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COMMUNITY REINVESTMENT ACT HEARINGS BEFORE THE SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT OF THE COMMITTEE ON BANKING AND FINANCIAL SERVICES FIRST SESSION MARCH 8, 9, 1995 Printed for the use of the Committee on Banking and Financial Services Serial No. 104-8 88-882 CC U.S. GOVERNMENT PRINTING OFFICE WASHINGTON : 1995 For sale by the U.S. Government Printing Office ISBN 0-16-047553-8 HOUSE COMMITTEE ON BANKING AND FINANCIAL SERVICES JAMES A. LEACH, Iowa, Chairman BILL MCCOLLUM, Florida, Vice Chairman MARGE ROUKEMA, New Jersey HENRY B. GONZALEZ, Texas DOUG BEREUTER, Nebraska JOHN J. LAFALCE, New York TOBY ROTH , Wisconsin BERNARD SANDERS, Vermont SUE W. KELLY, New York SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT MARGE ROUKEMA, New Jersey, Chairperson DOUG BEREUTER, Nebraska PETER KING, New York EDWARD ROYCE, California FRANK LUCAS, Oklahoma JERRY WELLER, Illinois BRUCE F. VENTO, Minnesota JOHN J. LAFALCE, New York CHARLES E. SCHUMER, New York PAUL E. KANJORSKI, Pennsylvania KWEISI MFUME, Maryland ( II) CONTENTS Page Hearings held on: March 8, 1995 March 9, 1995 1 59 March 8, 1995 March 9, 1995 117 333 WITNESSES WEDNESDAY, MARCH 8, 1995 " Kennedy, Hon. Joseph P., II, a Representative in Congress from the State of Massachusetts .... # 44 48 20 41 13 272279 Brown, Ned, Financial Modeling Concepts .... Fiechter, Hon. Jonathan L. , Acting Director, Office of Thrift Supervision Griffin, Lucy H., Compliance Management Services ...... 17 40 46 Traiger, Warren, CRA Practitioner .... APPENDIX Prepared statements: Roukema, Hon. Marge Kennedy, Hon. Joseph P. Bessant, Catherine P. ( with attachments) Lindsey, Lawrence B. Ludwig, Hon. Eugene A. Niskanen, William A. ...... Traiger, Warren W. ( with attachments) 118 125 120 212 263 158 201 128 176 148 196 243 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Fiechter, Hon. Jonathan L. , oral statement 169 282 300 328 123 ( III) IV Page Minority Bank Amendments to the Community Reinvestment Act, as proposed to the Senate Banking Committee by Western Independent Bankers Association .... Pittsburgh Community Reinvestment Group [ PCRG] , written comments on the Community Reinvestment Act 318 322 WITNESSES THURSDAY, MARCH 9, 1995 Abbate, Tony, President and Chief Executive Officer, Interchange State Bank, Saddlebrook, NJ, representing the Independent Bankers Association of America [ IBAA] ..... 64 100 62 98 102 OH, representing America's Community Bankers Roberts, Benson F., Local Initiatives Support Corp. 66 103 97 92 APPENDIX Prepared statements: Abbate, Tony Cincotta, Gale ( with attachments) Culberson, James M. Jr. Fishbein, Allen J. ( with appendices) Meier, Michelle Milligan, Mark ( with attachments) ………………............ Taylor, John E. .... 350 672 334 656 693 469 701 650 502 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Abbate, Tony, IBAA: Revised Community Reinvestment Act Regulations, November 21, 1994 ... Executive Summary of key points from the IBAA comment letter on the proposed CRA revisions with letter of transmittal dated March 24, 1994, from John Shivers, President Letter from IBAA president John Shivers, dated November 15, 1994, to Robert E. Feldman re CRA Regulatory Proposal- Comments ………........ Study entitled " Regulatory Burden, The Cost to Community Banks," prepared for IBAA by Grant Thornton, January 1993 ........ Letter from IBAA president John Shivers, dated February 2, 1995, to the regulatory agencies re CRA and agencies written responses Letter from IBAA president John Shivers, dated March 24, 1994, to the regulatory agencies re Revised Community Reinvestment Act Regulations Bush, Malcolm, President, Woodstock Institute, written testimony ( with appendices) Cincotta Gale: Continental Bank Corp., news release, " Continental and BankAmerica Target $ 1 Billion in Community Lending and Investments in Chicago Area" ...... Harris Trust and Savings Bank, news release, " Harris Sets $ 305 Million Five Year Community Lending Goal" Consumer Bankers Association: Written statement " " Taking Responsibility: Financing America's Community Development,' February 1995 .... Hanggi, Elena, Association of Community Organizations for Reform Now [ ACORN ] , written testimony 362 384 420 424 463 389 815 688 691 752 768 744 V Page Miller, Edward D., President, Chemical Banking Corp., keynote remarks before the Annual Community Reinvestment Conference, Houston, August 23, 1994 ....... Taylor, John E., publication entitled " America's Worst Lenders! " published by National Community Reinvestment Coalition, Washington, DC. , January 1995 ... Tugwell, John, Chairman of the Board and CEO, National Westminster Bancorp Inc., written testimony ( with attachment) 734 520 850 COMMUNITY REINVESTMENT ACT WEDNESDAY, MARCH 8, 1995 HOUSE OF REPRESENTATIVES , COMMITTEE ON BANKING AND FINANCIAL SERVICES , Mr. KENNEDY . Thank you . Chairwoman ROUKEMA. And we are looking forward to hearing 'our testimony. You have a long history, of course, of association nd advocacy on this particular subject, so we are anxious to hear your testimony today. ( 1) 2 Chairwoman ROUKEMA. I will tell you that-the subcommittee will be in order. I will have order in the hearing room. [ Recess. ] Chairwoman ROUKEMA. Will everyone please be seated and the subcommittee come to order, please? Mr. FRANK. Madam Chairwoman. 3 Chairwoman ROUKEMA. Touche, Mr. Frank. Touche. 4 We will be looking at a revised proposal put forth by the banking regulators that could represent a dramatic and complex change in the administration of CRA, and I think we will find shortly that there is wide divergence of opinion even among the regulators. 5 I might say with the three panels and our response to witnesses that we had talked about, I have been happy to try to work with you and with others that want to provide testimony. I recognize I think all of us recognize, that have had roles in terms of chairing committees or subcommittees , that it is impossible to hear from everyone. It becomes sort of the reiteration of the self- evident, is one of the problems . In fact, I would say that that has become one of the problems with CRA in terms of the number of statements and comments made about it. 6 into effect. The regulators' credibility demand such , and the goodfaith effort and participation of all involved merit conclusion . 7 We have had an onslaught of paperwork. A recent Senate report said that agencies already have enough information to enforce the Act without additional red tape . Yet what I see in these regulations right now is the likelihood we will have considerably more. Mr. Wynn. Mr. WYNN. Thank you , Madam Chairwoman. I would be happy to defer to Mr. Frank. manner. I think the existence of this kind of demonstration , however, reflects the intensity of feelings surrounding this issue. There is , obviously, a great sense at the community level that the legitimate credit needs of low-income, moderate-income communities are not being met, and it is my hope that as a result of these hearings we can address that concern . 8 applicants for small business loans- minority small business loans. And I believe the disclosure of that data, I think, is absolutely essential. Thank you, Madam Chairwoman. Mr. Roth . Mr. ROTH. Madam Chairwoman, I shall endeavor to be brief. Let me say I commend you for having these hearings on the revised proposed regulations for our banks operating under the Community Reinvestment Act. There is a good deal of controversy about that Act, of course. 9 rated State," writes Dr. Ken Thomas in his book, " Community Reinvestment Performance." STATEMENT OF HON. JOSEPH P. KENNEDY, II, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MASSACHUSETTS 10 country and how often that is fought by many of the institutions of this country. communities within their licensed area that they are not serving. 11 You take my home city of Boston , Massachusetts . Where I live, in Brighton, Massachusetts, is a blue collar working class neighborhood, made up largely of white families. They pay the same rents as people in the black neighborhoods . And yet homeownership rates are much, much lower in Brighton than they are in Roxbury, Dorchester and Mattapan, other areas of my district that I also represent. 12 That is where we draw the conclusions. That, in fact, there is racial prejudice, and there is geographic prejudice in where banks lend money. All we are trying to suggest is that, yes, in fact, it is time for a change. 13 To my colleague from Massachusetts , he has really, I think, done yeoman's service in the subcommittee on which he chaired. Do you agree now, Joe, we should move ahead and issue the regulations that have been considered for some time? Is that correct? years . Now I welcome our panel . Ms. Ricki Tigert Helfer , if you will please come forward-Mr. Ludwig, Mr. Fiechter and Mr. Lindsey. I thank you. I will recognize you in the order of your titles , and then we will hear from you, and we will try to comply with our 5-minute rule. Ms. Tigert Helfer. STATEMENT OF RICKI TIGERT HELFER, CHAIRMAN, FEDERAL DEPOSIT INSURANCE CORPORATION 14 ities previously carried out by the Division of Supervision with the community outreach, consumer protection and civil rights oversight functions of the former Office of Consumer Affairs. 15 The legislative history is clear, however, that CRA was not intended to force banks to make unprofitable loans. The law specifi- , cally states , " In connection with its examination of a financial institution, the appropriate Federal financial supervisory agency shall assess the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institution." 16 Overall, almost all of the comments called for change, although there was much disagreement about the specifics of how change should be accomplished . ance. My participation in the process since October has led me to conclude that the FDIC and the other agencies represented here today are making a serious effort to wrestle with all of the difficult issues that CRA reform has presented . We are still considering those issues and are not yet ready to publish a final regulation, but the effort is sincere, and the results, I believe, will be an improvement over the current regulatory structure for CRA. 17 While our examination standards need to be consistently applied , we must have the flexibility to assess the performance of an institution based on its capabilities and the needs of the community it serves . Each institution , like each community, is unique. We need to ensure that everyone understands the laws and standards under which institutions will be evaluated . To accomplish this, we must provide our examiners with the resources , training and clear guidance they need . 18 pages of testimony, all filled with complaints born of the real experiences of those who must work with the statute day in and day out in banks and communities all across America. 19 assessment factors with three tests-tests focusing clearly on what matters to a community-lending, service and investment. We would recognize that one-size-fits-all is not a sensible approach to regulation in this area and distinguish appropriately between large and small banks, between inner city and rural banks , between statewide or regional and community banks. We proposed alternative ways to assess performance at small banks , wholesale banks and limited purpose banks. We accommodated lenders' interest in structuring their activities in accordance with a strategic plan, a specific request of many lenders . 20 united in opposition to any proposal that would impair safety and soundness . Mr. Fiechter. STATEMENT OF HON. JONATHAN L. FIECHTER, ACTING DIRECTOR, OFFICE OF THRIFT SUPERVISION 21 on differences in financial institutions and the communities they serve. Put simply, CRA will not work if we take a cookie-cutter approach . 22 much of the paperwork burden associated with the existing regulation. Mr. Lindsey. STATEMENT OF HON. LAWRENCE LINDSEY, GOVERNOR, FEDERAL RESERVE BOARD 23 Some of the central issues with which the agencies are now dealing, in fact, have existed from the beginning of CRA. In part, that is because those issues derive from the unusual content and structure of the law itself. There are, in short, inherent, unavoidable contradictions in any scheme to administer CRA. 24 Further, the expectation about the CRA performance of banks has evolved considerably since inception of CRA in 1977. In CRA's early years, a commonly held view was that CRA's central purpose was geographic in nature: To help ensure that banks would not ignore the needs of low- and moderate-income areas in their communities. 25 Five , any reform structure must recognize the uniqueness of small institutions and the disproportionate burden they bear from any regulation, CRA or otherwise . Thank you Madam Chairwoman . [ The prepared statement of Mr. Lawrence Lindsey can be found in the appendix . ] 26 measure this with any specificity. Put that together with what I think Mr. Lindsey and Mr. Fiechter have said regarding wanting to be to have fewer regulations, more objectivity, more local control-they don't mesh with me, in my opinion. Yes, Mr. Ludwig and thenMr. LUDWIG. I think that is a very fair question. The race and gender reporting under the regulation was for the sole purpose of determining discrimination . The issue is how can you meet the statute's terms of serving the credit needs of your entire community if you have an institution that is affirmatively discriminating against one group? Chairwoman ROUKEMA. That is a lot of paperwork; isn't it? Mr. LUDWIG. Well, it is the agency that looks at the files. Chairwoman ROUKEMA. Anyone else on this particular subject? You don't want to touch it? 27 far more accurately the communities and potential borrowers that we are not reaching." Mr. LINDSEY. And you. We took a very serious look at this, and one of the inevitable challenges was to take a body of regulation that was largely in the form of examiner guidance and guidelines. You might analogize this to case law in the legal area, and take a look at it and say what should be put in regulatory language. | 88-882 - 95 - 2 28 Mr. LINDSEY. Well, the stage we are in again is going through a lot of very detailed language and making sure that it is implementable. No one here is insisting on having them take a day longer than they have to. Mr. VENTO. I know. Mr. LINDSEY. Interrelated set of regs. We would have more groups chanting and more letters coming to both you and us if we implemented a reform that was not workable when it was applied in the field or created anomalies among areas. Mr. LINDSEY. No. Mr. VENTO. So why don't you leave the small points, but publish the regulations on the big points then? 29 gone off for weeks , closeted themselves and put in 12-14 hour days . We all take this very seriously. Chairman Helfer. Ms. HELFER. I can tell you that looking at over 6,000 comments , which the agencies have received altogether, takes time and that is what, in fact, the notice and comment rule- making process is about. Thank you, Madam Chairwoman. 30 Mr. MCCOLLUM. Thank you , Madam Chairwoman . I take the opposite view. I am pleased you have not implemented these regulations and I hope you take plenty of time in looking at this . Mr. LUDWIG. Yes. Mr. MCCOLLUM. It is not spelled out, apparently, in the proposed regulations that were promulgated, the latest version, that that is what your use of this data would be. At least this critic doesn't see it there. Is that a fair criticism? 31 First, let me quote from the revised proposal, which would require institutions to collect certain race and gender data in connection with small business and farm loans . My staff just handed me this. Here is the quote: " This data was collected in order to support the fair lending component of CRA assessment. " That statement of purpose is explicitly in the second proposal. 32 So at least you hear me repeat to you, you can't read volumes of all this material personally, the essence of the credit allocation argument. That is the premise I see for most who have come to us and said they fear what you are doing is indeed going to lead to credit allocation. Mr. MCCOLLUM. Thank you. 33 tious to eliminate it in order to clearly move away from any such suggestion. Mr. WYNN. Certainly. 34 Chairwoman ROUKEMA. You will have the privilege and opportunity to ask that specific question to the representatives of the banking community who will be here tomorrow with a panel. Mr. Frank. Mr. FRANK. Thank you for indulging me, Madam Chairwoman . Let me ask each of you whether in the examinations divisions of each of your agencies, have they ever reported to you that CRA was in any way a factor in causing bank failures or was a significant reason for failure? Or even of nonpayment of loans? Ms. Helfer. Ms. HELFER. We have, at the FDIC , no evidence that CRA lending has caused a bank failure. Mr. FRANK. Mr. Ludwig? Mr. LINDSEY. No, I would point out from the experience , one of the complaints we have- 35 Ms. HELFER. You point to 1972. In 1977 , 1976 , in fact , the Equal Credit Opportunity Act was passed which specifically prohibited that. Mr. LINDSEY. It is ambiguities- Mr. LINDSEY. Yes, I support. Mr. FRANK. I am distressed at how long it is taking. As I listen to you , Mr. Lindsey, you sound like we have a will of the wisp you are pursuing. Yes, it is somewhat ambiguous that if we made it more specific we would be told we are overspecifying the legislation. But, no regulation can be promulgated in advance that will anticipate every problem. I think that is always wrong. You are getting the equivalent, it seems to me, of a heckler's veto; that is, you can worry too much about people in the banking community who will misinterpret the regulation and you therefore 36 try and get a regulation that will anticipate every tremor of nervousness and every form of regulatory hypochondria that the regulator can feel. Thank you. Chairwoman ROUKEMA. Have you concluded? Chairwoman ROUKEMA. I would like to make an observation. I don't know that you were here, Mr. Frank, when I observed, but maybe came to a different conclusion or at least came from a different perspective that if you are trying to do this, write these regulations and you are running into so many insurmountable problems with them so you have to go back and revise, and revise, and revise in order to adhere to your standards of safety and soundness as well as nondiscrimination and avoid the credit allocation , then maybe you are trying to do the impossible. Maybe this is not feasible under these circumstances . I mean under this law. Mr. FRANK. May I respond? Chairwoman ROUKEMA. I would be happy to have you respond, but I would prefer to have them respond. Mr. LUDWIG. I can respond. Chairwoman ROUKEMA. Mr. Ludwig. 37 Mr. LUDWIG. First, I think at this point we fundamentally agree on reform . So is this doable? I think everybody at the table would say, yes, and I think we will have a better regulation . You think it is impossible. If you don't like the law, then obviously you don't want to see the regulations that do it. I say to the gentlewoman her remedy in this case is obviously repeal it or substantially amend it. But as long 38 as it is on the books, it seems to me we have the right to have the regulations promulgated. Mr. FRANK. But I wouldChairwoman RoUKEMA. That have suggested that. Certainly, I am not advocating that at this point in time, but I do think it requires a very scrupulous analysis of what we are doing here before we act. Mr. FRANK. If I could say, Madam Chairwoman. Mr. FRANK. The fundamental differences and criticisms of people should not hold up promulgation of the statute as long as the law is on the book. Thank you very much. This subcommittee hearing is closed . We will meet this afternoon at 2:00 p.m. for the second panel. We are very pleased to have you with us today, and I apologize for not pronouncing that correctly. But Mr. NisMr. NISKANEN. Niskanen . Chairwoman ROUKEMA. Niskanen-I put the accent on the right syllable Niskanen is chairman of the Cato Institute and is a strong advocate of repeal of CRA. His well known Institute-certainly it's well known here in Washington, DC. , and across the country has a notable reputation- regularly reviews or makes a business of reviewing business and government, and they have 39 published numerous articles and position papers on financial service regulation . We welcome you here today. Lucy Griffin has for over 20 years had experience in consulting with banks on CRA and other compliance-related issues. She has worked with the Federal Reserve Board, the Federal Home Loan Bank Board, and the Federal Trade Commission , which I think are estimable credentials for being here today. She was instrumental in developing some of the first consumer protection laws in the area of consumer credit. We welcome you. Kathy Bessant-I'm sorry. Mr. Watt has a friend at NationsBank, don't you? Mr. Niskanen. Chairwoman ROUKEMA. Thank you . Not bad. Close. 40 STATEMENT OF WILLIAM A. NISKANEN, CHAIRMAN, CATO INSTITUTE Mr. NISKANEN. Madam Chairwoman and members of the subcommittee, the Community Reinvestment Act should be repealed , not reformed, not restricted, but repealed, for there is no conceivable set of regulations on a bank that is consistent with the objective of the Act to meet, quote, the credit needs of its entire community including low- and moderate-income neighborhoods consistent with safe and sound operation of this institution , unquote . 41 the race and gender of the owners of small firms that make loan applications or receive loans. The CRA does not provide authority for any regulatory decisions based on such data, and the potential use of these data is not defined in the proposed regulations , and the potential for abuse in the use of these data is also substantial . The above comparisons should be sufficient to illustrate why the Community Reinvestment Act should be repealed . Current regulations are only moderately costly but are otherwise fairly innocuous. The proposed new regulations would be very costly to the economy, to the banking system, and to the communities they serve. Thank you . Chairwoman ROUKEMA . Thank you. Ms. Griffin . STATEMENT OF LUCY H. GRIFFIN, COMPLIANCE MANAGEMENT SERVICES 42 record that complies with the CRA requirements . This is made more complicated by the fact that agencies have both within themselves and between each other inconsistent interpretations , inconsistent enforcement policies, and inconsistent examination practices. 43 ductive exercise but it actually conceals many low and moderateincome people because they live next door to higher-income people for whom they work. So in small towns it is an exercise in futility and a waste of resources. Solutions to some of these problems lie heavily in increasing the skill level of the examiners and increasing the coordination between the agencies and between these examiners. Also critical to this process is , from the beginning, the constructive involvement of community groups , not waiting until the eleventh hour to file a protest but from the beginning of the process to work with banks to respond to banks' attempts to communicate to them and, in some cases, to initiate , to call to the bank's attention the fact that they are there and would like to be talked to. tion. The regulations specify several points at which the community group should be involved . They should respond to the bank's outreach . The regulations require the bank to respond to initiatives from the community group, and they require the bank to respond to complaints that a group may file, having been frustrated in the two previous attempts. This is reviewed in an examination and taken into account, but the reality is , there is not usually anything there except what the bank generated . 44 proposal to collect data on certain types of loans, when in fact we have not yet ironed out HMDA yet. Much of my work in the last several months has been advising institutions on line-by-line item problems in HMDA laws and how to interpret the rule and how to correctly enter the line in that. For example, somebody who is taking a five-unit building and converting it to a two-unit, is it a multipurpose or is it a one-to-four? It is one thing before the application; it's another thing after. The commentary doesn't explain this , so there is a lot of effort being put in with limited results. STATEMENT OF CATHERINE P. BESSANT, SENIOR VICE PRESIDENT, NATIONSBANK Ms. BESSANT. Thank you. As many of you know, NationsBank is a company with a goal that is simple to articulate but not so simple to achieve , simply put, to be the best community development lender in the United States. Now I'm going to resist the opportunity this afternoon to tell you about our progress in that regard, but suffice it to say that we could not be more serious about getting the business of community development right. Unlike some of those that expect a big bank to come forward and urge repeal of the CRA, I'm going to do exactly the opposite. Nations Bank has long advocated a tougher, more aggressive CRA, one with objective; meaningful standards for measurement. My purpose before you is to advance exactly that objective. To that end, I would like to start out with a couple of observations about what I'd call the state of the community development industry. 45 First, the Community Reinvestment Act has played a critical role in advancing community development. Popular estimates of some $ 4 to $ 6 billion of lending activity per year are, in my opinion , conservative. 1 46 NationsBank supports the collection and reporting of race and gender information on small business lending. We believe such data is key to understanding and enhancing credit availability for small, women- and minority-owned businesses . But the CRA is an ineffective, inaccurate, and unfair vehicle to use to collect this data. An alternative and far superior approach would be to collect such information under the Equal Credit Opportunity Act. Use of this vehicle ensures that all lenders will report, thus generating meaningful data gathered equitably. Mr. Traiger. STATEMENT OF WARREN TRAIGER, CRA PRACTITIONER 47 The interagency proposal lacks one important component, a safe harbor to provide a meaningful incentive for banks to strive for superior CRA performance. Instead , the proposal would perpetuate the current practice of subjecting even the best CRA performers to the specter of CRA protests in connection with their regulatory applications. This practice undermines CRA compliance in four primary ways . 48 lator should be shielded from Justice and HUD review of the same activities. Thank you. [ The prepared statement of Mr. Warren Traiger can be found in the appendix . ] Ned Brown. STATEMENT OF NED BROWN, FINANCIAL MODELING CONCEPTS Mr. BROWN. Thank you, Madam Chairwoman, members of the subcommittee. Thank you for the opportunity to provide testimony on the critical issue of CRA. 49 balance, by the way, is $ 61,000. That was on purchase mortgage. For installment loans 57 percent of the installment loan base in our file make between $ 30,000 and their average installment loan is about $ 13,000. 50 Thank you very much for your attention. Mr. BROWN. True. Chairwoman ROUKEMA. Then granting credit to one segment may mean denial to another. That's just the question. That's not saying whether it's credit allocation or not, but I think that is still a troublesome area. 51 regulated part of the financial sector in favor of a variety of unregulated or less regulated financial forms. 52 munity. So that the racially motivated enforcement of the fair lending laws does not necessarily get you to low- and moderate-income people who are not of that group. Chairwoman ŘOUKEMA. All right. Mr. BROWN. Back to the point on focus here , and I think it is important. I have a client that happens to reside in Mr. McCollum's district, and I was on the phone yesterday with the city manager in Winter Park where he has his district office . The low/mod area in Winter Park is called the West Side , and they just completed a 30-year community redevelopment plan, and it is ready to roll ; I mean it's ready to be implemented right now. They even hired a CRA specialist-and that's what they call them , a CRA specialist— for the town, so I asked him, I said, " What would happen if you didn't have CRA, if the banks didn't have any incentive to make a loan on the West Side in Winter Park?" and he said it would be 53 devastating; he said , " We wouldn't get the money, we couldn't turn this area around." So it does fill a real need and it does help the banks to be focused. MS . BESSANT. There are. Mr. VENTO. They may expand . They have got some designs yet, yes. Ms. BESSANT. We will. Mr. VENTO. You know, since you are headquartered in Mr. Watt's district, I was just wondering what the CRA looked like, but then I remembered what his district looked like and I thought probably it would be a little bit of a problem. He has a notoriously interestingly shaped district, which I will let him further comment upon . But I think the essence here is that the incentives is one point. I think that even the regulators this morning all said that they were supportive, recognize the importance of it, I think recognizing really what is a proactive role, and the concern is, as you look at HMDA's , you look at the Fair Housing Act, if you look at the Equal Opportunity Credit Act, the problem is that you want to have a commonality between them, but, you know, these obviously have a different focus in many respects, but the idea of having a different data recording requirement, in other words, where you can and where it is legal, where it isn't barred by regulation B-the genesis of that I guess was in the 1970's, the mid- 1970's, and of course somehow a regulation bars a regulation. I guess it is one of the rules that two positives don't make a negative here or something in the banking law. It may in the work that I used to do, but it doesn't make it here. 54 But the issue is, notwithstanding that there ought to be a commonality so that we do not have a separate type of record keeping, that we have the commonality between them. I think that has merit. It shouldn't imply that we are trying to do other things . it. I think there is a question here that may or may not have come up in terms of what Brown has in his software program. He might want to keep it proprietary in that sense. But I fail to understand why, if you are doing all of this right that you would want to abandon it. I think it does have an effect, I think it is positive , I don't know that-but what other types of incentives do we have? What other alternatives? 1977. Mr. VENTO. And Ms. Bessant. 55 Ms. BESSANT. I think we need to be clear about what safe harbor really means, and, you know, when you start your morning with chants of, " No safe harbor," it is easy to think that it means something terrible. Ms. BESSANT. Right. 56 My concern is , of course, that all of this is elemental because I think that in terms-Madam Chairwoman, I just want to mention that-in terms of the CRA, I think the lack of a common understanding and a solid benchmark in which to plant your transit is the concern here, and I mean as we start to build on it or use it in more meaningful ways, even a safe harbor-my concern is that the data collection ought to go on, that the whole process ought not to be that acrimonious. nounceChairwoman ROUKEMA. I can pronounce it, can't I? 57 and cognizant of color themselves, and we ain't there by a long shot. Mr. Barrett. Mr. BARRETT. My question is to Mr. Niskanen as well, and maybe I'll take a different tack from Mr. Watt, although I agree with what he said. 58 think it should be done. Otherwise, just then to be equally honest and say we are ready to let it decay. COMMUNITY REINVESTMENT ACT THURSDAY, MARCH 9, 1995 HOUSE OF REPRESENTATIVES , COMMITTEE ON BANKING AND FINANCIAL SERVICES, 88-882-95 - 3 60 tions that were issued, and after hearing the comments from all groups involved they decided to go back and try it over again, as you well know. come you. 61 You all have excellent credentials and we appreciate your time and the effort to be here. 62 They seem to be able to deal with it, so I appreciate reading your statements , the comments and concerns that you have but I think behind it is not just CRA but I see it as examination, I see it as capital, I see it as FDICIA and FIRREA requirements which we have prescriptively written. 63 nity including low and moderate income neighborhoods . I am in complete agreement with this goal, as are virtually all bankers . Any banker who does not understand that the future of his bank rests squarely on the economic health of his community won't last long in the business of banking. 64 Second, the data collected is not necessary to assess whether a bank is meeting its CRA obligations. i Thank you. [ The prepared statement of Mr. James Culberson can be found in the appendix . ] Tony Abbate, please. STATEMENT OF TONY ABBATE, ON BEHALF OF THE INDEPENDENT BANKERS ASSOCIATION streamlined, tiered system for thousands of community banks. 65 This streamlined and tiered examination system will only be as good as the examination guidelines implementing them. We have written to the regulators about this and asked that their response be included in the record. 66 to CRA examinations , while the community bank across the street would. This is patently unfair and would create a serious competitive imbalance. This imbalance would be intensified if the walls between banking and commerce are breached . Thank you again. [ The prepared statement of Mr. Tony Abbate can be found in the appendix. ] Mr. Milligan. STATEMENT OF MARK MILLIGAN, ON BEHALF OF AMERICA'S COMMUNITY BANKERS. 67 business for ACB members. We believe it is good business that can be done in a safe and a sound manner. 68 Finally, we believe that CRA should be applied to geographybased, community-chartered credit unions and to credit unions serving multiple employer groups from one metropolitan area. Mr. Culberson?. Mr. CULBERSON. Madam Chairwoman, certainly exemptions are important to all of us. The difficulty is that we've got different sized communities in different locations. I Chairwoman ROUKEMA. Yes. You are not looking for outright repeal? 69 Mr. ABBATE. And the point that my colleague was making is very valid . I think there is an alternative that has to be looked at. Mr. ABBATE. Right. 70 Now, just in general, would you please get back to the issue that was so apparent yesterday, and a couple of you referenced it here today, and that is the question of race and gender reporting. I I mean, it makes no sense. Chairwoman ROUKEMA. That is a very interesting and very explicit example. Thank you very much. Mr. Abbate. Mr. ABBATE. Well, I think the problem is, first of all, race and gender coding is a fair lending issue and it doesn't belong on the CRA. data could stand the legal challenge under Regulation B, which 71 would be the Equal Credit Opportunity Act. It is unclear as to how this data is going to be used and what it will be compared to to judge compliance. Same type of a problem. Chairwoman ROUKEMA. Thank you very much . My time is up . I have other questions, but I will defer now to my ranking Member. Mr. VENTO. Thank you, Madam Chair. Mr. MILLIGAN . I'm sorry? Mr. VENTO . That is a proposal to rescind the money for the Community Development Financial Institutions Act. 72 As we do this , I think that it is important that we begin to recognize that franchise, and how we are going to have financial services at our local communities. I I remember the discussion under HMDA and how people resent when you ask them their race ; they get defensive . I can understand that. There is a problem there. I admit there is a problem, and I expect that you know, we could spend a lot of time talking about that today. 73 That is what we are after in these instances . There is ample opportunity at the time we have the examination for any group to make any comment where they are invited to make those comments, and we get approved, and then we get estopped for very little reason, just because someone doesn't like us . It is very costly and expensive . Mr. ABBATE . No , not at all. Mr. VENTO. But that actually brings it to that point when someone gets ready to branch . 74 mediate sized banks. I mean, I think it is relevant in Madison and is relevant in SaddleMr. ABBATE. May I? Mr. ABBATE. I think the problem is that it opens up a whole difficult set of circumstances because if we are trying to operate a business-for example, in a personal instance where we filed an application, I suddenly received a letter that said, by the way, we noticed you made this application ; we would like to see your public CRA statement as reported by the examiners ; we would like to know what your rating is; and we would like to see your HMDA data. And by the way, we are going to teach you how to make loans into low-income area without having any basis for that. Mr. Bono. Mr. BONO. Thank you very much. Don't let my new necktie bother you. It will just bother me. 75 I think your goal is to promote commerce period, for society period. I have never seen industry try not to cooperate , to help people or give people a leg up. It fascinates me to see that when government does try to make some balances they don't go to that very industry itself to say how is the best way to do this; it is let us tell you how the best way to do this is . Invariably, it is a mess. person . 76 I really think that CRA was a necessity years ago because there were many banks who lent cross-border, who lent overseas and were not following the spirit of their original charter. Mr. CULBERSON. I think both . Mr. ABBATE. I agree. To use an expression, unless the examiners change the categories that give you outstanding or satisfactory, you almost have to stand on your head to get an outstanding rating, so I think satisfactory, the amount of effort that goes into getting a satisfactory rating is enormous . Mr. BARRETT. Mr. Milligan. Mr. MILLIGAN. We might recognize a distinction here between outright safe harbor and expedited treatment, for example, and that could manifest itself on the distinction between " outstanding" and " satisfactory. " exam . Mr. BARRETT. So it would be CRA's exam. And that is an unannounced examination , is it not? 77 I think under the new plan, the regulators new plan , that they are going to ask the bank to go ahead and do that and they will do it as well, go right to the community groups. Mr. BARRETT. Mr. Abbate. Mr. ABBATE. There are two aspects to the examination. One is CRA and the other one is compliance. The compliance is compliance with consumer laws and regulations. your For example, we know that well over 90 percent, according to the last examination, of the loans that we made were within our market areas , and that is considered well within the criteria of what an examiner is looking for. 78 Mr. MILLIGAN. If I might. My reaction is, no. I frankly can't imagine that one could gain an " outstanding" rating and have the donut phenomenon at the same time. Mr. BARRETT. Thank you. ) 79 a continuous pattern of substantial non-compliance, for example, that there is an institution there that needs to be held accountable. We do not want our industry position's to be set by the performance of our worst performers . We want to have the worst performers improve, so we will not be about defending folks who continuously submit records of substantial non-compliance. some sort. Mr. NEY. Picking up on that point, isn't there some educational items and programs that you have done as an industry, whether it is Community Bankers or the American Bankers Association . I believe you had to police your own attitude over the years , haven't you? 80 Mr. NEY. So in conclusion , the bottom line is it would be a better trend, I assume, for this government to not look at the content of the statistic in the sense of how it is compiled , but to work with the industry to see where there might be some problem areas or how we can work together for some agreements . Mr. NEY . Thank you. Chairwoman ROUKEMA. Thank you. Mr. Wynn. Mr. CULBERSON. No, I don't. Mr. WYNN. Do you have evidence that any of these loans resulted in a pattern of higher defaults than other loans that might be in the portfolios of the banks? Mr. CULBERSON . That's right. Mr. WYNN. Yesterday the bank regulators were before us and we specifically focused on this question of credit allocation. Based on the answers you've given , I am finding it difficult to find any actual credit allocation in these regs. In other words, any situation in which the regulations themselves require the granting of credit. Mr. CULBERSON. No. Mr. WYNN. The other issue had to do with the collection of data. Mr. Abbate, I believe it isMr. ABBATE . Abbate. Mr. WYNN. Mr. Abbate, I'm sorry. Talked on a couple of occasions about the use of HMDA data to evaluate performance, HMDA data, of course, focusing on home mortgage lending. 81 Mr. ABBATE. No. I think what you are looking at in the HMDA data makes sense because you have such a mass of credit applicants, because the preponderance of lending in banks is to consumers. It is a very useful exercise for the examiner to know where you are lending. 82 But I want to assure you that the minority community is not going to continue making deposits with institutions that don't serve our credit needs specifically in the small business arena. Mr. WYNN. Fine. Mr. ABBATE. And I think what you are talking about goes more to the heart of fair lending than it does CRA. Mr. WYNN. Madam ChairwomanChairwoman ROUKEMA. Actually, you precipitated the line of questioning that I was going to ask for a different purpose. Go ahead, Mr. Wynn. 83 Mr. MILLIGAN. As I understand it, the legislation that was actually introduced in the previous session would give CRA credit for participation in lending consortia anywhere in the state in which that lender would be located . 84 appropriate or relevant period when public comment could be made in the process? Mr. CULBERSON. I'm sure there's some legitimate causes that happen. The pattern has been that it has been last minute. Most of them have not been held up by the regulators and they go forward with the merger or whatever the purpose was, and it is just very costly and time-consuming. Mr. Vento . Mr. VENTO. Madam Chairwoman- 85 or the endorsement of that by a regulator, so I mean obviously as long as this stands, has the same standing as other actions and other proposals , I mean I think that is the dilemma that exists here. 86 " doing the thing right," and I don't think today is about anyone's spin on doing the right thing. process. Mr. VENTO. I understand but I think that most of you know the integrity, the validity and reliability of that examination process is not necessarily something that you would welcome the non-professional and the political into , frankly. 87 And I had always thought wouldn't it be nice if in regulations you could respond to regulators and in turn have your day as well to say this doesn't make any sense and can this regulation be reviewed and what reason is it imposed on us and does it make any sense. So my question to you is do you have any recourse when regulations are imposed on you? I heard you say that if you had a thick file you did well. That was the standard for doing very well- so I would have slipped in some blank paper in some of those files, but other than having a thick file, did you have any way of getting your message back this way or did you just have to take it? Mr. CULBERSON . Yes. Mr. BONO. I found that extremely frustrating in my business , that I just absolutely had no way of responding to some of the regulations, and I would urge that we have a process where you have a voice as well . 88 Mr. VENTO. Well, I mean I think the issue is of course that when an application comes in then I guess the presumption is that that is a significant change in terms of what the institution is going to do , that they have obviously at that point you have a different circumstance in terms of looking at if there's a substantial change. 89 Mr. BARRETT. We have gone back and forth as to whether this is a growing problem. I would think that it would be easy to find out exactly how many protests there have been. I think if we had the hard dataMr. BARRETT. We could better examine how to deal with the solution. I don't know if I should be asking the ABA or I should be asking the subcommittee but I would think the first thing we want to do if there is a problem is to find out the extent of the problem so we can find out how to address it. 90 Chairwoman ROUKEMA. This session of the subcommittee will come to order and I thank everyone for being here today and being so orderly. 91 before this subcommittee or any other subcommittee and so I certainly support the response yesterday in terms of the disruption of the hearing and the closing of the panels in terms of consideration , especially based on the conduct of the officials that were leading that group . Vento. I think we'll provide the maximum amount of time for our panelists . Hopefully we will not be interrupted with too many votes, but we'll get right to work here so that you can clearly lay out, make your presentations . Gale ChincottaChairwoman ROUKEMA. Cincotta. Ms. Cincotta is the Chairperson of National People's Action , which is a national coalition of approximately 300 grass roots organizations. That organization has been working on neighborhood redevelopment issues since 1971. I think you qualify. That, by the way, precedes, long precedes CRA. Michelle Meier-Ms . Meier is counsel for Government Affairs of Consumers Union . Consumers Union is a nonprofit organization chartered in 1936. We know of, we are very familiar with the activities across the country for information , education and advice on issues that range from health care to consumer services and financial services. [ Recess . ] 88-882 - 95 - 4 92 Chairwoman ROUKEMA. I think we are ready to commence , begin, start-if we have Mr. Taylor. That's life on the fast track here. That's all I can say. STATEMENT OF JOHN TAYLOR ON BEHALF OF THE NATIONAL COMMUNITY REINVESTMENT COALITION 93 These regulations will let community people, Congress people, Mayors, Governors and just plain citizens know the real story of who is lending in our neighborhoods and who is not. 94 like to submit in written form, we can do that as well if it is submitted within a 10-day period. Thank you, and Reverend Stith . Mr. Taylor, do you have to leave now? Do you want us to advance questions to you now? Mr. TAYLOR. Yes. Chairwoman ROUKEMA. Mr. Taylor, I've got to say that others have testified and raised a number of troubling questions, particularly the bankers. By the way, I think you know that none of them called for repeal. They did call for streamlining and expedited procedures and they expressed themselves on safe harbor. 95 Much to the concern of community groups , frankly, we think that the second rule was bent with very much the lender's concerns about costs and streamlining and reporting in mind and less with our interests in mind. Mr. Vento? Mr. VENTO . If Mr. Taylor has to leave he may want to respond in writing to some of the questions we were referring to earlier. I'm sure that he may-were you present at this morning's hearing? Mr. TAYLOR. No , I wasn't, sir. tics. One of the issues that has come out, and I just want to call my chairwoman's attention to it and others that are students of this , and that is with regards to mortgages, the demonstration of whether or not mortgages were being made on an equal basis was actually done on a reverse basis. They said, well , look at the defaults ; the defaults are higher among these particular groups and therefore that indicates that we are making mortgages to the extent because the default rate is at least as high or higher for Asians or for Indians or Chinese or African Americans . You are familiar with that. 96 many loans aren't business loans; they end up being consumer loans , but if we look at loans generally, I haven't heard an answer or a response to whether we look at these other loans in the reverse basis to make that determination . Mr. TAYLOR. That is correct. Mr. VENTO. So I think that those studies and those particular specifics are very important, I think, to the subcommittee and to understand how the regulators are going to actually format this and how the information is going to be used, I think, is important. I don't want to hold you, Mr. Taylor. I mean, there are other questions that need to be addressed. 97 of the institutions in my area which have a lot of branches . They are big, but they are over seven and eight States. Mr. TAYLOR. Right. Mr. VENTO. Anyway, Mr. Taylor , thanks for listening to me, and please respond in writing if you have any ideas that can help us. I think we really need that input in terms of streamlining to answer some of the paperwork problems . Mr. TAYLOR. Thank you. Mr. VENTO. Thank you. Thank you, Madam Chairwoman. We will be right back. [ Recess.] Chairwoman ROUKEMA. The subcommittee will come to order. Reverend Stith, you have our attention . STATEMENT OF REV. CHARLES R. STITH, ON BEHALF OF THE ORGANIZATION FOR A NEW EQUALITY 98 It is also clear that the kind of progress that has been made directly correlates with the disclosure requirements in 1989, which is the segue to the third point that I want to make . And that is, if we are going to see similar sorts of success stories as it relates to small business lending, I am absolutely convinced that it is going to take the same kind of disclosure requirements that we have around HMDA data in order to affect the kind of change that we want to see . Thank you, Madam Chair. [ The prepared statement of the Reverend Charles Stith can be found in the appendix . ] Mr. Fishbein . STATEMENT OF ALLEN J. FISHBEIN, ON BEHALF OF THE CENTER FOR COMMUNITY CHANGE 99 dependence, does not expand bureaucracies or budget deficits and does not hurt business or the economy and it is called the Community Reinvestment Act. 100 communities that could be very severely affected by these expansions that are occurring. Ms. Cincotta. STATEMENT OF GALE CINCOTTA, ON BEHALF OF NATIONAL PEOPLE'S UNION 101 I have a letter with me from Mr. Moskow of the Federal Reserve Bank in Chicago that, after they talked to a majority of the banks that have been disclosing all these years, there has never been a question of confidentiality that has been raised . I have included that in what I have submitted. 102 We would like a common sense approach but the banks will complain to you and they will wait to the next hearing before they do anything about it. And we have said, come along with us , we don't want you overly burdened, we would like conforming regulations also. So that I would ask them next time, how many times have you visited the regulators in between these hearings worrying about paper. I think it wouldn't be that hard if we could work as a team to do it. Thank you. [ The prepared statement of Ms. Gale Cincotta can be found in the appendix . ] Ms. Meier. STATEMENT OF MICHELLE MEIER, ON BEHALF OF CONSUMERS UNION 103 theme is, let's be constructive . Since the November election , we have read in the trade press, read in the popular press and heard bankers, some bankers, verbally licking their lips about how the election was going to allow them to wipe out key consumer protection laws. We don't believe that. We think that consumer protection is broadly supported by Americans of all political persuasions and that consumer protection should be and hopefully is a goal of this Congress's leadership. Thank you. [ The prepared statement of Ms. Michelle Meier can be found in the appendix . ] Mr. Roberts. STATEMENT OF BENSON F. ROBERTS, ON BEHALF OF LOCAL INITIATIVES SUPPORT CORP . 104 been around for about 15 years now. It is our job to work with both banks and other private sector organizations as well as with community groups. We are an intermediary. 105 business lending, which is crucial within neighborhoods, with the more customized kinds of community development lending that is equally important. They use a wide range of measures of performance. We think that is anything but credit allocation, especially when you put it in the broader context of banking regulation where because of depository insurance and safety and soundness concerns , there is a very, very heavy governmental intervention in our banking system from cradle to grave that makes it hard for banks to enter the system, watches them very carefully and steers them toward some investments and away from other activities in the name of safety and soundness, and then works really very hard to keep banks from failing and leaving the system if you will. Mr. WYNN. Madam Chairwoman? Mr. WYNN. Before we go , I ask unanimous consent to enter into the record the remarks of Edward D. Miller, President of Chemical Bank Corporation. This is the comment that Mr. Ludwig referred to yesterday on this subject of the data gathering on small business loans. [ Recess .] Chairwoman ROUKEMA. Thank you. Thank you for your patience and Congressman Ney is going to be the first one to question. Mr. NEY. Thank you, Madam Chairwoman. 106 The one point made today was about an example of how if a person goes in to buy an automobile and they could use their home equity, though I don't want to consider that a good example but, in other words, maybe they wouldn't go through the whole process of the statistical gathering and maybe they don't want to give the information or for whatever reason this was raised today by one of the panelists and so they turn to some other type of format to get the loan, whether it is through the automobile company or whatever the process may be. 107 As far as my organization's position and the views of other organizations as well, we would like to see that expanded to nonbanking institutions as well in the small business lending area. I have no problem promoting that reporting requirement for nonbank lenders . But the reality is the banks are the primary lenders to small business and so getting it from them is extremely important. Mr. NEY. Because I am running out of time, I want to get the last question in quick to Mr. Roberts . Mr. NEY. Thank you . Chairwoman ROUKEMA. Our ranking Member , Mr. Vento. Mr. VENTO . Thank you. 108 supply information . Normally, they don't even mention the particular bank whose record they are examining when they do that. area. Mr. VENTO. Reverend Stith, I think was-were you going to mention something with regard to this? I think it is a very important point because I mean I think the issue is, of course, that they talked about time delay and I asked for and they said that for the record that they are going to, if they have any information, they have 10 days to get me documentation of delays that have occurred in the application process specifically because of CRA comments . Of 109 course, they talked about the bad publicity and some of the other aspects of it too which I don't know that we-whether we can do something about that or not. Reverend Stith? Mr. STITH. Allen actually did , I think, a very eloquent job of laying out the issues. 110 Part of the problem, I might say further, is that this is a rather new process. I mean, during the 1980's really this law was in quiescence. It was not doing what it was intended to do. So it has only been the 1990's that this has really come around and I think it started out on sort of a bad foot in the sense of disclosure and a lot of banks, frankly, have not been up to speed in terms of actually dealing with this, these issues, in addressing these concerns. Thank you . Maybe Michelle hadChairwoman ROUKEMA. I would like to call on Mr. Barrett, our Congressman from Wisconsin but I have a problem here now. I have postponed a meeting for more than half an hour, a New Jersey delegation meeting, in my office and this is the second time I have changed the meeting today. Mr. Barrett. Mr. BARRETT. Thank you , Madam Chairwoman. If you have to leave, I understand that. We will just make believe we are the majority again. [ Laughter.] 111 again, I apologize, you may have been asked these questions but I think it is important to have a meeting of the minds. 112 Now, we have to have the right to protest is what I am saying. Because we didn't have that right because they couldn't ask for anything, we got nothing until we had that right. Did that answer? Chairwoman ROUKEMA. Do we have someone else who wishes to speak? Ms. MEIER. I have two points to make in response to that concern raised by the bankers . Yes? Ms. MEIER. One is , studies have shown that applications for acquisitions that have a CRA challenge associated with them have not resulted in longer decisionmaking periods on the applications. Mr. BARRETT. If you could get that to me in writing, that would be very appreciated. Ms. MEIER. All right. The second point is one Allen raised in his statement, which I think is really important. We are moving toward a nation with interstate branching and interstate banking and we are going to have a lot of large banks, perhaps many more than we see today. These banks are going to have branches throughout the country. Mr. BARRETT. OK. Mr. ROBERTS. A couple points . First, with respect to paper, during the Bush Administration , OMB conducted a study of the paperwork burden on banks under a wide range of regulatory requirements. CRA came in dead last, that is to say the least burdensome paper requirement among all the banking requirements, all the compliance rules. 113 Mr. BARRETT. Thank you. Mr. VENTO. If the gentleman would yield to me, I think Mr. Ney is coming down, obviously, to close out the hearing. The issue I think, if you would yield to me? Mr. BARRETT. Sure. Mr. VENTO. Michelle Meier had raised the issue, said that there is data available that does not show any appreciable difference in terms of issues where there are questions or concerns raised by consumer groups or others at the time of application due to these agreements. It is a time, obviously, when agreements or activities do take place and Ms. Cincotta mentioned that she herself was involved in an agreement that took place with a bank in Illinois , three banks . 114 anywhere from 95 percent to 97 percent positive rating under existing system, that would be tantamount to an automatic order on people's right to comment on CRA-related issues for tually any bank in the United States. Mr. BARRETT. May I interject? When you say 95 to 97 percent, can you break that down tween satisfactory and outstanding? the gag vir- be- Ms. MEIER. Yes . Mr. FISHBEIN. I think everyone here today testified that they think the regs would represent improvement over the existing regs and the time has come to adopt them and get them issued. 115 One of the issues that has come up with the regs, of course, is this Regulation 40 and the suggestion that there is- Regulation B, pardon me. Regulation B and that there is an inherent conflict between that and some of the rulemaking that is going on with regard to statistics based on race and other factors. Ms. CINCOTTA. I know. Mr. STITH. That has been a much-discussed issue, Congressman. And one point is the reality that Regulation B does not, in fact, preclude the voluntary collection of race-based data. [ No response . ] Mr. NEY. Thank you very much . I appreciate your testimony and the members' participation . You may be adjourned . [ Whereupon, at 4:28 p.m. , the hearing was adjourned . ] 117 APPENDIX March 8, 1995 118 Congresswoman Marge Roukema Fifth District - New Jersey Release: March 8, 1995 Contact: J. Craig Shearman ( 202) 225-4465 Roukema Statement on CRA Following is the opening statement of Subcommittee on Financial Institutions Chairwoman Marge Roukema, R-N.J.-5th , at today's hearing on proposed changes in Community Reinvestment Act regulations. --MORE-- 119 purpose of ensuring that banks and thrifts are meeting the credit needs of their communities including low- and moderate-income neighborhoods? If not, I want to know what can be done about improving the situation. I am also concerned that the law conflicts or overlaps with other existing fair housing and equal credit laws, such as the Equal Credit Opportunity Act and the Fair Housing Act. --30-- 120 OPENING STATEMENT OF CONGRESSMAN BRUCE F. VENTO AT HEARINGS ON COMMUNITY REINVESTMENT ACT MARCH 8 AND 9, 1995 MADAM CHAIRPERSON, THANK YOU FOR INITIATING HEARINGS ON THE STATUS OF THE REGULATIONS GOVERNING THE COMMUNITY REINVESTMENT ACT. MANY ARE AWARE THAT THE REGULATORS BEFORE US THIS MORNING HAVE BEEN LABORING ON REVISED REGULATIONS TO IMPLEMENT THE COMMUNITY THE EFFORT TO REVISE THE CRA REGULATIONS HAS BEEN BY TRIAL AND ERROR. IN THE MAIN, THE REGULATORS HAVE ATTEMPTED TO MOVE TOWARD STREAMLINING, CLARIFYING AND IMPROVING THE IMPLEMENTATION OF CRA TO BETTER SERVE COMMUNITIES AND TO REDUCE COMPLIANCE COMPLICATIONS FOR FINANCIAL INSTITUTIONS MOVING FROM PAPERWORK TO PERFORMANCE. AS LEGISLATORS , WE MUST EXAMINE AND EVALUATE THIS PERFORMANCE , WHICH IS A REQUISITE ASPECT OF PUBLIC TRUST IMPLICIT IN THE FINANCIAL INSTITUTIONS FRANCHISE. THE SAFETY AND SOUNDNESS OF SUCH PERFORMANCE IS AT LEAST RELEVANT TO THE DEPOSIT INSURANCE RESPONSIBILITY. WITHOUT ANY FURTHER DELAY OR PROCRASTINATION IT IS TIME TO ISSUE THE CRA REGULATIONS FOLLOWING THIS 121 SET OF HOUSE HEARINGS . IT IS OF PARAMOUNT IMPORTANCE THAT THE REGULATORS MAKE A DECISION IN ACCORDANCE WITH THE MARCH 31ST GOAL PUBLICLY UNDERSCORED BY VICE PRESIDENT GORE. THE THREADS OF THE COMMUNITY REINVESTMENT ACT ARE WOVEN INTO THE WHOLE CLOTH OF CONSUMER FINANCIAL SERVICES . SUCH THREADS ARE WOVEN TOGETHER WITH OTHERS LIKE THE THREADS OF GSE REGULATIONS , AFFORDABLE HOUSING PROGRAMS, AND THE FEDERAL HOME LOAN BANKS;, THE ACTIVITIES AND YARN OF THE NEIGHBORHOOD REINVESTMENT CORPORATION ALONG WITH FAIR LENDING, FAIR HOUSING AND OTHERS . ON THE WHOLE AND ON AN INDIVIDUAL BASIS , THIS IS A COLLECTIVE CLOTH AND MAKES A GOOD SUIT TO FIT OUR COMMUNITIES WHICH SERVES AS POSITIVE CONTRIBUTIONS FOR FINANCIAL 122 INSTITUTIONS. MADAM CHAIR, FOR THE RECORD, I WOULD LIKE TO INCLUDE A TWO-PAGE EXCERPT FROM A DOCUMENT PUT TOGETHER BY THE FEDERAL RESERVE BANK OF PHILADELPHIA ENTITLED COMMUNITY REINVESTMENT ADVOCATES, THAT SPEAKS TO THE SUCCESS , BOTH FINANCIAL AND OTHERWISE, OF CRA AND COMMUNITY INITIATIVES. I LOOK FORWARD TO LEARNING FROM OUR PANELS TODAY AND TOMORROW AS WE FINALLY MOVE FORWARD WITH THE NEW AND IMPROVED CRA REGULATIONS. 88-882 - 95 - 5 •Pype NC Bank believes that the performance of CRA -tits has differed not significantly other from loans .its Sin outh Shore hicago rCBank )(• eported 1990 delinvquencies 2o an(-1 s.ational average tof )53% million 7a$onamily 5 portfolio mostly fmulti -of real •The Massachuset Housing ts Investment Corporation 2of $ 1.5 lent million since 1990 for construction affordable Ahousing . ll loans are current favorably and SUCCESSES rated risk .for • avings Mortgage SCompany an ,(Association Jose hCalifornia financed ) as since over million $31971 00 purchase the for development and more of than 10,000 affordable ofncome units housing ilow -for .individuals plhad - rofit for This consortium lending never ahas oss has and known only an occasional .delinquency loans losses .Iestate tsenth one -twere .of 1% Uan • nited Jersey Banks introduced affordable mortgage product for to ncome timoderate -lowfirst ime homebuyers dand areported elinquency ratio only of 605 1%o992 n booked loans between 1989 mid .-and B-aFof .•Unsured .S ank Oregon iintroduced HA affordmortgage product able experienced and ain1990 delinquency rate below well the Naverage one .state of went loans the default .into 33 ocal Initiatives Managed IMAC CLAssets )(• orporation purchases loans originated support in community of development and lower for families ncome .-ihousing phas aortfolio $2On almost of 4 LIMAC million N• eighborhood Reinvestment Corporation's NeighborWorks organizations clocally apitalized -use revolving funds loan lend people to do who not qualify conventional for bank financing property of cacquisition , onstruction repair n portfolio a1.Oor 992 10,000 over aggregating 1loans million 13 ,o$of nly mprofit - otivated .developers The California Community Reinvestmen Corporation t Cand million 4$)f( unded 8CRC loans of tovery lowhousing -income s low development between 1990 and with 1992 delinquencie defaults or s .no Community he Investment Corporation )(C•Thicago 2financed million $ amily 00 fmulti -of rehabilitation in and low moderate income neighborhoods between 1984 and 1992. Losses loans on were less than % .0.3 C)(NCorporation • ommunity Preservation York ew financed the rehabilitation ofamily 32,000 fmulti -over housing bunits cataillion ost between $1of and 1974 1993. investors Its have lhad oss .anever Dlent • elaware Community Investment Corporation 1the $ 2.6 million between 1990 and 1992 for development 637 rental housing units has .Ioft not experienced EXAMPLES incurred losses .no FROM were % 1.7 default .in Around THE COUNTRY . any delinquencie s arofit psponsored or developer .-fby •Hinanced omes for iami fSouth )(MFlorida producthe of tion housing 900 between units 1989 and 1993 by community development aimed atcorporations very iI.low - tnly ncome Oindividuals one project failed was FEDERALBANK RESERVE OF 123 Wgoal Fargo Bank a• ells $4set million 1 lending for itself 1986 in when aCitadopted ommunity and Economic Development loan T.program he results exceeded expectations all with than billion $1more .4 credit originated intheach years six of E.next the product categories performed has atleast as the well bank's conventional Tportfolios affordable . he housing loans have considerably outperformed their conven.tional egarding iRcounterparts ncome housing ,t-low he performance reports bank generally been has with better experienced development -profit non agencies with than ... FROM D EXCERPTE .1% than less of losses had New ased bconsorti eFin,lending -long our a a d • stablishe financed ave Californi and Fh,, lorida hicago multi62,000 ofb$1CYork ion construct the for illion over .units losses no virtually with housing family loans made have nationall funds loan Cof • ommunity y have and borrower 4,000 some to million 1over $ 20 s )(1PAublication 993 .atrong e business of line sand profitabl of ,Consumment Depart Affairs er and ity Commun Philade of Bank Reserve Federal The lphla . default eson Initiativ Local and Foundati Enterpri Tthe • 50he se to million 1Corporat $over lent have ion Support delinwith ions organizat ment develop ty communi .% 31ofo tfrom rates quency es Advocat tment Reinves Community agreements into entered Chicago of Bank National F• irst expand togroups community with 1989 and 1984 inits million 50 2of $a.Oactivity ortfolio pdevelopment n into went one Ndelinquent .loans were two only blent has Californi Bank Western reat a Gin4$in • illion or income -low mpersons inoderate to s mortgage small that believe officers T. heir hoods neighbor minority less are live they where people to made loans balance up higher persons tospeculati credits more than ve risky . ladder income the for million 2 $5lent Chicago inBank Trust Hmulti• arris tracts imoderate -inncome and lowhousing family loans 190 f oonly 3and found 1992 1985 between million 1did $. 2hey nt also Tdays 60 past were have which of ,all delinque loans al commerci neighbo in tyrhood communi their reports nt Mcurrent . anageme been ,bank the inrate loss lowest the have loans development million 00 3$about lent has Bank Mfor • aryland lowinand National ation revitaliz al commerci rental aboth be to housing activity this found and areas income to mortgages in million 1of $lent has Boston ank B• 40 .% 0.1 just the found and borrowers ncome imoderate -and lowmortgage regular its than different no be to performance mortgag first over made Bank National untingteon H400 had and 1993 1992 in • le loans housing affordab for averages national the ncies below well delinque . portfolio find to surprise was Bank National Iitwhen • ndiana d so do could itmarket housing e affordabl the targeted of m$2first its in( illion ncies delinque no ith wsafely sell or mortgage the portfolio either could acredits ) nd s tracked has Louis St. in Bank National oatmen's Bthe • iand -moderat lowinncome ence loans its of performa nce performa the says and years several ies for communit regular its of that --better than or good as been has .in market y secondar the them in million 82 h 2lent $,• ittsburg PBank ntegra I,housing lowinand ial loans estate real commerc business small and 1992 1988 between ncome e -moderat iand . areas bank the of rest than rates ncy delinque lower had Valley e Delawar its on rate ure foreclos Bank's eridian M • Ienon .- tsxistent e been has products Plan Mortgag very performi are loans improve rng home consumement market total its incompare loans similar toincomeyd favorabl -delinque low to loans r consume its on and ncies its inthose than lare ,cases many inower ls individua . portfolio mortgage .$2their 0,000 than less been have losses which million 0 eds 7$Bank over originat has Cin • oreState oss ment lwith aloans estate real develop communi made have also hey ty ce Tindustry .norms below on million $small 4of amount the in2 experien loans business buyer home ime d tincrease -first its Bank Fidelity F• irst its eand ,1992 1991 etween d b300 %liminate by lending loans the keeps and eent insuranc mortgage for requirem portfolio regular their mirror Din. elinquencies ninsured uright ,that oneportfolio dbelieve officers their and .any loan insured as good are loans onal conventi 124 s .mortgageble FHA compara 5)2( 74-64 15 58 . markets other Excellen ood t Greports Bank National M"to“as ⚫idlantic has itaffordabl loans housing ence the on performa itthan favorable more much ced experien n a , originate perforbest tsonA Iloans .had Vpurchase /has d FHA ousing -lowhmoderate and toloans on was mance bank's the suppleme financin public gnted where projects e . assistanc 125 JOSEPH P. KENNEDY II 8TH DISTRICT, MASSACHUSETTS COMMITTEE ON SERVICES BANKING AND FINANCIAL SUBCOMMITTEES: HOUSINGANDCOMMUNITYOPPORTUNITY, RANKING MINORITYMEMBER DOMESTICAND INTERNATIONAL MONETARYPOLICY COMMITTEE ON VETERANS' AFFAIRS SUBCOMMITTEE: HOSPITALS AND HEALTHINSURANCE CARE COMPENSATION, PENSION, ANDMEMORIAL AFFAIRS 2242 RAYBURN BUILDING WASHINGTON, DC 20515-2108 ( 202) 225-5111 ( 617) 242-0200 801( A) TREMONT STREET ROXBURY, MA02118 Congress of the United States Testimony of Rep. Joe Kennedy Financial Institutions Subcommittee I want to thank Chairwoman Roukema and the members of the Subcommittee for the opportunity to testify today on the important issue of CRA, the Community Reinvestment Act. Madame Chairwoman, we live in a capitalist country where the most talented people, the people with the most know-how, the most creative ideas, the most energy will succeed if they are given a fair shot. That is what is meant when we talk about creating an " opportunity society" in America. I have myself benefited from the openness of our market system -- before I came to the Congress I started 7 small businesses that successfully competed against some ofthe biggest corporations in the world. But this kind of success requires access to credit -- credit is the grease that keeps the wheels of commerce turning. Unfortunately, the evidence is clear that credit is just not available on an equal basis to all people in all communities in America. And that means that the ability to take part in the American dream, to participate in the economic mainstream by building a small business or buying a home, is not open to all Americans. The HMDA data makes that clear. Minorities, low and moderate income people, and people that live in certain areas are denied access to credit at significantly higher rates, taking into account income and other factors affecting creditworthiness, on the basis of completely non-economic factors. CRA is the law that deals with this problem. It is fundamentally a conservative law because it is designed to make markets work for everybody in the society. Too often, we talk about CRA in terms of charity. That is a false characterization. CRA is, above all, good business. The Federal Reserve Bank of Philadelphia recently published a pamphlet summarizing the community lending activities of bank after bank and numerous community financial institutions whose CRA portfolios perform as well or better than other loans. THISSTATIONERYPRINTED ON PAPER MADE OF RECYCLED FIBERS 126 For example, Wells Fargo Bank, PNC Bank, South Shore Bank, U.S. Bank of Oregon, United Jersey Banks, Indiana National Bank and others all report CRA portfolios that do as well, and oftentimes better, than their conventional loan portfolios. I met with Terry Murray, the CEO of Fleet yesterday, and he told me the same story. Nationally, community loan funds have made $ 120 million in loans with losses of less than 1%. The Enterprise Foundation and LISC have lent over $ 150 million to CDCs with deliquency rates of 1% to 3%, again, comparable to conventional loan default rates. Despite this success, many bankers have complained about CRA requiring too much paperwork. I agree with these concerns. There is no doubt that everyone's interests are served -- community groups and bankers alike -- by reducing the paperwork burden and increasing the amount of loans getting out into the community. This Congress has made many efforts to cut back on regulatory red tape this year. The pending CRA regulations are consistent with this effort. They make CRA more efficient -- that is, require less paperwork; and they will make CRA more effective -- in other words, provide more credit. The GAO will release a report shortly that specifically says that the proposed CRA regulations will reduce the paperwork burden of the existing regulations. A couple of controversies about the new CRA, regs remain, First, the proposed regulations published in July would require race and gender reporting for small business and small farm loans. I support this proposal strongly. The only way to measure the actual performance of lending institutions around the country is to collect and publish this data. Remember, the regulators collected the HMDA data showing racial disparities in home lending for years but never took any action until the data were published. Public reporting of race and gender data is the only way to know ifthe credit markets are adequately serving all segments of the small business universe. Second, I support reporting of this loan data by census tract. The proposal to make information available on an aggregate basis will not help the public know if small businesses throughout an area are getting adequate access to bank credit. The regulators will be collecting this data anyway; I believe the public has a right to know. As in the case of race and gender, it is the public, that is likely to be the best enforcer. Finally, let me close by saying that, rather than talking about gutting CRA, as some on this Committee have suggested, if we really believe in the rhetoric of equal opportunity, if we really want to see fewer families on welfare, if we are really commited to economic growth, we should be talking about expanding CRA to mortgage bankers and large credit unions. Study after study shows that these institutions do a much poorer job of serving low income communities, inner city areas, and minorities than do banks and thrifts. I will be 127 introducing legislation later this year to make sure CRA applies to these institutions. In conclusion, I want to emphasize that CRA is good business and good policy; that the pending regulations are consistent with the goal of cutting red tape; and that aggressively enforced community lending laws are the best way to replace a welfare society with an opportunity society. 128 TESTIMONY OF RICKI TIGERT HELFER CHAIRMAN ON INTERAGENCY EFFORTS TO REVISE REGULATIONS IMPLEMENTING THE COMMUNITY REINVESTMENT ACT BEFORE THE SUBCOMMITTEE ON FINANCIAL INSTITUTIONS COMMITTEE ON BANKING AND FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES MARCH 8 , 1995 ROOM 2128 RAYBURN HOUSE OFFICE BUILDING 129 INTRODUCTION Madam Chairwoman and Members of the Subcommittee , I appreciate and welcome this opportunity to testify before you today on the Community Reinvestment Act ( CRA) and the interagency proposal to reform implementation of the Act . Deposit Insurance Corporation ( FDIC) The Federal is strongly committed to carrying out its responsibilities under the CRA . The regulatory agencies on this panel have spent the last 21 months in an extensive effort to reform CRA regulations . This effort has included a series of seven public hearings across the country where hundreds of witnesses addressed some of the same issues and concerns addressed in your letter of invitation . While I am relatively new to the process , I want to commend my colleagues on this panel for their intensive efforts to make the CRA regulations less burdensome and more effective . Federally- insured financial institutions perform a vital intermediary role in the communities in which they operate : In making loans with the money that depositors leave with them, they fuel economic growth . The CRA was enacted to encourage banks to make the oppportunity for economic growth available to 130 2 the " convenience and needs " criteria that regulators have long used in weighing charter and branch applications to cover credit . The record shows that the CRA has improved access to credit in communities across the country . The regulations implementing the CRA have encouraged many institutions to make substantial commitments to increase lending and services to all income levels . I support the goals of the CRA , and I subscribe to efforts to focus attention on meaningful performance by banks and thrifts instead of on building unproductive paper trails . LEGISLATIVE HISTORY In introducing the Community Reinvestment Act 18 years ago , former-Senate Banking Committee Chairman William Proxmire said that it was : " intended to establish a system of regulatory incentives to encourage banks and savings institutions to more effectively meet the credit needs of the localities they are chartered to serve , consistent with sound lending practices . " somewhat less formal language at hearings on the legislation three months later , he said : " What this bill would do would be to try to make the banks more sensitive than they have been in the past to their responsibilities to provide for local community needs . " These needs , he had noted when introducing the bill , 131 3 included " domestic economic development , housing , and community revitalization . " The built- in latitude in the CRA -- the legislative directive to " encourage " but not " require " specificity on how to go about it and the lack of prompted regulators to hold public hearings around the country in 1978 for guidance prior to drafting implementing regulations . The legislative history is clear, however , that the CRA was not intended to force banks to make unprofitable loans . The law specifically states , " In connection with its examination of a financial institution , the appropriate Federal financial supervisory agency shall assess the institutions's record of meeting the credit needs of its entire community , including lowand moderate - income neighborhoods , consistent with the safe and sound operation of such institution . " The banking agencies have found the CRA a difficult law to administer , in large part because it was intended to change the attitudes of lenders -- not simply draw distinctions between legal and illegal behavior and thereby increase lending for community development , a broadly defined target . 132 4 OVERVIEW This testimony addresses the effectiveness of the CRA in fulfilling its purpose of meeting the credit needs of the communities in which financial institutions operate . It discusses the problems that lenders and community representatives see with the current system for evaluating CRA compliance , and it describes how the proposal of the federal banking agencies addresses these problems . The testimony also discusses concerns about credit allocation and addresses how the CRA relates to equal credit and fair housing laws . Finally , it comments on recently introduced legislation affording certain institutions a " safe harbor " protection against denial of applications . As agreed by the Subcommittee , the agencies are submitting a separate , joint interagency statement , which discusses in detail the history of the CRA and the efforts underway to reform the regulations implementing the CRA . THE EFFECTIVENESS OF THE CRA Concern about redlining , in large part , motivated enactment of the CRA in 1977. As mentioned earlier , access to credit is essential to the financial viability of every community ; this viability is threatened to the extent that artificial limits based on geographic location , demographic composition , or personal attributes not relevant to lending risk are imposed by 133 5 lenders . The CRA is a statute that promotes community development by stipulating that financial institutions should serve the credit needs of their entire communities . It complements , but is different than federal fair lending laws , such as the Fair Housing Act ( FHA) and the Equal Credit Opportunity Act ( ECOA) , which specifically prohibit discrimination by all lenders , not just insured financial institutions , in a broader range of housing and credit transactions . The CRA does not require that institutions make specific types or amounts of loans and does not allocate loans to particular persons or geographic areas . Consequently , there are no hard data to quantify how much lending and investment is directly attributable to the CRA . There is , nevertheless , evidence that suggests the CRA has focused attention on lending opportunities that otherwise might have been overlooked . Since the passage of the CRA , FDIC compliance examiners report that lenders have demonstrated a willingness to offer new lending products and services that benefit low- income households . Financial institutions have expanded their marketing , often advertising through the use of media targeted to specific underserved neighborhoods and in some cases in languages other than English . Many FDIC- supervised institutions identify lending opportunities by working closely with community groups and state and local governments , often participating in special programs in 134 6 conjunction with these groups . The FDIC has 24 Community Affairs Officers in eight regional offices that try to be catalysts for encouraging this interaction . The banking industry has acknowledged that CRA has helped to put billions of dollars into low- and moderate - income communities , as indicated by the Consumer Bankers Association ( CBA) in its 1993 testimony at interagency public hearings . addition , CBA stated that , the CRA has allowed many financial institutions to recognize that there is a market in the revitalization of their communities and has led to creative ways to address the needs of underserved neighborhoods . Despite positive results , the CRA examination process has long been the subject of criticism from both the banking industry and community organizations . Bankers repeatedly have claimed that guidance from the agencies is unclear , examination standards are applied inconsistently , and the current evaluation system is burdensome and emphasizes paperwork rather than a bank's record of making loans . Community organizations have complained that the current evaluation system is inconsistent and focuses too much on paperwork rather than performance . Overall , almost all of the comments called for change , although there was much disagreement about the specifics of how change should be accomplished . 135 7 ADDRESSING THE PROBLEMS WITH THE CURRENT SYSTEM In July , 1993 , these concerns gave rise to a letter from the President to banking and thrift regulators that called for reform of CRA regulations . In response to that letter and to widespread criticism , the regulators have put substantial effort into reforming CRA regulations . of public hearings around the nation in order to understand the criticisms and concerns of interested parties , including representatives from financial institutions , the business community , consumer and community groups , and state and local government officials . Following the hearings the banking agencies in December , 1993 , issued a proposed rule ( the " 1993 proposal " ) that substituted a more performance -based evaluation system for the twelve assessment factors in the existing CRA regulations . Under the 1993 proposal , the agencies would evaluate an institution based on the results of actual lending , service , and investment performance rather than the method or process used to determine credit needs as is too often the case under the existing letters . 136 8 On October 7 , 1994 , the agencies published a revised -- 7,100 by the agencies altogether , 2,059 by the FDIC alone -- are discussed in detail in the agencies ' joint statement . I would like to highlight a few elements of the current proposal . Like the 1993 proposal , the 1994 proposal would replace the existing twelve factors for assessing CRA performance , which focus largely on process and paperwork, with performance standards based on results . The proposal would eliminate the requirement that institutions prepare CRA statements , review them annually and document them in the minutes of the board of directors ' meetings . Further , the agencies would no longer require institutions to justify the basis for community delineations or to document efforts in marketing or in ascertaining community credit needs . Resources formerly devoted to such procedural requirements -- time , money , and personnel 137 9 would be available for making loans and investments and providing services in the community . Both the 1993 and the 1994 proposals contain a streamlined examination procedure for small institutions . Both proposals define a small institution as an independent institution with total assets of less than $ 250 million or an affiliate of a holding company with total bank and thrift assets of less than $ 250 million . The current proposal would evaluate a small institution under a streamlined assessment method to answer the question : Are its loan-to-deposit ratio and lending record reasonable relative to the institution's size , financial condition , and management expertise , and to the credit needs of its community? In addition , to provide institutions flexibility in meeting their CRA obligation , the proposals would give all institutions the option of being evaluated on the basis of a Strategic Plan rather than on the lending , service and investment tests , or under the small institution assessment standards , discussed above . An institution's plan would have to specify measurable goals for helping to meet the credit needs of its service area , particularly the needs of low- and moderate- income individuals . The proposal requires giving the public 30 days to comment on the plan , lets the institution take account of the comments , and then provides for agency approval of the completed plan . Thereafter , 138 10 the institution's CRA evaluation and rating would be based on how well the institution meets or exceeds the goals it has established for itself . The 1994 proposal requires large insured depository Nearly every financial institutions that commented on the mandatory collection and reporting , of race and gender data opposed it . A limited number of institutions did , however , express interest in having the option to collect such data for their own assessments of compliance with fair lending laws . Many institutions commented that fair lending enforcement should be handled under the ECOA and the FHA and proposed amending Regulation B , the Federal Reserve's regulation implementing the ECOA, to allow, but not require , institutions to collect or report the data . Regulation B prohibits discrimination on the irrevelant , prohibited grounds of sex, race , color , religion , national origin , marital status , age , receipt of public assistance or the exercise in good faith of rights granted under the Consumer Credit Protection Act . Regulation B also currently prohibits a 139 11 creditor from collecting information on the prohibited bases on any loan , except housing -related loans covered by the statutory requirements for data collection in the Home Mortgage Disclosure Act ( HMDA) , or unless otherwise required by statute , regulation , or an order issued by a court or a federal or state enforcement agency . Comments from community organizations were overwhelmingly in favor of the collection and reporting of data on loans to small businesses and small farms owned by women and minorities . They contended that the data are necessary to assess adequately an institution's performance in meeting the credit needs of its community . The collection of race and gender data on small business and farm borrowers could be used to support elements of the fair lending component of the CRA assessment , one of several factors used to evaluate whether an institution is helping to meet the credit needs of its " entire community . " gender . Concerns have been The four agencies are giving serious consideration to 140 12 the arguments both for and against collection of this data before deciding how to deal with the issue in the final regulation . EXAMINATION AND SUPERVISION The FDIC is the primary federal supervisor of approximately 7,100 insured financial institutions . Between 1990 and 1994 , the FDIC conducted an average of 3,200 examinations per year for compliance with the CRA . Last year the FDIC strengthened its examination and supervision efforts in the compliance area through the creation of the Division of Compliance and Consumer Affairs . The new division consolidates the compliance examination and enforcement responsibilities previously carried out by the Division of Supervision with the community outreach , consumer protection and civil rights oversight functions of the former Office of Consumer Affairs . The FDIC has sought to assure that bankers receive examinations . Efforts are being made to increase the percentage 141 13 of concurrent examinations to reduce the burden on financial institutions of multiple examinations and to increase the coordination and consistency among compliance and safety and soundness examiners . Going forward , in an effort to ensure consistency among the regulatory agencies , we will issue joint examination guidelines on the new CRA regulation , and provide interagency training to examiners under the auspices of the Federal Financial Institutions Examination Council . Further , the FDIC is CONCERNS ABOUT CREDIT ALLOCATION The 1993 proposal would have required an assessment of an institution's market share in low- and moderate - income The 1994 proposal eliminated this market share component from the lending test . The lending test would continue to give significant weight to the geographic distribution of an 142 14 institution's lending within the community it seeks to serve . It does not , however , require examiners to use a ratio to measure market share , nor does it mandate that a financial institution must make loans to every neighborhood in the area it serves . Rather , examiners would be required to evaluate a bank's efforts to provide credit and service to low- and moderate - income members of its community and to look at geographic dispersion of lending to determine that low- and moderate - income areas are not specifically excluded . THE CRA'S RELATIONSHIP TO FAIR LENDING LAWS The focus of the CRA is on community development through access to bank credit and services . The CRA applies to federally- insured banks and savings associations . The fair lending laws , which include the Equal Credit Opportunity Act ( ECOA) , the Fair Housing Act ( FHA ) , and the Home Mortgage Disclosure Act ( HMDA) , were enacted to address specific concerns . The ECOA contains absolute prohibitions against lending decisions , as outlined above , with respect to any aspect of a credit transaction . The FHA prohibits discrimination on similar grounds as the ECOA in any aspect of the sale or rental of housing , including the financing of housing . Both the ECOA and the FHA apply to all lenders and others involved in the extension 143 15 of credit , not just depository institutions . Denial of credit on the grounds of a personal trait , which in no way relates to whether a borrower will be able to repay a loan , is not only repugnant to fair-minded Americans , it calls into question the soundness of the credit judgments a lender is making . The FDIC takes seriously its responsibility to monitor compliance with fair lending laws . In the past three years it has referred 26 cases to the Department of Justice under the ECOA and 97 cases to the Department of Housing and Urban Development ( HUD ) under FHA . In the HMDA, the Congress imposed specific data collection requirements with respect to home purchase and home improvement loans . The agencies use this data to assist in determining if institutions are in compliance with the ECOA and the FHA with respect to home mortgage loans . In determining compliance with the CRA , the HMDA data are used to assist in determining whether financial institutions are serving the housing credit needs of their communities . I view effective enforcement of the fair lending laws as necessary to assure the creditability and fairness of the banking system. When we examine an institution for CRA compliance , we take into account the institution's record with respect to illegal discriminatory credit practices , particularly where they suggest a pattern or practice of illegal conduct . Wholly apart from our obligations to refer violations of ECOA and FHA to the 144 16 Justice Department and to HUD , respectively , the institution's record in this area is a key factor considered in our needs of its community . SAFE HARBOR PROVISIONS IN RECENTLY INTRODUCED LEGISLATION The Community Reinvestment Improvement Act of 1995 ( H.R. 317 ) , introduced by Representative McCollum, creates an explicit " safe harbor" for institutions seeking approval of an application for a deposit facility . Under the bill , if the institution receives a Satisfactory or Outstanding CRA rating from the appropriate federal financial supervisory agency within the previous 24 months , an institution's application for a deposit facility cannot be denied on CRA grounds , unless an institution's CRA compliance has materially deteriorated since the evaluation . The Federal Deposit Insurance Act outlines various statutory factors that must be considered by the FDIC in deciding whether to approve an application by a state- chartered insured institution for a deposit facility . The statutory factors include , but are not limited to , the financial history and condition of the institution , the general character and fitness of the management of the institution , and the convenience and needs of the community to be served . Although an institution's 145 17 CRA rating is important in this process , particularly in assessing the degree to which the institution is serving the convenience and needs of the community , it is not conclusive . The effect of H.R. 317 would be to protect institutions from having applications delayed in the case of public protest . practical matter , such protests are rare at the FDIC . By way of illustration , of 2,749 applications on which the FDIC took action in 1994 , only eight were protested on CRA grounds . Our experience has shown that the lending strategies and performance of institutions can change appreciably , for better or worse , during a 24 -month period . rating of " Needs to Improve " An institution receiving a CRA may thereafter begin to perform satisfactorily , while the performance of an institution receiving a rating of " Satisfactory" may deteriorate . We find merit in the concept of providing incentives or rewards to banks for robustly meeting the credit needs of their communities . In light of the current efforts to reform CRA evaluations , however , it may make more sense to see how the reforms work before including a safe harbor provision . 146 18 CONCLUSION Over the past 21 months , the federal banking agencies have worked to reduce regulatory burden on banks and to produce clearer and more objective standards , both to guide institutions in their CRA compliance and to assess their performance . My participation in the process since October has led me to conclude that the FDIC and the other agencies represented here today are making a serious effort to wrestle with all the difficult issues that CRA reform has presented . We are working to find a way to accomplish an effective and meaningful evaluation of an institution's CRA performance without burdensome paperwork and recordkeeping requirements on the one hand , and without undue reliance on ratios or formulas on the other . We must make very clear that the objective of CRA is for financial institutions to provide credit and service to customers throughout their communities , not to build a mountain of paperwork to justify their efforts . No interest is served if bankers spend more time filling out forms or printing brochures than they spend in making sound loans in their communities . While our examination standards need to be consistently applied , we must have the flexibility to assess the performance 147 19 of an institution based on its capabilities and the needs of the community it serves . Each institution 80 like each community -- is unique . We need to ensure that everyone understands the laws and standards under which institutions will be evaluated . To accomplish this , we must continue to provide our examiners with the resources and training they need . Finally , we regulators must keep in mind we have a dual responsibility : 148 For Release Upon Delivery March 8 , 1995 10:00 a.m. TESTIMONY OF EUGENE A. LUDWIG COMPTROLLER OF THE CURRENCY Before the SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT of the COMMITTEE ON BANKING AND FINANCIAL SERVICES of the U.S. HOUSE OF REPRESENTATIVES MARCH 8, 1995 Statement required by 12 U.S.C. § 250: The views expressed herein are those of the Office of the Comptroller of the Currency and do not necessarily represent the views of the President. 149 INTRODUCTION Madam Chairwoman, and members of the Subcommittee, I welcome this opportunity to discuss the efforts of the Office of the Comptroller of the Currency ( OCC) -together with the Office of Thrift Supervision ( OTS) , the Federal Deposit Insurance Corporation ( FDIC) , and the Board of Governors of the Federal Reserve System ( FRB) -to change fundamentally how we evaluate the performance of banks and thrifts under the Community Reinvestment Act ( CRA) . The current effort to reform the CRA regulations is an important part of the Administration's program to reduce needless regulatory burdens and make government work as it was intended--in this case, the government's goal is to encourage banks to help meet the legitimate credit needs of their communities . Upon coming to office, the Administration found that no other set of bank regulations was so universally criticized by bankers and customers than these regulations , criticized precisely because they created needless burdens on the one hand and failed to fulfill the purpose of the Act on the other. Accordingly, at the request of the President, the bank and thrift regulators embarked on a fundamental reform of these regulations in the Summer of 1993. Our goal has been to focus the banking and thrift sector's attention on the substance of what the Act is intended to achieve--supporting the credit needs of our communities , in particular the needs of low- and moderate-income areas, small businesses , and farms--rather than process and meaningless paperwork. Because the CRA program affects considerable numbers of people, institutions , and resources, and because the regulations , which have been in effect for so long, have been so thoroughly criticized , the regulators recognized from the beginning of the reform initiative that it was essential to go through a meticulous process of evaluation that involved the public at every stage of development. Accordingly, as my statement will describe, the reform process began with a series of public hearings , seven in all, held around the country, in large cities and rural towns. Over 250 witnesses participated at these hearings and provided thousands of pages of testimony. These hearings represented the most extensive effort on the part of the agencies to solicit public views on community reinvestment since the CRA was enacted . Following the hearings , the regulators issued a proposal that received thousands of public comments and then a further refined proposal that also received thousands of comments . I am convinced that this open, transparent, and careful process will result, ultimately, in a regulation that fulfills the statutory purpose without imposing unnecessary burdens. I am also confident that this result could not have been achieved without such a meticulous process. 150 -2There are several points I want to emphasize about the CRA itself and about the reform effort. First, the CRA is about making good loans . I have learned in the course of our efforts to reform the CRA that there are numerous opportunities to make sound loans in all parts of a bank's community, including low- and moderate-income areas . As a result of CRA, banks and thrifts now serve individuals and neighborhoods that previously had little access to banking services; in so doing, they have found these markets profitable. Many financial institutions view these communities as places to expand their profit opportunities , rather than as places to make charitable investments . Richard Rosenberg, Chairman and Chief Executive Officer of BankAmerica Corporation, in a speech delivered last December, stated that " a long-term, sustainable community reinvestment program does benefit the corporation and its shareholders . " He added, " [ b] usinesses must view the inner city as a potential market, not an object of philanthropy. " Those statements are absolutely correct--CRA is not a hand-out for distressed communities, nor does it encourage banks and thrifts,to make bad loans. Second, despite its successes, the CRA has fallen short of realizing its full potential . Financial institutions and community groups alike maintain that the current regulation places more emphasis on process and documentation than on performance. They also maintain that existing CRA performance evaluation standards are vague, and, some argue, inconsistently applied . As a result of this misplaced and unclear focus , banks and thrifts may be dedicating significant resources to documenting their activities rather than helping to meet the needs of their communities . Financial institution representatives are particularly aware of the costs associated with the existing system. In September 1993, Mike Patterson, President and Chief Executive Officer of Triangle Bank and Trust Company in Raleigh, North Carolina, made a statement to that effect: " we need to be relieved [ from] having to create a paper trail detailing everything we have done to meet the twelve assessment factors . We see this as counterproductive because it takes time away from doing the things which could improve our CRA related loan programs. " In August 1993, Frank L. Law, Senior Vice President of Clear Lake National Bank in Houston, Texas, expressed a similar view: " [ i] t is this focus on the process rather than results that has created a documentation burden that costs banks thousands of dollars a year to ensure compliance with the Act. " Third, to address the problems associated with the existing CRA assessment process, the reform effort is aimed at shifting emphasis to an evaluation of the record of a bank in helping meet the credit needs of the communities from which it takes deposits . By making CRA evaluations more objective and performance-based, I believe that we can make the regulation more effective and also significantly reduce regulatory burden for the vast majority of banks and thrifts. These changes will enhance financial 151 -3institutions' ability to make profitable loans in all areas of their communities . To address the questions raised in your letter of invitation, my testimony today includes a background section on the history of the CRA and the concerns that led President Clinton to initiate the reform process . I also discuss the principles guiding the federal banking regulatory agencies ' reform effort and the main elements of the two reform proposals that were issued for public comment . Finally, I summarize the major issues that appeared in the comment letters we received and describe how the 1993 and 1994 reform proposals respond to concerns people raised . The agencies are also submitting a joint statement, which provides greater detail on the history of the CRA and the reform initiative as well as other issues raised in your letter of invitation . In particular, that statement includes an extensive discussion of the main elements of the 1993 and 1994 proposed regulations . BACKGROUND The CRA was enacted in 1977 to prevent redlining and to ensure that banks and thrifts help meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods . In many respects, the CRA is an extension and clarification of the long-standing expectation that banks will serve the convenience and needs of their communities. The CRA--and the regulations issued under the CRA--require federal regulators to assess the record of each bank and thrift in helping to meet the credit needs of all portions of its community , including low- and moderate-income neighborhoods, and to take that record into account when considering corporate applications for charters or for approval of mergers, acquisitions, branch openings, or office relocations . Relationship with Fair Lending Laws. Your letter of invitation asks whether the CRA overlaps or conflicts with other existing equal credit and fair lending laws . The CRA differs fundamentally in purpose and substance from fair lending laws--the Equal Credit Opportunity Act ( ECOA) and the Fair Housing Act ( FH Act) --though there is some common ground . The fair lending laws apply to all lenders and seek to prevent discrimination in credit transactions . Specifically, they prohibit covered entities from refusing to grant credit based on certain customer characteristics or factors. By contrast, the CRA seeks to encourage banks and thrifts to help meet the credit needs of their entire communities , including low- and moderate-income neighborhoods. It does not expressly proscribe particular actions , as do the fair lending laws, nor does it identify prohibited grounds upon which a lender may not base credit decisions . However, since the CRA's inception, CRA examinations have included an assessment of fair lending performance under the principle that a lender that is discriminating is unlikely to be serving its entire 152 -4community satisfactorily. In general, discriminatory lending adversely affects a bank's record of performance under the CRA, but a poor CRA record does not mean that a lender has discriminated . Proposal Directly Addresses Problems with Existing CRA Process . The CRA provides a framework in which depository institutions and community groups can work together to promote the availability of credit and other banking services to under-served communities. Under the impetus of the CRA, many banks and thrifts have opened new branches , provided expanded services, adopted more flexible loan underwriting standards , and increased lending to all segments of society. Despite these positive results , the current CRA process lacks credibility with the banking industry and with representatives of the communities that the Act is intended to benefit. Bankers maintain that the current implementation of the CRA results in excessive burden relative to the benefits that the system produces . At the same time, community and other groups maintain that many communities are not adequately served because the CRA evaluation process does not focus enough on actual lending, investments , and services provided . It was against this backdrop of broad dissatisfaction with the current approach to CRA that President Clinton, in July of 1993 , requested that the federal regulators of banks and thrifts make fundamental changes in the way we administer the CRA. The President established several broad principles to guide the agencies' reform efforts . He called for CRA assessment standards that are based on measurable performance, less burdensome CRA examinations that are more consistent and evenhanded, the elimination of unnecessary documentation requirements, better public access to information on CRA evaluations , and tougher actions against institutions with persistently poor CRA performance . To ensure that CRA reform addressed those goals, the federal banking agencies held a series of public hearings in August and September of 1993 at seven locations around the country. The heads or the designees of the four agencies attended the hearings; I attended six of the seven hearings myself. As a result, my colleagues and I developed a great appreciation for the burden the current regulation places on banks and thrifts , the problems facing underserved low- and moderate-income areas in obtaining credit, innovative approaches some banks and thrifts have taken to serve their communities , and the complexity of the issues involved in CRA reform . The principal goals of our reform effort are to improve the current CRA evaluation process and minimize regulatory burden on the banking industry by devising a rule that is performance-based and objective, and transparent. Time and time again, through their 153 -5comment letters , both industry and community groups have made clear that they believe a new, performance-based CRA evaluation system should be based on objective measures of clearly defined parameters . I agree . A regulation that focusses on subjective or vague assessment factors--as the existing regulation does--creates at least the perception of inconsistent evaluations across institutions and leads to wide differences in opinion between institutions and community groups regarding performance . MAJOR ASPECTS OF 1993 AND 1994 REFORM PROPOSALS Following the seven public hearings held in August and September of 1993, the agencies worked together to craft a proposed regulation, which was published in the Federal Register on December 21 , 1993. The OCC received 1813 letters commenting on the proposed regulation. Commenters included representatives of banks and thrifts , community groups, Congress, state, and local governments . After careful review and consideration of the comments received on the first proposal , the agencies published a second proposed rule in the Federal Register on October 7 , 1994. The OCC received 2219 letters commenting on the second proposal . Performance Tests . Both proposals would replace the twelve assessment factors in the existing regulation with three performance-based tests : lending, investment, and service . The 1994 proposal retained the principles and structure of the 1993 proposal , but made changes to the details in response to many of the concerns raised in the comments . Most commenters supported the agencies ' goal of developing more objective , performancebased assessment standards that minimize burden while stimulating improved performance . Although many interested parties at the public hearings had advocated the use of objective criteria in evaluating CRA performance , upon reviewing the 1993 proposal, many commenters felt it relied too heavily on the mechanical application of numerical ratios and, as a result , would not foster fair and appropriate CRA assessments . In response to these concerns regarding the 1993 proposal , the agencies, in their 1994 proposal, broadened the scope of the lending, investment, and service tests by including a wider range of quantitative and qualitative criteria . In particular, under the 1994 proposal , the comparison of an institution's market share in low- and moderateincome areas with its market share in other areas would not have the same central weight in the lending test that many commenters believed it had in the 1993 proposal . The lending test would continue to give weight to the geographic distribution of an institution's home mortgage, small business and small farm, and, at the institution's option, consumer loans , including the number and amount of loans in low- and moderateincome geographies . However, the lending test would also consider the distribution of loans to borrowers of different incomes and businesses of different sizes, the nature and extent of community development loans , and the institution's use of flexible or innovative 154 -6lending practices . Of course , assessments of geographic distribution would continue to be made in light of the performance of other similarly situated institutions . However , the regulation would not mandate that a market share analysis be conducted . Such analysis could be used by examiners to assist in the geographic distribution assessment , but along with other analytical tools . Similarly, in the service test, the percentage of branches accessible to low- and moderate-income geographies would not play as determinative a role as it appeared that it would play in the 1993 proposal . Branch location would continue to be an important element in assessing an institution's performance, but would not be the critical determinant. Factors such as the availability of other service delivery systems and the range and responsiveness of services provided would receive more prominence than in the 1993 proposal. Options for Reducing Burden. The 1994 proposal would provide special evaluation options for a certain class of institutions . For instance , it would allow smaller banks and thrifts to be evaluated under a streamlined assessment method that would not require reporting of additional lending data. The streamlined method would apply unless an institution affirmatively requested another assessment method . This method would focus on the bank's loan-to-deposit ratio , degree of local lending, record of lending to borrowers and geographies of different income, and record of responding to complaints . The bank's fair lending record would be taken into account in assigning a final rating. Also, every institution could choose to be evaluated pursuant to a pre-approved strategic plan, although this option would not relieve an institution from any reporting obligations that it otherwise would have. These special evaluation methods would in no way exempt any institution from the CRA rules. Improved Examiner Training . Revising the CRA's implementing regulation is only part of our effort to improve the CRA evaluation process . In an effort to promote interagency consistency and better implementation of CRA policy, the agencies are evaluating different ways to improve examiner training and to increase interagency coordination in the implementation of the CRA. In conjunction with a new rule , the agencies would, of course, issue revamped joint examination procedures , including guidance regarding the public performance evaluation standards, the frequency of examinations, and the assignment of ratings . We would also conduct extensive examiner training to ensure the new rule is well understood and evenly applied. In moving to a revised regulation with emphasis on performance, much of the burden associated with the existing rule can be dramatically reduced . For example, under the proposed rule, examiners would no longer be assessing the involvement of the 155 -7institution's board of directors or its efforts to ascertain credit needs , market its products, and delineate its community. Additionally , the institution would no longer have to document for its examiners internal or external meetings, advertising programs , or the methods used to delineate its community. Because assessment standards would be more straightforward, extra documentation arising out of uncertainty about what will be of interest to the CRA examiners should be virtually eliminated . As proposed, all institutions would realize these benefits. However, there would be additional data collection and reporting for approximately the largest 20 percent of banks and thrifts-those with more than $ 250 million in assets . Those data are the necessary concomitant requirements of a more performance-oriented , fact-based assessment system . Race and Gender Data Collection . Your letter of invitation asks how the proposed race and gender reporting requirements on small business and agriculture loans would affect depository institutions . The requirement that small business and small farm loan data reported to the agencies include information on the race and gender of small business and farm borrowers constitutes the one significant new data reporting requirement contained in the 1994 proposal . These data would be used to facilitate fair lending examinations , which, as I previously mentioned , have always been conducted in conjunction with CRA examinations and whose results can influence the overall CRA rating. Currently, fair lending assessments show only a partial picture of fair lending compliance, focusing on home mortgage lending, because that is the only type of lending for which there is systematic data ( Home Mortgage Disclosure Act data) that can be used to determine whether applicants with similar credit profiles received comparable treatment . As a result, it is extremely difficult currently, if not impossible, for either regulators or lenders to assess fair lending in the small business loan area, that is, to compare loan files to determine whether people of different races or gender are being treated equally, since lenders cannot collect the data that reveal which are minority or women-owned businesses and which are not. In addition to enabling regulators to make a more complete assessment of an institution's fair lending performance, collecting these additional data would help banks and thrifts monitor their own fair lending performance. CRA Is Not Credit Allocation. Your letter of invitation asks whether the revised rule would result in the allocation of credit. Although we have proposed using more objective measures to evaluate an institution's performance , the proposal would not lead to the establishment of implicit quotas or other mandatory credit allocation techniques within a given market. The 1993 proposal was criticized by some commenters who felt that it could lead to the allocation of credit; the 1994 proposal eliminated the features that gave rise to those concerns , such as the market share screen in the lending test. The agencies also eliminated a provision in the 1993 proposal that a loan-to-deposit ratio of 60 percent or more would presumptively be considered satisfactory. Although it was never intended to require small institutions to achieve a 60 percent loan-to-deposit ratio, many 88-882 - 95 - 6 156 -8commenters interpreted the proposal that way. To avoid the apparent confusion, the 1994 proposal eliminated reference to any particular loan-to-deposit ratio. Evaluation of the adequacy of an institution's loan-to-deposit ratio would consider the institution's size, financial condition, and the credit needs of the institution's service area and would take into account, as appropriate, other lending-related activities , such as originations for sale on the secondary market and community development lending and investment. In developing a final rule, we will not set forth a proposal that would require any institution, in any community, to make any particular loan, lend to any particular borrower or class of borrowers, or engage in any lending inconsistent with safe and sound banking operations . We will not adopt a regulation that allocates credit. Safe Harbor Legislation . The Subcommittee's letter of invitation asks for our views on recently introduced legislation that would give qualified small institutions and those with ratings of at least " Satisfactory " a " safe harbor, " exempting them from protests of their applications for expansion based on CRA concerns . In my view, the key to the safe harbor debate is establishing an evaluation system that is viewed as not merely less burdensome, but fair and objective . Under such a system--which we are still striving to achieve in the reform effort--a high rating will have greater weight because it has integrity. Absent such an evaluation system, a safe harbor will be widely viewed as simply a disguised exemption that undermines the Act. I do not believe it makes sense to consider a safe harbor until there is a meaningful evaluation system in place. At this point, the federal banking agencies must focus on concluding the rulemaking process and implementing the new CRA rule . Financial institutions and regulatory agencies need an opportunity to adjust to the new rule--and operate under it for some time--before we can reasonably consider legislation to establish a safe harbor. CONCLUSIONS Over the past year and a half, the agencies have gone to great lengths to gather as much information as possible on ways to improve the CRA regulation. As I described earlier, the agencies held public hearings at different locations around the country where we heard the testimony of hundreds of witnesses who offered their views on the CRA--its good points and its shortcomings . Additionally, in response to our two reform proposals, the agencies received many thousands of comment letters from community groups, the industry, and other members of the public. Through this effort, I have developed a thorough understanding of both the benefits that result from implementing the CRA and the principal problems with the existing regulation. I am encouraged by the widespread 157 -9support for the goals and direction of the reform effort, and look forward to delivering a final rule that addresses the shortcomings of the existing rule. Prompt completion of a new rule would end the atmosphere of uncertainty under which the industry, community groups, and examiners are operating currently . Once a new rule is in place, regulated institutions can devote their resources back to the business of delivering financial services to their communities . Prompt completion of a new rule would also enable the agencies to turn our attention to other projects , such as working to conduct examinations as efficiently as possible, minimizing unnecessary compliance burden, and ensuring consistency and reliability in the rating process . These tasks have been identified by all involved in the CRA process--industry, community groups , local governments, and federal banking regulators--as critical to achieving a fairer, more effective, and less burdensome CRA . Although I cannot predict at this point exactly what the provisions ofthe final rule will be--that will be determined by the joint rulemaking process, which I expect will be completed very soon--I must underscore that our efforts will not produce a panacea. Reform of CRA regulations and examination procedures cannot solve all the problems of distressed rural and urban communities, nor answer all the complaints of bankers about regulatory burden. But I am confident that at the end of the process we can have a CRA assessment mechanism that is less burdensome for more institutions yet yields better results for the local communities the law is intended to benefit. 