and owned some securities issued by a state housing devel
opment authority. The Board of Governors approved the application ,
while extracting only " commitments ” by the bank.256
256. Id. at 248-49. The Bank agreed to designate bank personnel to meet with the public,
to train its staff, to participate in additional ( unspecified) special lending programs, and to
increase credit marketing efforts in lowand moderate-income areas.
1130
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1987 / Community Reinvestment
ments are tolerated if the applicant either discontinues the violations
or promises to do so.260
The Board of Governors has conceded, both as a general matter
and in specific instances, that levels of credit are disproportionately
low in lower-income neighborhoods , and that legitimate economic
factors do not provide a full justification.261 Yet when statistical
evidence documents such a “ disparity ," the Board of Governors has
been alert to any possibility , however remote or hypothetical , that a
variety of market forces might be responsible . The F.R.B. readily
accepts partial and unverified explanations, and states that evidence
of actual discriminatory intent is not available.262 When exhaustive
allow more realistic opportunities for negotiation and compromise. Whether a public forum
should be provided when private meetings fail is a matter of considerable controversy . One
view is that community awareness and confidence in the system would be enhanced, and that
polarization of the parties has already occurred . The contending position is that public
confrontations are unfairly harmful to banks and impede resolution of differences, and that
the availability of a public meeting could be used by community groups as a bargaining chip
to extract concessions . Id . at 6.6, A.13 .
1131
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