158 T OFFI CE THRIF PERVISION EMBARGOED until March 8, 10 am 1989 Testimony of Jonathan L. Fiechter, Acting Director Office of Thrift Supervision concerning the Community Reinvestment Act before the Subcommittee on Financial Institutions and Consumer Credit United States House of Representatives March 8, 1995 Office of Thrift Supervision Department ofthe Treasury 202-906-6288 159 TESTIMONY OF JONATHAN L. FIECHTER ACTING DIRECTOR, OFFICE OF THRIFT SUPERVISION U.S. DEPARTMENT OF THE TREASURY Before the SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT March 8, 1995 Madam Chairwoman and members of the Subcommittee, I welcome your invitation to appear at today's hearing to discuss the Community Reinvestment Act ( " CRA" ) . We take meeting the objectives of CRA seriously and consider the CRA to be an important component of our overall compliance process . The general objectives of the CRA are broad but sufficiently understood. Translating those objectives into clear and unambiguous standards, however, to be used as the basis for judging the community reinvestment performance of thousands of differently situated insured banks and thrifts, is challenging. As you know, the agencies have been diligently working to reform the CRA regulations since July 1993. We have put a tremendous amount of time and effort into revising the basis on which we evaluate an institution's performance in helping to meet the credit needs of its community. Given the broad and diverse array of interests that have a stake in the administration of the Act, we anticipated that we would face some difficult problems in connection with this effort. While I believe we were all surprised at how complex the undertaking has become, I remain optimistic that we can address the needs of the industry and the public through the rule-making process. The agencies have submitted a joint statement outlining the history of the CRA and discussing the regulations proposed in response to President Clinton's CRA reform initiative. I would like to use my time this morning to respond to the questions you have presented and highlight other relevant issues associated with our reform efforts. The views I express today are those of the Office of Thrift Supervision ( " OTS" ) and not necessarily those of the Administration. 160 2 Fulfilling the Purpose of CRA Your first question asks whether CRA is fulfilling its original purpose of ensuring that insured depository institutions are meeting the credit needs of their neighborhoods, and if not, what steps should be taken to improve compliance. I believe that insured depository institutions are making significant efforts to help meet the credit needs of the local communities where they are chartered to do business. For example, a review of Home Mortgage Disclosure Act ( " HMDA" ) data over the past several years shows that the banking and thrift industries have significantly increased their share of mortgage loans in low- and moderate-income areas despite an overall reduction in their share of the mortgage market. It may be impossible to determine how much of the reinvestment in low and moderate income communities is due to the CRA, and how much is due to the realization by banks and thrifts that community development and affordable housing lending can be a profitable market niche. I do believe that the CRA has acted as a catalyst to encourage banks and thrifts to devise new products to serve this niche and may have been the impetus for a major share of the community reinvestment that has occurred over the past several years. When evaluating the success of CRA on the basis of whether community credit needs are being satisfied, however, it must be remembered that the bank and thrift industries represent a much smaller segment of today's financial system than they did when CRA was enacted in 1977. Since that time, banks and thrifts have lost a significant amount of the residential loan market to mortgage banks, credit unions, insurance companies, and other providers of credit. Moreover, the nature and depth of the nation's community development problems go beyond the abilities of banks and thrifts alone to solve. The best way to address the credit needs of communities is to encourage communities, financial institutions, and the government to form partnerships to energize economic growth and revitalization by making credit and financial opportunities available to all people in all communities throughout the nation. No one party can or should be expected to do this alone. It is only through working together that meaningful community development will take place. 161 3 The OTS encourages thrifts to participate in efforts to promote partnerships. For example, we have participated with the other federal banking agencies and local community groups in taking bank and thrift officials on bus tours through inner-city Los Angeles and Oakland to identify lending opportunities. Tours of other cities are also planned. In addition, the OTS, through its community liaison function, has sponsored a series of " Community Speaks " conferences where community groups present information on their goals, operations, and needs to local thrift officials . Efforts like these to promote partnerships -- where the government is working hand-in-hand with local community groups and lenders -- can stimulate economic growth and revitalization. In fact, CRA is challenging thrifts to be more creative and to form alliances with others to tackle their communities' problems. We are seeing that many collaborative efforts at the local level among thrifts, banks, nonprofits, government, and community residents are producing tangible results. These partnerships -- which include community development corporations , consortia, or NeighborWorks groups , just to name a few -- are a way of amassing the resources necessary to address some of this nation's more difficult community reinvestment challenges. This is a very positive trend and one that I hope will continue on a much larger scale. Relationship Between CRA and the Fair Lending Laws Your second question , which is an excellent and timely one, asks about the relationship between CRA and the fair lending laws. Recent events have highlighted the need to understand the similarities and differences between the CRA and the fair lending laws. Both address important issues of credit access and opportunity, but they involve different statutes and different principles. The most significant fair lending laws are the Equal Credit Opportunity Act ( " ECOA" ) and the Fair Housing Act. These statutes make it unlawful for any lender to discriminate in the granting of credit on a prohibited basis, such as race, sex, religion, national origin, or marital status. The ECOA applies to any credit transaction, while the Fair Housing Act covers residential real estate-related activities. These laws provide for both civil and administrative enforcement. For example, the OTS, as well as the other banking regulators, can use their formal enforcement authority to issue cease-and-desist orders or impose penalties against insured financial institutions that fail to comply with these statutes. 162 The CRA's emphasis is different. It has a geographic focus and applies only to federally insured banks and thrifts. The CRA responds to Congressional findings that insured depository institutions have an affirmative obligation to help meet the credit needs of their local communities, including the low- and moderate-income neighborhoods within those communities, consistent with safe and sound operations. The Act requires the banking agencies to use their authority to encourage insured depository institutions to meet that obligation. The agencies, in implementing the CRA, evaluate the records of banks and thrifts in helping to meet the credit needs of their communities. The enforcement scheme for the CRA is directly tied to the applications process. In other words, the banking regulators can deny certain corporate applications for expansion if the applicant's CRA performance record indicates that its institution is not adequately making its credit services available to its community. The fair lending laws are incorporated into the implementation of the CRA. Evidence of discrimination and other credit practices that are prohibited by the fair lending laws are considered when formulating an institution's CRA rating. This is because an institution that is violating the fair lending laws cannot be considered to be helping to meet the credit needs of its entire community in an acceptable manner. The CRA and the fair lending laws need not conflict nor overlap. Taken together, they protect and support access to credit without compromising the safe and sound operation of insured depository institutions. Addressing Today's CRA Problems with Better Regulation You also ask whether the final regulation will address problems with the existing regulation that are often cited by lenders. In the public hearings we held in the summer of 1993, as well as in both public comment periods following our regulatory proposals , we heard many complaints about the existing CRA regulation. As your question points out, three of the most prevalent were the vagueness, subjectivity, and paperwork burden associated with the existing regulation. The OTS has been guided by three principles during the rule-making process to ensure that the final CRA regulation produces a better evaluation system than exists today. 163 5 First, the final regulation must both evaluate performance with objective data and allow for subjective adjustments based on differences in financial institutions and the communities they serve. CRA will not work with a " cookie-cutter" approach. It is naive for us to assume that institutions of different sizes and business orientations serving different local areas with vastly different demographics can be, or should be, expected to fulfill their CRA responsibilities in the exact same way. The final regulation should encourage creativity and recognize that there are different ways for institutions to meet local credit needs. Similarly, examiners charged with the responsibility for developing rational, supportable, public CRA performance evaluations and ratings must not be held to a rigid, unyielding, and unrealistic set of bureaucratic rules that frustrate their ability to go about their jobs. A reasonable degree of flexibility in interpreting objective data, for example, to construct fair CRA assessments must be paramount. Second, the final regulation must improve the ability of the industry and the public to evaluate CRA performance on their own. There should be few surprises as a consequence of compliance exams. The existing regulation -- which may be overly subjective -- has created the perception of inconsistent evaluations of similarly situated institutions, and wide differences in perception among institutions and community groups over performance. In many ways, this CRA rule-making process has been evolutionary. In response to the large volume of public criticism we heard about subjective application of the existing regulation, our first proposal was highly objective in nature. As we discovered in the ensuing comment period, most industry commenters interpreted that proposal to be too objective and rigid. The second proposal tried to achieve a better balance of objective criteria and regulatory flexibility in order to eliminate much of the subjectivity and vagueness that is present in the existing regulation . It is my hope that the final regulation will strike the appropriate balance between subjective and objective evaluation factors and will make it easier for the industry and the public to predict performance levels while avoiding the pitfalls of a one-shoe-fits-all approach. This will remain our goal in writing the final rule. 164 6 Third, the final regulation must combine these first two principles in a clear manner. In our effort to address myriad conflicting objectives, we may have unwittingly added a degree of complexity that obscured our message. Clarity in presentation of the regulation eliminates guesswork and provides the industry, our examiners, and the public with an understood set of ground rules. Another comment we heard is that the focus of evaluations should be on performance rather than documentation of the CRA process. We have been mindful of this comment throughout this rule-writing exercise. Both proposals eliminate much of the paperwork burden associated with the existing regulation . For example, institutions would no longer be required to prepare CRA statements and review them annually, document CRA matters in minutes of their boards of directors meetings, or document efforts in marketing and ascertaining the credit needs of their communities. It is important to recognize, however, that any CRA evaluation system that contains objective performance elements for lending will necessitate some collection and reporting of data. The agencies are trying to develop a balanced collection and reporting system that minimizes burden, provides us with necessary information to develop sound CRA assessments, and offers the public a reasonable basis on which to measure CRA performance. Proposed Race and Gender Reporting Requirements Your invitation letter asks for our comments on the proposed collection of race and gender data. Under the most recent proposal, the agencies sought comment on whether independent institutions with assets of $ 250 million or more, and institutions that are members of holding companies with $ 250 million or more in bank and thrift assets, should request that a small business or small farm borrower indicate the percentage of the business or farm owned by men and women, as well as the percentages owned by members of different ethnic and racial categories. The loan registers filed with the agencies would indicate whether an individual loan was to a business or farm that was more than 50 percent women-owned or more than 50 percent minority-owned . In its public file, the institution would disclose the number and amount of loans to minority- and women-owned small businesses and farms. The collection of race and gender data was the most frequently addressed provision of the October 1994 proposal . The collection of the data was strongly advocated by community 165 7 groups and some members of Congress. These commenters were particularly interested in the collection of the data to enhance the ability to detect discriminatory treatment of applicants and to support the fair lending component of the CRA assessment. In addition , some institutions indicated that the data would be a useful resource in self-assessing their lending practices and ensuring the nondiscriminatory treatment of loan applicants. The vast majority of banks and thrifts, however, opposed the provision due to the attendant collection costs. The primary purpose of collecting race and gender data is for fair lending analysis. It is very difficult to determine whether a company's activities and policies are having an illegal discriminatory effect unless one can compare the treatment extended to one class of borrowers with that of another. In fact, this data would be a very useful tool for any institution to collect to ensure that its lending practices are not discriminatory. But today, with the exception of the residential mortgage loans, institutions are prohibited by federal regulation ( Regulation B ( 12 CFR § 202) ) from collecting such information. I believe that the original intent behind this prohibition needs to be revisited . The general proscription exists to help assure that creditors do not take improper factors into account in their lending decisions. Under Regulation B, when a creditor is considering a nonresidential loan, the creditor may not request information on or consider the race or gender of the applicant. The intent of the regulation is to remove race or gender as a factor in whether or not to extend credit. The experience with the HMDA data and analysis, however, suggests that the benefits of having race and gender data available for analysis may outweigh the risks of such data being misused. And the ability to identify and address illegal credit discrimination should not be limited to those institutions covered by the CRA. Consideration might also be given to removing the prohibition against the collection of race and gender data for any creditor. Another issue is how any information collected should be used and to what extent it should be reported to the government and the public. There is a always a risk that the data will be subject to improper analysis and misinterpretation. Our experience with HMDA data and the popular misperceptions engendered by that data supports the view of the importance that the data be properly analyzed . We need to be careful not to discourage financial institutions from pursuing aggressive outreach and lending campaigns, which frequently 166 8 attract an increased number of unqualified applicants whose eventual denials cause skewed lending patterns. It would be unfortunate if HMDA-like disclosure of these disparities and the resulting public scrutiny of them caused some institutions to abandon innovative strategies for marketing to small businesses. Avoiding Credit Allocation You ask whether the final regulation will result in credit allocation. A credit allocation scheme was not the intent of the drafters of the CRA statute, nor is it the intent of any of the federal banking agencies in our rule-writing efforts. We are working to develop a final regulation that focuses on actual performance. The use of criteria that take into consideration factors unique to an individual institution's circumstances will ensure that there is no one formula for achieving a certain rating. Public Comments The Subcommittee expressed an interest in the types of comments we have received and any efforts we have taken to address concerns. We have not yet reached agreement on all of the specifics of a final regulation at this time. Generally, the commenters appeared to prefer the second proposal over the existing regulation. As provided in more detail in our joint statement, the second proposal would broaden the scope of the lending, investment, and service tests by including a wider range of quantitative and qualitative criteria. Most commenters favored the better balance of objective and subjective measures in the second proposal. In addition to reviewing comments received since the second proposal was published, OTS also field-tested the proposed rule through examinations of selected thrift institutions of various sizes and business strategies to get a better sense of how the second proposal might be applied in practice. In the process of implementing any regulation, unforeseen circumstances may arise. Through these test examinations, we identified several potential implementation problems and will take steps to address them. For instance, we learned that the investment test described. in the second proposal would have a negative effect on the overall ratings of thrifts. During the test examinations, we found that thrifts may be unfairly disadvantaged because of the 167 9 limited investment authority provided federal savings associations under the Home Owners' Loan Act. We are exploring ways to incorporate into our CRA evaluation the limited investment authority of thrifts. It also became clear to us that we need to revisit a requirement in the proposal that placed the primary burden of ascertaining community credit needs on the examiners rather than the industry. Clearly, institutions are in a better position to ascertain the credit needs of their communities. Finally, we uncovered various anomalies with the proposed definition of " service area" that might serve to disadvantage low- and moderate-income neighborhoods in specific cases. Safe Harbors One comment that we received from institutions was the desirability to grant institutions with a favorable CRA rating a safe harbor from protests on applications. As noted in our invitation letter, the Congress is considering various regulatory relief measures that include specific provisions that address aspects of the administration and coverage of the CRA. For example, H.R. 317 , sponsored by Vice-Chairman McCollum, would provide institutions with CRA ratings of " satisfactory" or better a safe harbor from having an application denied on CRA grounds. The bill would permit agencies to remove the safe harbor if an institution's compliance with the CRA had " materially deteriorated. " Conceptually, I support the idea of providing meaningful incentives for institutions to achieve favorable CRA ratings. A safe harbor, as described in your question, is one frequently cited example of such an incentive. I would like to offer two observations about this particular safe harbor provision. First, I am concerned that a safe harbor that includes institutions with satisfactory CRA ratings may not sufficiently encourage institutions to be aggressive and innovative in designing programs to serve their community. Pegging the applicability of the incentive at the satisfactory level may not encourage institutions to aspire to an outstanding level of performance. To truly encourage outstanding behavior from institutions, the Subcommittee might want to consider limiting the applicability of the safe harbor to institutions that receive an outstanding CRA rating. 168 10 Second, during the public hearings we held as part of this reform effort, the safe harbor concept was raised repeatedly by industry representatives and consistently criticized by community group representatives. The general expression of criticism was grounded in widespread public belief that the CRA ratings assigned to institutions by the regulators do not accurately reflect performance. It, therefore, may make sense to revisit the issue of safe harbors after we have gained experience under the new performance-driven CRA assessment structure and have achieved a greater comfort level with assigned CRA ratings. Conclusions In conclusion, the final product of this rule-making effort should emphasize performance in lending, investments, and services and provide for the correct balance between qualitative and quantitative criteria. The final regulation must provide the public and the industry with a more credible and accurate vehicle for evaluating whether the purpose of the CRA -- to ensure that insured depository institutions are helping to meet the credit needs of their communities -- is being satisfied. Several of your questions concern the need for CRA. I believe that CRA has acted as a catalyst in encouraging institutions to seek ways to alleviate the credit needs of poorer communities. It is equally clear, however, that CRA is not a panacea for solving the problems of this nation's communities. The better method for satisfying the credit needs of disadvantaged and underserved communities is to encourage community organizations, financial institutions, and the government to form partnerships and to work together. As mentioned earlier, only by such partnerships will meaningful community development occur. Again, I would like to thank you, Madam Chairwoman, for your invitation and your interest in our reform efforts. I will be pleased to respond to any questions you may have. ########## 169 ORAL STATEMENT OF JONATHAN L. FIECHTER ACTING DIRECTOR, OFFICE OF THRIFT SUPERVISION U.S. DEPARTMENT OF THE TREASURY Before the SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT March 8, 1995 Madam Chairwoman and members of the Subcommittee , I appreciate your invitation to appear at today's hearing . My written testimony seeks to respond to your questions . In my remarks this morning, I would like to discuss one of the fundamental concerns of our CRA reform initiative : will the reform effort produce a regulation that addresses the problems with the existing regulation? As you know, the four banking agencies have been striving to develop a revised CRA rule since the summer of 1993. In the public hearings we held, as well as in the two public comment periods , we heard many complaints about the existing CRA regulation and the manner in which it is administered . As your invitation letter points out , three of the most prevalent complaints were vagueness , subjectivity , and paperwork burden . 170 2 The objectives of the CRA, while broad in nature , are generally understandable. Translating those objectives into clear and The OTS has been guided by three principles during the rulemaking process in an effort to help ensure that the final CRA regulation we produce will provide a better evaluation system than exists today . A benefit of this country is the variety of different financial institutions , each responding to local economic conditions . These institutions can not be expected to fulfill their CRA responsibilities in exactly the same way. An institution in a small agricultural town faces a very different set of credit needs compared to an institution operating in the suburb of a large metropolitan area . The final regulation must both recognize these differences as well as encourage innovativeness and creativity. It must recognize that there are different ways for institutions to help meet local credit needs . 171 3 Similarly, examiners charged with the responsibility for developing public CRA performance evaluations and ratings should not be held to a rigid and unrealistic set of regulatory provisions that frustrate their ability to go about their job . Instead , we must retain for our examiners a reasonable degree of flexibility in interpreting objective data . Our second principle is that the final regulation should improve the ability of the industry and the public to evaluate CRA performance on their own. There should be few surprises as a consequence of compliance exams . The existing regulation -- which may be overly subjective -- created the perception of inconsistent evaluations of similarly-situated institutions , and wide differences in perception among institutions and community groups over performance . This CRA rule-making process has been truly evolutionary . Our first proposal was highly objective in nature , in response to the large volume of public criticism we received over the subjective application of the existing regulation. But the solution to this problem , which we described in our December 93 proposal , was criticized for being too objective and rigid . 172 Our more recent proposal sought to achieve a better balance of objective criteria and regulatory flexibility. It is my hope that the final regulation will strike the appropriate balance between subjective and objective evaluation factors . We must make it easier for the industry and the public to predict performance levels while avoiding the pitfalls of a one-shoe-fits-all approach. Our third principle is that the final regulation should be presented in a clear manner. In our initial effort to address a myriad of conflicting objectives , we may have unwittingly added a degree of complexity that obscured our message . Clarity in presentation of the regulation eliminates guesswork and provides the industry, our examiners , and the public with an understood set of ground-rules . The most common complaint with the existing regulation is that it focuses too heavily on documentation of efforts and too little on actual performance . The result was that we may have rewarded institutions that maintained extensively documented files and loose-leaf notebooks , while not giving sufficient credit to institutions with creative and successful lending programs. 173 5 We have been mindful of this throughout our rule-writing process . Both proposals eliminate much of the paperwork burden associated with the existing regulation . For example , institutions would no longer be required to prepare CRA statements and review them annually , document CRA matters in minutes of their boards of directors meetings , or document efforts in marketing and ascertaining the credit needs of their communities . It is important to recognize , however , that any CRA evaluation system that contains objective performance elements for lending will necessitate some collection of data . The agencies are trying to develop a balanced collection and reporting system that minimizes burden , provides us with necessary information to develop sound CRA assessments , and offers the public a reasonable basis on which to measure CRA performance . To help ensure that the final regulation addresses the problems in the existing regulation , the OTS has conducted test examinations of selected thrift institutions . These test exams were conducted on thrifts of various sizes and business strategies to obtain a better sense of how the second proposal might be applied in practice . 174 6 Through these test exams , we identified several potential implementation problems and are taking steps to address them. For example , we discovered that thrifts may be unfairly disadvantaged under the investment test because of the limited investment authority provided federal savings associations under the Home Owners ' Loan Act. Questions were also raised about the proposal to shift the While I believe we can develop a regulation that will produce a performance -based system , any final regulation will not be , and should not be, viewed as a panacea for solving the problems of the nation's communities . I believe CRA has served as a catalyst by encouraging institutions to pursue methods for alleviating the credit needs of poorer communities . 175 7 The nature and depth of the nation's community development problems , however, go beyond the abilities of banks and thrifts to solve on their own. A better way to address the credit needs of communities is to encourage partnerships of communities , financial institutions , and the government. No one party -- or industry -- can energize economic growth and the revitalization of our neighborhoods on their own. Our rules must support such cooperative efforts . Again, Madam Chairwoman, I would like to thank your for your invitation and your interest in our reform efforts . I will be pleased to respond to any questions you may have . 176 For release on delivery 10:00 am EST Statement by Lawrence B. Lindsey Member , Board of Governors of the Federal Reserve System before the Subcommittee on Financial Institutions and Consumer Credit of the Committee on Banking and Financial Services U.S. House of Representatives March 8 , 1995 177 Madam Chairwoman , I appreciate the opportunity to First , let me say that the Federal Reserve Board fully supports this effort to reform our CRA regulations . It is , as a rule , advisable to take a close look at regulations periodically and CRA was overdue for such a look , even absent the President's prompting of July 15 , 1993. During the past 20 months , I have been the Board's representative in the interagency process . This has involved not only formal meetings and hearings , but also informal trips around the country to see how CRA is actually working in practice . Our efforts to date have been an exhaustive and at times exhausting -- process of finding an appropriate balance among the sometimes conflicting objectives of CRA . It is no secret that CRA reform has involved a longer process than any of us wanted . But I believe that the issue before us is too important to rush . The nature of the law itself and the resulting plethora of tough issues that confront the agencies have posed many challenges -- some foreseen , others not . I believe that the time we have spent on this project will , in the long run , prove to be time well spent . We do no one any favors if we institute a set of regulations which are unworkable 178 in the field or produce bizarre anomalies as they are applied to the many and diverse markets with which we are dealing . Further , we will not be aiding the process of extending credit in traditionally underserved markets if we adopt regulations that cannot stand the test of time and do not have broad support and acceptance by those involved in the process . In particular , we CRA Difficulties Some of the central issues with which the agencies are now dealing , in fact , have been well known from the beginning . In part , that's because those issues derive from the unusual content and structure of the law itself , and have plagued the CRA implementation process in varying degrees ever since the act was passed in 1977. There are , in short , inherent , unavoidable 2 179 contradictions in any scheme to administer CRA . In the absence of very much legislative direction , the agencies have been asked to : develop clearer , more objective criteria or standards for measuring CRA performance , but without forcing institutions to engage in governmentally mandated or sanctioned credit allocation activity or compromise the safety and soundness of insured institutions . assemble sufficient information about the needs of communities and bank activities to enable the agencies and the public to determine whether performance standards have been met , while minimizing compliance burden on the institutions , and protecting the confidentiality of the financial situation of the bank's customers . ensure consistency in CRA evaluations while maintaining enough flexibility and judgement to consider fairly business strategies , and product mix , and the diversity of communities in terms of their size , economic condition , programs and resources . 3 180 These goals are often contradictory . contradictory nature of these objectives . objectivity are laudable goals . All of these core Consistency and But , to be implemented in a regulatory scheme , they require both a set of statistical data and a formulaic basis for evaluating those data . The more rigid the formulas which are applied , the greater the consistency , but the lower the variety of outcomes and allowance for local circumstances which is permitted . 4 181 counterproductive in aiding traditionally underserved populations . Nature of the Law As our joint statement indicates , CRA is indeed a highly unusual law . At first glance , CRA's mandate to us as a regulatory agency appears fairly simple . Under CRA , we have four primary duties : to encourage banks to help meet the credit needs of their communities , including low- and moderate - income areas ; to assess bank records of performance through examinations ; to produce publicly available evaluations of bank CRA performance ; and to take their records of performance under CRA into account when evaluating proposals for expansion . 5 182 Note that all of these requirements are for regulatory action . Although CRA says that we are to encourage banks to help meet community credit needs , the act does not require any specific bank actions . The CRA reminds banks and thrifts about their charter obligations , but does not specifically define them in a way that would provide guidance on reinvestment questions . The act also says that banks should " help " meet community credit needs , but does not specify what kind of help , or how much help , is necessary or appropriate . 6 183 In the absence of guidance on principles , standards , or definitions in the CRA , the agencies have been forced to attempt to add much more substance through regulation than is usual for the agencies , to an extent that may be unique for financial regulators . And as this committee knows , the public policy process requires consideration of highly divergent views and interests in an attempt to strike a compromise acceptable to affected parties . This is not a comfortable role for the agencies . reform process . complicated the task . Public Scrutiny and Involvement Although it is extremely vague , CRA is unusual in quite another way . Virtually every other banking law and regulation involves two primary parties --the agency and the bank . The CRA, however , compels the agencies to look beyond the bank itself and assess the role the bank plays in its community . While supervision of the safety and soundness of financial institutions involves us in a primarily two-way conversation with the bank about its policies , practices , and financial condition , CRA 7 184 brings a third- party to the table --the bank's community or the public at large . As the members of this Committee are well aware , the " public " is a large and amorphous group of diverse interests . Often , the voice of the public is interpreted as belonging to the individual or group that can marshall the greatest communication skills . Thus , even a theoretical three-way conversation about CRA among the agencies , banks , and the public , is in practice hard to hold , and often can be quite contentious . One of the reasons for the increasingly contentious nature of the discussion is that CRA has become much more prominent and important to the involved parties . Public disclosure of CRA evaluations , which began a few years ago as a result of amendments to the Act , has focused greater attention on this issue . More than ever , the CRA performance of financial institutions is being discussed in the press and media , and virtually every group or association with a constituency focused on housing and community development has demonstrated some interest in CRA over the last few years . On the local level , elected officials , trade unions , church groups , and civil rights groups have become active in CRA protests . In those instances where governmental dollars for economic development have dwindled , communities have often turned attention to the private sector and the prospect that CRA will be a strong encouragement 8 185 Much of this public interest is based on a realistic understanding of what CRA says and how private financial 9 186 Evolving Views Some may think that the current reform effort is simply directed at correcting the administration of the law to return to what it should have been from the inception of CRA in 1977. this may be too limited a view . But In fact , given the increasing intensity of interest in CRA over the years from all sides , the expectations about the CRA performance of banks have evolved considerably . 10 187 with CRA are much more aggressive than they were ten or fifteen years ago . CRA Complaints Not surprisingly , along with these rising expectations , many in the banking community have come to view agency CRA efforts as increasingly burdensome and unfair . These views have intensified even as the agencies have taken explicit steps to reduce burden , especially for small banks . And 11 88-882 - 95-7 188 have the appropriate CRA procedures and paperwork , than actual lending programs in their communities . extent I believe many are based on misunderstandings . First , I want to note here that the Board is not particularly disturbed by the ratings distribution for state member banks which are virtually identical to those of other regulators . percent do pass . Yes , over 90 But CRA ratings are not , and frankly for several reasons should not be , as some have suggested , the result of " grading on a curve . " I do not mean to say that the Board or the other agencies have been infallible in assigning ratings . But at the Board , we have put tremendous resources behind intensive examiner training on CRA , fair lending , and other related issues . A great deal of time and effort also have been spent , especially over the last three years , in reviewing CRA evaluations to ensure that they reflect what we believe are fair outcomes and are as comprehensive and consistent as we can make them . conferences , seminars and workshops for bankers and others on CRA 12 189 and the types of community development lending and investment programs available to help them respond to community credit needs . We believe these programs --attended by thousands of bankers -- have had a positive effect . CRA The regulatory burden of CRA may have been overstated somewhat by the industry . Most of the more vigorous complaints about regulatory burden come from community bankers who 13 190 effects of all of the consumer laws and regulations passed over the last 25 years in addition to CRA . Cumulatively , these regulations have been costly to all institutions , and certainly have fallen disproportionately on smaller banks . Given CRA's vague prescriptions and the uncertainty of the examination process , CRA may have become a stalking horse for frustration with regulatory costs in general . CRA'S Impact Despite CRA's lack of clarity and the criticisms of CRA from all quarters , I believe that CRA has had a significant impact on the availability of credit in low- and moderate - income areas . In fact , I fear that the focus on the imperfections of CRA --many of them probably unavoidable -- has misdirected the public debate . Far too much emphasis has probably been placed on the problems of CRA , rather than its strengths . Here is a government program that has entailed little bureaucracy , great local autonomy , and virtually no federal tax dollars to administer . Yet its impact on communities can probably be measured in billions of dollars in community and economic development activity , benefitting the most distressed parts of communities . 14 191 CRA has helped stimulate loans for home mortgages , Federal Reserve Principles for CRA Reform 15 192 On balance , we believe that the law is worthy of being maintained , provided it is administered in a sensible fashion . Second , one of the major risks in the reform process is that changes we may make to CRA's regulations could result in unintended and unwarranted credit allocation . I want to emphasize that the Board is very concerned about this prospect . Let me assure this committee that the Federal Reserve has no wish to produce a regulatory scheme that would result in governmentally imposed credit allocation driven from Washington . despite our best intentions , this is an undeniable risk . But One of the strengths of CRA that we should take special care to preserve is its flexibility and responsiveness to local conditions . Under any scheme , banks should still be able to determine how best to serve the needs of their communities . We must not substitute the judgment of the agencies for the judgement of the banks . I do not believe that any other alternative would be acceptable to the Board , and we will not endorse any reform approach--no matter how well intentioned -- that violates this principle . 16 193 experimentation due to a fear of increased risk . Wholesale or radical change invariably ends up as counterproductive . Underserved markets do not need alternating periods of extreme policy activism followed by extreme neglect . They require steady , moderate , predictable , and workable efforts . has been the correct one . Fourth , any pursuit of more objectivity in the rating scheme must be tempered with a recognition of the potential adverse consequences of any mechanical system that doesn't allow considerable agency judgment . I think that was brought home clearly in the responses by many in the banking industry to the first reform proposal , which proposed a formulaic market share test as the primary element in a rating system . too many unforeseen problems with the concept . 17 There were just 194 Sixth , any increased data reporting must be justified . Finally , we believe it especially important that the commitment to safety and soundness be maintained . Community reinvestment must be economically sound and ultimately engender adequate rates of profitability , if it is to be sustained . If CRA is to work over the long term , economic sense , not shifting views about CRA obligations , must be the driving force . Giving money away is not what CRA is or should be about , and while some 18 195 flexibility in loan terms may at times be appropriate , we do not support anything other than safe , sound and profitable lending . Conclusion The CRA reform process has been very arduous and difficult , and certainly has taken longer than desired . But I believe that the Board , along with the other agencies , has made a good faith effort to adhere to the President's request . The Board has devoted a tremendous amount of time and energy , as have the Reserve Banks , to the reform process . consequences . I can assure you of the Federal Reserve's commitment to this goal . 19 # 196 REPEAL the Community Reinvestment Act ! Testimony by William A. Niskanen Chairman The Cato Institute Subcommittee on Financial Institutions and Consumer Credit House Committee on Banking and Financial Services 8 March 1995 197 Madam chairwomen and members of the subcommittee : The Community Reinvestment Act should be repealed -- not proposed regulation : The CRA does not provide statutory authority for a loan- to - deposit test . have reallocated loans from communities with a high 2 198 demand for loans to communities with a lower demand-misallocating credit over space and reducing the safety of the banking system . are even worse . Let me count the ways : 3 199 December 1993 had included statements that banks are not expected to make loans that are expected to result in losses , to expand their branching network , or to operate facilities at a loss . These protections are not included in the proposed new regulations . 4 200 banking and state restrictions on intrastate branching severely restricted bank competition in local markets and the potential for geographic diversity of loan portfolios . These restrictions have been substantially reduced , promising a more competitive banking system that is more responsive to the interests of both depositors and borrowers and less vulnerable to adverse economic conditions in specific regions . Another effect of considerable importance : competition among banks is also the best discipline on discrimination among loan applicants on any basis other than credit risk . be done . Thank you . 5 201 Testimony of Lucy H. Griffin on the Community Reinvestment Act before the Subcommittee on Financial Institutions and Consumer Credit of the House Committee on Banking and Financial Services Lucy Griffin Compliance Management Services P.O. Box 7313 Falls Church, VA 22040-7313 202 Testimony of Lucy H. Griffin before the Subcommittee on Financial Institutions and Consumer Credit of the House Committee on Banking and Financial Services March 8 , 1995 The Community Reinvestment Act has imposed an unintended and massive burden on the banking industry . The extent of CRA compliance burden varies based on the size , location , and effort level of the institution . However , certain factors are Consistency of interpretation is a persistent problem. Banks and thrifts cope with inconsistent interpretations and actions between agencies , between regional offices of the same agency , and between examiners . There is no certainty for banks facing a CRA examination or filing an application . A bank's carefully developed business plan for growth or expansion can disappear in the time it takes to file a protest . Second, inconsistencies in the skill level of examiners contribute to the inconsistency of interpretation . As examiners struggle with applying CRA in examinations , they create new interpretations and new requirements which spread to other examiners , other offices , and from agency to agency . Third, banks must maintain a fine balance to manage the constant tension between CRA and safety and soundness . Many banks have committed high levels of time and resources to develop skills needed to run an effective CRA program and to make " CRA loans . " Safety and soundness examiners may criticize these loans because they deviate from standard and familiar underwriting practices . Documentation , originally introduced as a technique for measuring and proving success , has grown to be the largest component of the CRA regulatory burden . Enforcement of fair lending laws , now being interpreted in conjunction with CRA, is driving banks to identify and compete for new markets among groups that have never had any banking relationship . The unfamiliarity of these customers with banking practices and financial terminology often results in confusion . Banks find it necessary to provide counseling and education for these new customers . They also need to maintain documentation , not only for self-protection but to ensure that the customer's requests are recorded and understood . 203 In the effort to increase services to low- and moderate - income communities , banks are increasingly affected by criticism for services provided to high income customers unless they can demonstrate some quantifiable balance with efforts to serve lowand moderate - income customers . Concerns about fair lending interpretations and enforcement have complicated this . In addition to the inconsistencies in examinations produce burden , there are aspects of CRA examinations that result in misleading comparisons between banks . First , the agencies do not have the capacity to examine the CRA performance of large banks in every community in which they are located . However , each independent bank is examined for CRA . The result is that a community bank in a small community is looked at differently and held to a different standard than the branch office -- located across the street -- of a large regional bank . In fact , the branch office of the larger bank may not be examined for CRA at all . Second , in the interstate banking context , small banks are held to a higher standard -- in their local community -- while the competing branch of a regional bank is not held to any CRA standard by itself . Many community banks fear that these branches of interstate banks may actually take money out of the community to support CRA efforts in locations which are examined . The resulting disinvestment would leave the community bank bearing the full burden of supporting its community's economy . The current CRA examination system would not identify and prevent this activity . Finally , banks do business in different markets . In some cases , they use specialization to target and compete effectively in certain aspects of overlapping markets . Imposing a rule that tries to compare a bank that does business in cities A and B with a bank that does business in cities B and C cannot have clear results . In fact , the comparison may be totally inappropriate . Efforts to develop techniques to compare banks may have the unfortunate result of causing all banks to be the same . CRA is at its best when it is a forward - looking , flexible and dynamic process . Unfortunately , the " enforcement " process has forced many banks to commit resources to non-productive and burdensome proof of compliance . In effect , it forces the bank to concentrate on form rather than substance -- making loans . CRA can stagnate in the process . Some of the solutions to these problems may be found by looking to the original purpose of CRA . Testimony of Lucy H. Griffin Page 2 204 1. Is CRA fulfilling its original purpose of ensuring that banks and thrifts are meeting the credit needs of their entire community including low- and moderate-income neighborhoods? If not, what steps need to be taken to improve compliance? CRA requires each bank to help meet the credit needs of its community . To do this , the bank must be familiar with its community , identify credit needs that the bank can support , and tailor services and products to its particular community . In order to evaluate the success of a bank in carrying out this process , the evaluator must take into account not only the actions of the bank but also put them in the context of the bank's This process by its very nature defies unique community . standardization , but standardization is the key tool for regulatory examinations . Standardization , whether it is a list of performance expectations and approved activities , or the steps and criteria used to measure compliance , defeats the purpose of CRA . Standardization , by definition , fails to take into account the very differences that CRA is intended to promote . Standardization involves an assumption of sameness . Standardization is also a significant source of burden . Much of the compliance burden is the result of having to do something in a specific way and having to do so correctly , with attention to the smallest detail . This is true not only for CRA, but for compliance requirements such as Truth in Lending , Truth in Savings , and Real Estate Settlement Procedures . It is an irony of CRA that standardization actually creates confusion . Often a standard rule or procedure doesn't work in different settings . For example , CRA enforcement focuses on the amount of lending that takes place in " low income geographies . " A whole science of " geoanalysis " has been developed -- and continues to develop -- to measure the extent to which banks are lending in low income and moderate income census tracts . However , there are many communities , primarily non-urban and rural , that do not have economically segregated living patterns . The low- and moderate- income residents of these communities live Geoanalysis , side by side with the higher income residents . designed for urban settings , simply doesn't work in these communities . It doesn't find the low- and moderate income residents . In fact , they tend to disappear in the statistics . However , banks and thrifts doing business in these communities must conduct geoanalysis simply to satisfy the regulatory standard . Simply put , the process is a waste of resources . Testimony of Lucy H. Griffin Page 3 205 Standardization is the only readily available tool for the regulatory agencies to use for CRA evaluations under the current system of examinations . Solutions to this may lie in either increased skills for examiners , or a return to the original use of CRA : taking into account a bank's performance when considering an application . CRA was originally meant to " encourage " banks and thrifts to help meet the credit needs in their community and thus provide an essential component to a healthy local economy . However , as carried out , many banks and thrifts find that the supervisory review of CRA has become focused on enforcement . This should hardly be an unexpected result : the procedures and techniques available to the bank regulatory agencies are specifically designed for enforcement , not for encouragement . CRA also contemplated a process involving three key participants : the bank or thrift , the regulatory agency , and the community . The process requires the regulatory agency to take into account the bank's or thrift's record of helping to meet community credit needs . In conducting examinations and in considering the application , the regulatory agency considers input from the community itself as a means of ensuring that the bank has effectively and correctly identified community credit needs . The Community input is central to the CRA process . regulations specify several points at which banks and thrifts should seek , accept , and respond to community input . They are required to initiate contacts with community organizations and individuals , to take and respond to requests or suggestions for community investment products and services , and to respond to any complaints filed with the institution . The adequacy of these responses is reviewed in each examination . In addition to this ongoing input , members of the community may protest an application and raise concerns about the institution's actual practice of helping to meet community credit needs and responding to requests and suggestions from the community . In theory , the protest should be an effort of last resort by the community organization . In reality , few protests are the culmination of any documented effort to work with the bank or thrift . The protest is often the first contact initiated by the community group . The act ensures that groups have the ability to protest applications , but does not impose any obligation to attempt to raise their concerns with a bank before an application is filed . Because of this , there is no procedural protection for banks and thrifts that have worked actively to identify and meet community credit needs . When a bank files an application , it cannot rely on its rating to predict whether the application will be delayed by CRA considerations . Testimony of Lucy H. Griffin Page 4 206 To remedy this , the regulatory agencies should be authorized to take into account the efforts made by any protesting group to work with the bank prior to the application . The agencies should be directed to consider negatively the fact that a group has not previously made efforts to bring concerns to the attention of the bank . 2. Does the CRA overlap or conflict with other existing equal credit and fair housing laws? Each separate piece of compliance legislation and its related regulations are adopted in a specific context to resolve a specific concern or set of concerns . Legislation is usually considered a context that is isolated from related practices and concerns . As a result , compliance requirements do not always work effectively as an integrated whole . The result can be " duelling regulations . " For example , the Home Mortgage Disclosure Act ( HMDA) and its implementing Regulation C require reporting of all applications together with characteristics of the applicant , the location of the subject property , and the disposition of the application . Many of the lenders subject to HMDA initiate applications and submit them to secondary market purchasers for approval . To prevent double reporting , the regulation provides that in this situation , the secondary market purchaser making the decision should report both the approvals and the denials . To support the goals of fair lending and CRA, many of these institutions bring back the applications denied by the secondary market and review them to determine whether they can make the loan and retain it in the bank's portfolio . Typically , for every 100 of these second reviews , the bank will be able to make a loan to only three or four of the applicants . However , because the bank is considering this application in a new context , the bank must now report its decision on each of the applications reviewed in this manner . It cannot report only the approvals . The resulting denial rates reported under HMDA are staggering. Banks and thrifts need to decide whether to take this risk of exposure under HMDA, or cancel the review program for these loans . The result is a report of denials that , as a practical matter , is artificially inflated . The fact is that the applicant asked for credit only once at that lender's office . However , because of the second review procedure and the reporting rules for loans that are sold , the application gets counted twice . Testimony of Lucy H. Griffin Page 5 207 Regulation B , creditors are required to notify each applicant of the action taken . When the creditor gives a second review to this already denied application , it may need to give a second adverse action notice to the applicant . Regulation B also sets constraints on the type of credit help , such as counselling , that banks and thrifts can offer to applicants . Regulation B requires the creditor to make a decision and send a notification within 30 days of receiving an application . It also requires creditors to act promptly on applications it receives . To comply with the timing and notification rules , credit counseling must be offered outside the context of applications . Both ECOA and the Fair Housing Act prohibit prescreening on a prohibited basis . Credit counseling can look very similar to prescreening , particularly when an individual being counseled has a great deal to do before qualifying for credit . Examiners tend to scrutinize credit counseling programs closely because of the possibilities of prescreening . For banks and thrifts , the consequences of failing this scrutiny are substantial . Findings of a possible pattern and practice of discrimination must be referred to the Department of Justice and are also reflected in the institution's CRA rating . Another example of " duelling regulations " occurs under the Real Estate Settlement Procedures Act ( RESPA) . RESPA prohibits the payment of fees and kickbacks in certain real estate transactions . HUD's Regulation X makes clear that under RESPA , a referral by itself has no value . Fees may only be charged and paid at a fair market value for actual services performed . However , to carry out CRA lending obligations , banks and thrifts need to be able to develop avenues for finding borrowers and attracting those borrowers to the bank . Some community groups have offered to refer applicants to the institutions , but would impose a fee --for example , $ 500.00 for the referral itself . These fees would violate RESPA . As a result , the potential for improving activities under CRA is cut off by another law. Small banks doing business in small communities find that the restrictions on lending to insiders can also restrict the ability the bank to develop and carry out programs . For example , of directors of the bank may be among the few people qualified to develop affordable housing projects and to deal with obstacles to development projects such as zoning laws . However , to the extent that the director would need financing for the project , the bank may be limited by restrictions on lending to insiders . In addition , the bank's relationship with the director would be a controlled business relationship under RESPA . Thus , the director could be prohibited from referring purchasers to the very bank that inspired the project . Testimony of Lucy H. Griffin Page 6 208 The agencies should be authorized to identify these regulatory conflicts and create exemptions that support the purposes of the laws involved . Fair lending enforcement complicates the CRA process . As a result of recent actions by the Department of Justice , banks and thrifts must consider the community-wide impact of each product , each advertisement , and each expansion or acquisition decision . Its CRA program must look not only at income levels and related credit needs , but then analyze the impact of the program on different groups . This necessary analysis adds to the already cumbersome documentation generated by CRA. 3. Would the revised proposal address the problems lenders see with the current system which they believe is vague and subjective and imposes undue paperwork? Specifically, how would the proposed race and gender reporting requirements on small business and agriculture loans affect depository institutions . The proposal involves at least as much paperwork as the present rule . Moreover , the rule falls short of providing the predictability that banks and thrifts need . The principal factor in the uncertainty of examination results is that different examiners , with different skill levels and different ideas , will come to different conclusions . Much of the demand for documentation comes from examiners who are unskilled at CRA . Their requests for documentation amount to seeking hard evidence . Examiners , particularly when aware that their report and rating will be a public document , are reluctant to conclusions without draw " proof" to rely on . The existing system requires banks to be able to prove to an examiner the level and extent of the bank's CRA program. Such proof cannot be provided without paperwork . Each request for additional documentation becomes a new bottom line for CRA, adding to the burden . There is nothing in the new proposal that will prevent this from continuing to happen . Documentation , although burdensome , has the attractiveness of providing a familiar tool to both banks and examiners . difficult aspect of CRA is that it involves the assessment of actions that are not tangible : interacted with members of its the appropriateness of who the results of those contacts . This type of assessment is distinct from the skills used by examiners for other regulations . Examiners measure and quantify . Testimony of Lucy H. Griffin Page 7 209 equipped to make the social , economic , and political judgments called for in CRA evaluations . What is needed is a core of skilled and experienced examiners who have the knowledge and CRA experience needed to conduct thorough and fair examinations . Also , examiners should support their evaluations with their own documentation-- the materials they reviewed and the people they interviewed . Banks and thrifts need some assessment of what they are doing right . They need guidance and support in these efforts . The agencies presently have CRA specialists in both headquarters and regional offices . These specialists have acted as technical support for banks and have not been heavily involved in examinations . However , they are generally the best qualified staff in the regulatory agencies to make the evaluations called for in the CRA examination . Many CRA efforts have involved non- lending activities . In order to bring qualified applicants into the bank , and to ensure that applicants have access to affordable housing , banks and thrifts have found it necessary to undertake nonlending activities to support these needs . These activities include education programs , counselling programs , and financing and technical support These activities have often gone for development projects . unrecognized in examinations . The CRA specialists understand the value of these efforts and their relationship to results . The proposed data collection for small business and agriculture loans is modeled on HMDA . It is useful , therefore , to look at the track record of HMDA . Two concerns stand out . First , HMDA is proving to be riddled with errors and omissions . Most of the errors , made in good faith , result from the complexities of the rule . Bank staff preparing the loan application register need to correctly interpret and apply the rule to a wide variety of In addition , there are numerous situations that arise . opportunities for error with data entries , the bank's software , and the interaction of the bank's software with that of the agencies . Second , in providing answers about lending discrimination , HMDA is a disappointment . HMDA is useful for raising questions but it is not useful for drawing conclusions . The reports do not contain enough information to explain and understand the reports . For example , the data itself do not make clear whether a high minority denial rate is result of successful outreach effort or illegal discrimination . The data do not show whether the credit demand was " effective " or whether applicants were unprepared . The reports do not show whether the bank or thrift provided or referred denied applicants to credit and homeownership counseling . actions have everything to do with a successful CRA program but are invisible on HMDA reports . Testimony of Lucy H. Griffin Page 8 210 Given the problems with accuracy levels in HMDA reports and the established limitations of HMDA data , there is no justification for the significant additional burden that the proposed data collection would impose . 4. Since the original intent of the CRA was to meet community credit needs, and not result in credit allocation, would the revised rules meet that original goal? The revised rules only change the process by which banks and thrifts would be evaluated . They do not alter the process of CRA . The existing rule provides guidance on how to achieve a result . such, it is a model affirmative action plan . Under the present rule , banks are measured on process . The proposed rule would look only at the results . However , banks will not achieve the results unless they continue their work on process . Looked at this way, the rules change little or nothing . However , by omitting a review of process and looking only at results , the rules take a clear step toward allocating credit . Banks and thrifts would be measured by their lending in numbers and dollars by location . Although the proposal would take into account the market context of the bank , there will inevitably be standards developed on a national basis that will be a starting point for assessing the lending performance . Experience shows us that these standards will quickly build into requirements and those requirements will amount to credit allocation . 5. What are your views on recently introduced legislation that would give qualified small institutions and those with ratings of at least " Satisfactory" a " safe harbor" protecting them from having an application denied on CRA grounds? The Community Reinvestment Act should encourage community groups to work constructively early in the process rather than only during a protest . A modified safe harbor would encourage this to happen . Providing recognition of a rating achievement should support this process by motivating community groups to participate in the bank's efforts before applications are filed . A safe harbor proposal should take into account two different situations . First , an institution that is presently chartered to do business in the community and seeks to expand by branching or by acquiring another institution should have access to a safe harbor for its rating achievements in that community . If the institution has been present in the community , there has clearly been opportunity for community groups to work with that institution and Testimony of Lucy H. Griffin Page 9 211 the examination process reviews the institution's responses to community input . The absence of any effort to provide input and work with an institution that has committed the effort to earn a good rating should not enable a community group to later protest that institution . However , a bank applying to enter a community by opening a branch or acquiring an existing institution presents a different situation . In this example , there has been no opportunity for the community group to work with the bank . Restricting the input of a community group by providing a safe harbor may not be appropriate when the bank's application is for the purpose of moving to the community for the first time . A safe harbor would also support the original CRA goals of encouraging banks to help meet community credit needs by providing motivation to earn a good rating . At present , only low ratings provide certainty . The intense and usually expensive efforts needed to earn a " Satisfactory" or " Outstanding " provide no guarantees for a bank's future . It only enables the bank to stay in the arena . The incentives actually offered are negative . Instead , they should be positive . Testimony of Lucy H. Griffin Page 10 212 TESTIMONY BY CATHERINE P. BESSANT SENIOR VICE PRESIDENT COMMUNITY INVESTMENT EXECUTIVE NATIONSBANK CORPORATION BEFORE THE SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT OF THE COMMITTEE ON BANKING AND FINANCIAL SERVICES UNITED STATES HOUSE OF REPRESENTATIVES MARCH 8, 1995 213 Chairwoman Roukema, Mr. Vento, and Committee Members, my name is Cathy Bessant , and I am the Community Investment Executive for NationsBank. I appreciate the opportunity to be here today to present my company's view of the Community Reinvestment Act. NationsBank is America's fourth largest banking company, with almost 2000 branches, serving more than 650 communities . We are vitally interested in each of those communities. We operate our company with the belief that NationsBank can grow only if the communities we serve are economically strong. For us, community development is far more than some nebulous concept of the " right thing to do" ; we believe it is absolutely critical to the success of our company and our communities. Of course, many are skeptical--and with good reason--about the sincerity of the banking industry on this issue. And some believe that banks intend to use the current political environment to minimize their responsibilities. Of course I cannot speak for other banks, but I am here to tell you that NationsBank is putting enormous effort behind its goal of being the best community development lender in the United States. My objective today does not include a detailed recap of our success towards meeting this goal . Additional information in this regard is contained in my written statement. Suffice it to say our efforts have been diverse and that they have been extensive . We have long gone beyond rhetoric and are generating results. We could not be more serious about getting the business of community development right. So, if anyone expected me to advocate doing away with the CRA, look out. NationsBank has long advocated a more effective, results oriented Community Reinvestment Act. My purpose before you is to advance that objective. To that end, I would like to begin with some observations about the state of the community development industry. First, the Community Reinvestment Act has played a critical role in the advancement of community development. Quantitative estimates begin by asserting that community reinvestment programs prompt some $ 4-6 Billion of lending per year. Our experience suggests that this figure is conservative. Whatever the correct number, it is clear that the CRA has been a major contributor to financial investment in underserved areas. 214 Testimony of Catherine P. Bessant NationsBank Second, this financial investment must be made to be sustainable. This means, essentially, removing impediments, ---including regulatory disincentives---to effective community development and supporting mechanisms ---including rational regulation and incentives---which enhance the safety and profitability of this lending. Reforming the Community Reinvestment Act can--and must--be accomplished in a way that does both. Third, the critical question is whether the CRA in its present form would continue to advance community development. I believe it would not. Conceptually the CRA is sound; however the evolution of the regulatory process has resulted in a system that detracts from community development and actually risks the sustainability of these activities. The process remains very burdensome. The emphasis on paperwork over performance is substantial. It is costly, distracts resources and energy from community development, and prohibits effective management of community development lending as a business . With all respect to the progress the regulators have attempted to make in this area, one only needs to read the rating guidelines to understand the importance of this issue. Second, inconsistency and subjectivity are significant problems. The current regulatory standards of measurement are wholly subjective. Performance is measured and defined by regulatory guidelines using vague terms like--and I quote--" significant" , " ongoing" , " sound" or " adequate" . This measurement system guarantees a subjective outcome. Intra-agency and inter-agency inconsistency remains problematic in the examination process , application of performance standards, and over time. When regulatory applications, public perception, and business development often hinge on community reinvestment performance, the stakes are far too high for inconsistency and subjectivity to persist. The single most important issue for NationsBank in the CRA reform effort is achieving objective--and consistent--standards for performance measurement. 215 Testimony of Catherine P. Bessant NationsBank Objective standards of measurement, however, do not mean that one size has to fit all. The success of any measurement system depends on its applicability to diverse sets of circumstances. Objectivity, consistency, and diverse applicability are NOT mutually exclusive . We must not let the debate over standard-setting prompt us to retreat to an ill-defined subjective system . Third, the current regulatory and judicial frenzy over CRA and Fair Lending should be unacceptable. There are few regulators who are not claiming jurisdiction over CRA and Fair Lending. In this area, NationsBank is answerable not only to our primary regulator, the OCC , but also to the Federal Reserve , HUD, the Department of Justice, and several state agencies. Virtually every element of regulation varies in its interpretation among the various agencies and these interpretations are often inconsistent if not down right contradictory. CRA and Fair Lending are important and sensitive but role clarification and rationalization must be undertaken. Finally, the application approval process is in need of considerable improvement. Simply put, even banks with outstanding CRA ratings are subject to uncertainty, cost, and delays due to the treatment of public comments received as part of the application process. Public input is important. However, the performance rating and application processes must be engineered to prevent unnecessary cost and delay. The proposed regulatory changes to the CRA are a significant step in the right direction . In pursuing these changes, the regulators have been diligent, participative, and thoughtful and should thus be commended. It is clear that the proposed regulations " raise the bar" in terms of performance standards. At the same time, and importantly, the proposal eliminates considerable unnecessary paperwork and distracting documentation requirements. In order for this effort to be successful, however, there remains some necessary reworking of the current proposal. The needed changes and additions are detailed in my written submission . Most importantly, additional work is needed to make measurement standards truly objective, gross volume and market share emphasis must be eliminated, and critical elements --- including specifically examiner training and an interagency appeals process --- must be addressed. 216 Testimony of Catherine P. Bessant NationsBank March 8, 1995 Page 4 of6 I am often asked whether this reform should be " scrapped" . Absolutely not . The present system is damaging to community development efforts . But the reform effort is not complete. The accomplishment of important revision is critical to the workability of, and the ability of NationsBank to support, the proposed reforms. The issue of race and gender reporting on small business lending could not be more timely nor more controversial. Yes, it will be costly. Quite costly. Yes , it will be subject to much misinterpretation. Gathering this information, however, is perhaps the only way to begin to understand the extent of credit availability for small businesses. The effect of public disclosure of home mortgage lending cannot be ignored in this debate. Awareness of lending patterns has prompted product innovation, marketing advancement, and in short has changed significantly the availability of credit for many Americans. The only way to prompt similar innovation and advancement in the area of business lending is to have and to analyze race and gender data . NationsBank supports the collection and reporting of information on the gender and race of small business borrowers . Equally important, however, is maintaining equity in imposed cost and reporting structure among competing institutions and ensuring that the data will be meaningful. Collection of race and gender information through the Community Reinvestment Act actually distorts the context of business lending data and ensures a competitive disadvantage for financial institutions subject to the CRA. In many areas, non-bank lenders dominate the small business lending market. Additionally, the exemption of small institutions ensures that 75% of the institutions engaged in lending to small businesses will not be reporting. There is no hope for gathering relevant data when the bulk of the lending community will not be reporting. This eliminates the possibility for HMDA-like advancement in small business lending. 217 Testimony of Catherine P. Bessant NationsBank An alternative and superior approach would be to collect such information under the Equal Credit Opportunity Act ( Reg B) . Collecting in this manner ensures cost and burden equity, and would mean that virtually all small business lenders would be reporting, thus making the data meaningful . Collecting race and gender information will produce important advancement, but doing it under the CRA is unfair and can only result in inaccurate data . In short: if we are going to collect the data, lets collect it from everyone engaged in small business lending. One area where the reform effort does not go far enough is in improving the regulatory application process. The issue is simple: why have a rating and examination system if these ratings are not used in handling regulatory applications? The term " safe harbor" has many negative connotations and the concept is resisted by community advocates. This resistance is, in my opinion, unwarranted. Public sentiment should be sought regularly, and the proposed regulations provide for this . To add to the cost, time, uncertainty, and generally cumbersome nature of regulatory applications when we have an ongoing performance rating process is at best counterproductive. " Safe harbor" merely maintains the integrity of the examination rating process and is very important to strengthening the CRA. I urge you to give meaningful value to CRA--incent institutions to strive for the high ratings-not just because they want to or have to, but because there is real, tangible benefit for living up to high standards. In this vein, I also would like to address the issue of credit allocation. Cries of " credit allocation" clearly are being mounted in resistance to the proposed reforms. This debate, to me, ignores the fact that the present system of regulation is effectively de facto credit allocation. The " study of the week" by community groups or academicians sets standards for how performance " should" look. The process the regulators go through now to determine what levels of lending are " reasonable" require an assessment of what is " enough" . What is missing is an objective, consistent, and PUBLIC definition of what is reasonable, what performance should look like, or what is " enough" . The " super secret" form of credit allocation that operates now can only be improved by fair and accurate articulation of expectations. 218 Testimony of Catherine P. Bessant NationsBank In closing, I challenge you to support and encourage aggressive regulatory reform in the area of Community Reinvestment. Setting standards and evaluating performance consistently--in conjunction ofcourse with removing costly and burdensome paperwork -- will do much to benefit our 219 NationsBank Corporation NationsBank Community Investment Program Fact Sheet Description: The NationsBank Community Investment Program ( CIP) is a collection of special products and services developed for lowand moderate-income individuals and for small businesses. Program Mission: NationsBank is committed to being the community investment leader in the financial services industry throughthe development and delivery of effective programs, products and services that generate lending and investment in underserved markets in a manner that benefits NationsBank communities and shareholders. Background: NationsBank established its Community Investment Program in 1988, and since then has set a high standard for aggressive, proactive community-focused lending and support. The NationsBank Community Investment Group is staffed by 140 professionals who work full time to develop innovative programs and services for economic and community development. Commitment: In 1992, NationsBank made a 10-year, $ 10 billion commitment to community development lending. Targets include: • consumers in low- and moderate-income areas or those with • incomes below 80 percent ofthe market median; small businesses and businesses in low- and moderateincome areas; real estate projects that use low-income housing tax credits or benefit low-income consumers; · -more- USA Sponsor Official 9941996 88-882-95 - 8 220 NationsBank CIP Fact Sheet Page 2 Results: In 1992,the first year ofthe $ 10 billion commitment, NationsBank loaned $ 2.2 billion to consumers in low- and moderate-income areas for mortgages, home improvements, education, auto financing and debt consolidation and to small businesses to help them expand. In 1993, $ 2.9 billion was loaned in these markets. Areas of Emphasis: Consumer and Small Business Education Affordable Housing Initiatives: Education and Technical Assistance- NationsBank established the Education and Technical Assistance unit in 1992 to develop consumer education curricula and work with community-based organizations to deliver credit education and technical assistance to consumers and small businesses in traditionally underserved neighborhoods. Bythe end of 1993, NationsBank had teamed with more than 200 community partners to facilitate free Home Buyer, Banking Basics and CommunitySmall Business education programs that nearly 10,000 participants have attended. Product Development - NationsBank develops and delivers products and services to meet identified community needs. Products vary depending on the needs ofthe community. Most banking centers offer special checking accounts with reduced rates, residential mortgage programs with flexible financing requirements, and small business loans for operating services. Public/Private Partnerships- NationsBank seeks opportunities to create and implement partnerships with the public and private sectors to promote community development. Examples include working with the NAACP to create Community Development Resource Centers and partnering with the National Urban League to establish Community Loan Review Boards. -more- 221 NationsBank CIP Fact Sheet Page 3 Initiatives: ( cont.) Community and Economic Development- NationsBank emphasizes affordable housing and technical assistance to small businesses in underserved areas. Services include mortgage and home improvement loans, small business operating assistance, small business loans, student loans and education programs. Community Development Equity Group: The Community Development Equity Group ( CDE) includes the Community Development Corporation ( CDC) , a subsidiary of NationsBank that is dedicated to revitalizing lowincome neighborhoods. Established in 1978, the CDC provides real estate development services and creative financing for residential and commercial developments in innercity areas. CDE also includes the Small Business Investment Corp. ( SBIC) , which makes equity investments in economically disadvantaged small businesses and businesses located in historically underserved areas. In 1993, CDE created Nations Housing Fund to invest $ 100 million in affordable rental housing developments that qualify for low-income housing tax credits. Community Investment Executive: Catherine P. Bessant Community Investment Regional Managers: Barry Smith Florida, Georgia, Tennessee, Kentucky Sally Barley Maryland,Virginia, Washington, D.C. 410/547-4094 Carlton Tolbert Texas Monica McDaniel -more- 222 NationsBank CIP Fact Sheet Page 4 NationsBank Background: NationsBank Corporation is a financial services company that provides products and services nationally and internationally to individuals, businesses, corporations, institutional investors and government agencies. NationsBank has a retail banking franchise in 10 states and the District of Columbia and consumer finance offices in 33 states. 5/94 223 NationsBank Corporation NationsBank 1993 National Community Investment Highlights Initiatives Made more than 35,000 calls on small and minority-owned businesses to solicit new banking relationships and to expand existing ones. In partnership with the National Urban League, NationsBank established Community Loan Review Boards in 18 NationsBank cities. The purpose ofthe Community Loan Review Board is to provide any NationsBank applicant who has been denied a home mortgage orhome improvement loan the opportunity for additional review. The Community Loan Review Board also offers free credit counseling. Institutedthe NationsBank Neighborhood Program, whereby NationsBank associates, community leaders and residents work together to address the needs of underserved inner-city neighborhoods. NationsBank Neighborhood targets inner-city communities that have inadequte social services, little or no new economic development and that have traditionally been underserved byfinancial institutions. Developed an extensive network with more than 200 community partners to facilitate consumer credit education and small business technical assistance. Provided more than 500 credit education seminars including Home Buyer Education classes and Banking Basics classesto more than 10,000 participants. Established a partnership with the Enterprise Social Investment Corporation to create the $ 100 million Nations Housing Fund. The partnership provides the largest investment in affordable housing tax credit properties in the United States. Implemented Community Loan Days in 33 cities, bringing lenders and other NationsBank associates to the community to take loan applications, provide technical assistance and conduct a variety of credit education workshops. USA Official Sponsor 1994,1996 224 1993 National Community Investment Highlights Page 2 Initiatives ( cont.) Throughthe NationsBank Small Business Lending Unit, committed or invested in various specialized programs to provide equity and loan financing to small businesses in low-and moderate-income areas. Continued participation in the Child Care Development Loan Fund to provide long-term funding to child-care facilities with loan guarantees provided bythe U.S. Small Business Administration. Supported educational initiatives including Adopt-A-School, Adopt-ARole-Model, Kids Bank, Junior Achievement and Partners in Education. Continued implementation ofthe minority and women-owned vendor policy calling for 10% of NationsBank outside purchases to be with minority suppliers. This corporate goal was exceeded in 1993. Results Loaned more than $ 463.2 million in mortgage and home improvement loans to families in low- and moderate-income areas. Conducted more than 23,000 meetings with community leaders to discuss the credit needs ofthe community and to identify possible solutions. Participated in more than 1,600 outreach programs that provided credit education and increased awareness of NationsBank products and services to small businesses and limited-income consumers. Continued an aggressive advertising campaign targeted to low- and moderate-income consumers and small and minority-owned businesses throughout the NationsBank franchise to promote the Bank's image, credit products and education services. Conducted training sessions for NationsBank associates on new communityinvestment programs and market development strategies. 225 NationsBank Corporation NationsBank Making a Difference: NationsBank Lends $ 5.1 Billion In Low- and Moderate-Income Neighborhoods $ 10 BILLION COMMUNITY INVESTMENT LOAN COMMITMENT NationsBank committed to make a minimum of $ 10 billion in community investment loans over a ten year period. Since the first year of the commitment, NationsBank has loaned more than $ 5.1 billion in low- and moderate-income areas, $ 2.2 billion in 1992 and $ 2.9 billion in 1993. To date, 36% of the loans were made to consumers and 64%to businesses. COMMUNITY INVESTMENT CONSUMER LENDING 1993 Consumer Lending ( Mortgage Corp., Secured by Real Estate and Other Consumer) COMMUNITY INVESTMENT COMMERCIAL LENDING 1993 Business Lending National: Made 5,487 business loans totaling $ 1,015,884,000 in low- and moderateincome areas, a 12% decrease in loans from 1992. 1993 Commercial Real Estate Loans National: Made 2,805 commercial real estate loans totaling $ 838,970,000 for programs in low- and moderate-income areas, a 62% increase in dollars from 1992. 1993 Agricultural Lending National: Made 680 agricultural loans totaling $ 36,537,000 in low- and moderateincome areas, a 22% decrease in loans from 1992. COMMUNITY INVESTMENT LENDING HIGHLIGHTS 1993 Small Business Lending National: Made 36,362 loans in amounts of less than $ 500,000 each to businesses, totaling $ 2,485,975,000 , a 9% increase in loans from 1992. USA Officia Sponsor 226 1993 Community Investment Results Page 2 COMMUNITY INVESTMENT LENDING HIGHLIGHTS( CONTINUED) 1993 Housing Related Lending by Census Tract National: Made 10,515 home mortgage and home improvement loans totaling $ 463,270,000 in low- and moderate-income census tracts, a 24% increase in loans from 1992. 1993 Housing Related Lending to Minorities National: Made 11,183 home mortgage and home improvement loans totaling $ 608,480,000 to minority applicants, a 29% increase in loans from 1992. 1993 U.S. Small Business Administration ( SBA) Lending 1993 Child Care Development Fund Lending For more information about the NationsBank Community Investment Program, please contact Patti Escudero at ( 214) 508-2239. 5/94 NATIONSBANK gment Results Lendin Commit Billion 1 $ 0 AL ATION N -Areas ncome te -I Modera and Lowin )$i( n Thousands 1992 $ # Lending Commercial Business Lending Estate Real Commercial Agricultural Commercial Total Lending of % Total LENDING TOTAL 5/94 3,373 59,070 69,468 88 % 6,258 2,725 869 12 % 99,265 3$7,025 85,785 391,829 $876,879 % 38 878,438 515,598 35,935 19,852 $ ,429,971 % 62 279,320 $ ,306,850 % 88 680 % 12 TOTAL $ # % 88 $669,206 4$ 65,621 7113,328 $ 49,460 1138,346 $ ,884,287 36 % 1,015,884 5,487 838,970 2,805 36,537 18,972 $ ,891,391 % 12 % 65 2$ ,898,799 77,850 111,745 $ ,894,322 15,530 $ ,354,568 $71,549 2,472 $ ,321,362 318,824 % 64 5157,170 $ ,205,649 2$ 3,978 69,941 379,836 10,642 357,631 54,258 168,878 $ ,007,408 % 35 11,003 14,015 227 Lending Consumer Lending Corp Mortgage Estate Real by Secured Consumer Other Consumer Total of Lending Total % 1993 $ # NATIONSBANK HIGHLIGHTS LENDING INVESTMENT COMMUNITY 1993 NATIONAL 1992 $ LENDING OTHER # Small Business Lending $5Under 0,000 00,000 15to $ 0,001 50,000 2to $100,001 00,000 52to $ 50,001 $500,000 Under Total 23,057 4,841 3,543 33,592 1993 $ # TOTAL $ # 53,748 4$ 23,941 54,802 4$ 5,891 94,414 6$4,218 83,014 $82,312 2,485,978 46,998 10,732 8$ 81,779 8$ 28,692 17,761 $ ,296,629 14,463 $ ,697,326 469,954 $ ,704,426 3 ,025 7$ 99,265 41$ 63,271 0,515 17,540 8$ 62,536 37$ 87,241 ,543 08,480 6 1$ 1,183 18,726 9$ 95,721 5$ 10,795 88 6$25,31 50 1 438 1$ 16,106 4$ ,092 44 1$ 0,266 $18,295 11 $18,295 4$ 28,031 3$ 73,890 $602,215 14,312 8$ 2,151 2,218,448 36,362 228 Lending Related Housing Geography By ncome -( owimoderate and L)tracts Lending Related Housing Minorities To Lending SBA Development Care Child 6$ $2,174 3 Fund Lending Invest Equityments 04/94 이 $0 2 $ 1 11 NationsBank Lending Related Housing Loans Refinanced Excluding MARKET SEGMENT TOTAL :1C%992-1993 HANGE DENIAL NUMBER OF APPLICATIONSRATES APPLICATIONS 1993 1992 1992 DENIAL RATES +#Applications Deniale 1993 84,511 $ ( 000) 5$ ,979,876 % 14.6 % -7.1 17.0 % % 15.8 $476,934 $124,597 3$ 52,337 4$ ,275,342 16,295 4,790 11,505 68,216 $705,279 $169,419 $535,861 $5,274,597 % 23.2 21.2 % % 24.0 % 12.7 % -9.7 -6.7 % % -10.6 % -7.3 % 25.7 % 28.3 % 24.5 % 15.1 % 23.2 26.4 % % 21.9 14.0 % 10,066 63,696 $346,699 $4,405,576 12,418 1. 72,093 6$ 59,721 5$ ,320,155 %23.4 % 13.2 -11.1 % -6.7 % 29.6 % 15.0 % % 26.3 % 14.0 14,286 8,324 4,062 1,900 59,476 5$ 97,266 3$ 23,566 $145,149 $128,551 4$ ,155,010 18,398 11,061 5,058 2,279 66,113 $889,718 5$ 28,747 $181,591 $179,380 5$ ,090,157 % 28.8 % 32.9 24.5 % % 19.9 % 11.2 % -4.9 % -2.6 % -10.2 -10.9 % % -11.3 % 28.7 31.0 % % 28.5 % 19.2 14.2 % % 27.3 % 30.2 % 25.6 17.1 % 12.6 % $438,589 $174,833 $263,756 3$ ,854,265 $459,421 18,224 9,224 9,000 65,778 509 $600,583 $241,626 3$ 58,957 4$ ,993,767 3$ 85,526 14.5 % 11.9 % 17.4 % % 15.7 % -48.6 % -8.3 % -8.5 -6.4 % % -6.4 % 13.4 % 27.8 % 31.7 % 23.5 % 14.0 % 18.7 % 25.5 % 29.0 % 22.0 % 13.1 % 21.2 .of and income median estimates 1993 on based are classifications minority and 3)( ncome Irace .base income median f %o80 applicant or-tIncome ract Low .base income median fnd o80 %>8or-tract aIncome 0 applicant .base Income median MSA %o>orf0 Moderate 8applicant ➡tract Upper .,aoState appropriate Income household median County rsBA Mincome Base CIGMIS 73,762 $ ( 000) $4,752,276 13,231 3,951 9,280 60,531 TRACT BY CENSUS Low &Moderate Tracts Income Tracts Income Low Moderate Income Tracts Tracts Income Upper RACE APPLICANT BY Minority Total African -American Hispanic Other Minority M-Total Non inority BY INCOME APPLICANT Low &Moderate Income 15,910 8,241 Income Low 7,669 Income Moderate 56,862 Income Upper provided not data Income 990 Improvement Home and 1)( ortgage MLoans .franchise all NationsBank in2)( eflecte activity Rstates yeare activity orboth a.inone no was there ,•Nsot applicable EJM V:5 04/28/94 1 Page 229 Tracts Minority Predominantly -Minority Non Tracts NationsBank 1 Lending Related Housing Loans Refinanced Excluding MARKET SEGMENT )(0$ 00 TOTAL C992-1993 :1% HANGE DENIAL OF NUMBER 1 ORIGINATIONSRATES ORIGINATIONS 1993 1992 1992 DENIAL RATES A@Denials +pplicatione 1993 53,693 $3,818,040 61,320 $ ( 000) $4,505,275 8,506 2,419 6,087 45,187 3$ 32,624 $84,994 $247,630 $3,485,416 10,515 2,946 7,569 50,805 $463,270 1$ 10,707 3$ 52,563 $4,042,005 23.6 % 21.8 % 24.3 % % 12.4 % -9.7 %-6.7 % -10.6 % -7.3 25.7 % % 28.3 % 24.5 % 15.1 % 23.2 26.4 % 21.9 % % 14.0 5,962 47,731 $235,165 3$ ,582,875 7,519 53,801 $336,006 $4,169,269 % 26.1 % 12.7 % -11.1 -6.7 % 29.6 % % 15.0 26.3 % % 14.0 8,670 4,990 2,398 1,282 45,023 $416,758 $215,902 $103,814 $97,042 3$ ,401,281 11,183 6,594 3,013 1,576 50,137 6$ 08,480 $349,424 $127,038 $132,018 $3,896,795 % 29.0 % 32.1 25.6 % % 22.9 % 11.4 % -4.9 %-2.6 % -10.2 -10.9 % % -11.3 28.7 % % 31.0 % 28.5 19.2 % % 14.2 27.3 % % 30.2 % 25.6 % 17.1 12.6 % 3$ 05,485 $113,041 $192,444 $3,123,162 3$ 89,393 11,653 5,602 6,051 49,349 318 4$ 13,623 $153,716 $259,907 $3,879,552 $212,101 % 15.5 % 13.1 17.9 % % 14.6 % -43.1 % -8.3 -8.5 % % -6.4 % -6.4 % 13.4 % 27.8 % 31.7 % 23.5 % 14.0 % 18.7 25.5 % % 29.0 % 22.0 % 13.1 21.2 % .and race income median ofon estimates 1993 based are classifications minority 3)I( ncome .income median f %oorIncome base 80 applicant tLow -ract .base Income fnd o80 median 0 %a>8applicant income or-tract Moderate .base median MBA f0 %o>8Income income orapplicant ➡tract Upper .Income appropriate ,amedian household County MrsSA oState Base /MIS CIG % 14.2 % -7.1 % 17.0 15.8 % TRACT⚫ CENSUS BY &Moderate Low Tracts Income Income Tracts Low Tracts Income Moderate Tracts Income Upper · BY APPLICANT RACE Total Minority -American African Hispanic Other Minority MTotal inority -Non INCOME BY APPLICANT Income Low &Moderate 10,086 4,952 Low Income 5,134 Income Moderate 43,048 Upper Income not provided data Income 559 Improvement Home Loans and (1)Mortgage . states franchise Bank Nation inall activity 2)R( eflecte .there yeare no was orboth inone activity Not ,as applicable EJM V:6 04/29/94 2 Page 230 Predominantly Tracts Minority -Minority Non Tracts NationsBank ¹ Lending Related Housing Loans Refinanced Including TOTAL 1C:%992-1993 HANGE DENIAL NUMBER OF 1 APPLICATIONSRATES APPLICATIONS 1993 1992 MARKET SEGMENT 1992 RATES DENIAL A#Deniale #+pplications 1993 $ ( 000) % 1$ 3,957,088 36.7 -10.5 % % 14.3 % 12.8 47.6 % % 41.1 50.1 % % 34.8 -13.6 % -10.9 % % -14.7 % -10.2 23.6 % % 26.6 % 22.5 % 12.7 % 20.4 23.7 % % 19.2 11.4 % 20,323 157,670 % $1,125,972 42.4 % $12,831,117 36.0 % -11.7 % -10.2 %27.4 12.7 % % 24.2 % 11.4 1$ ,070,166 $574,727 2$ 38,284 2$ 57,154 $8,932,055 30,638 18,417 7,408 4,813 147,355 $1,760,882 9$ 76,043 3$ 54,477 $430,362 1$ 2,196,206 % 49.2 % 50.7 42.9 % % 53.6 % 34.4 %-6.4 % -3.0 % -10.2 % -19.9 % -14.2 % 26.6 29.7 % % 25.5 16.6 % % 12.0 % 24.9 % 28.8 22.9 % % 13.3 10.3 % $694,231 2$ 65,483 4$ 28,748 8$ ,744,586 5$ 63,403 29,741 14,333 15,408 145,377 2,875 % 1$ ,084,757 35.4 % 33.6 4$ 30,300 % 37.2 $654,457 % 1$ 2,287,023 36.9 % 42.5 5$ 85,309 % -11.3 % -12.1 % -9.6 % -7.7 % -60.5 % 26.6 % 31.4 % 21.9 11.7 % % 16.2 23.6 % % 27.6 % 19.8 % 10.8 % 6.4 .and race income median of estimates 1983 on based are classifications minority 3)I( ncome .% income base f oor-tIncome s80 applicant median ract Low .base income median f0nd o80 %a>8ort-ract applicant Income Moderate .Upper median base f o%>8orapplicant MSA 0 income ract tIncome - appropriate .,aoMState Income household median County rsSA income Base CIGMIS 130,186 $ ( 000) 1$ 0,002,221 177,993 19,701 5,363 14,338 110,485 8$ 69,107 2$ 05,182 $663,924 9$ ,133,114 29,082 7,565 21,517 148,911 1$ ,400,324 $314,439 1$ ,085,885 $12,556,765 14,269 115,917 $608,517 9$ ,393,704 20,535 12,218 5,184 3,133 109,651 BY TRACT CENSUS Tracts Income & oderate MLow Low Income Tracts Moderate Tracts Income Tracts Income Upper RACE APPLICANT BY Total Minority -American African Hispanic Minority Other MTotal -inority Non BY INCOME APPLICANT 21,958 Low &Moderate Income 10,729 Low Income 11,229 Income Moderate 106,211 Upper Income provided not data Income 2,017 Improvement Loans Home and (1)Mortgage .inall franchise NationsBank activity 2)( ellects Rstates activity inone .there yeare orboth Not ,as applicable no was V:6 04/20/94 EJM 1 Page 231 Tracts Minority Predominantly Tracts Non -Minority NationsBank Lending 1Related Housing Loans Refinanced Including MARKET SEGMENT ORIGINATIONS 1993 1992 )$(000 TOTAL 1% C: 992-1993 HANGE OF DENIAL NUMBER 1 ORIGINATIONSRATES 1992 DENIAL RATES A#Deniale #+pplications 1993 98,526 $ ( 000) $8,142,862 137,447 % $11,258,581 39.5 % -10.5 % 14.3 % 12.8 13,049 3,384 9,665 85,477 $631,228 $143,242 $487,986 $7,511,635 19,888 4,944 14,944 117,559 % 52.4 $995,528 % 46.1 $221,204 54.6 % $774,324 % $10,263,052 37.5 % -13.6 % -10.9 % -14.7 % -10.2 % 23.6 % 26.6 % 22.5 % 12.7 %20.4 23.7 % % 19.2 % 11.4 8,766 89,760 $421,749 $7,721,114 12,920 124,527 $674,322 1$ 0,584,258 47.4 % % 38.7 -11.7 % % -10.2 % 27.4 % 12.7 24.2 % 11.4 % 12,841 7,391 3,217 2,233 85,685 7$ 58,175 $382,463 $176,753 1$ 98,959 $7,384,687 19,603 11,335 4,660 3,608 117,844 $1,259,863 6$ 60,605 $259,014 3$ 40,245 $9,998,717 % 52.7 % 53.4 44.9 % 61.6 % % 37.5 -6.4 % -3.0 % % -10.2 % -19.9 -14.2 % 26.6 % 29.7 % % 25.5 % 16.6 % 12.0 24.9 % % 28.8 % 22.9 % 13.3 10.3 % $484,457 $169,797 $314,660 $7,206,680 $451,725 19,742 8,928 10,814 115,176 2,529 $763,155 $277,998 4$ 85,156 1$ 0,104,383 $391,043 39.6 % % 38.2 40.9 % % 38.5 107.6 % -11.3 % -12.1 % -9.6 % % -7.7 % -60.5 26.6 % 31.4 % 21.9 % % 11.7 % 16.2 % 23.6 27.6 % % 19.8 % 10.8 6.4 % income .based race and are median of estimates 1993 on classifications minority (3)Income .Income income median base %of s80 orapplicant Low ➡tract median .base aapplicant %oincome 80 fnd >8orIncome 0 Moderate -tract income .median base %o>8orIncome MSA f0 applicant tUpper -ract appropriate .income household ,aCounty State oMIncome median rsSA Base CIGMIS TRACT BY CENSUS &Moderate Low Tracts Income Tracts Income Low Tracts Income Moderate Tracts Income Upper Tracts Predominantly Minority BY RACE APPLICANT Total Minority AAfrican - merican Hispanic Other Minority Total MNon - inority BY INCOME APPLICANT 14,137 &Moderate Low Income 6,460 Low Income Income -Moderate 7,677 Upper Income 83,171 provided not data Income 1,218 Loane Improvement Home and (1)Mortgage states franchise NationsBank activity 2)( eflects R.inall .inone years both orthere activity aN,• sot no was applicable EJM 04/20/94 V:6 2 Page 232 Tracts -Minority Non NATIONSBANK TRENDS EMOGRAPHIC /D PRODUCTION LENDING I -TNCOME MODERATE O LOW )STATES FRANCHISE ( OTAL T NATIONAL 1993 1992 #LTM T%OTAL #LTM T%OTAL PERCENT CHANGE Trends Production Tract Census -tLow IModerate oncome per Originations of Number Average Lending Housing Related TOTAL LENDING Commitment Billion 1$ 0 % 23.8 3.7 % 1.82 20.70 1.47 19.97 233 Trend Product Related Housing Originations New Refinance Originations TOTAL 8,506 4,543 13,049 % 65.2 % 34.8 % 100.0 10,515 9,373 19,888 52.9 % % 47.1 % 100.0 23.6 % 106.3 % % 52.4 3,971 % 36.1 3,760 % 33.1 -5.3 % Trends Demographic as Classified Tracts Census IModerate -o tncome Low applicable Not EJM 05/06/94 CIGMIS 234 NationsBank Corporation NationsBank November 18 , 1994 Communications Division 250 E. Street, S.W. Mr. William W. Wiles, Secretary Mr. Robert E. Feldman RE: Community Reinvestment Act Regulations; Proposed Rule Dear Sirs: Thank you for the opportunity to comment on the second draft of the proposed Community Reinvestment Act Regulations. These regulations, as proposed, represent significant advancement in the administration of community reinvestment responsibilities. This advancement will directly benefit our neighborhoods and communities by focusing attention--and indeed CRA ratings--on lending performance, service accessibility, and community development investment. It is clear that the proposed regulations " raise the bar" in terms of performance standards. At the same time, and importantly, the proposed regulations eliminate considerable unnecessary paperwork and distracting documentation requirements. It is also clear from the second draft that the thousands of comments received regarding the first proposal were taken seriously. These comments were given importance that far exceed the expectations of community advocates, bankers, and all other interested parties. USA Ccal Sponsor 235 November 18, 1994 Page 2 of 9 POSITIVE ASPECTS OF THE PROPOSAL There are many positive aspects of the new proposal. While the purpose of this document is to suggest areas of potential improvement, the following represent the most important positive aspects of the proposal: Revision of the Market Share Test in favor of a more balanced lending test approach; • Inclusion of community development lending and heightened importance of community development investment. • Refinement of the Strategic Plan Process, making it a more viable option; Inclusion of alternative delivery systems in the Services Test. Expansion of the comparative lending analysis beyond geographic information alone. Significant progress toward the elimination of emphasis on process and documentation. SPECIFIC COMMENTS FOR PROPOSAL ENHANCEMENT Following are the points of consideration deemed to be most critical: Assessment Context It is clear that the proposal attempts to remove the burden of documenting needs analysis from financial institutions by calling for an assessment context to be developed by the relevant regulatory body. Removal of this burden is important, as it comprised one of the most documentation-intense assessment factors and generated little value compared to effort expended. In order for the assessment context process to be workable, it must be: Available early enough to be incorporated into an institution's planning; • • Consistent across regulatory agencies and for all financial institutions within a given market; Stable over time. 236 November 18, 1994 Page 3 of9 Assessment Context ( cont.) The proposal, which calls for a separate context to be developed for each CRA examination, contains none of these attributes. Further, there is considerable room for disagreement between the regulating agency and the financial institution, requiring that each financial institution independently create an assessment context in order to support its position regarding any disagreement. Hence, the burden reduction objective is not accomplished. As an alternative, a joint regulatory assessment context should be developed for each MSA by a specified date ( consistent with the initial date for data collection) for a multi-year period. In order to facilitate lender and community advocate input, the assessment contexts should be subject to public comment before they are finalized . These contexts could be supplemented by individual institution contexts, completed by the appropriate regulator, and added at the time of examination. Establishment of such a context process would: ( 1) ensure consistency within and among regulatory agencies and within markets; ( 2) help financial institutions develop their CRA strategies; ( 3) facilitate public input into this process in a consistent fashion; ( 4) minimize disagreements between examiners and institutions; and ( 5) preserve the intended documentation burden reduction. Service Area Determination The proposed regulation attempts to clarify the methodology to be used in establishing service areas. Given the continued likelihood of inconsistency and disagreement in this important area, NationsBank recommends that the agencies provide for advance ratification of service areas. This process could call for the submission of proposed service areas every two years. Service areas would be deemed to be ratified should the relevant agency not comment on the submissions within 60 days. This process would replace a process that generates considerable unproductive discussion in each examination and which causes undue uncertainty for financial institutions. Additionally, inclusion of ATM's in service area determination is inappropriate. Automated teller machines are essentially extensions of branch networks. ATM's do not initiate customer relationships, often do not have deposit taking capabilities, and do not have on-site credit extension capabilities. Taken to the logical next step, inclusion of ATM's suggests that personal computers and bank-by-telephone programs also should have a 237 November 18, 1994 Page 4 of9 Service Area Determination ( cont.) bearing on service area determination. Branch locations should be the only critical determinant in service area. Failure to exclude ATM's from the determination of service area represents a significant disincentive to offering this highly popular component of service delivery. Technical Compliance/Public File Maintenance The requirements for branch-based public file availability and information to be contained within such files have been substantially expanded in the proposed regulations. Practical experience indicates, however, that branchbased information is rarely accessed by the public. The vast majority of requests for public-file type information are received over the phone or in writing. In fact, the volume of requests for such information during full year 1993 made in actual NationsBank branches totaled less than 20---among all 1800 NationsBank branches. The requirement of maintaining public file information in a large branch network is incredibly cumbersome, costly, and prone to error. Additionally, it detracts from energy that could be devoted to more productive activity. It is clearly not a significant public need. Posted CRA notices could include an address from which such information could be obtained, substantially easing this compliance burden without compromising in any way the public availability of such information. Services Test The agencies intend for assessment under the service test to consider the availability of alternative delivery systems. This consideration is most appropriate. However, while the regulation specifically addresses the availability of alternative delivery systems, the service performance ratings in Appendix C do not specifically reference alternative delivery systems. To help ensure that examiners are not too narrowly focused when assigning service performance ratings, the first criterion should reference " service delivery systems, including alternative delivery systems as well as branches and ATM's......" 238 November 18, 1994 Page 5 of9 Appeals Process The Lending, Investment, and Service Tests, as contemplated in the second draft of the proposed regulation, provide for considerable examiner discretion in the application and assessment of comparative performance measures. This heightened discretion should allow important flexibility and accommodation for individual market needs and constraints. At the same time, however, the opportunity for inconsistency within and among regulatory agencies also is increased. In fact, it was this concern about inconsistency that was foremost in much of the testimony from financial institutions and community advocates in the public hearings conducted at the initiation of the CRA reform process. In order to manage this level of discretion, there must be an improved method of addressing the potential for interagency inconsistency and for disagreements between financial institutions and their regulators. A joint agency appeals process should be established. This process could be administered through the FFIEC or any other joint regulatory body. A process for timely and thoughtful resolution of issues should be developed. This process would minimize inconsistent application of discretion and enhance financial institution confidence in the equity of the ratings process. Data Collection There are four critical points to be made regarding data collection: 1. Geocoding Outside of Service Area It is clear that the intent of the Community Reinvestment Act is to ensure the equitable availability of lending services and equitable distribution of lending patterns within the service areas of financial institutions. The geocoding of lending activity outside of a service area is unnecessary, irrelevant, costly, and inconsistent with the intent ofthe Act itself. Elimination of this requirement is critical. Failure to do so will result in a substantial increase in the burden ofthe Community Reinvestment Act, with no benefit to the examination/performance assessment process. 239 November 18, 1994 Page 6 of 9 2. Race and Gender Data on Small Business Lending NationsBank supports the collection and reporting of information on the gender and race of small business borrowers. Whatever the challenges and opportunities associated with the collection and reporting of HMDA data, it is clear that the data has led to public, private, and secondary market efforts that have, simply put, caused hundreds of millions of dollars in home mortgage loans to be made to low- and moderate-income and minority Similar advancement--in all sectors public, private, and borrowers. secondary market--is crucial in order to fill the gap between the needs of small/minority owned businesses and the current market reality. This advancement is not possible without race and gender information. Equally important, however, is maintaining equity in imposed cost and reporting structure among competing institutions, and ensuring that the methodology for collecting such information is not counter to the objectives of community development. Collection of race and gender data through the Community Reinvestment Act is counter to community development, distorts the context of such data, and ensures a competitive disadvantage for financial institutions subject to the CRA. In many areas, non-bank lenders dominate the small business lending market. Additionally , the exemption of small institutions ensures that 75% of the institutions engaged in lending to small businesses will not be reporting the race and gender of their small business borrowers. There is no hope for the gathering of relevant data when the bulk of the lending market is excused from reporting requirements. This eliminates the possibility for meaningful advancement in the area of small business lending by distorting data, and thus is counterproductive to the intent of maximizing lending to disadvantaged small businesses. An alternative and superior approach toward the objective of gathering race and gender data on small business lending is to do so under the Equal Credit Opportunity Act. Collecting this data under Regulation B would ensure that information is gathered for the vast majority of small business lenders, would contribute to a level regulatory environment for all involved in the small business lending market, and thus provide meaningful, actionable information for use in expanding the small business lending market. 240 November 18, 1994 Page 8 of9 Effective Date ( cont.) which would be incurred if the changes were accomplished over twelve months. Given that the value of the data collected for a partial year is questionable, there is no corresponding benefit to be realized from this doubling of cost. As such, the requirements for data capture should be initiated no earlier than one year from the publication of the final CRA regulations. Reporting on Outstandings vs. Originations The intent of data collection is to facilitate analysis of lending activity. As proposed, the draft regulations call for the reporting of data based on year-end outstanding balances, with production data ( data regarding loans originated) to be provided at the option of the financial institution. Reporting in this manner does not achieve the stated objective of providing meaningful information for lending analysis purposes. The differences between loans outstanding at the end of a period and loans originated within a given period can be substantial. Loans can be securitized and sold as part of routine balance sheet management techniques . Loans can be originated and paid off in the same period. Lines of credit can be extended to borrowers who may choose to temporarily pay them down at year end as the customers themselves engage in balance sheet management. Due to these and many other factors, the use of outstanding loan balance as a measure of lending activity is inaccurate and will in all likelihood be anything but reflective of a financial institutions performance in extending credit. Additionally, reporting loan outstandings is counter to reporting requirements under HMDA which call for the reporting of loans originated. This inconsistency is confusing to the public and makes data comparison and aggregation very difficult. This inconsistency also creates a cost problem, as financial institutions must create two reporting systems. The relationship between the two methodologies should be reversed. Data collection that is required should be based on originations, with the reporting of balances outstanding included at the option of the individual financial institutions. This will provide valid information regarding lending activity and provide for consistent reporting 241 November 18, 1994 Page 9 of9 Reporting on Outstandings vs. Originations ( cont.) between HMDA and CRA data reporting. Further, it will be much more efficient from a systems perspective. Summary The preceding recommendations are critical to successful implementation of the proposed revised Community Reinvestment Act regulations. Questions regarding these comments should be directed to Catherine P. Bessant, Principal Community Investment Officer, at ( 202) 624-1018. Again, thank you for the opportunity to comment on the proposed regulation. OtherherBessent 242 November 18, 1994 Page 7 of 9 3. Small Bank Reporting The streamlined procedures for small banks ( $ 250 Million in assets or less) regarding examination procedures and documentation requirements is necessary and appropriate. Exemption from data reporting, however, is anticompetitive and counterproductive to community development. In many smaller markets, branches of large banks compete directly with community banks. Stated alternatively, branch offices of large banks must be community banks in order to compete effectively in the markets they serve. Under the proposal, similarly situated competitors in like markets would be subject to different reporting requirements. This contributes to an uncompetitive cost structure and reporting differential and therefore a distinct competitive disadvantage. Additionally, the exemption of small banks from the data reporting requirements makes the value of this information minimal at best. It is widely recognized that small banks, as defined in the proposed regulation, comprise approximately 75% of the financial institution industry. It is impossible to ascertain the true working of a market where the information available from which to draw conclusions comes from only 25% of the market participants. In order for this data to have true community development value, the reporting must be comprehensive and capture the vast majority of the market forces. As is the case with the collection of information under HMDA, data reporting requirements should apply to all financial institutions. 4. Additional Concerns Effective Date Given that final regulation may not be published until early 1995, the capture of data beginning July 1 , 1995, is physically impossible and prohibitively costly. While the implementation of the new reporting will, of course, necessitate systems changes, the acceleration of these changes that will be necessary in order to comply with the July 1 effective date will cause significant additional expense. NationsBank estimates that the expense of implementing the changes within six months will cause the associated expense to be double that 243 WARREN W. TRAIGER 555 MADISON AVENUE 25TH FLOOR NEW YORK, N. Y. 10022 TELEPHONE: ( 212 ) 486-0080 FACSIMILE: ( 212 ) 758-9828 TESTIMONY REGARDING THE COMMUNITY REINVESTMENT ACT BEFORE THE SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT OF THE U.S. HOUSE OF REPRESENTATIVES March 8, 1995 Washington, D.C. Chairwoman Roukema and Members of the Subcommittee, thank you for requesting my testimony regarding the Community Reinvestment Act ( " CRA" ) and the pending inter-agency CRA regulatory reform effort . My office counsels banks on CRArelated issues, and I served as Special Counsel to the New York State Banking Department during the formulation of its proposed revisions to the rules implementing the substantially identical state law. This testimony is based upon my experience advising banks and New York on CRA compliance matters and is not presented on behalf of any individual institution or the New York Banking Department . My testimony will summarize the evolution of the CRA and then make the following points : • The CRA has directly resulted in significant community lending and development activities, but the existing enforcement mechanism is fundamentally flawed; • The inter-agency reform proposal represents a material improvement over present compliance procedures; • A " safe harbor" provision insulating banks with outstanding CRA records from community protests that unfairly delay the regulatory application process would serve as a powerful incentive for institutions to implement superior CRA programs; and ⚫ Institutions that have had their fair lending practices favorably assessed by their primary regulator should be shielded from Justice Department and HUD review of the same practices . 244 The Evolution of the CRA The CRA was enacted by Congress in 1977 in response to allegations that banking and thrift institutions were engaged in the practice of " redlining . " Senate Banking Committee Chairman and bill sponsor William Proxmire of Wisconsin broadly defined " redlining" as the taking of deposits received from customers in lower-income neighborhoods and investing that money elsewhere . See 123 Cong. Rec. S8958 ( June 6, 1977) . Of particular concern was the relationship between the alleged " redlining" and the deterioration of urban neighborhoods. The CRA is a broadly worded statute which requires each federally-insured commercial bank or thrift institution that grants credit to the public in the ordinary course of business to meet " the credit needs of its entire community, including lowand moderate-income neighborhoods, consistent with the safe and sound operation of such institution . " 12 U.S.C. $ 2903. Congress revisited the CRA in 1988 when hearings were conducted by the Senate Committee on Banking , Housing and Urban Affairs. In his opening statement, Senator Proxmire expressed his displeasure with the regulators ' enforcement of the CRA: Regulators seem to think that we're all living in Lake Woebegone . Like the children of the fictional village, U.S. lenders are all above average. Almost all get high ratings year after year and almost none is ever held back. The committee surveyed CRA rating procedures and found that more than 97 percent of all lenders passed with flying colors. What's more, in the Ist 10 years, only 8--that's 8 of 40,000 applications reviewed by the agencies were denied . I wish we had graders like that when I was in school . CRA: Hearings Before the Committee on Banking, Housing and Urban Affairs of the U.S. Senate, 100th Cong. 2d Sess . 7 ( 1988) . Moreover, community group protests and newspaper reports contemporaneous with the Senate hearings seemed to provide evidence that lending discrimination and credit exportation in urban areas continued . See " The Color Of Money," Atlanta Journal and Constitution ( May 1-4, 1988) . As a result, Congress amended the CRA rating system to make ratings and written evaluations public . Effective with examinations beginning on or after July 1, 1990, institutions received one of the following CRA ratings : " outstanding, " " satisfactory," " needs to improve" or " substantial noncompliance. " 12 U.S.C $ 2906( b) ( 2) . The rating is contained in a written " CRA Performance Evaluation " prepared by the regulators , a version of which must be made available to the general public by the institution. 2 245 In connection with the statutory amendment , regulators issued guidelines on ways to develop an effective CRA process , with particular emphasis on board of director and senior management involvement, an expanded CRA statement, and documentation procedures . 55 Fed . Reg . 18163 et seq . ( May 1 , 1990) . Enhanced Enforcement/Enhanced Investment The current era of heightened CRA enforcement has been marked by increased regulatory vigilance and the unprecedented practice of publicizing bank examination results . Although it is impossible to measure precisely how much community investment is a direct result of the heightened enforcement, few would reasonably contest the regulators ' contention that: The CRA has come to play an increasingly important role in improving access to credit among under-served communities-- both rural and urban-across the country. Under the impetus of the CRA, many banks and thrifts opened new branches, provided expanded services , and made substantial commitments to increase lending to all segments of society. 59 Fed . Reg. 51233 ( October 7, 1994 ) ( Introduction to the inter-agency proposal) . Further, the CRA provides a significant boon to neighborhood - based organizations that meet community credit needs in ways that traditional lenders cannot. Such organizations often loan money in smaller amounts than banks can profitably lend and factor their unique understanding of the community and of loan applicants into their credit decisions . In 1994, Neighborhood Housing Services of New York City ( " NHS" ) , an organization dedicated to creating , preserving and promoting affordable housing , used private and public money to originate $ 10.25 million in housing loans to credit-starved neighborhoods and facilitated $ 11.8 million more in direct bank loans . In 1989, prior to the enhanced emphasis on CRA, NHS originated less than $ 650,000 in loans and was unable to facilitate any borrowing . NHS, which is supported by over 100 banking and thrift institutions, attributes this extraordinary growth to banks' increased CRA concern and awareness . Heightened enforcement of the CRA has also resulted in the creation of new investment vehicles intended to serve community development needs . The Global Resources for Affordable Neighborhood Development program ( " GRAND " ) , a consortium of foreign and domestic banks, helps finance the construction of low- and moderate-income housing in New York City through private loans . To date, twentysix institutions, most of them foreign-owned wholesale banks , have committed $ 85 3 246 million to GRAND . Many of these institutions were not involved in CRA in any meaningful way prior to the era of enhanced enforcement. Enhanced Enforcement/Enhanced Dissatisfaction Notwithstanding the increased CRA- related investment, serious problems remain . Bankers and community activists have expressed dissatisfaction with many of the elements of heightened CRA enforcement. Their main criticisms involve the subjective nature of the compliance process, the dependence on onerous paperwork during evaluations and the resultant ratings, which sometimes seem insufficiently related to a bank's actual community reinvestment activities . The lack of readily ascertainable evaluation standards and the examination emphasis on " soft" factors, such as the volume of community contacts made by a bank or the number of times its board of directors discusses CRA, are also areas of concern . The regulatory guidelines have proved, in significant respects, to be unclear or unhelpful, and bankers have struggled to design and implement CRA compliance programs with only vague regulatory direction . Particularly disadvantaged are wholesale banks, institutions subject to the CRA because of their deposit insurance, but which do not maintain branches and do not draw deposits from or lend to a community in any conventional sense . Wholesale banks were largely ignored by the regulators during the first decade of CRA . Their de facto inclusion now forces regulators to jerry- rig the law's provisions , so that they fit institutions that are not in the business of extending retail credit in any meaningful way. Bankers also vigorously object to their regulatory applications being held hostage to the demands of community groups . Too often , consideration of an application is delayed, while the regulators re- review the CRA performance a bank that has received an " outstanding" rating as a result of its regular CRA examination. Community activists have their particular concerns as well . They maintain that CRA examinations fail to focus on lending to lower-income neighborhoods, allowing institutions to receive favorable ratings based solely on lending in higher- income areas . Community groups also complain about the lack of hard loan data and of a meaningful enforcement mechanism for institutions with poor CRA records that do not file regulatory applications . The Reform Efforts Hence, the New York Banking Department and then the federal regulators, after public hearings and comment, have each issued proposed regulations to carry out CRA reform . 4 247 The New York Proposal The New York proposal, issued in October 1993 and now in abeyance pending the outcome of the federal process, illustrates one state's approach to addressing these concerns . The State CRA, enacted in 1978 and modeled on the federal law, is similarly applicable to a varied range of institutions : retail and wholesale, foreign and domestic, urban and rural, money center and community. The New York proposal is designed to make community reinvestment an ongoing program , with enforcement emphasis shifted from the regulatory application process to the annual examination . Its overriding goal is to reduce the unpredictability and inconsistency of CRA evaluations, by basing an institution's grade primarily on its aggregate CRA investments . ( A summary of the New York proposal is appended hereto as " Exhibit A. " ) The plan's centerpiece is a quantitative rating system that employs a numerical formula to calculate a bank's preliminary CRA rating . The formula is based on the ratio of dollars an institution invests in CRA activities to the dollar amount of its FDICassessed deposits . Different categories of CRA activities are afforded different weights. For instance , housing and small business loans in low-income census tracts are weighted more heavily than the same loans made elsewhere in a bank's community. The preliminary rating set by the numerical formula can be adjusted if warranted by the qualitative aspects of an institution's CRA program . An institution that discriminates or inadequately serves segments of its community would receive a lower rating than the formula dictates, while one that aggressively markets in low and moderate income neighborhoods could have its rating increased . The quantitative rating system would be coupled with a significant incentive for institutions to achieve and maintain the highest rating . The New York plan provides a safe harbor from CRA- based regulatory protests for banks with three consecutive " outstanding" ratings . This safe harbor is intended to enhance the importance of the examination process by exempting consistently highly rated banks from CRA protests . The concept of a safe harbor has consistently been the subject of much opposition from community organizations , whose representatives contend that any restriction on their ability to protest would dilute CRA enforcement . They have particular concern about the accuracy of the examination and rating process that could lead to a safe harbor. The New York plan attempts to address this concern with the quantitative- based rating system , as well as a through a formal community group comment period . The I 5 248 comment period would provide community organizations with an explicit role in the Department's evaluation of each institution . The Federal Proposal The federal inter-agency proposal also attempts to evaluate banks based on their actual performance in meeting community credit needs . The proposal rejects the strict New York quantitative approach , and would instead appraise most banks' CRA performances by using a five-tier standard to grade them in fourteen lending, service and investment categories. ( A summary of the federal proposal is appended hereto as " Exhibit B. " ) The federal proposal is a major improvement over the existing system of CRA enforcement. It strikes a careful balance between measuring hard lending data and accounting for variables such as the particular needs and characteristics of a bank's service area and an institution's own unique abilities and expertise. It also eliminates the paperwork currently necessary in order for examiners to review records of every CRA-related phone call and meeting . If, as expected , the proposed small business and farm loan data collection requirements are dropped from the final inter-agency rule, CRA compliance will become a much less paper-intensive and much more efficient process , a result that is critical to the success of CRA reform . Significantly, the inter-agency proposal also acknowledges that wholesale and limited purpose institutions require different CRA rules. Instead of subjecting these banks to examination under the same tests as retail institutions, a special community development test recognizes that wholesale institutions must comply with the CRA through nontraditional means, including indirect lending, grants and investments . The federal proposal is noteworthy for its inclusion of a strategic plan option , the purpose of which " is to provide more certainty and flexibility for those institutions that wish to meet their obligation in a fashion that they believe may not be appropriately assessed bythe standard performance tests . " 59 Fed . Reg . 51243 ( October 7 , 1994) ( Introduction to the inter-agency proposal) . The strategic plan option specifically responds to the demand for certainty in the examination process by permitting any institution to design its own CRA program , based upon the specific needs of its community and the business strategy of the bank. Once designed , a plan is submitted to the regulator for pre-approval , and the bank is evaluated according to whether the plan's goals have been met. Improving the Federal Proposal By Including a Safe Harbor The inter-agency proposal lacks one important component--a meaningful incentive for institutions to strive for outstanding CRA performance. If even the highest-rated 6 249 banks are still subject to CRA- protests in connection with certain regulatory applications, banks may lack motivation to achieve anything more than a satisfactory rating . A provision insulating institutions with outstanding CRA records from regulatory protests would provide a meaningful incentive to attain an outstanding rating . The absence of a safe harbor under existing regulation has diminished the significance of on-going compliance by placing enforcement emphasis on the regulatory application process . As a result, the CRA enforcement process has been damaged in the following ways: • The expectation of community-initiated regulatory protests is an incentive for banks to defer community investment until the application process , in order to be perceived as making concessions to the protestor; • The reliance on protests is a disincentive for community groups to work with banks on an ongoing basis; Protests, which often occur during a time-sensitive merger or acquisition , do not lend themselves to a rational evaluation of protestor demands; and • • Reliance on protest as the primary enforcement method means that bona fide community needs may not be addressed unless and until a bank files an application . Notwithstanding these problems , deficiencies in the existing examination process make community group dependence on regulatory protests understandable and predictable . However, the examination process is about to be replaced with a more objective, performance- based system that should make safe harbors more palatable . 'The regulators are charged with assessing each institution's record of meeting community credit needs and are directed to " take such record into account" in their evaluation of certain applications for regulatory approval . These include applications for a charter; for deposit insurance; to open a new branch or other deposit taking facility; to relocate a home or branch office; to merge, consolidate or acquire the assets or liabilities of another institution ; to form a bank or thrift holding company; or for a holding company to acquire an institution or merge with another holding company. The application process includes a public participation period , during which the public may submit comments on how well an institution has served its community's credit needs. 12 CFR §25.8 ; 12 CFR §228.8; 12 CFR §345.8; 12 CFR $ 563e.8 7 250 The inter-agency proposal will allow community groups to play a genuine role in the examination process , by providing them with important CRA- related information . Groups will have access to a bank's public file, which will include various lending data and other institution-specific information . In addition , the regulators will begin publishing planned examination schedules, allowing for timely public comment on an institution's CRA performance as part of the regular examination. Increased community investment by the largest number of banks is best accomplished by linking a safe harbor to an outstanding rating or to consecutive outstanding ratings . Tying a safe harbor to a satisfactory evaluation , achieved by approximately 90% of the industry, is unlikely to result in intensified community investment. The prospect of a safe harbor will provide substantial incentive to any bank that anticipates making a CRA-subject application , which, given the expected consolidation of the banking industry, promises to be a substantial number. In exchange for outstanding CRA performance, these banks will be able to enter the regulatory application process with CRA- related peace of mind . CRA and the Fair Lending Laws CRA examinations specifically assess an institution's compliance with the Equal Credit Opportunity Act ( 15 U.S.C. § 1691 ) and the Fair Housing Act ( 42 U.S.C. §§3601-3619) , and the regulators systematically discuss such compliance in a section of each bank's CRA Performance Evaluation entitled " Discrimination and Other Illegal Credit Practices . " The Federal Reserve Board , the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision have all stressed and demonstrated the transcendent importance they attach to enforcing the fair lending laws. A bank's primary regulator is best able to evaluate the bank's fair lending performance, and its determination should , accordingly, be conclusive. Yet, the fair lending laws are also enforced by the Justice Department ( " DOJ" ) and the Department of Housing and Urban Development ( " HUD" ) , each of which may conduct its own independent investigation . The result can be different federal agencies reaching contradictory conclusions under the same statutes. An irrational regulatory framework that results in inconsistent findings does nothing to achieve society's fair lending-related goals. Instead, it engenders confusion, uncertainty and a sense of helplessness and frustration among banks that have a genuine desire to engage in non-discriminatory lending practices. 8 251 An institution that has had its fair lending practices favorably assessed by its primary regulator should be shielded from DOJ and HUD review of the same activities . The banking agencies should be given exclusive jurisdiction over assessment of bank compliance with the Equal Credit Opportunity and the Fair Housing Acts . Otherwise, whatever changes are ultimately made to CRA compliance, the goal of establishing a rational regulatory framework to ensure that banks lend in a non-discriminatory manner will remain elusive. Conclusion The extended reform effort, now in its nineteenth month, risks hampering community development initiatives at a time when , whatever one's opinion of the existing scheme, more resources than ever are being devoted to CRA compliance. This unintended by- product of CRA reform most severely impacts banks that want or need to do the most: those with fledgling or deficient CRA programs and those desirous of enhancing their existing efforts . These institutions have postponed potentially expensive and time-consuming initiatives , because they are uncertain of the rules that will apply once CRA reform is completed . The delay affects other institutions as well . Strategic planning , an important component of most business endeavors and one specifically encouraged by the regulators for CRA, is acutely hampered by the uncertainty regarding the future legal framework. Few institutions have the confidence to make long -term commitments in the face of possibly radical regulatory change . And if the banks are holding back, it is obviously their communities that suffer. Potential CRA activities, especially those involving grants and lending through intermediaries, endeavors which are deemphasized for retail banks under the pending proposal , are being carefully evaluated in light of anticipated changes . If there's any doubt as to its future eligibility, an activity is put on hold . The longer CRA reform takes, the more important it becomes that the process ends. Put another way, pending reform may be worse than no reform at all . Thank you . 9 88-882 - 95-9 252 ( Vol. 61) 651 EXHIBIT " A" ANALYSIS AND PERSPECTIVE BNA PROPOSED CHANGES TO NEW YORK STATE CRA COMPLIANCE AND ENFORCEMENT PROGRAM By Warren W. Traiger* On Oct. 7, 1993, the New York Banking Board issued for comment a proposal to substantially revise administration of the state's Community Reinvestment Act. The proposal would repeal the existing rules governing CRA enforcement and substitute a new Part 76 of the General Regulations of the Banking Board intended to foster ongoing compliance by banks and greater participation by community representatives. Warren W. Traiger is a New York-based bank regulatory attorney who also serves as special counsel to the New York State Banking Department for CRA. 10-25-93 This focus often led to CRA protests in which bank applications were held hostage to demands of community groups. The protests did not lend themselves to rational evaluation of such demands, and the emphasis on protests meant that bona fide community needs were not addressed unless and until a bank filed an application. OVERVIEW Accordingly, the New York Banking Depart ment's proposal is designed to make community reinvestment an ongoing program, with enforcement emphasis shifted from the regulatory application process to an enhanced annual examination process. SUMMARY OF PROVISIONS Part 76.1 Statement of Purpose This section explains the rationale for substantially revising compliance responsibilities and en- BNA's Banking Report 0891-0634/93/50+$ 1.00 253 652 BNA'S BANKING REPORT ( Vol. 61 ) forcement procedures under New York's Commu nity Reinvestment Act ( Banking Law Section 28-b) . The revision is intended to encourage continuing bank compliance and community group participa tion , rather than the current CRA enforcement focus on the regulatory application process. Accordingly, the proposal largely measures CRA performance with quantitative data. • Investments in or loans to financial interme diaries or consortia that serve and benefit low- and moderate-income areas and their residents; Part 76.2 This section contains definitions of the following terms used in Part 76: " community bank," " community development loan or investment," " farm loan," " retail bank, " " small business loan," " Total CRA Activity," and " wholesale bank." Part 76.3 Certain CRA-Eligible Activities " Wholesale" and " Retail" banks are defined in the discussion of Part 76.5 below. 10-25-93 Eligible Pro Bono Activities • Pro bono financial advice to municipalities that serve low- and moderate-income areas; Copyright © 1993 by The Bureau of National Affairs, Inc. , Washington, D.C. 0891-0634/93/$ 0+$ 1.00 254 ( Vol. 61) ANALYSIS AND PERSPECTIVE • Pro bono legal or financial advise to non-profit day care programs or non -profit organizations that assist small businesses or provide health care facili ties or job training programs in low- and moderateincome areas; and Part 76.4 Requests for Prior Review This section establishes a pre-clearance process that allows institutions to seek a prior review bythe Banking Superintendent regarding the CRA eligi bility of a proposed activity not listed in Part 76.3 above. 653 ity or offer a particular product or service pursuant to CRA. Part 76.6 Annual CRA Assessment This part sets forth the process by which the Banking Department will make its annual CRA assessment and grade each institution. The final examination result will be published by the depart ment, which will also make a written summary available upon public request. Preliminary rating Total CRA Activity CRA Deposit Base An institution's Total CRA Activity is defined as the sum of the dollar amount of each eligible CRA loan, grant, or investment multiplied by a corresponding adjustment or weighting factor ( see below) . Part 76.5 Delineation of Service Areas or Any other reasonably delineated area that meets the purposes of CRA. ADJUSTMENT FACTOR ( WEIGHT) Direct Consumer Loans Generally 1.0 2.0 2.5 'A legally binding commitment to fund a loan will be weighted as if the loan were funded, but generally only for the year in which the commitment was issued. 10-25-93 BNA's Banking Report 0891-0634/93/50+$ 1.00 255 654 BNA'S BANKING REPORT ( Vol 61 ) Loans and Investments to Consortia or Intermediaries ( limited to 50% of a retail bank's total CRA activity) General benefit Specific benefit to low and moderate income Benefit to NYS " economic development zones" or low-income census tracts Community Development Loans and Investments ( see footnote 6) General benefit Benefit to NYS " economic development zones" or low-income census tracts Housing Loans Mortgages to finance owner-occupied 1 to 4 family homes Mortgages to finance owner-occupied 1 to 4 family homes in low and moderate income areas Mortgages to finance owner-occupied 1 to 4 family homes in areas designated as NYS " economic development zones" or low income census tracts Construction loans, end loans, or mortgages to finance multi-family housing units Construction loans, end loans, or mortgages to finance multi-family housing units in low and moderate income areas Construction loans, end loans, or mortgages to finance multi-family housing units in areas designated as NYS " economic development zones" or low-income census tracts Small Business and Farm Loans⚫ In service area generally In low and moderate-income area In areas designated as NYS " economic development zones" or low-income census tracts Letters of Credit, Guarantees, and Other Credit Enhancements Supporting small business lending Supporting community development lending programs Supporting community development lending programs in areas designated as NYS " economic development zones" or low-income census tracts Miscellaneous Loans or investments in community development banks 10 2.0 2.5 3.0 4.0 1.0 20 2.5 Outstanding ( 1) Satisfactory ( 2) Needs to Improve ( 3) Substantial Non -Compliance ( 4) Retail Bank Over 30% 30% to 20% 19.9% to 15% Under 15% Wholesale Bank Over 8% 8% to 5% 4.9% to 3% Under 3% 1.5 2.5 3.0 1.5 2.5 3.5 1.0 3.0 4.0 3.0 ⚫A " small business loan" is a commercial loan in an original amount of $ 1 million or less. A " farm loan" is a loan secured by farmland or advanced to finance agricul tural production in an original amount of $ 500,000 or less. 10-25-93 Grants to non- profit organizations organized to address the needs of low and moderate-income persons ( May not exceed 15% of a retail 7.0 bank's total CRA activity) Purchase for investment of state or local bonds, which proceeds are expended for specific benefit 1.0 of low- and moderate-income persons Purchase for investment of project finance bonds that advance the purposes of CRA and which proceeds are expended in New York but outside the service arca 1.0 Reasonable and verifiable cost of pro bono services set forth in 7.0 Part 76.3 The CRA Deposit Base is defined as the average deposit totals reported for FDIC assessment purposes since the institution's last CRA assessment. ' A " community bank" is defined as a retail bank with ( 1) assets of $ 150 million or less; ( 2) average aggregate net loans at least 65 percent of it total average deposits: and ( 3) at least 65 percent of the average aggregate amount of its loans within its CRA service area. Copyright © 1993 by The Bureau of National Affairs, Inc., Washington, D.C. 0891-0634/93/50+$ 1.00 256 ANALYSIS AND PERSPECTIVE Part76.7 Community Group Participation Part76.8 Review of Applications This section enumerates the types of state regulatory application approvals subject to an institution's CRA performance: ( Vol. 61) 655 It further provides that neither the Banking Board nor the Superintendent may reject an application on CRA grounds if the applicant has received three consecutive outstanding ratings. This safe harbor is contingent upon the institution not having been found to have engaged in discriminatory lending practices under Section 296-a of New York's Executive Law. CONCLUSION The final New York regulations are expected to be promulgated at approximately the same time that the federal regulators, at the direction of the president, are due to issue their own CRA reform proposal. 257 EXHIBIT " B " A Brief Guide To Federal CRA Reform - The Revised Proposal PART ONE: SETTING THE STAGE I. The service area How an institution defines its service area ( community) depends on whether it is a retail bank or a wholesale or limited purpose bank. A retail bank is in the business of making home mortgage loans, loans to small businesses or farms or consumer loans . A retail bank must delineate its community to include equidistant areas around each deposit taking facility that originates such loans or has them outstanding. A community may not normally extend beyond state or metropolitan statistical area ( MSA) boundaries. A wholesale bank is not in the business of extending home mortgage, small business or farm or consumer loans to retail customers . A limited purpose bank offers only a narrow product line, like credit cards or car loans, to a national or regional market . A wholesale or limited purpose bank may delineate its community as an area around its office or as a broader statewide or regional area that includes the area surrounding its office . An institution must make a written request to the regulator in order to be considered a wholesale or limited purpose bank . No bank's service area may arbitrarily exclude low- or moderate-income areas or reflect illegal discrimination . II. Information about the community Examiners will gather demographic data on income and housing . They will develop information on community credit needs from sources that include community organizations, state and local governments and economic development agencies. From The Law Offices Of Warren Traiger ( 212) 486-0080 Page 1 555 Madison Avenue New York, New York 10022 258 III. Information about the bank An institution will collect data on its home mortgage loans ( based on HMDA reports) ; small business and farm loans ( using call report definitions with supplemental race and gender information) ; and, at its option , consumer loans ( reports to contain loan amounts outstanding and the locations and incomes of borrowers) . The regulator will also factor the following bank-related information into the examination: • Product offerings and business strategy; Anything else deemed relevant. IV. The assessment method Unless an institution selects the strategic plan option described below, retail banks will be assessed according to the lending , investment and service tests outlined in Part Three and wholesale and limited purpose banks according to the community development test depicted in Part Four. An institution with under $ 250 million in assets that is not part of a holding company with $ 250 million or more in assets may choose the small bank assessment option set forth in Part Five. PART TWO: THE STRATEGIC PLAN OPTION Every bank has the option of adopting a plan setting forth its CRA strategy for up to five years. The bank must formally solicit public comment on its plan in a general circulation newspaper in its service area for at least 30 days. The plan and any public comment must be submitted to the regulator for approval at least three months prior to the plan's effective date. The Plan must: • Provide annual measurable goals in each relevant performance category; and The examiner will evaluate a bank's performance according to whether the plan's goals have been met or exceeded . Should a bank fail to meet its goals, its CRA performance will be rated as either needs to improve or substantial noncompliance. From The Law Offices OfWarren Traiger ( 212) 486-0080 Page 2 555 Madison Avenue New York, New York 10022 259 PART THREE: RETAIL BANKS THE LENDING TEST The lending test is the focus of a retail bank's CRA evaluation . It measures an institution's record of serving its community through home mortgage loans, small business and farm loans, community development loans and, at the bank's option, consumer loans. Community development loans address affordable housing or other community development needs that benefit low- or moderate- income individuals or small businesses or farms and are not being met by the private market. A bank may also elect to include its affiliate , consortia and third party loans as part of its lending test assessment . LENDING TEST RATINGS Outstanding High Satisfactory Low Satisfactory Needs to Improve Substantial Noncompliance Excellent Good Adequate Poor Very Poor Percentage of Loans in Service Area Substantial High Adequate Small Very Small Geographic Distribution of Loans in Service Area Excellent Good Adequate Poor Very Poor Distribution of Loans among Income Levels and Business Sizes Excellent Good Adequate Poor Very Poor Record of Serving Credit Needs of Economically Disadvantaged Excellent Good Adequate Poor Very Poor Use of Innovative or Flexible Lending Practices Extensive Uses Limited Little None Level of Community Development Loans Leadership High Adequate Limited Few, if Any Responsiveness to Community Credit Needs A bank's performance need not fit every aspect of a rating profile to receive that rating . From The Law Offices Of Warren Traiger ( 212) 486-0080 Page 3 555 Madison Avenue New York, New York 10022 260 THE INVESTMENT TEST The investment test evaluates how well a bank is helping to meet community credit needs through investments, deposits, membership shares in a credit union or grants that : Primarily benefit low- or moderate-income individuals or small businesses or farms; Address affordable housing or other community development needs, unmet by the private market; or Involve donating , selling on favorable terms or furnishing rent-free a bank branch in a minority neighborhood to a minority or women's depository institution . INVESTMENT TEST RATINGS Outstanding High Satisfactory Low Satisfactory Needs to Improve Substantial Noncompliance Excellent Significant Adequate Poor Few, if any Use of Innovative or Complex Investments Extensive Significant Occasional Rare None Responsiveness to Community Needs Excellent Good Adequate Poor Very Poor Level of Qualified A bank's performance need not fit every aspect of a rating profile to receive that rating . THE SERVICE TEST The service test analyzes the bank's retail service delivery system ( including branches and other facilities) and its community development services, defined as services that primarily benefit low- or moderate-income individuals or small businesses or farms and address affordable housing or other community development needs, unmet by the private market. From The Law Offices Of Warren Traiger ( 212) 486-0080 Page 4 555 Madison Avenue New York, New York 10022 261 SERVICE TEST RATINGS Outstanding High Satisfactory Low Satisfactory Needs to Improve Substantial Noncompliance Service Delivery System Readily Accessible Accessible Reasonably Accessible Limited Accessibility Inaccessible Record of Retail Facility Openings and Closings Improved Access No Adverse Affect Generally No Adverse Affect Adverse Affect Convenience of Service to Community Tailored To Community Not Inconvenient Not Inconvenient Inconvenient Significant Inconveniences Leader High Level Adequate Limited Few, if Any Community Development Services Significant Adverse Affect A bank's performance need not fit every aspect of a rating profile to receive that rating . ASSIGNING A RATING A retail bank's rating is assigned based on its aggregate point value under the three tests. COMPONENT TEST RATINGS Outstanding High Satisfactory Low Satisfactory Needs to Improve Substantial Noncompliance Lending Test 12 9 6 3 0 Service Test 6 4 3 1 0 Investment Test 6 4 3 1 0 AGGREGATE POINTS 18 or more 9 to 17 5 to 8 4 or fewer RATING Outstanding Satisfactory Needs to Improve Substantial Noncompliance From The Law Offices Of Warren Traiger ( 212) 486-0080 Page 5 If an institution's aggregate point total is more than twice its lending test score, its total is reduced to twice that score. A rating may also be lowered based upon evidence of lending discrimination or other illegal credit practices. 555 Madison Avenue New York, New York 10022 262 PART FOUR: WHOLESALE AND LIMITED PURPOSE BANKS The community development test evaluates a wholesale or limited purpose bank's record of investments, lending and services . The bank may elect to include affiliate, consortia or third party lending in its evaluation and may receive credit for CRA-related activities outside its service area to the extent that it conducts them within its community. In order to be assessed under the community development test, an institution must request and receive confirmation of its status as a wholesale or limited purpose bank from its regulator prior to an examination. COMMUNITY DEVELOPMENT TEST RATINGS Level of Community Investment, Lending and Services Use of Innovative or Complex Investments, Loans and Services Responsiveness to Community Needs Outstanding Satisfactory Needs to Improve Substantial Noncompliance High Adequate Poor Few Extensive Occasional Rare None Excellent Adequate Poor Very Poor A bank's performance need not fit every aspect of a rating profile to receive that rating . PART FIVE: THE SMALL BANK OPTION A bank with under $ 250 million in assets that is not part of a holding company with $ 250 million or more in assets may choose this assessment option ( no loan reporting required) . A small bank will receive a satisfactory rating if it: • Has a reasonable loan-to- deposit ratio; A small bank may receive an outstanding rating if it exceeds satisfactory standards and a needs to improve or substantial noncompliance rating if it fails to meet those standards. From The Law Offices Of Warren Traiger ( 212) 486-0080 Page 6 555 Madison Avenue New York, New York 10022 263 NED BROWN ( 212) 388-0200 Testimony before the Subcommittee on Financial Institutions and Consumer Credit Madame Chairwoman, Members of Congress, thank you for the opportunity to provide testimony on the critical issue of the Community Reinvestment Act. There will be many people who will appear before this Subcommittee who will give you their opinions regarding CRA and the direction it should go. I would like to take a different direction - one that deals with data and facts . My company, Financial Modeling Concepts , is a unique software company that works for banks to help them make profitable loans in low to moderate income areas and to the individuals that fall within that spectrum. We're in the business to help banks find credit- worthy customers to whom they can make good loans . Absent of CRA, the banks might not make the extra effort to reach this market. Our company is based in New York, Long Island and Boston. Allow me to explain briefly our mission and how we approach our business . Most of our employees have extensive experience dealing with demographic data and developing mathematical models . Two years ago, we recognized a need to help banks make profitable loans in LMI areas and increase their penetration . First, we started with the regulators. We've met with the top compliance people of the regulatory entities that testified earlier today. We wanted to understand from their perspective where the needs were in the marketplace, and how to help the banks . The regulators identified three key areas: • Helping the banks to quantify the potential for the major credit products in LMI areas. 264 Make their marketing effort more efficient by driving down the net cost on a per loan basis. • What does our company do that is unique? We are in the modeling business as it relates to CRA lending. In other words, we try to predict future needs based on present and past behavior ( see attached article) . Let me explain. Banks keep on their data file name, address, loan type and balance information for each loan. We take that data from our clients and append available demographics like age, estimated income, marital status, presence of children, home ownership, etc. If you have thousands or millions of these individual files as we do, you can begin to develop highly accurate predictive models. In other words, by looking at individual demographic data in LMI areas, we can predict with a higher level of confidence whether this individual is more likely to want and need one of the following credit products: purchase mortgage, home equity loans, mortgage refinance, unsecured installment loans or a credit card. Our objective is to help the banks provide credit in all forms as widely as possible into their communities. Having explained what we do, allow me to share with the Subcommittee what we've learned looking at our clients' files. First, we determined to whom the banks are lending. On the mortgage side, the principal beneficiaries of CRA are solidly in the lower end of the middle class. Regardless of race, whether they are African-American, Hispanic, Asian or Caucasian, these are fairly typical middle-class Americans - albeit at the lower end. Nearly half of the mortgage holders in our client bank's data files make between $ 20,000 to $ 50,000 in total household income. For installment loans, the principal target is a bit different. Installment loans are particularly important in LMI areas for auto purchases and major appliances. The average installment loan balance in our data file is 265 approximately $ 13,000, and it appeals to an entirely different target than that of purchase mortgages. For installment loans, 57% make below $ 30,000 in estimated household income - down substantially from the purchase mortgage base. Demographically, an even greater percentage ( 65%) ofthe installment loan base are single as opposed to mortgage loans . Further, a large percentage of people over age 55 carry installment loans according to our bank loan records . For specific markets, we've also included a bank loan analysis in LMI areas for Albany, New York and Philadelphia, Pennsylvania. While we cannot see the actual faces of these individuals, the information about them tells us a lot. Many of these people are the Having given you a factual perspective, allow me to answer those questions the Sub-committee raised that are within our expertise. Is CRA fulfilling its original purpose of ensuring that banks and thrifts are meeting the credit needs of their communities? Yes, but only partly. There is no question that it has been hard to find customers to qualify many of these loans. But there are two pieces of good news . New technologies like the ones we use make it easier and more cost-efficient to make CRA loans. And, much of the profitable lending potential still goes untapped in these communities . Is this technology successful? Well, I can tell you that we give every one of our clients a moneyback guarantee on our work. If they are not satisfied that their lending rate goes up, their net marketing cost per loan and the rejection rates go down, then we give them back their money. We haven't had one taker yet. The point is that we are proving day-to-day that there are people to be served in LMI communities and money to be made by the banks. It takes a little more " know-how" , but it is very profitable business . Who benefits from CRA lending? As was pointed-out earlier, it is clearly the lower end of the middle-class. And racially, LMI lending disproportionately benefits Whites because they make-up the majority of many LMI communities. In the preceding charts, we've analyzed the white 266 composition of LMI communities for several Metropolitan Statistical Areas ( MSAs) . The markets we used are in Maryland, Wisconsin and Florida. To the issue of " safe harbors" , I have only a sideline view as it pertains to H.R. 317. While the proposed " safe harbor" for more than ninety percent of the banks might be too high, there definitely should be greater incentives for banks who do an excellent job. Some of my bank clients have suggested to me that those with two consecutive outstanding ratings for CRA should get two years of " safe harbor" on applications. Finally, I would encourage you to look at CRA as a large building block in the foundation of our communities . As Congress continues to move ahead on legislation that will affect the middle-class, it's important to take a macro view on the role that Community Reinvestment plays. The availability of private capital is the cornerstone to economize strength in every urban and rural community. As the government seeks to reduce entitlement programs to lower income areas, private capital that is prudently placed becomes the cheapest form of economic assistance. From that perspective alone, CRA will play a tremendous role in the years ahead. Thank you very much for your attention. Current Holders Product LMI Database LMI Proprietary FMC 5 2.6 5.7 18-34 AMale , ges Single 18-34 AFemale , ges Single 2.1 10.1 14.2 :6 7 : 7 4.2 2 1.2 4.9 0.8 6.1 30 10.3 14 5.4 2.7 7.8 5 $ .9 3.9 7.5 0.6 2.6 6+ Cless ,35 or ge Ahildren Parent Single <6less hildren Cor ,35 ge AParent Single 20 267 6<35+ CAMarried ge , hildren 6-11 ,35+ CMarried ge Ahildren 35+ <1,CAhildren 7ge Married Children o ,NAges 35-54 Married Children o ,NAges 55-64 Married o NAMarried Children , ges 65+ 55-64 ,Ages Single 65+ ASingle , ge 6+ CAParent ge , hildren 35+ Single 2 0.9 2.3 3.4 0.9 4.5 10 0 4.4 5.3 10.3 17.1 4.1 5.7 0.5 2.6 10 20 Concepts Financial Modeling Copyright 1995 30 Current Product LMI Holders Database LMI Proprietary FMC Median Mortgage 6 =$ 1K Missing $15-19.9K 2 $ 0-29.9K 3 $ 0-39.9K 4 $ 0-49.9K 268 $50-74.9K $75-99.9K 100-124.9K $125K + 40 =$6Median Mortgage 1K 0.7 Median 1Installment =$ 3K 1.4 30 20 Missing <$15K 6.2 24.9 14.8 10 0 10.7 25.3 17.3 31 18.3 10 14.4 13.1 20 7.5 7 2.8 2.1 30 1 0.9 40 1100-124.9K 0-39.9K 0-29.9K 0-49.9K 73$+5425-19.9K 5-99.9K 0-74.9K 25K 0.4 0.2 Copyright 1995 Financial Modeling Concepts 2 Holders Product LMI Current MSA A lbany S chenectady T ,,- roy 8.3 : 5.6 10 7.2 3.3 2.2 18-34 AMale , gos Single 16.7 6.7 1.1 2.2 1.1 4.4 1.1 7,8 :9.4 : 6.1 6.7 8.9 3.3 2.2 7.8 6.7 7.8 5.6 15 3.9 3.9 1.1 6+ ,or C35 less ge Ahildren Parent Single <6less CAParent ,35 ge orhildren Single 30 6.1 : 12.2 Children 35+ Single ,A6+ Parent ge 6.7 20 10 269 <635+ CAMarried ge , hildren 6-11 ,CAhildren 35+ ge Married CMarried <135+ 7ge ,Ahildren Children 35-54 ,NAges o Married 55-64 ,NAges Children o Married Childron o ,Nges 65+ AMarried 55-64 ASingle , ges 1.1 1.1 0.6 2.8 0.6 0 0.6 2.2 10 20 30 Concepts Modeling Financial 1995 Copyright 3 Holders Product LMI Current MSA A lbany S chenectady T ,, roy Installment Mortgage LMI Missing 1 $< 5K 1 $ 5-19.9K 2 $ 0-29.9K 3 $ 0-39.9K 270 $40-49.9K 5 $ 0-74.9K 7 $ 5-99.9K 100-124.9K + 1 $ 25K 40 30 Missing <$15K LMI Mortgage 10 LMI Installment 0 O 20 12.2 17.8 10 0 20 14.4 35.6 27.2 10 10 21.1 20 8.9 10 2.2 7.2 30 1.1 2.2 Copyright Financial 1995 Modeling Concepts 40 0-39.9K 0-29.9K 100-124.9K $754+1325-19.9K 5-99.9K 0-74.9K 0-49.9K 25K 0 0 Holders Product LMI Current 3.9 2.1 7 18-34 AMale , ges Single 3.4 9.6 7.9 14.3 11.8 0.4 2.6 1.7 5 271 3.5 2.6 0.8 3.2 5.5 <635+ CAMarried ge , hildren 6-11 CAMarried ge , hildren 35+ Married ,CAhildren <135+ 7ge 35-54 ,NAges Children o Married Married ,NAges 55-64 Children o 65+ ,N,Ages Children o Married 55-64 ASingle , ges 65+ ASingle , ge 6+ ASingle ,CParent 35+ ge , hildren CParent <635+ ,Ahildren ge Single 6+ CSingle ,Ahildren less or 35 ge Parent <635 CSingle ,,Ahildren less or Parent ge 0.2 0.4 0.7 10.2 11.5 3.5 4.7 2.1 1.9 13.1 10.1 7.8 20.5 4.6 : 5.7 4.1 5.3 1.3 0.6 2.7 3.6 20 30 10 0 10 20 30 Concepts Financial Modeling Copyright 1995 5 Currrent Product LMI Holders Missing 1 <$ 5K $20-29.9K $30-39.9K 272 4 $ 0-49.9K 5 $ 0-74.9K $75-99.9K 100-124.9K + $125K 30 20 Missing LMI Mortgage 0.7 24.9 LMI Installment 1.4 28.4 10 15 17.5 14.8 17.1 16.2 15.1 20 10 0 15.5 11.9 7 6.2 3.2 1.6 1.1 0.6 30 2$75+143< 0-29.9K 5-19.9K 5K 0-39.9K 0-49.9K 00-124.9K 0-74.9K 5-99.9K 25K 1.6 0.1 Copyright Financial 1995 Concepts Modeling 6 J M : Florida acksonville SA - T • otal Population =3 70,091 ow 4 8,860 3 (=•Lhite 4,74 w )% od 6 =•Mhite 0,490 (8 1.16 % )w 273 T otal • f M / od 1 =Lo 09,350 (2 9.54 o total population )% MEDIAN INCOME : Copyright Financial 1995 Modeling Concepts 7 rland O SA a o M : Florid =2 75,336 Population T • otal 3 =L 4,984 ow • hite (4 w )% 4 6 =(7 Mod 7,366 8 white )% 274 population )total 1 (3 o % f 02,350 7.17 M / =Lo od •Total :• EDIAN INCOME M $2 • 5,480 Concepts Modeling Financial Copyright 1995 8 ore altim B MSA :P and Maryl Total Population 9 = 15,598 Low 1 63,832 5 (= hite 4.32 % )w Mod 2 02,609 (= hite 7 % 0 )w 275 Total M /f od 3 66,441 4 (=Lo 0 o total population )% MEDIAN INCOME : C 5,100 3 $ arroll H 5,420 3 $ arford H oward 4 $ 7,270 Q Anne's uenn $29,460 Copyright Financial 1995 Modeling Concepts 9 sha kee auke / W M MSA P nsin : ilwau Wisco 5otal =•T 52,404 Population =9 (4 w )% 1.22 5,763 ow •Lhite 91,088 •Mhite w (8 2od )% 276 )% T M / Lo =1 (3 o population total otal 86,851 3.82 od • f :• EDIAN INCOME M Financial Concepts Modeling Copyright 1995 10 277 AMERICAN BANKER Compliance 9 Big Banks , Software Vendor Tackle CRA Compliance Rise said. " The technology, marketing, and regulatory relations aspects are all coming together." By SHANNON HENRY As Community Reinvestment Act enforcement gets tougher, more banks are turning to software vendor Financial Modeling Concepts - even banks that have outstanding ratings. Ned Brown Managingpartner, Financial Modeling Concepts Group, and Chevy Chase Savings Bank are all customers. 278 REGULATORY COMPLIANCE WATCH . Y.I DECEMBER 19, 1994 -F. NUMBER94-48 1995 Preview People Issues 1959 ThisweekRegulatoryCompliance Watch looksaheadatthepeople andissuesthatwillhavethegreatesteffectonthe industry in 1995. Nine People To Watch Matthew Lee ... new-wave agitator John Salgado safe loans to ' risky' folks Alfonse D'Amato plans to attack CRA Richard Shelby Banks, Agitators Get Savvy As GOP Takes Congress 1995 is going to be an important those that don'tmake the grade. yearforbanking compliance and will beoneinwhichthetonemayshapethe nature ofbanking foryears to come. First, 1995 likely will mark when compliance officers in manybanks fi- Matthew Lee nallytaketheirlong-deserved place in bankinghierarchy. Today'ssuccessful financial institutions more often than not are those with active compliance departments. * Five Issues To Follow ✓ CRA More regs? Fewer regs? Tougher regs?Forthetypicalbank compliance officer, the answer to all three questions during 1995 mightbe " yes." The compliance officer's horizon will expandthiscomingyear,astheeliminationofsome old barriers will open up new business territories and new compliance challenges. Here are the RegulatoryCompliance Watch picks for theissues to watch in '95. ofthe actthought theyhadthe votesin theSenate nearly 20years agoto killit atbirth,butthenthesenatorwhowould havecast the decidingballot got ill and themotiontodrownCRAfailedonatie vote. CRA Isn't DOA Winter Break Regulatory Compliance Watch willnotbepublished Dec. 26 and Jan. 2. Publication resumeswith the issue of Jan. 9. © 1994 byAmerican Banker Inc. Photocopy permission is available through the Copyright Clearance Center, 27 Congress St.,Salem, MA01970 foranypage herein forthe flat fee of$ 3 percopyperpage. Copying forotherthan personal useorinternal referencewithoutpermission isprohibitedandsubjecttoliabilityupto$ 100,000perinfringement. Forbulkreprints, call( 800) 367-3989. Backissues, $ 20 each,through Tyrone Valentine, ( 202) 347-2665, ext. 224. 279 People tester who uses technology and a bank'sownfigures tosupportclaims ranging from allegedredliningto CRA violations. Asexecutive director of Inner City Press/ComLEE munity on the Move, he transformed an organization he created in 1987 from agrass roots, self-helpnews paper forhomelesspeoplewhowanted to homestead empty buildings into a group gainingnotoriety nationally for itssuccessinbringingpowerful banks to their knees or at least tothe negotiating table. John Salgado Banking Committee, Alfonse M. D'Amato, R-N.Y., has vowed to put pressure on regulators to reduce their regulatoryburden on banking institutions generally, and the pressure from the Department ofJustice as well as regulators to impose tough tests for compliance with the CommunityReinD'AMATO vestment Act. That pressure is expected to be rewarded quickly through deletion of several provisions oftheproposed CommunityReinvestment Act regulation. Provisions likelyto face the ax, perhapsas earlyasthefirstpartofJanuary, include language mandating that institution'srecordsonapplications for small business loans that include data on race and gender. Also likely to be imposingsevere deleted is a provision imposing severe penaltiesfornoncompliancewithCRA nowhandeddown only for violations of safety and soundness and insider activities regulations. legislationpassed thisyearthat reduce regulatory burden somewhat. Charles Rice Charles Rice, chairman and chief executive of Florida's Barnett Banks Inc., is intheforefront ofbanks' efforts to defend themselves against allegations that they discriminate inlending andprovidefewerservicesinminority communitiesthantheydoinareasservingwhitesandthosewithhighincomes. Ned Brown * Ned Brownisfounder ofFinancial ModelingConcepts, a consultingfirm in New York City that teaches banks howtomarkettonewcustomers. After onlybeinginbusiness for oneyear, he hassignedup25majorbanksasclients. Heiswhatwethinkofasthenewbreed of consultant who doesn't instill the fear ofGod in bankers. Instead ofconsultants offloading work from banks like an ongoing annuity program, BrowntoldRegulatoryComplianceWatch that he believes that banks will use consultant to help them implement theirlow- tomoderate-incomelending programs. Alfonse D'Anato 2 REGULATORYCOMPLIANCEWATCH DECEMBER19, 1994 280 New Software Brings HMDA Data to Desktop Lenders who want to review their computer, then takeyourmouse, click informationonaninstitution's HMDA 1993 lending records-and those of it on what you need," said Daley. " If lending performance into maps. " PCI their competitors can do so now on you know how to use a VCRyou can began operating a CRA reporting and mapping service on an outsourcing personal computers. use this program." basis," he said. " Clients would mail or modem to PCI, CRA and related data, and would receive in return analysis reports, presentations and maps illustrating the data." However, this approach meant clients had to waitthree weeks fortheresults. " Nowbothregulators and institutions can ask nearly any questions about HMDA data and have it answered in real time-on site during an examination." People Eugene Ludwig institutionsandallowbankstodomore things. Clinton's move to the right could makeDeval Patrick, assistantattorney general for civil rights, the sacrificial lamb. TheJustice Departmentis under siege. Eventhoughthe decibel level on fair lending and compliance is onthe declineitis notgoingawaycontraryto whatsomeonCapitolHillhavethreatened orbragged. However, fair lending willnot be the highprofile issue it hasbeenin1994, atleastnotinthesame way, PresidentClinton isbeingforced to move back and reign in Justice. He increasingly will rely on Ludwig. and Byrne will most certainly be the spokesman waving bankers' banners favoringmore realisticpaperwork. He continues to be the industry's undisputed point man onBSA. John Byrne Forthe secondyear in a row, RegulatoryComplianceWatchhaschosenJohn Byrne,AmericanBankersAssociation's seniorcounsel, assomeone towatch. In 1995, he will continue to stand outas a bankers' advocate in reducing regulatory burdens associated with antimoney laundering regulations. Many rules are expected to be out nextyear 4 REGULATORYCOMPLIANCEWATCH DECEMBER 19, 1994 Compliance BANKER AMERICAN 1JThursday , 995 26 anuary 10 Inconsistent CRA Confusing Rules Banks olvstad so "sTaid we ,are Ms. received outan whose bank its last after rating standing HENRY SHANNON By While WASHINGTON Community Act Reinvestment reform , here debated hotly is country the around banks still are under .examined law the being reformed ."Othe CRA banks ur under the being examined are not said ."he rules new . exam on concentrated exam That the curof factors assessment , tronger rule ut sbalso had arent emphasis placegeographic on ,amain credit ment the of part said .,she rule new Our banks are . now volume of he "Tmeasurement isgoing ball whole the be to ." reg new the AMs. nd Barefoot game ,".said on the you loans those get can't overnight ."books Enew " xaminers using are the , s. ."Mrules said Barefoot ove under said life imagining to quickly . using Examiners are Bneed " anks prepared be to ,"she share market about talk 281 COR 2010 282 EMBARGOED JOINT STATEMENT OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM FEDERAL DEPOSIT INSURANCE CORPORATION OFFICE OF THE COMPTROLLER OF THE CURRENCY,* U.S.DEPARTMENT OF THE TREASURY OFFICE OF THRIFT SUPERVISION,* U.S. DEPARTMENT OF THE TREASURY Concerning COMMUNITY REINVESTMENT ACT REGULATORY REFORM Before the SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT March 8, 1995 *Statement required by 12 USC 250: The views expressed herein are those of the Office ofthe Comptroller ofthe Currency and the Office ofThrift Supervision and do not necessarily reflect the views ofthe President. 283 I. Introduction On behalf ofthe Board of Governors ofthe Federal Reserve System, the Federal Deposit Insurance Corporation, the Office ofthe Comptroller ofthe Currency, and the Office of Thrift Supervision ( collectively " the agencies" ) , we welcome the opportunity to present this status report on the Community Reinvestment Act ( " CRA" ) regulatory initiative. Since its passage in 1977, the CRA has served as a catalyst in encouraging banks and thrifts to provide improved access to credit among underserved communities -- both urban and rural -- across this country. Under the impetus of CRA, many banks and thrifts have opened new branches, provided expanded services, and made substantial commitments to increase lending in the communities they are chartered to serve. Despite the successes ofthe bank and thrift industries in responding to CRA's objectives, community and consumer groups, other public interest organizations, and the industries themselves, maintain that the full potential of the law has not been realized. In large part, in their view, this is because government efforts have focused on compliance with process rather than performance. Community groups complain that many communities are not adequately served because the CRA evaluation process does not focus enough on actual performance. At the same time, bankers complain that the current implementation ofthe CRA results in excessive burden relative to the benefits that the regulation produces and does not provide them with sufficient guidance. These concerns have given rise to this joint effort to revise the regulations that implement the CRA. This joint statement discusses the CRA's background, its evolution, and the interagency efforts to reform the CRA regulations. This joint statement is intended to supplement the testimony presented before the Subcommittee by each agency. II. Brief History ofthe CRA A. Legislative Background The CRA was enacted as part ofthe Housing and Community Development Act of 1977 during a period ofconsiderable national interest and debate over methods to help revitalize economically distressed areas, most ofwhich were lower-income areas ofinner cities. Consequently, the primary focus ofthe CRA is geographic in nature. Its enactment was in response to concerns that some banks and thrifts were engaging in " redlining," the arbitrary refusal to consider or make loans in low- and moderate-income neighborhoods. Proponents ofthe CRA charged that qualified borrowers in low- and moderateincome neighborhoods were being denied credit because of negative perceptions about the economic and physical conditions of the neighborhoods in which they lived or operated businesses instead oftheir financial capacity and creditworthiness. Proponents also alleged that financial institutions were taking deposits from low- and moderate-income neighborhoods, but lending the 88-882 - 95 - 10 284 funds in other areas, a process often referred to as " disinvestment. " Supporters ofthe CRA concluded that the combined processes of redlining and disinvestment contributed to the economic and physical decline of low- and moderate-income areas by limiting the availability of credit for home purchases, rehabilitation ofexisting properties, and for business development and expansion. B. CRA's Provisions The statute contains legislative findings that insured depository institutions should affirmatively serve the convenience and needs ofthe local communities in which they are chartered and that these needs include the need for credit services as well as deposit services, consistent with the safe and sound operation of such institutions. From these findings emerged the underlying purpose ofthe CRA: to have the agencies encourage regulated financial institutions to help meet the credit needs ofthe local communities in which they are chartered consistent with the safe and sound operations of such institutions. To achieve this purpose, the CRA directs the agencies to assess by examination the institution's record ofmeeting the credit needs ofits entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institution and to take such record into account in its evaluation ofan institution's application to establish a depository facility. An institution's record would include the affirmative steps taken by regulated financial institutions to help meet the credit needs oflow- and moderate-income areas. CRA mandates certain action by the agencies. First, CRA requires the agencies to encourage each financial institution they supervise to help meet the credit needs of its entire community, including the credit needs oflow- and moderate-income neighborhoods, consistent with safe and sound banking practices. In this regard, the statute contemplates that institutions' activities are consistent with safety and soundness. The statute does not direct institutions to make loans of any specific type, in any specific amount, or in any specific area. Instead, institutions are supposed to determine product mix and affirmatively market and provide loans and services based on the needs ofthe market place and business factors. In addition, the CRA requires the agencies to assess the performance of financial institutions in helping to meet community credit needs. We do that primarily through CRA examinations that review the institution's performance using twelve assessment factors outlined in the agencies' current CRA regulations. Furthermore, as a result of 1989 and 1991 amendments to the CRA, the agencies are required to prepare for each institution examined, a public written CRA evaluation that includes the CRA rating and provides supporting facts and data. Finally, CRA requires the agencies to consider performance under CRA of each financial institution when reviewing its applications for expansion ofdepository facilities through branching, mergers, or acquisitions. C. Administration ofthe Law Following passage ofthe CRA, the agencies jointly developed and issued regulations in 1978. The regulations require each covered institution to develop and update a CRA statement 2 285 which delineates its community with a map and describes the credit services offered within that community. Each institution also must post CRA notices in the lobbies of depository facilities, alerting the public to the availability ofthe CRA statement, and must maintain a file containing public comments on its CRA performance ( and the institution's responses) which may be inspected bythe public and the agencies. Concurrently, the agencies developed uniform examination procedures. The regulations described twelve assessment factors that the agencies use in evaluating an institution's record ofperformance under CRA; these have been grouped into five performance categories for purposes of arriving at an examination rating. Taken together, the assessment factors outline actions that the agencies consider essential to good CRA performance. The assessment factors indicate that an institution's performance will be judged by examiners based on the degree to which that institution: conducts assessments ofthe credit needs in its communities; develops products and services designed to help meet those needs; affirmatively markets those products to ensure that they are available throughout the communities served, including low- and moderate-income areas; evaluates the effectiveness of its CRA program, including the geographic distribution of credit extensions; and makes home mortgage, small business, small farm, community development, and government-related loans. The CRA was amended in August 1989 to require the public disclosure ofCRA evaluations and ratings and to mandate a four-tiered rating scale. In response, the agencies jointly developed and issued " Guidelines for Disclosure ofWritten Evaluations and Revised Assessment Rating System. " The Guidelines set forth a common evaluation system and format. In addition, the agencies jointly trained their examiners for this significant change in the way they would do their jobs. The agencies have attempted to develop and maintain a common approach to CRA policies and examination procedures. To provide additional guidance to institutions and examiners, in 1980, the agencies, acting jointly through the Federal Financial Institutions Examination Council ( " FFIEC" ) , issued a policy statement that clarified agency expectations regarding certain aspects ofCRA performance and CRA's role in the applications process. In response to further questions from the industry, the agencies issued a second policy statement in April 1989. The statement stressed that effective CRA performance requires ongoing efforts over time, and further clarified CRA's role in certain aspects ofthe applications process, including instances where protests are lodged on CRA grounds. In June 1992 , the FFIEC issued revised, uniform CRA examination procedures designed to clarify CRA examination policies. The new procedures emphasize the importance of using numerical data in the public CRA evaluation, to the extent they are used in the assessment process and support the conclusions reached. To respond to concerns about the burden of paperwork, the procedures emphasized that institutions should retain for examiners' review only such information as is useful to the institution's own management needs. In addition, the agencies have instructed 3 286 examiners that CRA documentation would generally be less formal and less extensive in small and rural institutions than in larger, urban ones. Over the years, the agencies also have provided examiners with additional training and better tools to help them conduct CRA assessments. For example, through the FFIEC, a computerized system was developed to facilitate analysis ofthe expanded data collected under the Home Mortgage Disclosure Act ( " HMDA" ) . With this system, examiners can more readily determine the extent to which an institution that makes mortgage loans is making them throughout its delineated community, including low- and moderate-income neighborhoods. As previously noted, the CRA mandates that the agencies take into account an institution's CRA performance when considering applications involving depository facilities, including branch openings, mergers, and acquisitions. This is the means prescribed by the statute for the agencies to make adverse findings regarding an institution's record and take specific action to deny or condition an institution's request for a needed approval. The agencies have stressed that they give great weight to affected institutions' CRA ratings during the applications review process. Overthe past several years, the CRA has had a greater impact on the applications filed by institutions. These have included applications involving institutions with less than satisfactory CRA ratings ( irrespective of which agency issues the rating) , and applications for which negative comments ( commonly called CRA protests) have been received from a member ofthe public about the CRA performance of institutions affected by the application. In response to poor ratings and protests, the agencies have denied or conditioned on improvement certain applications. Although not counted by the agencies as denials, the agencies also have found that some applications are being withdrawn when CRA compliance problems become apparent. Finally, each year a number of institutions may not file applications in anticipation ofpotential CRA protests. Despite CRA's successes and the agencies' efforts over the years to strengthen implementation, the CRA examination and enforcement system has been criticized. Financial institutions have complained that policy guidance from the agencies on the CRA is unclear and that examination standards are applied inconsistently. Financial institutions have also complained that the CRA examination process encourages them to generate excessive paperwork at the expense ofproviding loans, services, and investments. In industry-conducted surveys of compliance costs, the institutions have often asserted that the CRA is among the most burdensome of consumer protection and community reinvestment statutes. Community, consumer, and other groups have agreed with the industry that there are inconsistencies in CRA evaluations and that current examinations overemphasize process and underemphasize performance. Community and consumer groups have also criticized the agencies for failing to penalize banks and thrifts aggressively for poor performance. ! 287 III. Interagency Effort to Reform the Administration of CRA A. President's Initiative and Public Hearings In July 1993, President Clinton called for CRA reform by the agencies. He asked that the agencies develop more objective, performance-based assessment standards that minimize compliance burden while improving performance. He asked that these changes be carried out through regulatory means. To assist in the drafting of a new CRA regulation, the agencies first held two informal private meetings, one with industry groups and the other with community groups, to provide participants an opportunity for a frank discussion of the problems. Next, the agencies held a series ofpublic meetings around the country to gather further information on how best to rework the regulation. ' More than 250 witnesses ( including bankers, local government officials, community and consumer groups, small business owners, and individuals) provided oral or written statements at the hearings. While numerous issues were raised, some common themes emerged . Most commenters urged the agencies to adopt a CRA evaluation system that is more performance-based. Financial institutions expressed great frustration that it is impossible to know, in advance, what types and amounts ofperformance will produce a particular rating. Institutions and community representatives faulted the agencies for lack of consistency in the CRA reviews. Many witnesses, however, rejected the idea that a strict formula should be used on a national basis. Witnesses believed that such an approach could lead to the establishment of " ceilings" on lending activities aimed at low- and moderate-income areas, or could result in credit allocation. Witnesses also noted that institutions may not be receiving enough consideration in the CRA examination process for their investment activities, such as investments in other community development lenders. Wholesale banks, in particular, suggested that such activities by them should be given great weight, because their unique business strategy and product offerings make it difficult to comply with CRA through more traditional local retail lending. Most community organizations and many local government officials pointed to a need to collect more loan data from institutions, similar to that collected for home mortgage-related loans under the HMDA. Witnesses noted that lack of data on non-housing loans makes it extremely difficult for the agencies and the public to evaluate objectively an institution's entire performance. Community-group witnesses urged the collection of data from institutions on their small business loans, in particular, arguing the need to show geographic distribution. Some also wanted information about the race or ethnicity ofthe borrower. Some witnesses believed that data should be collected on all consumer loans, including automobile, credit card, and personal loans. Other ¹Public meetings were held in Washington, D.C. , San Antonio, Los Angeles, Albuquerque, New York, Henderson ( North Carolina) , and Chicago between August 10 and September 22, 1993. 5 288 witnesses, particularly those representing small institutions, expressed concern about the burden ofany new data collection requirements, and questioned whether the benefit ofcollecting the data would outweigh the costs. In general, small institutions criticized the costs imposed bythe current law, and urged the agencies to reduce the documentation requirements. Several witnesses, particularly from the industry, stated that the regulators should provide incentives for outstanding performance. Witnesses outside the industry, however, were generally opposed to the creation of a " safe harbor" from CRA protests in the applications process based on ratings assigned by the agencies. Other witnesses urged the agencies to permit more public input into the examination process. A number ofwitnesses believed that institutions should be able to develop " strategic plans," listing specific goals to meet CRA objectives. Under this approach, agencies would review plans ofinstitutions and, if the plans were approved, the institution's CRA performance would later be measured against how well it achieved the goals set out in its own plan. Overall, almost all the witnesses called for change, although there were differences regarding the specifics. B. Selected Elements ofthe 1993 and 1994 Proposals In December 1993, the agencies jointly issued proposed regulations that would have replaced the existing CRA regulations in their entirety ( the " 1993 proposal" ) . Collectively, the agencies received over 6700 letters commenting on the proposed regulations. Commenters included representatives ofbanks and thrifts, community groups, Congress, state, and local governments, and the public at large. After reviewing and considering these comments, the agencies jointly issued a second proposed regulation on October 7, 1994 ( the " 1994 proposal" ) . Approximately 7200 comments were received. Below is a brief overview ofthe significant provisions ofthe proposed regulations along with an explanation oftheir derivation to illustrate the significant role commenters have played in drafting these proposals. 1. General Both proposals would replace the twelve assessment factors in the existing regulation with three performance-based tests relating to the institution's lending, investments, and services. Most commenters on the 1993 proposal supported the goal ofdeveloping more objective, performancebased assessment standards that minimize burden while stimulating improved performance. Although many interested parties at the public hearings had advocated the use of objective criteria in evaluating CRA performance, upon reviewing the 1993 proposal, many commenters believed that mechanical application of numerical ratios would not foster fair and appropriate CRA assessments. In response to those concerns, the 1994 proposal would broaden the scope ofthe lending, investment, and service tests by including a wider range of quantitative and qualitative criteria. While these modifications would increase the subjectivity ofthe examination process, the 6 289 agencies believed they also would increase consistency, clarity, and fairness in the examination process. The 1994 proposal would reduce regulatory burden associated with CRA by eliminating various procedural requirements. Institutions would no longer have to prepare CRA statements, review them annually, or document them in minutes of the board of directors meetings. Regulators would no longer require institutions to justify the basis for community delineations or to document efforts in marketing or the ascertainment ofcommunity credit needs. Moreover, the proposals would eliminate the requirement that an institution document its efforts to ascertain community credit needs. 2. Lending Test The 1993 proposal would have evaluated an institution's direct lending and, at an institution's option, indirect lending through loan pools, lending consortia, subsidiaries, and community development lenders in which the institution has made investments. As an initial screen, the lending test would have compared the institution's market share of loans in low- and moderate-income areas to its market share in the remainder of its service area. The test also would have considered the dispersion of an institution's loans throughout its service area and the number of loans made in low- and moderate-income areas. In addition, the test would have given " extra credit" to institutions for making complex or innovative loans that serve pressing community development needs without undermining safety and soundness. Many industry commenters requested that the " market share" test be eliminated because such a comparison would overlook loans made by entities without HMDA or CRA reporting obligations and might promote price wars or other behavior that could lead to unsafe or unsound lending. However, many community groups were proponents ofthe market share test because they believed it would provide objective and quantifiable measurements of CRA performance. In light of these comments, the 1994 proposal eliminated the market share test as a primary element but provided that comparisons among institutions would be considered in appropriate cases as one of several means to evaluate the geographic distribution of an institution's lending, and that examiners would not use any particular ratio as a benchmark. Industry representatives and community groups commented that the 1993 proposal underemphasized the importance of community development lending. As a result, the 1994 proposal would treat community development lending as a principal component oflending performance. Generally, industry representatives have commented that the 1994 proposal is an improvement over the 1993 proposal. Most have supported the increased use of qualitative factors and the deemphasis of objective criteria such as the market share test. Conversely, many community groups have expressed concern that the 1994 proposal would make the lending test more subjective, and thus, more susceptible to grade inflation. Community groups also have 7 290 supported the increased emphasis on community development lending, while most industry commenters have requested that the types of activities considered within the scope of community development lending be increased. 3. Investment Test The investment test in the 1993 proposal provided that an institution would have been evaluated based on the amount ofassets -- relative to the institution's risk-based capital -- devoted to qualifying investments. The focus ofthe investment test would have been on the ultimate impact ofan institution's investment rather than the investment per se. The agencies could have adjusted an institution's rating under the investment test to take into account investments that were particularly innovative or that met special needs. Commenters were concerned about measuring the amount of qualified investments relative to risk-based capital because it could unfairly penalize well-capitalized institutions. In addition, industry representatives and community groups pointed out that examiners should consider more than the ultimate impact of an investment because larger, more complex investments often require more resources to originate and often do not produce immediate results. In the 1994 proposal, investment performance would be based on the dollar amount ofan institution's investments, the innovativeness and complexity of its investments and their connection to credit needs, and the institution's responsiveness to credit and community economic development needs. The 1994 proposal clarified what constitutes " qualified investments, " and the preamble to the regulation provided examples of such investments. For example, the preamble to the regulation specifically mentioned, among other things, investments and grants in or to community development financial institutions ( " CDFIs" ) and community development corporations ( " CDCs" ) that primarily lend to, or facilitate lending in, low- or moderate- income areas or to low- and moderate-income individuals in order to promote affordable housing and/or community economic development. 4. Service Test In the 1993 proposal, the service test would have focused on whether an institution's branches are located in, or readily accessible to, low- and moderate-income areas. The agencies could have favorably adjusted an institution's rating under the service test to take into account branch service to low- or moderate-income areas or individuals; downward adjustments would have been made only in exceptional cases. Industry commenters believed that the 1993 proposal placed too much emphasis on " brick and mortar branches" and contended that present technology has made the need for branches less imperative to the provision of banking services. On the other hand, community groups contended that brick and mortar branches continue to have symbolic and practical relevance to credit 8 291 availability. Finally, a number ofcommenters stressed that the actual services provided by an institution, however they are delivered, must be considered by the agencies. In response to these comments, the 1994 proposal would give equal weight to branch location and the actual services provided to low- and moderate-income areas. When evaluating services, an examiner would consider the extent to which an institution provides community development services and the innovativeness and responsiveness of such services, given the needs and constraints ofthe institution. The 1994 proposal defined community development services and provided examples of such services. These services would include providing technical expertise for not-for-profit organizations serving low- and moderate-income housing needs and/or economic growth and development, and loaning executives to organizations that facilitate affordable housing construction and rehabilitation and/or development of affordable housing. Some institutions have commented that the 1994 proposal is still too " branch focused, " considering that the bank and thrift industries are moving toward nonbranch delivery. Many community groups have contended that the proposal is not sufficiently " branch focused" and, specifically, that ATMs should not be considered branches because, among other reasons, they do not have loan officers and do not provide customers with the opportunity to ask questions. However, many community groups have supported the increased emphasis on community development services. 5. The Community Development Test for Wholesale or Limited Purpose Institutions The 1993 proposal provided that wholesale or limited purpose institutions, in order to appropriately recognize their unique characteristics, would have been evaluated under the investment test. The agencies would have based their assessments ofthese institutions on the amount of assets devoted to investments that benefit low- and moderate-income areas or individuals within the institutions' service areas. Some commenters believed the investment test was too narrowly focused to assess the CRA performance ofwholesale or limited purpose institutions and recommended using an assessment method that focused on community development activities more generally. The agencies believed these comments had merit and, in the 1994 proposal, substituted a community development test for the investment test as the assessment method for wholesale or limited purpose institutions. Under this test, examiners would focus on a wholesale or limited purpose institution's record in helping to meet the credit needs of its service area through qualified investments, community development lending, and community development services. The 1994 proposal also clarified the definitions ofwholesale and limited purpose institutions: ( i) wholesale institutions are institutions that are not in the business of extending home mortgage, small business, small farm, or consumer loans to retail customers; and ( ii) limited purpose institutions are institutions that offer only a narrow product line, e.g., credit cards or automobile loans, to a national or regional market. Industry representatives and community groups have generally 9 292 supported the community development test, although many commenters have sought clarification ofthe eligibility requirements. 6. Small Institution Assessment Method The 1993 proposal would have permitted small institutions to elect to be assessed under a streamlined examination. A small institution was defined as an independent institution with total assets under $ 250 million or an institution with total assets under $ 250 million that is a subsidiary ofa holding company with total banking and thrift assets under $ 250 million. The streamlined examination would have considered the reasonableness ofan institution's loan-to-deposit ratio ( a ratio of 60 percent was presumed to be reasonable for all cases, but a lower ratio could have been found to be reasonable under certain circumstances) , whether most of its loans were made locally, its loan mix ( including the distribution ofloans across income levels) , its record of handling community complaints, and substantive compliance with the fair lending laws. Under the streamlined examination, small institutions would not have been obligated to report data on the geographic distribution of certain loans. The vast majority of industry commenters were in favor ofthis option; on the other hand, most community groups requested that the option be eliminated because they considered it an exemption for qualifying institutions. Both industry representatives and community groups commented extensively on the limitation on an institution's qualifying asset size. Most industry commenters favored raising the threshold, because they believed a higher level would better distinguish the ability to bear time-consuming and expensive data collection responsibilities. Community groups favored lowering the threshold because, in their view, a $ 250 million threshold would subject nearly 75 percent ofinstitutions to a less stringent examination, small institutions have historically had poorer CRA records than larger institutions, and institutions of $ 10 million and over have the capacity to report HMDA data. The agencies do not view the streamlined examination as an exemption from the CRA's requirements and do not envision a streamlined examination as a mere formality. Therefore, in the 1994 proposal, the streamlined examination approach was maintained, including the exemptions from any data collection and reporting requirements for small business, small farm, and community development loans. The $ 250 million threshold was also retained in the belief that this amount best divides small institutions with limited resources from larger institutions with sufficient resources to satisfy the data collection requirements. In addition, although a small institution would still have been required to have a reasonable loan-to-deposit ratio, the 60 percent loan-to-deposit ratio presumption was eliminated. Most industry comments have supported a separate test for small institutions, particularly if doing so would relieve small institutions ofpaperwork burden. However, most have favored increasing the threshold, typically to $ 500 million. Also, many industry commenters found the assessment criteria to be reasonable, although some were concerned over the degree of subjectivity. Not surprisingly, most community groups have opposed the retention ofthe streamlined examination, or suggested that the threshold be reduced to $ 50 million or less. 10 293 7. Strategic Plan Option The 1993 proposal offered a strategic plan option to all institutions as an alternative to being assessed under either the lending, investment, and service tests or, for eligible institutions, the small institution assessment method. Institutions would not have been required to involve community groups and other members of the public in the formulation oftheir strategic plan, but would have been encouraged to do so. Nonetheless, an institution would have been required to disclose its plan publicly upon the plan's submission for approval to the regulator. The regulator would have considered public comments in its assessment of a submitted plan. Ifthe regulator approved the plan, subsequent CRA reviews ofthat institution would have been based on whether the institution met or exceeded the performance goals specified in the plan. Ifthe institution failed to meet the preponderance ofthe measurable goals set forth in the plan, its performance would have been evaluated under the lending, service, and investment tests or the small institution assessment method, as appropriate. Assessment under an approved plan would not have relieved an institution from its obligation to report data on the geographic distribution ofits loans. Community groups commented that community input after the strategic plan was submitted to the agencies was, in their view, the equivalent of not having an opportunity to comment. Industry commenters expressed concern over the release of proprietary information and pressure for specific action from community groups. To address these comments, the 1994 proposal required a public comment period prior to submission ofthe plan to the agencies, as well as consultation with community groups prior to the formulation ofthe plan and issuance for public comment. However, a plan released for comment would not be required to include proprietary information, and confidential information need not be released to the public. Further, the 1994 proposal made clear that an institution would not be expected to make accommodations in the proposed plan for all public comments received, but the institution would be expected to address the comments. Many industry commenters, while believing that the strategic plan option was attractive, continued to criticize the public disclosure and comment process. The basis for the criticism was the disclosure of business plans and the potential for community groups to make unreasonable demands on an institution. Conversely, community groups sought more community participation in the design ofthe plan, and some believed that institutions should be required to do more outreach. 8. Composite Ratings Under the 1993 proposal, institutions that were not eligible for the small institution assessment method would have been assigned one offive ratings for its performance under each ofthe lending, investment, and service tests: outstanding, high satisfactory, low satisfactory, needs to improve, and substantial noncompliance. These ratings would have been combined into one of the four composite ratings required by statute: outstanding, satisfactory, needs to improve, and substantial noncompliance. For retail institutions, an institution's rating under the lending test would have served as the base rating, whereas for wholesale or limited purpose institutions, an institution's rating under the investment test would have served as the base rating. An institution's 11 294 base ratings would have been adjusted one or two levels ifthe institution's performance on the other test( s) was exceptionally good or, in some cases, poor. Industry representatives and community groups commented that the investment and service tests should be given greater weight, but community groups were concerned that lending maintain a primary position in the rating system. In response to these comments, the 1994 proposal would give primacy to lending performance by requiring an institution to receive a satisfactory or better rating on the lending test in order to receive a satisfactory or better overall rating. However, the rating system also would increase the importance ofthe service and investment tests because the effects ofthese tests would no longer be limited to situations in which an institution had extraordinarily strong or weak performances on one ofthese tests. Community groups overwhelmingly supported the requirement that an institution receive a satisfactory lending rating in order to receive a satisfactory overall rating. On the other hand, many industry commenters believed that the lending rating should not be given so much weight. Many industry representatives and community groups were concerned that the proposed rating process would result in more subjectivity in the ratings process. Community groups were concerned that the subjective criteria might not provide enough guidance for examiners. In the past, community groups have claimed that examiners did not understand the needs oflow- and moderate-income communities. 9. Enforcement One issue that received substantial supporting and opposing comment in both the 1993 and the 1994 proposals was the use of enforcement actions under 12 U.S.C. § 1818 by the agencies against institutions receiving a " substantial noncompliance" CRA performance rating. The Department ofJustice has concluded that the agencies do not have the authority under the CRA to bring such enforcement actions based on an institution's poor record of meeting the credit needs ofits local community. The agencies will modify the proposal accordingly. C. Significant Issues Raised on the 1994 Proposal 1. Collection ofRace and Gender Data on Small Business and Farm Loans The 1994 proposal required retail institutions not evaluated under the small institution assessment method to request that a small business or small farm borrower indicate the percentage ofthe business or farm owned by men and women, as well as the percentages owned by members of different ethnic and racial categories. The loan registers filed with the agencies would indicate whether an individual loan was to a business or farm that was more than 50 percent women-owned or more than 50 percent minority-owned. In its public file, the institution would disclose the number and amount ofloans to minority- and women-owned small businesses and farms. 12 295 The proposed collection of race and gender data was the most frequently addressed issue in the comment letters received by the agencies. Virtually every nonindustry comment that addressed the issue endorsed collection, contending that this information was essential to determine whether discrimination was occurring in small business and farm lending, and citing the value ofHMDA data in monitoring home mortgage lending. Many comments sought more detailed collection and disclosure. Most industry commenters opposed the collection as proposed. Industry commenters believed the requirements would impose additional costs and burden, would place reporters at a competitive disadvantage because " small" institutions and lenders not within the scope of CRA would be exempt from these requirements, and would present a distorted picture due to the limited collection . They also questioned the relevance ofthe data to CRA, and expressed concern over the potential for misuse of data. Some industry commenters endorsed collection of race and gender data, provided it was done pursuant to Regulation B ( 12 C.F.R. § 202 ) , which implements the Equal Credit Opportunity Act. Other industry commenters believed that ifthe agencies thought the data were necessary, the basis for the collection should be under Regulation B and not the CRA. 2. Data Collection and Reporting: Census Tract Reporting The 1994 proposal provided that every large institution would include in its public file the following information on small business and small farm loans: the number and amount of loans in low-, moderate-, middle-, and upper-income census tracts; a list of each census tract with at least one loan; the number and amount of loans inside the institution's service areas and outside the institution's service areas; the number and amount ofloans to businesses under $ 1 million in gross annual revenues ; the number and amount of loans to minority-owned businesses; and the number and amount ofloans to women- owned businesses. The proposal did not provide that the agencies would make any aggregate data available to the public. The vast majority of community group commenters complained that the public disclosure provisions ofthe 1994 proposal were not useful. They asked that small business loan data be made available to the public in a HMDA-like format for individual institutions and aggregated. They contended that, at a minimum, data must be available to the public on an aggregate and institution-by-institution basis by individual census tract, including for each census tract the number and volume of loans. Otherwise, the public would not be able to judge how an institution is performing in a particular low-income neighborhood and, without incurring unreasonable cost, they would not be able to compare the performance of one institution against the performance of another. These commenters also objected on principle to the agencies' use of certain data to evaluate institutions that would not be available to the public. Industry commenters generally opposed detailed data collection and reporting requirements. 3. Assessment Context The 1994 proposal stated that evaluations of institutions would be made in the context of: demographic data about the community; examiner-developed information about community 13 296 characteristics and needs; information about the institution's capacity and constraints; information about the institution's product offerings and business strategy; data on the prior performance of the institution; and data on the performance of similarly situated lenders. As a specific burden reduction measure, the preamble emphasized that the agencies, rather than the institution, would develop this information. Any data submitted by the institution would be considered bythe agencies, although no data would be required or requested from the institution. Generally, the idea of an assessment context was received positively. However, many commenters have interpreted the provision as meaning that the agencies would prepare formal needs assessments that prescribe, rather than gather, information about credit needs. Industry commenters criticized such agency assessments on several grounds: institutions know their communities better than the agencies; the agencies do not have the resources or time to conduct adequate needs assessments; agency needs assessments would lead to credit allocation; and examiners might disregard data submitted by institutions. Many industry commenters requested that the agency needs assessment be released a year in advance ofthe examination, and be subject to review, comment, and appeal. Alternatively, a significant number of industry commenters requested that institutions, rather than the agencies, be required to perform the needs assessment. Community group commenters supported the notion of examiners performing the needs assessment because they believed it would result in a more objective assessment context. However, some community group commenters were concerned that if institutions were not required to perform an assessment, they would not be able to effectively respond to the credit needs oftheir communities. D. Promoting Better Public Policy with New CRA Regulation The following discussion ofthe goals and objectives of this regulatory reform process reflects the proposals made to date, the comments received by the agencies, and the present stage ofdebate and discussion among the agencies regarding these matters. No final regulation has been drafted, however, and, therefore, no final approval for a new CRA regulation has been given by any ofthe agencies. Consequently, the discussion should be read in that light. As revealed in the hearings, the existing CRA process suffers from a lack of credibility with some members ofthe banking industry and with representatives ofthe communities that the Act is intended to benefit. Many view the CRA process as not sufficiently objective, and others believe that the burdens imposed by the system exceed the benefits that it produces. Throughout the rulemaking process, the principal goal ofthe agencies has been to strike a reasonable balance between improving the availability ofbanking services in the local communities the law is intended to benefit and minimizing regulatory burden on the bank and thrift industries. The agencies will strive to promulgate a final regulation that will rate institutions based on their performance in helping to meet community credit needs without allocating credit. To succeed, the agencies must put forth a regulation that clearly states both its objectives and the responsibilities of financial institutions in a straightforward and unambiguous fashion. 14 297 A straightforward and performance-based evaluation process requires an assessment system that relies on objective measures ofperformance. At the same time, the system must allow for an appropriate degree of examiner judgment. Financial institutions and their customers will benefit from a system that allows examiners the flexibility to reward creative and unique activities that are consistent with safety and soundness principles. Given the diversity that characterizes the banking and thrift sectors and our country's communities, it is important for examiners to take into account the characteristics, needs, and resources of an institution's community and the capacities of and constraints on the institution. However, devising a regulation that explicitly accommodates every possible scenario would be impractical, and too complex. To provide the proper balance between objective analysis and subjective judgment, the most recent proposed regulation would establish an assessment method that relies on data concerning an institution's actual lending, service, and investment performance to direct examiner judgment. Examiners would evaluate these data in the context of an institution's business strategy, financial condition, and the needs ofthe community in which it operates. Moreover, to minimize unnecessary subjectivity, the agencies would provide guidance as to the standards that examiners would apply to make the required judgments. One ofthe benefits of designing a CRA evaluation system that identifies a set of performance-based assessment criteria and expands the objective performance data available for examinations is that institutions and the public will be able to evaluate the basis on which examiners make their judgments. A regulation that relies too heavily on subjective judgment -- as some argue the existing regulation does -- creates at least the perception of inconsistent evaluations across institutions and leads to wide differences in opinion between institutions and community groups regarding performance. The agencies believe that greater consistency in evaluations, reduction in compliance burden, and focus on performance can be realized consistently with the necessary degree of examiner judgment. Of course, a better regulation can only go so far in the quest for objectivity, consistency, and a focus on performance. In an effort to promote interagency consistency and better implementation of CRA policy, the agencies are evaluating different ways to improve examiner training and to increase interagency coordination regarding application of standards, performance of examinations, assignment of ratings, and use of enforcement procedures in the context of evaluating corporate applications. The agencies will continue to work together to conduct examinations as efficiently as possible, to minimize unnecessary compliance burden, and to strive for appropriate levels of consistency and reliability in the rating process. E. No Use ofQuotas/Not Credit Allocation While many recognize the benefit ofusing numeric measures to evaluate an institution's lending, service, and investment performance, many institutions and some members ofthe public may be concerned that this approach may lead, in practice, to the implicit establishment of quotas or other mandatory credit allocation techniques within a given market. That is an outcome that 15 298 we must avoid. We will not set forth a regulation that would require any institution, in any community, to make any particular loan or to engage in any activity inconsistent with safety and soundness. An institution's performance should not have to fit every aspect of a predetermined profile in order for the institution to receive a given rating. A reasonable rule would allow for exceptionally strong performance on some aspects to compensate for weak performance on others. In such a system, an institution's overall rating would reflect many factors, and would not be determined by any single factor. The agencies also believe that institutions should be evaluated within the context of factors specific to each institution and to the communities they serve. It would be unfair and counterproductive to develop an institutional profile to be applied nationwide. Factors such as a community's characteristics, needs, and demographic profile should be considered in evaluating how well that community is being served by local financial institutions' mix of credit and service offerings. Likewise, an institution's size, business plan, and strategy should help determine its ability to serve the community. Our goal is to craft a rule that enables examiners to take all these factors into account in their assessments, as appropriate for the institution being evaluated. F. Impact ofReporting Requirements and Burden Reductions A performance-based CRA evaluation system that is well understood by the industry, the public, and regulators must be based on objective measures of clearly defined parameters. Much ofthe industry and most community groups view the current assessment factors as too subjective, and many consider them unduly burdensome and, in some instances, irrelevant to actual performance. The goal ofthis reform effort is to provide that depository institutions will be assessed on results, measured in objective terms appropriate for the type of institution. To evaluate institutions based on their performance, however, examiners will have to rely on data that measure such performance. Such an approach would require examiners to evaluate information that goes beyond the content of current reporting requirements for some financial institutions. Particularly for larger institutions with extensive activity, the agencies need information on banks' and thrifts' lending, community investments, and other services provided to low- and moderate-income areas in order to refocus CRA evaluations on objective measures ofperformance. As a result, we expect that some institutions may not see as great a reduction in regulatory burden as others, but we believe a final rule will reduce burden for the great majority offinancial institutions. Even institutions that would be subject to reporting requirements would benefit from the elimination of those factors that have generated extensive documentation. Furthermore, all institutions would benefit from greater clarity about expected performance and consistency in evaluations. The agencies are well aware of industry concerns about reporting burdens. The goal is to strike a fair balance between the cost ofnew requirements and the benefits of a more 16 299 performance-based system. Every effort will be made to ensure that the revised rule relies, to the greatest extent possible, on data that is already being reported. One possibility under consideration is to reduce the data reporting burden by streamlining reporting requirements to coincide more closely with existing requirements and eliminating unnecessary reporting. It also may be possible to exempt a certain class of institutions from new reporting requirements. For these institutions, the regulators would bear the burden of compiling the information needed to make the assessment required by the revised rule. Burden also might be reduced ifwe were to allow institutions to submit a strategic plan for regulatory approval; if approved, such a plan could constitute the basis ofthose institutions' evaluations. These special evaluation methods for certain classes ofinstitutions would, ofcourse, in no way exempt any institution from the CRA rules. IV. Summary and Conclusions This rulemaking process has been long, but it has been highly instructive about the current CRA evaluation process, what works well, and what needs improvement. We are now nearing the conclusion. Although a number of issues are yet to be resolved, we believe the 1994 proposal is an improvement. We are carefully considering the comments on the 1994 proposal and believe we will develop a final regulation that is both responsive to the commenters and achieves the goals ofthe reform project. 17 300 United States General Accounting Office GAO Testimony Before the Subcommittee on Financial Institutions and House of Representatives NotTo Be COMMUNITY REINVESTMENT ACT Preliminary Results of GAO's Study on CRA Problems and Proposed Reforms Statement for the Record S ED TATES OFFICE AL GENER UNIT ACCOUNTING GAO/T-GGD-95-113 301 Ms. Chairwoman and Members of the Subcommittee : This statement provides the preliminary results of our study of the implementation of the Community Reinvestment Act ( CRA) , which Our report we have shared with your staffs in recent briefings . is currently being drafted and reviewed internally . While we have discussed our preliminary findings with the federal bank and thrift regulatory agencies ( regulators ) , we have not yet provided them a draft report for official agency comment . In addition, the regulators have not finalized the proposed regulations . Consequently , while we are pleased to respond to your request to share our preliminary results with you for your deliberations on CRA, we must note that these results are not yet finalized . Our study was initially requested by former Committee Chairman Gonzalez and former Subcommittee Chairman Kennedy . Our study objectives were to address the following four questions : ( 1) What were the major problems in implementing CRA, as identified by the affected parties ( bankers , regulators , and community groups ) ? ( 2) If adopted , to what extent would the regulators ' reforms address these problems? ( 3 ) What challenges would the regulators face in ensuring the success of the reforms ? ( 4 ) What initiatives have been taken to overcome community lending barriers and enhance lending opportunities , particularly in lowand moderate - income areas? To identify the major CRA implementation problems , proposed solutions , and examples of 1 302 and examiners in 40 judgmentally - selected case studies , representing banks and thrifts ( banks ) of different sizes and types , with different CRA ratings located in different regions of the nation . We obtained additional perspectives from interviews with officials from community groups , industry groups , and regulators in Washington , DC . We also reviewed public comment letters on the initial and amended proposed CRA regulations issued by the regulators as part of our assessment of the proposed reforms . As you know , CRA has been controversial since its enactment in 1977. CRA requires the regulators to encourage banks to help meet credit needs in all areas of the communities they serve , including low- and moderate - income areas , consistent with safe and sound operations . CRA also requires the regulators to assess banks ' community lending performance during examinations . Community groups urged its passage to curb what they believed to be a lack of adequate investment in low- and moderate - income areas . Bankers generally opposed CRA as an unneeded measure that could unduly affect business decisions and mandate relatively low- profit lending that could conflict with other In more recent years , changing market conditions , along with increased public disclosure about banks ' home mortgage lending , have raised 2 303 about advantages for nonbank financial institutions , such as mortgage companies , that compete with banks but are not subject to CRA requirements . They are also concerned that the cost and paperwork burden imposed by CRA is not offset by positive incentives to encourage CRA compliance . For example , bankers would like protection against CRA- based protests of applications for expanding depository facilities . Federal regulators are required by the CRA to take a bank's CRA record into account when considering certain types of applications from depository institutions , including applications for mergers and acquisitions of depository institutions . On the other hand , community groups have raised concerns about limited CRA enforcement , particularly against poor performers that have no plans to expand , and insufficient disclosure of information on banks ' community lending performance . In response to these concerns , both the administration and Congress have looked for ways to make CRA more effective and less burdensome . The regulators ' reform initiative , announced by the President in July 1993 , established goals to base CRA assessments more on results than paperwork , clarify performance standards , make assessments more consistent , improve enforcement , and reduce the cost and burden of compliance . The regulators conducted a review of the issues and suggested improvements to CRA through a series of public hearings around the nation and in two notices of proposed rulemaking . They received extensive public comments on 3 304 both the initial and amended proposals and are currently in the process of finalizing the proposed regulations . Congress also enacted legislation to facilitate community lending , such as the Bank Enterprise Act and the Riegle Community Development and Regulatory Improvement Act of 1994 , that authorized funds to help finance revitalization projects in low- income areas . PRELIMINARY RESULTS Through interviews with bankers , regulatory officials , and community groups , we identified four major problems shared by the affected parties : ( 1) an overreliance on paperwork focused on documenting efforts and processes rather than results , ( 2 ) inconsistent assessments resulting in uncertainty about how CRA performance is to be rated , ( 3) assessments based on information that may not reflect a complete and accurate measure of banks ' performance ; and ( 4 ) unsatisfactory CRA enforcement . Our preliminary analysis indicates that the regulators ' proposed CRA reforms would address these problems to varying degrees . The reforms would directly address the first problem by proposing a results - based assessment system . The regulators ' success in addressing the problems related to inconsistent examinations would largely depend on how effectively examiners use their discretion when implementing the reforms . 4 To address concerns 305 about information , the reforms would clarify the data to be used to assess performance against results - based standards . However , the affected parties disagree about whether the proposed data collection requirements would provide for meaningful performance assessment or be unduly burdensome . The proposed reforms also would not directly address the different enforcement concerns of bankers and community groups . The regulators dropped a proposal to use existing formal enforcement actions set forth in the banking laws for CRA violations due to a recent Department of Justice opinion that such actions are not within the scope of CRA . The regulators also dropped a proposal that would have clarified how banks ' CRA ratings affect applications for expansion due to opposition by community groups to perceived restrictions on application protests . We also believe from our work to date that the regulators would face significant challenges in successfully implementing the proposed reforms . During implementation , regulators would need to address the problem of examination inconsistency that has not been successfully addressed in the past . We believe that the likelihood of success could be increased if regulators ( 1 ) provide clear guidance and comprehensive training for all examiners performing CRA assessments ; ( 2) are more consistent in ensuring that the data banks are required to collect are accurate ; and ( 3 ) improve disclosure in public evaluation reports of the information and rationale used to determine banks ' CRA 5 306 ratings . In addition , the regulators estimate that the reforms would increase examiner responsibilities , as well as examination time and resource needs . Regulators may need to assess their resource needs and determine what actions , if any , may be appropriate to ensure that CRA examination requirements can be completed without shifting examiner responsibilities back to banks . We also found that , independent of the regulatory reform efforts , many bankers , regulators , community groups , and others have taken part in a variety of individual and cooperative initiatives to improve banks ' community lending and reduce related burdens . Through these initiatives , many banks have been able to overcome real or perceived barriers to lending in low- and moderate - income areas ( community lending ) . Barriers to community lending and investment may include a variety of economic factors , such as higher costs and risks of community lending compared to other lending , and restrictive underwriting requirements of major participants in the secondary mortgage markets . Regulators , to varying degrees , play a key role in facilitating cooperation and disseminating information to banks about such initiatives . More systematic interagency coordination may better utilize limited resources and enhance lending opportunities for all banks . Numerous alternatives for enhancing banks ' lending in their communities have been raised by those we interviewed , as well as 6 307 others . We have not assessed these alternatives , which range. from reforming CRA to replacing CRA with direct financial subsidies to those willing to extend credit to low- and moderateincome areas . To some degree , the range of alternatives may be indicative of broader philosophical differences among the affected parties about banks ' obligations for community lending . Affected Parties Generally Agree Our analysis to date indicates that bankers , community groups , and regulators generally agree on four major CRA problems : ( 1) an overreliance on paperwork focused on documenting efforts and processes rather than results , ( 2) inconsistent assessments , ( 3) assessments based on information that may not reflect a complete or accurate measure of banks ' performance , and ( 4 ) unsatisfactory CRA enforcement . The specific concerns and proposed solutions of bankers and community groups differed substantially and , to some degree , reflected broader differences among the affected parties about banks ' obligations to their communities . Bankers generally analyzed problems in terms of regulatory burden and sought changes that would reduce the burden of paperwork and data reporting . Bankers also generally supported proposals to 7 308 increase certainty through guarantees ( " safe harbor " provisions that satisfactory or outstanding CRA ratings would protect applications from CRA- based protests . However , they opposed suggestions to increase certainty by establishing objective measures or formulas due to concerns that the standards would not be flexible enough to consider such factors as a bank's business strategy , financial condition , and its community's credit needs . Community groups , on the other hand , generally analyzed problems in terms of their ability to hold banks accountable for performance and sought changes to increase that accountability , such as having banks publicly report additional data so that their community lending performance could be assessed more easily . Community groups also identified as a problem the fact that regulatory enforcement of CRA was limited to application denials . They pointed out that no sanctions were available to penalize poor performers that did not have plans to submit applications . To strengthen regulators ' accountability for enforcing the act , they advocated regulators ' use of formal enforcement actions , such as cease - and - desist orders and civil money penalties . They strongly opposed safe harbor provisions . 8 309 Reform Proposals Would Address Some , But Not All , Major Problems Overall , our preliminary conclusion is that the proposed reforms attempt to address the major problems of the affected parties , but would not , and probably cannot realistically , wholly satisfy the often contradictory proposed solutions of bankers and community groups . The reform proposals , if adopted and effectively implemented , would address the problem of an overreliance on documentation of a bank's compliance efforts and processes by shifting the focus of assessment standards from efforts to results in three performance areas -- lending , investment , and services . We do not believe at this time that the potential effect of the proposed reforms on some of the other problems is as clear . Effective implementation of the reforms is key to addressing assessment - related inconsistency because examiners are to continue to use considerable discretion in assessing a bank's performance . 9 310 examiner training and might also increase the time and resources needed to effectively complete examinations . The proposed reforms also may not address the problem of data adequacy for performing CRA assessments because the affected parties do not agree on what data should be collected . The proposed reforms would establish data collection requirements to assess banks ' CRA performance . However , bankers expressed concern about whether the proposed data collection requirements would be too burdensome and appropriately reflect lending results . The proposed reforms also would not address the universal , but differing , dissatisfaction with regulatory enforcement of the 10 311 better rating would generally result in the approval of an application . However , many commentors objected to the perceived restriction on public protests . Consequently , both of these proposed measures have been dropped from consideration by the regulators . Challenges to Successfully Implementing Reforms We believe that successful implementation of the reforms would require regulators to meet significant challenges that have not been met in the past . Specifically, to improve the consistency of examinations , regulators would have to provide clear examination guidance and comprehensive training for all examiners in areas that many examiners believe has been lacking . These areas include how to analyze relevant information , how and when examiners should apply discretion , and how examiners should consider unique types of programs and products that bankers may devise to address special needs in low- and moderate - income areas of their communities . Another implementation challenge indicated by our analysis would be to ensure that lending and other data needed for resultsoriented assessments are accurate and accessible . Some of the regulators have acknowledged that data quality problems exist , but their responses to banks with poor data quality have not been 11 312 consistent . For example , FDIC has assessed civil money penalties for late or inaccurate reporting while the Federal Reserve has required banks to resubmit data reported inaccurately . Also , community groups have commented that the public evaluation reports do not provide sufficient information about banks ' actual lending performance and the regulators ' rationale for the assessment ratings . Finally , our case studies indicate that some examiners may have lacked the time during examinations to perform many data gathering and analyses tasks regarded as critical to CRA assessments , such as making contacts in the community to assess community needs . Some regulatory officials estimate that implementation of the proposed regulations may require additional time and examiners . Recognizing that they may be facing resource reductions , some regulators are developing new techniques to reduce examination time . If not successfully addressed , examiners may either not perform needed analyses or shift responsibility for conducting such analyses to the banks . This response could reduce the quality of assessments and increase banks ' related burdens . 12 313 Initiatives Have Overcome Some Barriers to Community Lending Our analysis of successful community lending initiatives also indicates that having good communication and cooperation among regulators , bankers , and community groups is key to overcoming lending barriers . In such initiatives , banks have made community lending an integral part of their business strategies ; involved community groups in their plans and programs ; and developed targeted underwriting standards , programs , and products to meet community needs . We also learned of community lending initiatives that may overcome perceived or actual barriers to lending in low- and moderate - income areas . Barriers described by bankers included higher transaction costs and credit risks , as well as restrictions related to secondary mortgage market underwriting standards . Some bankers have found ways that may lower the relatively high transaction costs and credit risks of community development loans by sharing those costs and risks through participations in multi - bank programs . In addition , some major participants in the secondary mortgage markets have recently undertaken initiatives intended to make them more responsive to community development concerns . We have also found that regulators , to varying degrees , play a key role in helping banks to enhance their community lending programs . Using the available resources of their community 13 314 affairs programs , some regulators have helped facilitate Bankers Have Suggested Positive Incentives to Encourage Community Lending Finally, in order to encourage banks to lend to all parts of their communities , bankers have suggested that CRA be replaced or supplemented with financial subsidies or other positive incentives . One example of such a subsidy is the Bank Enterprise Act , under which banks offering checking account and loan services in qualifying low - income areas are eligible for incentive grants . Others have called for modifying or supplementing CRA with incentives such as tax credits , deposit insurance credits , streamlined or less frequent examinations , revisions of safety and soundness requirements for CRA lending , broadening the base of banks and organizations that can buy low- 14 315 income housing tax credits , and permitting below market financing for community development lending programs with supporting funds coming from FDIC or other regulatory premiums . Some of these proposals have been included in legislative proposals for congressional consideration . PRELIMINARY CONCLUSIONS On the basis of our work , we believe that the following actions by federal bank and thrift regulatory authorities could help improve the certainty and consistency of CRA examinations during implementation of the proposed regulations : Revise regulatory guidance and training programs by clarifying how examiners should interpret the performance standards and require that all examiners receive Ensure that the information used to assess performance is accurate and that regulatory actions to improve data accuracy are consistent . 15 88-882 - 95 - 11 316 Improve disclosures in publicly available evaluation reports by more clearly presenting the information and rationale used to determine banks ' performance ratings . Assess agency resource needs and determine what actions should be taken to ensure that CRA examination requirements can be completed without shifting examiner responsibilities back to banks . Improve interagency coordination of community affairs programs to better educate bankers and community groups on strategies that have been successful in serving communities ' needs , including those in low- and moderate - income areas . Finally , should the proposed CRA reforms , once implemented , prove to be insufficient for improving CRA performance and reducing regulatory burden , Congress may wish to consider whether alternative approaches would better enhance banks ' community lending . This concludes our statement . Thank you for the opportunity to provide our preliminary views . ( 233471 ) 16 317 Ordering Information The first copy ofeach GAO report and testimony is free. Additional copies are $ 2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent ofDocuments, when necessary. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Orders may also be placed by calling ( 202) 512-6000. 318 Verner, Liipfert , Bernhard , McPherson & Hand 95 MAR -6 PM 2:35 901-15th Street , N.W. Suite 700 HARC Washington, D.C. 20005-2301 VERWERA A REPEC ERS OF PH HC 202/371-6000 Telecopier: 202/371-6279 Telex: 1561792 VERLIP UT TELECOPIER COVER_PAGE DATE : TO: March 6, 1995 COMPANY NAME: Financial Inst . Subcomm . Margo Tank FROM: Mac Bernstein TELECOPIER NO .: 202 /225-6984 ORIGINATOR'S TEL. NO .: ( 202 ) 371-6051 TOTAL NO. OF PAGES 09000-0160 CONFIRMATION TEL . NO .: 202 / 225-2258 CLIENT/MATTER NO.: *********************❀❀❀❀❀❀❀❀❀✯✯ de de de de i ************** The Information contained in this facsimile transmitial is Information Intended only for the use of the individual or entity named above, and may be subject to the attorney/client privilege and la confidential. Ifthe reader of this message is not the intended recipient, you are hereby notified that any distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please notify us by telephone and destroy the facsimile mensage received. Thank you. *** Margo, Attached is the legislative language regarding CRA reform which the Western Independent Bankers Association ( " WIBA" ) , a trade association of 250 community banks in the Western United States, has proposed to members of the Senate Banking Committee. I have also attached some background information about the CRA's impact on minority banks . I hope these materials are useful , and, as we discussed before, WIBA would very much like to testify regarding CRA if and when the Subcommittee holds additional hearings . Please call me at 202/ 371-6051 if you have any questions. Mac Bernstein FOR TELECOPIER OPERATOR ONLY TRANSMITTED: DATE : TINE: OPERATOR: ******************* 'FOR ASSISTANCE CALL TELECOPIER OPERATOR AT ( 202 ) 371-6245 . 319 3/1/95 MINORITY BANK AMENDMENTS TO SECTION 1. SHORT TITLE . This Act may be cited as the " Community Reinvestment Act Minority and Women's Bank Preservation Amendments of 1995." SECTION 2. DEFINITIONS. The Community Reinvestment Act of 1977 ( 12 U.S.C. § 2901 et seq .) is amended by inserting after Section 803( 2) , the following new paragraphs and renumbering existing paragraphs " ( 3) " and " ( 4) " accordingly: " ( A) more than 50 percent of the ownership or control of which is held by 1 or more minority individuals; and " ( B) more than 50 percent of the net profit or loss of which accrues to 1 or more minority individuals. " ( 5) the term " women's bank" means any regulated financial institution " ( A) more than 50 percent of the ownership or control of which is held by 1 or more women; " ( B) more than 50 percent of the net profit or loss of which accrues to 1 or more women; and " ( C) a significant percentage of senior management positions of which are held by women. " SECTION 3. EVALUATION EXEMPTION FOR CERTAIN MINORITY AND WOMEN'S BANKS. The Community Reinvestment Act of 1977 ( 12 U.S.C. $ 2901 et seq .) is amended by inserting In the appropriate place the following new section: 320 -2- " SEC . BANKS. · EVALUATION EXEMPTION FOR CERTAIN MINORITY AND WOMEN'S " A minority bank or women's bank shall not be subject to the evaluation requirements of this title or any regulations issued under this title provided -" ( 1) such bank has not been found to be in violation of section 701 ( a) of the Equal Credit Opportunity Act ( 15 U.S.C. § 1691 ( a) ) , or any other provisions of such Act, during the preceding five ( 5) calendar years; " ( 2) such bank was chartered , or ownership of such bank was acquired , in order to serve any community or group which has traditionally been underserved by regulated financial institutions; " ( 3) such senior officer of the bank as the bank may designate provides annual certification to the appropriate Federal financial supervisory agency that such bank qualifies for exemption under this section. " A minority or women's bank which is exempted under this section shall immediately notify the appropriate Federal financial supervisory agency of any change In ownership, control , aggregate assets, or violations of law which would affect such bank's eligibility for exemption under this section. " Any material misrepresentations of eligibility for exemption under this section shall be punishable pursuant to 18 U.S.C. § 1001 . 321 CONGRESS SHOULD REPEAL UNNECESSARY COMMUNITY REINVESTMENT ACT REQUIREMENTS • Most minority-owned banks are established to provide banking services to particular ethnic groups - and were encouraged to do so by federal regulators. The operating plans of these banks plainly set forth this purpose. The targeted ethnic populations served by minority-owned banks are often concentrated in urban pockets, which historically have not been a market focus of surrounding financial Institutions; yet CRA often forces minority banks to compete in heavily served areas with well-established , larger institutions. • Minority-owned banks are a primary source of credit for many minorityowned businesses and minority entrepreneurs. • Forcing minority-owned banks to market their products beyond the boundaries oftheir natural base - under the guise of the CRA -- imposes untenable costs and administrative burdens that threaten the viability of such institutions and is inconsistent with their stated business plans. • Requiring minority banks to market their products throughout a larger " geographic market" is counter intuitive - minority banks already serve markets the CRA was designed to protect. • Congress should exempt these minority banks from counterproductive CRA requirements. • Minority banks would remain subject to federal oversight and supervision , including fair lending , consumer credit, and antidiscrimination laws if they are exempted from onerous and unnecessary CRA requirement. 322 PCRG PITTSBURGH COMMUNITY REINVESTMENT GROUP Congresswoman Marge Roukema Chair, Financial Institutions and Consumer Credit Subcommittee House Banking Committee 2129 Rayburn House Office Building Washington, D.C. 20515 Post-it Fax Notc 7671 Date 3/7/957 To From DenHulland oTank rg Ma Co/Dept " HouseBankingCude. Con PLR.G Phone#2.02) 225-2258 Phone( 412) 3.12.6053 Far ***202) 225-6984 ( 412 ) 31) .5767 DearCongresswoman Roukema: The Pittsburgh Community Reinvestment Group ( PCRG) welcomes this opportunity to provide its comments in support ofthe Community Reinvestment Act ( CRA) for the House Subcommittee on Financial Institutions andConsumer Credit hearings. PCRG is concerned that recent efforts to weaken and even climinate CRA will be a detriment not only to community based interests, but alsoto financial institutions that work with local community development corporations ( CDCs) to promote equal lending patterns and practices in lenders' entire delineated service area, including low- and moderate-income communities. It has beenthe experience ofPCRG that, in working with financial institutions, lending in all communities, including those that are low- and moderate-income, is not only good business and a low credit risk but produces far more reinvestment than numbers alone can quantify. In this testimony, PCRG will explain who we are, what we do, who we work with, and describe some ofthe community development initiatives that we helped foster with the financial institutions. These arejust the highlights ofour successful endeavors with lenders; in fact, PCRG is hard pressed to find examples offailures. Perhaps the only failure ofthe PCRG Partnership CRA has created is that there are not morejust like it. Who is PCRG? PCRG is a coalition of32 community based organizations that works with eleven financial institutions on a regular, ongoing basis to promote reinvestment in Pittsburgh's 90 neighborhoods, with a special emphasis on low- and moderate-income areas. Through regularly scheduled Community Development Advisory Groups ( CDAGs) , PCRG and financial institution representatives develop home mortgage loan products and programs targeted toward low- and moderate-income homebuyers, devise new and unique marketing and outreach strategies, promote neighborhood employment initiatives, and establish credit counseling services for bank customers Memberwho need assistance repairing their credit records, among other relevant topics. Glen Hazel Citizens Association North Side Civic Development Council AlleghenyWest Civic Council Bloomfield-Garfield Corporation Northside Leadership Conference Hal Community Development Corporation Northside Tenants Reorganization Hill District Ministries, Inc. Breachnenders, Inc. Calbride Place Citizens Council Eastside Alliance East Liberty Development, Inc. Bifid Jubilee Association Corporation Troy Hill Ckizans, Inc. West-End Elliott JointProject 323 PCRG conducts annual lending analyses of banks' mortgage lending in Pittsburgh neighborhoods, by race and income, using information from the banks' loan application registers ( LARS) , publicly disclosed under the Home Mortgage Disclosure Act of 1975 ( amended in 1991) , the critical companion legislation to CRA From these annual studies, banks establish lending goals and work with PCRG to meet and surpass these benchmarks. PCRG also provides neighborhood tours for bank officials; technical assistance for items like brochure development, marketing strategies, commercial lending program guidelines; access to minority and women contractors; housing seminar coordination, and direct access to over 60% of Pittsburgh's neighborhoods, a still untapped market. PCRG awards the efforts offinancial institutions with the Annual PCRG Banking Awards Luncheon, in which noteworthy financial institution initiatives and individuals are given awards. Last year, the keynote speaker was Comptroller ofthe Currency Eugene Ludwig, who was astounded at the display of productive bank-community interaction. Mr. Ludwig exclaimed, " The banks, community groups, and political leaders assembled here today says a lot about how well the Community Reinvestment Act works . " PCRG wholeheartedly concurs. Background Since PCRG's founding in 1988, there has been over $ 2.4 billion in inner city reinvestment in Pittsburgh. PCRG strongly believes that the innovative lending programs and outstanding community commitment that the financial institutions have demonstrated here in Pittsburgh is a testament to the effectiveness of CRA and its goal of utilizing private-market forces to revitalize deteriorating neighborhoods. But when PCRG was formed in 1988, the benefits ofCRA were not immediately apparent to financial institutions. PCRG was established out of a protest of Union National Bank 's proposed acquisition ofPenn Bank Corp. in Pittsburgh PCRG strongly believed, and had proof, that Union National Bank had failed to meet community credit needs set forth under the Community Reinvestment Act of 1977. A formal statement ofprotest was filed with the federal government, and an analysis ofthe bank's lending patterns over the last five years was drawn on a map ofPittsburgh, showing where Union National had " redlined" Pittsburgh neighborhoods, those communities which received no loans. But concurrent with the filing ofthe protest, PCRG engaged Union National with dialogue about how the bank could meet community noods. PCRG prepared a Community Needs Assessment, a document on how the bank can fulfill its obligation to our neighborhoods, and presented it to Union National's executives. Bank officials was surprised to be sure, but they also agreed to meet the needs PCRG forth, including the establishment of a monthly CDAG with PCRG in which strategies for meeting community needs could be discussed. Most importantly, Union National Bank put its commitment in writing, and with PCRG, signed a five-year, ongoing Memorandum ofUnderstanding ( MOU) worth $ 109 million. PCRG consequently withdrew its protest. Last summer, PCRG and Integra Bank ( formerly Union National) updated the MOU forthe nexi five years to be a commitment worth $ 1.4 billion 2 324 PCRG and Integra Bank are very proud ofthis agreement because it is essentially a risk-reduction document, a commitment by the bank and by the 32 members ofPCRG to work together to minimize, even eliminate, the perceived and real risks in our neighborhoods and to find the numerous opportunities that exist. Who PCRG Works With Since the first Integra MOU was signed, PCRG established ten other relationships with leading Pittsburgh financial institutions: Allegheny Valley Bank, Community Savings Bank, Dollar Bank, Fayette Bank and Trust Company, Fidelity Savings Bank, Laurel Savings Association, Mellon Bank, NorthSide Bank, Parkvale Savings Bank, and PNC Bank. Not one financial institution has ever terminated a relationship with PCRG. In addition, PCRG works closely with the Urban Redevelopment Authority of Pittsburgh, the city government agency responsible for housing and commercial development, the Pittsburgh School Board, and a number of other organizations that have become part of the " PCRG Partnership. " PCRG is also a member of Center for Community Change, National Community Reinvestment Coalition, and National People's Action. The financial institutions with which PCRG works do not view CRA as a regulatory burden. In fact, one lender said that since his involvement with PCRG, his regulatory requirements under CRA have been minimized. This CRA officer simply points the federal examiner toward the CRA filo, complete with all PCRG's comments and feedback, and the examiner's work is virtually in one folder, or scrics offolders. In addition, by consulting the PCRG membership, the federal financial supervisory agencies have direct access to feedback on bank performance from 32 individual community groups, over two thirds ofthe city neighborhoods. Although, when PCRG conducts business with a financial institution, it is with one unified voice. The PCRG Partnership goes beyond just doing good business. The financial institutions have become active players in our neighborhoods, financing deals as small as a modest $ 20,000 single family home to the renovation of 127 units oflow- and moderate-income housing worth $ 2.2 million There are a number of examples, some of which will be explained in this testimony. The most important point, however, is that this special relationship between bank and community exists and flourishes because the Community Reinvestment Act provided the mechanism for the PCRG Partnership to work, without government intervention or subsidy. A Sampling ofFinancial Institution Initiatives Created with PCRG Under CRA PNC Bank: The Housing Recovery Program, Community/Lender Credit Program, and Neighborhood Employment Initiatives PCRG's relationship with PNC Bank ( then Pittsburgh National Bank) began soon after we had brokered our first deal with Integra Bank. It began similarly, with PCRG's threat to file a protest against PNB's application to acquire another bank. But PCRG never filed a protest because PNB's CRA Officer, President, and CEO all agreed to discuss ways ofmeeting our mutual needs 3 325 When PNB became PNC Bank, it not only met our needs, but it became a leader in Pittsburgh in creating new and innovative mortgage programs that would become the cornerstone to this city's successful revitalization Working with PCRG, PNC Bank created the Housing Recovery Program, an affordable housing program that uses a deferred second mortgage provided bythe URA that cuts the cost of a house by 25 to 50%, based on the homebuyer's income. HRP must be used in a low- to moderate- income neighborhood within city neighborhoods. But PNC Bank did not keep HRP to itself, four other banks with which PCRG works now use the program. The results ofIIRP have been stunning: Since its inception in 1990, 226 HRP projects have been completed producing 311 owner-occupied housing units Whole neighborhoods in Pittsburgh, have been reinvigorated and turned around 180 degrees from communities at the margins to those with a strong economic mix ofresidents. But HRP also accomplished what one CDC staff person calls " The Butterfly Effect" : houses and businesses around homes purchased through the HRP have become renovated and restored as well, without HRP. This is a prime example ofa successful community-bank program that in many ways cannot be measured in dollars or numbers. PNC Bank did not stop there. PCRG and PNC Bank developed the Community/Lender Credit Program ( CLCP) to address the chronic problem of bad credit among some low-income borrowers. The program was designed so that if a potential homebuyer did not qualify for a home loan through a bank due to credit problems, the overwhelming majority ofloan denial reasons, he or she was referred to CLCP. PNC Bank also did not share this initiative either. Now over 20 banks participate . Since its establishment in 1993, CLCP credit counselors have counseled over 110 home buyers into new homes. Last year, PNC Bank initiated a neighborhood employment outreach strategy with PCRG and Neighborhood Employment Projects ( NEPs) in Pittsburgh to recruit qualified job applicants from local communities. PNC conducts employment seminars, meets regularly with NEP directors, and forwards all job openings to PCRG and the NEPs for distribution to the community. Now, all the other banks with which PCRG works have jumped on the neighborhood employment bandwagon and send job postings to PCRG and some have initiated their own employment initiatives. PCRG is more than satisfied with PNC Bank. Recently, PCRG submitted comments in support of PNC Bank to the Federal Home Loan Bank for its quarterly Community Support Standards Review . The document numbered 190 pages. But PNC is but one bank in the PCRG Partnership. There are many more eagerly exploring the untapped opportunities in our neighborhoods Mellon Bank: The CNDI Model In 1994, Mellon Bank scized on an idea to look at revitalizing whole neighborhoods, not just in pieces as has been donc before, and created the Comprehensive Neighborhood Development Initiative ( CNDI, pronounced " Cindy" ) , a joint neighborhood revitalization program that works in conjunction with Pittsburgh History & Landmarks Foundation ( a local historic preservation group) and the URA. 326 CNDI offers both technical and financial assistance, in the form of loans and recoverable grants, on qualifying projects to community based organizations. The concept is to restore historic neighborhoods through a comprehensive " one-stop-shopping" approach, while saving the CDC time, skills, and up-front costs. The results of CNDI, while still early in the program's usage, appear to be remarkable. In a recent CDAG meeting, Mellon explained that it working with the East Liberty Development, Inc., a PCRG member, on a 127-unit scattered site restoration project in Pittsburgh's East Liberty neighborhood ( a low- and moderate income community) worth $ 2.2 million. One hundred and twenty seven units of mixed rental and for-sale housing is a substantial reinvestment in that neighborhood. PCRG and Mellon Bank are confident many more of these similar projects will be put to use in other Pittsburgh neighborhoods. Allegheny Valley Bank: The Upstairs/Downstairs Program At one point several years ago, PCRG was on the verge of picketing Allegheny Valley Bank for its poor lending record extending back into the early 1980s. A protest was imminent and the relationship was cold. But PCRG and Allegheny Valley Bank decided to establish a CDAG meeting schedule and discuss ways the bank could meet the community's needs. Last year a breakthrough occurred when Allegheny Valley Bank, working with PCRG, designed the " Upstairs/Downstairs" program, a mixed commercial/residential program for use in low- and moderate-income business districts Under the " Upstairs/Downstairs" program, a borrower can purchase a commercial building in a low- and moderate-income business district, convert the first floor to retail business use and live in the upper floors, similar to " Mom and Pop" shops ofthe past. Pittsburgh is replete with such buildings in small business districts and Allegheny Valley Bank is to be commended for creating a program that builds upon the unique character of Pittsburgh's neighborhoods. Dollar Bank: From $ 30 Million Commitment to $ 42 Million in Three Years Raisingthe stakes to stay competitive PCRG's initial relationship with Dollar Bank was not tremendously productive, until the bank hired Howard Slaughter as its CRA Officer in 1991. Mr. Slaughter first accomplishment was an overhaul ofthe bank's community mortgage loan product to be better tailored to the needs of PCRG neighborhoods. Mr. Slaughter stunned PCRG in 1992 when he and Dollar's President and CEO signed a commitment to lend at least $ 30 million in low- and moderate-income neighborhoods over the next three years. As ofJanuary 1995, Dollar Bank reports that it has surpassed this goal. Although Mr. Slaughter moved on to another organization, Dollar Bank increased its three-year commitment to $ 42 million, and it will include small business and employment initiatives as well. PCRG will ensure that Dollar Bank meets its goal. S 327 Fidelity Savings Bank and Community Savings Bank: Ain't IA Woman Housing Initiative " When was the last time your lending to African Americans went up by a thousandpercent?" Both Fidelity Savings Bank and Community Savings Bank came to PCRG in early 1993 ashamed of their lending to African Americans: Zero loans in 1991. But they were determined to reverse this trend by actively working with PCRG to change the way they do community banking and marketing.In late 1993, both banks used the technical assistance PCRG provided to create the " Ain't I AWoman Housing Initiative," a strategy to attract single black female homebuyers to institutions that had not traditionally sought this market but needed to in order to stay competitive. The first seminar introducing the program was held at a church in pouring cold rain in November 1993. Over 300 African American women showed up to learn more. Today, both Community Savings Bank and Fidelity Savings Bank are partners in this unique and innovative program that yields real results. While the official numbers are not out yet, Fidelity Savings Bank reports that it made ten loans to African Americans in 1994, an increase of 1,000% in one year. The President and CEO of Fidelity boasts about this program to fellow bankers: " When was the last time your lending to African Americans went up by a thousand percent?" Both Community Savings Bank and Fidelity Savings Bank are reaping the rewards ofthis initiative, and they regularly keep in touch with prospective homebuyers, refer some to CLCP, and aggressively market their programs citywide. There is no question in these bankers' minds that CRA has meant more business for the bank where none previously existed. The Urban Redevelopment Authority: Commercial Lending Initiatives Capitalizing onthe public-private paradigm established through the PCRG Partnership Finally, PCRG is proud to have been a partner in redesigning the Urban Redevelopment Authority's commercial lending programs into two new initiatives: The Pittsburgh Business Growth Fund, for financing working capital and equipment, and the Urban Development Fund, for financing real estate PCRG and the financial institutions favor the programs' simplicity and focus on small businesses or roal estate in the most distressed Pittsburgh neighborhoods. PCRG and the financial institutions are still working on the marketing for these programs to ensure that the lenders remain the first point ofcontact for business or commercial real estate loans. CRA: We Still NeedIt It should be clear throughthese anecdotes that what the Community Reinvestment Act is about is developing private market partnerships among financial institutions, local community development organizations, and public entities, not overburdening banks with unnecessary paperwork or filing a protest every time a financial institution reports a poor lending record. In fact, PCRG views a protest as a failure because PCRG and the bank havo failed to come to the table to conduct business. But when business is conducted, it is profitable, innovative, and exciting. There is no question that all ofthis would have never occurred without the impetus ofthe Community Reinvestment Act. 6 328 BOA RD OF FED ERA SERVE LRE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 LAWRENCE B. LINDSEY MEMBER OF THE BOARD April 12 , 1995 The Honorable Barney Frank Dear Congressman Frank : This letter responds to an issue you raised during the hearings held by the Subcommittee on Financial Institutions on March 8 regarding reform of the Community Reinvestment Act . You asked whether we knew of any circumstances in which loans to lowand moderate - income borrowers had caused safety and soundness problems for a bank or thrift , due to default , delinquency and the like . I believe my quick answer at the time was " no . " Certainly , the anecdotal information I have heard would indicate that loans to low- and moderate - income people perform with respect to repayment as well as , and in some cases better than , loan to others . Furthermore , I have heard of no cases in which a bank's portfolio contained such a large number of such loans that even if a significant number of the borrowers defaulted , it would put the bank in a seriously adverse safety and soundness position . After you raised the question , I took some time to seek out some harder data and studies that might illuminate the matter . I was not able to find a lot in this vein , but I'll briefly share what I was able to locate . One reason for the few studies on the matter , I suspect , is that the data necessary to conduct them are , rightly I believe , generally closely and confidentially held in the loan files of the customers . Consequently, producing the necessary data , without compromising confidential information , can be time - consuming and expensive . Nonetheless , the Woodstock Institute in Chicago conducted a study of the performance of residential loans in lowand moderate - income areas as compared to loans made in other neighborhoods . The October 1993 study based its conclusions on a sample of 2231 loans collected by the National Association of Affordable Housing Lenders from seven willing lenders . of all loans that were ever delinquent were delinquent only once ; 329 The Honorable Barney Frank ( 2 ) the delinquency rate for loans that had been delinquent for 90 days or more was one tenth of a percent ; and ( 3 ) the delinquency rates for a national sample of loans , containing data on loans in areas of all income levels , was 7.5 to 8.5 times greater . The same study reviewed the performance of multifamily loans in low- and moderate - income areas and , though the characteristics of the data sets did not allow the researchers to make perfect comparisons , the study did conclude that the loans made in low- and moderate - income areas experienced delinquency rates one to three times greater than national samples . Foreclosure rates , however, seem more aligned to national samples . As a result , the combined delinquency and foreclosure rates for multifamily housing loans in low- and moderate - income areas were slightly superior to those gleaned from national samples reflecting loans in all income areas . GE Capital Mortgage Insurance Company also did a study of its own loans that were originated between 1987 and 1991. It concluded that borrowers with annual incomes of less than $ 40,000 were eight percent less likely than those with higher incomes to become delinquent on their loan payments and that the lowest income group ( less than $ 20,000 annual income ) had the best delinquency performance . In addition , Richard G. Fritz , Vice President and Senior Economist at the Federal Home Loan Bank of Atlanta , presented a paper in January of 1994 which highlighted results from his study on the performance of the Atlanta Mortgage Consortium. The consortium was created in 1988 shortly after the Atlanta Journal /Constitution newspapers published a series called " The Color of Money" that was critical of the racial distribution of mortgage loans made by Atlanta lenders . The paper , " Consortium Residential Lending and Community Reinvestment : An Analysis of the Atlanta Mortgage Consortium" , shows that for loans made during what Mr. Fritz calls Phase I of the program's existence ( roughly its first year) , the consortium experienced heavy long term delinquencies ( 11.9% ) . However , adjustments were made to the consortium's lending criteria during the next two years or so ( Phase II ) and the delinquency rate was significantly reduced to 6.7% . The consortium continued to effectively serve the low- income population of Atlanta after making the underwriting adjustments for Phase II . In order to contribute an additional measure of comparison regarding the consortium's lending performance , I would like to provide some national data for the time periods that roughly correspond to the two phases of the study . During the Phase I period , the national delinquency rate was 4.78% for all mortgage loans and 6.65% for all FHA loans ( possibly a more 330 The Honorable Barney Frank April 12 , 1995 Page 3 apt comparison given FHA's relative emphasis on a similar market ) . National rates during Phase II were approximately 5% for all mortgage loans and 7.32 % for FHA loans . Further , I am informed by other sources that during the first quarter of 1995 , the AMC experienced a 9.99 % delinquency rate while all FHA loans in the state of Georgia experienced a 10.01 % delinquency rate . I think that this experience shows that , although it is possible to go too far in reducing credit criteria , it is also possible , with a sensible set of adjustments to those criteria , to serve low- and moderate - income areas effectively . It also demonstrates that the consortium approach to lending in these areas can serve to spread the risk and make this type of lending possible without undue risk to any individual institution . I think it is important , however, to put this discussion in a fuller context , and to indicate that the answers to the question you raised are probably more complex than this response has so far indicated , particularly with respect to FHA- insured loans . In this regard , I would point out that a recent study , coauthored by Glenn Canner, an economist here at the Board , showed that FHA- insured loans in low- and moderate - income areas experienced nearly twice the default rates ( as distinguished from a delinquency rate ) of those made in upper income areas during the sample period . Finally , I would simply cite some statistics offered by the National Association of Community Development Loan Funds , reflecting loans made by its 41 member funds . Through 1993 , these funds had made $ 193.1 million in 3,960 loans for housing and businesses . The Association reports that its members had financed 43,369 housing units , 88% affordable to low- income Loan losses through 1993 were $ 1.69 million , or .87% of the total . I believe this information responds to the question you raised . As you can see , the potential answers are complex and may turn on the programs and experiences chosen for review and the comparisons made . Furthermore , I would add that though these studies and data appear reliable , I have not personally reviewed their underpinnings and can only offer them for your consideration . Additionally , aside from the issue of repayment performance , there is the issue of profitability . We have no studies on the relative profitability of loans in low- and moderate - income areas compared to other areas . We do know, however , that in many cases these loans are subsidized ( the AMC loans are an example ) or involve credit counseling or other risk mitigating aspects that have an impact on their performance as a matter of relative profitability . Nonetheless , I have not heard of situations involving loans of this type putting any banks at 331 The Honorable Barney Frank Page 4 risk . And the success stories for these kind of lending are numerous . If you would like any other details on these studies and data , please contact me . Sincerely, James R.Andrey 333 APPENDIX March 9, 1995 334 STATEMENT OF . JAMES M. CULBERSON, JR On Behalf of THE AMERICAN BANKERS ASSOCIATION Before the Subcommittee on Financial Institutions and Consumer Credit ofthe Committee on Banking and Financial Services U. S. HOUSE OF REPRESENTATIVES March 9, 1995 335 Statement of James M. Culberson, Jr. Before the Subcommittee on Financial Institutions and Consumer Credit Committee on Banking and Financial Services U. S. House of Representatives March 9 , 1995 Madam Chairwoman , I am James M. Culberson Jr. , Chairman ofthe Board ofthe First National Bank and Trust Company in Asheboro, North Carolina. I am the President- Elect ofthe American Bankers Association . The American Bankers Association is the national trade and professional association for America's commercial banks, from the smallest to the largest. ABA members hold about 90 percent of the industry's total assets . Approximately 94 percent of ABA members are community banks with less than $ 500 million in assets. I am pleased to be here this morning to speak to the Subcommittee on the structure ofthe Community Reinvestment Act ( CRA) . We appreciate, Madam Chairwoman, your undertaking this review. We are very hopeful that this process of reexamining the current structure will result in a more workable and efficient system . Few regulatory issues raise as much emotion as CRA. CRA began as a simple statement of community responsibility -- that each bank should help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. I am in complete agreement with this goal, as are virtually all bankers. The relationship between banks and their communities is, after all, a two-way street -- the profitability and strength of my bank rests squarely upon the economic health and vitality of my community the individuals and local businesses that are my depositors and borrowers. As one banker put it: " If we do not invest in our community, it will die and the bank will die with it. We do not need a law and paperwork to understand this . " I can assure you, Madam Chairwoman that anyone who does not understand this close relationship between a bank and its community won't last long in the business of banking. The problem bankers have with CRA is not its philosophy, but its implementation . Over the years, as regulators struggled to find meaningful ways to judge compliance with 336 CRA, layer upon layer of paperwork and documentation has been added. It is time to restore the basic intent of CRA: helping to meet the credit needs ofthe community in a spirit of community cooperation and without a lot of paperwork and red tape. To do so requires a CRA system that: recognizes differences in institutions and the communities they serve; fosters cooperation instead of confrontation, and rewards extra effort; and cuts back the paperwork burden and puts dollars into the community instead of red tape. The remainder ofthis testimony details these requirements . But before that, an observation: over three- quarters of the financial assets are held by firms outside the reach ofthe Community Reinvestment Act. Securities firms, finance companies, mutual funds, money market funds, insurance companies, members of the Farm Credit System, and even credit unions offer bank- like products that draw savings and investment funds by the tens of billions of dollars out of communities across the country -- yet they are under no obligation to return anything to those communities. I find it particularly frustrating since two of my biggest banking competitors are credit unions -- both larger than my bank and federally insured -- and yet they have no CRA responsibilities . I also compete head-tohead with mortgage companies that do not have any CRA responsibilities. Banks cannot and should not be expected to carry virtually the whole load in meeting community credit needs. Other institutions should be held to the same high standards of community responsibility to which banks are held. I. Recognize Differences in Institutions and Communities Today, administration of CRA takes a one- size-fits-all approach. Large or small, rural or urban, full service or limited charter banks are all treated alike. An effective system must recognize the significant differences in where and how these institutions operate. The documentation requirements designed for urban areas make no sense in small communities and rural areas . Similarly, standards for a full-service retail bank make 2 337 no sense for specialized banks. For example, credit card banks and wholesale banks should be able to meet their CRA obligations in a way that is compatible with their type of business, and, in the case of credit card banks, within the limitations of their charter. We applaud the bank regulators for taking important steps in this direction in their recent proposals. The one- size-fits-all approach has been particularly hard on community banks, which do not have the capacity to cope with the massive documentation requirements of the current system. In fact, the vast majority ofthe banking industry is community banks with assets less than $ 500 million. Moreover, nearly half of all commercial banks have fewer than 25 employees; 1,300 banks have fewer than 10 employees . Moreover, the cost of complying with regulations, while significant for all banks, is relatively higher for small banks because there are economies of scale in compliance -- a fact clearly brought out in a recent Federal Reserve study on the costs of implementing the Truth- in- Savings statute as well as in an ABA study. In fact, for banks under $ 50 million in assets, one out of every four dollars of operating expense is spent on compliance. This is robbing time and resources that would otherwise have been invested in the community. One banker put it this way: Community banks ...are already doing all ofthe things CRA intends to make them do. But to prove and document all of this is nearly impossible, expensive, frustrating and time consuming. Another made the point that: Small town banks support their communities significantly more than any other business in the community -- both in hours devoted to community projects and in money spent. CRA ...is expensive and time- consuming regulation that produces absolutely nothing . The problem with CRA is not that it " requires " bankers to invest in the community -- they do that anyway. The problem is that in today's regulatory enforcement of CRA, we spend more time and money in compliance which takes away from actually serving our community. 3 338 I do not wish to imply that CRA costs are not significant for large banks -- they are, and the overall costs of CRA need to be addressed for all banks . However, the size ofbanks and the types of communities each serves need to be considered. For example, there is absolutely no point in having a small bank in a small town geocode loans when the banker literally knows personally every person who has a loan from that bank. Streamlining the process for all banks will free up scarce resources for more productive uses in the community, and will be welcome news to bank customers most of whom are vitally interested in the betterment of their communities. A perfect complement to a system which recognizes differences among banks and communities would be to enable banks to choose from a menu of different options for demonstrating that they are meeting their community's credit needs. Recognizing differences and providing a variety of options to demonstrate compliance provide the flexibility to tailor CRA compliance to all the different communities in this country. The regulators' proposal does help in this regard by recognizing differences in banks and by offering options for documenting compliance. We appreciate their efforts. There are additional things that could be done, however, and ABA will be developing further suggestions for Congress to consider. II. Foster Cooperation, Not Confrontation The number of successful joint projects between banks, local governments, nonprofit organizations and community groups demonstrates that cooperation, rather than confrontation, yields far better results for all involved. There are many, many examples of bankers, community groups and local governments working together to solve local problems and to build a better future. There are a number of problems with the current rating system. First, evidence suggests that, each year, the standards for satisfactory or outstanding are raised by examiners, regardless of whether or not there have been any changes in a bank's community. And some have taken this to an extreme suggesting that only a specified, small percentage of the banking industry can receive an outstanding rating. In fact, some compliance examiners are very blunt in telling bankers that they never give an outstanding 4 339 rating, regardless of the bank's performance record. Several recommendations in the regulators' proposal , such as expanding the grading scale, appear to us to have the effect ofsetting in regulation limits on the ability of banks to achieve outstanding ratings. Such limitations, whether written in regulation or by examiner predilection, are not appropriate. A huge problem is that there are no assurances that a consistent record of CRA compliance will stop unsubstantiated challenges to applications. Ironically, many bankers believe that earning an " outstanding rating " only serves to make the bank a magnet for criticism and demands for additional effort by the bank. Even for banks rated " satisfactory " or " outstanding, " applications for an acquisition or a merger are often protested, with the accompanying delay, by advocacy groups seeking grants or loan commitments . What good does it do to get a good grade when a merger or acquisition application can be challenged and delayed anyway? A bank that is not deficient in meeting its community's credit needs deserves to be freed from costly delays arising from unsubstantiated challenges during CRA review. It is clear that Congress, when it enacted CRA, did not envision this result. It intended to encourage cooperation, and in most cases banks do work closely with community groups . Congress could not have intended that small groups, sometimes pushed by non-local groups, could make demands to fund their individual projects or groups and use the leverage of delay to try to force a bank to comply. Delays of months have not been unusual, and since such delays can involve huge costs, banks have often been forced to make grants or loans to these groups. A system whereby private businesses can be " held hostage " in such a manner simply is unfair. This system also constitutes credit allocation in the extreme. Many believe that CRA, itself, is inherently credit allocation, but the current implementation of CRA, which permits individual groups to leverage institutions to provide grants or loans to their individual projects or groups certainly results in very specific allocation of credit. Banks should be encouraged to talk to and work with community groups, but this type of leverage by protest -- or, often, threatened protest -- should be removed from the system . 5 340 III. Improve Efficiency by Reducing Paperwork Burden Paperwork, paperwork, and more paperwork. That's what CRA has become. One banker characterized it by stating: The documentation burden that this [ Community Reinvestment] Act has created rivals the New York City telephone book. The banks are required to document all areas of their community involvement, compile detailed statistical analyses to prove their actions, dedicate staff resources to developing, understanding and maintaining the records. The really sad reality of all this work is that the only people who have ever looked at our CRA records have been bank examiners. Ironically, the legislative history of CRA clearly indicates that it would not impose any new record keeping requirements on the industry . Senator Proxmire, the sponsor of the bill that became the Community Reinvestment Act, stated on the floor ofthe Senate: An early draft of the bill would have required additional reporting by lenders. The committee considered this provision in markup, and we unanimously agreed that bank examiners already have access to ample data to carry out the purposes ofthis title. We deleted the reporting requirement. Senator Proxmire followed these remarks, in response to concerns by Senator Morgan that the bill would end up requiring a lot more paperwork and a lot more red tape, by stating: " That was true of the bill originally perhaps, but it certainly is not true of this bill now. " 1 In fact, despite this clear Congressional intent, record keeping is now what CRA is all about. What a bank is actually doing in its community is almost irrelevant -- what counts is the thickness and neatness ofthe CRA files and whether or not they contain the right documentation . ¹S.17631 , Congressional Record, June 6, 1977. 6 341 Over the past several years, the regulators have undertaken the task of revising the CRA regulations and are currently considering a second proposal. There are many positive aspects of the second proposal -- such as the small bank streamlined assessment and a flexible strategic plan option. But even these require proper implementation to make them effective. In particular, the asset limitation for qualification for the streamlined examination is too low. All across the country, banks like mine are doing a good job in meeting the credit needs of their communities, and should have no trouble demonstrating that fact under a streamlined examination process . In terms of bank sizes today, $ 250 million is small . To add additional burdens -- particularly reporting burdens -- to a bank my size will do absolutely nothing to improve credit availability nor will it provide any meaningful information . To the contrary, it will add another costly and unncecessary regulatory burden with no or nominal benefit. The cut-off at $ 250 million should be raised. The regulators proposals to date add significantly to the already huge reporting burden of CRA for many banks. In particular, the banking regulators have proposed substantial reporting of small business/small farm loan applications. As part ofthis proposal, there is a provision that would require distinguishing loans by race and gender. ABA has serious concerns over small business reporting and coding by race and gender particularly. Before addressing the specific problems associated with small business reporting ( including race and gender breakdowns ) , there are four fundamental problems with any such proposal for such expanded reporting: Added reporting will make small business borrowing more costly and will waste even more scarce community resources on red tape; The data collected is not necessary to assess whether a bank is meeting its CRA obligations; Requiring only banks and thrifts to report gives an incomplete and misleading picture of lending in these markets; and The reporting provides a worthless, and in fact misleading picture of a bank's lending . 7 342 Let me touch on these, and then discuss in detail the problems specific to small business reporting under CRA. Added Reporting Means Higher Cost ofCredit Reporting is costly. Every dollar devoted to red tape is one fewer dollar that can be productively used in providing banking services to the community. Several comments from bankers serve to illustrate this point. For example, one banker commented: The research, reporting and documentation burdens imposed by CRA force our institution to spend approximately $ 50,000 more per year to provide the same services we would provide without CRA. And another said: During the next three months, I estimate that 50% of my time will be spent on regulatory compliance issues. What is really sad and ironic is that my time will not be spent on regulations which affect the safety and soundness ofthe bank's loans and other assets. Rather, it will be spent on regulations such as the Community Reinvestment Act, Regulation CC ( Expedited Funds Availability) , Regulation DD ( Truth in Savings) and the Bank Secrecy Act which have little to do with safety and soundness issues. What would I normally be doing with this lost 50% of my work week? I would be calling on existing and prospective customers, making loans or working to develop new deposit and loan products to more effectively compete in the marketplace -- the real heart and soul of banking. Isn't that what banking is all about? And these comments relate to current reporting and compliance. The impact of costly new CRA burdens should not be underestimated. The additional reporting will increase costs by slowing down the lending process and by requiring the collection of additional information from small business/small farm applicants, not to mention the additional compliance burden. And, because reporting is likely to lead to a standardized 8 343 lending format, it may also reduce the flexibility that is such an important element of small business/small farm lending. In short, adding yet another expense to banks' lending activities will surely have a negative impact on both the cost and availability of bank credit. This will hurt most ofthose low- and moderate-income business borrowers that the regulation is designed to help. Last year, Congress took the first step to reduce the excessive regulatory burden on the banking industry, helping to reverse one of the factors inhibiting the flow of credit to small businesses . Since documenting performance under the current CRA system is among the most costly and time- consuming regulatory burdens, it is vital that reform efforts look carefully at this issue. Added Reporting is Not Necessary to Assess CRA Performance As Senator Proxmire stated in 1977, " ...bank examiners already have access to ample data to carry out the purposes of this [ CRA] title. " Today, if anything, there is much more information readily available to examiners. The data that would be collected under additional reporting requirements are not necessary to assess whether a bank is meeting its CRA obligations. Reporting by Only One Lending Group Among Many Gives an Incomplete Picture Banks and thrifts are important lenders to small businesses, but they are by no means the only lenders . Many small business loans are made by nonbanks like finance companies -- even Merrill Lynch has a small business loan program. Even the Farm Credit System and the credit unions are active in small business lending. Surveys show that small business borrowers rely on a variety of non-bank sources of credit including vendors, retained earnings and private borrowings to finance their operations . None of these sources ofsmall business credit would be captured byproposals to increase reporting by banks. Finance companies, credit unions, asset-based lenders are major players, and their omission will certainly give an incomplete picture of what is happening in these markets. 9 344 Small Business Reporting Will Be Misleading There are several very specific issues related to the value of small business/small farm lending reporting. Moreover, the recent proposals to categorize small business/small farm loan applications by race and gender create a whole additional series of problems. I would like to detail our concerns. The bottom line, however, is quite simple. We need to return to the basic intent of CRA and the promise made by Senator Proxmire: that no new reporting would be required. Small Business Loans Are Not Always Easy to Identify In many cases, the ultimate use ofthe proceeds of a loan may not be obvious to the lender. For example, many small business owners use home equity loans to finance their operations. A recent Arthur Andersen/Small Business United survey indicates that home equity loans account for almost one- half of the funds for start-up businesses. But because a home equity loan may not be classified as a business loan, it may not be captured in the proposed reporting. A similar problem arises with respect to credit card loans, which are used by many small business borrowers as a source of short-term working capital. In many cases the credit card is issued to an individual rather than to a business, so the lender has no way to identify the credit card loan as a business loan . Many of these loans will not be captured by the proposed reporting, making the data even more incomplete and misleading. Small Business Reporting is Not Like HMDA Reporting Proponents of reporting small business/small farm loans reporting have claimed that it would work just like HMDA reporting for home mortgage loans. This is simply not true. First of all, bank regulators are finding that HMDA reporting is not as straight forward as first thought . For example, there have been constant changes and reversals in reporting requirements with respect to pre- qualifications, which are used with many new, flexible mortgage products being offered by banks . Also, selling and purchasing of mortgage loans may create double counting. 10 345 And these problems of reporting and inconsistencies are with relative straightforward, homogeneous loans. Small business/small farm loans are far more complex than mortgage loans. They are not relatively straightforward or homogeneous products. Because no two small businesses/small farms are alike, these loans are individually tailored to suit each borrower's situation. Second, the standardization of mortgage lending, created largely by secondary market requirements, makes it relatively simple to design a standard application form requesting the pertinent information. The flexibility required by small business/small farm lending makes a standardized application form virtually useless for lenders. And this is why so many banks do not even use an application form for these loans at least not an application form that is in any way analogous to a residential mortgage loan application. Race and Gender Reporting Should Not Be Required Proponents of reporting race and gender for every business loan application argue it will increase credit availability to minority businesses. But it will not. It will only add yet another layer of paperwork to small business borrowing, further complicate the credit process, and increase the cost of small business credit . Equally troubling is the fact that the data generated by the reporting requirement will give an incomplete and misleading picture of both bank lending and the overall availability of credit to low- and moderate-income communities. And finally, race and gender reporting is completely counter to a color blind and gender blind approach that should characterize decisions about creditworthiness. This is the very reason why banks are currently prohibited by law from asking this information, and believe that such a requirement is beyond the statutory authority of the regulators. The following are some additional problems the proposal raises: Categorizingthe Ownership ofSmall Businesses by Race and Gender is Not as StraightForward as it Seems 346 For example, a business that has significant minority ownership -- up to 50 percent -- will be classified as white- owned under the regulators proposal . Where the ownership is split 50-50 , the tie goes to the majority gender or race. This means that a " mom and pop " business would be categorized as male- owned, and that a business owned equally by a minority and a non-minority would be classified as non-minority-owned . These inherent biases in the reported data mean that even ifa bank makes all its Loans to businesses that have significant minority andfemale ownership -- up to 50 percent -- the data would show that all loans went to white males. In fact, if all loans went to companies whose ownership mirrored the racial make-up of this country, they would all be classified as loans to majority- owned businesses. Simply put, the reported data will consistently and systematically understate minority lending by banks. Such a distorted and inaccurate portrayal of bank lending does not serve the best interests of small business or the public. Voluntary Reporting Means Incomplete Data In addition to the difficulties cited above, many small businesses will obviously be reluctant to disclose the race and/or gender of their owners for privacy or other reasons . Because of the voluntary nature of the reporting, the bank cannot require ( nor should it) that a borrower make such a disclosure. This means that the reported data will give a fragmented and incomplete picture of bank lending to minority-owned small businesses. CRA Looks to Communities, Not Race and Gender Lending in low- and moderate-income communities is not necessarily synonymous with loans to minority- owned businesses. Thus, requirements that lenders geocode their business loans by census tract is inappropriate and misleading. What about a loan to a company that may not be over 50 percent minority- owned, but which provides employment to residents of low- and moderate-income 12 347 communities? Certainly support for a community's employment base is critical to its economic vitality. In fact, the tie between race and gender reporting and CRA is not well-defined . How would the race and gender data actually be used in the context ofthe overall CRA examination? No such disclosure has ever been given by the regulators. There is simply no justification for subjecting banks and bank borrowers to the expense ofcomplying with a reporting requirement for which there is no specified use within the statute. No Legislative Authorityfor Reporting Finally, the CRA statute does not contain the authority to support this type of reporting, and it is not supported by the legislative history. HMDA reporting is authorized by a specific statute. How can the regulators impose even more onerous reporting on another subject without Congressional authorization? Race and Gender Reporting Raises Serious Privacy Issues for Small Business Owners The proposed reporting would require banks to collect, on a loan-by-loan basis, the racial and gender composition of their small business borrowers. If, as is true for the HMDA data, the loan-by-loan data becomes publicly available, it would be relatively simple for anyone interested to determine the borrowings of individual companies. The public availability of this information may pose serious problems as competitors, employees and even buy- out specialists could gain access to sensitive financial information on individual companies. In summary, the proposed reporting will be costly to both banks and borrowers and will provide information that is, in fact, misleading since CRA was not designed to impose new reporting in the first place, and since this reporting has not been approved by Congress, ABA strongly believes it should be removed from the proposal. 13 88-882-95 - 12 348 IV . Conclusion Let me assure you, Madam Chairwoman, that bankers are working hard to meet the credit needs of their communities. As I said at the outset of my statement this morning, they are doing so because the success of each bank is closely tied to the success ofthe community it serves. As you and your colleagues review the Community Reinvestment Act, we urge particular attention to the dangers of credit allocation. Madam Chairwoman, the term " credit allocation " has a negative connotation -- and with good reason. Allocating credit -- whether directly or indirectly -- may well be inconsistent with safe and sound lending. This should concern not only bankers, but regulators, the Congress and the public as well. CRA is potentially so open-ended that we must be concerned about ever-increasing costs and its potential for slowly but surely substituting government and political control over the credit decision process. The first proposal from the regulators raised additional concerns about credit allocation because ofthe inclusion of " market share " tests. We appreciate the changes the regulators made in the second proposal in dropping this approach. However, there is the ever present danger that such a mind set can creep back in, and in fact, a number of banks have found their CRA examiners using their own informal market share test. Basically this approach involves comparing a bank's market share in various submarkets and believing it should be nearly identical in all submarkets . This simply won't work and is counterproductive. For example, it makes it dangerous for a bank to try to enter a new market -- for example, a low-income market -- because it's market share will, of course, be less there. Ironically, minority banks objected strongly to the market share test. Why? Because they saw a system which would force large banks to " purchase " market share in the minority banks' markets, possibly by reducing prices to the minority banks' best customers. A system which drives banks to " purchase " market share to meet some preconceived government notion of " proper" market percentages would certainly be credit allocation, and it would also undermine safety and soundness. We all share concerns over America's distressed communities. But we must also be realistic. Distressed communities cannot be reclaimed just with an increase in the 14 349 availability of credit. Sustained community reinvestment requires not only profitable business but also a healthy, growing community. No amount of bank lending can build the infrastructure that a community needs to survive, much less prosper. Performance has to be geared to the underlying reality of the community . Allocation of credit by government fiat rather than by the marketplace will inevitably lead to inefficient use of resources and will, in the end, not help the communities for which they were intended. The banking regulators have put a great deal of work into rewriting the CRA rules. It is an incredibly difficult task. We appreciate their efforts to take input from all parties . Some of the new proposals are most helpful, but others do need to be reconsidered, and in the case of the new reporting, removed. We need to restore the basic intent of CRA. An effective CRA system must be tailored for specific communities and institutions; it must have positive incentives to encourage extra effort; it must have a structure that allows public input without constant delays caused by protests, often filed purposely at the last minute; and it must not require a huge amount ofreporting. 15 350 Statement of the Independent Bankers Association of America Before the Financial Institutions and Consumer Credit Subcommittee Committee on Banking and Financial Services U. S. House of Representatives On Community Reinvestment Act ( CRA) Issues March 9 , 1995 Independent Bankers Association of America Telephone: ( 202) 659-8111 351 STATEMENT OF THE INDEPENDENT BANKERS ASSOCIATION OF AMERICA Madam Chairwoman , my name is Tony Abbate, and I am President and CEO of Interchange State Bank in Saddle Brook, New Jersey . I am pleased to appear before you today on behalf of the Independent Bankers Association of America ( IBAA) , the only national trade association that exclusively represents the interests of our nation's community banks. I am Chairman of the IBAA's Marketing Committee, and I also serve on the association's Federal Legislation Committee. We are grateful for this opportunity to testify on the revised inter-agency proposal on the Community Reinvestment Act . To better appreciate our testimony, it is important for you to know something about our members. The average IBAA member bank is around $ 45 million in assets, and the great majority of members are below $ 100 million . So we truly represent small , locally owned , locally operated community banks . Equally important, our members are generally located in small towns and rural areas. About 45 percent of IBAA bankers are considered " agricultural lenders, " and roughly 75 percent are located in towns with populations of 10,000 or less. Madam Chairwoman, I am a community banker. But my community is somewhat larger than that of the typical IBAA banker. The Interchange State Bank has $ 475 million in assets and 190 employees . As you know, we are located five miles west of the George Washington Bridge at the intersection of I-80 and the Garden State Parkway, so we are a suburb of New York City. Saddle Brook is in Bergen County, New Jersey, which has a population of 850,000 people. There are some 250 different financial institutions within a five mile radius of my bank. So even though I may be large in comparison with the average IBAA member, I am small in relation to the institutions with which I must compete in my market area. More importantly, my bank is locally-owned, locally-operated, and our policies are set locally. Community banks ' bread and butter ongoing activity is community lending. If there is no CRA we would continue this vital activity -- it is our reason for being. In a survey taken by Grant-Thornton before CRA reform was put on the table by President Clinton on July 15 , 1993 , CRA was identified by community banks as the most burdensome and most expensive regulation . In past Congresses, we have worked with members of this Committee for a CRA exemption for community banks. The interstate banking and branching bill, which was passed last year, clearly exempts branches of multistate banks from direct CRA examination which my bank faces. We look forward to working with you and this Committee to achieve this goal in this Congress. 352 2 Presidential Directive Recognizes CRA Burden As you know, the inter-agency CRA proposal resulted from the President's 1993 directive to improve the CRA process in ways that " minimize the compliance burden on financial institutions while stimulating improved CRA performance. " The President's directive recognized that CRA is one of the most burdensome and least effective banking regulations. The regulatory costs and burdens associated with the current CRA process are staggering, particularly for community banks . Most of this cost can be attributed to meaningless paperwork and documentation that banks must produce to " justify" their CRA compliance , since the burden of proof currently rests on them. The Grant Thornton study I mentioned earlier concluded that CRA was the most expensive preFDICIA compliance area for community banks, costing them more than a billion dollars a year. Think of it, Madam Chairwoman . A billion dollars a year, just to convince examiners that you're making loans in your community. What has happened to the CRA examination process is indicative of the needless regulatory burden imposed on this country in recent years . When CRA was first enacted, bank examiners reviewed loan files, notices of credit rejection , Home Mortgage Disclosure Act ( HMDA) disclosures, and other relevant documents. And they talked with bank officers and, if necessary, the public , and determined the extent of the bank's compliance with CRA. Today, the banker has to create voluminous detailed records, including a map showing the location of every single housing-related loan . What this has done is shift the burden of production of evidence from the examiner to the banker. It has not made the examination more accurate, and the burden it has placed on community banks has hurt their ability to serve their communities because it takes executive officers away from community lending activities and makes them spend their time creating federally-required paperwork. In late 1993 , the regulators issued their first CRA reform proposal . Because of the overwhelming response to that proposal, and the intense controversy and divergent views that it generated, the regulators felt that a further revised proposal was warranted. The proposals went a long way towards returning the CRA examination to what it was fifteen years ago -- one where the regulator has the burden of collating the information in the bankers' files and they have recognized that a tiered examination system is necessary and desirable. CRA Small Bank Exemption The IBAA has long supported an exemption from CRA for community banks . As noted, the very reason for our existence is community lending. And in the new banking world which will be created by the interstate banking and branching bill , it is bad public policy to mandate a heavier CRA burden on community banks than the branches of out-ofstate domestic and foreign banks. The branches of multistate banks will almost never face a 353 3 direct CRA examination -- my bank will at least every 18 months . Members of the Congress have long recognized our special relationships with the communities we serve. In 1991 , the Financial Institutions Subcommittee adopted an amendment offered by Representative Kanjorski ( D-PA) exempting from CRA all institutions under $ 150 million in assets and all rural institutions under $ 250 million . This welcomed initiative was traded away at the full Committee level. This year, Congressman Bill McCollum ( R-FL) has introduced a similar bill . It exempts institutions with assets under $ 100 million and institutions in communities with populations less than 25,000 . It also provides for streamlined examinations for institutions under $ 500 million that have a five-year record of compliance with ECOA and have a satisfactory or better CRA rating , and a two-year safe harbor for institutions applying for deposit facilities that have received a satisfactory or better CRA rating within the current rating period. IBAA strongly supports the McCollum bill . IBAA favors an even stronger recognition of the differences between large and small banks. In the Financial Institution Regulatory Reform Act of 1995, which is IBAA's 26-point regulatory relief proposal , we proposed to exempt from CRA all institutions with assets of $ 500 million or less ( with an inflation adjustment) . Small banks do not have the resources to comply with the data gathering requirements or to deal with Federal bank examiners , who can take two to three weeks , or more, to complete a CRA examination . Imposing CRA requirements and examinations on these small institutions cannot be justified on a cost-benefit basis, as virtually all small institutions are doing a good job of serving their communities, and the resources expended documenting CRA performance and dealing with the examination process far outweighs any increase in community lending resulting from CRA requirements. An article in the 1994 Annual Report of the Federal Reserve Bank of Richmond by one of the Bank's research officers states: " After a review of the empirical literature relevant to critics' claims, I will argue that there is little conclusive evidence that banks fail to meet the credit needs of low-income neighborhoods per se. Instead, the CRA regulations should be understood as a transfer program, aimed at redistributing resources to low-income neighborhoods. The basic goal of the CRA to improve conditions in distressed neighborhoods is obviously a worthy one. But the lending and community investment obligations impose an implicit tax on the banking industry for which there is little justification. " 354 CRA Safe Harbor The IBAA Financial Institution Regulatory Reform Act of 1995 also provides for a safe harbor that allows a bank to rely on a CRA rating given during the last exam in the applications process if the exam was within the preceding twelve months . This safe harbor provision recognizes that an institution's policies and procedures do not change drastically in a short period of time. If an institution has received a satisfactory or better CRA rating in the previous twelve months, it should not have to go through the expense of having another CRA review or defending against a protest when it makes an application . IBAA will continue to work for enactment of these portions of our Financial Institution Regulatory Reform Act of 1995. Goals of CRA Community bankers strongly support the goal of CRA -- to reinvest local deposits in our communities. Most community banks serve low to moderate income residents, and in some small towns and rural areas, they make up the majority of the market. This is where we work and live . CRA as it is presently administered detracts from banks serving these communities by emphasizing documentation rather than ongoing lending performance. The original CRA statute is actually very flexible and provides ample discretion to the implementing agencies to establish a tiered system. If you look at the legislative history , it is clear that Congress did not mean to impose on banks the burden of paperwork that is prevalent today. Over the past decade , implementation of CRA has changed dramatically, as noted before, and a huge data collection burden has been placed on banks . Moreover, it is unrealistic to assume that small community banks can meet the same requirements as their larger counterparts. Existing regulatory policies pay lip service about the need to differentiate between small banks and large banks. Yet, most often , no meaningful burden reducing distinctions are made. Banks with staffs of 10 are being asked -- and are expected -- to do the same as those with staffs of thousands. Banks in towns of 1,000 are being held to standards that parallel those for multinational financial corporations operating nationally and serving the world. No public purpose is served by a regulatory system that discriminates against community banks by inflicting them with the same regulatory burden as multi-billion dollar institutions. Indeed, the noble goals of this Congress of supporting entrepreneurship and economic growth are being thwarted in that every dollar a community bank spends on CRA compliance means less is available for local community reinvestment. IBAA strongly supports a tiered system for CRA examinations. 355 5 Streamlined Exam for Small Banks Changes in the CRA such as a small bank exemption require legislation . Until our goal of an exemption is realized , IBAA strongly supports the revised inter-agency CRA proposal because it is more user-friendly and represents a more reasonable process for community banks than exists today. We particularly commend the regulators for recognizing that local community banks should not be under the same paperwork requirements as multinational and multistate institutions. And we strongly support the streamlined The tiered system approach examination process for banks under $ 250 million in assets. will make community banks better able to serve their communities, and it should be implemented across the spectrum of government regulations . The tiered examination system recognizes two indisputable facts. First, because a small bank has fewer deposit accounts and loans than larger banks, a bank examiner can review the working files of the bank and draw conclusions regarding performance and compliance with various laws. In a large bank, the volume of records is such that the examiner must have the data presented in a manner that can be used . For example, an examiner can geocode 200 home loans with ease , but could not geocode the many thousands of home loans Citibank or Bank of America generates over the course of a year. Second, a tiered system recognizes the disparate impact of regulatory burden . In a small bank, there are few official staff. The week or two or three out of each year that these officials spend complying with paperwork requirements means that they cannot spend that time running the banks and serving their communities . In a large bank, there are sufficient resources available to have people working full time on regulatory burden . NationsBank has testified that it has over 110 people dedicated to CRA alone. This means that officials are not taken from their banking duties to do government paperwork. Under the proposed streamlined examination system, banks under $ 250 million in assets would be assessed on their lending performance based on five criteria. To receive a satisfactory rating a small bank would have to have a reasonable loan-to-deposit ratio, a majority of its loans in its service area, a reasonable distribution of loans across income levels and geographies, and a satisfactory record of taking action in response to complaints about CRA performance. In contrast, large banks would be evaluated based on three different bases including lending performance: the lending test ( which would receive the most weight) , the investment test ( which measures qualifying community development and similar investments) , and the service test ( which assesses the branching network and other means of delivering services to the community) . Large banks also would have specified data collection requirements for home mortgage and small business and farm loans. 356 6 IBAA Supports Raising Streamlined Examination Threshold IBAA also believes the streamlined examination level should be raised -- to $ 500 million . If the size remains at $ 250 million , the streamlined exam would apply to approximately 17 percent of the banking industry's total assets . There are many community banks larger than $ 250 million , mine included . We operate with small staffs and have an intense local focus. By raising the threshold to $ 500 million , banks like mine will be covered under the streamlined examination procedures, but the total banking assets covered would be increased by only 3 more percentage points. Eighty percent of the banking assets in this country would still be covered by the CRA. These banks will still be examined for CRA, but will not be subject to onerous paperwork requirements. A key element to the success of the revised CRA regulations in reducing regulatory burden will be the manner in which the new rules are implemented . This will require examination guidelines that keep the burden to a minimum and comprehensive examiner training that ensures examiner judgement is exercised consistently and judiciously. IBAA Supports $ 1 Billion MBHC Threshold In addition to raising the threshold for streamlined exams to $ 500 million , IBAA believes that small banks in holding companies up to $ 1 billion should be allowed to use the streamlined procedure . Many community banks owned by larger holding companies are operated as completely independent entities in widely separated markets and do not have any greater resources than banks outside of holding companies. In other words, two small community banks of $ 100 million and $ 160 million would not be eligible for the small bank exam if they were owned by the same bank holding company. There is precedent for this concept . We would note that recently the OCC has initiated a tiered system for safety and soundness exams. The OCC is differentiating banks based on complexity. If a " noncomplex " bank happens to be owned by a " complex " holding company, this does not make the noncomplex bank complex. Because a community bank is owned by a small bank holding company does not mean that the bank has the resources or the capability of a large institution. The same concept should apply to CRA. Just because a community bank is owned by a small bank holding company does not mean that the bank has the resources or the capability of a large institution with respect to CRA compliance. As a matter of fact, many small bank holding companies are merely ownership shells and provide little if any support to their affiliated banks. It makes sense to treat these institutions as still being small . Whatever asset level is used, we urge that regular adjustments to the size threshold be made to the tiered system. This is needed to account for the fact that banks grow as a result of inflation, economic activity, and interest credited to deposit accounts while maintaining the same level of staffing. A static asset level for streamlined examinations could discourage 357 community banks from growing and helping their communities create jobs . Congressional Support for Tiered Structure There is one more point I wish to underline concerning the tiered system. There are many Congressional supporters of this approach . On two separate occasions last year, Members of Congress wrote to the regulators supporting the tiered approach . In February, 71 House members signed a letter circulated by Representatives Charles Stenholm ( D-TX) , Pat Roberts ( R-KS) , and Larry Combest ( R-TX) , supporting the tiered system . And in March, 40 Senators led by Senators Bryan Dorgan ( D-ND) , Malcolm Wallop ( R-WY) , Jim Exon ( D- NE) , and Thad Cochran ( R- MS) also wrote to express support. After the revised regulations were published , the leaders of the groups again wrote to congratulate the regulators for including the tiered system in the new version . So this is an idea that has widespread support, including here in Congress, and represents a sense of fairness and a recognition of the differences between small and large institutions. We urge you to endorse the streamlined examination procedures for small banks. IBAA Opposes Race and Gender Coding Madam Chairwoman, the issue of race and gender coding is one of great importance to community bankers, and I believe it warrants a thorough examination at this time. The IBAA Financial Institution Regulatory Reform Act of 1995 also would prohibit the collection of this data pursuant to the CRA . The CRA was enacted to insure that geographic redlining does not occur. The collection of race and gender data on loans, by itself, does nothing to answer the question of whether an institution is meeting the credit needs of its community. One of the criteria that can point to such redlining is a violation of Fair Lending laws. Therefore, fair lending compliance remains the appropriate place to examine whether an institution is discriminating on the basis of race or gender. The Senate Committee Report on the Community Reinvestment Act of 1977 is very clear. The Report states that the committee specifically " rejected the course of setting percentage targets for investments. " During floor debate, the late Pennsylvania Senator John Heinz stated that " CRA is not an attempt to allocate credit" . Now, for the first time, race and gender reporting would be required for small business and small agricultural loans . The IBAA is very pleased that these new data requirements will not be applied to banks with less than $ 250 million in assets. However, we urge opposition to this controversial provision for any bank. 358 8 In opposing such race and gender reporting, Federal Reserve Governor Larry Lindsey noted that, since the passage of the Equal Credit Opportunity Act, the Fed's regulations have " sought... a race-blind policy. " He also highlighted the increased burden that this would place on banking institutions and small business in addition to heightened privacy concerns. Governor Lindsey warned that such new reporting requirements had enormous protection of privacy implications for the " millions of small business owners in this country who apply for bank loans. " He added , " In the case of small businesses, we are asking for loan information, which may be crucial to the lifeblood of the company. Not only the usual suspects, but also potential competitors, employees, and buyout specialists are now in the market for information . Furthermore, there are far fewer small businesses in the typical census tract than there are homes, on the order of a dozen or less. Identification therefore becomes much easier. " The " public's right to know" cannot be used to justify collection of indiscriminate data. In this case it has a corresponding and unacceptable erosion of the right to financial privacy. And the borrower will have the option to report or not report this data to the institution. So the data itself would be incomplete, fragmented and unreliable. I would like to add that there is no legal authority to collect this data for CRA. The legislative history of CRA makes clear that the Act was not intended to be open to additional paperwork. Moreover, Congress has considered and rejected several times small business loan data reporting measures. One new reporting requirement for small business and small farm loans was added as part of FDICIA that could be gleaned from the Call Report. This proposal goes much beyond that. It is inappropriate for the regulators to be making such policy. CRA is based on geographic and income considerations, not race and gender. That is proper since CRA's objective is to encourage banks to meet the credit needs of all the residents of their community, including low- and moderate-income neighborhoods. The race and gender of small business borrowers is the focus of the Equal Credit Opportunity Act ( ECOA) and Regulation B, which prohibit lenders from discriminating against borrowers based on race, gender and a number of other prohibited factors , not CRA. And how is this information going to be used? That is not spelled out in the proposal . That argues even more that banks should not be asked to collect information for an unknown purpose. A likely, if unintended , outcome of such a requirement would be to lead the media and others to reach unfounded conclusions about banks' small business lending. That has been the experience with HMDA data. HMDA is far too incomplete to draw any rational conclusions or prove lending discrimination . Yet it has not prevented it from being used for just that purpose. The IBAA urges that race and gender data collection provisions be eliminated from the agency proposal . 359 9 Fair Lending Implications CRA has been evolving in many ways since its enactment. Fair lending examination procedures have properly been incorporated into the CRA examination procedures. As part of a CRA exam and compliance, the bank is evaluated for its adherence to antidiscrimination and other related credit laws. During the exam, violation of the Equal Credit Opportunity Act, the Fair Housing Act, and other regulations related to discrimination are considered . The IBAA is committed to fair lending and strongly supports the voluntary efforts of the industry to ensure that lending activities are conducted in a fair and non- discriminatory manner. Madam Chairwoman , you asked if there was any overlap between CRA and other fair lending laws. The legislative history of CRA would suggest that Congress neither intended nor envisioned CRA as fair lending legislation . At the time of its passage , there was considerable debate about the goal ,of CRA. But most legislators agreed that the focus of the legislation was the problem of depository institutions making loans outside of their market areas. The focus of CRA was on communities, not race, ethnicity, gender, or other protected classes. We feel that the current system provides for a rigorous review and recognizes that banks guilty of discrimination cannot effectively be serving their entire community. No more is needed in this with regard to a CRA exam. Interstate Branching Implications With the advent of interstate branching, Mrs. Roukema , our members -- which are fully examined for CRA compliance -- will often compete with branches of larger regional or nationwide banks that may never be visited by a CRA examiner. These branches are free to accept deposits and do little else to serve their community. The large interstate bank may use some of the deposits to make targeted and politicized CRA commitments in far-away communities that are relatively small . Otherwise, these branches get a free ride. The proposed regulations begin to address this loophole . Even so, you should understand that the agencies lack the resources to examine all branches of large banks. They will have to rely on sampling. The competitive inequity will remain , though it might be somewhat decreased. Similarly, the Riegle-Neal interstate law will re-define CRA service areas for interstate banks to include individual states , or when a metropolitan area crosses a state line, individual MSAs. But the fact remains that no branch of an interstate bank will face the same level of CRA scrutiny as a community bank. 360 10 Expanded Financial Powers and Non-Bank Bank Competitors At the time Congress passed the Community Reinvestment Act, banks and savings and loans played much larger roles in the financial marketplace than they do today. The cost of federal deposit insurance was comparatively low. Only commercial banks had direct access to the Federal Reserve's discount window. This has all changed. Banks and thrifts have lost significant market share to competitors . They hold less than 30 percent of the home mortgage market today . In 1991 Congress gave securities firms direct access to the discount window. Non-bank lenders have proliferated, the Farm Credit System continues to steal away our best customers, and credit unions enjoy tremendous tax and regulatory advantages. But CRA continues to apply only to banks and savings and loans. Especially in light of the debate over the reform of Glass Steagall and the Bank Holding Company Act, Congress should consider this issue very carefully. Non-bank institutions such as mortgage bankers, mutual funds, insurance companies, and credit unions benefit significantly from the Federal Government's commitment to maintain the stability of the financial system. However , the government imposes no community investment requirements on them . Given the shifts in market share from banks and savings and loans to these other financial service providers, a smaller and smaller share of the financial marketplace is under any CRA obligations. Banks and thrifts cannot singlehandedly cure the problems CRA was designed to address . We recommend that Congress consider levelling the CRA playing field to insure that those firms that are gaining a greater share of the financial marketplace also share in the obligation to serve their communities. At the same time , IBAA believes that any reduction in the CRA burden -- such as implementing a tiered examination system -- should apply equally to banks and other financial institutions. Conclusion IBAA believes that the interagency proposal is positive first step . It goes a long way towards improving the CRA examination process for community banks. The tiered system and the streamlined exam are important steps forward . But the IBAA urges Congress to do more . A community banking exemption is needed. Community banks should not be under more onerous CRA examination requirements than the branches of multistate or foreign banks and such banks do not face direct CRA examination under the interstate banking and branching bill. Returning to the reform proposal that is on the table, we urge that race and gender coding of small business loans for any bank be eliminated . This race and gender coding proposal has serious privacy implications and does not further community lending . 361 11 Thank you, Madam Chairwoman and Members of the Subcommittee, for this 362 IBAA November 21. 1994 Mr. William Wiles Board of Governors of the Communications Division Ninth Floor Office of the Comptroller of the Currency 250 E Street, S.W. Richard Mount Leland Step? cm . In light Terry1 rie James K i' Kennel · 20" 96" Mr. Robert E. Feldman Acting Executive Secretary Attention: Room F-400 Ms. Kathy Semone Director, Information Services Division Public Affairs Re: Revised Community Reinvestment Act Regulations Dear Sir/Madam: The Independent Bankers Association of America ( IBAA) submits these comments in response to the joint agency proposal to revise the Community Reinvestment Act ( CRA) regulations that was published in the Federal Register on October 7, 1994. The IBAA is the only national trade association that exclusively represents the interests of the nation's community banks. The banking agencies have followed the mandate of President Clinton to work with the industry to reform the Community Reinvestment Act. The IBAA commends the agencies for incorporating many of our recommendations in this second proposal, which we believe is much more reflective of the goal of measuring performance over paperwork. The IBAA supports this proposal and wholeheartedly approves of the streamlined examination approach for community banks. We strongly support the removal of the 60 percent loan-to-deposit ratio test since this will make the streamlined examination more workable for community banks. However, we believe that specific aspects of the proposal, including the enforcement provisions and the data collection, require modification and/or elimination. Our detailed comments follow, as outlined below. WASHINGTON OFFICE. ONE THOMAS CIRCLE NW SLITE 950 WASHINGTON DC 20005-5802 • 202 659-8[ 1] 363 2 Table of Contents Tiered System Regulatory Burden of Current CRA System Reasonable Loan-to-Deposit Ratio Majority of Loans in Service Area Enforcement Authority Legal Authority Service Area Multiple Service Areas Assessment Context Affiliate Lending Legal Authority for Data Collection Appropriateness to CRA Privacy Implications Practical Problems with Race and Gender Coding Strategic Plan Public File, Documentation and Disclosure Ratings Outstanding Ratings for Small Banks Large Bank Ratings Effect of Lending Discrimination on CRA Ratings Weight of Ratings During Application Process Transition Period Publication of Examination Schedule and Public Comments Appeals Process Official Commentary Examination Guidelines Examiner Training Bankers' Banks Conclusion IBAA/CRA 3 3 3 5 6 6 7 7 7 8 8 9 11 12 12 13 13 14 14 14 15 15 16 16 17 17 17 18 19 19 19 20 20 20 21 21 21 22 November 21 , 1994 364 -TIERED SYSTEM 3 IBAA strongly supports a tiered system for CRA examinations. A tiered system will recognize the real differences in circumstances in which community banks and thrifts operate. A tiered system that replaces paperwork and uncertainty with greater performance, clarity and procedures is a goal that the President said is critical to improving the CRA process. The proposed streamlined examination for community banks recognizes that it is counterproductive to subject community banks to the same onerous paperwork . reporting and other requirements as large multinational and multi-state banks. Different size banks have differing abilities to comply with paperwork and reporting requirements. As we noted in our letter on the first proposal, the IBAA believes that a tiered system is fully consistent with the requirements of the statute. CRA directs the agencies to promulgate regulations. The statute is very flexible and provides ample discretion to the agencies to establish a tiered system for community banks. In fact, the legislative history makes clear the Act was not intended to require banks to do any additional paperwork. ' The proposed streamlined examination process is more consistent with the original intent and should significantly reduce the paperwork requirements for community banks. REGULATORY BURDEN OF CURRENT CRA SYSTEM There is ample evidence to support the need for a tiered CRA system. The regulatory costs and burden associated with the current CRA process are staggering, particularly for community banks. Most of this cost can be attributed to meaningless paperwork and documentation that banks must produce to " justify" their CRA compliance. As we have noted, a study on the costs of the regulatory burden conducted in 1992 by Grant Thornton for the IBAA concluded that CRA was the most expensive pre-FDICIA compliance area for community banks. CONGRESSIONAL SUPPORT Congress also has demonstrated strong support for a tiered regulatory system. In February, 71 House members signed a comment letter circulated by Representatives Charles Stenholm ( D-TX) , Pat Roberts ( RKS) , and Larry Combest ( R-TX) supporting the streamlined examination system for community banks and the elimination of the 60% loan-to-deposit ratio test. In March, more than 40 Senators, led by Senators Byron Dorgan ( D-ND) , Malcolm Wallop ( R-WY) , Jim Exon ( D-NE) and Thad Cochran ( R-MS) also wrote to express this sentiment. To emphasize their concerns, Stenholm, Roberts and Combest wrote again in October after the revised regulations were published. They said in part, " ...we commend you for retaining the streamlined examination system for banks under $ 250 million in assets, and for dropping the 60% loan-to-deposit ratio test, substituting in its place a reasonableness standard. We also are pleased that the alternative examination procedures for community banks were not expanded to include additional documentation requirements, such as race and gender coding of small business and farm loans. This will help insure that CRA compliance for community banks will be judged on the basis of performance rather than documentation." A similar letter was sent by Senators Dorgan, Wallop, Exon and Cochran. The Senate Report states. " The Committee believes that the regulatory agencies already have sufficient data available to carry out the intent of this Act without requiring additional red-tape." S. Rep. 95-175, 95th Cong.. Ist Sess., May 16, 1977, at 34. The Senate report goes on to discuss the fact that the CRA, as originally introduced, would have required banks to file additional material with the regulators. However, the Senate Banking Committee concluded that additional burdens " would not be necessary or appropriate to the enforcement" of CRA. Id. IBAA/CRA November 21, 1994 ፡ 365 Members of Congress recognize that there are important differences between community banks and large banks, and their ability to absorb the costs of regulatory compliance, and that the same rules should not be applied to both. We believe the philosophy embodied in these congressional letters will be even more prevalent in the new Congress. SIZE THRESHOLD FOR STREAMLINED EXAMINATION The revised proposal retains the criteria originally proposed for defining a small bank, or what the IBAA terms a " community bank." The proposal provides for a streamlined CRA examination for banks with less than $ 250 million in total assets and banks owned by holding companies with total banking assets of less than $ 250 million. Bank Size Threshold The bank size threshold for the streamlined examination should be increased to $ 500 million. At the proposed size of $ 250 million in assets, the streamlined examination only applies to approximately 17 percent of the banking industry's total assets. There are many community banks larger than $ 250 million in assets that operate with small staffs and an intense local focus, frequently in non-metropolitan areas. IBAA requests that the final rule be revised to allow banks with up to $ 500 million in assets to qualify for the streamlined exam option. Raising the size cut-off increases the banking assets subject to the bank assessment method by only a nominal percentage ( 3 percentage points) for a total of 20 percent of the industry's assets. There is no downside to increasing the bank size threshold--the bank is still examined for compliance with CRA, yet is not subjected to burdensome paperwork and data collection requirements. Holding Company Size Threshold The IBAA believes that the holding company threshold also must be increased to avoid placing hundreds of community banks at a significant disadvantage. The agencies assert that " no compelling evidence was presented to support a change in the asset limit. " The IBAA strongly disagrees. Many community banks owned by larger holding companies are operated as completely independent entities in widely separated markets and do not have any greater resources than banks outside of holding companies . This may be particularly true in former unit banking states or limited branching states. Community banks in small multi-bank holding companies ( MBHCs) have little access to services that would measurably increase their ability to comply with the full-blown CRA exam and burdensome new data collection requirements. Many of these small MBHCs, while owning more than one bank, are not much more than an ownership shell and provide few services, if any, to their subsidiary banks. Often community banks owned by the same holding company are also miles apart and operate as completely independent banks. To penalize community banks owned by small MBHCs by barring them from the streamlined exam will perpetuate an unwarranted burden on community banks. Of 769 MBHCs, 188 fall in the asset range of $ 250 million to $ 1 billion, which we define as small. There are 1,373 banks with less than $ 250 million in assets that are owned by MBHCs and 326 of these banks are less than $ 50 million in assets, 491 fall in the asset range of $ 50 million to $ 100 million, and 566 banks are in the $ 100 million to $ 250 million asset range. For small MBHCs in the asset range of $ 250 million to $ 1 billion, there are 164 banks with less than $ 50 million in assets. 202 banks with assets ranging from $ 50 million to $ 100 million, and 165 banks in the $ 100 million to $ 250 asset million asset range. To subject these banks in small MBHCs to the large bank CRA exam and data collection would disadvantage these community banks. Raising the MBHC asset IBAA/CRA November 21 , 1994 366 5 threshold would recognize the institutional diversity under which banks are operating today. It would also reflect the fact that small holding companies often do not have the same resources or engage in the same operations as larger holding companies. The statement of Comptroller of the Currency Eugene Ludwig before the Senate Banking Committee on July 15 , 1993 , can be read as being supportive of a higher threshold for the tiered system . Comptroller Ludwig noted that the new CRA standards must recognize the diversity of the institutional and community settings in which banks and thrifts operate. He said. " How any particular institution meets its CRA obligations will depend on a variety of factors including its overall business strategy, size, financial resources, corporate structure, location, and the needs of the community in which it operates. While all institutions must strive to meet CRA requirements. we must recognize that smaller community banks simply cannot engage in the same type of sophisticated efforts ( such as geocoding) as large banks in order to demonstrate that their CRA performance is satisfactory." IBAA notes that recently the OCC initiated a tiered system for safety and soundness exams. The OCC is differentiating banks based on complexity. If a " noncomplex" bank happens to be owned by a " complex" holding company, this does not make the noncomplex bank complex. Because a community bank is owned by a small MBHC does not mean that the bank has the resources or the capabilities of a large institution. Furthermore, we believe that the agencies have the necessary data on holding companies to ascertain that most small bank holding companies are in fact ownership vehicles and provide little, if any, managerial support to their affiliated banks. IBAA requests that the agencies revise the final rule to permit banks owned by MBHCs of $ 1 billion in assets or less to be eligible for streamlined examinations. IBAA also urges the agencies to provide for regular adjustments to the size thresholds adopted for the small bank assessment method. This is needed to account for the fact that banks grow as a result of inflation, economic activity and interest credited on accounts, while maintaining the same level of staffing. A fixed asset level for streamlined examinations could discourage community banks from growing and helping their local economies to grow. It also will allow small MBHCs to remain competitive with branching networks of large banks, which will not be examined individually for CRA on an annual basis. STREAMLINED EXAMINATION The IBAA strongly supports the proposed streamlined examination for community banks which involves five assessment criteria. The five criteria for a satisfactory rating are: A reasonable loan-to-deposit ratio ( given bank size, financial condition, and credit needs of service area) , adjusted for seasonal variation, and other lending-related activities, such as loan origination for sale to the secondary market; A majority of loans, and other lending-related activity, in the bank's service area; A reasonable distribution of loans, and other lending-related activities, for borrowers of different income levels and businesses and farms of different sizes; A reasonable geographic distribution of the bank's loans given its service area; The bank's record of taking action, if warranted, in response to written complaints about its CRA performance. IBAA/CRA November 21. 1994 367 6 A community bank that meets each of the standards for a " satisfactory" rating and exceeds some or all of all these standards may warrant consideration for an overall rating of " outstanding. " The IBAA supports using the proposed assessment factors to evaluate a community bank's CRA compliance. However, we offer these comments on aspects of the streamlined examination that need further clarification in the final rule. Reasonable Loan-to-Deposit Ratio The IBAA commends the agencies for deleting the 60 percent loan-to-deposit ratio as a presumption of reasonableness. A loan-to-deposit ratio should be considered reasonable if it is consistent with that of a bank's local peers ( an institution may not have local peers, in which case, no peer comparison should be done) . and the local market and economic conditions. In this connection. it is especially important to keep the assessment context in mind. ( See discussion, infra, p.12. ) Examiners should evaluate a bank's lending performance based on the size of the bank, community size and demographics, the bank's, competition, and regional and local economic conditions. For example, a community bank in a metropolitan community with stiff competition may not have as high a loan-to-deposit ratio as a bank with little competition in a smaller community. Likewise, a rural bank in a depressed economic area may have a lower ratio than banks in non-depressed areas. Or a bank in a small community that recently lost its largest employer, or that has a substantial percentage of retired or older residents, may have a lower ratio than similar banks in the region. Loans originated and subsequently sold into the secondary market should also be considered in the evaluation of the reasonableness of the loan-to-deposit ratio. Many banks are active lenders, yet choose not to hold the loans in portfolio because of interest rate risk or other factors. In addition, the sale of loans to the secondary market allows a bank to originate more loans than it could if it held the loans in portfolio. However, under the proposed rule loan sales would not appear in a bank's loan-to-deposit ratio. Making loans that are sold into the secondary market helps a bank meet the credit needs of its community and should be counted as a measure of lending activity. Loans should also include mortgage-backed securities ( MBSs) , collateralized mortgage obligations ( CMOS) , and other collateralized securities that represent loans originated by the bank and sold into the secondary market. To better manage interest rate risk and capital requirements, many banks are selling their loans into a secondary market and repurchasing a collateralized security which requires a lower risk weighting for capital purposes. The bank's effort to serve its community's credit needs should not be overlooked or disregarded based on subsequent action the bank has taken to lower its interest rate risk or capital requirements. Majority of Loans in Service Area A bank must make the majority of its loans in its service area to satisfy this criterion. There are a variety of means by which an examiner can determine if a bank is making the majority of its loans locally For example, a bank which is required to report data under the Home Loan Mortgage Act would have a report available for examiner inspection. Other acceptable methods would include examiners reviewing a sampling of loans to identify zip code, county, or local address. Whatever method is chosen, it must ensure that a documentation or reporting burden is not placed on community banks. Application of this standard must not be so strict as to penalize banks with low loan demand in their area or other factors that limit loan opportunities. These banks may be forced to lend in outlying areas or purchase loan participations or loan packages to maintain profitability. IBAA/CRA November 21, 1994 368 7 Loans to Borrowers of Different Income Levels The purpose of the CRA states that " regulated financial institutions have a continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered. " Helping to meet the credit needs of a community does not mean that all potential borrowers will be qualified and receive loans. The agencies must recognize that the credit needs of low- and moderate-income borrowers may not match those of other segments of the community. Serving potential borrowers with different income levels may also require services and products other than credit products. We assume that this will be addressed by the criterion's reference to " engaging in other lending-related activities." Analyzing a record of making loans across income levels must be done carefully to avoid any suggestion of credit allocation. Congress specifically rejected the use of credit allocation in CRA. Additionally, the agencies have been clear that credit allocation is not the intent of CRA. Previous interagency policies on CRA stated the long-standing view of the agencies that the CRA was not intended to establish a regulatory allocation of credit. The agencies have neither requested commitments from applicants to make particular types or amounts of loans nor specified the terms of or conditions for such loans. The IBAA requests that the agencies reiterate this long-standing policy in the final CRA rule. Reasonable Geographic Distribution This criterion requires banks to have a reasonable geographic distribution of the loans given its service area( s) . IBAA believes that more effective CRA examinations would result if this criterion was revised to focus on " analyzing the geographic distribution of loans." The examination guidelines must avoid any suggestion that a certain number of loans must be made in every census tract in the service area, regardless of whether these loans are consistent with safety and soundness or customer demand. Previous agency policy statements on HMDA support focusing on the analysis of the geographic loan distribution. The interagency policy statement entitled, " Analyses of Geographic Distribution of Lending" adopted. December 6, 1991. stated that HMDA " data should be seen as reliable by the institution that carefully collects and reports it, and [ the HMDA data] can be used without change to reach some conclusions about the demographic impact of the geographic lending patterns of the institution's housing related loans." This statement made no mention about having a " reasonable" distribution of HMDA loans or what type of distribution could be considered reasonable. Action on Complaints This criterion looks at the bank's record of responding, if warranted, to written complaints about its performance in meeting the credit needs of its service area( s) . The IBAA supports this assessment factor with some modifications. IBAA recommends that the final rule, or an official commentary, clarify that complaints resolved satisfactorily for the complainant should be considered " closed" and should not affect the CRA evaluation. Complaints about technical, nonsubstantive violations, such as a failure to include arequired item in the public file or failure to post a CRA notice in a branch, should not affect the CRA evaluation. Complaints from customers or community members residing within a bank's service area should be considered legitimate. Complaints filed by individuals or organizations that do not reside in the bank's service area should not be considered legitimate. Banks may be slower to respond to complaints from out-of-area individuals or 2 The Senate Banking Committee specifically " rejected the course of setting percentage targets for investments." S. Rep. 95-175. 95th Cong.. 1st Sess., May 16, 1977, at 34. During the floor debate. Senator Heinz stated that the CRA " is not an attempt to allocate credit." 123 Cong. Rec. S. 9039-9119, June 7, 1977. IBAA/CRA November 21 , 1994 369 8 organizations. An out-of-area complaint, made by an individual or organization without firsthand knowledge of the bank or its community, would result in little more than the bank being held to a standard based on hearsay. Community banks remain concerned about the possibility that large advocacy groups with agendas not related to the local community or the local bank will involve themselves in a local complaint as a means of focusing attention. Community banks do not have the resources to handle such " manufactured" complaints. We ask that the agencies give less weight to complaints brought by out-of-area individuals or organizations than those from entities located in the service area. ENFORCEMENT AUTHORITY The revised proposal retains the enforcement provisions providing for use of the full complement of enforcement authority granted by Section 8 of the FDI Act ( 12 USC Section 1818) . including civil money penalties, against banks that receive a composite CRA rating of " substantial noncompliance . " The IBAA continues to adamantly oppose this and does not believe that it is appropriate to include this enforcement provision in the final rule. We request that it be deleted. Legal Authority First and foremost, the enforcement provision of the proposal is beyond the scope of the agencies' legal authority. The CRA statute provides only one specific regulatory sanction for a poor CRA record--the agency may condition or deny an application for a deposit facility by the bank. Beyond that, the agencies must " encourage" banks to meet their CRA obligations. No other regulatory enforcement mechanisms are authorized by the CRA statute." The legislative history fully supports this view. Senator William Proxmire, floor manager of the bill . stated in the Senate debate that CRA provides that the agencies " in passing on whether a bank or savings and loan would be allowed to branch or grow or extend by having other units, would take into consideration whether or not that institution has reinvested in the community. " Senator Richard Lugar of the Banking Committee noted that the sanctions offered were that " the institution would have some difficulty extending its facilities, no more and no less than that." ? Under Section 8 of the FDI Act, the agencies have general authority to use regulatory enforcement sanctions whenever an institution is " engaged in an unsafe or unsound practice" or is " violating a law, rule or regulation." Section 8 of the FDI Act contains only general regulatory enforcement authority. Under wellsettled principles of statutory construction, the specific enforcement sanction of the CRA statute controls over the general authority of Section 8. 3 CRA. Section 804( 2) . 4 CRA, Section 802( b) . The statute does contemplate one other " enforcement" mechanism using the court of public opinion: the public disclosure of an institution's CRA rating and written evaluation. CRA. Section 807. This provision was added in 1989 as part of an effort to strengthen the provisions of CRA. Congress could have, but chose not to add any additional sanctions for CRA enforcement purposes In fact, during the House floor debate, the sponsor of the CRA amendments, Rep. Joseph P. Kennedy, stated that there was " not a single thing in the amendment that is in any way punishing to any institution." See 135 Cong. Rec. H. 2755 ( 1989) . ⚫ 123 Cong. Rec. S. 8931 , June 6, 1977. 7 123 Cong. Rec. S. 8961 , June 6, 1977. IBAA/CRA November 21 , 1994 370 9 Even applying Section 8, however, a " substantial noncompliance" rating for CRA performance does not constitute an " unsafe or unsound practice." nor is it a " violation of law or regulation." The CRA statute does not require an institution to maintain a satisfactory CRA rating or any particular level of performance. The crux of the statute is that the " agency shall assess the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the institution" and that the agency shall " take such record into account in its evaluation of an application for a deposit facility" ( emphasis added) . Receipt of a less than satisfactory CRA rating does not constitute violation of a law or regulation. Accordingly. Section 8 enforcement sanctions do not apply. The statute does direct the agencies to publish " regulations to carry out the purpose of the title" ( Section 806) . The purpose of CRA, as stated in Section 802( b) of the Act, is to require the agencies to use their examination authority " to encourage institutions to help meet the credit needs of the local communities in which they are chartered..." The statute does not say that the agencies can force institutions to achieve a certain level of performance. Use of the Section 8 enforcement powers is also inappropriate because CRA evaluation is such a subjective process. Severe penalties for subjective findings of failure are inherently unfair. Clearly, the agencies have authority to use the full range of enforcement sanctions against banks that violate anti-discrimination laws ( which are adverse factors in the CRA performance record) . But this enforcement authority is derived from those laws ( e.g., Equal Credit Opportunity Act, Fair Housing Act) , not CRA. The CRA statute calls for no such enforcement actions and by proposing same the regulators are stepping beyond the scope and intent of the law. The Interagency Questions and Answers Regarding Community Reinvestment adopted by the FFIEC February 16, 1993, recognizes the appropriate sanctions that are available to the agencies under CRA. The answer to Question 29, which asks what sanctions are available to the agencies under the CRA, states that the agencies can deny a corporate application for poor CRA performance; they can use enforcement powers to ensure compliance with the requirements of the regulation ( currently, preparation of a CRA Statement. maintenance of a public comment file, and posting of a CRA Notice) ; and they can use enforcement powers to ensure compliance with antidiscrimination and fair lending laws. This is appropriate, since there are more objective ways to determine a bank's compliance with these requirements. This is not true of CRA ratings themselves. SERVICE AREA The proposed rule states that a bank may delineate its service area using any method it chooses provided that the service area( s) : 1 ) Do( es) not reflect illegal discrimination; 2) do( es) not arbitrarily exclude low-and moderate-income geographies, taking into account the bank's size and financial condition and the extent of its branching network, as appropriate; and, 3) consist( s) of only whole census tracts or block numbering areas. A retail bank's service area must also include those geographies in the local areas around a bank's branches and deposit-taking ATMs in which the bank has originated or had outstanding during the previous year a significant number and amount of home mortgage, small business and small farm loans . ( At the bank'> CRA. Section 804. ⁹ Moreover, the purposes of the CRA and the findings of Congress as stated in the statute do not provide authority for the agencies' enforcement powers, since it is well-settled that purposes and findings clauses do not have the force of law. IBAA/CRA November 21 , 1994 371 10 option consumer loans may be included.) The geographies must be equidistant from the bank's branches and deposit-taking ATMs, taking into account political boundaries or significant geographic barriers. The IBAA remains troubled with the proposed service area definition. While this proposal improved upon the previous draft by including the deposit-taking functions, it still limits the consideration of lending activity to certain types of loans and imposes an unrealistic equidistant requirement. In addition , it may depart from the CRA statute's focal point--communities. Consistent with the statute, the current regulation and interagency guidelines adopted in June 1992 require that a bank delineate the local community or communities it serves. The guidelines suggest two methods for delineating the community. First, the bank could consider using widely recognized existing boundaries such as MSAs or counties. The agencies noted that such boundaries are " frequently a reasonable approximation of an institution's community." The second guideline stated that a bank may use its effective lending territory--that area or areas around each office or group of offices where the lender makes a substantial portion of its loans. Each community must, of course, include the contiguous area surrounding each office or group of offices. What is missing in the new service area definition is the agencies' previous acknowledgement that many factors influence the size and shape of a lender's community. Using the service area definition could unnecessarily constrain a bank's ability to serve its community, or to accurately reflect the community it is serving. The service area definition needs to be more flexible to ensure it reflects the bank's true community To include deposit-taking ATMs in a service area, rather than full-service branches, could extend u bank's service area beyond its effective lending territory. While the IBAA supports considering deposit-taking functions when determining a service area, we recommend that consideration be limited to those areas where the bank also lends. Keeping in mind the new interstate banking and branching legislation, it is not unreasonable to expect that banks may soon accept deposits from ATMs located outside their community IBAA is concerned that the new service area definition could require a community bank to arbitranly draw two service areas, when in reality it is one community. Many community banks are often located on the edge of an MSA and consider their local community to be the " exurbs" or those areas moving away from the MSA. This could mean that a small portion of the bank's community is located in an MSA, with the " substantial" portion located outside the MSA. Our reading of the proposal suggests that this scenario would require two service areas. We see no justification for splitting such a community into two distinct and separate service areas. Such splitting could distort the analysis of the bank's activities in its entire community." 10 FFIEC Interagency Policy Statement " Community Reinvestment Act," June 17, 1992, p. 3. " The June 1992 CRA guidelines noted that when an institution has an office near the boundary of an MSA or county , it should also include in its delineated community those portions of the adjacent counties that it services. In rural areas, it was expected that local community could include more than one county. There is no requirement to split these areas into two service areas. IBAA/CRA November 21 :994 372 11 IBAA is also concerned that the " equidistant" requirement of the service area provision not be For example, a bank that is located to the south of a metropolitan area may have a service area that extends a short distance north towards the metro area, but a much longer distance south, away from the metro area--essentially an elliptical or rectangular area. This is because people in the outlying areas will tend to travel from the exurbs to the bank to conduct business. but people closer to the metro area may obtain banking services in the metro area. In addition, there may be many more banks in the metro area than in outlying areas, thus competition and market opportunities would dictate that the bank's service area extend farther out towards the rural areas, rather than in toward the metropolitan area. Another example is a rural bank that is located in the county seat ( but not necessarily in the center of the county) . The bank may serve the entire county ( unlikely to be a circle) since people living in the county would tend to come to the largest town and the county seat to conduct business. The proposed prohibition on the splitting of census tracts when drawing the service area should also be dropped. Banks do not determine their service area or local community by census tract--this is a marketplace determination. Banks should continue to be prohibited from arbitrarily excluding low- and moderate-income areas or census tracts from their service areas. However, to propose that banks include areas in their service area that they are not serving is also arbitrary and could lead to unintended consequences. Banks should be permitted to draw their service area to reflect the area they serve, with the caveat that low- and moderateincome areas not be arbitrarily excluded. Correct identification of a bank's service area would appear to be essential in order to receive a satisfactory CRA rating. Since so many ofthe criteria are based on the service area, incorrect identification of the service area by the bank or examiner could lead to disastrous results. For this reason, the agencies should give serious consideration to providing a mechanism whereby a bank could receive prior review and certification of its delineated service area. Congress intended for the agencies to look at the entire community, not an artificially drawn service area using an equidistant methodology. Appropriately, the overriding concern identified in the past is that low- and moderate-income neighborhoods are not arbitrarily excluded from the delineated area. The statute requires the agencies to assess an institution's record " of meeting the credit needs of its entire community. including low- and moderate-income neighborhoods...".12 There is no reason to change this focus. The IBAA recommends that the agencies retain the existing requirements on delineating the local community or communities rather than adopting the proposed " service area" definition. At a minimum, if the agencies adopt the service area as proposed, banks will need further guidance to clarify the difference between " service area" and " local community." Without such clarification, institutions could incorrectly identify their service area. Multiple Service Areas IBAA concurs that an institution's CRA rating should reflect its performance in all of the local communities in which it does business. We recognize that it will not be possible to conduct a CRA exam of 12 CRA, Section 804( 1) . IBAA/CRA November 21 1994 373 12 every service area or community of a large bank during an examination cycle. Branches of large banks generally will not face a CRA exam. We believe this gives a tremendous advantage to larger banks. particularly those competing against community banks. We recognize that the agencies believe it is more appropriate to handle the issue of examination of multiple service areas through examination procedures. Nonetheless, we urge the agencies to recognize the competitive concerns that community banks have regarding large banks with multiple distinct communities or service areas. Even with the streamlined examination, community banks will receive regular examinations. while their competitor across the street may never be " sampled. " IBAA requests that the agencies include as part of the examination procedures an examination schedule for multiple service areas. Such an examination schedule should reflect a sampling of both urban and rural areas, and provide for all of a bank's service areas to be examined within a 3-to-5- year period . ASSESSMENT CONTEXT According to the proposal, all CRA examinations will be conducted in the context of the particular characteristics of each bank and its community ( the " assessment context" ) . The proposal states that the agencies are responsible for developing the assessment context for each bank. The assessment context will include: demographic data on the community; examiner-developed information regarding the credit needs of the bank's service area obtained from community-based organizations, state and local governments, and from any information the bank may choose to provide; the bank's product offering and business strategy as determined from data provided by the bank; institutional capacity and constraints, including the size and financial condition of the bank, the economic climate ( national, regional and local) , safety and soundness limitations, and any other factors that significantly affect the bank's ability to lend to the different parts of its service area; the bank's prior performance and the performance of similarly-situated lenders; the bank's public file; and, any other information deemed appropriate by the agency. In many ways, it appears that the assessment context is simply a codification of current agency practice. However, several aspects of this codification are unclear. First, it is not clear that the bank will see the assessment context or have any opportunity to comment on its completeness and accuracy. Since the bank's examination will be based on this context, it is critical that the bank be given a written copy of the context and have the opportunity to clarify, expand, or otherwise comment. Without such an opportunity, it is completely conceivable that the results of the bank's examination would be placed in the wrong context, which could negatively affect the bank's rating. As the assessment context includes seeking public comment from members of the bank's community, it is important that the bank have the opportunity to respond to ( or to put into " context" ) any criticisms or other negative comments. It is also unclear what portion, if any, of the assessment context will be included in the public section ofthe CRA performance evaluation. If any part of the assessment context, which establishes the basis for the evaluation and subsequent rating, is to be included in the public evaluation it would be of the utmost importance that the bank have the opportunity to review and comment on the context. Furthermore, all confidential information related to the bank's business strategies or plans, as well as its financial condition. must be excluded from any publicly released assessment context. LENDING TEST As in the original proposal, large banks will be evaluated on the basis of their performance under three tests: the lending test, the investment test and the service test. The lending test will continue to receive the most weight in assessing the composite rating of a retail bank. IBAA/CRA November 21 , 1994 374 13 The most significant change in the lending test, which IBAA strongly approves, is the removal of the misguided market share test that would have formed a primary basis for the lending score. The market share test would have led to contradictory conclusions and misplaced incentives that could undermine safety and soundness. The market share test was an artificial, arbitrary and unworkable measure of a bank's performance. In many cases, it would not have resulted in an accurate conclusion about the bank's CRA performance . In addition, it could have forced credit allocation--something the Congress clearly did not intend. Another improvement to the lending test is the inclusion of community development lending as a direct component of the lending test, not merely an adjustment factor that could affect the lending score at the margins. However, we recommend deletion of the requirement that to qualify as community development lending, a loan must meet " needs not being met by the private market." If a bank, a private entity, is participating in the lending, by definition the need is being addressed by the private market. This requirement appears to be a circular one that could be impossible to meet. IBAA also welcomes the recognition that innovative and flexible lending practices deserve credit under the lending test. For example, frequently a community development project financed by a bank may take a disproportionate amount of time and effort to bring to fruition, relative to the dollars loaned out. The revised proposal appropriately recognizes the importance of the quality of a bank's lending service to its community. in addition to the quantity. Affiliate Lending The agencies propose to allow a bank to consider in its CRA lending assessment the lending of an affiliate if the affiliate reports or collects HMDA data and small business and farm loan data. The agencies may consider affiliate lending practices even if the bank has chosen not to have the lending considered if the agency determines that this lending is integral to the business of the bank. The proposal attempts to make clear that both the bank and the affiliate may not count the same loan ( no double counting) . In addition. all the loans made in the service area( s) by the affiliate will be looked at, not just those that are made to low- and moderate-income borrowers in the service area. Many banks are affiliated with entities that provide credit or credit-related services. These affiliates can be related to the bank in several ways. They can be a subsidiary of the bank, a sister entity that is owned by the bank's holding company, or a contractual affiliate. An example of a contractual affiliate is IBAA Mortgage Corporation, which acts as an intermediary to allow community banks that do not have the resources to originate and hold mortgages to provide their customers with access to a mortgage provider. This enhances the ability of the community bank to provide credit services to its community. The use of affiliates in the lending process is integral to extending credit and we support its recognition in the CRA evaluation process. INVESTMENT AND SERVICE TESTS The revised proposal also improves the investment and service tests. A bank's qualifying investments will no longer be measured against the bank's risk-based capital, a requirement that would have penalized well-capitalized banks. Instead, the revised proposal appropriately focuses on the dollar amount of the investments and the responsiveness to credit and community development needs. The service test has been revised to eliminate the focus on the percentage of branches located in or readily accessible to low- and moderate-income geographies. IBAA supports the revised proposal's inclusion of delivery systems and services other than branches in the service test. This recognizes improvements in retail bank service technology and should shift the focus from branching to actual services provided. IBAA/CRA November 21 , 1994 375 14 DATA COLLECTION AND REPORTING As in the original proposal, the agencies have proposed significant new data collection requirements . Banks not examined under the small bank assessment method would be required to collect and report data on their home mortgage and small business ( including community farm ) loans. Collection of data on consumer loans would be optional. For small business loans, banks would have to collect and report data on outstanding loan amounts, location of the business by MSA. county and census tract/block numbering area. gross revenues of the business, and race and gender composition of the business owners. The IBAA commends the regulators for not proposing that these new data collection requirements be applied to banks with less than $ 250 million in assets. We urge the regulators to consider dropping this controversial provision for any banks. The bread and butter lending of almost all community banks is small business lending. These proposed new reporting requirements put a heavy burden on small business and also raise very significant privacy concerns. We note that there is no legal authority to collect this data for CRA: collection would be burdensome without any corresponding benefit; it is not clear how race and gender data would be used in the assessment of CRA performance; and the data will be inconclusive and may be used to reach unfounded conclusions. Legal Authority for Data Collection There is no statutory basis to require collection of this data for CRA. In fact, the legislative history of CRA makes clear the Act was not intended to require banks to do additional paperwork. The Senate report states, " The Committee believes that the regulatory agencies 113already have sufficient data available to carry out the intent of this Act without requiring additional red tape." The Senate report discusses the fact that the CRA, as originally introduced, would have required banks to file additional material with the regulators. However, the Senate Banking Committee concluded that additional burdens " would not be necessary or appropriate to the enforcement" of CRA. " In addition, Congress has considered, and rejected several times, small business loan reporting requirements ofthis nature. As part of the FDIC Improvement Act ( FDICIA) , Congress imposed new reporting requirements for small business and small farm loans as part of the Call Report. The extent of the data collection envisioned by this proposal goes beyond that required for the Call Report and would be very burdensome and costly, greatly offsetting any perceived benefit. It is inappropriate for the regulatory agencies to impose a burdensome data collection requirement of this nature without authority from Congress. Appropriateness to CRA The premise of CRA is to encourage banks to meet the credit needs of their entire communities. including low- and moderate-income neighborhoods. As such, CRA is based on geographic and income considerations, not on race and gender. The race and gender of small business borrowers is the focus of the Equal Credit Opportunity Act and Regulation B, which prohibit lenders from discriminating against borrowers based on race, gender and a number of other prohibited factors, not CRA. A further indication that this information is not proper focus of CRA is that the proposal does not state how the race and gender information reported on small business borrowers will be used in the CRA evaluation. Banks should not be asked to collect data for an unknown purpose. 13 S. Rep. 95-175, 95th Cong.. Ist Sess., May 16, 1977, at 34. 14 Id. IBAA/CRA November 21, 1994 376 15 Privacy Implications The proposal presents grave implications for the financial privacy of millions of small business owners and small farmers. Banks will be collecting very sensitive information about small businesses and small farms and recording this information on a loan-by-loan basis on loan registers. If the loan-by-loan information becomes public, anyone--including competitors--would have access to information about the farm's or business's loans. annual revenues and ownership. The current proposal takes minor steps toward preserving privacy . Only aggregate loan information would have to be included in the public file. We remain concerned that it will still be possible to identify certain borrowers in specific census tracts despite the aggregation of data. This could be particularly true for less densely populated areas, where there may only be one or two businesses of a particular size in a census tract. Identification would be even easier for small farms since the number of small farms in any specific census tract or county is small in comparison with the number of small businesses. We are extremely skeptical that individual loan information will remain protected. Witness the experience of the banking industry with HMDA data. When HMDA data was first collected, it was only available on an aggregate basis similar to that proposed for the small business loans. However, over time. more data has been required to be collected and more data has become publicly available. Today, individual loan application registers are available to the public. It is a simple matter to obtain race and income information about a particular person by using the sales price of a home, the property transfer date, the lender ( obtained from county deed records) and census tract information, and matching this information with the lender's loan application register. It is ironic that the federal government's data collection15 requirements, as outlined in a working paper on privacy, stress fairness. protection, and privacy for citizens. The principles state, " users of personal information must recognize and respect the stake individuals have in the use of personal information." Yet. the banking agencies propose to collect data that could be highly sensitive and which could be used at the government's discretion for undisclosed purposes. No recognition has been given to the stake of the borrowers who would be required to disclose the information. According to the working paper, collection of information should " reasonably be expected to support current or planned activities." 17 The agencies have articulated no planned use for this data, nor have they fully considered the possible downside of this data collection. There is an appetite for more and more data in the name of " the public's right to know" with a corresponding and unacceptable erosion of the right to financial privacy. Practical Problems with Race and Gender Coding As proposed by the agencies, collecting race and gender information on small farm and small business loans presents a number of practical problems and will result in incomplete. fragmented and unreliable data This in turn could lead the media and others to reach unfounded conclusions about banks' small business lending. 15 Principlesfor Providing and Using Personal Information, " Acquisition and Use Principles." National Information Intrastructure TaskForce, Information Policy Committee. Working Group on Privacy in the National Information Infrastructure ( part of the US Dept. ofCommerce) ( draft) ; 5/4/94. 16 Id., p. 2. 17 Id. p. 3 IBAA/CRA November 21, 1994 377 16 For example, according to the proposal a business must be more than 50 percent owned by minorities or women to be considered a minority- or women-owned business. A bank may be making a significant number of loans to businesses that are 50/50 owned--minority/non-minority or male/female ( the " Mom and Pop" business) --or to businesses that have significant minority or female ownership that do not approach 50 percent, and yet receive no " credit" for this lending . The data will significantly underestimate the extent to which banks are serving minority and women entrepreneurs . In addition, provision of race and gender data will be optional for the borrower . There may be many borrowers who decline to provide the information for privacy reasons. The greater the number of borrowers that do not provide the information, the lesser the utility of the data collected. Banks will be judged based on this data, yet have no ability to force borrowers to provide it ( or any means to ensure its accuracy. ) Finally, there will be no information to place this data in context that would make it meaningful. Again, we point to the industry's experience with HMDA data. HMDA data is far too incomplete to draw any rational conclusions or prove lending discrimination. Yet that has not prevented it from being used for just that purpose by the media and others. For all of the foregoing reasons, we request that the proposed data collection requirements be deleted from the final rule. STRATEGIC PLAN Under the proposal, any bank, as an alternative to being rated under the streamlined exam or the lending, service and investment tests, may request to be rated under a strategic plan. The IBAA supports providing institutions the option to be assessed under the strategic plan. However, most community banks have indicated that they would not use this option. Many community banks have indicated that aspects of the strategic plan option require clarification. IBAA recommends that the agencies be more explicit about the requirements for a strategic plan. For example . the plan must contain measurable goals, yet it is unclear how these will be measured. Measurable goals also suggests the possibility of credit allocation. How can the agencies prevent this from occurring? The IBAA opposes requiring banks to formally solicit public comment on the strategic plan. We believe that banks preparing a strategic plan should seek input from their community. However, seeking formal public comment could place the bank in a position of releasing confidential business strategies. We urge the agencies to revise this requirement. PUBLIC FILE , DOCUMENTATION AND DISCLOSURE A bank would have to make available for public inspection a file with all signed, written comments from the public received over the last two years; maps of its service areas and lists of census tracts or block numbering areas that make up each service area; list of branches, remote service facilities, street addresses and geographies; list of branches opened and closed in the last two years; and a copy of the public section of the most recent CRA performance evaluation. In addition, large banks would have to include two years of information derived from the data collected on their small business and farm loans. The IBAA requests that the agencies clarify that banks do not need to keep in the file the correspondence related to any written complaints that have been satisfactorily resolved for the consumer Since banks with less than $ 250 million in assets are not subject to the data collection requirements and yet could be located in an MSA, IBAA requests that the agencies clarify that these institutions need maintain only the maps of their service areas and not the accompanying census tract data or block numbering area data. IBAA/CRA November 21, 1994 378 17 The proposal also requires a community bank to include in the public file its loan-to-deposit ratio computed at the end of the most recent calendar year. A year-end snapshot is not necessarily a reliable indicator of a bank's loan-to-deposit ratio. Particularly for agricultural banks, the loan-to-deposit ratio is seasonal and will fluctuate significantly ( as much as 20 percentage points or more) during the course of the year. IBAA recommends replacing the requirement to include the year-end loan-to-deposit ratio in the public file with a requirement to include the quarter-end loan-to-deposit ratios or an annual average ratio computed by the bank. IBAA also requests that the agencies delete the requirement for a bank with a less than satisfactory rating to include in its public file a description of current efforts to improve its performance. This requirement could compromise confidentiality. A bank's plan to improve its CRA performance could contain confidential information about its strategic business planning that should not be available to the public. RATINGS Provisions on assigning ratings and evaluating a bank's performance under the applicable criteria are set forth in Appendix A to the proposal. The ratings profiles include terms like " excellent," " good." " adequate, " " poor, " " very poor, " " extensive use," " limited use," " substantial majority," " high percentage." " community percentage," etc. IBAA recognizes that, in using words of this nature, the agencies have attempted to balance the need for flexibility against the desire for certainty and consistency in examinations. We oppose the imposition of fixed ratios. However, to avoid inconsistent application and to ensure fair and reasonable application of these terms, the agencies have a responsibility to ensure that examiners receive comprehensive guidance and training and that bankers understand what is necessary to achieve a specific rating. ( See discussion, infra, at p. 21.) Outstanding Ratings for Community Banks The IBAA seeks clarification about how a community bank evaluated under the small bank assessment method can achieve an outstanding rating. The agencies must set forth the criteria that can lead to an outstanding rating. In addition to determining whether the bank has exceeded some or all of the requirements for a satisfactory rating, the agencies will take into account its record of making qualified investments and providing services and delivery systems that enhance credit availability in its service area. Flexibility to consider the full range of activities that can enhance credit availability and promote community development is paramount to avoid a presumption that community banks that meet the five criteria are " merely" satisfactory. We recommend that the following activities be given appropriate credit in assessing whether community banks should receive outstanding ratings: time- or labor-intensive efforts to facilitate lending to targeted or lower-income borrowers or to community development projects; credit, borrower or small business counseling; homebuyer seminars; low-cost deposit or check-cashing services, and agriculture risk management seminars. This list is by no means all inclusive, rather it is representative of activities which warrant credit. Downgrading to Substantial Noncompliance The proposal retains the provision whereby a bank that would otherwise be rated " needs to improve" would be automatically downgraded to " substantial noncompliance" if the bank has received ratings of " needs to improve" on its two previous examinations. IBAA opposes this because it is a rigid, inflexible provision that fails to take account of the bank's circumstances. Ifthe bank has been making a good faith effort to improve its performance, but has not yet been able to achieve the satisfactory level, it should not be penalized and essentially given a lower rating than it deserves. Arbitrarily downgrading banks in this manner is IBAA/CRA November 21, 1994 379 18 especially objectionable if a " substantial noncompliance" rating carries the potential for enforcement sanctions. as is proposed. ( See discussion, supra, pp. 8-9.) Large Bank Ratings Large bank ratings are determined by a point matrix. A total of 18 or more points is needed to score an " outstanding;" 9 through 17 points earns a " satisfactory: " 5 through 8 is a " needs to improve:" and 0 through 4 is a " substantial noncompliance. " To keep the emphasis on the lending test, a bank's total score may not exceed 2 times the lending score. The proposed matrix follows: Lending Service Investment Outstanding 12 6 6 High Satisfactory Low Satisfactory 9 4 4 6 3 3 Needs to Improve 3 1 1 Substantial Noncompliance 0 0 0 Component Test Ratings While the matrix scoring system is designed to give primary importance to the lending test, IBAA is concerned that it simultaneously overcounts and undercounts lending performance. For example, in the point scale, lending is emphasized by giving it twice--or in some cases, more than twice--the points available under eitherthe service or investment test. Additionally, a bank's total score cannot exceed twice the lending score, again giving emphasis to lending. This seems to give lending not twice as much weight as service or investment, but four times. Thus, a bank that received a low satisfactory in lending ( 6 points) , and an outstanding in both service and investment ( 6 points each) would not receive an outstanding rating even though its raw score was 18. because it would receive a total score of 12 ( twice the lending score) for a satisfactory rating. In contrast, a bank that received a low satisfactory in lending ( 6 points) and a needs to improve in both service and investment ( 1 point each) would receive a needs to improve rating ( 8 points) despite the fact that its lending record was deemed satisfactory. If lending is to receive primary emphasis, then a bank that is performing satisfactorily in lending should receive a satisfactory rating. These anomalies appear to stem in part from the use of five categories of ratings in the component tests--breaking satisfactory into two parts, " high" and " low" satisfactory--instead of the four authorized by statute. In the first example, if the bank had received a high satisfactory instead of a low satisfactory in lending, its overall rating would have been outstanding. In the second example, if the bank had received a high satisfactory in lending, its overall rating would have been satisfactory. Use of the five category rating system is in conflict with the rating scheme set forth in the statute. IBAA requests that the agencies modify the matrix scoring system and the ratings categories for the component scores to correct these anomalies. Outstanding service or investment is worth 6 points, but outstanding lending is worth 12 points. High satisfactory service or investment is worth 4 points, but high satisfactory is worth 9 points. November 21 , 1994 IBAA/CRA 88-882-95 - 13 380 19 Weight ofRatings During Application Process Pursuant to the CRA statute, a bank's CRA rating is taken into account when an agency reviews the bank's application for a deposit facility ( e.g., branch, merger, acquisition or conversion application) . A current outstanding rating should receive great weight during the applications process. If a bank has performed in such a manner so as to warrant an outstanding rating, it is only fair that the bank be protected from obstructionist protests filed during an application. IBAA recommends that the agencies establish a rebuttable presumption that an outstanding rating will result in approval of the CRA aspect of an application. Under the rebuttable presumption, the burden should be placed on the protestant to show why the application should not be approved on CRA grounds. The rebuttable presumption for an outstanding rating is appropriate since potential protestants will have the opportunity to provide comments to the agencies during the CRA examination process. Establishing a rebuttable presumption in favor of an outstanding rating during the corporate application process would help reduce or eliminate the time and costs incurred by a bank that must defend itself against a frivolous protest. This is particularly critical for community banks and small bank holding companies that have less monetary and managerial resources to draw upon in defense of any such protest. Furthermore, failure to recognize the value of an outstanding CRA rating during the application process diminishes the value of the rating and unjustly penalizes banks that have been recognized as having outstanding CRA performance. Effect of Lending Discrimination on CRA Rating Under the previous proposal, a bank would have presumptively received a less than satisfactory CRA rating if it had engaged in a pattern or practice of illegal discrimination that it had not fully corrected: or had committed an isolated act of illegal discrimination, of which it had knowledge, that it had not fully corrected. or was not in the process of correcting fully. IBAA strongly objected to evaluating and rating a bank based on an isolated instance of discrimination that it had not been aware of, condoned or promoted. This provision has been replaced by a standard comparable to that in current regulations--any evidence of discriminatory or other illegal credit practices would adversely affect the agencies' evaluation of the CRA rating. In determining the effect on the rating, the agencies would consider the nature and extent of the evidence, the bank's policies and procedures to prevent illegal discrimination, and corrective actions taken. IBAA supports this change, particularly the removal of the presumption that a less than satisfactory rating would be required. It is essential that the regulators have discretion to consider the listed factors and apply a rule of reason. in determining what effect the evidence will have on the CRA rating. TRANSITION PERIOD The new rules will become fully effective July 1 , 1996. The new recordkeeping will take effect by July 1995. Beginning after July 1 , 1995, a bank that qualifies for a streamlined exam may be evaluated under this new method. The IBAA believes that this time frame may be unrealistic depending on when the agencies adopt a final rule. To ensure that the examiners are adequately trained, we recommend a transition period of at least six months after the publication of the final rule and the completion of the examiner training. As for the data collection, it is not reasonable to expect banks to assemble the new data and prepare the appropriate reports in the allotted time frame. At a minimum, the agencies should provide a transition period of at least six months from the adoption and publication of the final rule for banks to begin collecting the data. IBAA/CRA November 21, 1994 381 20 PUBLICATION OF EXAMINATION SCHEDULE AND PUBLIC COMMENTS The agencies propose to publish a list of banks which are scheduled to undergo CRA exams in the next calendar quarter. This would alert members of the public who wished to submit comments to the agencies regarding the CRA performance of banks on the list. IBAA requests that the final rule be amended to clarify that only pertinent comments related to the specific bank under examination and received from members of the bank's own community will be considered during the exam . Community banks are concerned that large advocacy groups with agendas not related to the local community or the local bank will file comments to hold a community bank hostage to the CRA process and try to " make an example" of the bank as part of a large advocacy organization's CRA campaign. APPEALS PROCESS The IBAA believes that an effective appeals process is essential to the successful implementation of the revised CRA rule. An appeals process would help ensure consistency in an agency's CRA evaluation and ratings. In general, community bankers are dissatisfied with the current appeals process. Most bankers are unsure how to pursue an appeal, while others have expressed concern about the lack of objective decisionmakers in the process. The Riegle Community Development and Regulatory Improvement Act of 1994 ( " Riegle Act" ) provides for a regulatory appeals process and ombudsman. The Riegle Act requires the agencies to create an appeals process that will be available to review determinations relating to examination ratings. " An ombudsman must also be created by each agency " to act as liaison with respect to any problem that any party may have in dealing with the agency." 20 The implementation of Section 309 of the Riegle Act will help to implement an effective and fair appeals process for the revised CRA rule. We offer the following recommendation regarding the implementation of the appeals process and ombudsman with regard to the CRA. The CRA is the only area of the examination report where the rating is made public. Although publicly available, the rating is not subject to modification as a result of any public comment arising from the publication of the rating. Any use of the appeals or ombudsman process must occur before publication of the CRA rating in order to avoid any negative impact on the bank caused by publication of an undeserved rating. In this regard, we note that Section 807 of the CRA provides for a public evaluation report detailing the agency's conclusions on the CRA assessment factors, the facts and data supporting the conclusions . and the rating. We believe that publication of the foregoing while an appeal is pending would be a strong signal of agency bias towards the original findings. This would obviate the efficacy of the process and essentially render the Congressional intent to create an effective appeals process moot. OFFICIAL COMMENTARY The IBAA reiterates our recommendation that the agencies create a commentary to the CRA regulation. A commentary would provide an ideal vehicle for the agencies to issue official staff interpretations of the regulation. Good faith compliance with the commentary should afford institutions protection from enforcement actions. 19 Section 309( b) . See also 171 H. Rep 103-652, 103 Cong., 2d Sess., August 2, 1994. 20 171 H. Rep. 103-652, 103 Cong., 2d Sess., August 2, 1994. IBAA/CRA November 21 , 1994 382 21 EXAMINATION GUIDELINES The IBAA requests that the agencies, jointly or independently, seek comment on the examination procedures that will be used to implement the revised CRA rule. We recognize that seeking comment on examination procedures is not a standard agency practice; however, the magnitude of change proposed by the revised CRA rules warrants a departure from usual and customary procedures. Furthermore, receiving public comment on the examination procedures will help ensure that the rule is implemented as intended. EXAMINER TRAINING IBAA strongly urges the regulators to ensure that all examiners receive comprehensive training prior to the imposition of the CRA rules. Under the new rule, examiners will be required to exercise a considerable amount of discretion and judgement. To do this effectively and judiciously, consistent and appropriate implementation of CRA depends on how examiners apply the standards they have been given to work with when they come into the bank. Examiners will need to be properly trained on how to conduct the examinations to avoid unintentionally shifting the burden back to the banks. The agencies must also take steps to reconcile the conflict that develops between CRA exams and safety and soundness exams. Too often bankers make what they believe are good " CRA loans" ( which, in fact, may be favorably cited in a CRA exam) only to have the safety and soundness examiner later classify the loans. All examiners should be " cross-trained" in compliance and safety and soundness to minimize this situation. We recognize that evaluation of CRA performance requires examiner judgement. This is necessary so that examiners can take adequate account of the differences among communities and the banks that serve them. However, in a review ofthe first proposal, the GAO noted that there are numerous areas where examiners will be required to use discretion to determine an institution's performance. The same is true in this revised proposal. The GAO's conclusion that, in addition to the need for specific guidance " on how and under what circumstances examiner discretion will be used," " comprehensive training programs for all examiners will be important to emphasize the guidelines for using discretion," holds true for this revised proposal. BANKERS' BANKS The proposal contains an exemption for certain special purpose banks, including bankers' banks. ( Section ____ 11 ( d) ( 2) . ) IBAA strongly supports this exemption. However, the definition of bankers' banks in this section is obsolete and should be revised to conform to the definition of bankers' bank as amended by the Riegle Community Development and Regulatory Improvement Act of 1994 ( " Riegle Act" ) . Pub. L. No. 103325. The Riegle Act defines a bankers' bank as a bank which is engaged exclusively in providing " services to or for other depository institutions, their holding companies, and the officers, directors and employees of such institutions and companies, and in providing correspondent banking services at the request of other depository institutions or their holding companies." See, Section 322 of the Riegle Act, amending 12 U.S.C 24 ( Fifth) and 12 U.S.C. 27( b) ( 1) . The IBAA requests that the language of Section 11 ( d) ( 2) be conformed to the Riegle Act's revised 21 Letterfrom James L. Bothwell, Director, Financial Instittuions and Market Issues, General Accounting Office, to Representatives Henry B. Gonzalez and Joseph P. Kennedy II, January 26, 1994, p. 10. November 21, 1994 IBAA/CRA 383 22 CONCLUSION IBAA is appreciative of the agencies ' efforts to revise CRA, the highly burdensome regulation--and make it less burdensome and more performance oriented. IBAA is strongly supportive of the streamlined examination for community banks--a tiered system that recognizes the real differences under which large banks and community banks operate. The agencies' concern about the ever growing and crushing regulatory burden that community banks face is evidenced in this proposal. A tiered system with real regulatory relief for community banks will allow them to return their focus to what they do best--serving their communities. We appreciate this opportunity to comment and would be pleased to discuss any parts of this letter in further detail. Sincerely, Schivers IBAA/CRA November 21 , 1994 384 JohnpegShivers jent Richard L.. Mount Preset E.c.: 1M. Stenehjem. Jr"! Can Knight I Jurde " er IBAA March 24, 1994 Mr. William Wiles Board of Governors of the Federal Reserve System Communications Division Ninth Floor Office of the Comptroller of the Currency 250 E Street, S.W. Mr. Robert E. Feldman Ms. Kathy Simone Director, Information Services Division Public Affairs Office of Thrift Supervision OTS 93-234 Dear Sir/Madam: Enclosed please find an executive summary of key points from the IBAA comment letter on the proposed CRA revisions, as well as our comment letter. Sincerely, Jahe Shivars John Shivers President Enclosures WASHINGTON OFFICE, ONE THOMAS CIRCLE NW, SUITE 950. WASHINGTON, DC. 20005-5802 202 659-8111 385 INDEPENDENT BANKERS ASSOCI. 10. SUMMARY OF KEY POINTS FRC COMMENT LETTER ON PROPOSED CRA ME ON Tiered System IBAA strongly supports a tiered system for CRA with streamlined examination p small banks. The cumulative cost of CRA and other regulations is threatening community t to remain independent and effectively serve their customers. Pending interstate branching legislation magnifies the need for a streamlined exam . for smaller banks. Consolidated branches will be examined infrequently , if at all , wh.. community banks that compete against them will continue to face annual CRA examinations. Requiring small banks to comply with the same paperwork, reporting requirements and examination procedures as large banks hinders their ability to achieve the goals of CRA. CRA represents a huge data collection burden on banks, especially small banks. A streamlined examination process for small banks will lessen their compliance burden . Streamlined Examination Threshold IBAA recommends that the final rule raise the streamlined examination eligibility threshold for banks from $ 250 million to $ 500 million in assets and for bank holding companies from $ 250 million to $ 1 billion in assets. The $ 250 million threshold for streamlined examination eligibility applies to roughly 17% of the banking industry's total assets and 20% of the industry's total deposits. Raising the threshold to $ 500 million only nominally raises by 3 percentage points the amount of bank assets eligible for the streamlined examination. The small-bank assessment threshold should be subject to regular adjustments for inflation, economic activity and interest credited on accounts. Small Bank Test 1. Loan-to-Deposit Ratio IBAA recommends that an institution be presumed to have a reasonable loan-to-deposit ratio if it is consistent with the bank's peers, local market and economic conditions. A " reasonable " loan-to-deposit ratio standard would permit latitude to considerthe level of public deposits, municipal bonds and loans originated and sold intothe secondary market. IBAA strongly opposes the use of a fixed ratio, such as the proposed 60%, for determining a reasonable loan-to-deposit ratio for the following reasons: a) b) c) the potential for misuse as a hard and fast rule; a fixed standard could result in credit allocation; imposition of a fixed ratio would contradict Congressional intent; IBAA/CRA-Executive Summary March 24, 1994 386 2 d) a fixed ratio might undermine safety and soundness as banks try to meet an arbitrary " magic number;" e) f) Public deposits should be excluded from the definition of " deposits . " " Loan" should be defined to include purchases of local municipal bonds ( a close substitute for community development lending ) and loan originations and their subsequent sale into a secondary market. 2. Makes the Majority of Loans in Its Service Area The final rule should clarify that banks should not be required to " geocode " their loans as proof of community lending. 3. Adequacy of Loan Mix The proposed definition of " good loan mix " exceeds the scope of CRA and suggests credit allocation. The final rule should delete the reference to making loans " across economic levels. " In addition, the final regulation should clarify that banks and thrifts have the discretion to develop the types ofproducts and services that are best suited to their expertise, business objectives and the credit needs of their communities. 4. No Legitimate Complaints IBAA recommends that the agencies adopt complaint procedures to determine " bona fide complaints " and incorporate a specific definition for " consumer complaint " in the final rule. Additionally, only complaints by customers or community members residing within a bank's service area should be considered legitimate. 5. No Evidence of Discriminatory Practices /BAA strongly opposes evaluating and rating a bank based on an isolated instance of discrimination; judging compliance on an isolated instance fails to prove intent. Creating a new standard that requires banks to be downgraded for isolated acts establishes an impossible compliance standard and is bad public policy. 6. HMDA Reporting Banks Have Reasonable Distribution of Such Loans There is no statutory basis for requiring HMDA reporting banks to have a " reasonable geographic distribution " of reported loans, and such a requirement is tantamount to credit allocation. IBAA recommends that this criterion be rewritten to focus on " analyzing the distribution of HMDA related loans. " Enforcement Authority IBAA requests the agencies delete from the final rule the provisions permitting the agencies to use the full complement of enforcement authority, including levying of civil money penalties, against banks that receive a composite CRA rating of " substantial noncompliance. " The enforcement provisions of the proposal are beyond the scope of the agencies ' legal authority. The statute requires the agencies to encourage compliance, suggesting that positive incentives are in order, rather than severe penalties. IBAA/CRA--Executive Summary March 24, 1994 387 3 Service Area The proposal unnecessarily constrains a bank's community to an artificially drawn service area based on " reportable " lending activity. IBAA recommends that the agencies rewritethe definition of " service area, " broadening it to reflect the entire community that a bank serves and giving consideration to all lending activity. Lending Test The lending test as proposed is unworkable. The test will likely lead to contradictory conclusions and misplaced incentives that could undermine safety and soundness and could be criticized for forcing credit allocation. In addition, the market share test is an artificial, arbitrary, and unworkable measure of a bank's performance. The IBAA recommends that the lending test be totally reworked to accommodate the following concerns: The proposal places institutions in direct competition with each other for outstanding CRA ratings. It is inappropriate to treat CRA performance as a zero-sum game or grade institutions on a bell curve, thereby making it is impossible for all banks to achieve satisfactory performance. The proposal creates unwise incentives for banks to engage in predatory pricing or to lower their credit underwriting standards in order to garner loans ( and market share) in the low/mod areas. • Carefully thought out community development plans could be disrupted by efforts to " buy" good business and gain market share at any price. Since loan activity is not measured for non-bank lenders or small banks , market share results for the CRA-reporting lenders will reflect artificial markets that do not accurately reflect true market shares. Heightened scrutiny of specific geographic tracts would not constitute a meaningful evaluation of a bank's CRA performance in rural areas where low/mod residents are widely dispersed. The proposal's emphasis on quantity of loans ignores much of the time- and laborintensive efforts , or quality of service , needed to facilitate lending to targeted borrowers and community development. Investment Test To avoid penalizing well-capitalized banks, total assets is a more equitable and appropriate base against which to measure a bank's commitment to CRA investments. Service Test Banks should receive credit for lending-related activities, such as borrower counseling, which may help to increase the bank'sleveloflending in its community, and for deposit-related activities, such as government check cashing, which provide needed services to a bank's community. IBAA/CRA--Executive Summary March 24, 1994 388 Strategic Plan Banks should have the option to be assessed under a strategic plan, but IBAA strongly opposes mandating that a bank prepare such a plan. Publication of Examination Schedule and Public Comments IBAA requests that the final rule clarify that only pertinent comments related to the specific institution under examination and received from members of the bank's own community will be considered during CRA examinations. Composite Ratings The automatic downgrading to substantial noncompliance for institutions receiving consecutive " needs to improve " ratings fails to take account of the individual circumstances ofthe bank and should be deleted. Data Collection There is no statutory basis for the extremely burdensome proposed data collection requirements, which should be deleted from the final rule. Transition Period The agencies should provide a transition period of at least six months from the adoption and publication ofthe final rule to allow banks to begin to collect data and comply with the proposed reporting requirements. Evaluations based on the new assessment standards should not begin until at least six months after examiner training is completed. Rebuttable Presumption IBAA recommends that the final rule make clear that a bank can rebut a presumption at any time during the examination process and at any time during an appeal of a CRA rating. The final rule should clarify that the rebuttable presumption provision is for banks only, and that community or consumer groups do not have such rights. Weight of Ratings During Application Process IBAA recommends that the agencies establish a rebuttable presumption that an outstanding rating will result in approval of the CRA aspect of an application. Under the rebuttable presumption, the burden should rest on a protestant to show that the application should not be approved on CRA grounds. IBAA/CRA--Executive Summary March 24, 1994 389 JohnJ-~Shivers ..Jen Richard Mount Leland Meneh • jem,Jr 1.Gan knight TerryJJurde James R. Lauffer FroKenneth A Guenther ...jeπ IBAA March 24, 1994 Mr. William Wiles Board of Governors of the Federal Reserve System Communications Division Ninth Floor Office of the Comptroller of the Currency 250 E Street, S.W. Mr. Robert E. Feldman Ms. Kathy Simone Director, Information Services Division Public Affairs Office of Thrift Supervision OTS 93-234 Re: Revised Community Reinvestment Act Regulations Dear Sir/Madam: The Independent Bankers Association of America ( IBAA) submits these comments in response to the joint agency proposal to revise the Community Reinvestment Act ( CRA) regulation that appeared in the Federal Register on December 21 , 1993. The IBAA is the only national trade association that exclusively represents the interests of the nation's community banks. 390 2 On July 15, 1993, President Clinton requested the banking agencies-- " in close consultation with the banking industry, thrift industry, Congressional leaders , and community groups across the country--to work together to reform the CRA enforcement system by developing new regulations and procedures that replace paperwork and uncertainty with greater performance, clarity, and objectivity. " In response to these presidentially mandated goals, the agencies have released a comprehensive proposal for comment. Community bankers strongly support the goal of CRA--lending and investing in all areas of our communities, including low- and moderate-income areas. IBAA strongly supports the establishment of a streamlined CRA procedure for community banks. The proposed streamlined examination approach for small banks is the type of innovative approach that is responsive to the President's challenge to focus CRA on real investment and services rather than meaningless documentation. By proposing a streamlined procedure for small banks, the agencies are appropriately relying on the ample authority that is provided in the CRA statute. IBAA believes that other specific aspects of the proposal require modifications prior to their adoption . Our detailed comments on the proposal follow as outlined in the table of contents below. Table of Contents Burden of Current CRA System Implications of Pending Interstate Branching Legislation Application of CRA to Non-Banks Need for a Tiered System IBAA/CRA 15 16 16 17 18 19 20 20 21 21 21 22222 Size Threshold Streamlined Examination Reasonable Loan-to-Deposit Ratio Makes a Majority of Loans in Its Service Area Has a Good Loan Mix No Legitimate Complaints No Evidence of Discriminatory Practices HMDA Reporting Banks Have Reasonable Distribution of Such Loans Failure to Meet One or More of the Six Criteria Enforcement Authority Legal Authority Incentive vs. Sanction Service Area Multiple Service Areas Lending Test Competition for Ratings Safety and Soundness Concerns Effect on Niche Lenders Artificial Markets Inability to Monitor Performance Special Problems for Rural Areas 3 4 4 4 5 6 6 7 7 10 10 12 13 14 March 24, 1994 391 3 Failure to Address the Quality of a Bank's CRA Performance Recommendation Investment Test Service Test Strategic Plan Public File, Documentation and Disclosure Publication of Examination Schedule and Public Comments Composite Ratings Broadening of HMDA Data Collection Transition Period Basis for Assessment Applicability of CRA to Bankers' Banks Affiliates Rebutting the Presumptions Weight of Ratings During Application Process Regulatory Flexibility Act Conclusion 22 23 23 23 24 25 25 26 26 26 27 27 27 28 28 29 29 29 29 29 30 30 30 31 31 BURDEN OF CURRENT CRA SYSTEM There is ample evidence to support the need for a tiered system for CRA . The regulatory cost and burden associated with the current CRA process are staggering , particularly for community banks. Most of this cost can be attributed to meaningless paperwork and documentation that banks must produce to " justify" their CRA compliance. A study on the costs of the regulatory burden conducted by Grant Thornton for the IBAA last year concluded that CRA is the most expensive pre- FDICIA compliance area for community banks. The study found that the nation's 10,000 community banks spend over $ 1 billion annually to comply with CRA. Community bankers spend 14.4 million hours each year--1,440 hours per bank-in paperwork exercises, such as filling up their CRA files with memoranda documenting routine activities, attending civic meetings, and the like. This wasteful process hinders community banks' ability to serve their customers . The study also found that CRA compliance accounted for nearly one-third of the total compliance costs for the 13 most costly regulatory areas studied in the IBAA/Grant Thornton study, almost three times more costly than the safety and soundness examination. Other industry studies have also concluded that CRA is the most burdensome regulatory requirement. The American Bankers Association ( ABA) 1991 study found thatthe " single most burdensome regulatory requirement was determined to be compliance with the Community Reinvestment Act as it is currently supervised and enforced . " As with the IBAA/Grant Thornton study, ABA found that the paperwork involved in documenting CRA activities was the greatest burden, particularly for community banks. IBAA/CRA March 24, 1994 392 The agencies themselves have found that costs of regulatory burden are high. An FFIEC study completed in 1992 estimated that the banking industry's costs of regulatory compliance for 1991 reached some $ 17 billion or 14 percent of noninterest expense. We believe that the agencies' own expenses are increasing due to the escalating regulatory burden imposed on financial institutions. The cumulative costs of CRA and other regulations is threatening community banks' ability to remain independent and effectively serve their customers. IMPLICATIONS OF PENDING INTERSTATE BRANCHING LEGISLATION The streamlined examination system for smaller banks is justified by the fact that the pending interstate banking and branching legislation--which is highly likely to be enacted--will give large multistate banking organizations substantial CRA relief. This legislation will allow multistate banks to consolidate their separate banks into branches of a single bank . The branches of these consolidated banks and their service areas will most likely be examined very infrequently, if at all, while community banks that compete against them will continue to face annual CRA examinations. The streamlined examination will offset some of this inequity. APPLICATION OF CRA TO NON-BANKS Only traditional depository institutions carry an explicit community reinvestment responsibility. Yet, they are losing market share to a wide array of other financial institutions, including securities firms; mutual funds; insurance, mortgage and finance companies. These firms are drawing deposits away from local communities and make little, if any, effort to serve local credit needs. Furthermore, these institutions benefit, directly and indirectly, from government activities designed to maintain financial stability and, as such , have a responsibility to the communities they are serving. Given the shifts in market share from banks and savings and loans to these other financial players, a smaller and smaller share of the financial marketplace is under any CRA obligations. IBAA urges the agencies to recommend to Congress that CRA be extended to these nonbank providers of deposit and credit services to ensure that all communities ' credit needs are served . NEED FOR A TIERED SYSTEM Comptroller of the Currency Eugene Ludwig's statement before the Senate Banking Committee on July 15, 1993, made the indisputable case for a tiered system : As we develop new CRA standards, we must recognize the diversity of the institutional and community settings in which banks and thrifts operate. How any particular institution meets its CRA obligations will depend on a variety of factors including its overall business strategy, size, financial resources, corporate structure, location, and the needs of the community in which it operates. While all institutions must strive to meet CRA requirements, we must recognize that smaller. community banks simply cannot engage in the same type of sophisticated efforts ( such as geocoding) as large banks in order to demonstrate that their CRA performance is satisfactory. IBAA/CRA March 24, 1994 393 5 Today's rules apply CRA in the same manner to all insured banks and thrifts, regardless of size or location . Regulatory policies have attempted to differentiate between the documentation requirements for small banks and large banks, but with little success. Today, banks with staffs of 10 are asked to do the same as those with staffs of thousands. Banks in towns with populations of 1,000 are being held to standards that rival those for multinational financial corporations headquartered in the United States and serving the world. No public purpose is served by a regulatory system that inflicts community banks with the same standards and requirements as multi-billion dollar institutions . No public purpose is served by a regulatory structure that threatens the very existence of small community banks and, in turn , the communities they serve. At the agencies' last public hearing on CRA reform , then-IBAA- President James Lauffer recommended that the agencies consider a six-part examination program for community banks. The IBAA proposal called for the agencies to evaluate a bank on the following criteria: whether it makes the majority of its loans locally and has a good loan mix, and makes a variety of loans, including commercial ( farm ) , real estate and consumer; has had no legitimate, bona fide complaints from community members; has a reasonable loan-todeposit ratio based on peer group analysis and local economic conditions; has revealed no evidence of discriminatory practices in compliance and/or fair lending examination; has properly delineated its community for CRA purposes; and , has orally reported to examiners on ascertainment of community needs, and community outreach . We are pleased that the proposal incorporated many of the IBAA recommendations. At that same hearing , the ABA also recommended that the agencies explore a " simple screen " examination for small community banks, tracking very closely the recommendations previously made by the IBAA. ABA suggested that the agencies look at the following criteria to assess CRA compliance of community banks: adequacy of a bank's community delineation, the contents of the CRA public file, the loan-to-deposit ratio ( on a relative standard by peer group) , the percentage of loans in the community, credit product mix, and credit underwriting standards. Again , we are pleased that the proposed streamlined examination incorporated many of the industry's recommendations. We note that the Consumer Advisory Council ( CAC) to the Federal Reserve Board also recommends a tiered system . The CAC said the " Regulators should create a tiered structure for CRA examinations that contains cost-effective requirements for small community banks. " 1 PROPOSED TIERED SYSTEM IBAA strongly supports a tiered system for CRA examination , with streamlined examination procedures for small banks. A tiered system will " recognize the real differences in circumstances in which our banks and thrifts operate, " which President Clinton said is " critical to improving the CRA process. " IBAA commends the agencies for proposing a streamlined CRA examination system. The proposed streamlined examination for small banks recognizes that it is counterproductive to subject community banks to the same onerous paperwork, reporting and other requirements as large multinational and multistate banks. 1 Consumer Advisory Council Recommendations on CRA Reform, Attachment B to the Federal Reserve Board Staff Memo on CRA Reform Project, December 7, 1993. IBAA/CRA March 24, 1994 394 6 Different size banks have differing abilities to comply with paperwork and reporting requirements. Statutory Authority The Community Reinvestment Act directs the agencies to promulgate regulations to implement the statute . The statute is very flexible and provides ample discretion to the implementing agencies to establish a tiered system for community banks. In fact, the legislative history makes clear the Act was not intended to require banks to do any additional paperwork.2 CRA examination techniques have changed drastically over the last decade and have moved far from the original Congressional intent by imposing a huge data collection burden on banks. The proposed streamlined examination process is more consistent with the original intent and should significantly reduce the paperwork requirements for smaller banks. Conversely, requiring small banks to comply with the same paperwork, reporting requirements and examination procedures as large banks hinders their ability to achieve the goals of CRA. Numerous studies have shown that it is much more difficult for small banks to meet community reinvestment obligations if they divert their finite resources away from lending in order to meet examination requirements. Size Threshold Under the proposal, only independent banks with less than $ 250 million in total assets, and banks owned by holding companies with total banking assets of less than $ 250 million, are eligible to elect to be evaluated under the small bank assessment method . While a large number of banks would be eligible for streamlined procedures at this asset level , it only applies to approximately 17 percent of the banking industry's total assets and 20, percent of the industry's total deposits. Larger community banks should have the option to be examined under the streamlined system. There are many community banks larger than $ 250 million in assets that operate with small staffs and an intense local focus, frequently in non-metropolitan areas. A streamlined examination for these large community banks would free up more compliance dollars that can be better spent on actual community reinvestment. Therefore, IBAA requests that the final rule be revised to allow community banks with up to $ 500 million in assets the option of being examined under the streamlined procedures . Raising the size cut-off to $ 500 million only increases the banking assets subject to the small bank assessment method by a nominal percentage ( 3 percentage points) for a total of 20 percent of the industry's assets. The Senate Report states that, " The Committee believes that the regulatory agencies already have sufficient data available to carry out the intent of this Act without requiring additional red-tape. " S. Rep. 95-175, 95th Cong., 1st Sess., May 16, 1977, at 34. The Senate report goes on to discuss the fact that the CRA, as originally introduced, would have required banks to file additional material with the regulators. However, the Senate Banking Committee concluded that additional burdens " would not be necessary or appropriate to the enforcement" of CRA. Id. IBAA/CRA March 24, 1994 395 7 Under the rule as proposed , two small community banks of $ 100 million and $ 150 million in assets would not be eligible for the small bank assessment method if they were owned bythe same holding company. However, many small banks owned by somewhat larger holding companies are operated as completely independent entities in widely separated markets and do not have any greater resources than banks outside of holding companies . This may be particularly true in unit banking or limited branching states ( and states that were formerly so) . We strongly urge the agencies to revise the final rule to permit small banks owned by somewhat larger holding companies to be eligible for streamlined examinations . IBAA recommends that the holding company threshold be increased to $ 1 billion in banking assets. If the size threshold for independent banks remains $ 250 million , then it is even more critical that the holding company limit be increased . IBAA also urges the agencies to provide for regular adjustments to the size thresholds adopted for the small bank assessment method . This is needed to account for the fact that banks grow as a result of inflation , economic activity and interest credited on accounts , while maintaining the same level of staffing . A fixed asset level for streamlined examinations could discourage community banks from growing and helping their local economies to grow. STREAMLINED EXAMINATION Under the small bank assessment method , examiners would evaluate small banks using a streamlined examination process based primarily on an examination of their lending records through the six factors described below. The bank's overall CRA performance will be presumed to be satisfactory if the bank: Has a reasonable loan-to-deposit ratio ( a ratio of 60%, adjusted for seasonal variation, is presumed reasonable) given its size, financial condition and credit needs of the service area In general , the IBAA supports using such a combination of factors to evaluate a small bank's CRA compliance . However, we do have concerns and questions about some aspects of this streamlined examination that we believe need to be clarified or modified in the final rule. The language in the proposal , in some instances , is vague and ambiguous. The final rule should contain more elaboration and explanation of each criterion as suggested below. Reasonable Loan-to-Deposit Ratio The proposal states that a loan-to-deposit ratio of 60% , adjusted for seasonal variation, is presumed to be reasonable . IBAA strongly opposes the use of the 60% ratio, or any fixed ratio, because it does not take into account the ebbs and flows of the marketplace . While it has been stated that this ratio is not intended to be a bright line test, past experience IBAA/CRA March 24, 1994 396 8 of bankers suggests that it will become one . Specific numbers, or ratios, that appear in a regulation are usually enforced as hard and fast rules. Furthermore, the diversity of communities and institutions rules out imposing fixed numerical performance standards. Such a fixed standard could result in credit allocation--something the IBAA strongly opposes as bad public policy. In addition, a fixed loan-to-deposit ratio clearly violates Congressional intent. Prior to the passage of the CRA, three days of hearings were held by the Senate Banking Committee to discuss the bill. At the opening of those hearings, the bill's sponsor, then -chairman of the Senate Banking Committee , Senator William Proxmire said: The Community Reinvestment Act would not allocate credit, nor would it require any fixed ratio of deposits to loans. But it would provide that a bank charter is indeed a franchise to serve local convenience and needs , including credit needs. [ emphasis added] The law the Congress eventually adopted did not include any fixed ratios. To impose a fixed ratio with this regulation would contradict the clear Congressional intent. The use of a fixed numerical ratio could also undermine safety and soundness as banks try to reach the " magic number" by lowering credit standards or otherwise making unsafe and unsound loans. A fixed ratio would also contradict the statutory requirement that banks meet the credit needs of their community consistent with the safe and sound operation of such institutions. A recent detailed analysis of the CRA concluded there are some profitable loans to be made in low- and moderate-income communities but this does not mean that greatly increasing lending in such communities is going to be a profitable activity. The authors went on to note that the evidence indicates that the general effect of the CRA is to reduce depository institution safety and soundness.5 In a review of the CRA proposal, the General Accounting Office ( GAO) indicated that it was concerned that the proposed loan-to-deposit ratio " may inadvertently encourage unsafe and unsound banking practices . " The GAO noted that very small institutions typically have low loan-to-deposit ratios because they are often located in small towns with undiversified economies. The GAO points support our contention that imposing a fixed loan-to-deposit ratio would undermine safety and soundness. The fact that a 60% loan-to-deposit ratio is the median for all banks with less than $ 250 million in assets is disturbing since, at the outset, half of all banks would not be 3 See Community Credit Needs: Hearings on S. 406 before the Senate Committee on Banking, Housing, and Urban Affairs, 95th Cong ., 1st Sess. 133 ( 1977) ( opening statement of Senator Proxmire) . Macey, Jonathan R. and Miller, Geoffrey P., " The Community Reinvestment Act: An Economic Analysis," Virginia Law Review, Vol. 79, pp. 291 , 320. 6 Ibid, p. 320. Letter from James L. Bothwell, Director, Financial Institutions and Market Issues, General Accounting Office, to Representatives Henry A. Gonzalez and Joseph P. Kennedy II , January 26, 1994, p. 8 ( hereinafter, " GAO Letter" ) . IBAA/CRA March 24, 1994 397 9 presumed to be in compliance with the loan-to-deposit test. This exclusion of 50 percent of the small banks is arbitrary and not supported by the agencies as being necessary or Additionally, a national median does not reflect regional differences or seasonal variations. Loan demand and banks' lending is directly related to the local economic conditions. A median ratio is not sensitive to the wide variations in local conditions . In particular, agricultural banks have very seasonal loan demand that is also subject to fluctuations in weather patterns, international trade policy and marketplace demands. Rural areas also generally have older populations and less turnover of residents and businesses than more urban areas. As a result, rural banks often have much lower loan demand than their urban and suburban counterparts. Simply averaging a rural bank's loan-to-deposit ratio over the course of a year would not accurately reflect its commitment to community lending . Typically, a bank lending to farmers and other agricultural borrowers will reach its lending peak and maintain it for about two quarters each year. As farmers sell their production into the market they pay off their loans; they will not borrow again until the following year . The bank cannot commit those funds to other borrowers for more than a few months , since it knows that the community's farmers will need loans to get ready for the next growing cycle. The regulation as drafted does not define " loans " and " deposits . " " Deposits" should be defined to exclude public deposits. Many small banks accept public deposits as a service to their communities and these public deposits can be a significant portion of their deposit base. Yet, they are often short-term and must be fully collateralized . It can be difficult to lend against collateralized deposits and , as such , they should be excluded from any deposit measure. " Loans" should be defined to include all pertinent instruments, including local municipal bonds which are a close substitute for community development lending . Often, community banks are primary purchasers of these local municipal bonds, for which there is a limited market. In fact, often community banks will lend directly to local municipalities for community or economic development purposes , eliminating the need for a bond issue. Whether community banks have lent directly to their community, or indirectly through a bond purchase, they should receive " CRA credit" for meeting this community credit needs. Loans should also reflect loans originated and subsequently sold into the secondary market. Many banks are active lenders, yet choose not to hold the loans in portfolio because of interest rate risk or other factors. In addition, the sale of loans to the secondary market allows a bank to originate more loans than it could if it held all of its loans in portfolio. However, loan sales would not count in a bank's loan-to-deposit ratio. Making available longterm , fixed-rate home mortgage loans that are sold into the secondary market helps a bank meet the credit needs of its community and should be counted as a measure of the bank's lending activity. Loans should also include mortgage-backed securities ( MBSs) , collateralized mortgage obligations ( CMOS) , and other collateralized securities that represent loans originated by the bank and sold into the secondary market. To better manage interest rate risk and capital requirements, many banks are selling their loans into a secondary market and repurchasing a collateralized security which requires a lower risk weighting for capital purposes. However, IBAA/CRA March 24, 1994 398 10 the bank's effort to serve its community's credit needs should not be overlooked or disregarded based on subsequent action the bank has taken to lower their interest rate risk or capital requirements. IBAA recommends substituting a reasonableness standard for the loan-to-deposit ratio . An institution should be presumed to have a reasonable loan-to-deposit ratio if it is consistent with its local peers ( an institution may not have local peers , in which case, no peer comparison should be done) , local market and economic conditions . Examiners should evaluate a bank's lending performance based on the size of the bank and community, community demographics, the competition the bank faces, and regional and local economic conditions. For example, a small bank in a metropolitan community with stiff competition may not have as high a loan-to-deposit ratio as a bank with little competition in a smaller community. Likewise, a rural bank in a depressed economic area may have a lower ratio than banks in non-depressed areas. Or a bank in a small community that recently lost its largest employer or that has a substantial percentage of retired or older residents, may have a lower ratio than similar banks in the region. The use of a " reasonable " loan-to-deposit ratio standard should be flexible enough to consider the level of public deposits, municipal bonds, and loans sold into the secondary market. A reasonable standard would give a much more accurate view of the level of a bank's investment in its local community than using a fixed loan-to-deposit ratio. Makes a Majority of Loans in Its Service Area A small institution must make the majority of its loans in its service area to satisfy this criterion. There are a variety of means by which an examiner can determine if a bank is making the majority of its loans locally. For example, a bank which is required to report data under the Home Loan Mortgage Act would have its LARS report available for examiner inspection. Other acceptable methods would include examiners reviewing a sampling of loans to identify zip code , county, or local address. Whatever method is chosen, it must ensure that a documentation or reporting burden is not placed on the small bank. IBAA is concerned that " service area" may be too narrowly defined to reflect the bank's community. ( See discussion on service area, infra, at pp. 17-18.) We recommend that this criterion be revised to reflect the " majority of loans in its community. " The final rule should clarify that small banks are not required to institute a tracking system for individual loan identification , or otherwise " geocode" their loans as proof to the examiners. Geocoding is time-consuming and burdensome for community banks. And it is in direct violation of Congressional intent. ( See discussion , supra, at p. 6 and footnote 2. ) Has A Good Loan Mix Evaluating whether a bank has a good loan mix and makes a variety of loans will depend on the charter and business plan of the bank, as well as on the availability of loan products from other financial service providers. An agricultural bank should be presumed to be in compliance if it offers a variety of agricultural loan products, such as real estate and production loans, FmHA loans and agri-business loans. A business bank might offer SBAguaranteed loans to service customers who might not otherwise qualify for a loan. Likewise, IBAA/CRA March 24, 1994 399 11 an institution concentrating on residential real estate lending should offer products accessible to low- and moderate-income customers, such as FHA- and VA-guaranteed loans. However, a small business bank should not be required to offer mortgage loans if there are other providers of mortgage credit in the community, and vice versa. A small bank competing in a metropolitan area where there are many other service providers should not be required to be " all things to all people " and offer a full array of loan products . The existing interagency policy statement on CRA adopted on March 30, 1989, states as much: The CRA was not intended to limit an institution's discretion to develop the types of products and services that it believes are best suited to its expertise and business objectives and to the needs of its particular community, as long as the institution's program is consistent with the objective of the CRA. Nor is it the purpose of this statement to establish specific lending requirements or programs for financial institutions subject to CRA. We recommend that the final regulation include clarifying language regarding adequacy of loan mix that reflects this previously adopted statement of the agencies. The proposal defines a good loan mix as " makes to the extent permitted by law and regulation , a variety of loans to customers across economic levels . " This definition goes beyond the scope of the law . The purpose of the CRA states that " regulated financial institutions have a continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered . " Helping to meet the credit needs of a community does not mean that all potential borrowers will be qualified and receive loans. Defining a " good loan mix" as loans made across all economic levels also suggests credit allocation. Congress specifically rejected the use of credit allocation as a portion of CRA. Additionally, the existing interagency policy statement on CRA clearly states that credit allocation is not the intent of CRA. The policy states, " in line with the long-standing view of the agencies that the CRA was not intended to establish a regulatory allocation of credit, the agencies have neither requested commitment from applicants to make particular types or amounts of loans nor specified the terms of or conditions for such loans." It appears that the agencies are attempting to formulate a means for determining whether a bank is serving all segments of its community, including low- and moderate-income areas, by referencing " all economic levels " as part of this criterion . We do not dispute that CRA requires an institution to serve all segments of its community, but believe that the proposed criterion fails to address this requirement with the reference to serve borrowers at all economic levels. The agencies must recognize that the credit needs of qualified low/mod borrowers may not match the other segments of the community. Serving potential borrowers at all economic levels may also require services and products other than credit products. The examiner should consider the banker's knowledge of his/her local community and its credit needs. The banker who understands the local community will be able to explain 7 The Senate Banking Committee specifically rejected the course of setting percentage targets for investments. " S. Rep. 95-175, 95th Cong ., 1st Sess., May 16, 1977, at 34. During the floor debate, Senator Heinz stated that the CRA " is not an attempt to allocate credit. " 123 Cong. Rec. S. 9039-9119, June 7, 1977. IBAA/CRA March 24, 1994 400 12 why the bank offers particular products and credit services to its community and what the credit needs of the community are. Finally, the procedures that an examiner will use to determine that an institution has a good loan mix are unknown . Will small banks be required to prepare or assemble data for examiners? What information will examiners deem necessary? What factors are considered to make the presumption that an institution has a good loan mix? The final rule must clarify which party is responsible for assembling any pertinent information and how a bank can ensure that they will be presumed to have a good loan mix. To the extent possible , as stated in the proposal , the burden should be on the examiner and not the bank . We recommend that examination procedures include a discussion with bank management to incorporate the bank's ascertainment of its community's credit needs. The final rule should also strike the language " across all economic levels, " as the qualifier of having a good loan mix. ( See discussion on HMDA distribution criterion, infra, at pp. 14-15 .) No Legitimate Complaints The institution must not have had any legitimate, bona fide complaints from community members to satisfy this criterion . The first step for the examiner should be to determine the validity of the complaint . This would require a subjective judgement on the part of the examiner, but it is critical that the opinion and judgement of the banker also be considered. The final rule should clarify that complaints that are resolved satisfactorily for the complainant should be considered " closed" and should not affect the CRA evaluation. IBAA recommends that the agencies adopt complaint procedures comparable to those found in 12 CFR 227 , Unfair and Deceptive Practices. Tracking this regulation, we recommend that a definition for " consumer complaint" be added to the proposed regulation as follows: Consumer complaint means an allegation by or on behalf of an individual, group of individuals, or other entity from the bank's community that a particular act or practice of a bank violates the Community Reinvestment Act or regulation issued pursuant thereto, or evidences the bank's failure to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the bank. Complainants should be required to follow certain procedures in lodging their complaints, including: 1) The complaint must be in writing. 2) The complaint should include information describing the act or practice that is thought to violate CRA. 3) The name and address of the bank. Procedures should be developed for complaints filed either directly with the bank or with the agency. Within 15 business days of receipt of the complaint, the complainant should receive either a substantive response or an acknowledgement setting a reasonable time frame for a substantive response. If the agency receives the complaint, a copy should be sent to the affected bank within 10 business days. If the bank receives the complaint, it should place the correspondence in its file for review by the examiners during the IBAA/CRA March 24, 1994 401 13 examination. Once the complaint is satisfactorily resolved , the correspondence should be removed from the public file. ( See discussion on public file, infra, at p. 25.) Complaints about technical , nonsubstantive violations , such as a failure to include a required item in the public file or failure to post a CRA notice in a branch , should not affect the CRA evaluation . Only complaints from customers or community members residing within a bank's service area should be considered legitimate . Any complaints filed by individuals or organizations that do not reside in the bank's service area should not be considered legitimate. Without firsthand knowledge of the bank or its community, an out-of- area complaint would result in little more than the bank being held to a standard based on hearsay. Complaints should not be automatically disqualified or considered non-legitimate by either the bank or the agency if a local consumer relies upon a nonlocal organization to help make their complaint. Of particular concern to small institutions is the possibility that large advocacy groups with agendas not related to the local community or the local bank will involve themselves in a local complaint as a means to focus attention . Small banks do not have the resources to handle such " manufactured " complaints. If the agencies choose not to prohibit complaints from out-of-area individuals or organizations, then it is critical that special procedures be developed to handle these types of complaints . To do otherwise would create a situation where small banks could be held hostage by a large advocacy campaign to " make an example. " No Evidence of Discriminatory Practices This criterion requires that an institution must not have engaged in a pattern or practice of illegal discrimination that it has not fully corrected ; and has not committed isolated acts of illegal discrimination, of which it has knowledge, that it has not fully corrected, or is not in the process of correcting fully. The IBAA supports fair lending and believes that the industry and the agencies must take the necessary steps to eliminate illegal discrimination . However, the IBAA strongly opposes evaluating and rating a bank based on an isolated instance of discrimination . Such a narrow test is inherently unfair and sets up a scenario where almost any institution in the country could be guilty at some time of lending discrimination . Judging compliance on an isolated instance fails to prove intent. IBAA recognizes that the aggrieved party in an isolated instance is entitled to pursue action against the bank, but individual action provides no justification for the agencies to take action under CRA against a bank that has not condoned, promoted, or possibly been aware of the illegal discrimination . Reviewing the legislative history of CRA, it is clear that Congress neither intended nor envisioned CRA as fair lending legislation. At the time of its passage , there was considerable debate about the goal of CRA. But most legislators agreed that the focus of the legislation was on the problem of depository institutions shipping funds outside the areas in which the funds were obtained . The focus of CRA was on communities, not on race, ethnicity, gender, or other protected classes. Macey, Jonathan R. and Miller, Geoffrey P., " The Community Reinvestment Act: An Economic Analysis, " Virginia Law Review, Vol. 79, pp. 291 , 299. IBAA/CRA March 24, 1994 402 14 Over time, fair lending examination procedures have been incorporated as part of the CRA examination . The current CRA evaluates banks for their compliance with antidiscrimination and other related credit laws. This assessment considers actions by institutions, including efforts to avoid doing business in particular areas or illegal prescreening . The evaluation process considers two assessment factors : D Any practices intended to discourage applications for types of credit set forth in the institution's CRA statement( s) . F Evidence of prohibited discriminatory or other illegal credit practices. Under the current system , a bank can receive a " needs to improve " or " substantial noncompliance" rating if it fails to accept applications from all segments of its local community; policies and procedures are inadequate; the board of directors and senior management are uninvolved; and, the institution is in violation of the Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act or other regulations related to discrimination. The current system provides for a rigorous review and recognizes that banks guilty of discrimination cannot effectively be serving their entire community. IBAA recommends that the focus in the revised CRA rules incorporate the same balance . Creating a new standard that requires banks to be downgraded for isolated acts establishes a standard that is impossible to meet satisfactorily and is bad public policy. Furthermore, the IBAA requests that the agencies define what is meant by " fully corrected " and " has knowledge of" to ensure banks can develop the appropriate policies and procedures. HMDA Reporting Banks Have Reasonable Distribution of Such Loans This criterion requires HMDA reporting banks to have a reasonable geographic distribution of the reported loans. IBAA strongly opposes this criterion , which is tantamount to credit allocation . There is absolutely no statutory basis for this criterion in either HMDA or CRA. In fact, a reading of the purposes of the HMDA statute reveals quite the contrary . The purpose of HMDA is " to provide the citizens and public officials of the United States with sufficient information to determine whether depository institutions are filling their obligations to serve the housing needs of the communities and neighborhoods in which they are located..." Congress also stated that " nothing in this title is intended to, nor shall it be construed to, encourage unsound lending practice or the allocation of credit . " 10 Therefore, to evaluate banks based on a " reasonable geographic distribution of HMDA loans" implicitly suggests that loans should be distributed across all census tracts in the service area, regardless if this is consistent with safety and soundness or consumer demand . The interagency policy statement on Analyses of Geographic Distribution of Lending adopted December 6, 1991 , stated that HMDA " data should be seen as reliable by the institution that carefully collects and reports it, and [ the HMDA data ] can be used without change to reach some conclusions about the demographic impact of the geographic lending 12 USC 2801 et seq; 89 Stat. 1125; Pub. L. 94-200, Title III, ( hereinafter, " HMDA" ) , Section 302 ( b) . 10 HMDA, Section 302 ( c) . IBAA/CRA March 24, 1994 403 15 patterns of the institution's housing related loans. " No mention is made in that statement about having a " reasonable" distribution of HMDA loans or what type of distribution could be considered reasonable. HMDA data is a starting point for analyzing a bank's lending , not an ending point. Without looking at other factors involved in a bank's lending , no determination can be made regarding whether the distribution of HMDA loans is reasonable . The HMDA data have significant limitations , including the lack of information about factors important in assessing the creditworthiness of applicants and the adequacy of collateral offered as security on loans." Without this information , determining if lending patterns are reasonable or if applicants have been treated fairly is not possible.'2 There have been numerous discussions on the uses of HMDA data and the limitations of such data . The proceeding of a Fannie Mae Research Roundtable on HMDA Data and Mortgage Market Discrimination Research , held December 9, 1992 , described many of the problems associated with HMDA data . Fannie Mae's Office of Housing Research found that instances of redlining and discrimination of mortgage applicants on the basis of race or national origin can be suggested but not proven by the HMDA data.¹³ To require as part of CRA that lenders have a " reasonable geographic " distribution of HMDA loans goes beyond the capabilities of this limited data . IBAA recommends that this criterion be rewritten to focus on " analyzing the distribution of HMDA- related loans. " Failure to Meet One or More of the Six Criteria If a small bank fails to meet or exceed all of the six standards for a satisfactory rating, it is not presumed to be performing in a less than satisfactory manner, according to the proposed rule. Rather, the agency will conduct a " more extensive examination of the bank's loan-to-deposit ratio, its record of lending to its local community, and its loan mix. " Members of the community may be contacted and the most recent fair lending examination will be reviewed. A bank may also request that the agency take into account its investment and service record. IBAA requests that the agencies provide more clarity in the final rule about the nature and extent of the " more extensive examination . " Community bankers are concerned about what data and other information they may be called on to provide in the more extensive exam. They are concerned that, if the extent of documentation required is of a similar nature and degree to that required under current examination practices, then there will be little, if any, reduction in the paperwork burden . Banks will have to maintain the documentation that they currently assemble " just in case" the examiners decide to conduct a more extensive examination . 11 Canner, Glenn B., Expanded HMDA Data on Residential Lending: One Year Later, " Federal Reserve Bulletin, October 28, 1992, p. 801 . 12 Ibid. 13 " Proceedings: HMDA Data and Mortgage Market Discrimination Research, " James H. Carr and Isaac F. Megbolugbe, Fannie Mae Roundtable Series, December 9, 1992, p. 8. IBAA/CRA March 24, 1994 404 16 In addition, how contact with community members will be made is unclear. In small towns, such contacts could be disruptive and raise the specter of nonexistent problems. Bank management should be given the opportunity to suggest potential contacts and make reasonable objections to any contacts proposed by the examiner. IBAA requests that the requirements for the more extensive exam be stated definitively in the final rule and make clear that the examination burden should remain with the examiner to the greatest extent possible. Some of the detail necessary to explain these procedures could appropriately be placed in an official commentary, provided the commentary is released before banks are required to comply with the new rules. ( See discussion on Official Commentary, infra, at p. 29.) ENFORCEMENT AUTHORITY According to the proposal , the agencies intend to use the full complement of enforcement authority granted by Section 8 of the FDI Act ( 12 USC Section 1818 ) , including the levying of civil money penalties, against banks that receive a composite CRA rating of " substantial noncompliance. " The IBAA strongly opposes this and does not believe that it is appropriate to include this enforcement provision in the final rule for several reasons. We request that it be deleted. Legal Authority First and foremost, the enforcement provision of the proposal is beyond the scope of the agencies' legal authority. The CRA statute provides only one specific regulatory sanction for a poor CRA record--the agency may condition or deny an application for a deposit facility by the bank.14 No other regulatory enforcement mechanisms are authorized by the CRA statute.15 The legislative history supports this view. When the Senate bill that became the CRA was debated on the Senate floor, Senator Richard Lugar of the Banking Committee noted that the sanctions offered were that " the institution would have some difficulty extending its facilities, no more and no less than that. " ¹º Under Section 8 of the FDI Act, the agencies have general authority to use regulatory enforcement sanctions whenever an institution is " engaged in an unsafe or unsound practice" or is " violating a law, rule or regulation . " Section 8 of the FDI Act contains only general regulatory enforcement authority. Under well-settled principles of statutory construction, the specific enforcement sanction of the CRA statute controls over the general authority of Section 8. Even applying Section 8, however, a " substantial noncompliance" rating for CRA performance does not constitute an " unsafe or unsound practice, " nor is it a " violation of law 14 CRA, Section 804( 2) . 16 The statute does contemplate one other " enforcement" mechanism using the court of public opinion: the public disclosure of an institution's CRA rating and written evaluation . CRA, Section 807. 10 123 Cong. Rec. S. 8961 , June 6, 1977. IBAA/CRA March 24, 1994 405 17 or regulation. " The CRA statute does not require an institution to maintain a satisfactory CRA rating or any particular level of performance . The crux of the statute is that the " agency shall assess the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the institution " and that the agency shall " take such record into account in its evaluation of an application for a deposit facility" ( emphasis added) . Receipt of a less than satisfactory CRA rating does not constitute violation of a law or regulation . Accordingly, Section 8 enforcement sanctions do not apply. The statute does direct the agencies to publish " regulations to carry out the purpose of the title" ( Section 806) . The purpose of CRA, as stated in Section 802 ( b) of the Act, is to require the agencies to use their examination authority " to encourage institutions to help meet the credit needs of the local communities in which they are chartered ... " The statute does not say that the agencies can force institutions to achieve a certain level of performance. Use of the Section 8 enforcement powers is also inappropriate because CRA evaluation is such a subjective process. Severe penalties for subjective findings of failure are inherently unfair. IBAA does not dispute that the agencies have authority to use the full range of enforcement sanctions against banks that violate anti-discrimination laws ( which are adverse factors in the CRA performance record) . But this enforcement authority is derived from those laws ( e.g., Equal Credit Opportunity Act, Fair Housing Act) , not CRA. The current CRA Questions and Answers adopted by the FFIEC recognize the appropriate sanctions that are available to the agencies under CRA. The answer to Question 29 states that the agencies can deny a corporate application for poor CRA performance; they can use enforcement powers to ensure compliance with the requirements of the regulation ( currently, preparation of a CRA Statement, maintenance of a public comment file, and posting of a CRA Notice) ; and they can use enforcement powers to ensure compliance with antidiscrimination and fair lending laws. This is appropriate, since there are objective ways to determine a bank's compliance with these requirements. This is not true of CRA ratings themselves. Incentive vs. Sanction Use of enforcement sanctions is inconsistent with the statutory intent for the agencies to encourage institutions to help meet local credit needs. In our opinion, a better way to encourage CRA compliance, and one that is more consistent with statutory authority, is to use positive incentives--the carrot rather than the stick. Such incentives could include rewards for an " outstanding " rating , such as reduced examination requirements, less frequent exams, and insulation from protest of an application. 17 CRA, Section 804. 18 Moreover, the purposes of the CRA and the findings of Congress as stated in the statute do not provide authority for the agencies' enforcement powers, since it is well-settled that purposes and findings clauses do not have the force of law. IBAA/CRA March 24, 1994 406 18 SERVICE AREA The proposed rule defines service area as the geographic areas surrounding each office or group of offices in which a retail institution ( including a small institution) makes most of its direct reportable loans . A rebuttable presumption would exist that the institution's service area is acceptable if it is broad enough to include low- and moderate-income areas , and does not arbitrarily exclude low- and moderate-income areas. Reportable loans means home mortgage loans , consumer loans ( closed-end only) , and loans to small businesses ( businesses with gross receipts of up to $ 10 million or up to 500 employees) and small farms ( annual gross receipts of less than $ 500,000) . In enacting CRA, Congress found that: 1 ) regulated financial institutions are required by law to demonstrate that their deposit facilities serve the convenience and needs of the communities in which they are chartered to do business; 2 ) the convenience and needs of communities include the need for credit services as well as deposit services; 3) regulated financial institutions have a continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered.1 ( emphasis added) IBAA believes that the " service area " proposed in the regulation is a much narrower area than Congress intended for CRA. The focus on " service area" rather than " community" is troublesome. Compounding the problem is the focus on only " direct" " reportable " loans made within an area around the office or group of offices. This definition not only fails to consider deposit services, it totally excludes other types of lending, indirect or nonreportable loans, in which an institution may engage for the purpose of satisfying its community credit needs. The proposal suggests that certain types of " reportable" loans warrant CRA credit, while other nonreportable loans do not. The legislative history for CRA does not support disregarding nonreportable loans. The issue is whether these nonreportable loans are serving a credit need of the bank's community. Using the service area definition could unnecessarily constrain a bank's ability to serve the credit needs of its local community. The statute requires the agencies to assess an institution's record " of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods..." 20 ( emphasis added) . Again , Congress intended for the agencies to look at the entire community, not an artificially drawn service area based on " reportable" lending activities. The term " community" is not defined by the statute except for those financial institutions serving primarily military personnel where " entire community" may be defined to include their entire deposit customer base without regard to geographic proximity. As stated 19 CRA, Section 802. 20 CRA, Section 804( 1 ) . IBAA/CRA March 24, 1994 407 19 in the findings clause, financial institutions are required to serve the credit needs as well as the deposit needs. We believe that it is reasonable to conclude that the proposed service area definition is not an acceptable basis upon which to evaluate a bank's CRA performance. The current regulation requires a bank to delineate the local community or communities that it serves. The interagency guidelines suggest two methods for making this delineation. First, the institution can consider using widely recognized existing boundaries such as Metropolitan Statistical Areas ( MSAs) or counties. The agencies have noted that such boundaries are " frequently a reasonable approximation of an institution's The overriding concern of correctly delineating the local community " is to ensure that low- and moderate-income neighborhoods are not arbitrarily excluded from the delineated area. " As drafted , the proposed test could cause such areas of a bank's community to be arbitrarily excluded , either because it is an area in which an institution does not make most of its loans or the loans are either indirect or nonreportable. IBAA recommends that the agencies rewrite the definition of service area, broadening it to ensure that it reflects the entire community that the bank serves and giving consideration to all lending activity. To satisfy the Congressional intent that deposits drawn from the local community be used to meet the credit needs of that community, the service area must also consider where the institution draws its deposits and how this relates to its lending. Multiple Service Areas IBAA concurs that an institution's CRA rating should reflect its performance in all of the local communities in which it is doing business. As recommended above , it is critical that the definition of service area be broadened to reflect the entire community or communities that an institution serves. While we recognize that larger institutions will have multiple service areas, we want to emphasize our concern that rural areas not be blended with urban service areas. In addition, it is understandable that the regulators will not be able to examine, as part of each CRA examination , every service area of a large bank. We believe this gives a tremendous advantage to larger institutions , particularly those competing against small, stand-alone banks. Even with the streamlined examination , smaller banks will receive an annual ( or possibly 18-month) examination, while their competitor across the street may never be " sampled. " Therefore, IBAA requests that the agencies establish an examination schedule for a large bank's multiple service areas that reflects a sampling of both urban and rural areas, and provides for all of an institution's service areas to be examined within a 3-to-5-year period. Otherwise, it is conceivable that, with random sampling, some service areas may never be examined . Those service areas that receive " needs to improve" or " substantial noncompliance" ratings should be reexamined as part of the next examination cycle in addition to the new sampling. 21 IBAA/CRA FFIEC Interagency Policy Statement " Community Reinvestment Act," June 17, 1992 , p. 3. March 24, 1994 408 20 LENDING TEST As proposed, large banks will be evaluated on the basis of their performance under three tests: the lending test, the investment test and the service test . The lending test will form the primary basis for the composite rating of a retail bank. IBAA has serious concerns about the lending test which , in our opinion , render it unworkable. In particular, the market share portion of the lending test is likely to lead to contradictory conclusions and misplaced incentives for banks that could undermine safety and soundness . The market share test is an artificial, arbitrary and unworkable measure of a bank's performance . In many cases, it is not likely to lead to an accurate and valid conclusion about the bank's CRA performance. In addition , the lending test could be criticized as forcing credit allocation-- something , as discussed previously, the Congress clearly did not intend. The GAO noted that the proposed market share test will not be meaningful when financial institutions ( 1 ) do not have low- or moderate-income areas in their service area, ( 2) are the only reporting institution in the market or are located in markets where the nonreporters comprise a significant share of the market, and ( 3) have service areas that only partially overlap with other financial institutions ' areas.22 We concur with this GAO assessment and believe that these problems render the market share test meaningless. Competition for Ratings As delineated in the proposal, the market share test is structured so that institutions are in direct competition with each other for outstanding CRA ratings. To achieve an outstanding rating , a bank's market share of reportable loans in low- and moderate-income ( " low/mod " ) areas must significantly exceed its market share in the other parts of its service area. A satisfactory rating requires roughly comparable market shares in the two areas. This means that, in order for one bank to receive an outstanding rating , another bank must receive a below satisfactory rating , regardless of its CRA efforts or performance. IBAA believes it is inappropriate to treat CRA performance as a zero-sum game or to grade institutions on a bell curve where it is impossible for all banks to achieve satisfactory performance. This is especially unfair when the agencies are proposing to impose the full range of enforcement sanctions on banks that do not achieve satisfactory ratings. We also note that as a practical matter, under certain circumstances, it might be impossible for an institution to receive an " outstanding " rating, let alone a " satisfactory" rating, under the proposed test. The South Shore Bank in Chicago is often cited as a bank with an impressive community development record . In that community, a competing bank would find it almost impossible to garner a comparable market share to do well under the lending test. Similarly, when there is significant competition in a community it is much more difficult to generate market share than when there is little competition . The test fails to take this into consideration. 22 GAO Letter, p. 8. IBAA/CRA March 24, 1994 409 21 Safety and Soundness Concerns The lending test has potentially negative implications for banks' safety and soundness and creates unwise incentives for banks . To wrest market share from each other , banks may engage in predatory, or below cost, pricing as they all attempt to chase the finite number of available safe and sound loans in low/mod areas . Or banks may lower their credit underwriting standards to levels that threaten safety and soundness in order to make loans in the low/mod areas. The CRA statute specifically states that the agencies are to encourage banks to help meet the credit needs of their local communities, " consistent with the safe and sound operation of such institutions " and that the agencies are to assess a bank's record in this regard, " consistent with the safe and sound operation of such institution . " 23 The lending test is not consistent with safe and sound operations. Effect on Niche Lenders The lending test could also lead large banks to " buy" good business away from banks and other lenders that have long focused their efforts on otherwise underserved communities. For example, minority banks may face withering competition from large institutions that will make loans simply to get a good CRA rating . Carefully thought-out community development plans could be disrupted by these efforts to gain market share at any price. Artificial Markets The market share test only measures loan activity of CRA- reporting lenders, namely banks and thrifts over $ 250 million in size. By excluding the loan activity of non-CRAreporting lenders, the market share test fails to actually measure the true loan market and the true competition among loan providers. This will lead to anomalous results and incorrect conclusions in many markets where non-CRA-reporting lenders have significant market share. Most, if not all , markets will be affected. The vast majority of urban and suburban markets are likely to have non-bank lenders with significant market share. Many rural markets are likely to have both non-bank lenders and small bank lenders with significant market share. If these non-CRA-reporting lenders do not have " roughly comparable" market shares in both high-income and low/mod income areas, results for the CRA-reporting lenders will not accurately reflect their true market shares. The lending test also establishes artificial markets because it only measures the loan activity of certain " reportable loans. " Several significant types of lending that can be very important and beneficial to low- and moderate-income households are excluded from the definition of " reportable loans. " Notably, automobile loans and credit card loans are excluded even though they may constitute a very significant part of the credit needs of the community, particularly for low- and moderate-income borrowers. For example, an automobile loan may be of paramount significance to a low-income borrower who resides in a rural area where there is no public transportation and needs a car to get to work. 23 CRA, Sections 802( b) and 804( 1 ) . IBAA/CRA March 24, 1994 410 22 Evaluation of a bank's CRA performance based on " reportable loans " also has implications for credit allocation , because it willencourage a bank to make certain " reportable loans" at the expense of other loans that may be needed by the community as well. Inability to Monitor Performance Another problem with the market share test is that since it relies on comparing one bank's performance with others' , the bank will be unable to monitor its progress during a reporting period. Since this is likely to increase, rather than reduce , uncertainty about how a bank's CRA performance will be rated , it is contrary to one of the goals of the CRA reform effort. In addition, as the GAO noted, markets are constantly changing so that the number of competing institutions within an institution's market and each institution's market share will likely change from year to year.24 This will make it impossible to make any meaningful annual comparisons of lending activity. Special Problems for Rural Areas The lending test will present particular problems in rural areas. In these areas, geographic location is not a reliable indicator of economic status . In rural markets, high-, moderate- and low-income households can vary on a house-by-house basis and can be relatively well-dispersed across the census tracts or block numbering areas ( " geographies" ) in a bank's market . As a result, only one or a few geographies may be characterized as low/mod. Heightened scrutiny of these geographies would not constitute a meaningful evaluation of a bank's CRA performance. As an example, one community banker reported that, out of a market area containing 12,000 individuals and five block numbering areas, only one area with 450 people would be defined as low/mod. In terms of absolute numbers, there are far greater numbers of low/mod income individuals in the rest of the bank's market area, yet the bank's entire CRA performance rating would hinge on its service to 450 people comprising 4 percent of the total population of its market.25 Failure to Address the Quality of a Bank's CRA Performance The lending test's principal emphasis is on quantity--the number of loans and dollar volume of loans made. This emphasis ignores much of the time- and labor-intensive efforts that banks make to facilitate lending to targeted or lower-income borrowers, such as borrower counseling or home buyer seminars and other outreach programs to reach underserved communities. Likewise, a community development project financed by a bank may take a disproportionate amount of time and effort to bring to fruition, relative to the dollars loaned out. A bank may also make loans available to its community by facilitating lending by third parties through conduits such as the IBAA Mortgage Corporation, or available government and state programs. 24 GAO Letter, p. 9. 26 Although less than $ 250 million in assets, this bank is subject to the lending test because it is owned by a holding company that owns two additional small banks in other communities. The holding company has aggregate assets exceeding $ 250 million. IBAA/CRA March 24, 1994 411 23 All of these activities contribute greatly to the quality of a bank's service to its community. A bank should be encouraged to undertake these efforts as well and should receive CRA " credit" for these activities. It appears that some of these activities are intended to be reflected and given credit in the investment and service tests . However, it is the lending test that forms the basis for the composite rating . The investment test only affects the final rating positively if the investment rating is outstanding or high satisfactory . The service test only affects the final rating if the service rating is outstanding . Therefore, investment and service activities for banks that receive satisfactory ratings under these categories essentially are given no credit at all. The final CRA rule must be revised to make clear that these types of activities will be reflected in a bank's CRA rating on an equitable basis. Recommendation In IBAA's opinion , the shortcomings of the lending test are so severe that the test should be totally reworked to accommodate these concerns. INVESTMENT TEST The investment test would consider investment in community and economic development activities. Banks would be evaluated on the amount of assets devoted to qualified investments, compared to their risk-based capital . Assessing investment performance against risk-based capital would penalize well-capitalized banks that would have to maintain higher levels of investments to achieve satisfactory ratings than their lesscapitalized counterparts. Congress and the agencies have spent considerable time and effort in the past few years encouraging banks to increase their capital levels as insurance against bank failures. Many regulations give favorable treatment to banks with higher capital ratios. In IBAA's opinion , total assets would be a more equitable and appropriate base against which to measure a bank's commitment to CRA investments. SERVICE TEST The service test would evaluate retail banks primarily based on the percentage of branches that are located in or are readily accessible to low/mod areas in its service area . Consideration will be given to the limitations faced by banks with a small number of branches and whether the bank provides other services that promote credit availability. The service test is where banks will receive credit for activities such as credit, borrower or small business counseling; home buyer seminars; and low-cost deposit or check-cashing services. However, because the lending test forms the basis for a large bank's composite rating, and because the six criteria form the basis for a small bank's rating , activities undertaken pursuant to the service test may not receive the degree of credit that they deserve. In fact, as mentioned above in the discussion of the lending test, these activities may not receive any credit if a bank is " merely" satisfactory, because the service test only affects the composite rating if it is outstanding . Many of these services are essential in order to increase the level of lending in a community. It may take time before the results of these efforts are reflected in hard and fast numbers as actual loans . Banks should receive credit for these activities on an equitable basis with activities measured under the lending test. Under the proposal , in a densely populated area a branch would be considered readily accessible if it was " in easy walking distance . " In less populated areas, a branch would IBAA/CRA 88-88295 - 14 March 24, 1994 412 24 generally be considered readily accessible if it was in " easy or normal driving distance. " The IBAA objects to these qualifiers to define readily accessible . Depending on the area of the country, these terms could be interpreted with a wide variation . For example, in Western states an " easy" drive could be a distance of 40-50 miles. At same time, in New York City, " easy" walking distance is a matter of opinion . " Easy" is a very subjective term and subject to wide interpretations. More and more financial institutions are looking for alternatives to brick and mortar branches to deliver financial services to their communities more cost-effectively and efficiently. The goal is reasonable access for all customers to these services. IBAA recommends that this test focus on the provision of financial services to all parts of a bank's community. STRATEGIC PLAN Under the proposal , any institution , as an alternative to being rated under the small bank assessment method or the lending , service and investment tests, could elect to submit for agency approval a CRA plan with measurable goals against which its subsequent performance would be assessed . The plan would be required to be publicly disclosed and subject to public comment before approval . If the agency approved the plan , it would assess the institution's performance to determine if the institution met or exceeded the plan's goals. If the institution failed to meet or exceed the preponderance of the measurable goals set forth in the plan, the institution's performance would be evaluated under the other applicable tests. The IBAA believes that institutions should have the option to be assessed under the strategic plan . We believe that the strategic plan could place a tremendous documentation and paperwork burden on small banks . Therefore, we are unalterably opposed to mandating that a bank prepare a strategic plan. Many aspects of the strategic plan option require clarification . What are " measurable " goals? If these goals are specific lending targets in specific areas, how can the agencies be assured that the credit needs of the entire community are being served? Measurable goals also suggests the possibility of credit allocation . How can the agencies prevent this from occurring? Banks will be evaluated based on whether they meet or exceed the plan goals. How will the agencies factor in extraordinary occurrences in a community? For example, if a principal employer of the area closes, increasing unemployment, and the bank fails to meet its lending goals as a result, does it fail its plan? The agencies stated that amendments to a plan will be considered on the grounds that a material change in circumstances has made the plan no longer appropriate. Would the loss of a large employer require the bank to file an amendment, even if it is uncertain about the impact on its goals? Is failure to file an amendment a violation of the plan? How can a bank exceed its goals? Would it be possible for banks to " game" the system and put together a plan that appears difficult, but in reality, will be quite easy to exceed? For example, in recent years, many large bank mergers have been accompanied by announcements of " large" CRA investments over a specified time period. Upon closer analysis, most of these CRA commitments represent a small fraction of the bank's total lending activity; however, the number or amount sounded good. IBAA/CRA March 24, 1994 413 25 Plans require banks to solicit public comment. What happens if no group comments? Conversely, what happens if a nonlocal organization offers comments that the institution believes are not pertinent to its community? Can nonlocal comments be disregarded? Under what circumstances can an institution disregard local comments? How will the agencies determine that a plan is adequate? What measure will the agencies use to determine that the plan is the best way for the institution to meet the credit needs of its entire community? Most community banks have indicated that they have little interest in the strategic plan option. However, if this is to remain an option , we strongly believe that the agencies need to be more explicit about the requirements for a strategic plan . PUBLIC FILE, DOCUMENTATION AND DISCLOSURE According to the proposal , an institution would have to make available for public inspection a file with all signed , written comments from the public received over the last two years; its performance data for that period ; maps of its service areas and lists of census tracts or block numbering areas that make up each service area; and a copy of the public section of the most recent CRA performance evaluation . The IBAA requests that the agencies clarify that banks do not need to keep in the file the correspondence related to any written complaints that have been satisfactorily resolved for the consumer. Since small banks are not subject to the data collection requirements and yet could be located in an MSA, IBAA requests that the agencies clarify that these institutions need maintain only the maps of their service areas and not the accompanying census tract data or block numbering area data . The proposal also requires a small bank to include in the public file its loan-to-deposit ratio computed at the end of the most recent calendar year. A year-end snapshot is not necessarily a reliable indicator of a bank's loan-to-deposit ratio. Particularly for agricultural banks, the loan-to-deposit ratio is seasonal and will fluctuate significantly ( as much as 20 percentage points or more) during the course of the year. IBAA recommends that the requirement to include the year-end loan-to-deposit ratio in the public file be deleted . IBAA also requests that the agencies delete the requirement for a bank with a less than satisfactory rating to include in its public file a description of current efforts to improve its performance . We object to this requirement because it compromises confidentiality. A bank's plan to improve its CRA performance could contain confidential information about its strategic business planning that should not be available to the public. PUBLICATION OF EXAMINATION SCHEDULE AND PUBLIC COMMENTS The agencies propose to publish a list of banks which are scheduled to undergo CRA exams in the next calendar quarter. Members of the public would be invited to submit comments to the agencies regarding the CRA performance of banks on the list. Comments received prior to the exam would be taken into consideration during the exam . IBAA requests that the final rule be amended to clarify that only pertinent comments related to the specific institution under examination and received from members of the bank's own community be considered during the exam. IBAA/CRA March 24, 1994 414 26 As is the case with " legitimate, bona fide complaints, " small institutions are concerned that large advocacy groups with agendas not related to the local community or the local bank will file comments in order to hold a small bank hostage to the CRA process and try to " make an example" ofthe bank as part of a large advocacy organization's CRA campaign. ( See discussion, supra, at p. 13.) COMPOSITE RATINGS The assessment criteria include terms like " roughly comparable, " " substantial, " " significant, " " very significant, " " most, " " few , " etc. IBAA recognizes that, in using words of this nature, the agencies have attempted to balance the need for flexibility against the desire for certainty and consistency in examinations. We oppose the imposition of fixed ratios. However, to avoid inconsistent application and to ensure fair and reasonable application of these terms, the agencies have a responsibility to ensure that examiners receive comprehensive guidance and training and that bankers understand what is necessary to achieve a specific rating. Outstanding Ratings for Small Banks The proposal is vague about how a small bank electing the small bank assessment method can achieve an outstanding rating . The agencies must apply criteria for an outstanding rating so that it is an achievable goal . In assessing whether to assign an outstanding rating for a small bank, the proposal states that, at the bank's option , the agencies will take into account its record of making qualified investments and providing services that enhance credit availability or meet the needs of low- and moderate-income persons. Flexibility to consider the full range of activities that can enhance credit availability and promote community development is paramount in order to avoid a presumption that small banks which meet the six tests are " merely" satisfactory. All of the activities that we recommend be given appropriate credit in the lending, investment and service tests for large banks should also be given credit for banks that elect the small bank assessment method ( e.g., time- or labor-intensive efforts to facilitate lending to targeted or lower-income borrowers or to community development projects; credit, borrower or small business counseling; home buyer seminars; low-cost deposit or checkcashing services) . ( See discussion , supra, at pp. 22-23.) Downgrading to Substantial Noncompliance The agencies propose to automatically downgrade to " substantial noncompliance" a bank that would otherwise be rated " needs to improve" if the bank has received ratings of " needs to improve" on its two previous examinations. IBAA opposes this because it is a rigid, inflexible provision that fails to take account of the individual circumstances of the bank . If the bank has been making a good faith effort to improve its performance, but has not yet been able to achieve the satisfactory level, it should not be penalized and essentially given a lower rating than it deserves. Arbitrarily downgrading banks in this manner is especially objectionable if a " substantial noncompliance " rating carries the potential for enforcement sanctions, as is proposed. IBAA/CRA March 24, 1994 415 27 DATA COLLECTION AND REPORTING The agencies have proposed significant new data collection requirements . Banks that do not elect the small bank assessment method would be required to collect and report data on the geographic distribution of their home mortgage , consumer, small business ( including small farm ) loan written applications, denials , originations and purchases. The IBAA strongly opposes this data collection requirement. There is no statutory basis for this requirement. In fact, the contrary is true . Congress has considered, and rejected several times, small business reporting requirements of this nature . As part of the FDIC Improvement Act ( FDICIA) , Congress imposed new reporting requirements for small business and small farm loans as part of the Call Report. The extent of the data collection envisioned by this proposal goes beyond that required for the Call Report and would be incredibly burdensome and costly, greatly offsetting any perceived benefit. Broadening of HMDA Data Collection The proposal states that institutions not now covered by HMDA would have to collect and report the summary home mortgage data required under the new rule. In essence, the agencies are nullifying the statutory exemption from HMDA by regulatory fiat. The IBAA strongly opposes this extension of the HMDA reporting and the associated burden it will impose primarily on small banks. TRANSITION PERIOD The proposal provides that the data collection and reporting requirements shall take effect July 1 , 1994, for all institutions that are required under the regulation to collect and report data. Data collected from July 1 , 1994, though December 31 , 1994, would be required to be reported to the agencies no later than January 31 , 1995. The IBAA opposes this time frame for the data collection . It is unrealistic to expect institutions to be able to assemble the new data and prepare the appropriate reports in the allotted time frame. At a minimum, the agencies should provide a transition period of six months from the adoption and publication of the final rule for banks to begin to collect the data. In addition , banks should have until March 1 to report the previous year's data to the agencies. This date is consistent with the March 1 filing date for HMDA pursuant to Section 203.5( a) . It is unrealistic to expect banks to file these reports by January 31 in addition to the numerous other year-end reports institutions are required to file. There is no justification for this additional burden. The proposal states that evaluations based upon the new assessment standards could begin by April 1 , 1995. The IBAA believes that this time frame is unrealistically short . Banks should be evaluated under the new program beginning at least six months after the publication of the final rule and the completion of the examiner training. It is critical that the effective dates be linked to the completion of the examiner training . To do otherwise could cause banks to be evaluated by examiners who are not knowledgeable on how to assess a bank under the new rules. IBAA recommends that the agencies provide for an adequate transition period for implementation of both the new examinations and reporting requirements. IBAA requests that, at a minimum , there be at least a six-month transition period from the adoption and IBAA/CRA March 24, 1994 416 28 publication of the final rule and the completion of examiner training prior to applying the new rules to the industry. EXAMINER TRAINING Examiner training will be critical to the successful implementation of this revised rule. Under the new rule, examiners will be required to exercise a considerable amount of discretion and judgement. To do this effectively and judiciously, IBAA believes that a significant amount of training is required. Consistent and appropriate implementation of CRA depends on how examiners apply the standards they have been given to work with when they come into the bank. And in order to apply the standards appropriately, examiners must receive proper training. In particular, the proposal states that, for streamlined examination , " the burden of the examinations will be shifted largely from the banks being examined to the examiners. " For this burden shift to take place, examiners will need to be trained on how to conduct these examinations without shifting that burden back to the banks. This is critical if the proposal is to realize the goal of reducing burden on small banks. The agencies must also take steps to reconcile the conflict that develops between CRA exams and safety and soundness exams. Too often bankers make what they believe are good " CRA loans" ( which, in fact, may be favorably cited in a CRA exam) only to have the safety and soundness examiner later classify the loans. Examiners must be " cross-trained " in compliance and safety and soundness in order to minimize this situation. We recognize that evaluation of CRA performance requires examiner judgement. This is necessary so that examiners can take adequate account of the differences among communities and the banks that serve them . However, in a review of the proposal, the GAO noted that there are numerous areas in the proposed regulations where examiners will be required to use discretion to determine an institution's performance. The GAO concluded that, in addition to the need for specific guidance " on how and under what circumstances examiner discretion will be used, " " comprehensive training programs for all examiners will be important to emphasize the guidelines for using discretion. " 20 IBAA requests that all examiners receive comprehensive training on the new CRA rules prior to their imposition on the banking industry. EXAMINATION GUIDELINES The IBAA requests that the agencies, jointly or independently, publish for public comment the examination procedures that will be used to implement the revised CRA rule. We recognize that seeking public comment on examination procedures is not a standard agency practice; however, the magnitude of change proposed by the revised CRA rules warrants a departure from usual and customary procedures. To avoid any unintended consequences from these new standards, and to ensure that small banks face no additional documentation burdens, the agencies need to take every step to ensure that the banking industry and examiners are fully aware of how the CRA rule will 20 GAO Letter, p. 10. IBAA/CRA March 24, 1994 417 29 be implemented. Further, by providing the industry the opportunity to comment on the examination procedures, the agencies have a better chance of ensuring that the rule is implemented in the correct manner. APPEALS PROCESS The IBAA believes that an effective appeals process is very important to the successful implementation of the revised CRA rule. In general, community bankers are dissatisfied with the current appeals process. Most bankers are unsure how to pursue an appeal , while others have expressed concern about the lack of objective decision- makers in the process. We offer the following recommendations to help implement an effective and fair appeals process for the revised CRA rule. Most importantly, the appeals process should provide a definitive course of action for institutions to appeal a CRA rating without resort to courts and without fear of retribution from examiners or the agencies. Bankers should know that a process exists allowing them to dispute an examination conclusion . For example, an ombudsman specializing in CRA matters could be an effective solution. OFFICIAL COMMENTARY The IBAA strongly recommends that the agencies create a commentary to this regulation. As the agencies have done with other complicated regulations, we believe that a commentary would provide an ideal vehicle for the agencies to issue official staff interpretations of the regulation . Good faith compliance with the commentary should afford institutions protection from enforcement actions. MISCELLANEOUS Basis for Assessment The preamble to the proposal states that the emphasis of the CRA assessment should be on " evaluating each institution's record in light of its business strategy and community. " It also states that " the regulations would not require institutions to offer specific loan products, to make specific loans or investments or to make loans or investments that are expected to result in losses or are otherwise inconsistent with safe and sound banking practices. " We wholeheartedly agree with these statements. We recommend that this language be added to the regulation itself so that it does not become " lost" in the preamble and ignored when the regulation is implemented . Subsection ( c) of the section entitled " Assessment standards summary" contains only the language regarding " loans or investment that are expected to result in losses...," etc. This subsection should be expanded to include the language from the preamble regarding business strategy, community, specific loan products, and specific loans and investments. Applicability of CRA to Bankers' Banks The IBAA requests that the final rule explicitly exempt bankers' banks from the regulation. IBAA/CRA March 24, 1994 418 30 Affiliates Because the CRA is specifically aimed at the provision of credit by banks, affiliate activities should be used to adjust an institution's CRA rating upwards, if the activities of the affiliate help the institution meet credit needs of the local community ( service area) . Only the activities of an affiliate in the local community should be used to affect the CRA performance of an institution. Many banks are affiliated with entities that provide credit or credit-related services to the public. The use of affiliates in the lending process is integral to extending credit by many institutions and should be recognized in the CRA evaluation process. These affiliates can be related to the bank in several ways. They can be a subsidiary of the bank, a sister entity that is owned by the bank's holding company, or contractually affiliated . An example of a contractual affiliate is IBAA Mortgage Corporation , which acts as an intermediary to allow small banks that do not have the resources to originate and hold mortgages to provide their customers with access to a mortgage provider. This enhances the ability of the small bank to provide credit services to its community. Positive CRA credit is a means of encouraging the use of affiliates, which enhances the flow of credit to the community. Care must be taken not to do anything that will restrict the use of affiliates by small banks. Rebutting the Presumptions At several places in the proposal, the agencies establish rebuttable presumptions that a bank will receive particular ratings if it achieves described levels of performance. However, the proposal is vague about how and when the presumptions can be rebutted. IBAA recommends that the final rule make clear that a bank can rebut a presumption at anytime during the examination process and at anytime during any appeal of a CRA rating . We also request that the final rule clarify that the ability to rebut a presumption is the bank's only and that others, such as community or consumer groups, do not have the ability to rebut a presumption in an attempt to lower a bank's rating . The CRA rating ultimately is a matter between the bank and its regulator. It is the bank that must live with the rating and its attendant consequences. Weight of Ratings During Application Process Pursuant to the CRA statute, a bank's CRA rating is taken into account when an agency reviews the bank's application for a deposit facility ( e.g., branch, merger, acquisition or conversion application) . In our view, an outstanding rating should be entitled great weight in the application process. As proposed , the rule only says that an outstanding rating " generally...is consistent with approval" and will receive " extra weight. " This is insufficient. IBAA recommends that the agencies establish a rebuttable presumption that an outstanding rating will result in approval of the CRA aspect of an application . Under the rebuttable presumption, the burden should be on any protestant to show that the application should not be approved on CRA grounds. The rebuttable presumption for an outstanding rating is appropriate where potential protestants have an opportunity to provide comments to the agencies during the examination process. It is also particularly appropriate since it appears that, under the present proposal, an outstanding rating will be difficult to achieve. Accordingly, a bank that achieves an outstanding rating should be duly rewarded . IBAA/CRA March 24, 1994 419 31 Establishing a rebuttable presumption in favor of an outstanding rating during the corporate application process is one way to reward outstanding banks. It should also help to reduce or eliminate the time and costs incurred by a bank that must defend itself against a frivolous protest. REGULATORY FLEXIBILITY ACT The proposed rule gives small banks three options with regard to CRA evaluation . One of these options could result in a significant economic impact and the other two options will result in a significant economic impact on small banks. Therefore , we believe that a regulatory flexibility analysis must be conducted by the agencies before a final rule is adopted. A " significant economic impact " could be imposed under the alternative assessment method when a small bank fails to meet one or more of the criteria necessary for receipt of the presumption of " satisfactory. " The resulting economic impact should be examined because the agencies have provided no basis to conclude that a " substantial number" of small banks will not be affected in this manner. The next option available to a bank under the proposed rule is to adopt a CRA strategic plan. Doing so could be costly and, therefore, could have a significant economic impact on any bank that chooses this option . The agencies have provided no basis to conclude that there will not be a " substantial number" of small banks that will avail themselves of this option, thereby suffering a " significant economic impact. " The final option for small banks is to be assessed under the " lending test. " It is clear that use of this test will impose a " significant economic impact " on any entity that uses it. It would appear that the agencies have merely assumed that all small banks will use the " alternative assessment method" and that they will meet the presumption of " satisfactory" performance when making the Regulatory Flexibility Act certification . In view of the foregoing, the assumption is unwarranted and the analysis needs to be conducted . CONCLUSION IBAA strongly supports a tiered system for CRA with streamlined examination procedures for small banks. A tiered system will recognize the very real differences in the circumstances under which large and small banks operate. IBAA commends the agencies for proposing a streamlined CRA examination system . We greatly appreciate the agencies' concern, evidenced in the proposal, about the ever growing and crushing regulatory burden that community banks face. A tiered system with real regulatory relief for community banks will allow them to return their focus to what they do best--serving their communities. We appreciate this opportunity to comment and would be pleased to discuss any parts of this letter in further detail. Sincerely, Shivers John John Shivers IBAA/CRA March 24, 1994 420 November 15, 1994 Mr. Robert E. Feldman Acting Exec. Secretary Subject: CRA Regulatory Proposal - Comments Dear Mr. Feldman: We are pleased that the regulators chose to reconsider their December 1993 proposal on CRA in regard to the concerns which were raised by the banking community. Of significance was that the 60% loan to deposit ratio was dropped since it could have encouraged banks to unwisely relax lending criteria and to the extent that examiners are going to make more of an attempt to emphasize performance rather than documentation is a vast improvement over the existing system. There are areas in the new proposal which give pause for concern. The collection of data concerning the race, gender and ethnicity of commercial borrowers would be overly burdensome and expensive for banks. Further, there is no foundation in the Community Reinvestment Act itself mandating the collection of such data, therefore this aspect of the proposal exceeds the scope of the law. Additionally, requesting and collecting this kind of data may not stand a legal challenge under Regulation B, the Equal Credit Opportunity Act, as it now stands. Finally, it is unclear how this data will be used or to what standard it will be compared to, to judge compliance. 421 The proposal is unclear as to how a bank is to determine if a business is minority owned . For example, in the case of an interracial couple ( or even a Caucasian husband and wife) , how would that business be classified? Other areas ofconcern regarding the CRA regulatory proposal are as follows: Under the lending test, " an institution would be evaluated based on the number, amount, complexity and innovativeness of its community development loans" . This language is vague at best and open to broad interpretation by examiners. It also leaves unclear how this definition will fit in with prudent lending standards. Defining a bank's " Service Area" becomes ambiguous and unclear. Previous definitions have relied upon where a bank collects deposits ( which appears to be the intent of the Act itself) . However, this proposal requires those geographies in the local areas where deposit taking ATM's are located and other geographies equi- distant from its branches and ATM's, which confuses the delineation of trade areas. The newly proposed definition relies almost exclusively on where a bank makes its loans, but the tracking of loans by census tract raises customer privacy concerns. If a bank has only one or two loans in a single tract, it may be relatively easy for an outsider to ascertain the identity of an applicant or borrower. The Tier system is extremely important and, while the threshold of $ 250 million is considered realistic, it should be increased to a level which is more indicative of the market that most independent community banks lend themselves to which are community based loans. Stratification by asset size is an unfair measure. A $ 500 million bank in Madison, Wisconsin is a large bank; while a $ 500 million bank in the New York metropolitan area is a small bank. Perhaps utilizing SMSA data to include or exclude banks from the streamlined examination would be more appropriate. The appropriate threshold should probably be $ 500 million and even more. As a $ 460 million bank within the greater metropolitan area of New York City, we are still engaged in small business lending and will be unfairly burdened by having to gather race and gender coding of small business loans. We therefore find ourselves put in a class with multi billion dollar organizations who are the predominant banks that we compete against. If a bank inadvertently violates the spirit of CRA, is it a criminal offense or a civil matter with penalties and cease and desist orders? Allowing the imposition of civil money penalties as a result of a poor CRA examination is without statutory authority and should not be considered. Under the proposed CRA, it will be extremely difficult to legislate equity for all borrowers who will have to be qualified within the parameters that are 2 422 prescribed by regulation. There will be no advantage as to whether a customer borrows from a local community bank or a megabank since everyone will be judged by the same standards. The personal relationships, personalities and affinities that make each institution different will no longer exist since the discretion will be taken away from the lender. This is the reverse of what we had during the era of Regulation Q where banks were governed by regulation as to deposits. The industry fought for deregulation and the beneficiary, ultimately, has been the consumer. Consequently, after deregulating liabilities, we want to put a hammerlock on assets. In a recent speech by Federal Reserve Chairman, Greenspan entitled: " New Horizons for the Basic Business ofBanking" , given at the American Bankers Association National Convention in New York, Chairman Greenspan highlighted why the regulation of assets does not work. One of the issues that he raised was that risk-based loan pricing would reduce the " sometimes disruptive rationing of credit that occurs especially during economic downturns" . Chairman Greenspan goes right to the heart of the reason why we are losing business to other financial intermediaries- not only on the commercial side, but on the consumer side. In his speech, the Chairman said as follows: " Banks are inviting competitive incursions by offering only one interest rate per facility for borrowers of widely varying risk. A single interest rate for credit, or even two or three rates, suggests that some individual borrowers are being overcharged in relation to their riskiness and some are being undercharged. Indeed, informed observers say just that. The highest quality borrowers are being charged loan rates that are higher than actual loss experience indicates; meanwhile, the riskiest borrowers probably are not being charged sufficiently high rates to cover their significantly higher risk of default and loss in the event ofdefault" . Under Regulation B, it is very difficult, if not impossible, to vary your interest rate according to the quality of the credit. We are forced to charge interest on " a one size fits all" basis for a customer, whether or not he is a good credit or a marginal credit. If the rate for a 10 year consumer credit home equity loan is 8%, that 8% applies to both the good and the marginal customer. While we may try to justify rate differences, it is still subject to examiner criticism. On the other hand, competing companies such as Money Store, Beneficial Finance and Champion Mortgage, can vary their rates based upon the grading of the credit quality. There is, for a similar maturity, " A" , " B" , " C" and even " D" paper and the rates charged could run anywhere from 8% to 16%. Not being subject to the same regulatory requirements, these institutions are not only able to provide a service to the community, but they are taking all of our business. This is also one of the areas where we lost out to automotive financing because we could not discriminate on rates nor have we had the flexibility. 3 423 Under the Fair Lending Policy Statement on disparate treatment and disparate impact, it appears that to risk price loans could have a " disparate effect on borrowers from a protected class" ; and that the bank would have to provide a credible and legitimate non - discriminatory explanation . Chairman Greenspan's speech, clearly makes a case that Fair Lending and the revised CRA can't work since it will create a disadvantage to consumers whose credit accommodation would have been granted on a judgmental basis and, in the end, affect the competitiveness and profitability of banks as well. Very truly yours, Anthony S. Abbate ASA:gh 424 REGULATORY BURDEN The Cost To COMMUNITY BANKS A STUDY PREPARED FOR THE INDEPENDENT BANKERS ASSOCIATION OF AMERICA By GRANT THORNTON January 1993 IBAA ASSOCIATION OFAMERICA GrantThornton & Accountants and ManagementConsultants The U.S. MemberFirm of GrantThornton internationa 425 PREFACE This study was prepared for the Independent Bankers Association of America ( IBAA) by Grant Thornton. The IBAA is the only national trade association that exclusively represents the interests of the nation's community banks. Grant Thornton is an international accounting and consulting firm , providing audit, tax and consulting services through 47 offices in the United States and operations in 70 countries worldwide. The firm has an extensive financial institution practice consisting primarily of commercial banks and thrifts. The principal authors were M. Scott Reed , Audit Partner and Chairman of the National Financial Institutions Industry Service Committee; M. Molly Curl , Financial Institutions Management Consulting Senior Manager: Denese C. Olson, Audit Manager specializing in financial institutions ; and John C. Koegel , National Director of Marketing Research. Howard Groveman, National Director of Accounting and Auditing , participated significantly in the study's preparation . Other individuals making important contributions were Lori Applegate, Raymond Wiggins, Judy C. Foster, Allison Fitzpatrick and Kathy Sbragia. Margaret H. McCullough, Ph.D. , contributed as a consultant in the areas of statistical analysis and evaluation. The IBAA provided significant input into the design of the study, including the surveys. The IBAA staff also provided suggestions as the study progressed through its three phases. We appreciate the cooperation and courtesies extended to the Grant Thornton staff by the IBAA staff , and also by the banks that participated in the field cost studies, as well as those that took the time to complete the surveys , for without their assistance this study could not have been completed. IBA Gran: Thornton Study 426 TABLE OF CONTENTS EXECUTIVE SUMMARY Survey Design 1 7 7 Phase II- Field Cost Studies Selection of Regulatory Areas for Study 11 10 14 18 222 Estimated Annual Compliance Cost Per Bank Estimated Annual Compliance Cost for All Community Banks Phase III- National Cost Survey The Sample Evaluation of Methodology 10 10 11 13 2295 32 36 Appendix ( provided separately) A National Opinion Survey Cost Identification Model B C National Cost Surveys Exhibits ( provided separately) Analysis ofthe National Opinion Survey of Community Banks IBAA/GrantThornton Study 427 REGULATORY BURDEN The Cost To COMMUNITY BANKS A STUDY PREPARED FOR THE INDEPENDENT BANKERS ASSOCIATION OF AMERICA BY GRANT THORNTON EXECUTIVE SUMMARY BACKGROUND The commercial banking industry is increasingly concerned about the mounting level of regulatory burden affecting the operations of banks. Bankers have repeatedly voiced their concerns over escalating regulatory requirements. Community banks account for more than 80% of the commercial bank charters in the United States. Such banks are significantly affected by the increasing level of regulatory burden . Furthermore, community bankers believe that their ability to serve the needs of their local communities is hampered by the growing regulatory burden. In May 1992, the IBAA retained Grant Thornton to initiate a study of the impact of regulatory burden on community banks. The study was conducted in three phases. Phase I - National Opinion Survey of Community Banks ( June 1992) The study's overall objective was to determine and document the cost ofcompliance with regulatory areas deemed most burdensome by community banks. We believe the approach used and described in this study effectively determined such costs. BAA Gran: Thornton Study 1 428 SCOPE The study focused on thirteen regulatory areas , with the objective of determining and documenting the cost of complying with these specific rules. The study DOES NOT EXTEND to all of the other banking regulatory requirements. The projection and estimation of the industry cost of these specific regulatory areas are based ONLY ON COMMUNITY BANKS, as defined by the IBAA, and not on the U.S. banking industry as a whole. In addition, this study did not consider any of the additional regulatory requirements imposed by the Federal Deposit Insurance Corporation Improvement Act of 1991 . The universe of community banks was determined by the IBAA to include 84% of commercial banks. IBAA defines community banks as locally owned and operated institutions. These banks ranged in asset size from less than $ 1 million to almost $ 5 billion. The average asset size of the community banks was $ 82 million and the mean asset size was $ 42 million. The breakdown of all U.S. banks as of September 30, 1992, is as follows: Community Banks Numbers of Banks Total Assets ( in thousands) $ Banks Not Included In Study Total Commercial Banks 9.682 1.853 11.535 821.679.159 $ 2.505.730.286 $ 3.327.409.445 METHODOLOGY Phase I Phase I of the study used written questionnaires to obtain the community bankers' opinions about the regulatory areas which are most costly. Phase I identified thirteen regulatory areas as most costly, or aggravating and burdensome. 2 IBAA/Grant Thornton Study 429 Phase II To more fully understand and document the cost of compliance with these regulatory requirements. in Phase Il Grant Thornton senior personnel performed field cost studies at nine representative community banks Extensive interviews of bank employees were conducted and Grant Thornton's cost identification model was utilized to measure compliance costs in the following five categories: 1. 2. 3. 4. 5. Direct Employee Hours Direct Employee Compensation Direct Employee Benefits Direct Third Party Expenses Associated Operating Overhead ( Exclusive of FDIC insurance assessments) The results were then projected to the entire community bank population. The FDIC insurance assessments were excluded from operating overhead because it was considered inappropriate to allocate this direct cost as a factor for the thirteen studied regulatory areas. Phase III The field cost studies were then used to develop thirteen separate surveys covering each of the thirteen regulatory areas. Each survey was sent to 200 community banks randomly selected from the IBAA's data base of approximately 9,700 community banks; in total 2,600 banks received the survey. The survey collected direct employee compliance hours and determined the annual compliance dollars based upon the cost per employee hour determined in Phase II . The survey results were first aggregated for each asset category, then weighted by the total assets of the community banks within the category to yield a composite total . These surveys, along with the field cost studies, then formed the basis for estimating the annual compliance cost for the thirteen regulatory areas. The data were divided into three asset-size categories. Phase III also asked banks to rate regulations for redundancy, necessity and inefficiency. The respondents were asked to distinguish between those regulations that were necessary for safety and soundness or prudent banking and those that were not. Each of the thirteen regulatory areas was then graded on a " RUIN" scale. IBAA Gran: Thornton Study 3 430 FINDINGS The composite annual compliance hours and cost estimated by the national cost survey are as follows ESTIMATED ANNUAL COMPLIANCE COSTS Annual Compliance Hours Cost Community Reinvestment Act - Regulation BB Truth in Lending Act - Regulation Z Formal Written Policies Loans to Insiders - Regulation O Equal Credit Opportunity Act Regulation B Real Estate Settlement Procedures Call Reports Appraisal Requirements Bank Secrecy Act Geocoding-Geographic Loan Coding Expedited Funds Availability Act · Regulation CC Home Mortgage Disclosure Act - Regulation C Sum Of All Studied Regulations 14.424.380 6.829.165 3,174,803 5,483,790 1.898.145 $ 584,128.349 326.254.089 323.879.398 300.437.736 233.759.476 106.821.882 5,160.636 1.624,764 1,613.098 1,100.663 2.083.003 1.777.882 1,917,889 420.939 47.509.157 1.032.466.852 $ 94.107.924 65.399.930 59.660.479 56.789.106 47.644.344 17.473.692 3.248.823.257 The annual cost to community banks for complying with the thirteen regulatory areas is estimated to be nearly 48 million employee hours or approximately 22,800 full-time employees. The estimate of annual compliance hours was determined based on statistical analysis of the survey responses for the individual regulatory areas and contains an error rate of ± 5%. Community banks ' annual compliance cost for the thirteen regulatory areas is estimated at $ 3 2 billion. These costs were analyzed in relation to total assets, equity capital, net income before tax. Cost associated with each: 3,954 $ $ 1 Million of total assets $ 45,186 $ 1 Million of equity capital 0.24 $ Dollar of net income before income taxes BAA Grant Thornton Study 431 COMMUNITY REINVESTMENT ACT The study identifies Regulation BB, the Community Reinvestment Act ( CA) , as the most burdensome regulation . The total annual cost to community banks for this regulation is approximately $ 1 billion and approximately 14.4 million employee hours or 6,900 full-time employees . CRA compliance costs community banks $ 1,256.53 for each $ 1 million in total assets and approximately $ 0.08 for each dollar of net income before taxes . The estimated cost of complying with CRA exceeded the next most burdensome regulation by approximately $ 448 million or 77%. TRUTH IN LENDING Regulation Z, Truth in Lending , was the second most expensive regulation , costing approximately $ 584 million and requiring 6.8 million employee hours or approximately 3,300 full-time employees per year. Truth in Lending compliance costs community banks $ 710.90 for each $ 1 million in total assets and approximately $ 0.04 for each dollar of net income before taxes . COMPLIANCE COST FOR SMALLER BANKS The study reveals that smaller banks face the highest compliance cost in relation to total assets , equity capital and net income before taxes . For each $ 1 million in assets, banks under $ 30 million in assets incur almost three times the compliance cost of banks between $ 30-65 million in assets . This increases to almost four times when compared to banks over $ 65 million in assets . These findings are consistent for both the equity capital and net income measurements. VALUE AND EFFECTIVENESS OF REGULATORY AREAS . כ z The IBAA RUIN Scale is used to reflect the value and effectiveness of the regulatory areas included in the study in four categories: R Redundant ( a regulatory area that asks for information that can be obtained from quarterly bank Call Reports or from other existing sources) . U Unnecessary ( a regulatory area for which there is little perceived need) . N Inefficient ( a regulatory area that could be streamlined ) . Necessary ( a regulatory area that is vital to the ongoing health and well-being of the nation's banking system ) . The higher the RUIN scale rating , the more favorable banks perceive a given regulatory area . In our study, community bankers gave the highest ( i.e. most favorable) marks to regulatory examination and Call Reports; at the same time, they gave the lowest marks to CRA. BAA Grant Thomton Study 5 432 CONCLUSIONS The results of the IBAA/Grant Thornton study on regulatory burden revealed that the annual cost for community banks to comply with the thirteen studied regulatory areas is estimated at $ 3.2 billion , requiring 48 million estimated annual compliance hours. Translating these hours into full-time equivalent employees, approximately 22.800 employees must dedicate their time to complying with these thirteen regulatory areas. The cost of complying with the thirteen regulatory areas when expressed as a percentage of net income before taxes is a staggering 24%. These numbers apply only to the universe of community banks, ( 9,682 banks ) . If the data is extrapolated to cover all U.S. commercial banks , the cost is estimated at $ 11 billion for the thirteen regulatory areas. This study substantiates the report by the Federal Financial Institutions Examination Council ( FFIEC) issued in December 1992 , which concluded that " available evidence suggests that the annual cost of regulatory compliance may be as high as $ 17.5 billion" . The FFIEC study also found that regulatory burden is greater for smaller banks. Extrapolating the IBAA/Grant Thornton cost data to all U.S. commercial banks, it is clear that the FFIEC estimate is low. The study confirms the FFEIC finding that compliance burden significantly increases as the bank size decreases ( as a percentage of total assets) . The relationship of cost to assets, equity and income is lower for larger banks. This trend is consistent through the three asset size categories. The mean community bank in the IBAA data base has assets of $ 42 million and an estimated 20 full-time equivalent employees. The annual cost for compliance is estimated at approximately $ 178 thousand , requiring 3,137 compliance hours and 1.5 full-time employees , or 7.5% of such banks' full-time work force. This is particularly significant since smaller banks are exempt from some compliance requirements. The cost for community banks of complying with the Community Reinvestment Act is estimated at $ 1 billion annually. with compliance hours totaling more than 14 million . This high cost is directly attributed to the level of employee involvement in CRA compliance . Truth in Lending is the second most costly regulation in both costs and hours. probably because a large portion of community banks' lending is consumer-based, thus increasing related compliance costs. This study provides significant evidence that the regulatory burden imposed by only the thirteen regulatory areas studied is enormous, both in terms of annual dollar costs and compliance hours. An overwhelming portion of community bankers' time, and of the personnel and earnings of the banks' are being directed toward compliance activities. IBAA Grant Thornton Study 6 433 PHASE I - NATIONAL OPINION SURVEY SURVEY DESIGN The study commenced in June 1992 when approximately 10.000 community banks received the national opinion survey. The survey was organized into the following eight categories: • Regulatory Reports • Lending-Related Regulations Other Consumer Protection Regulations Supervisory Policies Informational Reporting • • • Safety & Soundness Each of these categories listed five to eight individual regulations or regulatory areas for bankers to rank in order ofthe most costly to their bank. In addition, we asked bankers to rank the same items based upon the level of aggravation to their bank ( aggravating was not defined) . Finally, the bankers were to list, regardless of category, which five regulatory items they considered the most costly and the most aggravating to their bank. THE RESPONSE Over 20% of the community banks responded to the survey, representing a strong cross section of all community banks. Of the more than 2,100 responses received, 1,915 were usable and tabulated in the overall results. The following represents the profile of the respondents: Type of community served: 1.385 72.32% Rural Suburban 300 15.67% 192 Urban 10.03% • Approximate population of the community served : · Under 5,000 · 5,000 - 14,999 15.000 24,999 25,000 - 49,999 - 50,000 - 99,990 100,000 or more IBAA Grant Thornton Study 957 342 147 137 97 197 49.98% 17.86% 7.68% 7.15% 5.07% 10.29% 7 434 · Type of organizational structure: · • a holding company One-bank holding company Chain bank Multi-bank holding company Total asset size: . Under $ 25 million · $ 25 million to $ 49 million · $ 50 million to $ 99 million · $ 100 million to $ 149 million - $ 150 million to $ 199 million · $ 200 million to $ 499 million $ 500 million or more • Number of full-time employees: Under 10 · 10-24 · 25-49 · 50-99 100 or more 655 1.007 22 192 34.20% 52.58 % 1.15% 10.03% 526 546 486 160 67 86 11 27.47% 28.51 % 25.38% 8.36% 3.50% 4.49% 0.57% 352 714 467 223 130 18.38% 37.28% 24.38% 11.64% 6.78% 673 490 288 212 189 35.14% 25.58% 15.03% 11.07% 9.86% 548 1.141 161 23 28.61 % 59.58% 8.40% 1.20% Principal lending focus: Agribusiness Real estate Commercial Retail Other Primary Federal Regulator: Office of the Comptroller of the Currency Federal Deposit Insurance Corporation Federal Reserve Bank Office of Thrift Supervision Responses were received from banks located in all fifty states. IBAA Gran Thornton Study 8 435 The ten most burdensome regulations . as ranked by the respondents are as follows: 1 Community Reinvestment Act 3. Real Estate Settlement Procedures Act 4. Appraisal Requirements 6. Bank Secrecy Act 7. Call Reports 8. Formal Written Policies 9. Loans to insiders; lending limits The rankings were different for various size banks. Exhibit A to this report presents a detailed analysis of the survey responses. IBAA Grant Thornton Study 9 436 PHASE II - FIELD COST STUDIES SELECTION OF REGULATORY AREAS FOR STUDY Phase II involved visits to nine community banks selected by the IBAA. The results of Phase I formed the basis for selecting the regulatory areas included in field cost studies. To accommodate the top ten concerns of all size banks, the list was broadened to include the top thirteen regulatory areas. The following regulatory areas were selected for such analyses: 1. Call Reports Community Reinvestment Act - Regulation BB 13. Formal Written Policies BANKS INCLUDED IN THE FIELD COST STUDIES The IBAA selected nine banks from its membership that were believed to be representative of both the IBAA's membership and community banks as a whole. All of the banks were believed to have a solid compliance orientation. The banks ranged in assets from $ 16 million to $ 221 million , equity from $ 1.2 million to $ 16.6 million, and had reported net income ( before taxes) ranging from $ 18 thousand to $ 1.8 million. These ranges and other data are based upon the reports of the individual banks for their most recent fiscal years. Other sample profile data for the nine banks are as follows: Aggregated totals Assets Equity Net Income ( before taxes) Total Full-Time ( or equivalent) Employees IBA Gran: Thornton Study $ $ $ 567,200.000 .49.300.000 6.516.000 373 10 437 Averages Assets Equity $ $ Net Income ( before taxes) S • 63.000.000 5.500.000 724.000 41 Primary Federal Regulator 4 1 • 4 2 3 Banking Location Rural Urban Suburban COST IDENTIFICATION METHODOLOGY The annual costs of complying with the identified regulatory areas were accumulated within the following five categories: 1. 2. 3. 4. Direct Employee Hours. Direct Employee Compensation. Direct Employee Benefits. Direct Third Party Expenses. 5. Associated Operating Overhead ( Exclusive of FDIC insurance assessments) . Inquiry of the Chief Operating Officer ( COO) was used to identify the employees associated with each regulatory area. Prior to commencing our field visits, we developed a Grant Thornton Cost Identification Model ( Appendix B) which encompassed the expected processes and steps an individual bank's employees would follow in complying with the regulatory areas . The identified time did not include " start up" cost for compliance with the regulatory area, but did include the time necessary to deal with the amendments and modifications to the regulatory area. When regulatory compliance costs were transaction-based , such as those pertaining to expedited funds. appraisal requirements or Truth in Lending, we determined a time allocation for each transaction by interviewing the employees involved. IBAA Grant Thornton Study 11 438 Direct employee compensation was determined by using actual compensation levels . rates . either by specific individual or pertinent operating area. ^ ed to hourly Direct employee benefits were calculated based on the percentage of total salary devoted to each bank's total benefits . This percentage was then applied to the direct employee compensation cost to arrive at the direct employee benefit cost. Direct third party costs include the cost of such items as computer software to assist in Call Report preparation , training manuals or outside training courses . These costs were individually studied and aggregated for each regulation. The operating overhead allocation factor was determined based on the ratio of each bank's adjusted operating expenses to total salary cost. Adjusted operating expenses were determined by reducing the bank's operating expenses by the following: 1. 2. 3. 4. 5. Direct third party costs. Board of directors fees. FDIC insurance assessments. Acquisition cost amortization. Any other cost determined to be clearly unrelated to regulations. The FDIC insurance assessments are not included in the overhead allocation. The FDIC insurance assessment is a direct cost of maintaining deposit insurance. It is not appropriate to include this assessment as a cost allocation factor for the thirteen studied regulatory areas. The factor determined by the foregoing method was applied to the direct employee salary costs to arrive at the overhead allocation. At the completion of all preliminary field cost studies the following additional steps were taken to help assure the reliability of the results: 1. The results for each individual regulatory area for all field tested banks were compared. Any significant variations were investigated and the results were revised if necessary. 2. The completed cost identification model for each bank was provided to the bank's COO. All questions or concerns identified were investigated and adjustments were made if necessary. IBAA Grant Thornton Study 12 439 SUMMARIZED RESULTS The results of the study have been stratified into three categories based on the banks total assets An overview of the average annual compliance costs for the thirteen regulatory areas studied is presented in the following table: AVERAGE ANNUAL COMPLIANCE COST Total Assets Between 30-65 MM Under 30 MM Employee Related Costs: Compliance Hours 5.326 2,820 Salary Cost $ 45,446 12,458 $ 90,835 22,938 $ Total Cost 118,551 $ 253,788 Overall Averages 10,331 $ 6.159 $ 218,469 56,202 37.434 222.507 22,892 117.123 22.883 37,764 Direct Third Party Costs Overhead Allocation Over 65 MM $ 534.612 118.250 30.532 $ 27.737 125,798 302.317 An overview of the analytical comparisons of the field test banks for each category is presented in the following table: ANALYTICAL COMPARISONS STATED IN PERCENTAGES Under 30 MM Total Assets Between 30-65 MM Over 65 MM Overall Averages Total Compliance Cost as a Percentage of: Total Assets Equity Capital Net Income before Taxes 0.55 % 5.45 % 33.27 % 0.68 % 7.09 % 39.37 % 0.41 % 4.87 % 25.08 % 0.47 % 5.34 % 28.25 % Compliance Salary Costs as a Percentage ofTotal Salary Costs 13.49 % 16.22 % 13.33 % 13.99 % Percentage of Equivalent Compliance Employees to Total Equivalent Full-Time Employees 8.84 % 13.13 % 5.56 % 7.15' % IBAA Grant Thornton Study 13 440 ANALYTICAL COMPARISONS STATED IN HOURS AND DOLLARS Total Assets Between 30-65 MM Under 30 MM Over 65 MM Overall Averages Compliance Hours associated with each: Compliance Cost associated with each: $ 1 Million of Total Assets $ 1 Million of Equity Capital Dollar of Net Income before Taxes 132 1,296 143 1,487 79 941 94 1,074 0.008 0.008 0.005 0.006 $ 5,540 $ 54,479 0.33' $ 6,798 70,869 $ $ $ 0.39' $ $ 4,102 48,710 0.25' $ 4,670 $ 53,369 $ 0.28' 'Income has been annualized for computational purposes. These tables illustrate that banks in the $ 30-65 million asset size face the greatest burden in proportion to their assets, capital and income. Various other studies have used noninterest expense to project overall compliance cost to the banking industry. We believe the use of that approach results in less consistent results due to the variability in this expense category. The other categories are significantly more consistent over a period of time. ESTIMATED ANNUAL COMPLIANCE COST PER BANK The average cost per compliance hour was computed for each category by regulatory area. These rates were applied to the average compliance hours determined by the field cost studies. An overview of the estimated annual compliance cost on a per bank basis for each category is presented in the following table: Estimated Annual Compliance Cost Per Bank - Phase II Under 30MM Total Assets Between Over 65MM 30-65MM Composite Community Reinvestment Act - Regulation BB - Compliance Hours - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost IBAA/Grant Thornton Study $ $ 521 13,089 $ 3,693 9,101 9.801 35.684 $ 799 17,662 $ 4,339 4,042 20.971 47.014 $ 1.424 42,404 $ 11,771 10,819 42.654 107.648 $ 915 24,385 6,601 7,987 24.475 63.448 14 441 Estimated Annual Compliance Cost Per Bank - Phase II . continued Under 30MM Total Asets Between Over 65MM 30-65MM Composite Expedited Funds Availability Act - Regulation CC 581 - Compliance Hours 5.170 $ $ - Salary Cost 1.117 - Employee Benefits 429 - Direct Third Party Cost 4.881 - Overhead Allocation Total Cost $ 11,597 $ 2,219 19,929 $ 5,307 1,368 28.776 55,380 $ 2.954 36.614 $ 10.534 1,184 35.236 83.568 $ 1.918 20.571 5.653 994 22.964 50.182 Regulatory Examination Process Compliance Hours - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost 730 11,630 $ 3,163 1,069 10.413 26.275 $ 455 19,741 $ 4,953 7,893 24.389 56.976 $ 498 25,560 $ 4,236 4,493 25.769 60.058 $ 561 18,977 4,117 4,485 20.190 47.769 66 787 $ 241 8,192 703 9.923 $ 450 6,919 $ 1,865 6,421 10.225 25.430 $ 1,410 26,496 $ 7,332 12,677 28.383 74.888 $ 642 11.400 3.146 9.097 13.104 36,747 298 4,681 $ 1,247 472 3.962 10.362 $ 375 7,800 $ 2,031 39 10.483 20.353 $ 1,129 32,902 $ 8,258 783 33.027 74.970 $ 601 15.128 3.845 432 15.824 35.229 48 796 $ 239 0 626 1.661 $ 113 2,392 $ 594 208 2.895 6.089 $ 811 15,478 $ 4,186 181 17.371 37,216 $ 324 6.222 1.673 130 6.964 14.989 Truth in Lending Act - Regulation Z - Compliance Hours - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost $ $ $ $ FormalWritten Policies - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost $ $ Equal Credit Opportunity Act - Regulation B - Compliance Hours $ - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost $ BAA Grant Thornton Study 15 442 Estimated Annual Compliance Cost Per Bank - Phase II - continued Under 30MM Appraisal Requirements Compliance Hours Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost $ $ Total Assets Between Over 30-65MM 65MM Composite 188 4,373 $ 1,305 167 3.202 9.047 $ 228 4.421 $ 1.121 115 5.425 11,082 $ 278 8,638 $ 2,285 57 9.136 20.116 $ 231 5.811 1.570 113 5.921 13.415 130 1,102 $ 291 256 1.028 2.677 $ 268 3,307 $ 831 234 4.082 8.454 $ 757 9,313 $ 2,706 274 9.029 21.322 $ 385 4.574 1,276 254 4.713 10,817 175 2,242 $ 679 2,772 1.781 7.474 $ 99 2,591 $ 441 1,874 2.836 7.742 $ 234 4,525 $ 1,179 2,510 4.520 12.734 $ 169 3,119 766 2,385 3.046 9.316 22 522 $ 171 233 406 1.332 $ 116 3,668 $ 851 83 4.048 8.650 $ 44 4,531 $ 315 83 5.027 9.956 $ 61 2.907 446 133 3.160 6.646 26 495 $ 140 110 454 1.199 $ 134 1.212 $ 305 0 1,533 3.050 $ 435 5.332 1,542 833 5,235 12.942 $ 198 $ 2.346 662 314 2.408 5.730 Bank Secrecy Act $ - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost Call Reports $ - Salary Cost Employee Benefits Total Cost Loans to Insiders - Regulation O - Compliance Hours - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost Geocoding-Geographic Loan Coding - Compliance Hours - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost IBAA Grant Thornton Study $ $ $ $ 16 443 Estimated Annual Compliance Cost Per Bank - Phase II - continued Total Assets Between Over 65MM 30-65MM Under 30MM Real Estate Settlement Procedures Compliance Hours - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost $ Home Mortgage Disclosure Act - Regulation C Compliance Hours $ - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation $ Total Cost Sum Of All Studied Regulations - Compliance Hours - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost $ Composite 33 522 $ 159 82 472 1,235 $ 33 521 $ 134 602 662 1.919 $ 172 3.845 $ 1.047 3.457 4,358 12.707 $ 79 1.629 447 1.380 1.830 5.286 37 $ 13 0 35 85 $ 35 671 $ 167 13 798 1,649 $ 185 2,831 $ 811 83 2,762 6.487 $ 74 1,180 330 32 1,198 2.740 2,820 45,446 $ 12,458 22,883 37.764 118,551 $ 5.324 90,834 $ 22.939 22,892 117.123 253.788 $ 10.331 218.469 $ 56,202 37,434 222,507 534.612 $ 6.158 118.249 30.532 27.736 125.797 302.314 PROJECTED ANNUAL COMPLIANCE COST FOR ALL COMMUNITY BANKS The projected annual compliance cost for all community banks was based on a relationship to total assets. The determination was made on a regulation basis by multiplying the total assets for U.S. community banks ( 9.682) for that category bythe estimated annual compliance hours. These values were then weighted and combined to yield the projection of annual compliance cost. The number of banks and total assets were provided by IBAA from the Sheshunoff Call Report information as of September 30, 1992. An overview of the projected annual compliance cost for all community banks for each of the categories is presented in the following table: IBAA Grant Thornton Study 88-882 - 95 - 15 17 444 Projected Annual Compliance Cost For Under 30MM Community Reinvestment Act - Regulation BB 1,465,274 -Projected Compliance Hours -Salary Cost $ 36.809,401 $ 10.388.003 25.596.858 27,564,921 Total Assets Between Over 30-65MM 65MM Composite 3.016.996 66.691.946 $ 16.380,478 15.266,831 79,181,708 6.779,865 201,919,087 $ 56.033.477 51,503,639 203,098,086 11.262.135 305.420.434 82.801.958 92.367.328 309.844,715 790.434.435 Expedited Funds Availability Act - Regulation CC 8.378.854 1.634.034 -Projected Compliance Hours -Salary Cost $ 14,540,797 $ 75,248,702 $ 20,045,645 -Employee Benefits 3,141,679 1,203,708 5,159,428 13.728.294 108.658.111 $ 32.614.478 $ 209.111.886 $ 14,064,217 174,305,690 $ 50,138,482 5,646,785 167,790.169 397.881.126 $ 24.077.105 264.095.189 73.325,806 12,009,921 290.176.574 2.053.045 1.718.118 32,710,774 $ 74,543,862 $ 8,895,405 18,706,449 3,009,271 29,800,629 29.286,224 92.094.374 73.901.674 $ 215.145.314 $ 2.371.029 121,685,104 $ 20,167,088 21,408,139 122.677.945 285.938.276 $ 6.142.192 228,939,740 47,768,942 54.218.039 244.058.543 574.985.264 185.612 2,214,823 $ 680,095 23,038,978 1.980.100 27.913.996 $ 1,699.228 26,121,365 $ 7,048,398 24,246,491 38.611,127 96.027.381 $ 6.712,848 126,152,890 $ 34,935,601 60,377.158 135.150.513 356.616.162 $ 8.597.688 154,489.078 42.664.094 107.662.627 175.741,740 480.557.539 838.082 13,162,551 $ 3,508,810 1.330.098 11.140.321 29.141.780 $ 1.416.023 29,448,209 $ 7.668,658 140,968 39.583.806 5,374,994 156,620,705 $ 39,341,334 3,723,155 157.241.231 7.629.099 199.231.465 50.518.802 5.194.221 Regulatory Examination Process -Projected Compliance Hours -Salary Cost $ $ Truth in Lending Act - Regulation Z $ -Salary Cost -Employee Benefits -Direct Third Party Cost $ Formal Written Policies $ $ IBA Grant Thornton Study 462.909.846 18 445 Projected Annual Compliance Cost For All Community Banks - Phase II - continued Under 30MM Total Assets Between Over 30-65MM 65MM Composite Equal Credit Opportunity Act - Regulation B 134,996 -Projected Compliance Hours $ 2,238,898 $ -Salary Cost 674,077 -Employee Benefits 0 -Direct Third Party Cost 1,763.433 -Overhead Allocation $ 4.676.408 $ Projected Cost 426,710 9,036,047 $ 2,241,391 789,421 10.925.018 22.991.877 $ 3.861.532 73.718,462 $ 19,918,877 868,736 82,716,086 177.222.161 $ 4.423.238 84.993.407 22.834.345 1,658.157 95,404,537 204,890.446 Appraisal Requirements -Projected Compliance Hours -Salary Cost -Employee Benefits -Direct Third Party Cost -Overhead Allocation Projected Cost 528,729 12.295,881 $ 3,671,310 469,446 9.003.738 25.440.375 $ 860.891 16,690,608 $ 4,229,039 437,001 20.482.646 41.839.294 $ 1.323.581 41,140,859 $ 10,859,201 248,210 43.498.857 95.747.127 $ 2,713,201 70,127,348 18,759,550 1.154.657 72.985,241 163,026,796 365.626 3,099,549 $ 818,522 722,225 2.888.900 7.529.196 $ 1,012.009 12,489,762 $ 3,143,586 888,098 15.407,799 31.929.245 $ 3.604.014 44,367,593 $ 12,906,936 1,303,104 43.002.436 101.580.069 $ 4,981,649 59.956.904 16.869.044 2,913,427 61,299,135 141,038.510 492.196 6,307,432 $ 1,907,878 7,794,012 5.007.427 21,016.749 $ 373.847 9,783,177 $ 1,663,422 7,076,592 10.713.566 29.236.757 $ 1.113.844 21,532,244 $ 5,584,732 11.976,147 21.532,244 60.625.367 $ 1.979.887 37.622.853 9.156.032 26.846.751 37,253.237 110.878.873 61.871 1,468,524 $ 481,483 656,021 1.143.523 3.749.551 $ 437,987 13.857,151 $ 3,214,070 310,130 15.280.928 32.662.279 $ 209,738 21,594,297 $ 1,489,262 372,315 23.952.295 47.408.169 $ 709.596 36.919.972 5.184.815 1,338.466 40,376,746 83.819.999 Bank Secrecy Act -Projected Compliance Hours -Salary Cost -Employee Benefits -Direct Third Party Cost -Overhead Allocation Projected Cost Call Reports -Projected Compliance Hours -Salary Cost -Employee Benefits -Direct Third Party Cost -Overhead Allocation $ $ $ $ $ $ Loans to Insiders - Regulation O -Salary Cost -Employee Benefits -Direct Third Party Cost $ Projected Cost $ IBAA/Grant Thornton Study 19 446 Projected Annual Compliance Cost For Under 30MM Geocoding-Geographic Loan Coding -Projected Compliance Hours -Salary Cost -Employee Benefits -Direct Third Party Cost -Overhead Allocation Projected Cost $ $ Real Estate Settlement Procedures Act -Projected Compliance Hours -Salary Cost $ -Employee Benefits -Direct Third Party Cost -Overhead Allocation $ Projected Cost Home Mortgage Disclosure Act -Projected Compliance Hours -Salary Cost -Employee Benefits -Direct Third Party Cost -Overhead Allocation Projected Cost $ $ Total Assets Between Over 30-65MM 65MM Composite 73.125 1.390.283 $ 391.205 306.946 1.275.931 3.364.365 $ 505.934 4.581,459 $ 1,155.937 0 5.793.784 11.531.180 $ 2.071.315 25.379.504 $ 7,322.204 3,971,365 24.945.136 61.618.209 $ 2.650,374 31,351,246 8.869.346 4,278.311 32.014.851 76.513.754 92.806 1,468,524 $ 445,372 228,705 1.330.098 3.472.699 $ 124,616 1,973,552 $ 507,485 2,269,584 2.495.133 7.245.754 $ 819.094 18,305,510 $ 4,964,206 16,443,933 20.725.561 60.439.210 $ 1.036.516 21,747,586 5,917,063 18.942,222 24.550.792 71.157.663 5.597 102,315 $ 36,111 0 96.297 234.723 $ 132.228 2,537,423 $ 634,356 42,290 3.016.715 6.230.784 $ 880.526 13,465,409 $ 3,847,260 372,315 13.155.146 30.840.130 $ 1.018.351 16,105.147 4,517,727 414.605 16.268.158 - 37.305.637 Sum Of All Studied Regulations -Salary Cost -Employee Benefits -Direct Third Party Cost -Overhead Allocation Total Projected Cost 7.930.993 20.103.441 49.186.597 77.221.031 $ 127,809,752 $ 343,003,263 $ 1,040,187,354 $ 1,511,000,369 35,039,950 86.638.914 267,508.660 389.187.524 86.427.463 64,356,268 328.998.732 178,215,001 106.209.207 442.244.715 1.059.485.705 1.607.939.627 333.415.177 $ 958.314.355 $ 2.545.396.720 $ 3.837.126.252 The detailed results of the field cost studies are presented in Exhibit B to this report and include the following sections: Section I Section II Section III Section IV IBAA GrantThornton Stua; · · · Averages by bank size based on stratifications Aggregate by bank size based on stratifications Overall analysis Graphs 20 447 PHASE III - NATIONAL COST SURVEY The study's final phase was the national cost survey of randomly selected community banks innsultation with the IBAA. thirteen separate cost surveys were designed ( one for each regulatory area) based on information obtained in completing Phase II of the study. The survey's objective was to guide the respondent bank through a series of questions to enable it to determine the number of annual personnel compliance hours needed to comply with the surveyed regulatory requirement. As with the field cost studies in Phase II , the aim was to determine the recurring hours necessary to comply with the specific regulatory requirements ( and not to include " start-up" costs for these regulations) . Respondents were asked to include the time commitment necessary to comply with the amendments and modifications to the regulatory areas. In addition , the survey respondents were asked to evaluate the pertinent regulatory areas according tothe IBAA RUIN Scale of Regulatory Burden . The IBAA's RUIN Scale reflects the value and effectiveness of major regulatory areas in four categories, as measured by community bankers: R Redundant ( a regulatory area that asks for information that can be obtained from quarterly bank Call Reports or from other existing sources) . U To create RUIN ratings, we asked the bankers to evaluate each regulatory area on a scale of 1 to 5 ( shown below) . Thus, the " best" regulatory areas received 15 points, the " worst" received only 3 points. Very Redundant 2 1 Unnecessary 2 1 Not Efficient 2 1 3 4 4 Very Efficient 5 221 IBAA Grant Thornton Study 3 Not Redundant 5 Essential 4 5 3 448 THE SAMPLE off Call The surveys were sent to 2.600 community banks randomly selected by the BAA using the Report data base as of March 31 , 1992. Each of the 2.600 selected banks received one surve, inus each of the thirteen surveys were sent to 200 banks. Consistent with Phase II the sample was stratified into three categories by asset size . The following table presents some selected data for the 2.600 sample banks and those responding to the survey: SELECTED SAMPLE DATA Total Assets Between 30-65 MM Under 30 MM Over 65 MM Total Total Banks Receiving Surveys: ( $ in thousands) • • Total Assets $ Number ofBanks • $ Average size in Assets $ 17,198.933 936 18,375 $ 37,626,504 817 46,054 $ 170,945,582 847 201,825 $ 12,064,975 268 45.019 $ $ 225,771,019 2,600 86.835 $ Survey Respondents: ( $ in Thousands) • • • • Total Assets Number of Banks $ 5,405,442 290 18.639 $ $ $ Average Size in Assets Percent Responding to the Survey 31.43 % Total Assets 30.98 % Number of Banks Percent of U.S. Community Banks: Total Assets Number of Banks IBAA Gran: Thornton Study 8.12 % 8.85 % $ 35.098,535 250 140.934 $ $ 52.568.952 808 65,061 32.07 % 32.80 % 20.53 % 29.52 % 23.28 % 31.08 % 8.54 % 8.52 % 5.64 % 7.56 % 6.33 % 8.31 % 22 449 EVALUATION OF METHODOLOGY The Phase III national cost survey best estimate of annual compliance hours , with an er: the individual regulatory areas was determined based on statistical analysis of the surve = 5%, for ses. Each survey collected total annual compliance hours for the single specific regulatory area being surveyed. While each survey was sent to 200 sample banks, responses varied from a high of 85 ( Call Reports) to a low of 50 ( Loans to Insiders) . When the different strata ( created by asset size) were examined, sample sizes were considerably smaller and varied widely for the different surveys. These small sample sizes limited the ability to generalize from the accumulated data, and necessitated statistical analysis to obtain an estimate of compliance hours in which reasonable confidence could be placed. To take into account the variability in activity associated with the different size banks, asset size was chosen as the basis for stratification. This, however, still resulted in considerable variability in reported compliance hours within strata relative to the sample sizes. To decrease such variability, and to more meaningfully describe activity within each bank, a " compliance factor was computed ( based on the number of compliance hours for each thousand dollars of assets held by the individual bank in the sample) . The mean compliance factor for each asset category was calculated, as well as a 90% confidence interval about this mean. Multiplying the average asset value for each stratum with this compliance factor mean and the high and low boundaries of the confidence intervals yielded a mean number of compliance hours and a confidence interval for each stratum. The mean number of annual compliance hours for each category was then weighted by the total assets of the community banks within the asset category ( nationally, not the number of banks sampled) to yield a composite mean. This mean reflects the best estimate of the average number of hours community banks spend complying with each regulatory area. In addition, the 90% confidence interval was computed, yielding a range of annual compliance hours about this " best estimate" , providing reasonable confidence that the " real" average would fall if all community banks had provided information. IBAA/Grant Thornton Study 23 450 The best estimate of annual compliance hours for each regulatory area is presented "lowing table. The data is sorted from highest to lowest. ANNUAL COMPLIANCE HOURS Total Assets Under Between Over 30 MM 30-65 MM 65 MM site Regulatory Area C · 806 675 1,505 995 Community Reinvestment Act - Regulation BB 651 406 1,048 702 Truth in Lending Act - Regulation Z 396 482 506 461 Equal Credit Opportunity Act - Regulation B 728 460 227 426 Formal Written Policies 213 208 334 252 Regulatory Examination Process 230 266 73 190 Bank Secrecy Act · 171 216 146 178 Expedited Funds Availability Act Regulation CC 135 250 98 161 Geocoding- Geographic Loan Coding 123 124 206 151 Loans to Insiders - Regulation O 136 188 Call Reports 105 143 117 237 141 68 Real Estate Settlement Procedures 123 85 100 103 Appraisal Requirements Home Mortgage Disclosure Act - Regulation C Total hours 3,020 72 3,363 47 5,548 41 3.978 COMPARATIVE ANALYSIS OF PHASE II AND PHASE III The design of the national cost surveys incorporated information obtained during the field cost studies. These studies were based on extensive field interviews and on transaction tests and analyses in certain regulatory areas. We cannot , however, be certain of the methodologies used by the banks to complete the surveys. Accordingly, we believe that some of the factors which would contribute to the difference between the Phase II and Phase III results would be: BAA Gran: Thorntor Study 24 451 Comparative Annual Compliance Cost Phase II and Phase III Field Cost Study Hours Cost Community Reinvestment Act - Regulation BB Total Assets: 1,465,274 Under $ 30 Million Between $ 30 - $ 65 Million 3.016.996 6.779.865 Over $ 65 Million 11.262.135 Overall Composite Truth in Lending - Regulation Z Total Assets: Under $ 30 Million Between $ 30 - $ 65 Million Over $ 65 Million Overall Composite 185,612 1,699,228 6.712.848 8.597.688 Regulatory Examination Process Total Assets: Under $ 30 Million Between $ 30 - $ 65 Million Over $ 65 Million Overall Composite 2.053,045 1,718,118 2,371,029 6.142.192 FormalWritten Policies Total Assets: Under $ 30 Million Between $ 30 - $ 65 Million Over $ 65 Million Overall Composite 838,082 1,416,023 5.374.994 7.629.099 Loans to Insiders - Regulation O Total Assets: Under $ 30 Million Between $ 30 - $ 65 Million Over $ 65 Million Overall Composite 61.871 437.987 209,738 709.596 Equal Credit Opportunity Act - Regulation B Total Assets: 134.996 Under $ 30 Million 426,710 Between $ 30 - $ 65 Million 3.861,532 Over $ 65 Million 4.423.238 Overall Composite IBAA Grant Thornton Study Nat Hours $ 100.359,183 177.520.963 512.554.289 $ 790,434.435 2.929.586 2.218,554 9.276,240 14.424.380 27,913,996 96,027,381 356.616.162 $ 480.557.539 2,238,657 1,116,184 3.474.324 6.829.165 73,901,674 215,145.314 285.938.276 $ 574.985.264 705,193 653,951 1,815.659 3,174,803 $ 29,141,780 76,841,641 356,926,425 $ 462,909.846 747,623 1,367,953 3.368.214 5,483,790 3,749.551 32.662,279 47.408.169 83.819.999 401,557 411.909 1,084,679 1,898.145 4.676,408 22,991,877 177.222.161 $ 204.890.446 1,304,640 1,463,248 2.392,748 5.160.636 $ $ $ $ $ Survey Cost $ 200.646.143 130.564.532 701,256,177 $ 1.032.466.852 $ 336,562.871 63,083,166 184.482,312 584.128.349 $ $ 25,368,154 81,902,390 218,983,545 326.254.089 $ $ 25.994.081 74.247.829 223.637.488 323,879.398 $ $ $ $ $ 24.302.872 30.716.921 245.417.943 300.437.736 45.145.081 78.843.385 109.771.010 233.759.476 25 452 Comparative Annual Compliance Cost Phase II and Phase III - conti Field Cost Study Hours Cost Nation Hours Real Estate Settlement Procedures Total Assets: Under $ 30 Million Between $ 30 - $ 65 Million Over $ 65 Million Overall Composite 92.806 124.616 819,094 1,036,516 3,472,699 7,245,754 60,439,210 71,157,663 184.107 411,204 1,029,453 1.624,764 Call Reports Total Assets: Under $ 30 Million Between $ 30 - $ 65 Million Over $ 65 Million Overall Composite 492,196 373,847 1.113.844 1.979.887 21,016,749 29,236,757 60.625,367 $ 110.878.873 331,502 430,235 1.613.098 Appraisal Requirements Total Assets: Under $ 30 Million Between $ 30 - $ 65 Million Over $ 65 Million Overall Composite 528,729 860,891 1.323.581 2.713.201 25,440,375 41,839,294 95,747,127 $ 163.026.796 252,719 339,733 508.211 1,100.663 Bank Secrecy Act Total Assets: Under $ 30 Million Between $ 30 - $ 65 Million Over $ 65 Million Overall Composite 365.626 1.012.009 3.604.014 4.981,649 7,529,196 31,929,245 101.580.069 $ 141,038,510 240,321 847,359 995.323 2.083.003 Geocoding-Geographic Loan Coding Total Assets: Under $ 30 Million Between $ 30 - $ 65 Million Over $ 65 Million Overall Composite 73.125 505.934 2,071.315 2.650.374 3,364,365 11.531,180 61.618.209 76,513.754 404,205 389,213 984.464 1.777.882 $ 32,614,478 209,111,886 397.881.126 $ 639.607.490 530,053 654,374 733.462 1.917.889 $ Expedited Funds Availability Act - Regulation CC Total Assets: 1,634,034 Under $ 30 Million 8,378,854 Between $ 30 - $ 65 Million 14,064,217 Over $ 65 Million 24.077.105 Overall Composite IBA Grant Thornton Study $ $ $ $ $ $ $ $ vey .ost $ $ $ $ $ $ $ $ $ $ 6.885.212 23.922.264 76.014.406 106.821.882 14,167.647 33,649,054 46,291,223 94.107.924 12,157,454 16.507.350 36.735.126 65.399.930 4,947,241 26.727.526 27.985.712 59.660.479 18.633.405 8.866.885 29.288.816 56.789.106 10.580,597 16.338.187 20.725.560 47.644.344 26 453 Comparative Annual Compliance Cost Phase II and Phase III - continued Field Cost Study Hours Cost Home Mortgage Disclosure Act - Regulation Total Assets: 5.597 Under $ 30 Million 132.228 Between $ 30 - $ 65 Million 880.526 Over $ 65 Million 1,018,351 Overall Composite Sum Of All Studied Regulations Total Assets: Under $ 30 Million Between $ 30 - $ 65 Million Over $ 65 Million Overall Composite 7,930,993 20,103,441 49.186.597 77,221,031 $ 234,723 6,230,784 30,840,130 37.305.637 11,375 225,267 184.297 420.939 333,415,177 958,314,355 2,545.396.720 $ 3.837.126.252 10,281,538 10,529,184 26.698.435 47.509.157 $ $ vey Cost Nation Hours $ $ $ 481.484 10.600.792 6.391,416 17.473.692 725.872,242 595,970,281 1.926.980.734 $ 3.248.823.257 Although there was a substantial difference in estimated annual compliance hours, there was a much smaller difference in total estimated annual costs. A closer review of the survey data reveals that when compared to the field cost studies it is likely the respondents miscalculated their hours. The overall difference between the total hours estimated by the field studies and the cost survey is 29,711.874 hours, of which 84.57% or 25,126,605 hours is represented by two regulatory areas: Expedited Funds Availability Act - Regulation CC and the Regulatory Examination Process. These two regulatory areas were given considerable attention during the field cost studies. The single largest difference ( 22,159,216 hours) occurred with Expedited Funds Availability Act - Regulation CC. Compliance with the requirements of this regulation involves a significant number of operational activities. On more than one occasion during the field studies, bank employees reported low transaction time: however, after further investigation , including actual transaction tracing through the bank's operations . the actual time was considerably higher than the employees had originally estimated . The cost survey design attempted to guide banks to look closely at the transaction time. However, the responses indicated that the design of the survey did not succeed in achieving that objective. Accordingly, we believe it is likely that the survey respondents have significantly underestimated the hours necessary to comply with this regulation. It should be noted that the difference in compliance hours is significantly larger than the difference in compliance cost, because this compliance function is predominantly performed by operational employees whose overall composite hourly salary cost is the lowest in the bank. IBAA Grant Thornton Study 27 454 The second largest difference ( 2.967,389 hours) occurred with the compliance hu regulatory examination process. As with Regulation CC. during the field ..es ban underestimated the amount of time spent on the examination process . During the field s probing disclosed substantial additional hours in excess of the initial estimates . According survey respondents were too conservative in their estimates in this area. ted to the 'nitially onal -at The Phase III national cost survey best estimate of the annual compliance hours, with a error rate of 5%. for the individual regulatory areas was determined based on statistical analysis of the survey responses ESTIMATION OF ANNUAL COMPLIANCE COSTS Phase III of the study requested respondent banks to provide direct annual personnel compliance hours with respect to the specific regulatory area covered in the survey completed by the bank. For purposes of converting this data to an estimated dollar cost we employed the following approach. Phase II of the study gathered actual cost data from the test banks in the following four categories: 1. Direct Employee Compensation 2. Direct Employee Benefits 3. Direct Third Party Expense 4. Operating Overhead ( Exclusive of FDIC insurance assessments) The average cost per compliance hour was computed for each cost category by regulatory area. These rates were applied to the best estimate of annual compliance hours determined by the national cost survey to arrive at the annual compliance cost for each regulatory area. An overview of the estimated annual compliance cost on a per bank basis for each category is presented in the following table: IBAA Gran: Thornton Study 28 455 Estimated Annual Compliance Cost Per Bank - Phase III Under 30MM Total Assets Between Over 30-65MM 65MM Community Reinvestment Act - Regulation BB - Best Estimate of Compliance Hours $ - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost $ 806 20.253 $ 5.716 14.086 15,166 55.221 $ 675 14.927 $ 3.666 3.416 17,722 39.731 $ 1,505 44.822 $ 12.447 11.439 45.078 113,786 $ კვი 6-579 Truth in Lending Act - Regulation Z - Best Estimate of Compliance Hours $ - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost $ 651 7,755 $ 2,375 80,747 6.928 97,805 $ 406 6,243 $ 1,680 5,792 9.222 22.937 $ 1,048 19,697 $ 5,451 9,424 21.102 55.674 $ 702 11.232 3,169 31,988 12.417 58,806 227 3,561 $ 947 358 3.015 7.881 $ 426 8,870 $ 2.311 43 11,919 23.143 $ 728 21.199 $ 5.318 502 21,279 48,298 $ 460 11.210 2.859 301 12,071 26.441 Regulatory Examination Process - Best Estimate of Compliance Hours $ - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation $ Total Cost 213 3.397 $ 923 311 3.041 7,672 $ 208 9.014 $ 2,262 3,604 11.135 26.015 $ 334 17,154 $ 2,844 3.014 17.291 40.303 $ 252 9.855 2.010 2.310 10.489 24.664 Loans to Insiders - Regulation O - Best Estimate of Compliance Hours $ - Salary Cost Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost 123 2,930 $ 959 1.307 2.278 7.474 $ 124 3.934 $ 913 90 4,342 9.279 $ 206 21,229 $ 1,476 390 23.552 46.647 $ 151 9.364 1.116 596 10.057 21.133 Formal Written Policies - Best Estimate of Compliance Hours $ - Salary Cost Employee Benefits - Direct Third Party Cost Total Cost IBA Gran: Thornton Study 29 456 Estimated Annual Compliance Cost Per Bank - Phase III continuec Under 30MM Total As Between 30-65MM Over 65MM e Equal Credit Opportunity Act - Regulation B - Best Estimate of Compliance Hours $ - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost $ 396 6.562 $ 1.971 0 5.161 13.694 $ 482 10,209 $ 2,537 887 12.355 25.988 $ 506 9.669 $ 2.613 111 10.849 23.242 $ -61 8.813 2.374 333 9.455 20.975 Real Estate Settlement Procedures - Best Estimate of Compliance Hours - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost 68 1,080 $ 329 169 976 2.554 $ 117 1,854 $ 477 2,141 2.355 6.827 $ 237 5,304 $ 1,445 4,770 6.014 17.533 141 2,746 750 2,360 3.115 8.971 Call Reports - Best Estimate of Compliance Hours - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost 105 1,345 $ 407 1,663 1.069 4.484 $ 136 3.552 $ 604 2.569 3.888 10.613 $ 188 3,640 $ 949 2,020 3.637 10.246 $ 143 2,846 653 2.084 2.865 8.448 Appraisal Requirements - Best Estimate of Compliance Hours $ - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation $ Total Cost 85 1,967 $ 587 75 1.440 4.069 $ 100 1,929 $ 490 50 2.367 4.836 $ 123 3,827 $ 1,013 26 4.048 8.914 $ 103 2.574 697 50 2.618 5.939 Bank Secrecy Act - Best Estimate of Compliance Hours $ - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost $ 73 618 S 163 143 576 1,500 $ 266 3.280 $ 824 231 4.049 8.384 $ 230 2.831 $ 822 83 2.746 6.482 $ 190 2.243 603 152 2.457 5.455 IBAA Gran: Thornton Study 30 457 Estimated Annual Compliance Cost Per Bank - Phase III - continued Total Assets Over Between 30-65MM 65MM Under 30MM Geocoding-Geographic Loan Coding - Best Estimate of Compliance Hours $ - Salary Cost - Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost - 135 1.219 $ 307 0 1,543 3.069 $ 250 3.059 $ 883 477 3.002 7.421 $ 087 5.008 Expedited Funds Availability Act - Regulation CC 171 - Best Estimate of Compliance Hours $ 1,517 $ - Salary Cost 327 - Employee Benefits 126 - Direct Third Party Cost 1.432 - Overhead Allocation Total Cost $ 3.402 $ 216 1.937 $ 515 134 2,797 5.383 $ 146 1,803 $ 519 58 1.736 4.116 $ 178 1.752 454 106 1.988 4.300 Home Mortgage Disclosure Act - Regulation C - Best Estimate of Compliance Hours $ - Salary Cost - Employee Benefits Cost - Direct Third Party - Overhead Allocation Total Cost 67 $ 24 0 64 155 $ 72 1,373 $ 342 26 1.633 3.374 $ 47 719 $ 206 21. 702 1,648 $ 41 720 191 16 800 1,727 3.020 52,924 $ 15,257 99,401 42.863 210.445 $ 3.363 68,341 $ 16,928 18,983 85.327 189.579 $ 5,548 154,953 $ 35,986 32,335 161.036 384.310 $ 3.978 92,072 22.725 50.241 96.408 261.446 26- SA 98 1.872 $ 529 416 1,717 4,534 $ Sum Of All Studied Regulations - Salary Cost Employee Benefits - Direct Third Party Cost - Overhead Allocation Total Cost $ $ The estimated annual compliance cost for all community banks was based on a relationship to total assets. The determination was made by multiplying the total assets for all community banks for each category by the best estimate of annual compliance hours. These values were then weighted and combined to yield the best estimate of annual compliance cost . The number of banks and total assets were provided by IBAA from the Sheshunoff Call Report information as of September 30 , 1992. ( Total community banks of 9.682) . An overview of the estimated annual compliance cost for all community banks for each of the categories is presented in the following table: BAA Grant Thornton Study 31 458 Estimated Annual Compliance Cost For Under 30MM Total Assa Between Over 30-65MM 65MM Community Reinvestment Act - Regulation BB 2.218.554 2.929.586 -Best Estimate Of Compliance Hours $ 73.588,709 $ 49.056.853 $ -Salary Cost 20.769,987 12.052.761 -Employee Benefits 11,221,050 51,181,679 -Direct Third Party Cost 55,105,768 58,233,868 -Overhead Allocation $ 200.646.143 $ 130.564.532 $ 9.276.240 39c 276.258.074 $ 76.696.986 109.5 : 734 132.894.457 70,491,728 277,809,389 391,149.025 701.256.177 $ 1.032.466,852 Truth in Lending - Regulation Z $ 336.562,871 $ 1.116.184 17.169,899 $ 4.623,749 15,929,380 25.360.138 63.083.166 $ 3.474.324 65,279,311 $ 18,057,300 31,212,446 69.933.255 184.482.312 $ 6.829.165 109,135.424 30,854,229 325.005.859 119.132.837 584.128.349 705,193 11,230,599 $ 3,051,401 1,029,171 10.056.983 25.368.154 $ 653.951 28.376.852 $ 7,118,882 11.347,922 35.058.734 81.902.390 $ 1,815,659 93,202,971 $ 15,451,092 16,381,880 93.947.602 218.983.545 $ 3.174.803 132.810.422 25.621.375 28.758.973 139.063.319 326.254.089 747.623 11,748,193 $ 3,123,623 1,179,634 9.942.631 25.994.081 $ 1,367,953 28,461,433 $ 7.414,915 140,968 38.230.513 74.247.829 $ 3.368.214 98,167,177 $ 24,634,873 2,295,945 98.539.493 223.637.488 $ 5.483.790 138.376.803 35.173.411 3.616.547 146.712.637 323.879.398 401,557 9,527,352 $ 3,117,605 4.249,090 7.408.825 24.302.872 $ 411,909 13.025.440 $ 3.016,715 296,033 14,378.733 30.716.921 $ 1.084.679 111,694,639 $ 7.756.572 2,047,735 123.918.997 245.417.943 $ 1.898.145 134.247.431 13.890.892 6.592.858 145.706.555 300.437.736 2,238,657 26,686,214 $ 8,173,180 277,864,033 $ Regulatory Examination Process -Best Estimate Of Compliance Hours $ -Salary Cost -Employee Benefits $ Formal Written Policies $ $ Loans to Insiders - Regulation O -Best Estimate Of Compliance Hours $ -Salary Cost -Employee Benefits -Direct Third Party Cost -Overhead Allocation $ BAA Gran: Thornton Study 32 459 Estimated Annual Compliance Cost For All Community Banks - Phase III - continued Under 30MM Equal Credit Opportunity Act - Regulation B 1,304,640 -Best Estimate Of Compliance Hours $ 21.630.639 $ -Salary Cost 6,500,025 -Employee Benefits 0 -Direct Third Party Cost 17.014.417 Total Assets Between Over 65MM 30-65MM 1.463,248 30.970.663 $ 7,696,851 2,692,488 37.483.383 2.392.748 45,670,697 $ 12,348,463 496,421 51,255,429 184,107 2,912,974 $ 884,726 457,409 2,630,103 6.885.212 $ 411,204 6,498,623 $ 1,677,519 7,499,496 8.246.626 23.922.264 $ 1.029.453 23,021,506 $ 6,267,310 20,663,508 26.062.082 76.014.406 $ 1.624.764 32.433,103 8.829.555 28.620,413 36.938.811 106,821,882 331,502 4,249,090 $ 1,287,968 5,254,187 3,376,402 14.167.647 $ 430.235 11,263,341 $ 1,917,164 8,147,949 12,320,600 33.649.054 $ 851,361 16,443,933 $ 4,281,628 9,121,729 16.443.933 46.291,223 $ 1,613.098 31,956,364 7,486,760 22.523.865 32.140.935 94.107.924 252.719 5,880,115 $ 1,751,396 222,686 508,211 15,761,355 $ 4,157,523 124,105 16,692,143 36.735.126 $ 1.100.663 28.224.674 7.586.438 515.953 12.157.454 $ 339.733 6,583,204 $ 1,677,519 169.162 8,077,465 16.507,350 $ 240,321 2,040,286 $ 535,650 469,446 1.901.859 4.947.241 $ 847,359 10,459,823 $ 2,622,004 733,033 12,912,666 26.727.526 $ 995,323 12,224,358 $ 3,536,997 372,315 2,083.003 24.724.467 6.694.651 1.574.794 26.666.567 59.660 479 999 98. 26.545,339 3.188.909 105,753,229 233.759.476 Real Estate Settlement Procedures Act -Salary Cost -Employee Benefits -Direct Third Party Cost -Overhead Allocation Total Cost $ $ Call Reports -Best Estimate Of Compliance Hours $ -Salary Cost -Employee Benefits -Direct Third Party Cost -Overhead Allocation $ Appraisal Requirements -Salary Cost -Employee Benefits -Direct Third Party Cost $ Total Cost $ Bank Secrecy Act -Best Estimate Of Compliance Hours $ -Salary Cost -Employee Benefits -Direct Third Party Cost -Overhead Allocation $ BAA Gran: Thornton Study 27.985.712 $ 65.399.930 33 460 Estimated Annual Compliance Cost For Under 30MM Geocoding-Geographic Loan Coding -Best Estimate Of Compliance Hours $ -Salary Cost -Employee Benefits -Direct Third Party Cost -Overhead Allocation Total Cost $ Total Asses Between Over 30-65MM 65MM 404,205 7,691,696 $ 2,172,694 1.709,266 7.059,749 18.633.405 $ 389.213 3.524,199 $ 888,098 0 4.454.588 8.866.885 $ 984.464 12,100,253 $ 3.474.944 1,861.577 11.852.042 29.288.816 $ 23. 1-6 6.58 736 3.570.843 23.366.379 56.789.106 Expedited Funds Availability Act - Regulation CC 530.053 -Best Estimate Of Compliance Hours $ -Salary Cost 4,718,537 $ -Employee Benefits 1,017,134 391,205 -Direct Third Party Cost 4.453,721 -Overhead Allocation Total Cost $ 10.580.597 $ 654,374 5,878,364 $ 1,564,744 408,807 8.486.272 16.338.187 $ 733.462 9,059,676 $ 2,606,208 310,263 8.749.413 20.725.560 $ 1,917,889 19,656,577 5,188,086 1.110,275 21.689.406 47,644,344 Home Mortgage Disclosure Act - Regulation C 11,375 -Best Estimate Of Compliance Hours -Salary Cost $ 210,649 $ -Employee Benefits 72,223 0 -Direct Third Party Cost 198.612 -Overhead Allocation 481.484 $ 225,267 4,313,620 $ 1,071,357 84,581 5.131.234 10.600.792 $ 184,297 2,792,366 $ 806,684 62,053 2.730.313 6.391.416 $ 420.939 7,316.635 1.950.264 146.634 8.060.159 17.473.692 Sum OfAll Studied Regulations 26.698.435 47.509,157 781,676,316 $ 1.179.373.683 180,076,580 285,876.470 558.120.380 344.007,806 155,441,705 58,670,869 147.291.771 268,374,820 809.786.133 1.225.452.724 $ 725.872.242 $ 595.970.281 $ 1.926.980.734 $ 3.248.823.257 10.281.538 10.529.184 $ 182,115,053 $ 215,582,314 $ An overview of the analytical comparisons for all community banks for each category is presented in the following table: IBAA Grant Thornton Study 34 461 ANALYTICAL COMPARISONS Total Assets Over Between 65MM 30-65MM Under 30MM Total Annual Compliance Cost as a Percentage of: 1.21 Total Assets 11.86 Equity Capital 72.43 Net Income before Taxes Compliance Hours associated with each: $ 1 Million of Total Assets $ 1 Million of Equity Capital - 0.42 % 4.41 % 24.49 2 % 0.31 % 3.69 18.99 2 % 171 1,680 75 778 43 511 58 661 .010 .004 .003 003 % % % 23.92 Compliance Cost associated with each: $ $ Taxes $ $ 12,060 118,605 0.72 12 $ $ 4,278 44,073 0.24 2 3,105 36,876 $ $ $ 0.19 2 S 3.954 $ 45.186 S 0.24 'The cost associated with each dollar of income is significantly higher than the amounts reflected in Phase II . This results from the substantial higher annual compliance hours reported by banks under $ 30 million in Phase III 'Income has been annualized for computational purposes. The detailed results of the national cost survey are presented in Exhibit C to this report. BAA Grant Thornton Study 35 462 IBAA RUIN SCALE OF REGULATORY BURDL The respondents to the survey rated the thirteen regulatory areas according to the RUIN sca of 5 being the most necessary and beneficial and 1 being the least beneficial and useful . The fc reflects the respondents ratings. ว The regulatory areas have been sorted from worst to best. Regulation Regulation BB - Community Reinvestment Act Home Mortgage Disclosure Act ( HMDA) Geocoding Geographic Loan Coding Regulation CC - Expedited Funds Availability Act Real Estate Settlement Procedures Act ( RESPA) Regulation Z - Truth in Lending Bank Secrecy Act Regulation B Equal Credit Opportunity Act Regulation O - Loans to Insiders Appraisal Requirements Formal Written Policies Call Reports A Grant Thornton Study RUIN Rating 1.64 1.92 1.93 2.17 2.25 2.30 2.48 2.49 2.56 2.76 2.79 3.16 3.19 336 463 JohnShivers President Richard L.Mount President-Elect Leland M. Stenehjem. Jr. VicePresident IBAA February 2 , 1995 James R.Chairman Lauffer Guenther Kenneth A. Executive Vice President Honorable Ricki Tigert Helfer Chairman Federal Deposit Insurance Corporation Honorable Lawrence Lindsey Governor Board of Governors of the Federal Reserve System Honorable Eugene Ludwig Mr. Jonathan Fiechter Dear Lady and Gentlemen: As the agencies finalize the Community Reinvestment Act ( CRA) regulation. the Independent Bankers Association of America ( IBAA) reiterates our strong support for the adoption of a revised CRA rule that incorporates a meaningful tiered system whereby small banks would undergo streamlined examinations . We recognize that the effectiveness of the tiered approach in reducing regulatory burden will depend on how the revised rule is implemented by examiners. We urge you to consider this fact in your deliberations. We believe that the examination procedures warrant a close review before they are implemented to determine if they are consistent with the goal of reducing regulatory burden. We note that the banking industry has not had the opportunity to comment on any examination procedures for the proposed CRA rule. WASHINGTON OFFICE. ONE THOMAS CIRCLE NW SUITE 950, WASHINGTON, DC. 20005-5802 202 659-8111 464 2 For example, it is our assumption that examiners will have extensive data bases at their disposal during the CRA examination. With the use of computers during an examination, the level of analysis can be quite detailed--down to a particular census tract or block numbering area. Depending on how the data is aggregated and analyzed, a real possibility exists that it could be used to micromanage a bank's lending. We request that the new examination procedures to be used with the revised CRA rule be shared with the industry, preferably prior to their implementation. Examination procedures must be carefully drawn to avoid creating any possibility of credit allocation because of conclusions drawn from the data by overzealous examiners. In addition, the examination procedures should be carefully analyzed to ensure that no unintended consequences flow from implementation of the revised CRA regulation, and to ensure that small banks face no additional documentation burdens. We appreciate your efforts to make CRA less burdensome for community banks and more performance focused. Sincerely, Jahn John Shivers Shivers 465 GOV ERN ORS FED SYSTEM OF BOARD OF GOVERNORS OF THE ERA LRESERV LAWRENCE 3. LINDSEY MEMBER OF THE BOARD February 16 , 1995 Mr. John Shivers Independent Bankers Association of America One Thomas Circle , N.W. Suite 950 20005-5802 Dear Mr. Shivers : Thank you for your letter of February 2 , in which you request that the examination procedures currently being developed by the regulatory agencies to implement the revised CRA regulation be shared with the banking industry prior to their adoption . In this regard , you note a number of concerns about how new examination procedures might be used by examiners in a manner inconsistent with our shared goals of reducing the regulatory burden for community banks and avoiding credit allocation . I can assure you that the Federal Reserve recognizes the importance of developing examination procedures for the new CRA regulation that are consistent with these goals . While we appreciate your concerns on the potential importance of the new CRA examination procedures , the Federal Reserve has not historically published any new examination procedures for comment prior to their adoption . Nonetheless , we appreciate receiving your thoughts and guidance on this matter and will keep them in mind as we move forward with the other agencies in the development of the new examination procedures . In addition , I would point out that the Federal Reserve's examination procedures relating to consumer affairs , including CRA, are published in a handbook that is available to the banking industry as well as the general public . Once the new CRA examination procedures are finalized and adopted , they will be incorporated into this handbook . Again , we appreciate receiving your thoughts on this important matter . Sincerely, Lany Lundary 466 FDIC Federal Deposit Insurance Corporation Washington, DC 20429 Office ofthe Director Division ofCompliance and Consumer Affairs к February 27 , 1995 Mr. John Shivers , President of America One Thomas Circle , N.W. , Suite 950 Washington , D.C. 20005-5802 Dear Mr. SHIVers Thank you for your letter dated February 2 , 1995 wherein you express your support for a revised CRA rule that incorporates a tiered examination process . Your letter also requests that examination procedures be shared with the industry , preferably prior to their implementation . The FDIC shares your observations about the importance of the examination procedures to the success of the CRA reform . In order for any change in the regulations to be effective , examiners must be given appropriate guidance for application of the regulations . The agencies are working to ensure that the procedures will be as effective as possible . It is our practice to make examination procedures available to all interested parties . However , we do not publish examination procedures for notice and comment by the general public during the development process . As with any of our examination procedures , we welcome and encourage you and other interested parties to comment once the procedures are released . Again , thank you for your letter and for your support for this reform effort . Sincerely, Paul L. Sachtleben Director 467 E OFFIC ERVISION PE SU THRIFT Office of Thrift Supervision Department of the Treasury 1700 G Street. N.W.. Washington , D.C. 20552 • ( 202) 906-6590 Director 1989 March 2 , 1995 John Shivers Independent Bankers Association of America Suite 950 20005-5802 Dear Mr. Shivers : This responds to your letter dated February 2 , 1995 , expressing your support for the adoption of a revised Community Reinvestment Act ( CRA ) regulation that incorporates a tiered system of examinations . Specifically , you strongly support a streamlined CRA examination for small institutions . Your letter asks that the examination procedures developed by the agencies in connection with the revised CRA rule be shared with the industry prior to their implementation . Your observations about the importance of the examination procedures to the success of the CRA reform are well taken . The agencies are working to ensure that the procedures will be as effective as possible . Since examination procedures are for internal use , the agencies do not publish them for notice and comment by the public . It is our practice , however , to make the procedures available to all interested parties . Moreover , we will welcome any comments you may have on the CRA examination procedures once they are released . Thank you for your expression of support for this reform effort . Sincerely, th & Dielle Acting Director 468 Comptroller of the Currency Administrator of National Banks March 9, 1995 John Shivers Independent Bankers Association of America One Thomas Circle, N.W. , Suite 950 Dear Mr. Shivers: John Thank you for your letter of February 2, 1995 , and for your strong support for the adoption of a revised CRA rule that incorporates a tiered system whereby small banks would undergo streamlined examinations . You asked that the new examination procedures , which are being developed for use by examiners in connection with the new rule, be shared with the banking industry prior to their adoption. In particular, you expressed concern that examinations could result in micromanagement of banks' lending. Thank you again for your letter and input in this important process . Sincerely yours , سا Eugene A. Ludwig Comptroller of the Currency 469 Statement of Mark Milligan Vice President and Secretary, State Savings Bank, Columbus , Ohio on behalf of America's Community Bankers before the Committee on Banking and Financial Services Subcommittee on Financial Institutions and Consumer Credit House of Representatives March 9 , 1995 470 Good morning Madam Chairwoman and Members of the Subcommittee. My name is Mark Milligan and I am Vice President and Secretary of State Savings Bank, Columbus, Ohio. State Savings Bank is a $ 1.8 billion institution with 36 branches serving central Ohio. State Savings Bank carries an outstanding CRA rating because its Board and management emphasize the importance of community lending and involvement every day in the community we serve. Through branch offices, our focus is primarily on home loans and, like most lenders, we make mortgage loans that conform to government and secondary market guidelines. But we also work to " fit-the-hard-to-fit" with various in-house programs if we deem the loan to be safe. We believe in community lending -- as a responsibility and an opportunity. We also believe in a profitable operation and the need to make loans which, over time, prove to be prudent. As several not-for-profit housing developers have said to me: " A track record of bad loans doesn't help anyone." It is my pleasure to appear today to testify on behalf of America's Community Bankers about Community Reinvestment Act reform. ACB is the national trade association for 2,000 savings and community financial institutions and related business firms. The industry has more than $ 1 trillion in assets, 270,000 employees and 16,000 offices. ACB members have diverse business strategies based on consumer financial services, housing finance, and community development . ACB members are committed to the promotion of homeownership, removing needless barriers to credit, and investing in our communities. State Savings and the other individual members of ACB have built our businesses around our commitment to our communities. The goals of the CRA are goals that ACB member institutions pursue daily as a matter of good business practice. ACB's Board of Directors formalized this commitment in its 1993 Statement of Principles on HousingOpportunities. That statement accompanies this testimony and I ask that it be included in the record in its entirety. This commitment to communities provides the backdrop for ACB's comments on CRA generally, and on specific provisions in the revised CRA regulatory proposal . It is our belief that any final CRA rules must enhance the ability of insured lenders to continue to pursue their commitment to their communities. Unnecessary or burdensome rules, no matter how well intentioned, get in the way of producing results. I am confident that the Subcommittee shares ACB's goal of eliminating such rules while furthering community lending. The Subcommittee is to be commended for holding these very timely hearings. CRA is being addressed currently in several legislative proposals in the context of regulatory burden relief and on a stand-alone basis, and we understand that the regulatory agencies will issue a revised final rule soon . In your assessment of CRA and the manner in which it is implemented , I urge you to consider these elements of our stance: 1 471 Commitment to community investment is a function of day-to-day business for ACB members. We believe it is good business that can be done in a safe and sound manner. ACB encourages and supports the creation and implementation of incentives, in legislation, as well as regulation, as a way to reward solid CRA performers. I will give a few examples later. CRA was enacted to encourage insured lenders to meet the needs of their communities. Congress and the regulators have created other statutes and regulations that have specific enforcement sanctions . The Fair Housing Act and the Equal Credit Opportunity Act are examples of laws enacted with specific goals and strong enforcement measures and we do not believe that these laws or their implementation should be confused with CRA, as has often happened. There is a tendency, even in our industry, to confuse CRA and fair lending. While related, they are clearly different for important reasons. While the revised proposed regulation was an improved version of the earlier proposal, many of the burdensome provisions were retained. ACBopposes the imposition of additional data collection or reporting requirements for any institution, and we believe that any final rule should reflect the current practices of lenders and not impose additional requirements or contain wholesale changes. Finally, ACB strongly urges Congress to apply CRA to certain types of large, geography-based credit unions that are lending and taking deposits in the very same markets where banks and savings institutions operate. This would not be a burden for the credit unions -- it would be a shared opportunity. General I am here because I work with CRA every day and am familiar with how it is applied and put into action by an insured lender. I meet regularly with community groups to ascertain credit needs and help design products and programs to meet those needs. This is my chance, as a street-level lender, to talk briefly about how our shared interest in community lending and service can be best implemented . At the end of the day, CRA needs to be about loans made and services provided with a healthy respect for risk and the marketplace. Serving the needs of the entire community can be done in a safe and sound manner, and can be rewarding for the lender financially. At State Savings, we have developed and implemented a working knowledge of low-income housing tax credits in lending on income-eligible apartment projects. Not only have hundreds of units been built this way, but we receive market rates on loans we judge to be adequately safe. ACB members, like State Savings, are community lenders, close to the diverse and varied needs of consumers and businesses alike. Because our business success is tied directly to the 2 472 success of the areas in which we operate, ACB and its members have a great interest in ensuring the vitality of the communities we serve, at all income levels. As community-based lenders, we offer a full range of diverse programs, products, and services for the purpose of " reinvesting" in communities, including credit counseling and " loan fairs" and are active in both direct lending as well as indirect community development activities. We provide support from loan applicant education to grants for community projects. At the state and local level, ACB members actively participate in lending consortia to leverage limited industry resources to further the goals of affordable housing and community and economic development. Community-wide or state-wide consortia enable small- to medium-sized institutions to invest in projects that are either too large, too complex, or too risky for one institution to bear. ACB suggests that greater participation in state-wide consortia lending would be achieved if Congress would specify that any consortium lending that addresses affordable housing or economic development needs, no matter where in the state it is located, would qualify as a community development loan for that institution. At State Savings, for example, we have a program whereby smaller lenders can avail themselves of the benefits of size and expertise of a larger lender by participating in the regular sale of portions of income-eligible housing loans. ACB members also actively participate in a number of state and local programs aimed at bringing the dream of homeownership to a wider segment of the population. A substantial portion of ACB members provide mortgage financing, in a manner consistent with safety and soundness concerns, to borrowers whose loans are not eligible under traditional programs using conventional loan underwriting for resale into the secondary market. These held-inportfolio loans of ACB members represent a significant portion of the assets invested in nonconforming affordable home loans in this country. These " hard-to-fit" loans are particularly embraced by State Savings, where we believe our local market knowledge and sense of community may make us a better judge of risk than Wall Street. At State Savings, we have created a downpayment assistance fund by marrying a grant from the Federal Home Loan Bank of Cincinnati with a matching amount from two local foundations and the City of Columbus. The fund will enable about 70 families to become first-time homeowners and State Savings will make the mortgage loans. I would like to cite just two of many examples of special approaches developed by ACB members: " First Place of Rochester, " a partnership among First Federal Savings & Loan of Rochester, the City of Rochester, New York, and the North East Block Club Alliance, was formed to develop affordable housing in a targeted area of Rochester and also to create jobs for area residents and to provide job training for inner city high school students. First Federal of Rochester is the developer and is providing the construction financing as well as the permanent mortgages for the income eligible households. The second part of the initiative is to provide jobs for local minority 3 473 contractors while construction is underway. The third part of the initiative is to provide a Youth Job Training Program for " at-risk" city high school students. Coast Federal Savings Bank in Los Angeles has introduced its Homebuyer's Assistance Program to offer an affordable and prudent means to finance a home mortgage using specially relaxed borrower qualifying standards. These standards include: flexible income and debt requirements, plus consideration of alternate documentation for applicants with no previous credit references. To reduce the amount of out-of-pocket expenses incurred by an applicant, Coast waives the customary fees for processing, documentation preparation and credit reports. Incentives As a general matter, we believe that incentives are far more important as sanctions. Insured lenders should receive positive feedback as a mechanism to maintain good performance, enhance satisfactory performance, or improve lower performance. We believe that insured lenders that meet or exceed their obligations to their communities should be recognized and rewarded. The decision to improve a CRA rating to an " Outstanding" is an expensive one, especially in terms of management commitment. Providing more cost-effective requirements for " Outstanding" performers is a positive way of encouraging heightened community reinvestment by offering real-dollar compliance savings to institutions that excel . Such an approach also is consistent with the reality that the vast majority of institutions have long been achieving a satisfactory level of compliance. ACB suggests that the focus of amendments to the statute or the regulations should be on providing incentives rather than imposing additional requirements . For example, the revised proposed rule provides that a small institution , as defined in the proposal , generally will be eligible for a streamlined examination. But a small institution is defined as an institution with total assets of less than $ 250 million by itself, or is an affiliate of a holding company with total " bank or thrift" assets of less than $ 250 million . ACB supports expanding this definition of small institution to include an institution with $ 500 million in assets. Moreover, as a practical matter, we believe that reduced documentation and the streamlining of examinations are meaningful goals for all sizes and types of institutions. The ability to streamline examinations and/or reduce documentation requirements for institutions with " Satisfactory" or higher ratings would provide an incentive that would encourage community reinvestment in a manner consistent with CRA and its deposit reinvestment mandate in CRA. ACB urges Congress to consider the following other incentives . Application streamlining - The statute could be amended to provide a " safe harbor" from deposit facility application challenges for institutions with two or more sequential " Outstanding" ratings on CRA examinations. An expedited approval process could be adopted for institutions that have received an " Outstanding" rating. 4 474 Service area delineation - The statute could provide specifically that institutions may use any reasonable method to define their service area and streamline the designation of multi-state or multi-service areas for large institutions. Coordinated review - A unified safety and soundness and consumer compliance examination procedure could be adopted to encourage greater coordination between types of examiners. The career tracks for safety and soundness and consumer compliance examiners could be unified. Small institution treatment - Small institutions below specified asset levels could be exempt from CRA or could have a streamlined examination procedure. The threshold could be adjusted for inflation. For example, Congressman McCollum's proposal provides small institution treatment we could support. Data collection - Elevate to the level of statute the legislative history of CRA that additional data is not to be collected. Finally, on a related matter, we believe that funding and implementation for the Bank Enterprise Act is an effective mechanism to encourage the development and offering of products and services for all segments of the community. ACB would oppose any cuts to the funding already appropriated for the Community Development Financial Institution Fund and implementation of the Bank Enterprise Act. We support full funding and implementation. Coordination with Fair Housing Act and ECOA CRA was enacted to ensure that insured lenders meet the credit needs of the communities in which they are located. The deposit reinvestment mandate contained in the CRA seeks to address the concern that if credit demand exists with the community from which deposits are drawn that the deposits are not disproportionately used for loans in other communities. We believe that the CRA statute provides the agencies with the regulatory authority to " encourage" community reinvestment. An institution's record of serving its community's credit needs is one of the many items taken into account when the agencies evaluate an institution's application to expand its deposit-taking facilities. The application process was viewed as an excellent opportunity to " encourage" behavior without prescribing it. ACB believes that the debate surrounding compliance with CRA is being confused with compliance with laws enacted for a different purpose that have more explicit enforcement provisions, e.g., the Fair Housing Act and the Equal Credit Opportunity Act. We believe that CRA compliance must be viewed independently from the enforcement of the Fair Housing Act and the Equal Credit Opportunity Act . In a recent letter dated February 21, 1995, to the banking trade organizations, Deval Patrick, the Assistant Attorney General, Civil Rights Division, Department of Justice, answered an inquiry as to the role of CRA in the enforcement by the Department of Justice of the fair lending laws. 5 475 " The responsibility for enforcing the CRA belongs to the regulatory agencies. If we determine that a lender ( whether or not it is subject to CRA requirements) has deliberately conducted its business in such a way as to avoid lending to persons protected by the fair lending laws, we will consider that evidence of a pattern or practice of lending discrimination. CRA performance may be relevant; but, it our view, it is not dispositive. " Although the response attempts to explain the rationale of the Department of Justice, we believe that a further clarification is necessary to ensure that enforcement of the Fair Housing Act and the Equal Credit Opportunity Act ( which are important for all of us) are nonetheless is not combined with CRA encouragement . Proposed Regulatory Changes ACB recognizes and appreciates the work and good faith efforts of the agencies in amending the revised proposal and although it is improved and reflects numerous industry and public comments, it still falls short of achieving the level of flexibility necessary. The final rule or any statutory changes must be flexible enough to reflect the diversity of communities served by insured lenders. Let me highlight several areas of the revised proposal on which ACB has commented: Strategic Plan Option . ACB believes that, although the revised proposed regulation in this area is generally an improvement, the proposed changes do not provide the flexibility necessary to fit the diversity of communities and the magnitude of products and services offered around the country. For example, although we certainly support the concept of the strategic plan option for CRA, we do not believe that the plan should be open for public comment prior to regulatory approval . The revision clarifies the role of community involvement in the development of the plan and requires the institution to solicit public comment formally on the plan for at least 30 days through publication in a local newspaper. Only after the public comment period has expired is the plan eligible for submission to the agencies for consideration. The formal publication requirement raises concerns over the disclosure of confidential, business plan information. It also confuses what would be prudent business practice instead of mandated process. ACB has urged the agencies to delete the requirement for formal public comment. The strategic plan is fundamentally a business plan that an institution must formulate after considering all of the relevant factors, including CRA obligations and input from the community. Data Collection. Further, deletion of the proposed data collection requirements would aid substantially in focusing institutions on actual lending rather than creating a preoccupation with form over substance and paperwork over performance . The revised proposal still contains the data collection requirements that ACB opposed in the prior proposal. The proposal would require that banks and savings institutions collect and report information 6 88-882 - 95-16 476 regarding the race and gender of their small business and farm borrowers. We do not believe the statute authorizes this sort of data collection. For several reasons we believe that the collection and reporting of this information would be problematic. For example, there are few safeguards to protect the personal privacy of borrowers who provide the information . In addition, as many lenders would not be required to report this information, the data inevitably would be incomplete and inaccurate and would have different competitive consequences for lenders. Perhaps the most troubling and burdensome portion of the revised proposal's data collection requirements is the need to code loans for race and gender. The statutory basis for this type of classification is unclear, and ACB has urged the agencies to delete this requirement. The problems with race and gender classification have been widely expressed by the agencies themselves and the industry in general. Indeed, the volume of interpretation necessary to address every possible, or even likely, variation would be substantial. Some possible questions suggested by the requirements and definitions include the following: How are small businesses run by families to be categorized with their 50/50 split? Does it matter who actually operates the business? For example, what if the family-owned and operated business is primarily owned by the mother, but operated by the children? Even the simplest case of the sole proprietorship is complicated because of the potential division of ownership of the business. The complications are limited only by the imagination but reality will reflect that kaleidoscope of images. This is simply not an area amenable for regulation and is unworkable. In fact, ACB believes that further data collection will actually divert CRA compliance resources away from lending to low- and moderate-income borrowers. Each dollar spent on compliance and the collection of data for which there is no stated purpose may be a dollar diverted from use in credit outreach . Recordkeeping requirements should be kept at a minimum in order to minimize the related costs. ACB members want to be in the business of devoting their full energies to investing in their communities not to be in paperwork purgatory, and we urge Congress to encourage, rather than discourage, lenders to meet the credit needs of all segments of their communities . We want to be judged in our communities and by our regulators by what we do not by analytical gameplaying . Accordingly, as we mentioned above, ACB urges Congress to preclude the agencies from imposing the data collection requirements. Service Area Delineation. Another issue in the revised proposal that ACB cannot support is the service area delineation. The revised proposal sharply constricts the flexibility of an institution to draw its service area boundaries. The current rules provide institutions with alternative methods for delineating their service area. Generally institutions are able to use 7 477 the areas surrounding their branches, their effective lending territories surrounding their branches, or any other " reasonably delineated local area that meets the purposes of the CRA. " ACB notes that examiners have criticized institutions for using a method of delineation of the service area that is similar to the method in the revised proposal. In general, the service area must include geographies in the local areas around an institution's branches and deposittaking ATMs in which the institution has originated or had outstanding, during the previous calendar year, a significant number and amount of home mortgages, small business and small farm and consumer loans ( if the institution chooses to include consumer loans) , and " any. other geographies equidistant from its branches and ATMs , taking into account political boundaries or significant geographic barriers. " It is possible that certain segments of a community that the institution currently designates would no longer be included in the new definition of service area. There are census tracts in which little or no housing exists, for any number of reasons including zoning, environmental and geographical, that would be included in a service area using the " equidistant" language. None of these anomalies is resolved by a hard and fast rule that permits little variation. Removing flexibility in the definition of service area does not allow an institution to adapt to the community which it serves. ACB urges a return to the more flexible current approach in defining service area. Let each lender define its service area and defend its boundaries. Logic and reasonableness should be required -- without presuming the actual process for New York city and Coshocton, Ohio in the same sentence. Although the revised proposal contains many improvements, ACB urges Congress to request that the agencies move cautiously when adopting a final rule. Changes altering the manner in which insured lenders do business, imposing additional requirements, or creating uncertainty will undermine the efficient operation of the institutions and may perversely decrease the flow of credit into the community. Legislative Proposals In addition to the incentives that I mentioned above that are included in regulatory burden relief proposals, there are several stand-alone legislative proposals to amend CRA. Congressman McCollum's bill ( H.R. 317) would provide for modified examinations for institutions with total assets of less than $ 500 million and would provide for a safeharbor from applications denial on CRA grounds for institutions that have received a rating of " Outstanding" or " Satisfactory. " ACB would support these sorts of changes . These are examples of incentives designed to motivate an insured lender to work for and to maintain an " Outstanding" CRA rating. 8 478 Extend CRA to Unregulated Lenders Finally, if the intent of the review of CRA is to determine how to maximize the privateindustry resources that can be directed to low- and moderate-income borrowers, then the pool of funds for community reinvestment capital can be enhanced by simply focusing outside the class of institutions currently subject to CRA. Banks and savings institutions hold just a third of the nation's financial assets, compared with half when CRA was enacted. Clearly, institutions covered by CRA cannot meet all the credit needs of the nation's communities. In particular, we believe that CRA should be applied to geography-based or communitychartered credit unions and to credit unions serving multiple employer groups from one metropolitan area. It is these " come-one, come-all" credit unions, where the common bond has been severely, if not totally diluted, that application of CRA is needed to ensure that all segments of the community are being served. There is no other way for these geographically based credit unions to demonstrate that their lending programs benefit all segments of their local communities. Credit unions with little left in the way of a common bond should be required to reach out and serve all members of the communities in which they are located, including low- and moderate-income consumers. Continued growth and prosperity of our local communities depends on the commitment of all depositories in the community to the principle of reinvestment to the community. Indeed, a credit union that voluntarily decided, by a majority vote of its members, to become subject to the requirements of CRA, submitted an application to the NCUA to change its charter and become a federal savings association. The NCUA denied the application last week on the basis, among other things, that the credit union had not included a chart comparing the costs of regulators and insurance in its application. Madam Chairwoman, we welcome these hearings and the opportunity to present our views. As the regulatory agencies complete their changes to the proposed CRA regulations, we urge you to maintain your interest in this important subject. 9 479 Savings & Community Bankers ofAmerica PAUL A. SCHOSBERG Robert E. Feldman Communications Division Office of the Comptroller of the Currency Kathy Semone, Director Information Services Division Public Affairs William W. Wiles, Secretary Re: Community Reinvestment Act Regulations 59 Fed. Reg. 51232 ( October 7, 1994) Dear Ladies and Gentlemen: Savings & Community Bankers of America ( " SCBA" ) welcomes this opportunity to comment on the interagency, revised proposal amending the Community Reinvestment Act regulations. SCBA is a national trade association representing an industry of more than 2,200 savings and community financial institutions with more than 16,000 offices, 285,000 employees, and nearly $ 1 trillion in assets. Its members focus on providing real estate finance and community financial services. SCBA members are committed to the promotion of homeownership, removing needless barriers to credit, and investing in our communities. The goals of the Community Reinvestment Act ( " CRA" ) are goals SCBA members pursue daily as a matter of good business practice. SCBA's Board of Directors formalized this commitment in the Statement of Principles on Housing Opportunities unanimously adopted on January 28, 1993 ( copy attached) . The Statement of Principles underscores our industry's pledge to affordable housing and reflects the views of the mainstream ofthe industry. An example of this pledge is the participation of SCBA members in the Affordable Housing and Community Investment Programs ( " AHP" and " CIP" ) of the Federal Home Loan Bank System. In just five years, SCBA members and other institutions have used the AHP to commit $ 277.3 million for the construction and/or rehabilitation of 72,734 units of affordable housing representing total development costs of nearly $ 4 billion. Through the CIP, they Savings & Community Bankers ofAmerica 900 Nineteenth St., N.W., Suite 400, Washington, D.C. 20006 TEL ( 202) 857-3111 480 Revised CRA Regulations November 21 , 1994 Page 2 have provided financing not only for housing but for development of the economic infrastructure so vital to a successful community. Savings institutions and other bank system members have deployed $ 5.5 billion through the CIP for the construction of 145,868 units of housing, including more than 3,000 units dedicated specifically for the elderly. An additional $ 216 million has been invested in non-housing projects to promote job creation and economic development. This commitment to communities provides the backdrop for SCBA's comments on the revised CRA regulatory proposal ( " revised proposal" ) . It is SCBA's goal that the final CRA rules enhance the ability of lenders to continue to pursue their commitment to their communities. Our comments and suggestions are intended to remove any unintended or unnecessary barriers to this commitment. The Revised Proposal. SCBA welcomes this opportunity to comment on the second revision to the CRA regulations published by the four federal banking agencies ( " the agencies" ) . The issues embodied in the first proposal¹ were complex and controversial. The revised proposal addresses many ofthe issues raised in that first proposal, but includes new items and provides greater specificity to others. SCBA's comments will focus on these additions. The Lending Test - " Assessment Context." One of the new features in the revised proposal is the " assessment context" evaluation. As proposed, the banking examiners would prepare a community and institution " CRA profile" that would include: ■ ■ Demographic data on the community such as median income levels , distribution of household income, the nature and type of available housing stock, average housing costs and other data relevant to the community in which the institution operates; Examiner-developed data on the credit needs of the community and the institution's service area( s) based on information obtained from community based organizations, state and local governments, economic development agencies and any information the institution chooses to provide; Product offerings and the business strategy of the institution; 1 58 Fed. Reg. 67466 ( Dec. 21, 1993) . 481 Revised CRA Regulations Page 3 ■ ■ The " institutional capacity and constraints, " including the size ofthe institution, its capital levels, the national, regional, and local economic conditions, and safety and soundness limitations; The institution's past performance and the performance of similarly situated lenders; and The contents ofthe institution's public file and any information deemed relevant by the examiners.2 There are several issues presented by the " assessment context. " SCBA recognizes that the assessment context represents an attempt by the agencies to address the diversity of our nation's communities. The credit needs of a rural town may be vastly different from those of a central city. Regional and other historical differences contribute to the variety of community needs. It is, however, problematic to have examiners assess community needs. Examiners may or may not be members of the particular community they must evaluate. Further, it is difficult to judge a community and its needs accurately on the basis of an annual review. Such assessments, to achieve a suitable level of sophistication, take substantial time and resources. SCBA suggests that the institutions themselves, as members of their communities, are better situated to determine the credit needs of their communities. No examiner can be expected to understand fully the character of a community to judge whether one type of facility or program better meets the community needs over another type of facility or program. Local lenders have a better vantage point to assess the effectiveness and use of a facility or program. This cannot be matched on a national or regional examiner level. While the proposal would provide for institution input into the assessment context, examiners are not required to use the information provided, nor are the examiners required to disclose the results of their assessment to institutions. Given the limitations of resources, both institutional and regulatory, SCBA urges the agencies to defer to the community needs assessment of the institution itself, subject to subsequent examiner review rather than examiner assessment de novo. If independent examiner analysis is maintained, at a minimum, the assessment context should be provided to the institution at an early stage of development. Otherwise, institutions will be unable to predict accurately the assessment context under which their lending will be 2 See, eg , proposed 12 C.F.R. §§ 345.21 ( b) , 563e.21 ( b) ; 59 Fed . Reg. 51232, 51288 and 51306 ( Oct. 7, 1994) . 482 Revised CRA Regulations November 21, 1994 Page 4 judged.³ As the goal of regulation should be to promote compliance, advance disclosure is necessary for an institution to understand the standards by which it will be measured and to judge its ongoing progress to achieve those goals. To provide the assessment context after the fact, or not at all, is to provide no guidance on how to comply. Lastly, the assessment context would compare the performance of a particular institution with that of " similarly-situated" lenders. As " similarly-situated" lenders can meet the credit needs of the same community in different, but " innovative" ways, it is unnecessarily restrictive to compare the activities of one particular institution to another. One institution may engage in active outreach with the elderly; another may address the credit needs of immigrants. Both institutions may be of equal size and capacity, yet the revised proposal would require examiners to compare the substantially different types of lending performance. SCBA suggests that this result is counterproductive to the purpose of " encouraging" lenders embodied in the CRA statute. In addition, " similarly-situated" lenders may include those entities not subject to CRA obligations. This makes the comparison unduly harsh for the CRA-subject institution as the universe employed for CRA purposes may be too narrow ( only CRA-subject institutions) or inappropriate as the performance of a non-CRA lender may be enhanced by the use of resources not diverted to CRA compliance paperwork. The Lending Test. Under the revised proposal, once the assessment context has been determined , institutions would be judged on their lending in the following manner: 1. The geographic distribution of loans, including the proportion of the institution's total lending in its service area( s) ; 2. The dispersion of lending throughout the institution's service area( s) ; 3. The number and amount of loans in low-, moderate-, middle-, and upper-income geographies in the institution's service area( s) ; 4. Borrower characteristics , including the number and amount of home mortgage loans made to low-, moderate-, middle-, and upper-income individuals; 3 This disclosure should be limited to the institution because ofthe proprietary information on products and business strategies contained in the assessment. Publication would inappropriately disclose to competitors the business plan of a particular institution. 483 Revised CRA Regulations November 21 , 1994 Page 5 5. The number and amount of small business and small farm loans by the size of the loan; and 6. At the institution's option, the number and amount of consumer loans to low-, moderate-, middle-, and upper-income borrowers. " An institution's record of community development lending, including the number and amount of community development loans outstanding, their complexity and degree of innovation, and the number and amount of lines of credit and commitments for community development lending would also be evaluated within the context of the lending test. An institution would receive more favorable ratings for using innovative or flexible lending practices to address the credit needs of low- or moderate-income individuals." There are a number of concerns about the lending test. First, it would appear to require geocoding of all loans, not just those in an institution's service area. This is an increase in expense that has not been justified by the revised proposal and seems beyond the scope ofthe statutory purpose of CRA. Given the changes in the definition of service area discussed below, there would appear to be no reason for expanding geocoding requirements in this manner. Accordingly, SCBA urges that the requirement be deleted. Further, the definitions of low- and moderate-income borrowers are not consistent with the definitions used by the Federal Housing Finance Board ( " FHFB" ) . Under the AHP ( 12 C.F.R. Part 960) , " low- and moderate-income households" means " households for which the aggregate income is 80 percent or less of the area median income. " This difference between the revised proposal definitions which classify low-income loans as those below 50 percent of the median income is important, given the use by many institutions of the FHFB Affordable Housing Program to further their community reinvestment efforts. 4 Small businesses and small farms are defined to be those entities with gross annual revenues less than or equal to $ 1 million. Proposed 12 C.F.R. §§ 345.12( t) & ( u) , 563e. 12( s) & ( t) ; 59 Fed. Reg. 51232, 51288 and 51306 ( Oct. 7, 1994) . See, eg , proposed 12 C.F.R. §§ 345.22( b) , 563e.22( b) ; 59 Fed. Reg. 51232 , 51289 and 51307 ( Oct. 7, 1994) . Id. 7 12 C.F.R. § 960.1( g) . 484 Revised CRA Regulations November 21, 1994 Page 6 In addition, the Community Development Banking and Financial Institutions Act of 1994 defines " low-income" using the 80 percent of median income test. SCBA urges the agencies to conform the definitions in order to facilitate more low- and moderate-income lending programs and not impede the use of FHFB programs or community development financial institutions. Third, and most importantly is the extent to which the elements ofthe lending test interrelate. The test requires an analysis of both the geography of where loans are made and the income levels of the borrowers. Yet no guidance is given as to the relative weighting of either element in arriving at the lending test score. This leaves institutions competing for loans that would qualify under both sets of criteria with uncertain credit given to loans that only qualify under one. This type of uncertainty may have the unintended consequence of increasing competition for low- and moderate-income loans whose collateral is located in certain census tracts while decreasing the availability of credit for low- and moderate-income borrowers who wish to move out of certain census tracts. Much more guidance is needed for institutions to understand how they would be evaluated. Consortia Lending. SCBA commends the agencies for revising the treatment of consortia lending as community development loans eligible for consideration under the lending test." SCBA urged previously that an institution participating in a consortium which invests or lends in an area that includes, but is larger than the institution's service area, should receive CRA credit for the full amount of the investment or loan . The revised proposal was amended somewhat to reflect the concern that, otherwise, institutions might not continue to invest in community- or state-wide consortia. These programs enable small and mid-sized institutions to invest in projects that are either too large for the individual lender because of the institution's lending limits, are outside its expertise, or are too risky for one institution to bear. SCBA suggests that greater participation in state-wide consortia lending would be achieved if the rule is modified to state explicitly that any consortia lending that addresses affordable housing or economic development needs, no matter where it is located within the state, qualifies as a community development loan. This type of consortia lending should not be restricted by a definition more appropriately limited to a particular institution and limitations 8 Riegle Community Development & Regulatory Improvement Act of 1994, Title I, " Community Development Banking & Financial Institutions Act of 1994, " § 103( 17) ; Pub. L. No. 103-325, 108 Stat. 2160, 2166 ( Sept. 23, 1994) . See, e.g., proposed 12 C.F.R. §§ 345.22( d) , 563e.22( d) ; 59 Fed . Reg. 51232 , 51289 and 51307 ( Oct. 7, 1994) . 485 Revised CRA Regulations November 21 , 1994 Page 7 of small business size.10 Consortia lending projects are varied and achieve results that far exceed the resources of a single institution. They should be encouraged, not inhibited by needless limitations or rigid allocation requirements among participants. SCBA encourages the agencies to be more flexible in their approach to affordable housing consortia. SCBA also urges inclusion of certain types of third-party loans in the lending test. The purchase of GNMA loans, for example, due to their low- and moderate-income borrowers , should be expressly permitted under the lending test. Purchases of these types of loans within an institution's service area assist in the provision of credit under other governmental programs and should be encouraged. To eliminate them from consideration unnecessarily inhibits their use and harms one type of government-sponsored program at the expense of another. Accordingly, SCBA urges the reconsideration of the use of governmentsponsored/insured, third-party loans in the lending test." 1 Assessment Factor. Institutions would receive a higher lending evaluation for those " innovative" programs used to promote low- and moderate-income lending. While innovation and imagination should be encouraged, the heavy weighting of untried or unproven programs over existing programs such as FHA or VA lending is misplaced . SCBA urges the agencies not to penalize those institutions who pursue standardized , successful community lending programs. The fact that a program is no longer new does not mean that it is no longer worth supporting. For FHA loans in particular, given the complexity of the loan documentation, the agencies may wish to consider granting additional credit to encourage the offering of this " tried and true" loan program . Service Area Delineation. The revised proposal constricts the flexibility of an institution to delineate its service area. The current rules provide institutions with alternative methods for delineating their service area, including the use of the effective lending territory. Generally institutions are able to use the areas surrounding their branches, their effective lending territories surrounding their " 10 Indeed, the revised proposal already recognizes this type of exemption for wholesale or limited purpose institutions. Expansion to all types of consortia lending merely applies to the exemption to all institutions. The issues surrounding third-party loans also call into question the handling of " table-funded" loans or loan purchases made shortly after origination. SCBA urges the agencies to take a flexible approach to the inclusion of these types of loans in the lending test. 486 Revised CRA Regulations branches, or any other " reasonably delineated local area that meets the purposes of the CRA. " 12 Multi-institution ATMs are not included.13 Under the revised proposal, an institution may not delineate its service area in a manner that reflects illegal discrimination or arbitrarily excludes low-, and moderate-income geographies, taking into account the bank's size and financial condition and the extent of its branching network. Additionally, the service area must consist only of whole census tracts of block numbering areas.14 Generally, the service area must -1. Include those geographies in the local areas around an institution's branches and deposittaking ATMs in which the institution has originated or had outstanding, during the previous calendar year, a significant number and amount of home mortgages, small business and small farm and consumer loans ( if the institution chooses to include consumer loans) , and " any other geographies equidistant from its branches and ATMs, taking into account political boundaries or significant geographic barriers. " 2. Not extend substantially across metropolitan areas or state lines unless the service area is located in a multi-state metropolitan statistical area ( " MSA" ) . If the service area is a multi-state MSA, separate service areas must be delineated for the areas in each state and for those areas inside and outside of the MSA. SCBA is concerned over the increase in the number of service areas and the potential anomalies that the proposed new definition of service area causes because of the lack of flexibility and clarity in the new definition. The use of the term " significant, " a broadening of the current " substantial " modifier used to define " effective lending territory, " is intentional and is designed " to include all geographies around branches and proprietary deposit-taking ATMs¹ where an institution has made more than a handful of loans. " 16 This is a significant 12 See, e.g., 12 C.F.R. § 563e.3( b) ( 3) . For example, 12 C.F.R. § 563e.3( b) . 14 See, e.g., proposed 12 C.F.R. §§ 345.41 , 563e.41 ; 59 Fed. Reg. 51232, 51292-51293 and 51310-51311 ( Oct. 7, 1994) . 15 ATMs included in the service area designation are only those that the institution runs for its sole ( " exclusive" ) benefit ( proposed definition of " Automated teller machine" ) . It is not clear whether an ATM that is connected with a " brick and mortar" branch that the institution owns and operates, but is connected to an ATM network, is not included in the service area designation because network access eliminates any " exclusivity" of use. 487 Revised CRA Regulations November 21 , 1994 Page 9 expansion of the existing community delineation. Further, the flexibility of the current rule with its three alternative methods that granted " substantial leeway ... so long as the definition is reasonable, " 17 is removed in favor of greater coverage. Because of the revised proposal's imposition of one test for non-limited purpose or customer institutions, institutions are now legitimately concerned that the " service area" circle that is drawn to include areas where " more than a handful of loans" are made will be so inclusive that it will far exceed common sense. For example, an institution with a widely dispersed branch network could conceivably face the inclusion of large portions of a state substantially beyond the cities and towns surrounding each branch . The focus on lending in any area, rather than where the branches are located, causes institutions to include many more localities than currently contemplated by the existing regulation. This has the concomitant effect of requiring the designation of separate service areas for each " community. " Given the potential for making " more than a handful of loans" throughout a state or multi-state area, an institution may face the need to consider each and every community in a state separately as a service area. This result is simply too burdensome both for the institution and the regulator. Common sense must prevail, otherwise institutions may be less willing to expand into new areas if the generation of " even a handful of loans" triggers the application of a new service area. Indeed, in those few instances where the service area concept has been experimentally applied by an individual institution, the resulting delineation is too large. 18 In addition, for those institutions whose service areas include multi-state MSAs, rather than allowing an institution to consider the MSA as one service area, the proposal appears to require a separate service area for each state that comprises the MSA. SCBA suggests that this requirement unnecessarily promotes " paperwork over performance, " and urges the agencies to allow an institution the option to use MSA boundaries, no matter if state lines are crossed, as service areas. 16 59 Fed. Reg. 51232, 51246 ( Oct. 7, 1994) . 17 Board of Governors ofthe Federal Reserve System, Division of Consumer and Community Affairs, Consumer Compliance Handbook, Chapter " Regulation BB, " page 76 ( Oct. 1990) . 18 See, e.g. , comment letter of David H. Wells, Jr. , President, Key Federal Savings Bank, Owings Mills, Maryland, dated November 18, 1994. 488 Revised CRA Regulations November 21, 1994 Page 10 The preamble to the revised proposal states that the issues of multiple service areas will be addressed via unspecified " examination procedures. " 19 SCBA suggests that the problems created by the expansive definition of service area will result in case-by-case determinations by the agencies regarding which communities each institution must include in its service area( s) . This is simply too cumbersome to be workable for either the agencies or institutions. In addition, institutions are required to file their service area maps in the spring of each year. This could be a substantial filing depending on the final determination of how many service areas a particular institution has. SCBA urges the agencies to lessen the number and size of filings required by limiting the number of defined service areas. This is consistent with Title III of the recently enacted Riegle Community Development and Regulatory Improvement Act of 1994 that requires the agencies to consider expressly the reporting burdens new or revised regulations have on the industry." SCBA notes that examiners have criticized previously the " equidistant" approach and the resulting circular service area method. Examiners have instructed institutions explicitly not to draw circles around their branches as a method of delineating their communities. Return to this previously criticized method would cause compliance frustration and is potentially inconsistent with existing community delineations. It is possible that certain segments of a community that the institution currently designates would no longer be included in the new definition of service area. There are census tracts in which little or no housing exists, for any number of reasons including zoning, environmental and geographical, that would be included in a service area using the " equidistant" language. None of these anomalies is resolved by a hard and fast rule that permits little variation. Removing flexibility in the definition of service area does not allow an institution to adapt to the community which it serves. SCBA urges a return to a more flexible approach in defining service area. 19 " Questions ofhow many service areas should be examined during an examination and how performance in different service areas should be weighed are more appropriately handled through examination procedures than through regulatory language. The agencies have therefore omitted from the revised proposal all discussion of examination treatment of multiple service areas." 59 Fed. Reg. 51232, 51244 ( Oct. 7, 1994) . 20 See, Section 302, " Administrative Consideration of Burden with New Regulations," which requires an express evaluation of regulatory burdens when establishing an effective date and Section 303, " Streamlining of Regulatory Requirements, " which requires a review to eliminate costly rules that may impede the provision of credit. Riegle Community Development and Regulatory Improvement Act of 1994, Pub. L. No. 103-325; 108 Stat. 2160, 2214-2215. 489 Revised CRA Regulations November 21 , 1994 Page 11 Affiliate Lending. The revised proposal will allow an institution to elect to consider in its CRA lending assessment the lending of an affiliate if the affiliate reports or collects HMDA data and small business and/or farm loan data. The agencies may consider affiliate lending practices even if the institution has chosen not to have the lending considered if the agency determines that this lending is " integral to the business of the bank. " The revised proposal attempts to make clear that both the institution and the affiliate may not count the same loan ( no double counting) ; all the loans made in the service area( s) by the affiliate will be looked at, not just those that are made to low- and moderate-income borrowers in the service area( s) . This applies to any entity in the holding company structure, including the holding company itself. SCBA urges the agencies to restrict the inclusion of affiliate lending to a voluntary basis only. There are many reasons why separate corporate structures are used for differing types of activities. Limiting an insured depository's exposure to risk is a reason often cited by the agencies in support of moving certain types of activities out of the insured depository institution itself into an affiliate or subsidiary. Given the recent history of class action law suits filed against mortgage lenders, e.g. , Rodash and the many escrow accounting lawsuits that resulted in the recent HUD rule, limiting an institution's exposure to the potential of class action suits is a legitimate safety and soundness goal. The ability of the agencies to " pierce the corporate veil" and include affiliate lending unnecessarily weakens the corporate separateness that limits an institution's risk exposure from its affiliate's activities. This is a precedent that could expand an institution's risk exposure, not limit it. SCBA urges the agencies to reconsider their need to include affiliate lending. Further, inclusion of affiliate lending on a strictly voluntary basis aids the ability of institutions to comply with the final regulations. In this manner, the joint compliance of institution and affiliate( s) can be coordinated . To include affiliate lending after the fact poses tremendous compliance and documentation concerns. CRA compliance will be difficult if not impossible. Accordingly, SCBA urges the agencies to include affiliate lending on a voluntary basis only. Investment Test. SCBA welcomes the expansion by the agencies of those items that will be considered in the revised proposal's investment test and the elimination of the risk-based capital ratio. Qualified investments have been broadened to include a wider variety of investments both in and out of an institution's service area. 490 Revised CRA Regulations November 21 , 1994 Page 12 Among other items included in the list of " qualified investments" are membership shares in those particular credit unions that benefit low- or moderate-income individuals or address affordable housing needs. The inclusion of credit union membership shares as qualified investments for insured banks and savings institutions is particularly ironic given the current debate surrounding the extension of CRA to credit unions. SCBA believes that those geographic-based credit unions that are full participants in the financial services marketplace should be required to comply with CRA. In certain states, & .g. , Massachusetts, they are already required to do so. Furthermore, the inclusion of deposits in credit unions within the range of qualified investments should be explicitly restricted to credit unions that meet the new statutory definition of a " community development financial institution, " plus any associated implementing regulations. This would provide consistency with the Riegle Community Development and Regulatory Improvement Act of 1994. SCBA continues to urge that the definition of " qualified investments" in the revised proposal be further clarified to include holdings of Federal Home Loan Bank ( " FHLB" ) System consolidated obligations and stock, as well as holdings of FNMA and FHLMC debt. The investment in FHLB consolidated obligations and stock have helped fund the System's Affordable Housing and Community Investment Programs. These programs have been leveraged to provide more than $ 2.6 billion in credit to low- and moderate-income borrowers. Further, at a minimum, institutions holding FHLMC/FNMA stock or debt should get proportionate credit for the affordable housing share of the GSE under the Housing and Community Development Act of 1992. Alternatively, the agencies may wish to encourage FNMA and FHLMC to develop specific low- and moderate-income loan securities that would qualify under the investment test. Service Test. The proposal issued in December 1993 would have based an institution's service test assessment on the percentage of its branches located in or readily accessible to low- and moderate-income geographies. The revised proposal recognizes that the actual presence of brick and mortar branches is not necessarily the sole or best indicator of an institution's provision of " services" to its community. SCBA supports the inclusion of alternative delivery systems in the service test, such as banking by telephone or computer, bank-at- work and bank-by-mail programs. SCBA notes , however, that the use of networked ATMs is given less weight in the service test. As the vast majority of ATMs are networked, it would be the rare ATM that would be considered under any criteria other than as an alternative delivery system. This may restrict inclusion of those ATMs that an institution owns and services because networked ATMs are not operated " exclusively" for the benefit of the owner-institution. This would be an 491 Revised CRA Regulations November 21, 1994 Page 13 unfortunate result. If an institution owns and maintains an ATM, it should receive more consideration than a networked facility that is owned by another entity. SCBA suggests that the term " exclusive" should be deleted from the definition of ATM and the concept of maintenance substituted . In this manner, institutions that maintain an ATM whether or not it is networked, would receive recognition under the service test. In addition, SCBA suggests that the agencies consider, as an alternative service methodology, the offering of debit cards. Debit cards provide the convenience of a checking account without the need for further identification at the point of sale. Debit cards also provide access to ATM networks, thereby increasing a depositor's ability to gain access to his or her account and use a wider array of ATMs. Community Development Services. In addition to evaluating an institution's delivery of retail banking services, the revised proposal's service test would also measure the degree to which an institution provides " community development services. " These are defined to include services that " primarily benefif low- and moderate-income individuals" 21 and small business and farms " and address affordable housing . . . or other community economic development needs that are not being met by the private market. " 22 This is new, and the preamble sheds little light on the types of services envisioned by this portion of the service test. The agencies may well intend to give institutions credit for counseling and other educational services provided as part of ongoing outreach programs, a result that SCBA would support. However, it is not clear that this is indeed the intention of this portion of the test, nor is it clear that activities of joint ventures or similar entities that institutions use to provide outreach and counseling programs would qualify. SCBA suggests that this portion of the service test needs further refinement to avoid unnecessarily excluding activities that should be encouraged . The use of the modifier, " primarily, " is unduly restrictive. Additionally, ending the sentence after " community economic development needs" would address joint venture and other institution-related entity activities left out by the additional restrictive language . If these activities are to be encouraged, they should be encouraged regardless of the type of business structure or investment . 21 See, e.g., proposed 12 C.F.R. §§ 345.24( c) ( 1 ) ( i) , 563e.24( b) ( c) ( 1) ( i) ; 59 Fed. Reg. 51232, 51290 and 51308 ( Oct. 7, 1994) . 22 Id. 492 Revised CRA Regulations November 21 , 1994 Page 14 Assessment Ratings. Appendix A, " Ratings, " attempts to clarify how a composite CRA rating would be derived after an evaluation of an institution's lending, service and investments. There is an attempt in the rating process to prevent institutions from " buying" a rating through superior performance in service and investment by more heavily weighting the lending performance. SCBA suggests that few institutions will have the ability to " buy" a rating and that the rating structure is unnecessarily restrictive in response to a concern that is more apparent than real. In general, lending is weighted at twice the investment and service tests. This is reflected in the numerical scores given each test. Lending is generally scored at twice the number of either service or lending test -- an outstanding lending score is 12, an outstanding service or investment score is 6. Additionally, another limitation is included that actually emphasizes the lending score further. If the total of the points given for all three tests exceeds twice the lending score, the composite score is limited to the number that is two times the lending score. Such a limitation magnifies the bias in favor of the lending score. SCBA suggests that the agencies have already reflected the emphasis on lending in the numbers assigned to the ratings; a further limitation is redundant and unnecessarily discourages service and investment. There is no need for the " twice lending cap" contained in Appendix A( b) ( 4) ( ii) . Further, only the composite score is disclosed to an institution. SCBA suggests that compliance would be encouraged by also disclosing to the institution, on a confidential basis, the subscores that make up the total CRA rating. It is possible that an institution would not know that its performance in a particular area such as service is in need of improvement because its composite score is satisfactory. It is important that the subscores be communicated if the agencies expect improvement. Otherwise an examiner may return the following year to find no improvement because the institution thought its performance was satisfactory. Such confusion can be eliminated by disclosing to the institution both its composite and subscores. SCBA also notes with some concern the potential over-emphasis on innovation and the need to constantly improve performance. While institutions need to reflect changing community credit needs, unlimited resources cannot be devoted to developing new and untried programs that reflect neither the market or the actions of competitors. Nor should evolving needs necessarily result in ever higher standards. Reasonableness needs to be applied in the rating ofperformance . Small Institution Streamlined Examination. SCBA supports the changes made in the revised proposal to the small institution streamlined examination. Elimination of the specific loan-to-deposit ratio is a positive reflection ofthe diversity of smaller institutions and the variety of communities that they serve. A small 493 Revised CRA Regulations November 21 , 1994 Page 15 institution is defined as an institution with total assets of less than $ 250 million by itself, or is an affiliate of a holding company with total " bank or thrift assets" of less than $ 250 million. The revised proposal notes that there is a difference between small institutions and those small institutions that are affiliates of a larger holding company as " [ t] he larger holding company could be expected to provide support and assistance to a degree not available to a small independent institution. " While holding companies may provide additional resources to their subsidiary depository institutions, it is equally true that some do not. SCBA suggests limiting the inclusion of the holding company assets to those situations where the holding company provides substantial operational assistance such as data processing or other support services rather than including those arrangements where the holding company acts more as an investor. SCBA notes, however, that reduced documentation and the streamlining of examinations are meaningful goals for all sizes and types of institutions. The ability to streamline examinations and/or reduce documentation requirements for institutions with " Satisfactory" or higher ratings would provide an incentive that would serve to encourage community reinvestment in a manner consistent with the CRA. SCBA urges the agencies to consider these and other incentives discussed below as part of the revised proposal . Strategic Plan Option. The revised proposal provides more details concerning the strategic plan option . The revision clarifies the role of community involvement in the development of the plan and requires the institution to solicit public comment formally on the plan for at least 30 days through publication in a local newspaper. Only after the public comment period has expired is the plan eligible for submission to the agencies for consideration. A submitted plan would be deemed approved if the agency failed to act within 60 days of submission. The agency would consider the public's involvement in formulating the plan and any response the submitting institution made to public comments received . Unanimity of public opinion is not required. Rather, the agencies would evaluate whether the institution adequately researched the needs of its community and whether, considering the information that the institution received in the comments, the plan goals are appropriate. The formal publication requirement raises concerns over the disclosure of confidential , business plan information. The revised proposal would allow institutions to submit additional information to the relevant agency on a confidential basis; however, the publicly available plan would have to be sufficiently specific to enable the public and the agency to fairly judge the merits of the plan's goals. 494 Revised CRA Regulations November 21, 1994 Page 16 SCBA urges the agencies to delete the requirement for formal public comment. The strategic plan is fundamentally a business plan that an institution must formulate after considering all of the relevant factors, including CRA obligations. It is not a process that the board of directors can delegate to the public. Directors have fiduciary duties that require the exercise of informed business judgement. The results of this deliberation are proprietary business strategies that meet the many goals ofthe institution, including the provision for profit. Exposure of strategic plans in a " mini-rulemaking" exposes institutions to their competition, including those not subject to CRA, notwithstanding the ability to " edit" certain types of information from publication, and improperly changes the role ofthe institution from a business involved in its community into a public utility. SCBA urges the agencies to delete the 30-day publication requirement. In addition, this requirement lessens the desirability of the strategic plan option. This is an unfortunate consequence as the strategic plan offered the most flexibility to institutions to meet the credit needs of their communities. SCBA agrees that the strategic plan could have provided " more certainty and flexibility for those institutions that wish to meet their obligation in a fashion that they believe may not be appropriately assessed by the standard performance tests. " For that reason SCBA originally supported the strategic plan as a viable option for CRA compliance; however, the publication requirement substantially diminishes this result. On a positive note, SCBA supports the extension ofthe life of the proposal from two to five years. Again, this reflects the business plan nature of the strategic plan and reinforces the need to provide a strategic plan option that reflects the business plan process. Formal public comment periods are not a part of business plan preparation. SCBA suggests that, to the extent that comment is solicited on strategic plans , commenters be required to provide their name, address, and to indicate whether they are commenting on behalf of any group or organization. Groups, businesses or organizations should be asked to indicate where they are headquartered ; the nature of their business or activities; whether they are for-profit or non-profit; how long they have been in existence; the number of members or employees; and to provide a brief discussion of their mission or strategy. This type of information would better enable the agencies to evaluate the strategic plan and its impact on the particular community. Further, SCBA suggests that the strategic plan contain a range of goals for each level of performance. This would grant additional flexibility to allow institutions to adjust to changing environments without the need for formal modification. 495 Revised CRA Regulations November 21 , 1994 Page 17 Wholesale Institutions. SCBA supports the inclusion of wholesale or limited purpose institutions by all of the agencies, including the Office of Thrift Supervision. Inclusion of this option recognizes the variety of types of financial institutions and that CRA obligations can be met by a variety of methods. Notwithstanding this recognition of limited purpose institutions, many of the items suggested by the community development test may be outside the powers of such institutions. SCBA urges more flexibility in determining how limited purpose institutions meet the credit needs of their communities. Data Collection Requirements. The revised proposed rule expands the data collection process by including a provision which mandates that race and gender data be obtained and reported to the regulatory agencies. The data must also be reported, in aggregate form, to the public for small business and small farm loans that were actually made and for denied applications when a written application is taken. More specifically, the proposal would require that banks request small business and farm loan applicants ( both successful and unsuccessful applicants who had provided a written application) to specify the percentage of the businesses and farms that are owned by minorities or women. All institutions with assets of $ 250 million or more would be required to obtain this information from all borrowers and applicants, except publicly traded companies, with loans in the original amount of $ 1 million or less, or loans that are reported on the small business and small farm portion of the Report of Condition. Unlike HMDA, however, the revised proposal would require the institutions themselves, rather than the agencies, to provide aggregate reports for dissemination to the general public. SCBA opposes this new expansion of the CRA reporting requirements. SCBA has a number of concerns including a borrower's expectation of financial privacy, the tremendous increase in reporting burden , and the resulting incomplete and inclusive data. It is possible for a small business loan applicant located in a specific census track to be identified through the use of the information collected, notwithstanding any attempts to aggregate the data. The information is specific enough to provide business competitors with sufficient data to reveal a borrower's business strategies. This is not the type of result any of the agencies truly desire. SCBA suggests that the data collected will be of little statistical use. HMDA data are already misinterpreted by the public with rejection ratios inappropriately equating in the public mind with illegal discrimination. Nothing could be further from the truth; however, this public perception is not easily changed. Because of the public's current misinterpretation of HMDA data, it is surprising that the agencies would consider adding to the public's confusion with limited , if not misleading, additional data. Data collection becomes an end in : 496 Revised CRA Regulations November 21, 1994 Page 18 itself, with no defined purpose or use. Further, given the data requested, no matter the type of institution collecting, the data will produce no reliable conclusions due to any number of reasons including increased specialization by reporting lenders. SCBA believes that further data collection will actually divert CRA compliance resources away from lending to low- and moderate-income borrowers. Each dollar spent on compliance and the collection of data for which there is no stated purpose is a dollar diverted from use in lending . Recordkeeping requirements should be kept at a minimum in order to minimize the costs. Further, as noted above, Title III of the recently enacted Riegle Community Development and Regulatory Improvement Act of 1994, requires the agencies to consider the regulatory burden imposed on financial institutions. Clearly, the new data collection requirements run contrary to this statutory mandate. Perhaps the most troubling and burdensome portion of the revised proposal's data collection requirements is the need to code loans for race and gender. The statutory basis for this type of classification is unclear and SCBA urges the agencies to delete this requirement. The problems with race and gender classification have been widely expressed by the agencies themselves ( See, Governor Lindsey's remarks before the Board of Governors of the Federal Reserve System, September 26, 1994) . Indeed, the volumes of interpretation necessary to address every possible variation would be substantial. How are Mom & Pop businesses to be categorized with their 50/50 split? Does it matter who actually operates the business? For example, what if the family-owned and operated business is primarily owned by the mother, but operated by the children? Lenders in community property states will have even more complications as they attempt to determine which portion of the business is property of the marriage or the individuals prior to marriage. Even the simplest case of the sole proprietorship is complicated because of the potential division of ownership under community property laws. The complications are limited only by the imagination. This is simply an area inappropriate for regulation. Accordingly, SCBA urges the agencies to reconsider and eliminate the data collection requirements. Public File Requirements. The revised proposal would change the requirements for maintenance of CRA public files. Unlike the existing rule, the revised proposal would require a copy of an institution's CRA 497 Revised CRA Regulations November 21, 1994 Page 19 public file at each branch. " This is an expansion not reflected in the current demand for the CRA public file. Generally, most institutions report little, if any, interest in the CRA public file. In addition, the revised proposal would increase the contents of the public file. The public file under the revised proposal would include, in addition to the items currently found: o List of geographies ( census tracts) that the institution considers to be in its service area( s) ; o List of branches and remote service facilities ( " RSF" ) , their addresses ( currently only required for branches) , and a listing of those opened or closed by the institution during the current and past two calendar years including addresses and geographies; • Number and amount of consumer loans if the institution chooses to report by geography and income; O Alternative systems for delivering retail banking services ( optional) ; and O HMDA statement. While the above would increase tremendously the burden on institutions to maintain accurate and up-to-date materials, SCBA members have not experienced a demand for the CRA materials. One SCBA member with 250 branches had received only 6 requests in a twelve month period. Yet under the revised proposal, the institution would have to maintain an extensive CRA public file at each of the 250 branches. Rather than require each branch to contain a CRA public file, SCBA suggests that the agencies allow an institution to maintain its file at its home office and supply it as requested at the preferred branch within five to ten days of the request. In this manner, the most upto-date materials are supplied in a timely manner without the need for the institution to coordinate distribution of the document to numerous branches. 23 The rule requires the file maintained at a minimum at one branch in a service area ( proposed 12 C.F.R. §§ 345.43( i) ( 2) , 563e.43( i) ( 2) ) . As the delineation of a service depends on the location of each branch, it is possible that each branch would represent a separate service area that may overlap with other branch service areas. 498 Revised CRA Regulations November 21 , 1994 Page 20 Enforcement. SCBA continues to oppose the expansion of the full use of enforcement remedies and tools to the CRA evaluation. As noted in our prior comment letter, the CRA statute provides the agencies with the regulatory authority to " encourage" community reinvestment. An institution's record of serving its community's credit needs is one of the many items taken into account when the agencies evaluate an institution's application to expand its deposittaking facilities. The application process was viewed as an excellent opportunity to " encourage" behavior. The CRA as enacted was intended to have a very limited scope and to provide in the words of Sen. Proxmire, " a relatively weak sanction. " 25 For the agencies to disregard the legislative history and the specific enforcement mechanism provided, is to ignore the underpinnings of CRA, contrary to the intent and language of the statute, and subject the agencies to legal challenge. Rather than seek to add punitive remedies, SCBA urges the agencies to provide incentives for CRA compliance. This would be consistent with the deposit reinvestment mandate in CRA that sought to remedy the concern that deposits were not used for loans in the communities from which they were drawn. Incentives, such as streamlined data collection or fewer examinations " encourage" institutions to strive for improved CRA performance. Appeals Process. Because of the complexity of the revised proposal, and the continuing dialogue likely over a number of the provisions such as the designation of service areas, SCBA urges the agencies to provide an appeals process at each step of the CRA evaluation. In this manner, disputes over service area designations or the inclusion of particular investments can be addressed in advance of the final CRA evaluation in a timely and effective manner. The conclusion of the examination is too late in the process for an institution to change its business strategy. Compliance is furthered by an appeals process that gives institutions a timely opportunity to address differences between examiners and institutions. This is consistent with the new requirement for an " ombudsman" in the Riegle Community Development and Regulatory Improvement Act of 1994. An appeals process furthers the agencies' compliance with the ombudsman provision and provides institutions with a mechanism to address issues before they result in supervisory or enforcement action. 24 Senate Committee on Banking, Housing and Urban Affairs, Hearings on S. 406, Community Credit Needs, 95th Cong., 1st Sess . 132, 222 ( 1977) . 25 Id. at 154 ( statement of Sen. Proxmire) . 499 Revised CRA Regulations November 21, 1994 Page 21 Examiner Training. The revised proposal would rely heavily on examiner training and discretion. SCBA has supported the need for examiner discretion, yet suggests that, without the details of such training, the revised proposal reveals a limited understanding ofwhat is expected of institutions. What will constitute " innovative?" Under what criteria do lending programs demonstrate " excellent responsiveness" as opposed to " good responsiveness?" When does an investment program achieve an " excellent level of qualified investments" rather than a " significant level?" What does " adequate" mean? These are questions that will have to be addressed in a short time frame to permit both lenders and examiners to understand what is expected of them. It is difficult to comment adequately on a complex regulatory scheme if the " details" are that in the process of being drafted. SCBA urges the agencies to provide an opportunity for comment on the examiner guidance used to implement the revised proposal. Incentives. It is troubling that notwithstanding the statutory goal of " encouraging" reinvestment in communities, the revised proposal continues to lack incentives for achieving " Outstanding" ratings. As urged in our previous comment letter, an " Outstanding" rating should provide additional benefits such as CRA examinations every 18 or 24 months as opposed to annually, or provide a defense to frivolous complaints filed in the application process. Given the time and care required for a " Satisfactory" and higher rating, institutions should be rewarded for achieving these ratings. Transition. The agencies anticipate having in place the new recordkeeping requirements by July 1995 with full implementation of the revised rule in January of 1996. SCBA suggests that this is too short a time to implement all of the changes that this proposal would mandate. A longer transition period would benefit the industry, regulators and communities. In addition , a more reasonable transition period would comply with section 302 of the Riegle Community Development and Regulatory Improvement Act of 1994.26 In summary, SCBA urges the agencies to consider a number of clarifying changes to the revised proposal. Modification of the service area definition and deletion of the data collection requirements would aid substantially in focusing institutions on actual lending Riegle Community Development & Regulatory Improvement Act of 1994, Pub. L. No. 103325, 108 Stat. 2160, 2214-2215, §302 ( Sept. 23, 1994) . 500 Revised CRA Regulations November 21, 1994 Page 22 rather than creating a preoccupation with form and paperwork over performance. SCBA members want to be in the business of devoting their full energies to investing in their communities not to be in paperwork purgatory, and we urge the agencies to modify the revised proposal to encourage, rather than discourage, meeting the credit needs of all segments of their communities. Thank you for considering SCBA's views on this matter. Ifyou have any questions concerning the above, contact Jay Harris at ( 202) 857-3123 or Dawn Causey at ( 202) 857-3106. Sincerely, Paul A. Schosberg Attachment -- Statement of Principles on Housing Opportunities 501 Housing Opportunities: Building on Tradition STATEMENT OF PRINCIPLES ◆ Savings & Community Bankers of America members are community-based lenders and are well positioned to enhance the goal ofequal credit opportunity and to assist in carrying forward government policies in a more coordinated and streamlined manner, efficiently meeting the goal offair access to credit for all people. In working toward these goals, Savings & Community Bankers ofAmerica members willbe assisting our communities with fair housing credit, affordable housing and job creation. ◆ Savings & Community Bankers ofAmerica member institutions their managements and employees strongly endorse the goals of laws and regulations aimed at combatting discrimination of any form in home mortgage lending or in the delivery of otherfinancial services or products. ◆ Savings & Community Bankers ofAmerica member institutions their managements and employees are committed to ensuring that credit is available to all segments ofAmerican society on afair and equitable basis. Savings & Community Bankers ofAmerica members support consumer education that informs consumers and credit applicants ofthe availability and requirements ofcredit products and provides counselling where problems exist. Savings & Community Bankers of America members support active outreach to the community as a whole-government, others involved in the credit process and community organizations- in seeking to provide ongoing consumer education. ◆ Savings & Community Bankers ofAmerica member institutions are committed to education ofemployees through better training and information on how to work with applicants of all backgrounds and income levels. Savings & Community Bankers ofAmerica members are committed to ensuring that all applicants are treated fairly and receive the same degree of assistance and support in seeking credit, regardless ofrace, gender, religion or national origin. ✦ Savings & Community Bankers ofAmerica is committed to working with others in govemment, the private sector and community organizations to assist in efforts to promote affordable housing, available to all qualified persons. Members ofSavings & Community Bankers ofAmerica are called upon to endorse and adhere tothese principles. SCBA will provide ongoing assistance to members in meeting their goals of effectively serving their communities. -Adopted bySCBA Board ofDirectors January28, 1993 502 NATIONAL COMMUNITY REINVESTMENT COALITION NCRC Testimony of John E. Taylor President CEO of the National Community Reinvestment Coalition before the Subcommittee on Financial Institutions and Consumer Credit of the Committee on Banking & Financial Services ofthe March 9, 1995 Madame Chairwoman, Members of the Subcommittee, I welcome the opportunity to appear before you today to discuss the proposed pending inter-regulatory agency rule governing CRA examination and evaluation. I am President & CEO of the National Community Reinvestment Coalition ( NCRC) , this country's largest trade association of community organizations involved in trying to increase access to credit and basic banking services to traditionally underserved people and communities urban and rural. Along with my testimony I have submitted additional information about NCRC. I. II. Recent History of CRA Regulatory Reform V. Summary Conclusions 503 NCRC -John Taylor -Testimony · House banking Subcommittee I. Recent History of CRA Regulatory Reform The process to reform the Community Reinvestment Act ( CRA) regulations began officially on July, 1993, when President Clinton invited bank leaders, community groups, bank regulators and Members of Congress to the White House South Lawn where he called upon the bank regulatory agencies to reform the CRA evaluation and reporting regulations and systems. Long before that meeting, lenders and community representatives alike had called for regulatory reform . In fact, this is one point in which all sides agreed on from the start - CRA regulations needed revision. To be sure there were some major differences motivating lenders and community leaders in their requests for reform. The lenders sought clearer guidelines and a reduction in the amount of time and paperwork necessary to comply with CRA examinations. Community leaders shared the notion of the need for clearer guidelines, but emphasized the need for greater lender accountability under CRA. They maintained that the current system stressed and rewarded process ( marketing, outreach and public relations efforts) over actual performance ( lending, branching, investments) . To the credit of the Federal Reserve Bank System, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Depository Insurance Corporation, they took to heart the President's request to revise the system of CRA evaluation and set to work with all relevant parties in developing new rules and regulations. The bank regulatory agencies ( hereinafter the regulators) held hearings, from August to September of 1993, in Washington, DC , San Antonio, TX, Los Angeles, CA, Albuquerque, NM, New York, NY, Henderson, NC, and Chicago, IL. Hundreds of lenders and community representatives provided testimony at these hearings. What was unique and valuable about these hearings is that by expanding the hearing process beyond the Washington, DC geographic boundaries, a more representative sampling of testimony was gathered. Acting collaboratively, the regulators released the initial version of the proposed regulatory reform rule in December, 1993. The response was historic. More written comments were received from lenders and community leaders than for any other request for comment from the regulators in the history of soliciting public comment. Over 6000 written comments were received, primarily from the lending community and their trade associations. As a result of this input the regulators redrafted the 2 504 NCRC -John Taylor -Testimony - House banking Subcommittee rule, and proposed a second revised rule on October, 1994. In that new rule they responded substantially to the several of the criticisms leveled by the lending community to the initial rule. In particular, the Market Capture Ratio was eliminated and the presumptive ' screen' ( a loan-todeposit ratio) for small banks was dropped. The second rule produced a second round of additional comments, totaling nearly 2000. Again a majority of comments were received from the lending community, however general community and public input nearly equaled lender input. Comments to the first rule ran at a ration of 4 to 1 , with lenders out numbering the community comments . The second round was nearly a 1-1 ratio, with the community comments equaling the lender comments. Overall, the majority of both sides of the issue agreed that the regulators were on the right track and the proposed rule was an improvement over the current evaluation and reporting system. Americas Community Bankers ( then Savings and Community Bankers of America) endorsed the main proposition of the rule that emphasized performance over process. The majority of comments from lenders and obviously community leaders endorsed this aspect of the rule. The most contentious and divisive issues contained in the latest proposed rule were twofold; lenders were unanimous in their opposition to increasing enforcement powers of the regulators. Community groups were equally adamant in their desire to have the rule include a provision that required lenders to report small business lending by race, income, and gender. It now appears, as a result of a Justice Department legal opinion given to the regulators, that the issue of increased enforcement powers is mute. Attorney General Reno's staff has opined that such enforcement powers are beyond the statutory authority granted the regulators in the act. Small business reporting, by race, income, and gender is not resolved. NCRC believes that the regulators should include such a provision in the final rule. As the new evaluation system will be based on the actual lending performance of the bank, it appears that the American public will have in actuality only a partial perspective on what a lender is doing in a given community. The Home Mortgage Disclosure Act ( HMDA) data has been immensely valuable to elected officials, and other community leaders in assessing a particular lender's commitment to a 3 505 NCRC - John Taylor -Testimony - House banking Subcommittee given neighborhood or population. Local governments when choosing where to deposit their own local tax revenue will often consider a lender's given performance in serving its neighborhoods. This process has become known as the 'linked deposit' program or policy. Many of our major cities, including Boston, Washington, DC, Chicago, Los Angeles and other communities have such policies. Because HMDA data only gives a partial picture of a lenders activities in a given community, it makes ultimate sense that including small business data as well would better serve local interests. II. Why Community Reinvestment is important to America The notion of insisting that all Americans be given a fair & equal chance to procure a home, start a business, send a child to college, etc., is a fundamental truth in our American system of governance and policy. Our expectation is that in order to procure such items we must work hard, save money, pay our taxes and be law-abiding. A decent job, housing and children indeed have become synonymous with the so-called ' American Dream '. Indeed, immigrants from Ireland, Italy, England, Germany, Poland, Spain, and from countries all around the world came to America with the hope that in America you could have economic and political freedom. As Marvin Olasky noted in his The Tragedy of American Compassion, this shouldn't have meant freedom to get government support, but " rather the opportunity to work and move up the economic ladder." This is precisely the basis and the strength of the Community Reinvestment Act and of community reinvestment lending in particular. Potential borrowers may be poor, but they are working poor. In fact most folks that benefit from community reinvestment type lending are actually moderate income and from the lower-middle class of our economic structure . We know this from an analysis of the HMDA data over the past ten years, and we also know that most folks who benefit from community reinvestment lending are Caucasian. Indeed, it was only 1 and 2 generations ago for most Americans that our ancestors elevated their families from working poor to middle class through the acquisition of a home. The value of that home grew with the American economy. The increased equity in a home allowed our 4 506 NCRC - John Taylor -Testimony - House banking Subcommittee ancestors to borrow money to send a child to college, often the first in their lineage to do so.. It was the acquisition of the home and the growth of equity in it that allowed our ancestors to borrow money and begin " the family business." Hard work, self-reliance, frugality, law-abiding these qualities would give you entree into the American Dream. Unless you were different. Different was usually translated into race or gender. Hard working and the other qualities did not allow you to realize the American Dream. Centuries of discrimination, in particular economic discrimination, against minorities and women have prevented too many able Americans from getting a home or starting a small business. Marvin Olasky makes note of how the Jim Crow laws thwarted black entrepreneurs . The practice of " redlining" ( where bank officers used a red pen to outline neighborhoods on a map and instruct loan officers to not make loans in that area) was outlawed in 1977 for the express purpose of ending discriminatory lending purposes. McMicheal Appraiser's Manual - the bible of all appraisal courses up until 1975 ranked the value of a home according to the ethnicity of the families living in the surrounding neighborhood. If your neighbors were of English heritage your house was worth more. Northern Italian neighborhoods were worth less than English, but more than Southern Italians. African-American neighbors devalued your home more than Southern Italians. but not as much as Mexican-Americans. And so it went. Today, the Jim Crow laws are gone. McMicheal's book is out of favor and more minorities and women are getting access to homes and small businesses than ever before. Without exception the single greatest reason for this is a growing shared, opinion, something that crosses partisan political boundaries, was that people believe it is in the best interest of America to have as many of its citizens as possible contributing to our nation's health and well-being. A homeowner pays more taxes, contributes to local school systems and an overall more stable community, regardless of race or gender. A small business represents the typical American employer and is providing new job growth faster than the large corporate sector in our economy. This is true whether the business is owned by an African-American or a woman. 5 507 NCRC - John Taylor -Testimony - House banking Subcommittee No single law has done more to reinforce this shared opinion than the Community Reinvestment Act of 1977. III. The Effectiveness of CRA For most of its history CRA was ignored by the banking industry and the regulators charged with enforcing the law. Most lenders and regulators will admit as much. However, the application of CRA changed dramatically in the late 1980's when the press, the Federal Reserve Bank and others began to examine the disparate lending treatment between minorities and whites. When Congress passed the Financial Institutions Reform, Recovery & Enforcement Act ( FIRREA) it included an important amendment to CRA; it required and made public for the first time the written CRA evaluations of lenders. Another critical step occurred at this time. President George Bush, instructed his Justice Department to investigate unfair lending practices and subsequently it filled the first fair lending case by the Justice Department in American history. Subsequently, fair lending filings by Attorney General Reno also served as a wake up call to the industry. While debate continues as to what actually proves ' discrimination' in lending, the dialog is shifting to a more constructive one, where lenders and community folk focus on how to narrow the documented disparate lending treatment between minorities and whites. The Federal Financial Institutions Examination's Council ( FFIEC) in analyzing the 1993 HMDA data noted that African- American loan applications were rejected 38 % of the time, whereas their white counterparts were rejected at a rate of 15%. In an effort to narrow the gap, more lenders are experimenting with lower down payment programs, alternative ways of viewing credit quality and worthiness, taking advantage of Government Sponsored Enterprises ( Fannie Mae & Freddie Mac) , FHA & VA lending programs, the Federal Home Loan Bank System's programs and other efforts. 6 88-882 - 95 - 17 508 NCRC - John Taylor -Testimony - House banking Subcommittee Today, banking leaders like Richard Rosenberg ( Bank of America) and Hugh McColl ( NationsBank) boast about the profitability of community reinvestment lending and of the new market opportunities in serving traditionally underserved populations. Myths about loaning to working poor people are being exploded daily. Lenders with the greatest experience in community reinvestment lending are singing the praises of strong CRA efforts. These lenders are looking for new markets and opportunities, rather than running away from low- and moderate-income and minority lending opportunities. Witness the President of American Savings Bank, Mario Antoci who opened a branch in riot torn South Central Los Angeles. While other lenders avoided doing business in that area ( it has one of the smallest percentages of branches of any major city neighborhood) Mr. Antoci opened a branch and it is now the most profitable of the 160 branches in Mr. Antoci's branch network. Yet lenders with the least amount of CRA experience fear the law. Ignorance does indeed breed contempt. Their common lament is that they fear community reinvestment lending will force them to make riskier loans. In spite of studies to the contrary, in spite of the success of many lenders in serving this underserved market, such myths perpetuate. History has recorded no Congressional or other bailout for community reinvestment lending. The same can not be said for the deep pocket, market rate borrowers who necessitated a $ 300 billion savings and loan bailout. Lenders, and others, who lack direct experience in community reinvestment lending are not privy to the knowledge that community advocates, lenders, and regulators all agree on one thing; that such lending must always be done in a safe and sound manner. To not include this aspect as part of your community reinvestment efforts is to undermine true community reinvestment efforts. 7 509 NCRC -John Taylor -Testimony - House banking Subcommittee Finally, on the issue of the effectiveness of CRA, there is very recent proof attesting to its effectiveness. In January, 1995 , NCRC completed a four year study of lending performance in America's top twenty metropolitan environments. This study provided an answer to the question; what would happen if there was no CRA? Because we looked at the lending records of both CRA-regulated financial institutions and non-CRA regulated institutions ( Private Mortgage Companies) , we were able to look at how each performed in meeting the credit needs of low-income, moderate-income and minorities ( in the case of our study AfricanAmericans and Hispanics) . The results of this comprehensive study were startling. Off the worst lenders, 65% were private mortgage companies, and another 2% credit unions. CRA regulated institutions did a far better job in meeting the credit needs of all Americans, regardless of race and income. Would lenders serve these underserved populations if CRA did not exist? Absolutely not. While there may be a few lenders who have recognized the profit opportunities and new markets, most would go the route ofthe mortgage companies and seek out only high-income borrowers. Congress and the American public has the benefit of seeing how a parallel mortgage market, without a CRA obligation would operate. The private mortgage companies have made clear their performance in this area. Absent an obligation they were three times more likely to not serve a low- or moderate-income or minority borrower than were other institutions. They had a response to our study. The Chase Home Mortgage Corporation stated in their marketing materials that they were targeting high-income, jumbo mortgage borrowers. Absent an obligation, they decided to serve only the wealthy. The response from the mortgage bankers trade association was that they were under no obligation to serve those communities so they hadn't violated any law. Precisely, and therefore these mortgage brokers can ' cherry pick' communities in suburban areas and consciously, and legally, avoid serving other credit worthy and able-bodied borrowers in near-by communities. Such a practice is antithetical to our national notions of fairness and equal access to credit. Further, all American's suffer when other creditworthy working Americans are denied the ability to contribute more to the economic pie. Congress should act immediately to correct this unlevel playing field by extending CRA to cover private mortgage companies and credit unions, both of which benefit from their ability to sell their loans to the government sponsored secondary market. 8 510 NCRC -John Taylor -Testimony - House banking Subcommittee IV. Responses to the Subcommittee specific questions 1. Is the CRA fulfilling its original purpose of ensuring that banks and thrifts are meeting the credit needs of their communities, including low- and moderate-income Looking from the perspective of nearly twenty years ago when the " redlining" of minority and low- and moderate -income was a routine and open business practice, the CRA has clearly contributed to a slow but steady reversal of that trend. Across America we can point to examples where lenders, as a result of the CRA and community advocacy, have instituted programs to extend homeownership to low- and moderateincome and minority borrowers, increase the stock of affordable housing through support of non-profit housing developers, finance small business development, and provide credit for social services vitally needed in distressed communities. Without the CRA, many lenders simply would not have had the impetus to launch these programs, preferring to stick to old habits and established ways of doing business. While research is scarce on the total benefits of CRA, Federal Reserve Governor Lawrence Lindsey recently estimated that nearly $ 60 billion has been profitably invested in low- and moderate income communities. Further, Governor Lindsey estimates that some $ 4-$ 6 Billion is now annually invested in low-income communities as a result of CRA, without a huge bureaucracy. NCRC, in an analysis of 300 CRA agreements negotiated between lenders and community organizations, estimates that nearly $ 45 billion has been pledged by lenders to target unmet credit needs in low- and moderate-income and minority communities. In addition, scores of case studies exist which extensively document successful reinvestment programs that have produced substantial benefits to the public and profits for bankers. Many lenders have discovered through CRA, often to their surprise, that communities traditionally underserved by lenders represent an important and profitable untapped market. As Richard M. Rosenberg, CEO of Bank ofAmerica said at a CRA conference in Dallas in 1993, “ A substantive CRA program, which targets affordable housing, small business 9 511 1 -NCRC -John Taylor -Testimony · House banking Subcommittee and consumer credit, is fundamentally a way to add business to the portfolio. In fact, CRA should be approached as a business tool, not a social program." Enlightened lenders across the country have realized this as well, seeing the CRA as an opportunity, not a burden. Yet, unfortunately, these examples of forward-thinking bankers are the exception, not the rule. The problem of lending discrimination and redlining is still a persistent and serious problem in our country. Regrettably, we continue to see that minority individuals are denied loans at disparate rates, lenders continue to avoid doing business in neighborhoods because of the racial or housing characteristics, and creditworthy low- and moderate-income borrowers are shut out of the home mortgage market because of restrictive credit and underwriting standards. Weekly we receive studies at our office that document these practices. Included in the appendix is a list of some of the recent studies. AJuly 1992 study by Arthur Anderson and National Small Business United found that nearly half of all small business owners tried to get banks loans in the past year, and nearly one in every four applicants was turned down. According to a 1993 study by the California Reinvestment A 1992 study of 7,000 new firms in the Journal of Urban Affairs found that, after controlling for management experience, age and other characteristics, white males received more than $ 2 in bank credit for every dollar of equity they put in their business, while African-American males received less then $ .70 for every dollar of equity. Statistics compiled by the National Association of Women Business Owners show that over two-thirds of women-owned businesses surveyed indicate barriers to working with banks. As a result, over two-thirds report using business earnings or private sources for short-term and long-term capital needs, and 76 percent financed their start-up with personal capital. 10 512 NCRC -John Taylor -Testimony - House banking Subcommittee As members of this committee are well aware, small business are the key to economic growth and economic development of any country. Approximately five years ago commercial lenders in America loaned roughly $ 800 billion to businesses and individuals. At that same time they purchased nearly $ 500 billion in government securities. In 1992 that figure nearly reversed itself, with commercial lenders loaning only $ 500 billion and buying some $ 800 billion in government bonds and other securities. While the necessity for that occurrence can be debated, the accompanying credit crunch and recession can not be ignored. When lenders turn off the spigots, the entire economy suffers. When lenders disproportionately deny commercial credit to people of different races or gender, their communities, and all Americans, suffer. We all should be deeply concerned with these indications that small businesses are not receiving the credit they need to prosper and grow. Finally, while small businesses and low- and moderate-income and minority home mortgage borrowers continue to face unequal access credit, community-based organizations in distressed communities also have severe difficulties accessing credit. In many impoverished communities, often the only signs of hope are local community organizations like churches and community development corporations that are rehabilitating abandoned properties, constructing affordable housing, promoting economic development, an providing critical social services. Yet these organizations, many with a proven track record, are unable to obtain credit from lenders. In sum, it is clear that while CRA has moved us closer to the goal of fair and equal access to credit for all communities, we are still a long way from that goal. Significant improvements could be made in CRA compliance to address the problem. Specifically, we believe there are four steps that could substantially improve the CRA system. Enforce the CRA: No matter how comprehensive or well-designed a CRA regulation , if the bank regulatory agencies refuse to enforce the law and punish poor performers, we will continue to be plagued by the same problems. The historical record of the agencies is dismal in this area. Corporate applications of lenders with poor records are routinely given rubber stamp approvals, despite substantive and serious issues raised in public comments. In 1993. only two applications were denied by the Federal Reserve Board. Train Examiners : Every regulation will require a degree of interpretation by individual bank examiners. The CRA rating system will 11 513 NCRC - John Taylor -Testimony - House banking Subcommittee continue to be unpredictable and inconsistent if examiners are not trained with the same seriousness and effort that safety and soundness examiners are trained. In addition, examiners need to understand the complexities of community development lending if banks are to be fairly and competently examined. Without comprehensive examiner training, CRA ratings will continue to border on the threshold of meaninglessness. Promote Public Participation: Community and consumer organizations have played an essential role in the CRA system as watchdogs and as critical sources of information. Yet the regulatory agencies in the past have consistently been hostile to the inclusion of the public in the CRA process. The public needs to be included in the process through more public hearings on corporate applications, extensions ofcomment periods, and increased formal comment opportunities. Provide Essential Public Information: If data is lacking on a bank's actual performance, CRA ratings will continue to be inadequate. In addition, if the public is to continue its essential role as watchdog, Congress and the regulatory agencies must make more public data available on small business and other community lending by race, gender, and census tract. 2. Does the CRA overlap or conflict with other existing equal credit and fair housing laws? CRA requires lenders to affirmatively meet the credit needs of the community, rather than simply refrain from discriminating against protected individuals and groups, which are the basis for the Fair Housing Act ( FHA) and the Equal Credit Opportunity Act ( ECOA) . In addition, unlike the FHA and ECOA, CRA lacks the enforcement powers and remedies that the fair lending statutes grant the enforcement agencies. The example given earlier in this testimony of how the private mortgage companies avoid central cities and rural areas, because of the lack of a CRA law that requires them to affirmatively meet the credit needs of all credit-worthy borrowers in a given geographic area, is demonstrative of how vital is CRA. Mortgage companies could, and do, decide to exclusively serve high income people and as long as they didn't discriminate against a high income minority they would be immune from meeting the credit needs of other less wealthy borrowers. Further, the cases brought by President Bush & Clinton would have been ineffective if only CRA was the basis ofthe complaint as it has no statutory language allowing for punitive or other court ordered damages. 12 514 NCRC -John Taylor -Testimony - House banking Subcommittee Each ofthese laws serves a distinct purpose and compliment each other. 3. Would the revised proposal address the problems lenders see with the current system, which they believe is vague and subjective and impose undue paperwork? Specifically, how would the proposed race and gender reporting requirements on small business and agriculture loans affect depository institutions? Both community and consumer organizations and lenders agree that some aspects of the current regulations place undue emphasis on the specific process a lender goes through to comply with CRA, rather than the actual loans and investments a lender made to meet the credit needs ofthe community. In addition, because the existing regulations provide no clear standards or criteria to assess performance, a substantial degree of subjective interpretation is required of individual examiners. With lenders unsure how their performance will be judged, there is a tendency to document more than is necessary, creating the perception of the alleged " paperwork burden." However it should be stressed that under the existing regulations banks are only required to maintain documentation that " is useful to the institution's own management needs" ( 1992 Interagency Documentation Guidelines) Nevertheless , the banking industry -- which had been clamoring for more objective assessment criteria throughout the process -- strongly opposed the market share proposal. This is in no doubt due to the fact that many institutions would have failed the test, rather than the more technical objections that were raised against the proposal. For example, a recent 13 515 NCRC - John Taylor -Testimony - House banking Subcommittee study of Washington D.C. lenders by Community First -- an NCRC member- indicated that seven out of fifteen banks would have failed the test. Similar internal tests conducted by lenders no doubt convinced the banking industry to mount a full scale lobbying effort against the proposal. Equally important, however, is the fact that the proposed regulation calls for the reporting by aggregate of small business lending by race and gender. This is critical information to determine whether the credit needs of small businesses are being met, as I have indicated earlier in my testimony. Nevertheless, the regulation could be substantially improved in this area by requiring the public disclosure of small business and farm loans by census tract. Census level reporting of small business lending is absolutely essential to determine if lenders are truly meeting the credit needs of small businesses and farms located in low-income and minority communities. Reporting small business lending on an aggregate level under the revised regulation, rather than by specific census tract, does not allow neighborhoods and communities to determine how well their particular community is being served by lenders. Imagine a small neighborhood in Los Angeles, California trying to assess a large statewide bank's small business lending record in their community based on the aggregate data disclosed under the revised regulation. It is simply not possible. The central focus of CRA has always been on place, neighborhood, and community. Small business and farm data must reflect this founding tenet of CRA. Accordingly, we believe that any meaningful CRA reform must include HMDA-like small business and small farm reporting by race, ethnicity, gender, and by census tract. Anything less is an abrogation of the regulatory agencies obligation 14 516 NCRC - John Taylor -Testimony - House banking Subcommittee to assess bank's record in meeting the credit needs of the entire community. The banking industry has responded in comments to the regulatory agencies that reporting small business data would be burdensome. We believe that this claim is groundless. Disclosure of small business loans by census tract, race/ethnicity, and gender amounts to little more than adding spaces to a loan form. In fact, as a result of CRA agreements with community organizations, many banks are already collecting small business data by race, gender, and income. Chase Manhattan Corporation, Suntrust, Bank of America, and Barnett Banks currently collect this data. In addition, a recent survey of banks by the Bank Insurance Market Research Group indicates that 49% of banks surveyed currently collect data on applications, denials, and approvals on small business loans in lowand moderate-income areas and 54% already geocode their small business loans. 4. Since the original intent of the CRA was to meet community credit needs, and not result in credit allocation, would the revised rules meet that original goal? The proposed regulations stipulate that lenders are not required to " make loans or investments, or to provide services that are inconsistent with safe and sound operations" ( Section 25.21 d.) . In addition, no level of lending to low- and moderate-income geographies or borrowers is mandated in the proposal nor are banks required to offer loan terms that are below market rate. Given these parameters, it would be a stretch to argue that the proposal amounts to credit allocation. 5. What are your views on recently would give qualified small institutions at least " satisfactory" a " safe harbor" having an application denied on CRA introduced legislation that and those with ratings of protecting them from grounds? NCRC strongly opposes H.R. 317. The legislation would fundamentally change CRA in three ways, all of which would amount to the de-facto repeal of the CRA. First, the legislation would establish a " safe harbor" for applications covered by CRA for lenders that have received a " satisfactory" or " outstanding" rating in the last two years. This provision would exempt 94% of all banks from challenge by community groups and local governments, eliminating public 15 517 NCRC - John Taylor -Testimony - House banking Subcommittee participation and review in the CRA process. As the regulatory agencies have acknowledged, CRA ratings under the existing regulation bear little relationship to actual performance in meeting the credit needs of low- and moderate-income communities. Providing regulatory benefits to banks based on CRA ratings that have little integrity would therefore be a grave mistake. Second, the legislation would exempt from CRA banks under $ 100 million in assets and located in towns under 25,000 in population. Covering roughly 70% of all lenders, the 57 million people residing in rural communities would be especially impacted by this exemption. Small lenders have not shown better fair lending performance than the rest of the industry to merit this exemption, nor do their substantial profits indicate that small lenders face a substantial regulatory burden. In the first three quarters of 1994, small commercial banks under $ 100 million in assets earned nearly $ 1 billion in profits, and 95% were profitable. In addition, small lenders will be evaluated under the new CRA regulations according to a streamlined assessment procedure, relieving any regulatory burden small banks face under the existing system. Third, the legislation would subject banks under $ 500 million in assets and a CRA rating satisfactory or better to a weaker form of CRA evaluation. Under this provision, approximately 94% of all lenders would no longer be assessed on their actual performance in meeting the credit needs of their community. Lenders would only need to show that they have " internal policies" to lend fairly. This effectively allows institutions to self-certify their performance under CRA, roughly equivalent to allowing pharmaceutical companies to promise that their drugs are safe or letting manufacturers pledge that their industrial waste does not harm the environment. In sum, these amendments would so weaken the CRA that it would be effectively eliminate the law. We urge Congress to continue support the principle of fair and equal access to credit and oppose the legislation. V. Summary and Conclusions The American Public has struck a deal with our banking industry. We have said to lenders; we're going to give you an advantage not afforded any other industry, we will guarantee your business. We will promise 16 518 NCRC - John Taylor -Testimony - House banking Subcommittee anyone who walks in your banks doors that regardless of how well or how poorly your bank business performs, regardless at how inept a certain loan officer may be, regardless of downright poor business decisions on the part of the banker, we, the American taxpayer, will guarantee that you will not lose your investment, or your deposit in this bank. In exchange, the American taxpayer wants something in return. We want you to serve the credit needs of the communities from which you take deposits. We want you to extend credit and services to the people in this community regardless of what they look like or whether or not they are wealthy. We expect you to make loans only that are safe and sound and to creditworthy borrowers. This is the American public's deal with American Bankers. And its worked out well for them, bank stocks are way up. In fact, 1992, 1993 and 1994 were the three most profitable years in the history of American Banking. Recently, the American taxpayer was asked to hold up its end of this deal. Congress allocated over $ 300 billion of our money to bailout this industry. It is now time for Congress to look out for the interests of the American taxpayer and do everything in its power to insure that the lenders now live up to their end of the deal. Our urban and rural communities are in dire need of credit and capital. More lenders must be brought into the equation as the needs are great. The new regulations which call for measuring the actual lending performance of this industry in these areas must be strengthened and released immediately. These regulations will let community people, Congresspeople, Mayors, Governors and just plain citizens know the real story of who is lending to our neighborhoods and who is not. As Congress looks for ways to reduce the deficit, it should be very mindful of looking for ways to revitalize and capitalize our neighborhoods. America's urban and rural communities are asset poor, but rich with entrepreneurs, creditworthy potential home-buyers and communities looking to pull their neighborhoods out of destitution. They seek to do this the old fashion way, hard work, commitment and borrowing money. They need your help in this endeavor. CRA is not an unfunded regulatory mandate. There is no Congressional line item to pay for the bank regulatory agencies. No taxpayers funds go to regulating and overseeing this industry. 17 519 NCRC -John Taylor -Testimony-House banking Subcommittee The Contract with America calls for helping families reach the American Dream. While we could debate whether you help families reach this dream by cutting school lunch programs, housing development funds, oversight of campaign contributions, education and other items, one thing is crystal clear. You don't have enough money to help families realize the American Dream. But you do have the power to do so. If you believe nothing else that is said today, believe this. CRA has a proven track record. It is not about credit allocation, nor is it about affirmative action, but it is about spreading capitalism fairly to all Americans. Access to credit under CRA is about self- reliance and responsibility. CRA is this country's best hope for reversing dire economic conditions in our urban and rural communities. It is time to put partisan politics aside, recognize that the interests of the American public is served by developing stable communities, with more home-owners and business owners. You have served the banking industry well, they're in good shape, America's neighborhoods and working class people now need a similar commitment. Get these regulations out now, include small business lending reporting, expand CRA coverage to mortgage companies and credit unions , and help NCRC and others applaud those lenders who have made a real commitment. Thank you for listening to my comments. I respectfully request that the full amount of my written testimony be entered into the official record. 18 520 AMERICA'S WORST LENDERS ! National Community Reinvestment Coalition Washington , DC January, 1995 CORRECTION provided . FFIEC the by same numbers identification 521 Riverside the in listed erroneously is Rural of Braham -Bank American .The period correct MSA 1993 through 1990 in lenders worst the of one as .For Bank Federal California is lender the of ,name 40 through 14 pages Braham of -Bank American Rural for California Federal substitute lenders the share two that fact T to due was error in . he tables data 522 NATIONAL COMMUNITY REINVESTMENT COALITION NCRC AMERICA'S WORST LENDERS John Taylor President & CEO The National Community Reinvestment Coalition ( NCRC) has worked for years to increase fair and equal access to credit for traditionally underserved people. Toward that end, NCRC and its 440 plus member organizations, have forged strong working partnerships with lenders, elected officials, regulators, secondary market leaders, academics and others. Alot of good has resulted from those efforts. Families who may never have owned a home are now proud homeowners, minority and/or women owned small businesses have become a reality, lenders have opened branches in poor neighborhoods giving economic hope and stimulus where none existed. forward to the time that such studies are unnecessary. 523 ABOUT THE AUTHORS Chris Bohner is a research analyst at the National Community Reinvestment Coalition. He holds a M.A. in Political Science from York University in Toronto, Canada and a B.A. from The George Washington University. He has conducted a number of local HMDA studies on bank lending patterns with community-based groups, including Washington D.C. William Milczarski is Assistant Professor in the Department of Urban Affairs and Planning at Hunter College. He holds a Ph.D in Urban and Regional Planning from The University of Michigan. He has participated in many research projects and written several papers using data collected under the Home Mortgage Disclosure Act ( HMDA) . He has also consulted with a number of community groups to help them understand HMDA data so that they could effectively use the information in community reinvestment efforts. 524 TABLE OF CONTENTS Executive Summary 1 I. Introduction 3 A. Scope of Study 1. Fair Lending Performance Indicators 2. Scores, Ranks, and Grades 6889 B. Highlights and Findings of the Study 10 C. Recommendations 13 8 03 4 II. The Worst Lenders in America 1990 -- 1993 14 A. 1990 --- 1993 Data Tables by Lender 1. List ofLenders ...... 16 17 19 21 23 25 27 A. 1990-1993 Tables by MSA III. 1993 Data Tables B. 1993 Tables by Lender 2. Marketing to Minorities 3. Denial Ratios B. 1993 Tables by MSA 3. Denial Ratios .......................... 4. Minority Approval Rates ......... 29 .... 30 .32 .34 . 36 38 40 42 44 45 49 53 57 .... 61 65 69 70 74 78 82 525 5. Low- and Moderate-Income Applications 6. Low- and Moderate-Income Approvals IV. 1990-1993 MSA Grades and Rankings A. Anaheim-- Santa Ana B. Atlanta ....... I. Los Angeles -- Long Beach N. O. P. Q. R. S. Philadelphia Phoenix Riverside -- San Bernardino San Diego St. Louis Tampa St. Petersburg -- Clearwater V. Aggregate MSA Data Tables A. Median Income by MSA B. Population by MSA C. Aggregate Percentage of Applications by MSA E. Minority Applications by MSA F. Minority Approvals by MSA ...... 86 ..... 90 94 96 97 98 99 100 101 102 103 104 .... 105 106 107 108 109 110 111 112 113 114 115 116 118 119 120 120 121 121 122 ....... 122 526 EXECUTIVE SUMMARY This report America's Worst Lenders A Comprehensive Analysis ofMortgage Lending in the Nation's Top 20 Cities, analyzes the performance of lenders in serving the credit needs of minority and low- and moderate-income individuals. Produced by the National Community Reinvestment Coalition ( NCRC) -- this country's largest CRA coalition, comprised of over 440 community-based organizations dedicated to increasing fair and equal access to credit for all Americans the study examines over 2000 institutions over a four year period using Home Mortgage Disclosure Act ( HMDA) data. HMDA is a 1975 law requiring detailed disclosure of home mortgage lending by location, race, and income. Utilizing a unique methodology for measuring fair lending performance, the study examines whether mortgage lenders are actively marketing home loan products to minorities, rejecting minority applicants at a higher rate than white applicants, and lending to blacks and Hispanics at a reasonable level. In addition, the study evaluates the performance of lenders in marketing and lending to low- and moderate-income individuals. To ensure that the methodology fairly evaluates lenders, the performance of lenders is judged in the context of local market conditions and in relation to the performance of other lenders. The most significant findings on mortgage lending that are detailed in the report are: Fifty two large mortgage lenders are identified in the study as consistently underserving low- and moderate-income and minority individuals over a four year period ( 1990-1993) . Four institutions performed poorly in three or more metropolitan areas. These lenders are The Prudential Home Mortgage Company, Chase Home Mortgage Corp, G.N. Mortgage, and Margaretten & Company. For the year of 1993, 126 lenders are identified in the study for their inadequate performance in meeting the credit needs of minorities and low- and moderate income individuals. Five of the lenders have poor records in five or more metropolitan areas, including The Prudential Home Mortgage Company, G.E. Capital Mortgage Services, Countrywide Funding Corporation, Chase Home Mortgage Corp, and American Residential Mortgage. Mortgage companies dominate the list of America's Worst Lenders. Of the 52 lenders identified in the 1990-1993 period, 34 are mortgage companies ( 65%) , 17 are commercial or savings banks ( 33%) , and 1 is a credit union ( 2%) . Similar patterns exist for the worst lenders in 1993. Eighty eight of the 126 lenders are mortgage companies ( 70%) , 37 are commercial banks or savings banks ( 30%) , and less than 1% are credit unions. Mortgage banks are not covered by the Community Reinvestment Act, a 1977 law prohibiting " redlining" . In every metropolitan area in 1993, minority approval and application rates increased. However, when examined over a four year period, sixteen out of the twenty MSAs in 1993 saw substantial decreases in minority application and approval rates when compared to 1990 data. The National Community Reinvestment Coalition 202-986-7898 1 527 In 17 out of the 20 MSAs, application and approval rates for low- and moderateincome individuals increased from 1992 to 1993. However, over a four year period, 13 out of the 20 MSAs saw a significant decline, in low- and moderate-income application rates and 12 out of the 20 saw reductions in approval rates. In light of the findings of this study, NCRC recommends that the bank regulatory agencies, the Department of Housing and Urban Development ( HUD) , the Justice Department, Congress, and other government agencies charged with enforcing fair lending laws, undertake a number of steps to ensure lenders are held accountable for their The full report contains a detailed description of the methodology used in the study, a discussion of the findings, a list of the worst banks with detailed data tables, and aggregate data on each of the metropolitan areas. 2 The National Community Reinvestment Coalition⚫ 202-986-7898 528 SECTION I : INTRODUCTION The National Community Reinvestment Coalition 202-986-7898 3 529 I. INTRODUCTION The American dream is based on the promise that through hard work and enterprise all Americans can achieve economic self-sufficiency and success, including the ability to purchase and own a home. Homeownership, apart from the benefits of tenure that it provides, also can serve as a path out of poverty, providing an asset that can be leveraged to start a business, send a family member to school, or even serve as an economic backup in times of financial emergencies. Unfortunately, for many working people the goal of homeownership is unattainable. People of color, and other working Americans with moderate incomes, disproportionately find the door to homeownership shut closed by lenders who fail to do business in low- and moderate-income and minority neighborhoods. Similarly, many existing homeowners in distressed communities are unable to get loans for needed improvements to their homes ( contributing to further decline of a neighborhood) , or to refinance their high interest mortgage loans obtained during the tight monetary policies of the eighties. Denied access to the full benefits of the mortgage credit markets, working Americans lose faith in the fairness and justice of our economic and political system, contributing to the cynicism and despair that is so prevalent today. Past research of the mortgage lending industry indicates that lending discrimination and " redlining" is indeed a serious and persistent obstacle to homeownership. Since passage of the Home Mortgage Disclosure Act ( HMDA) nearly twenty years ago -- a 1975 law requiring detailed disclosure of home mortgage lending by location, race, and income -analysis of HMDA data by community-based organizations, academic and research organizations, and government bodies shows year after year that minority and low- and moderate-income communities and individuals face unequal access to housing credit.1 These studies suggest that the color of an individual's skin, and the income and racial/ethnic characteristics of neighborhoods, play a large role in determining the allocation of housing credit in our nation. In response to this research, and years of advocacy by community and civil rights groups, some public officials have acknowledged that lending discrimination and redlining is a serious problem and have taken affirmative steps to address it. Unfortunately, this reflects only a portion of the governing and regulatory community. For decades the federal regulatory agencies the Department of Justice, the Department of Housing and Urban Development ( HUD) , and the bank regulatory agencies have routinely neglected fair lending laws like the Community Reinvestment Act ( CRA) , the Fair Housing Act ( FH Act) , and Equal Credit Opportunity Act ( ECOA) . Similarly, on many occasions Congress has threatened to repeal existing fair lending laws. 1 Recent studies include: ACORN, Treading Water: Racial Disparities in Home Mortgage Lending in 23 Cities, Washington D.C., 1993 .; Jonathan Brown, Racial Redlining: A Study ofRacial Discrimination by Banks and Mortgage Companies in the United States, Essential Information, Washington, D.C., 1993.; Federal Reserve Bank ofBoston, Mortgage Lending in Boston: Interpreting HMDA Data, Boston, 1992. 4 The National Community Reinvestment Coalition⚫ 202-986-7898 530 Recently, however, the Clinton administration has taken important steps to address the issue of lending discrimination. HUD and the Justice Department have begun to enforce some of the fair lending laws, and the bank regulatory agencies have made efforts to create a more objective and consistent CRA regulation. Yet the industry, with some exceptions, has opposed these efforts, arguing that lending to minority and low- and moderate-income communities and individuals has substantially improved. In a familiar refrain, banks and mortgage lenders admit that there may be some problems, but that the data will improve " next year" . In light of these claims by the mortgage lending industry that their performance is improving, the National Community Reinvestment Coalition ( NCRC) -- this country's largest CRA coalition, comprised of over 440 community-based organizations dedicated to increasing fair and equal access to credit for all Americans -- has undertaken a comprehensive study of the performance of lenders in serving the credit needs of minority and low- and moderateincome individuals. Examining over 2000 institutions over a four year period, the study concludes that 52 large mortgage lenders with a significant market presence have consistently underserved low- and moderate-income and minority individuals. In addition, 126 lenders with poor records were identified for the year of 1993 ( the most up-to-date data) . The study also shows that the performance of the lending industry as a whole is performing poorly when examined over a four year period and compared to demographic data. Contrary to the claims of the mortgage lending industry, the results of the study indicate clearly that many lenders are not fairly serving the credit needs of low- and moderate-income and minority individuals. This may be due to overt and conscious discrimination by individual lenders, but it also may be the effect of institutional policies and practices that have the unintended effect of underserving these groups. Nevertheless, the results clearly underscore the need for more effective enforcement of CRA and fair lending laws. Additionally, these results should aid elected representatives in shaping policies and legislation that requires lenders, including mortgage companies, to be more accountable and responsive to the needs of the American public. While the study focuses on poorly performing lenders, it should also be stressed that some lenders are doing a good job in meeting the credit needs of minority and low- and moderate-income individuals. In addition, many institutions have aggressively instituted policies to rectify past discriminatory practices and -- often to their surprise -- have found that underserved markets represent an untapped and profitable opportunity to expand business and market share. These are positive developments, but as the NCRC study shows, there still is an unacceptably high number of large mortgage lenders that have yet to embrace the principle of fair and equal access to credit. The next three subsections provide detail on the methodology used to determine the worst mortgage lenders in the study, discuss some of the highlights and findings in the study, and offer recommendations to Congress, the Justice Department, HUD, and the bank regulatory agencies that would advance the goal of equal access to credit. Following these sections, detailed data is provided on the performance of lenders examined in the study. Section II provides data on lenders that exhibited poor lending records over the last four years, Section III provides data on the 1993 worst lenders, Section IV focuses on lenders in each of the metropolitan areas examined, and Section V presents aggregate data on the industry. The National Community Reinvestment Coalition⚫ 202-986-7898 5 531 A. Scope of Study This analysis of fair lending performance of mortgage lenders is based on four years ( 1990 through 1993) of Home Mortgage Disclosure Act ( HMDA) data for the twenty largest Metropolitan Statistical Areas ( MSAs) , as measured by 1990 Census population data ( see Table V. B) . Data was provided by the Federal Financial Institution Examination Council ( FFIEC) . Mortgage lenders examined in the study are evaluated in each MSA according to their performance in five categories: marketing to minorities, minority-to-white rejection ratios, lending to minorities, marketing to low- and moderate-income individuals, and lending to lowand moderate-income individuals.2 Lenders are awarded a rank score based on performance in each of the categories, which are then averaged to provide an overall rank and grade. The performance of lenders are judged in relation to industry averages for minority application and approval rates, and industry averages for low- and moderate-income application and approval rates. The criteria developed in this study offer a fair and straightforward method for evaluating a lender's performance in meeting the housing credit needs of low- and moderateincome and minority individuals. Under the NCRC methodology, an institution selected for the worst lender list has the following characteristics: a small percentage of applications from minorities compared to the rest of the industry, a relatively high minority-to-white denial rate, a low approval rate for minority applications compared to the rest of the industry, and a low percentage of low- and moderate-income applications and approvals compared to the industry. Clearly such institutions with these characteristics are not meeting the housing credit needs ofthe entire community. More importantly, the methodology is fair because it judges lenders in the context of local market conditions and in relation to the performance ofother lenders. In many respects this may be too generous to lenders because the industry itself ( in a given MSA) may be performing poorly in meeting minority and low- and moderate-income credit needs. In every MSA but two ( Los Angeles and Riverside) , the percentage of minority applications received by the entire mortgage lending industry was substantially below the minority population. For example, in Atlanta blacks and Hispanics made up more than 27 percent of the population, yet the industry received less than half that rate in minority applications ( 12.47%) . This result holds true for most of the MSAs examined in the study. Consequently, many lenders that are identified in this study are lenders whose performance is poor in relation to an industry that is already underperforming. 2 The methodology for this study was influenced in part by: John Lind, Expanded Methodfor Analyzing HMDA forthe Evaluation ofa Lender's Community Reinvestment, CANICCOR, San Francisco, 1993.; Peter Skillern and Margrit Bergholz, An Analysis of 1992 Mortgage Lending Activity to African-American and Low Income Households in North Carolina's Metropolitan Statistical Areas, Community Reinvestment Association ofNorth Carolina, Durham, 1994. 6 The National Community Reinvestment Coalition • 202-986-7898 532 The study is also fair because it effectively addresses criticisms voiced by the lending industry against previous HMDA studies that focused solely on minority-to-white denial ratios to judge performance. High denial ratios may not indicate disparate treatment, but may in fact be the result of aggressive outreach and marketing in minority communities. These efforts may increase the number of applications, and the number of approvals, but also attract a larger number of applications that cannot be approved because of very poor credit. This would increase the denial ratio, but may not be a meaningful indicator of a lender's treatment of black and Hispanic applications. Conversely, a lender may have a low denial ratio, but make relatively few loans or solicit applications from minorities. A low denial ratio in this situation also may not be meaningful. Nevertheless, high denial ratios, without a significant increase in minority applications and approvals, could suggest that minorities are subject to disparate treatment by lenders and should raise a red flag for regulators and the public. In addition, even if a lender has a high number of minority applications and high denial ratio, there still may be problems with the lender. Ultimately, a close examination of loan files is required to fully determine if a lender is discriminating. The strength of the NCRC methodology is that minority-to-white denial ratios are evaluated in the context of minority applications and approvals.. Finally, the methodology is valuable because it not only looks at lenders at one moment in time, but also evaluates performance over a four year period. This provides a more comprehensive picture of how a particular mortgage lender is performing. While the study is an effective method for judging the fair lending performance of lenders, it nevertheless has a number of limitations. Rural areas, which are significantly underserved by the lending industry, are not examined in the study. Community development lending, small business, and consumer lending are not assessed in the study, other forms of lending for affordable rental housing are not addressed, and the study lacks a geographic analysis of lending. Additionally, some lenders may be receiving credit under the methodology for forms of housing development which are detrimental to community reinvestment ( such as financing rapid suburban expansion) . Below is a description and explanation of each ofthe fair lending indicators, the method for ranking banks and determining the worst lenders, and a description of the parameters of the study. The National Community Reinvestment Coalition⚫ 202-986-7898 7 533 1. Fair Lending Performance Indicators Marketing to minorities shows how each institution compares to the overall market in the MSA in terms of the total number of applications received from minorities. It is referred to as a marketing score because it is intended to show the degree to which an institution strives to get applications from minority individuals and communities . For example, under this test, if Lender A only received 5 minority applications out of 100 ( 5 percent) , yet the industry as a whole averaged 15 percent minority applications, Lender A would receive a low score on this test. Conversely, if Lender B received 25 minority applications out of 100 ( 25 percent) it would receive a high score because it would be significantly above the industry average. The minority to white denial ratio is a direct comparison of the percentage of minority applications denied compared to the percentage of white applications denied. Under this test, for example, if lender A rejects minority applicants 50 percent of the time, but only rejects 10 percent of white applications, the denial ratio would by 5 ( i.e. 5 to 1) . The lender would receive a low score. A high minority-to-white denial ratio may indicate that a lender is treating minority applicants unfairly compared to white applicants. However, a high denial ratio may be justified if a lender is aggressively marketing to minority individuals and communities. Additionally, the denial ratio may not be meaningful if a lender receives few applications ( see above in the Scope of Study for more explanation) . Lending to minorities is analogous to the marketing indicator. The difference is that only applications that are approved go into computing the score. Under this test if Lender A approved only 3 minority applications out of 100 ( 3 percent) , yet the industry as a whole averaged a 13 percent minority approval rate, Lender A would receive a low score on this test. Conversely, if Lender B approved 20 minority applications out of 100 ( 20 percent) it would receive a high score because it would be significantly above the industry average. Marketing to low- and moderate-income applicants and lending to low- and moderate-income applicants are calculated and interpreted in the same way as the scores for minority applicants. The difference is that they intend to detect an institution's level of effort with respect to low- and moderate-income applicants. For each of the five fair lending indicators, lender's are awarded a score. For every indicator except the minority-to-white denial ratio, a score higher than 1.00 indicates that a lender is above the industry average, while a score below 1.00 indicates a lender is below the industry average. Conversely, a high denial ratio indicates poor performance because a lender is rejecting minority applicants at a rate higher than white applicants. 2. Scores. Ranks, and Grades For each MSA, a lender's score on each of the five indicators is averaged into an overall rank score which is used to assign a letter grade from A+ to F-. Grades are developed by dividing banks into quintiles based on their average score and the quintiles are then divided into thirds to assign pluses and minuses. If lenders with identical scores fall on the threshold between grades, the lender is given the benefit of the doubt and moved into the higher grade. 8 The National Community Reinvestment Coalition · 202-986-7898 534 Lenders that average an F grade over three to four years in an MSA are selected for inclusion on the list of the worst banks from 1990 through 1993 ( Section II) . Lenders that received an F in 1993 are included on the 1993 poor performer list ( Section III) . Section IV includes the scores and grades of all banks in 1993, and the grades for past years. It is important to realize that a significant number of institutions consistently averaged a grade of D overthe four year period. Although these lenders are clearly performing poorly, only F averaging lenders were selected to ensure unambiguous results. Only institutions that had at least one-half of one percent ( 0.5%) of the total applications in the MSA were analyzed in the study and received a grade. For example, in New York in 1993 there were 107,102 applications included in the analysis. Therefore, only institutions with at least 536 applications were scored and ranked. Setting the threshold at one-half of one percent ( 0.5%) of the total applications in the MSA ensures that only large institutions with significant market presence were included in the study. While figures vary according to each market, on average the selected institutions captured 78 percent of all applications in each MSA in 1993 ( see Table V. C) . In order to appear on the list of the worst banks from 1990 through 1993, a bank had to meet the .5 percent threshold in 1993. Consequently, lenders that were in the market in previous years but were acquired, merged, or closed by 1993, or did not have enough applications, were not included on the list. In each MSA, lenders that meet the .5 percent threshold in 1993 may not appear in the analysis in one or more of the previous years. This may be due to the fact that the lender is new in the market or the lender did not receive enough applications in the earlier years. 3. Parameters of the Study Only completed applications are included in the database analyzed in the study. Incomplete or withdrawn applications were deleted. All conventional and Federally insured. applications for a new mortgage, refinancing, or home improvement for one to four family, owner-occupied properties are included, while loans purchased by an institution are not part of the database. Only applications where the applicant is identified as black, Hispanic, or white are retained for analysis. Applicants from other racial groups identified in HMDA data ( American Indian or Alaskan Native, Asian or Pacific Islander) are not analyzed in the study. There are two reasons for this selection. First, most of the twenty MSAs have large black and Hispanic populations. Although there are substantial numbers of the other racial groups in some of the MSAs, there are not large numbers in all of the MSAs. Second, blacks and Hispanics are the minority groups that have historically suffered serious discrimination in the housing credit markets. This is not to deny that other racial and ethnic groups experience lending discrimination and redlining. Low and moderate income is defined as having an income less than 80% of the MSA median family income. Table V. B shows the median family income for each of the MSAS from 1990 to 1993. These figures were obtained from the FFIEC. All HMDA reporters were analyzed in the study, including mortgage banks, credit unions, savings banks, and commercial banks. For depository institutions, which are legally The National Community Reinvestment Coalition⚫ 202-986-7898 9 535 required to delineate a service area, the MSA is assumed to be a bank's de facto service. This is based on the fact that a bank with .5% of all the applications in a MSA is a very large lender with significant presence in the market. Problem of service area delineation do not arise for mortgage banks which are not required to define a service are B. Highlights and Findings of the Study 1. Worst lenders 1990 -- 1993 Fifty two institutions are identified in the study as consistently underserving low- and moderate-income and minority individuals over a three to four year period. Four institutions, two of which are bank-related mortgage companies and two of which are independent mortgage companies, have consistently failing grades in three or more MSAS. Topping the list is The Prudential Home Mortgage Company ( 10 MSAs) , followed by Chase Home Mortgage Corp ( 5 MSAs) , G.N. Mortgage ( 3 MSAs) , and Margaretten & Company ( 3 MSAs) . Four institutions have failing in grades in two MSAS. These include G.E. Capital Mortgage Services, GMAC Mortgage Corporation, Source One Mortgage, and Weyerhauser Mortgage Co. 2. Worst lenders in 1993 For the year of 1993, 126 lenders received failing grades for their fair lending performance. Five of the lenders have failing grades in five or more MSAs, including The Prudential Home Mortgage Company ( 18 MSAs) , G.E. Capital Mortgage Services ( 8 MSAs) , Countrywide Funding Corporation ( 7 MSAs) , Chase Home Mortgage Corp ( 6 MSAs) , and American Residential Mortgage ( 5 MSAs) . Six institutions have failing grades in three or more MSAS: First Franklin ( 4 MSAs) , BancBoston Mortgage Company ( 3 MSAS) , Colonial Mortgage ( 3 MSAs) , Franklin Mortgage Corporation ( 3 MSAs) , Loan America Finance Corporation ( 3 MSAs) , and Source One Mortgage ( 3 MSAs) . 3. Mortgage companies dominate the worst lender lists Of the 52 worst lenders identified in the 1990 -- 1993 period, 34 are mortgage companies ( 65%) , 17 are commercial or savings banks ( 33%) , and 1 is a credit union ( 2%) . Nineteen of the thirty four ( 56%) mortgage companies are independent, while the remaining fifteen ( 44%) are affiliated with commercial banks, savings banks, or bank holding companies. Similar patterns exist for the worst lenders in 1993. Eighty eight of the 126 lenders are mortgage companies ( 70%) , 37 are commercial banks or savings banks ( 30%) , and less than 1% are credit unions. Of the 88 mortgage companies, 62 are independent ( 70%) and the remaining 26 are affiliated with commercial banks, savings banks, or bank holding companies ( 30%) . 10 The National Community Reinvestment Coalition⚫ 202-986-7898 536 4. Office ofThrift Supervision leads bank agencies with the worst lenders Of the four banking regulatory agencies -- the Office of Thrift Supervision ( OTS) , the Federal Reserve System ( FRS) , the Office ofthe Comptroller of the Currency ( OCC) , and Federal Deposit Insurance Corporation ( FDIC) -- saving banks and thrifts regulated by the OTS represented the largest share of depository institutions named on the worst lender lists. For years 1990 through 1993, 11 of the 17 institutions were regulated by the OTS, 5 were regulated by the FDIC, and 1 by the FRS. No OCC regulated banks appeared on NCRC's worst lender list. For 1993 alone, OTS regulated institutions also made up a sizable share of the depository institutions named in the study. Of the 37 depository institutions, 22 are OTS regulated institutions, 11 are banks regulated by the FDIC, 2 are FRS institutions, and 2 are regulated by the OCC. In 18 ofthe 20 MSAs the minority share of the population ( based on 1990 Census data) significantly exceeds the percentage of minority approvals and applications for the MSA in 1993, indicating that minorities are substantially underserved in those markets ( see Table V G./H. ) . In Detroit, black and Hispanics constituted nearly 23% ofthe population, yet only made up roughly 7% of all home mortgage, home improvement, and refinancing applications and 6% of all approvals. Boston, Minneapolis--St. Paul, Philadelphia, and Baltimore also had very high disparities between minority population levels and application and approval rates. On the positive side, two MSAs actually had minority approval and application rates higher than the minority share of the population. In Los Angeles, blacks and Hispanics make up over 27% ofthe population, but constituted over 33% of all applications and 30% of all approvals. In the Riverside--San Bernardino MSA, minorities captured 27% of all applications and 26% of all approvals, yet made up only 19% of the population. 6. Minority share of applications and approvals increased from 1992 to 1993, but most MSAs are still below 1990 levels. In every MSA in 1993, minority approval and application rates increased from 1992 to 1993 ( see Table V. G./H.) . The most substantial increases occurred in Phoenix ( a 82% increase in minority applications and a 96% increase in approvals) , Detroit ( 30% and 35% increase in minority applications and approvals) , St. Louis ( 22% and 29%) and Riverside--San Bernardino ( 20% and 28%) . Tampa and New York saw the slowest rate of increases in minority application and approval rates. While the increase in application and approval rates for minorities from 1992 is encouraging, metropolitan areas do not perform well when examined over a four year period. Sixteen out of the twenty MSAs in 1993 saw substantial decreases in minority application and approval rates when compared to 1990 data ( see Table V. G./H.) . Boston was the worst MSA showing a 45% decrease in minority applications and 39% decrease in minority approvals over the four year period. New York ( -29% and -29%) , Nassau--Suffolk ( -37% and -35%) , Philadelphia ( -29% and -28%) , and Baltimore ( -27% and The National Community Reinvestment Coalition⚫ 202-986-7898 11 537 -30%) also showed significant declines. However four MSAs did see increases in their minority application and approval rates. Phoenix led all MSAs with a 19% increase in black and Hispanic applications and 23% increase in approvals. Riverside--San Bernardino followed with an 8% increase in minority applications and a 7% increase in approvals. San Diego ( +5% and +4%) and Houston ( +1% and + 10%) also showed improvement. 7. Low- and moderate-income share of applications and approvals increased from 1992 to 1993, but saw declines over a four year period. In 17 out of the 20 MSAs, application and approval rates for low- and moderateincome individuals increased from 1992 to 1993 ( see Table V. E./F.) . Phoenix led all MSAs with a 49% increase in low- and moderate-income applications and a 59% increase in approval rates. Riverside-San Bernardino followed with a 50% increase in applications and 58% increase in low- and moderate-income approvals. Minneapolis--St. Paul ( +42% and +47%) , Oakland ( +34% and +32%) and Philadelphia ( +31% and +36%) also showed strong increases. Three MSAs decreased their share of low- and moderate-income applications and approvals from 1992 to 1993. Washington D.C. saw a 3% reduction in low- and moderate-income applications and 4% reduction in approvals. Boston ( -3% and -4%) and Chicago ( less than one percent) also saw reductions. Over a four year period, 13 out of the 20 MSAs saw a significant decline in low- and moderate-income application rates and 12 out of the 20 saw reductions in approval rates ( see Table V. E./F. ) . New York experienced the sharpest reduction, declining 40% in application rates and 43% in low- and moderate-income approval rates. Nassau-Suffolk ( -33% and -34%) , St. Louis ( -26% and -27%) , and Minneapolis-- St. Paul ( -21 % and -21%) also had strong declines in low- and moderate-income application and approval rates. More encouraging, four MSAs had a significant increase in low- and moderate-income applications and approval rates from 1990. Anaheim-- Santa Ana had a 65% increase in lowand moderate-income application rates and a 80% increase in approval rates. Los Angeles ( +57% and +73%) , Riverside ( +50% and +66% ) , San Diego ( +37% and +64%) and Tampa ( +31% and +17%) also showed marked improvement. 127 The National Community Reinvestment Coalition⚫ 202-986-7898 538 C. Recommendations In light ofthe findings of this study, NCRC believes that it is imperative that Congress, the Administration, the Department of Justice ( DOJ) , HUD, the bank regulatory agencies, and state and local governments take serious steps to ensure that the lenders named in this report are held accountable for their performance and that other systematic improvements be made. Specifically we recommend the following actions: The bank regulatory agencies should issue a revised CRA regulation that ties CRA ratings to an institution's actual performance in lending to low- and moderate-income and minority communities and individuals; The Justice Department, HUD, and state attorney generals should aggressively investigate all lenders named in this report for possible violations of the Fair Housing Act and Equal Credit Opportunity Act; Federal and state bank regulatory agencies should deny all corporate applications for merger and expansion by lenders named in the study pending affirmative lending agreements with community and civil rights groups; Congress, and state legislatures, should immediately extend CRA coverage to all mortgage banks and credit unions; HUD should require all mortgage banks to enter " best practice" agreements; Federal and state bank regulatory agencies should review the lending records of mortgage affiliates of depository institutions in CRA examinations; The Federal Home Loan Bank System should deny access to long-term advances to all institutions named in the report; Federal bank regulatory agencies should require lenders to disclose small business lending by race, income, and census tract in the revised CRA rule; Federal bank regulatory agencies should use cease and desist orders and levy civil money penalties against poor performers under CRA; HUD should continue to assess and ensure that reinvestment lending targets for Fannie Mae and Freddie Mac are being met. The National Community Reinvestment Coalition⚫ 202-986-7898 13 539 SECTION II : THE WORST LENDERS IN AMERICA 1990 -- 1993 DATA TABLES The National Community Reinvestment Coalition • 202-986-7898 14 88-88295 - 18 540 SECTION II EXPLANATION OF DATA TABLES FOR 1990-- 1993 This section contains tables of data on the lenders selected as the worst performers for the years 1990 through 1993. The data is presented in two different ways: by the name of the lender and by the MSA. Each table presents data on each of the five indicators used to measure lending performance for each of the four years ( marketing to minorities, denial ratios, minority approvals, low- and moderate-income applications, and low- and moderate-income approvals) . Below is a short description of each of the tables: Table II. A.1: This table presents a list of the worst lenders alphabetically for the years 1990 through 1993. The third column AGENCY indicates which regulatory agency that the institution reports its HMDA data to. 1 is the Office of the Comptroller of the Currency ( OCC) , 2 is the Federal Reserve System ( FRS) , 3 is the Federal Deposit Insurance Corporation ( FDIC) , 4 is the Office of Thrift Supervision ( OTS) , 5 is the National Credit Union Administration ( NCUA) , and 7 is the Department of Housing and Urban Development ( HUD) . The next column TYPE OF INSTITUTION is a classification of the lender. A lender is either an independent mortgage company ( regulated by HUD, not subject to CRA, and not affiliated with a bank or bank holding company) , a commercial bank or savings bank ( subject to CRA and regulated by one of the four bank regulatory agencies) , a credit union ( not subject to CRA and regulated by the NCUA) , or a bank related mortgage company ( affiliated with a bank or bank holding company and not subject to CRA) Table II. A.2: This table presents data on minority applications to a lender. For each year, the first column indicates the total applications received by a lender, the next column shows the number of minority applications, followed by the percentage of minority applications by a lender, and then the MSA industry average. The MSA industry average is what the industry did as a whole, and is used as the standard against which individual lenders are judged. Table II. A.3: Denial rates between white and minority applicants are displayed in this table. For each year, the first column indicates the percentage of white applications denied, the second column shows the minority rejection rate, and the third column displays the ratio of minority to white rejections. Table II. A.4.: Minority approval rates for each lender are shown in this table. It displays the total approvals by a lender, minority approvals, the percentage of minority approvals by a lender, and then the MSA industry average. The MSA industry average represents what the industry did as a whole. Table II. A.5: and Table A.6: These tables show low-and moderate-income applications and approvals and follow the same format as the minority application and approval tables. Table II. B 1-6 These tables are exactly same as the Tables A. 1-6, but lenders are organized by MSA rather than alphabetically. *** Asterisks mean that the lender did not have .5% of applications that year. The National Community Reinvestment Coalition⚫ 202-986-7898 15 541 SECTION II : THE WORST LENDERS IN AMERICA 1990 -- 1993 DATA TABLES BY LENDER 16 The National Community Reinvestment Coalition⚫ 202-986-7898 542 TABLE II. A.1 WORST LENDERS: 1990-1993 MSA LENDER Oakland Atlanta San Diego Houston Baltimore Nassau-Suffolk Los Angeles New York Washington Chicago Dallas Baltimore Philadelphia Atlanta Atlanta Minnesota Detroit Tampa Philadelphia Boston Riverside St. Louis Los Angeles Oakland Anaheim Tampa Dallas Minnesota St. Louis New York St. Louis St. Louis Tampa Anaheim Philadelphia Minnesota Tampa New York Phoenix Dallas Houston Washington Chicago Oakland Oakland Chicago New York Baltimore ALL PACIFIC MORTGAGE COMPANY ALLATOONAFEDERAL SAVINGS BANK AMERICAN RESIDENTIAL MORTGAGE BARCLAYS AMERICAN MORTGAGE COR B.F.SAUL MORTGAGE COMPANY CHASE HOME MORTGAGE CORP. CHASE HOME MORTGAGE CORP. CHASE HOME MORTGAGE CORP. CHASE HOME MORTGAGE CORP. CHASE HOME MORTGAGE CORP. CHASE U.S. CONSUMER SERVICES CITIBANK F.S.B. COUNTRYWIDE FUNDING CORPORATIO EAGLE SERVICE CORP D/B/A ATLAN ENTRUST FINANCIAL CORPORATION FIRSTFEDERAL CAPITAL CORP FIRSTNATIONWIDE BANK FIRSTUNION MORT. CORP. GE CAPITAL MORTGAGE SERVICES GE CAPITAL MORTGAGE SERVICES GMAC MORTGAGE CORPORATION OF P GMAC MORTGAGE CORPORATION OF P GN MORTGAGE GN MORTGAGE GN MORTGAGE GREENTREE MORTGAGE COMPANY LP GUARDIAN MORTGAGE COMPANY HEIGL MORT. & FINANCIAL CORP. HOME FEDERAL SAVINGS BANK OFM INDEPENDENCE SAVINGS BANK JAMES B. NUTTER & COMPANY KNUTSON MORTGAGE CORPORATION LINCOLN SERVICE CORPORATION LOAN AMERICA FINANCE CORP MAIN LINE FEDERAL SAVINGS BANK MARGARETTEN & COMPANY MARGARETTEN & COMPANY MARGARETTEN & COMPANY MELLON MORTGAGE COMPANY MERCANTILE BANK & TRUST MITCHELL MORTGAGE COMPANY NAVY FEDERAL CREDIT UNION NBD MORTGAGE COMPANY NVR MORTAGE PIB MORTGAGE COMPANY PRINCIPAL MUTUAL LIFE INS CO PROVIDENT SAVINGS BANK REISTERSTOWN FEDERAL SAVINGS B REPUBLIC BANK ROOSEVELT SAVINGS BANK RSL MORTGAGE CORPORATION RURAL AMERICAN BANK- BRAHAM SHELTER MORTGAGE CORPORATION New York Anaheim Riverside Chicago AGENCY TYPE OF INSTITUTION The National Community Reinvestment Coalition⚫ 202-986-7898 7 4 7 2 4 1 1 1 1 4 7 4 7 4 4 2 7 7 7 7 3 4 3 7 7 7 4 3 7 7 4 7 4 7 7 7 2 4 7 5 2 7 2 7 4 4 3 3 4 4 3 Independent Mortgage Company Commercial/Savings Bank Independent Mortgage Company Bank Related Mortgage Company Bank Related Mortgage Company Bank Related Mortgage Company Bank Related Mortgage Company Bank Related Mortgage Company Bank Related Mortgage Company BankRelated Mortgage Company Bank Related Mortgage Company Commercial/Savings Bank Independent Mortgage Company BankRelated Mortgage Company IndependentMortgage Company BankRelated Mortgage Company Commercial/Savings Bank Bank Related Mortgage Company Independent Mortgage Company Independent Mortgage Company Independent Mortgage Company Independent Mortgage Company Bank Related Mortgage Company Bank Related Mortgage Company Bank Related Mortgage Company Independent Mortgage Company Independent Mortgage Company Independent Mortgage Company Commercial/Savings Bank Commercial/Savings Bank Independent Mortgage Company Independent Mortgage Company Bank Related Mortgage Company Independent Mortgage Company Commercial/Savings Bank Independent Mortgage Company Independent Mortgage Company Independent Mortgage Company Bank Related Mortgage Company Commercial/Savings Bank Independent Mortgage Company Credit Union Bank Related Mortgage Company Independent Mortgage Company Bank Related Mortgage Company Independent Mortgage Company Commercial/Savings Bank Commercial/Savings Bank Commercial/Savings Bank Commercial/Savings Bank Bank Related Mortgage Company Commercial/Savings Bank Bank Related Mortgage Company 17 543 TABLE II.A.1 WORST LENDERS: 1990-1993 AGENCY TYPE OF INSTITUTION MSA LENDER 7 Independent Mortgage Company Detroit SOURCE ONE MORTGAGE 7 Independent Mortgage Company SOURCE ONE MORTGAGE Tampa 4 Commercial/Savings Bank SOUTHERN CALIFORNIA FEDERAL SA Anaheim 4 Commercial/Savings Bank Phoenix STATE SAVINGS BANK 4 Bank Related Mortgage Company Oakland SUNBELT NATIONAL MORTGAGE CORP 3 THE BRYN MAWR TRUST CO. Commercial/Savings Bank Philadelphia 3 THE COLONIAL BANK St. Louis Commercial/Savings Bank 2 Commercial/Savings Bank THE NORTHERN TRUST COMPANY Chicago 7 Independent Mortgage Company Atlanta THE PRUDENTIAL HOME MORTGAGE C 7 Independent Mortgage Company Anaheim THE PRUDENTIAL HOME MORTGAGE C New York 7 Independent Mortgage Company THE PRUDENTIAL HOME MORTGAGE C Boston 7 Independent Mortgage Company THE PRUDENTIAL HOME MORTGAGE C Phoenix 7 Independent Mortgage Company THE PRUDENTIAL HOME MORTGAGE C Dallas 7 Independent Mortgage Company THE PRUDENTIAL HOME MORTGAGE C THE PRUDENTIAL HOME MORTGAGE C 7 Independent Mortgage Company Philadelphia Houston 7 Independent Mortgage Company THE PRUDENTIAL HOME MORTGAGE C Oakland 7 Independent Mortgage Company THE PRUDENTIAL HOME MORTGAGE C Nassau-Suffolk THE PRUDENTIAL HOME MORTGAGE C 7 Independent Mortgage Company Riverside WEYERHAEUSER MORTGAGE CO. 7 Independent Mortgage Company Anaheim 7 Independent Mortgage Company WEYERHAEUSER MORTGAGE CO. 18 The National Community Reinvestment Coalition 202-986-7898 Black / Black H/isp .MSA MSA ALL COMPANY Oakland MORTGAGE PACIFIC ALLATOONA BANK Atlanta SAVINGS FEDERAL Diego AMERICAN MORTGAGE San RESIDENTIAL Houston BARCLAYS COR MORTGAGE AMERICAN Baltimore B.F.SAUL COMPANY MORTGAGE Nassau -S973 CHASE . CORP MORTGAGE HOME 30uffolk Los Angeles CHASE . CORP MORTGAGE HOME 1928 65 York New . CORP MORTGAGE HOME CHASE Washington CHASE . CORP MORTGAGE HOME Chicago . CORP MORTGAGE HOME CHASE CHASE SERVICES Dallas CONSUMER U.S. CITIBANK F.S.B. Baltimore CORPORATIO Philadelphia COUNTRYWIDE FUNDING EAGLE D/BATLAN CORP SERVICE Atlanta ENTRUST CORPORATIONAtlanta FINANCIAL CORP CAPITAL Minneapolis FEDERAL FIRST BANK Detroit NATIONWIDE FIRST Tampa FIRST CORP MORT .UNION Philadelphia GE SERVICES MORTGAGE CAPITAL SERVICES GE MORTGAGE CAPITAL Boston GMAC P OF CORPORATION MORTGAGE Louis St. Riverside GMAC P OF CORPORATION MORTGAGE Oakland MORTGAGE GN Anaheim MORTGAGE GN Los Angeles GN MORTGAGE COMPANY LP GREENTREE MORTGAGETampa COMPANY GUARDIAN MORTGAGE Dallas FHEIGL .MORT CORP & INANCIAL Minneapolis BANK MFEDERAL OF HOME SAVINGS St. Louis SAVINGS BANK New York INDEPENDENCE CJAMES & OMPANY B.NUTTER St. Louis CORPORATION Louis KNUTSON MORTGAGE St. 925 LINCOLN CORPORATION Tampa SERVICE CORP FINANCE LOAN AMERICA Anaheim SAVINGS BANK MAIN FEDERAL LINE Philadelphia CMARGARETTEN & OMPANY Minneapolis CMARGARETTEN OMPANY & Tampa & OMPANY CMARGARETTEN 650 New York COMPANY MELLON MORTGAGE Phoenix TMERCANTILE & RUST BANK Dallas 2431 148 1937 184 2901 124 520 7 51 670 147 5534 58 912 1235 56 1413 5 162 2518 35 738 230 6755 18 985 69 1891 241 1279 950 45 1052 39 545 3429 770 29 57 2111 34 3174 34 3051 118 1456 151006 33 18 450 101 1266 60 72 2066 21 1.62 1294 % 3.87 %15.03 6%2.95 .51 % 11.30 7.69 %951.03 16.36 235 2.46 1%4.53 22.46 133 4.74 %175.21 18 557 13.71 %2.50 %33.10 4304 15.89 3.77 %8.68 . 1%2.70 2.35 1373 101 %12.69 1.07 8.10 %290.81 26 8%1.49 4.29 68 8%3.57 7.29 53 84.00 %5.68 09 %182.50 7.98 16 81.23 %38 .86 23078 417 %133835 390 0.83 32.69 8%76 1.68 219 4.56 1665 %250.81 9.23 24 863 .33 9%13.48 12.35 %859 160 18.84 %217.15 051 35 72 • 37 15 1.11 2%847.29 983 81 3 9 12 54 26 68 35 42 11 . NAME /ispA HBlack .MS oIndustry Total . %f Hisp Apps AverageApps 15.21 %6.62 190 77 %12.46 6.41 056 58 1%27.72 3.35 324 139 53 33 %816.42 4.77 1%6.92 1.79 487 81 6561 %13.08 .86 46 414 35 3.37 %313.10 36.09 841 %270 20.81 9.50 %1476.80 240 11.35 %0S62.35 .78 39 20.20 %8.75 %6.82 0.64 .82 6%1.20 1%6.62 1.74 1%0.77 .48 85.58 %.40 5%2.25 %.14 1990 Black / HBlack ./isp MSA Total f Hisp %oIndustry . Average Apps Apps 6.47 %154.27 55 41 1%55.49 1.03 19 21 22.13 576 125 %15.98 266 8 190.59 %5.45 08 42 579 16 3%12.48 0.99 085 16 2181 %7.03 0.20 104 1%3.79 50 64.87 89 14.27 %2.59 3.97 740 9456.37 90 40 279 11 1%7.61 7.12 1.79 45410.59 78 76 51 2.66 %7182.22 .84 487 33 4.86 14 13 · · 1%104 1.03 4.88 567 132 .00 10%0.35 501.69 .48 58 099 6.43 %575.27 .38 3196 1.69 718 812 87 4.44 1196 4.74 %83413 22.68 .40 7%8120 .84 3.40 .86 364 42166 2.77 328 24.77 17 3 .22 40 31.83 %421.50 3.50 084 49 3.65 %16854.82 543 .29 %272.64 15.22 96 139 %144.27 4.87 22 17 056 61 %14.62 1.74 32663 %15.40 0.99 002 341 8.40 %468 21 1%2.69 %71.30 52 27 1.48 %40.71 30 3 1%1.58 733 622.82 800 51 532 24 351 9 8%2.36 3.40 64 16 • %114.84 70.58 084 6 2096 29 566 32 26.68 %30.20 47 30 740 43 34 7 1%31.28 1.30 12.80 %4.85 17.42 %3.01 4.63 %14.69 %33.42 1.47 % 4.04 3.94 % %8.42 % 2.56 % 15.13 10.67 %14.69 10.67 %3.14 16.04 % 0.18 1%.87 24.50 %17.46 14.03 %7.04 12.99 %5.78 33.42 %17.03 3.59 %15.13 1%0.70 .87 1.27 9%.49 2%6.38 6.75 9%4.51 .49 % 9.49 %0.95 14.40 12.99 % %10.67 0.55 %1.87 1.38 5.65 %10.95 %28.65 6.75 5.81 %9.23 %5.13 12.10 Black / Black .H/isp Total Industry o%f Hisp . Average Apps Apps 127.04 %7.39 42 19 1%44.05 8.12 %38 6.04 68 • • · • · • • 84.91 %2.76 % 62 19 4.11 28.60 %16.75 970 159 1%7.26 49.24 89 39 %827 28 18.32 175 0 12.73 % 267 34 · 16.04 %322 20 942 63 286 1 1%4.80 1.73 133 42 1%4.18 20.95 44 10 1353 %40.67 7.02 075 %6.75 41.38 71 32 9%1.49 4.52 096 68848 213 568 46 · • • % 14.49 %20.95 95 16 5.42 520 15 • • % 844 16 1.90 % 459 19 4.14 . • • . . • • • % 383 34 8.88 390 242 16 .. • 177 1 258 30 . Black / Total Hisp . Apps 1178 78 1561 100 245 3174 608 29 1677 116 1991 1992 1993 MSA %of Industry Apps Average %17.85 7.79 % 17.31 12.76 % % 16.24 % 16.24 % 10.81 % 35.61 29.47 %8.07 2%7.98 0.09 3.39 %20.55 %2.72 10.00 % 16.24 % 12.50 6.21 %17.31 %17.31 6.69 20.35 %.05 3.71 %8.77 %11.28 4.10 %12.50 8.66 %64.77 .39 6.20 %11.19 25.12 %25.20 % 17.79 1%8.10 4.33 35.61 % % 11.28 %12.72 2.88 % 2.05 % 11.19 % 29.47 11.19 % % 11.19 % 11.28 14.33 % %1292.50 .31 21874 %1.39 26.05 16.61 %1.28 % 29.47 7%0.56 .84 12.72 %11.63 544 The National Community Reinvestment Coalition 202-986-7898 :MARKETING 1990--1993 LENDERS WORST MINORITIES TO .A.2 II TABLE 19 1993 Apps Apps 3263 206 750 44 1469 42 151 9380 53 695 1054 64 130 716 Total Industry %of .Hisp Average Apps Apps Apps 2.60 325.03 %115 40 131 2%1423 248 4.87 9.31 3.97 %143 981 2.25 %14.69 94.27 01 50 1%8.71 4.27 765 85 13.97 % 1008 50 2%5.52 40.20 08 30 0.59 5321.79 51114 12 1%2.87 2.86 309 171.61 769 53129.38 %1.64 .69 %235 450.20 34 3336 6.53 7.63 0.81 483 1%6.07 109 1.74 7.41 1121 632 2.50 %937 22.64 154 18.16 %27.15 • • • 13.97 %918 28 %175 4.15 64 541 4.70 6.37 1597 .69 69 43 752.27 %944 .38 64 12226 939 2.88 611683 75 54 93.68 052 88.84 %5.23 .40 88 7.24 %11.74 16719 4.31 %31 2.50 08 44 1.04 %577 1.14 055 5.51 %92978 5164 .33 76 6 1697 %54.27 82 44 %162 7.21 85.21 18 57 2.87 %1324 9.86 67 28 %75.84 838 2.90 09 16 %11 1.20 15 1255 89.29 52 61.16 %2.82 97 2 2410 289 025 17.46 %12348 6.37 14.27 %173.97 29 148 186 6.22 3328 %178 2.46 207 59 50 11.03 %76.58 17317 %4.02 2.50 27 8294 33 1%3.24 41.74 40 7 %152.69 46 %182.35 %121.30 3.30 51 12 176 26.30 %20.81 956 331 0.20 %12122 5.95 31.27 %6.50 81 7 31.03 %%42.22 69 54 11 2.23 %96.33 5%1.68 .14 %76.84 2.99 56 20 %82.86 3.67 309 69 15.77 %45.03 58 19 %970 56 16.42 12.25 %4.27 428 89 20 %185.21 4.55 .51 · %62.60 457 64 %26.86 2.38 16.72 %272.64 36 168 22.71 %627.15 64 111 %794 11.74 . 1%7.68 2.50 . oIndustry Total %f Hisp . AverageApps Apps 17.42 %1.25 15.55 %7.04 %14.96 8.32 7.35 %26.75 1%2.37 1.73 26.75 %7.85 . 58 2156 5508 347 2434 31 985 22 131 3569 % 92 4.33 6770 308 5128 122 1070 243 57 500 51 %317.04 11.11 • 1%2.18 24.69 07 . 459 17.35 %52.99 08 %168.32 3.05 26 41 46 4 17 44 141 284.50 %16.44 69 29 P4.44 %1.73 0.95 1%8.00 • 9%7.30 .23 %7.04 17.56 %0.67 13.14 0.67 %9.49 %1.59 12.99 3.05 % 4.15 % 2%9.10 % 17.04 8.91 % %4.50 222.83 %1% 3.78 302.99 12.99 %374 . 369 . 20.30 %158.32 96 %136.04 6.59 39 4.78 %125.13 58 2%19.17 6.75 174 42.75 %1.49 04 %181 9.23 10.67 %417 %314 17.42 • 613 771 762 26 • 27 104 33 11 132 6 25 14 . 28 176 49 / Black isp MSA ./HBlack Industry %of Average Apps % 16.24 2183 %9.24 0.09 15.33 %111.64 194 2.15 %12%21 0.55 2.17 98.32 79 %7.79 18.20 %17.79 13.11 % 20.55 % 29.47 % % 1.93 16.24 % 8.77 3.70 % % 29.47 14.33 % % 8.66 %25.20 16.23 20.55 %4.63 8.77 % 11.28 % % 6.95 % 14.33 % 7.84 • % 17.79 % 12.50 % 7.32 % 11.19 • %0.55 217.45 %7.31 19.73 % 14.33 • %2.72 14.26 11.24 %29.47 6%2.94 .39 70%1.84 .55 % 12.50 % 6.00 1%4.46 6.24 % 17.79 • % 10.81 % 4.57 %5.20 222.83 % 14.33 6.43 % 545 The National Community Reinvestment Coalition⚫ 202-986-7898 MSA Houston MITCHELL COMPANY MORTGAGE Washington NAVY UNION CREDIT FEDERAL Chicago NBD COMPANY MORTGAGE NVR MORTAGE Oakland Oakland PIB COMPANY MORTGAGE CO INS LIFE MUTUAL PRINCIPAL Chicago York PROVIDENT BANK SAVINGS New B SAVINGS FEDERAL Baltimore REISTERSTOWN Detroit BANK REPUBLIC ROOSEVELT BANK SAVINGS York New CORPORATION Anaheim RSL MORTGAGE Riverside RURAL AMERICAN -BRAHAM BANK CORPORATION SHELTER MORTGAGE Chicago Detroit MORTGAGE ONE SOURCE Tampa MORTGAGE ONE SOURCE CALIFORNIA SA FEDERAL Anaheim SOUTHERN Phoenix STATE BANK SAVINGS 860 MORTGAGE CORP SUNBELT NATIONAL Oakland Philadelphia THE . CO TRUST MAWR BRYN Louis St. BANK COLONIAL THE Chicago COMPANY THE TRUST NORTHERN MORTGAGE CPRUDENTIAL THE HOME Atlanta MORTGAGE CPRUDENTIAL THE HOME Anaheim MORTGAGE C Dallas HOME PRUDENTIAL THE CHOME MORTGAGE New York PRUDENTIAL THE MORTGAGE CPRUDENTIAL THE HOME Boston C MORTGAGE HOME PRUDENTIAL THE Phoenix HOME MORTGAGE C PRUDENTIAL THE Philadelphia C MORTGAGE 2127 THE HOME PRUDENTIAL Houston MORTGAGE CHOME Oakland PRUDENTIAL THE HOME MORTGAGE C PRUDENTIAL THE -Suffolk Nassau . CO MORTGAGE WEYERHAEUSER Riverside WEYERHAEUSER . CO MORTGAGE 742 Anaheim HBlack SA ./Misp . Hisp o.%f Hisp Total Industry Apps Average 4.71 5266.42 77 %1552 45511 544 16.80 11.78 %649 1%2.73 6.37 4832 3132 692 83 %1649 7.09 258 59 465.21 1%91 298 113 %9.76 5.21 932 314 67 2.90 %126.37 6.31 % 280.81 %5.87 87 49 . NAME /Black Black .H/isp MSA / Black HBlack isp ./MSA 1990 1991 1992 /Black . . 20 WORST :MARKETING 1990--1993 LENDERS MINORITIES TO II.A.2 TABLE WORST LENDERS - 993 D :11990 ENIAL RATIOS 1993 NAME MSA COMPANY MORTGAGE Oakland PACIFIC ALL ALLATOONA FEDERAL SAVINGS BANK Atlanta AMERICAN San o MORTGAGE Dieg RESIDENTIAL BARCLAYS MORTGAGE AMERICAN COR Houston COMPANY MORTGAGE B.F.SAUL Baltimore MORTGAGE HOME CORP SNassau - uffolk .CHASE Los Angeles MORTGAGE HOME .CHASE CORP New MORTGAGE HOME York .CHASE CORP Washington MORTGAGE HOME .CHASE CORP CHASE MORTGAGE HOME Chicago . CORP Dallas CONSUMER U.S. CHASE SERVICES Baltimore CITIBANK F.S.B. COUNTRYWIDE CORPORATIO Philadelphia FUNDING SERVICE DEAGLE /BACORP TLAN Atlanta CORPORATION FINANCIAL Atlanta ENTRUST CAPITAL FEDERAL FIRST CORP Minnesota NATIONWIDE FIRST BANK Detroit CORP MORT UNION .FIRST Tampa Philadelphia Boston Riverside Louis St. Los Angeles Oakland Tampa Dallas Minnesota Louis St. York New St. Louis Louis St. Tampa Anaheim Philadelphia Tampa CMARGARETTEN & OMPANY Minnesota MARGARETTEN &COMPANY York New MELLON MORTGAGE COMPANY Phoenix TMERCANTILE RUST &BANK Dallas Black Black / / Hisp .White Hisp . Denial Denial Rate Rate Denials 5.13 4.36 1.18 6.57 2.74 18.00 13.06 8.74 1.49 13.79 7.43 0.54 4.48 12.93 2.89 20.00 12.83 1.56 18.46 2.25 41.54 26.35 10.42 2.53 2.03 9.93 20.11 3.49 1.39 4.84 0.00 ERR 10.14 2.21 27.45 12.44 5.09 8.84 1.74 2.11 10.34 4.90 10.71 4.35 2.46 2.77 0.00 4.20 5.29 22.22 8.57 4.41 1.94 5.66 16.96 3.00 6.83 16.67 2.44 9.44 2.15 20.33 5.80 2.31 2.51 23.47 31.38 1.34 12.38 1.26 15.56 18.49 1.86 34.48 0.00 ERR 2.14 2.04 0.00 11.76 4.54 2.59 24.81 44.92 1.81 33.33 8.17 4.08 3.81 3.18 12.12 27.78 18.30 0.66 15.84 9.44 1.68 4.84 18.42 3.81 18.42 7.40 0.40 12.50 3.97 3.15 5.76 6.67 1.16 1.86 11.11 5.97 1.57 0.00 ERR 1992 /Black White Hisp . Denial Denial toWhite Rate Rate 4.85 14.29 6.21 9.66 7.93 3.03 2.77 17.28 15.97 21.97 19.07 17.69 6.84 15.46 39.25 7.22 2.11 4.44 5.10 8.33 9.07 24.76 32.22 9.43 4.23 28.26 17.86 • 1.87 0.00 0.00 7.97 28.17 0.00 6.45 22.33 24.28 6.33 9.30 3.86 3.68 4.64 1.77 1990 1991 B/Black lack Black / Hisp White Hisp . Hisp . . White toWhite Denial Denial toWhite Denial Denials Rate Rate Denials Rate 7.62 2.94 6.23 12.20 1.96 19.05 2.50 15.52 7.83 11.16 2.43 2.16 20.86 21.13 28.80 1.36 * 0.38 9.30 12.50 1.34 . 6.23 6.00 2.38 14.29 1.77 28.26 12.43 16.48 4.02 50.00 40.00 16.18 18.75 1.16 1.82 39.63 2.08 29.28 9.98 2.93 12.15 44.68 25.35 2.53 36.00 1.42 26.00 24.44 3.57 8.26 9.16 3.28 30.00 1.29 20.00 18.29 12.69 9.09 0.72 1.55 60.98 11.16 29.04 64.71 2.23 15.15 2.10 0.00 0.00 9.00 18.95 * 2.65 4.55 20.19 13.38 35.61 2.66 19.00 0.00 0.00 2.69 0.00 0.00 33.67 4.33 3.09 8.93 27.59 4.04 10.26 0.00 8.39 38.46 4.59 1.82 45.00 7.92 1.60 12.65 6.61 1.92 33.33 751 11.21 61.90 2.97 20.63 2.40 9.28 22.30 9.61 2.19 20.37 5.63 4.82 2.90 16.33 2.82 37.24 37.86 23.18 1.34 1.61 • 34.29 20.00 1.47 29.41 1.92 19.02 19.05 11.47 1.00 1.85 7.41 5.78 10.81 2.97 4.00 0.00 0.00 0.00 7.49 • 2.51 31.82 2.94 23.40 12.68 8.57 53.09 35.45 1.89 27.37 1.00 27.45 0.00 0.00 0.00 * 3.80 1.72 11.11 8.77 33.33 * 58.33 2.67 • 16.38 43.75 2.61 29.63 41.26 * 1.22 * * 5.75 0.00 11.81 0.00 0.00 13.24 1.42 10.18 0.56 3.13 5.56 5.97 8.23 23.08 5.94 1.16 6.90 3.88 14.29 2.52 23.33 9.25 • 19.64 11.90 2.57 1.66 11.19 18.60 11.84 0.00 0.00 1.83 Hisp . Denial Rate 10.53 26.32 B/Black lack .Hisp toWhite Denials 1.38 2.36 • 26.32 30.82 38.46 21.43 0.00 • * 35.00 44.44 26.19 40.00 20.68 21.88 12.21 8.82 . 25.00 * 18.75 42.11 * * * 52.94 22.22 25.00 30.77 * 0.00 30.00 1.60 2.54 1.48 2.59 0.00 29.41 2.64 . 13.21 2.34 0.00 6.05 3.90 3.13 2.91 1.27 3.13 * 2.18 33.33 11.22 2.19 1.19 * * * 1.28 1.88 2.46 3.74 * 0.00 2.53 546 The National Community Reinvestment Coalition 202-986-7898 II.A.3 TABLE 21 22 WORST :DENIAL 1993 -1990 LENDERS RATIOS .A.3 II TABLE 1993 Black / .Hisp Denial Rate 14.45 38.46 7.40 12.14 11.36 11.92 3.60 9.68 6.67 31.82 1992 1991 1990 / Black . Hisp Denial Rate 6.67 9.46 8.43 20.35 5.97 12.50 3.45 Black / Hisp . Denial Rate 66.67 10.08 27.91 16.00 14.00 16.67 9.68 / Black . Hisp Denial Rate * 14.75 14.29 0.00 34.78 • • 25.00 • 41.18 34.09 45.39 / Black White White . Hisp toWhite Denial Denial Rate Denials Rate 1.60 3.80 4.16 1.33 7.09 1.38 6.15 1.37 7.12 18.64 7.76 2.69 6.92 11.31 7.79 1.80 2.40 4.18 2.49 8.59 1.66 14.29 794 2.13 5.88 6.12 1.49 1.72 2.32 16.37 17.29 1.57 25.71 38.84 14.77 18.66 2.08 28.48 • 4.69 3.82 6.92 0.68 1.71 2.65 3.02 4.55 7.41 6.15 21.51 3.50 20.45 * 17.20 1.19 7.48 4.46 33.33 8.90 2.70 28.07 10.38 10.04 8.65 28.57 5.68 3.30 7.65 11.19 3.56 27.27 4.78 36.68 7.67 3.79 1.32 9.75 11.71 12.82 17.74 1.25 14.32 22.22 1.88 27.78 14.77 15.06 1.96 32.95 16.80 28.54 17.06 2.51 26.79 42.86 21.91 9.09 0.42 36.23 15.88 12.14 2.98 2.24 15.95 7.99 17.86 12.17 2.47 25.00 10.13 31.25 13.46 2.32 * 7.92 3.98 1.81 7.21 4.19 14.29 6.98 37.04 • 33.77 50.00 35.14 42.00 45.08 • 31.58 * 13.33 / Black Hisp White . toWhite Denial Denials Rate 17.56 • 2.57 7.30 8.14 3.92 0.00 2.06 21.64 1.51 11.76 3.35 • 2.10 • 16.67 8.37 2.72 5.62 • 2.55 44.12 11.54 30.39 1.68 24.77 1.71 21.02 48.70 3.85 3.74 2.31 · 5.00 • 14.37 3.80 • 3.17 31.82 6.43 7.70 43.75 4.47 • 9.28 13.41 13.07 3.59 0.00 12.15 3.32 50.00 22.36 1.58 100.00 3.73 22.22 23.23 • 17.35 3.46 55.00 18.00 1.98 1.83 22.22 19.15 . 2.33 10.08 18.45 4.07 3.18 Black / .Hisp toWhite Denials • 5.74 1.76 0.00 1.61 . • 2.99 • 3.57 1.12 2.16 8.06 31.03 • • 19.23 1.34 . • • 18.52 2.88 * • 66.35 4.95 36.36 2.78 . • 36.36 2.99 2.37 53.03 1.50 33.33 0.00 3.00 52.00 3.18 57.14 • • 1.87 35.71 2.65 26.70 1.51 6.12 • • 547 The National Community Reinvestment Coalition 202-986-7898 White NAME MSA Rate MITCHELL COMPANY MORTGAGE Houston Washington 0.68 UNION CREDIT FEDERAL NAVY Chicago COMPANY MORTGAGE NBD NVR MORTAGE Oakland Oakland PIB COMPANY MORTGAGE 10.46 PRINCIPAL CO INS LIFE MUTUAL Chicago 4.02 PROVIDENT York New SAVINGS BANK 6.23 B SAVINGS FEDERAL REISTERSTOWN Baltimore 2.52 Detroit REPUBLIC BANK 3.80 BANK SAVINGS ROOSEVELT York New 11.21 CORPORATION Anaheim MORTGAGE RSL 20.51 -BRAHAM BANK AMERICAN RURAL Riverside SHELTER MORTGAGE CORPORATIONChicago Detroit 1.53 MORTGAGE ONE SOURCE Tampa 13.64 MORTGAGE ONE SOURCE SA FEDERAL CALIFORNIA SOUTHERN Anaheim 14.97 STATE BANK SAVINGS Phoenix 4.37 CORP Oakland MORTGAGE NATIONAL SUNBELT 8.90 . CO TRUST MAWR BRYN THE Philadelphia 2.41 COLONIAL THE BANK 3.95 Louis St. COMPANY Chicago TRUST THE NORTHERN 3.87 THE C MORTGAGE HOME PRUDENTIAL Atlanta THE C MORTGAGE HOME PRUDENTIAL Anaheim 15.81 Dallas C MORTGAGE HOME PRUDENTIAL THE 24.14 New York THE C MORTGAGE HOME PRUDENTIAL 15.54 THE PRUDENTIAL C MORTGAGE HOME Boston 11.32 Phoenix THE C MORTGAGE HOME PRUDENTIAL 19.21 THE PRUDENTIAL C MORTGAGE HOME Philadelphia 11.37 C MORTGAGE HOME PRUDENTIAL THE Houston 27.17 C MORTGAGE HOME PRUDENTIAL THE Oakland 9.66 THE PRUDENTIAL C MORTGAGE HOME -Suffolk 12.66 Nassau . CO MORTGAGE WEYERHAEUSER Riverside 6.41 WEYERHAEUSER Anaheim CO .MORTGAGE 5.40 Black / .Hisp toWhite Denials 0.38 10.88 11.36 3.98 2.85 7.46 23.91 3.21 2.31 24.18 3.02 1.82 1.89 4.76 3.14 2.52 28.30 1.37 28.13 37.69 25.43 1.48 4.39 10.67 2.43 6.25 4.08 0.26 2.37 35.48 4.88 1.12 1.09 4.37 10.53 1.69 20.98 5.42 1.76 16.43 9.32 1.36 21.43 0.44 10.72 1.67 25.94 16.13 1.42 1.66 22.90 2.01 0.31 8.50 1.31 12.66 1.23 15.57 1.86 11.93 2.27 12.28 WORST LENDERS 1990 M : INORITY 1993 -APPROVAL RATES 1993 Name MSA MORTGAGE PACIFIC ALL COMPANY Oakland SAVINGS FEDERAL Atlanta ALLATOONA BANK San MORTGAGE RESIDENTIAL AMERICAN Diego BARCLAYS AMERICAN MORTGAGE 561 COR Houston MORTGAGE B.F.SAUL COMPANY Baltimore . CORP MORTGAGE HOME CHASE Nassau -S2.84 %15846 24uffolk .91 306 Los CHASE MORTGAGE HOME Angeles . CORP MORTGAGE HOME CORP York New .CHASE MORTGAGE HOME .CHASE CORP Washington MORTGAGE HOME .CHASE CORP Chicago 2798 SERVICES CONSUMER Dallas U.S. CHASE 468 Baltimore 579 F.S.B. CITIBANK COUNTRYWIDEPhiladelphia FUNDING CORPORATIO D/BTLAN CORP SERVICE Atlanta AEAGLE 888 CORPORATION FINANCIAL Atlanta ENTRUST 1200 Minneapolis1374 Detroit 2383 Tampa 704 Philadelphia Boston 916 1845 Louis St. Riverside 1132 MORTGAGE GN Oakland 831 GN MORTGAGE Anaheim 773 Los Angeles MORTGAGE GN 2581 COMPANY MORTGAGETampa GREENTREE LP 623 COMPANY Dallas MORTGAGE GUARDIAN 2067 &FINANCIAL MORT .HEIGL CORP Minneapolis 3110 SAVINGS FEDERAL St. MHOME OF BANK Louis 2910 BANK SAVINGS INDEPENDENCE York New 1071 COMPANY B.NUTTER &JAMES Louis St. 920 CORPORATIONSt. MORTGAGE KNUTSON Louis 887 CORPORATION SERVICE LINCOLN Tampa 366 CORP FINANCE AMERICA LOAN Anaheim 1140 SAVINGS FEDERAL LINE MAIN BANK Philadelphia 2924 213 2886 1557 38 2154 109 1726 147 7 37 5247 134 52 50 5 126 32 6347 191 15 192 38 27 374 19 57 34 30 65 10 29 13 85 31 3.05 %7.69 % 1.03 %7.46 % 1.06 1991 1992 Black / HBlack ./isp MSA / Black HBlack ./Misp SA %oHisp Industry f Hisp Total .Total . Average Aprvs Aprvs %1126 1%6.57 743.48 125 66 11503 %5.46 949 820.82 85 084 12110 %7.38 2.23 132 % %4.46 7253.51 87 6.34 9%11592 .53 101 434 67 33 %310.40 2.44 097 21 %318.31 5.06 053 163 %1265.31 8.52 008 1%4.22 34 4.81 613 118 %11.50 540.23 40 %93.53 6.39 41 16 377 %1728.12 2.55 193 %15.86 770.82 183 %4.17 022 20.82 %10.52 0.36 043 5.29 358 .15 3130 %6% %74.55 53 422.69 %37.12 3.01 232 66 3%1.64 92 8 2.05 65.94 469 43 %613.52 296.03 %16.96 34 127 %153.48 4.57 84 23 11.37 %3.49 091 44 14.49 %30.40 024 412 * • * 1%2.76 0.23 344 101 15 2%.52 11.09 %2738 36 6.94 %168.31 6.07 45 38 1.09 6%4.94 68 3 % 3.27 04 8 67.94 % 1.14 %3791.69 5 3.55 %615 38 11.37 %2265 14 7.12 1990 / Black 4.07 %11.93 9%4.67 .00 5%2.53 .35 6.45 %9.48 9%33.09 2.46 .22 1%0.71 .38 5%1.31 %71.28 .24 1%6.18 0.29 %50.62 .97 Black / %oIndustry Total f Hisp . Aprvs Average Aprvs 152.48 %5.87 18 94.97 %4.48 76 %125.28 0.76 022 241 850 501 %21.91 97.80 09 %17.47 5.34 859 2.58 %513.17 09 8%2.11 1912.32 90.74 %2.09 44 94.69 %3.00 21 2.03 %54.97 14 * 91.48 %4.10 328 10.00 %5.22 43 37.24 %79 721 398 1509 % 5.89 157.47 81 5%0.64 5.38 32 %318 5.38 300 * 1022 MSA .Hisp 36 89 7 36 8 13 128 32 28 10 18 13 * 85 1 634 1463.57 % 3.87 %728.24 4.86 81 .97 52145 % 2.04 169 %1292.69 2.74 5%2.93 046 141.38 0.42 %27108 13.60 04 3.94 1%3122.48 36 1%4.03 53 80.29 38 490 1214 27.80 %13.62 17 25 3 15 37 24 6 9 * 6 1%4.41.304 %13.64 2.90 1%4.24 1.87 7.57 %1.60 %30.68 1.43 16.29 %6.79 % 6.40 4.51 % %1.89 * 4.10 %12.22 1%5.61 1.87 3.14 %%7.97 13.16 % % 13.16 1.67 %0.18 3.86 %8.43 %9.43 2.85 7.97 6.69 % %15.19 3.57 %11.44 4.45 30.68 %14.36 %9.43 4.49 %12.22 3.47 .67 1%0.75 60.99 %.18 %26.37 3.30 6.18 % % 6.18 9%3.00 .43 %7.97 0.59 Black / of Hisp Total %Industry . Aprvs Average Aprvs %6.9 125.1 235 9 17 % %13.5 4173.1 107 6 28 6.83 * * * % 384 14 3.65 * . %26.89 13.30 701 110 357 24 % 3.14 55 22 2.91 %715.00 % 143 0 0.00 231 24 * * * % 307 13 4.23 747 35 286 1 % 1071 31 2.89 216 6 280 3756 %% 1.04 46.02 16 61.18 %3.92 061 62 272.24 %15.34 61 187 • * 478 35 * * % 259 12 4.63 %10 2.00 500 · 770 13 295 11 . • • * * • • * • %221 16 11.44 343 7 Black .H/Misp SA %of Industry Average Aprvs %16.34 7.62 14.01 % 11.74 % % 12.34 % 13.66 9.07 % 34.05 % %25.87 6.47 6.72 %18.01 18.04 % % 10.46 10.39 %13.66 % 9.91 14.01 % 14.01 % 4.69 10.35 %.76 % 6.64 %9.72 2.78 .91 9%7.45 %425.97 4.06 %8.39 5.84 %24.26 24.57 % 16.34 %17.32 3.55 34.05 % % 9.72 % 10.46 % 1.76 .39 8%1.69 2%5.87 3.73 % 8.39 % 8.39 % 9.72 1%7.24 3.55 %9.91 2.04 548 The National Community Reinvestment Coalition⚫ 202-986-7898 II.A.4 TABLE 23 24 TABLE .A.4 II 1993 38 81 67 60 76 20 173 5.76 % 793 15 101 3.21 % 214 50 2.30 %4475 103 % 7.16 / Black HBlack ./isp MSA Total o%f .Hisp o%f Industry Average Aprvs Aprvs %.67 11.30 070 27 %2.22 10.61 9%5.52 .43 %75.35 5.24 62 31 % 23.30 % 1%5.99 7.47 332 23 6.93 7.86 % % %42.10 .07 654 35 5.35 %12.22 2.13 %93.09 1.30 28 7 %13.64 0.44 %229 1 11.93 10.72 %16.79 080 2223 %13.17 831 31 %12.32 2.19 27 42 %182.48 4.12 7.89 %172.48 02 75 14.47 %5.00 61 43 1%92.32 2.80 % 23.30 % %373 25 6.70 17.47 59.00 %16 10 %8.43 2.18 284 28 1.57 % 41.63 %349 19 17.47 %1253 82 10.29 620.42 %39 79 1%5.00 2.73 %880 24 12.32 % 8.43 % %49.57 38 40 4.26 2.21 % 9.43 % 7.24 %67.50 09 34 5.58 % 11.44 * 10.29 . %6.97 * % % 7.86 %.07 942 51 5.41 40.76 % 15.19 % 12.48 514 30 5.84 %5.67 % % 7.97 1.90 5%2.16 4.97 74 9 % 6.18 % 0.38 52.38 %0.91 63 1 %5.00 114.66 1%2.32 655 96 9.97 13.16 % % 6.37 %96.48 55 29 4.43 11.44 % 0.29 378 7 % 1.85 1%3.07 % 2.87 .09 209 6 2.81 9% 9%1317.47 67 4.85 4%0.00 .02 20.71 %.69 194 0 • 4.07 %2.15 • %.97 52.19 44 9 1%5.19 461.93 382 13 5.19 %11.87 31%151.88 75 7 2.48 % 7.57 % 5.35 * • • %22.24 20.76 16.25 103 %20.42 660 137 % 10.29 % 758 26 3.43 Black / HBlack ./isp MSA oIndustry Total . %f Hisp Aprvs Average Aprvs 3%1.52 254 20 0.76 103 59 74.04 %1.69 19.15 %%58.31 01 30 3.17 %1737.97 764 1.65 %10.23 844 11 1%3.43 3.51 567 14 2.47 % 15.31 4449 383 8.61 %11.07 % 463 76 2.53 %134.81 5.90 %1353.48 164 48 %1141 90 13.48 5.81 181 %13115 24.81 254 63 % 08 42 5.20 1%85.56 8.31 % 087 28 2.58 1%9.53 2.80 1.15 722 28 6%133 1.48 % 45 26 5.84 %148.31 6.25 % 1%46303 5.52 1.37 74 5.68 %26.03 . 15.64 * • %61 3.99 1%4.32 4.81 528 2.74 %61.15 899 42 73 73 %97.69 4.71 1.37 502 35 1%3.31 75.48 %5.97 156 29 4 2847 17.15 %783 56 73.48 23 41 2.64 %1289 720 34 9.12 28 6%1.16 8.94 77 14 1205 183 1%2187 836 14.81 4.81 324 10.82 %1068 68 84 21 3.76 %16231 1.37 6144 144 %1917 2.30 40.23 63 13 % 24616 5.57 1431 8.31 118 257 1.21 %3526.05 63 4 1.89 %7.97 465 10 7.12 2012 44 % %167 83.51 87 3.47 1929 14.40 %269 6107 73.48 96 % 5.91 % 2115 44 2.00 21.66 %266.03 34 11.37 % 1990 / Black HBlack ./isp Total Hisp Industry . Aprvs Aprvs Average 1714 18 215 %12 5.58 . · %1 0.70 142 % 222 21 9.46 · · 1141 156 1.69 %185.00 98 18 00 41 5.08 %155.19 %125.19 10.68 69 30 * # % 89 3 1.59 1%1.87 1.94 * . % 01 10 2.49 %3.30 425.44 52 29 8.24 3%11.44 % 6.54 %62.24 212.36 52 77 % 594 20 3.37 · * . • % 319 21 6.58 • · • * % 342 22 6.43 • • % 461 35 7.59 % 287 21 7.32 • • % 3.13 212.22 %24 7 % 71 62 7.12 27.20 %83.30 %2.53 158 4 %01.77 %130 7.86 7%1.65 3.97 36 % 2.38 52 6 %123.64 3.40 • * . % 491 18 3.67 664 129 % %730 46 6.30 11.44 MSA %of Industry Average Aprvs %1.76 1.05 % 9.72 % 25.87 % 6.50 % 10.46 % 12.34 %18.01 13.67 %8.04 12.00 6.34 1%8.20 11.15 %16.34 % 18.04 % 25.87 % 13.66 % 6.64 25.87 % % 13.55 11.81 %24.26 % 18.04 % 6.64 9.72 % 13.55 % % 6.50 % 16.34 % 9.91 % 8.39 % 18.04 % 14.01 % 13.55 % 10.46 % 25.87 % 4.97 % 6.50 %912.91 3.57 % 12.34 16.34 % % 9.07 %4.26 219.43 13.55 % 549 The National Community Reinvestment Coalition 202-986-7898 MSA CMARGARETTEN & OMPANY Minneapolis MARGARETTEN &COMPANY 1533 Tampa York New &COMPANY MARGARETTEN 612 Phoenix MELLON COMPANY MORTGAGE 2021 MERCANTILE &TRUST BANK Dallas 1274 MITCHELL COMPANY MORTGAGE Houston 466 Washington 5430 UNION CREDIT FEDERAL NAVY Chicago Oakland 593 822 Oakland PRINCIPAL CO INS LIFE MUTUAL Chicago PROVIDENT BANK SAVINGS York New 701 REISTERSTOWN FEDERAL B SAVINGS Baltimore 1431 Detroit REPUBLIC BANK 9011 ROOSEVELT BANK SAVINGS York New 608 RSL MORTGAGE CORPORATION Anaheim 833 Riverside 518 RURAL -BRAHAM BANK AMERICAN SHELTER CORPORATIONChicago MORTGAGE 1552 Detroit SOURCE MORTGAGE ONE 2189 Tampa SOURCE MORTGAGE ONE 1613 SOUTHERN SA FEDERAL CALIFORNIA Anaheim 605 BANK Phoenix STATE SAVINGS MORTGAGE CORP SUNBELT NATIONAL Oakland THE BRYN . CO TRUST MAWR Philadelphia BANK THE COLONIAL Louis St. THE COMPANY Chicago TRUST NORTHERN 3003 THE C MORTGAGE HOME PRUDENTIAL Atlanta THE C MORTGAGE HOME PRUDENTIAL Anaheim Dallas THE C MORTGAGE HOME PRUDENTIAL York New THE C MORTGAGE HOME PRUDENTIAL 2157 THE C MORTGAGE HOME PRUDENTIAL Boston MORTGAGE C THE HOME PRUDENTIAL Phoenix THE C MORTGAGE HOME PRUDENTIAL Philadelphia 3148 THE C MORTGAGE HOME PRUDENTIAL Houston THE C MORTGAGE HOME PRUDENTIAL Oakland MORTGAGE CPRUDENTIAL THE HOME Nassau -Suffolk Riverside 988 Anaheim 698 .Hisp Total Aprvs 3680 28 62 56 64 21 16 601 117 4630 % 69 8.39 39 40 1991 1992 /Black HBlack ./isp MSA Name RATES APPROVAL :MINORITY 1993 WORST 1990 LENDERS -- 1993 NAME MSA MORTGAGE PACIFIC ALL COMPANY Oakland ALLATOONA FEDERAL BANK SAVINGS Atlanta San MORTGAGE RESIDENTIAL Diego AMERICAN BARCLAYS MORTGAGE AMERICAN COR Houston COMPANY MORTGAGE B.F.SAUL Baltimore MORTGAGE HOME SNassau -6.99 CORP .CHASE %973 168uffolk 110 1561 6.13 CHASE MORTGAGE HOME . CORP York New Los MORTGAGE HOME Angeles .CHASE CORP MORTGAGE HOME .CHASE CORP Chicago MORTGAGE HOME Washington .CHASE CORP 1937 10.56 11.46 21240 689 131 5.31 %222 10.74 746.02 7.4 CONSUMER U.S. CHASE SERVICES Dallas Baltimore CITIBANK F.S.B. COUNTRYWIDE Philadelphia FUNDING CORPORATIO 12.83 %5534 1487 5.72 1710 85 7.00 2298.88 4.69 414 CORP SERVICE D/BAEAGLE TLAN Atlanta CORPORATION FINANCIAL Atlanta ENTRUST CAPITAL FEDERAL FIRST CORP Minneapolis 18.26 21413 4.22 18.64 %258 11.74 11099 558 129 7.1 104 BANK NATIONWIDE FIRST Detroit Tampa Philadelphia Boston Louis St. Riverside MORTGAGE GN Oakland MORTGAGE GN Anaheim GN MORTGAGE Los Angeles COMPANY MORTGAGE GREENTREE LP Tampa GUARDIAN MORTGAGE COMPANY Dallas FCORP & INANCIAL MORT .HEIGL Minneapolis SAVINGS FEDERAL St. Louis OF BANK MHOME INDEPENDENCE SAVINGS BANK York New &COMPANY B.NUTTER JAMES Louis St. CORPORATION MORTGAGE KNUTSON St. Louis CORPORATION Tampa SERVICE LINCOLN AMERICA FINANCE LOAN CORP Anaheim Philadelphia SAVINGS FEDERAL LINE MAIN BANK &COMPANY MARGARETTEN York New &COMPANY MARGARETTEN Tampa &COMPANY MARGARETTEN Minneapolis 3835 MELLON COMPANY MORTGAGE Phoenix MERCANTILE &TRUST BANK Dallas Houston COMPANY MORTGAGE MITCHELL 1992 / Low /Low Mod MSA Mod .Total o%f Apps /Low Low Mod / Mod . Total Industry Average Apps 1178 %121 12.39 1146 6.79 1190 18.83 %1056 1561 294 22.62 170 % 7.05 15.60 %1891 1543 2295 192 3.86 430.39 * 770 %35.58 * • 1991 MSA /Low Mod / Low .%of Mod Total Industry Apps AverageApps 10.17 %1555 652.69 11.71 % 105 16.10 %2519 0.69 20.23 % 2576 % 223 8.66 5266 1.88 % 15.50 14.66 2%1677 1487 2.96 218 77 1260 8.77 8.48 908 1990 / Low MSA Total Industry %of Mod . AverageApps Apps 12.89 242 25 28.83 468 98 3174 1% 5.17 7.27 8.10 169 257 2324 3.22 11.81 • • 2.23 %01853 4608 6.6 .66 19 8.32 20.2 * . 25.42 * · 7.43 %112.94 5.68 462 39 43579 1.32 1.33 %63841 32 2431 1.85 92104 51 7.57 .07 .24 1970 28 39 1.09 %1928 21 .07 3.59 • • 01414 1.00 1.41 901085 .88 10.31 1740 12.13 %2150 299 2901 2.74 15.15 211 4.67 2.79 827 990 489 58 0%520 30639 2.58 .16 1.48 25.26 175 0 1279 .00 8.91 10.24 %1259 14.33 968.77 670 6.90 576 478 2.96 2%335.42 267 17 22.69 . 28.83 322 34 912 * %1235 12.63 2156 12.28 112 0.69 2.62 * 17.17 212 1235 2.62 28.83 942 125 17.93 %12.05 22133 257 0.69 1567 281 29.5 286 56 23718 5.26 327 2518 6.79 1133 312.18 453 2.07 %12.99 10.71 194 1812 27 3738 244 %12.47 12.30 14.79 26146 496 920.39 5.12 311 7.85 4075 336 14.26 4328 4.69 %26755 9.24 9.48 963 1400 2.69 8.88 2364 224 1217 985 7.82 35.38 %9.32 53 440 8.45 2841.69 1.28 671 53 12.44 2.95 12.73 %2138 1084 9.05 1096 203 8.68 1051 1279 111 0.65 0.91 6.4 848 75 %14.76 2.64 2150 796 . 7.68 73 16.55 6.79 3.55 718 950 %15 47 2.69 422 2.89 %13.04 568 29 6.34 120 1056 1557 8.93 %11.41 1139 5.67 1052 678.73 4.50 %9.88 * %4.44 6.53 14304 224 3429 2002 191 903.59 1.41 27.91 %7.85 295 14 3725.12 468 25.26 520 20 % 7.45 120 5.90 % 22111 5.68 1.48 1373 181 8.91 56 752 %29.5 10.23 3174 8.60 4.22 %273 7.00 122101 147 430 447.1 % 29.05 844 154 15.54 %13.68 3051 474 22983 2.95 3.86 15.98 408 277 1733 %9.07 459 15 3.38 53 735 .24 1456 .57 800 27 %63.64 3.78 926 %29.05 * 17.11 14.51 1006 3.86 146 %2468 5.98 91282.95 532 * 216.81 %9.05 • 13.95 %925 3.86 129 14.74 2753 59 351 2.95 111 20.05 %27.85 • • 34500.39 15.11 2509 5.12 %68 15.72 80 73 364 • • 13.04 383 25 %11266 11.93 151 6.00 5.67 • 816 498.73 1084 %22.69 390 32 5.63 61 3078 2296 4.69 4.26 % 9.62 2417 1103 8.88 347 13 %9.07 * 3.75 • 650 .24 %2.15 6714 .57 2.67 524 566 %7.85 242 9 14 22.47 11.83 3975.12 0.39 197 1219 %21665 7.96 2096 431 1874 61 2.91 % 2 9.5 1127 10.00 %29.39 213390 4.22 339 7.1 740 64 8.65 %21.93 177 6 2149 3.11 12066 7.21 %1863 3.38 635.49 2.10 36 334 % 7 258 2 5.26 4.87 % 23.49 63 1.48 130 8.91 1294 859 4.17 %20.2 240 10 552 7.25 40 8.32 %1577 5.55 326.6 / Low Mod MSA %of Industry Average Apps 10.33 %15.7 %26.73 20.94 11.04 17.27 . 27.11 . 28.44 %4.08 %12.02 1.42 8.63 • 10.16 %2842.98 %26.72 11.86 %21.72 0.00 27.11 % 6.37 26.42 210.56 %6.73 %6.73 213.27 %30.56 19.58 8.56 %97 30.73 % 11.07 23.27 26.42 % 8.25 %19.95 7.90 %32.28 18.52 10.94 % 8.84 15.7 · 11.38 % 5.11 * 8.63 23.27 % 4.75 %21.72 3.85 30.56 • %32.28 18.25 3.27 %12.02 32.28 * 32.28 23.27 * 6.53 %11.38 8.21 %26.42 12.02 %23.27 3.72 23.00 %30.56 %26.87 3.39 13.95 % 21.72 17.27 550 The National Community Reinvestment Coalition 202-986-7898 TABLE . .5 AII WORST LENDERS 1990--1993 :L OWMODERATE I NCOME APPLICATION -AND S 25 26 .A.5 II TABLE :L 1990--1993 LENDERS WORST -I MODERATE AND APPLICATIONS NCOME OW- 1993 MMSA od /Low NAME Low / /Low Mod MSA 2.53 %750 19 7887 24 .24 2.71 % %118.44 716 6.4 * 132 4.10 2978 %122 . • 23.11 576 134 %21255 10.68 3.86 952 81 6770 % 141 2.08 16.79 889 13 % 1.46 664 1070 37 %1986.4 5.57 9.16 % 742 15.09 % 1112 8.73 * • /Low / Low Mod MSA / Low .Industry Total Industry f Mod Total . %oMod Apps AverageApps Apps 18.67 4544 25511 5.31 15.81 337 %1029 15.49 704 2131 7.4 1194 250 6.02 616 10.78 %12.75 1981 9.69 4.67 24832 3692 192 2.79 398 2.74 979 83 7.66 15.87 %6.20 1103 1258 69 2.69 6.79 12.89 500 42 649 78 901 %7.55 7.06 54 6.65 1298 1765 932 62 2.69 12.89 351 43 986.79 4.67 13.39 %2135 15.02 490 3263 11.67 270 2314 1008 2.79 2.74 %408 * 2.94 912.07 * 6.57 21469 12.53 8.26 %8.35 46 184 11114 551 8.77 2.96 207 23 925.42 . 224 17.11 1273 12.27 %13.57 1309 217 322.07 5.26 1769 9380 6.79 5.76 9.07 459 20 %695 6536 % 9.47 740 5.41 29.57 .24 433 41 5.66 %84 1108 8.73 13.04 508 30 154 10.25 %1632 9.44 1054 5.67 1483 5.12 %937 1480.65 869 67 10.91 190 %24.67 626 95 20.70 314 % 21.48 343 21541 20.38 2.79 1597 2.74 918 15.32 2%1939 5.26 969 32.07 • • % 15.69 152 6.79 341 2226 13.00 252 • 268 %15.92 183 27.11 2174 5.12 27.85 * 1052 16.54 1683 30.39 675 13.04 374 11 17.57 %11.68 719 84 608 465.67 8.73 * . 13.18 %1055 139 * % 2.95 17 15.49 21.93 . 6.53 2.89 • 104 % 12.09 1818 860 73 386.79 582 2.69 8.92 14.54 %10.55 74 2509 2.69 967 1102 8.88 369 49 10.44 %2297 8.51 319.05 2.95 • • %213.53 133 18.24 4.67 729 324 13.80 2348 2.79 596 85 2.74 274 2025 1.73 %923.07 1174 24 642.24 .57 1331 %1.42 5508 7119 2.16 2956 0%428 12.89 • • 3.70 12.69 15.68 613 23 * 2434 %15.09 5.87 8.45 7.82 %21.28 204 8 269 11 681 4.09 40 124 513.48 237 8.73 %13.04 * 1.14 3.24 %7317 833 440 295.67 251 76 %25.26 258 3 22156 3.53 %1546 2.38 138.91 1.48 10 3.98 3328 25.62 0.69 28.83 339 10 %759 39 187 311186 2.62 4.08 % 3.29 %654 9.95 19 21985 2.91 983.11 5.49 * * 21.93 181 4 % 22.69 417 16 24 3.66 656 1.75 %1970 8.32 6.6 % 1.88 40 172127 458 20.2 314 8 14 3.06 10.65 771 56 18 2.45 736 % 10.91 % 794 13.04 762 41 15.67 64 8.06 /Low Mod MSA %of Industry Average Apps 220.94 %6.72 2%2.98 8.48 %15.7 8.40 15.7 % 12.25 22.98 12.02 * % 27.11 11.11 30.73 * % 4.36 12.02 11.38 % 5.91 7.71 %10.94 22.98 % 15.18 30.73 * 23.27 * 11.38 2.94 % 26.87 15.7 26.42 13.28 % 32.28 14.26 % 22.98 12.02 % 2.04 15.7 • 24.08 % 3.75 19.95 % 3.92 * 11.38 21.72 % 1.16 22.95 %6.73 22.21 %6.87 23.84 %6.42 2.55 %17.27 %10.94 7.26 %11.38 5.38 551 The National Community Reinvestment Coalition⚫ 202-986-7898 MSA UNION CREDIT FEDERAL NAVY Washington COMPANY MORTGAGE NBD Chicago MORTAGE NVR Oakland COMPANY MORTGAGE PIB Oakland CO INS LIFE MUTUAL PRINCIPAL Chicago BANK SAVINGS PROVIDENT York New REISTERSTOWN SAVINGS Baltimore BFEDERAL BANK REPUBLIC Detroit New York BANK SAVINGS ROOSEVELT CORPORATION MORTGAGE RSL Anaheim AMERICAN RURAL -BRAHAM BANK Riverside CORPORATIONChicago MORTGAGE SHELTER MORTGAGE ONE SOURCE Detroit Tampa MORTGAGE ONE SOURCE Anaheim SA FEDERAL CALIFORNIA SOUTHERN BANK SAVINGS STATE Phoenix CORP MORTGAGE Oakland NATIONAL SUNBELT Philadelphia 14.27 % 189 21324 4.69 . CO TRUST MAWR BRYN THE THE BANK COLONIAL St.Louis Chicago COMPANY TRUST NORTHERN THE York New C MORTGAGE HOME PRUDENTIAL THE THE C MORTGAGE HOME PRUDENTIAL Oakland Nassau uffolk 6.08 %-S143 MORTGAGE HOME PRUDENTIAL 15.82 2.94 6.13 CTHE 2457 312 5128 Boston HOME PRUDENTIAL CTHE MORTGAGE Anaheim MORTGAGE HOME PRUDENTIAL CTHE Dallas PRUDENTIAL MORTGAGE HOME CTHE THE C MORTGAGE HOME PRUDENTIAL Atlanta Phoenix C MORTGAGE HOME PRUDENTIAL THE Philadelphia 212309 4.69 %3569 4.33 7.45 8.88 100 266 C MORTGAGE HOME PRUDENTIAL THE Houston THE C MORTGAGE HOME PRUDENTIAL Riverside . CO MORTGAGE WEYERHAEUSER Anaheim . CO MORTGAGE WEYERHAEUSER 1990 1991 1992 / Low WORST LENDERS 1990-1993 L : OWMODERATE I -AND NCOME APPROVALS 1993 1992 / Low / Low /Low Mod MSA / Low Mod %oTotal f Mod Total Industry . Mod . Name MSA Aprvs Aprvs Aprvs Aprvs Average MORTGAGE PACIFIC Oakland ALL COMPANY 5.51 1125 104 %1132 11.72 1126 SAVINGS FEDERAL ALLATOONA BANK Atlanta 0.73 985 150 %273 18.16 21503 RESIDENTIAL AMERICAN San MORTGAGE Diego %12886 7.48 216 4.03 2084 127 BARCLAYS MORTGAGE AMERICAN COR Houston 5.31 787 18 %01561 3.53 B.F.SAUL MORTGAGE COMPANY Baltimore 1592 15.01 1.32 209 %2239 1434 MORTGAGE HOME .76 CORP York New 5%2154 .CHASE 1.02 3053 28 22 MORTGAGE HOME -Suffolk Nassau CORP .CHASE 4.6 1306 88 %155846 6.50 Los Angeles MORTGAGE HOME CORP 1557 .CHASE %1122.82 1097 0 0.77 Washington MORTGAGE HOME .CHASE CORP 4.07 1008 87 210.14 175 %1726 Chicago MORTGAGE HOME %21.5 10.19 1613 CORP 187 .CHASE 285 2798 468 1 %18.54 540 1 0.21 SERVICES Dallas CONSUMER U.S. CHASE 0.19 % Baltimore 75 579 F.S.B. CITIBANK %21.32 28 12.95 341 COUNTRYWIDE FUNDING CORPORATIO Philadelphia AEAGLE D/BTLAN Atlanta CORP SERVICE CORPORATION FINANCIAL ENTRUST Atlanta CAPITAL FEDERAL FIRST CORP Minneapolis BANK NATIONWIDE FIRST Detroit 11.46 273 %22383 4.06 3358 336 Tampa CORP MORT UNION .FIRST 704 11.79 %83 24.63 49 453 MORTGAGE CAPITAL GE SERVICES Boston 916 %1292 4.59 426.77 19 Philadelphia 6347 14.10 %3232 895 22.63 258 Louis St. 1845 15.56 %2287 1.1 183 1469 Riverside 1132 8.75 %1995.32 934 39 Los Angeles GN MORTGAGE 2581 171 %3024 6.63 4.33 131 12.82 MORTGAGE GN Oakland 831 64 6.34 %7.70 15.51 584 37 MORTGAGE GN Anaheim 773 95 %1091 12.29 1101 8.05 LP COMPANY MORTGAGE GREENTREE Tampa 25.14 623 32 %4.63 * * * MORTGAGE GUARDIAN Dallas COMPANY 116 2067 &FINANCIAL MORT .HEIGL CORP Minneapolis 257 3110 BANK SAVINGS FEDERAL HOME M OF St. Louis 2910 428 BANK SAVINGS INDEPENDENCE York New 1071 % 2.80 % 305.76 645 17 2.64 CJAMES & OMPANY B.NUTTER St. Louis 2%125 1.1 468 28 920 13.59 CORPORATION MORTGAGESt. KNUTSON Louis 887 119 13.42 %21.1 704 98 CORPORATION SERVICE Tampa LINCOLN 214.21 366 52 %4.63 391 58 CORP FINANCE AMERICA LOAN 11.58 %1140 Anaheim 132 18.05 615 33 BANK SAVINGS FEDERAL LINE MAIN 2265 2912.63 Philadelphia 8.99 263 2924 % &COMPANY MARGARETTEN Minneapolis &COMPANY MARGARETTEN Tampa 10.83 %2166 4.63 1103 83 1533 CMARGARETTEN & OMPANY 52.29 York New % 14.76 501 14 612 COMPANY MORTGAGE MELLON Phoenix 6.63 %2134 2021 0.79 1764 58 1991 MSA %9.24 11.57 %19.12 15.23 2.29 % 13.4 %17.4 14.57 4.79 % 0.92 0.00 %10.57 %25.16 8.63 %21.56 11.59 16.11 8.21 %17.4 12.29 645 25247 %1377 5.30 1732.63 6.67 2888 0.73 %11.71 11.74 104 11193 140 9.12 1200 0.73 %21226 17.00 204 2022 11.18 9.12 1374 1043 17.90 %1246 11.41 25.5 2.86 119 10.01 %22.14 210.82 %2.68 %17.39 6.51 7.98 %16.67 %20.01 12.46 %9.71 4.18 10.57 11.57 %14.93 9.26 22.68 5.61 5.73 %77 1344 16.11 8.54 %8.26 7.00 12101 25.5 2.86 147 14.71 12.56 %22738 1.1 344 0.01 4.79 5.98 %20.01 213.92 %0.01 %22.68 14.83 14.93 % 5.37 %16.67 4.02 23680 2.86 1047 128.45 5.5 321 %3254 9.86 7.52 %22.68 2.79 4.79 % 13.29 %3.05 / Low / Low Mod %oIndustry Total f Mod . Average Aprvs Aprvs 518 61 476 90 12022 1.95 110 5.44 % 6.09 % 1.24 % 241 3 850 67 7.88 % % 1859 28 1.51 %501 6.74 % 11.22 31 6.19 909 0 % 0.00 509 44 8.64 % 891 132 14.81 % 244 0 % 0.00 321 22 % 414 29 7.00 * . • 1328 213 543 97 1634 151 281 41 14.59 % 192 5 2169 202 1046 129 704 20 1490 76 336 12 853 51 379 35 721 48 398 44 204 1509 581 16 532 91 318 49 300 60 * * 1022 52 2070 60 562 14 332 12 % 3.61 654 57 8.72 % 1990 / Low / Low Mod Total Industry %oMod .f Aprvs Average Aprvs MSA %11.72 11.78 %26.15 18.91 10.7 16.69 23.22 7.09 14.21 8.99 25.98 22.21 22.28 6.85 %23.22 19.2 26.15 16.04 %26.15 17.86 %27.28 9.24 %28.07 25.4 2.60 %19.97 %19.2 9.31 %24.35 12.33 2.84 %9.51 %8.99 5.10 %11.72 3.57 5.98 %12.02 %25.4 9.23 %22.28 6.66 %27.28 11.06 %24.35 13.52 %7.09 2.75 %24.35 17.11 15.41 %24.35 %25.4 20.00 12.02 %19.2 5.09 %27.28 2.90 %25.4 2.49 7.09 19.94 223 23 410 81 19.76 % · 1701 384 357 755 143 231 307 747 286 1071 216 616 3756 1061 761 478 259 500 770 295 221 343 1714 215 . 142 • 13 28 • 46 78 0 . 30 76 56 88 25 50 294 191 65 * • 25 14 19 * 130 6 * • • 8 23 371 7 • 4 . %0.76 7.29 % . 5.63 %13 . 9.77 % · * * • 2.82 % MSA %of Industry Average Aprvs %14.36 10.31 23.83 8.56 14.23 0.2415 10.13 22.41 7.42 %24.74 12.89 %20.86 10.33 %18.93 0.00 0.2415 23.04 23.83 %23.83 10.17 19.58 %28.98 8.22 %25.8 %21.11 11.57 8.12 %19.03 7.83 %23.04 %28.99 18.00 %9.23 8.54 7.42 14.36 %9.99 5.23 5.41 %21.11 %18.93 3.80 28.98 %28.99 16.88 12.03 %0.13 28.99 28.99 21.11 %9.99 3.62 26.71 %3.04 21.65 %28.98 3.26 %21.11 10.13 21.89 552 The National Community Reinvestment Coalition 202-986-7898 TABLE II .A.6 27 28 APPROVALS NCOME I -:LENDERS MODERATE AND OWL 1990-1993 WORST .A.6 II TABLE Name MSA 4.71 160 %8.54 1%466 6.44 305.31 2%4.07 17.85 12.14 %562 21.5 4630 15.51 215 5.76 21.32 24.06 5.76 18.05 15.32 21.5 215.12 %4.06 215.44 %4.63 18.05 20.79 15.51 22.63 21.1 21.5 6.15 %4475 14.6 275 20.73 16.77 18.54 20.79 15.31 22.63 12.90 %8.05 5.51 11.85 %113 18.05 %15.32 8.81 / Low !Low Mod Total Industry . %of Mod Aprvs Average %844 3.44 29 4449 657 354 3463 115.51 1164 %5.51 69 % 1141 85 7.45 % 2254 253 11.22 % 808 18 2.23 8.10 %1087 88 1722 202 445 19 % 1303 110 8.44 • • % 1528 310 20.29 1899 240 973 146 502 38 % 529 12 2.27 % 723 63 8.71 % 928 91 9.81 % 877 66 7.53 % 1836 170 9.26 % 2115 104 4.92 % 1068 34 3.18 % 1.03 52431 .76 25 1.73 %4616 80 563 25 % 463 10 2.16 465 15 % 887 14 1.58 % 2012 70 3.48 % 684 19 2.78 796 8 . • . % 634 34 5.36 MSA 16.11 1313.4 %567 5.47 2%5.16 14.77 2%1.56 10.22 15.93 %1.57 11.57 21.56 4.79 17.4 11.73 %22.14 %4.79 4.27 14.93 9.71 21.56 212.64 %2.14 %22.68 15.01 17.57 %4.93 13.05 11.57 16.67 20.01 21.56 11.22 19.12 4.79 %17.39 4.44 16.11 13.23 %3.05 13.4 16.67 14.93 1.01 %11.57 14.93 9.71 Low / /Low Mod MSA Total . Mod Industry f o% Average Aprvs Aprvs %22.28 1.83 328 6 16.69 % 229 10 4.37 % 316 15.19 25.98 2080 % 22.21 1831 164 8.96 11.72 53 % 6.41 827 11.72 % 702 50 7.12 % 22.21 961 128 13.32 7.09 % 373 10 2.68 % 23.22 516 40 7.75 % 28.07 1284 215 16.74 7.09 % 349 24 6.88 12.02 % 1253 66 5.27 9.51 % 639 31 4.85 22.21 % 880 184 20.91 28.07 % 938 145 15.46 25.4 % 609 156 25.62 12.02 . • • 19.94 % 942 115 12.21 % 11.72 514 27 5.25 19.2 % 12.87 474 61 210.65 %4.35 263 28 % 22.21 13.59 655 89 14.21 • • • 26.15 % 655 21 3.21 % 7.09 931 11 1.18 % 2.06 19.97 194 4 22.28 % 2.87 209 6 19.94 • • . 16.69 % 2.09 382 8 19.2 % 544 15 2.76 % 0.26 12.02 378 1 % 0.27 11.72 375 1 12.02 % 758 59 7.78 9.51 % 660 17 2.58 1990 / Low Mod / Low Total o%f Mod Industry . Aprvs Average Aprvs % 222 29 13.06 • • % 1141 224 19.63 % 898 66 7.35 500 42 % 269 32 11.90 • • • • • % 189 22 11.64 • • • % 401 11 2.74 352 24 % 652 45 6.90 % 14.98 594 89 * • • . • • % 2.51 319 8 • • . • · • % 342 41 11.99 % 461 32 6.94 % 491 20 4.07 % 2.79 287 8 % 871 17 1.95 % 4.43 158 7 % 1.34 224 3 % 3.08 130 4 % 1.19 252 3 % 1.79 336 6 . • · • • • % 730 38 5.21 7.23 %48 664 MSA Industry %of Average Aprvs 18.93 14.23 24.74 20.86 1%4.36 8.40 14.36 20.86 10.13 0.2415 25.8 10.13 %9.99 6.82 9.23 20.86 25.8 21.11 9.99 21.89 14.36 23.04 28.99 20.86 22.41 23.83 10.13 19.03 18.93 21.89 14.23 23.04 9.99 14.36 9.99 9.23 553 The National Community Reinvestment Coalition 202-986-7898 / Low / Mod Low . Total Mod Aprvs Aprvs MSA Dallas 1274 TMERCANTILE BANK & RUST Houston COMPANY MORTGAGE MITCHELL Washington 5430 969 UNION CREDIT FEDERAL NAVY Chicago COMPANY MORTGAGE NBD 593 92 Oakland NVR MORTAGE % 822 46 5.60 Oakland COMPANY MORTGAGE PIB % 3115 454 14.57 CO Chicago INS LIFE MUTUAL PRINCIPAL 2.57 %18 York New 701 BANK SAVINGS PROVIDENT % 1431 176 12.30 BSAVINGS Baltimore FEDERAL REISTERSTOWN % 9011 1186 13.16 Detroit BANK REPUBLIC % New York 608 25 4.11 BANK SAVINGS ROOSEVELT % Anaheim 833 83 9.96 CORPORATION MORTGAGE RSL 19.50 %101 Riverside 518 BBANK - RAHAM AMERICAN RURAL % 1552 327 21.07 CORPORATION MORTGAGE SHELTER Chicago 331 Detroit 2189 MORTGAGE ONE SOURCE 249 1613 Tampa MORTGAGE ONE SOURCE % 11.24 SA 605 68 FEDERAL Anaheim CALIFORNIA SOUTHERN % 2847 113 3.97 Phoenix BANK SAVINGS STATE % 783 89 11.37 CORP MORTGAGE NATIONAL SUNBELT Oakland % Philadelphia 1289 179 13.89 .BRYN CO TRUST MAWR THE % 127 10.54 1205 Louis St. BANK COLONIAL THE %2187 12.89 282 COMPANY TRUST NORTHERN Chicago THE -Suffolk CPRUDENTIAL Nassau MORTGAGE HOME THE % 146 4.86 3003 C Atlanta MORTGAGE HOME PRUDENTIAL THE York New C MORTGAGE HOME THE PRUDENTIAL 104 % 2157 4.82 Boston C MORTGAGE HOME PRUDENTIAL THE %67 3.50 1917 C Dallas MORTGAGE HOME PRUDENTIAL THE %73 9.21 793 CHOME Phoenix MORTGAGE PRUDENTIAL THE % 1929 31 1.61 CHOME Houston MORTGAGE PRUDENTIAL THE % 212 CPRUDENTIAL Philadelphia 3148 6.73 MORTGAGE HOME THE CMORTGAGE 6144 178 HOME PRUDENTIALAnaheim THE C MORTGAGE HOME Oakland 6107 PRUDENTIAL THE % 698 100 14.33 .MORTGAGE Anaheim CO WEYERHAEUSER Riverside 988 87 .MORTGAGE CO WEYERHAEUSER 1991 1992 1993 554 SECTION II : THE WORST LENDERS IN AMERICA 1990 -- 1993 DATA TABLES BY MSA The National Community Reinvestment Coalition 202-986-7898 29 555 TABLE II. B.1 MSA WORST LENDERS: 1990-1993 AGENCY TYPE OF INSTITUTION LENDER Anaheim GN MORTGAGE LOAN AMERICAFINANCE CORP Anaheim RSL MORTGAGE CORPORATION Anaheim Anaheim SOUTHERN CALIFORNIA FEDERAL SA THE PRUDENTIAL HOME MORTGAGE C Anaheim WEYERHAEUSER MORTGAGE CO. Anaheim Atlanta ALLATOONAFEDERAL SAVINGS BANK Atlanta EAGLE SERVICE CORP D/B/A ATLAN Atlanta ENTRUSTFINANCIAL CORPORATION THE PRUDENTIAL HOME MORTGAGE C Atlanta B.F.SAUL MORTGAGE COMPANY Baltimore CITIBANK F.S.B. Baltimore Baltimore REISTERSTOWN FEDERAL SAVINGS B Boston GE CAPITAL MORTGAGE SERVICES Boston THEPRUDENTIAL HOME MORTGAGE C CHASE HOME MORTGAGE CORP. Chicago NBD MORTGAGE COMPANY Chicago PRINCIPAL MUTUAL LIFE INS CO Chicago SHELTER MORTGAGE CORPORATION Chicago THE NORTHERN TRUST COMPANY Chicago Dallas CHASE U.S. CONSUMER SERVICES Dallas GUARDIAN MORTGAGE COMPANY Dallas MERCANTILE BANK & TRUST Dallas THE PRUDENTIAL HOME MORTGAGE C Detroit FIRSTNATIONWIDE BANK Detroit REPUBLIC BANK Detroit SOURCE ONE MORTGAGE Houston BARCLAYS AMERICAN MORTGAGE COR Houston MITCHELL MORTGAGE COMPANY Houston THE PRUDENTIAL HOME MORTGAGE C Los Angeles CHASE HOME MORTGAGE CORP. GN MORTGAGE Los Angeles Minnesota FIRSTFEDERAL CAPITAL CORP Minnesota HEIGL MORT. & FINANCIAL CORP. Minnesota MARGARETTEN & COMPANY Nassau-Suffolk CHASE HOME MORTGAGE CORP. Nassau-Suffolk THE PRUDENTIAL HOME MORTGAGE C CHASE HOME MORTGAGE CORP. NewYork NewYork INDEPENDENCE SAVINGS BANK New York MARGARETTEN & COMPANY NewYork PROVIDENT SAVINGS BANK New York ROOSEVELT SAVINGS BANK New York THE PRUDENTIAL HOME MORTGAGE C Oakland ALL PACIFIC MORTGAGE COMPANY Oakland GN MORTGAGE Oakland NVR MORTAGE Oakland PIB MORTGAGE COMPANY Oakland SUNBELT NATIONAL MORTGAGE CORP Oakland THE PRUDENTIAL HOME MORTGAGE C Philadelphia COUNTRYWIDE FUNDING CORPORATIO GE CAPITAL MORTGAGE SERVICES Philadelphia Philadelphia MAIN LINE FEDERAL SAVINGS BANK THE BRYN MAWR TRUST CO. Philadelphia 30 3 7 4 4 7 7 4 4 7 7 4 4 4 7 7 1 2 7 3 2 2 7 4 7 4 3 7 2 7 7 1 3 4 7 7 1 7 1 3 7 4 3 7 7 4 7 2 4 7 7 7 4 3 Bank Related MortgageCompany Independent Mortgage Company Bank Related Mortgage Company Commercial/Savings Bank Independent Mortgage Company Independent Mortgage Company Commercial/Savings Bank Bank Related Mortgage Company Independent Mortgage Company Independent Mortgage Company Bank Related Mortgage Company Commercial/Savings Bank Commercial/Savings Bank Independent Mortgage Company Independent Mortgage Company Bank Related Mortgage Company Bank Related Mortgage Company Independent Mortgage Company Bank Related Mortgage Company Commercial/Savings Bank Bank Related Mortgage Company IndependentMortgage Company Commercial/Savings Bank Independent Mortgage Company Commercial/Savings Bank Commercial/Savings Bank Independent Mortgage Company Bank Related Mortgage Company Independent Mortgage Company Independent Mortgage Company Bank Related Mortgage Company Bank Related Mortgage Company Bank Related Mortgage Company Independent Mortgage Company IndependentMortgage Company Bank Related Mortgage Company Independent Mortgage Company Bank Related Mortgage Company Commercial/Savings Bank Independent Mortgage Company Commercial/Savings Bank Commercial/Savings Bank Independent Mortgage Company Independent Mortgage Company Bank Related Mortgage Company Independent Mortgage Company Bank Related Mortgage Company Bank Related Mortgage Company Independent Mortgage Company Independent Mortgage Company Independent Mortgage Company Commercial/Savings Bank Commercial/Savings Bank The National Community Reinvestment Coalition 202-986-7898 556 TABLE II. B.1 MSA Philadelphia Phoenix Phoenix Phoenix Riverside Riverside Riverside San Diego St. Louis St. Louis St. Louis St. Louis St. Louis Tampa Tampa Tampa Tampa Tampa Washington Washington WORST LENDERS: 1990-1993 LENDER AGENCY TYPE OF INSTITUTION 7 Independent Mortgage Company THE PRUDENTIAL HOME MORTGAGE C 2 MELLON MORTGAGE COMPANY Bank Related Mortgage Company 4 Commercial/Savings Bank STATE SAVINGS BANK 7 Independent Mortgage Company THE PRUDENTIAL HOME MORTGAGE C 7 IndependentMortgageCompany GMAC MORTGAGE CORPORATION OF P 4 Commercial/Savings Bank RURAL AMERICAN BANK - BRAHAM 7 Independent MortgageCompany WEYERHAEUSER MORTGAGE CO. 7 Independent Mortgage Company AMERICAN RESIDENTIAL MORTGAGE 7 Independent Mortgage Company GMAC MORTGAGE CORPORATION OFP 4 Commercial/Savings Bank HOME FEDERAL SAVINGS BANK OF M 7 Independent Mortgage Company JAMES B. NUTTER & COMPANY KNUTSON MORTGAGE CORPORATION 7 Independent Mortgage Company THE COLONIAL BANK 3 Commercial/Savings Bank FIRST UNION MORT. CORP. 2 Bank Related Mortgage Company 7 GREENTREE MORTGAGE COMPANY LP Independent Mortgage Company LINCOLN SERVICE CORPORATION 4 Bank Related Mortgage Company 7 Independent MortgageCompany MARGARETTEN & COMPANY 7 Independent Mortgage Company SOURCE ONE MORTGAGE 1 CHASE HOME MORTGAGE CORP. Bank Related Mortgage Company 5 Credit Union NAVY FEDERAL CREDIT UNION The National Community Reinvestment Coalition⚫ 202-986-7898 31 32 NAME MSA CORP Anaheim LOAN FINANCE AMERICA FEDERAL SA SOUTHERN CALIFORNIA Anaheim WEYERHAEUSER . CO MORTGAGE Anaheim Anaheim MORTGAGE GN CORPORATION Anaheim MORTGAGE RSL C MORTGAGE THE HOME PRUDENTIAL Anaheim SAVINGS BANK ALLATOONA FEDERAL Atlanta CORPORATION ENTRUST FINANCIAL Atlanta MORTGAGE HOME C PRUDENTIAL THE Atlanta EAGLE D/BATLAN CORP SERVICE Atlanta SAVINGS B FEDERAL REISTERSTOWN Baltimore Baltimore B.F.SAUL COMPANY MORTGAGE CITIBANK F.S.B. Baltimore SERVICES GE MORTGAGE Boston CAPITAL Boston MORTGAGE C THE HOME PRUDENTIAL Chicago CHASE . CORP MORTGAGE HOME Chicago NBD COMPANY MORTGAGE Chicago PRINCIPAL CO INS LIFE MUTUAL CORPORATIONChicago MORTGAGE SHELTER TRUST COMPANY Chicago NORTHERN THE Dallas CONSUMER SERVICES CHASE U.S. COMPANY MORTGAGE GUARDIAN Dallas Dallas TMERCANTILE & RUST BANK Dallas C MORTGAGE PRUDENTIAL THE HOME BANK Detroit NATIONWIDE FIRST Detroit BANK REPUBLIC Detroit MORTGAGE ONE SOURCE COR MORTGAGE AMERICAN Houston BARCLAYS Houston COMPANY MITCHELL MORTGAGE C MORTGAGE THE HOME PRUDENTIAL Houston Los Angeles CHASE . CORP MORTGAGE HOME Los Angeles MORTGAGE GN CAPITAL CORP Minneapolis FIRST FEDERAL Minneapolis FHEIGL .MORT CORP & INANCIAL Minneapolis 3835 CMARGARETTEN & OMPANY 561 S973 Nassau -3.08 %6130uffolk .86 .CHASE CORP MORTGAGE HOME 65128 2.38 457 64.86 -S%2122 Nassau uffolk MORTGAGE CHOME PRUDENTIAL THE York New MORTGAGE .HOME CORP CHASE BANK SAVINGS New York INDEPENDENCE York New C& OMPANY MARGARETTEN Hisp .Total Apps Apps 1266 101 %4.31 719 31 57742 39 1052 1054 64 294 7317 100 1561 56 1235 207 3328 58 912 42 1469 116 1677 51 670 18985 2434 31 124 2901 4832 3263 75 1597 2348 410 7 520 57 2111 1294 21 58 2156 2518 162 9380 151 64 2226 608 29 % 2127 92 4.33 1%6.92 1.79 1%7.61 1.79 12.50 % %12.50 7.68 Black / HBlack ./isp MSA 1993 Total Industr .y %of Hisp Apps Average Apps 1%7.98 82.50 16 54 608 44 • # 2.50 1%3.71 557 72 %12.50 6.07 632 121 %814.02 2.50 33 27 1%6.41 12.46 056 58 1104 22.46 133 % 4.53 %178 2.46 6.22 186 6.36 %12.46 235 95 1%2.86 % 11.79 114 32 1487 81 576 41 31.83 %4.50 40 21 81 7 %6.50 31.27 6.37 1%4.27 740 45 1%2.73 692 836.37 3132 314 6.37 2206 67 16.31 % % 4.70 541 1646.37 025 6.37 %12289 17.46 39 5 %162.35 1.35 37 373 %12.35 2.70 1%1.62 59 11 82.35 %152.35 2.69 46 18 7%36.43 196 .38 718 %711.61 .38 769 29 %1.38 72.88 939 44 1%4.77 86.42 53 33 514.71 %266.42 77 15 552 16.42 %970 56 3% %1928 35 3.37 65 13.10 414 43429 663 304 15.89 %3545 3.10 105%1413 01.69 .35 099 1.07 %13174 234.69 101 15 10.83 390 26 %332.69 46 6.09 3%2431 270 841 2148 0.81 2118 %8.10 9810.81 26 %1456 9.23 260 %35 650 50.81 24 6.68 % % 0.77 % 2.48 % 1.28 % 3.30 % 5.27 % 1.64 %3.24 % 5.49 % 4.88 % 6.58 % 7.69 2.87 % % 5.45 % 7.12 4.77 % 11.74 %7• 94 / Black 1992 20.20 % 6.51 %2.60 % 30.99 % %13.97 14.27 % 11.03 %11.74 6.62 %11.74 7.24 HBlack SA ./Misp oIndustry Total %f Hisp . Apps Average Apps • . * 30 056 %14.62 611.74 1%7.41 109 1.74 483 %440 7 11.74 11.03 %519 21 %1567 132 11.03 %759 11.03 * . %551 12 10.59 %908 42 10.59 %478 51 10.59 %217 3 3.22 1.03 32.22 % 69 4 1%2.59 90 40 93.97 3.97 43 %981 12.25 008 50 %3.97 12.90 %93.97 14.15 18 28 729 148 0.78 79 11 %211.30 1%2.69 71.30 52 27 11.30 %334 7 %251 12 11.30 %1812 87 5.69 %1309 31 5.69 5%2.27 9.69 69 43 1%3.87 %75.03 66 8 %25.03 12.60 40 3 %45.03 15.77 58 19 1085 16 15.40 2%30.99 002 341 58 1 0.00 %15.48 0.71 %14.48 30 3 21.48 %096 29 6%2.95 79 16 %5.51 . . 2%7.03 0.20 104 181 2%8.75 80.20 00 51 347 30 % 8.65 . 1.47 % %2.37 % 4.44 2.10 % % 1.49 * 4.63 % • . % 3.78 / Black 1991 oIndustry Total %f .Hisp Average Apps Apps 12.99 % 383 34 374 26 12.99 % %762 49 12.99 5.78 %512.99 68 46 %17.35 52.99 08 11.59 %2.99 * 4.05 %16.04 468 38 %16.04 942 63 8.42 %50 36.04 39 33 16.59 %322 20 16.04 %14.69 207 4 2.18 14.69 % * 10.67 %14.69 267 34 %46.75 1.38 71 32 %204 6 4.75 1%8.32 827 28 4.04 92.17 8.32 21 %179 %18.32 . 4.96 • 26 29 %68.32 13.05 96 104 158.32 %20.30 75 0 13.94 %5.13 20 15 155.13 %3.59 15.13 % 258 30 %5.13 258 11 14.78 14.80 %1.73 1133 42 % 11.73 • · % 11.73 %1%7.42 * · 3.01 • 1% 1.25 7.42 . 4.15 %17.42 314 14 % 33.42 • • 17.03 %33.42 • • 10.18 % %.87 286 1 10.70 %.87 • * 874 26 1.38 %1.87 2.76 %84.91 62 19 %613 28 8.91 %28.60 16.75 970 159 2%6.38 46.75 59 19 % 26.75 • • Black .H/Misp SA Black / HBlack ./isp MSA Industry %of Average Apps 4.33 1%8.88 4.33 1%6.95 16.43 %4.33 1%8.10 4.33 %444.33 18.66 % 14.33 • % % 17.31 8.12 % 6.69 % 17.31 %17.31 9.73 %17.31 6.21 %11.93 6.24 % 16.24 • 16.24 %12.73 6%4.77 .39 %6.39 2.94 2%0.55 3.39 % 20.55 % 2.15 % 20.55 . 0.55 2%4.63 %0.55 217.45 % 12.72 % 0.00 12.72 % % 2.88 %12.72 11.63 % 12.72 % 4.26 % 3.71 % 8.77 % 8.77 • % 8.77 • % 16.24 • % 16.24 • % 16.24 % 4.46 35.61 % • 35.61 % • 2.05 % 0.35 % 2.05 % • % 2.05 1.39 % 1%4.11 0.81 %10.81 4.57 8.07 % % 29.47 % % 4.14 29.47 % 29.47 • 1990 MINORITIES 1990--1993 :M TO ARKETING WORST LENDERS . II.B.2 TABLE 557 The National Community Reinvestment Coalition 202-986-7898 TO :MARKETING 1990--1993 LENDERS WORST MINORITIES 1993 Black .H/Misp SA NAME MSA New York BANK SAVINGS PROVIDENT New York ROOSEVELT BANK SAVINGS THE C MORTGAGE HOME PRUDENTIAL York New 5508 ALL COMPANY Oakland MORTGAGE PACIFIC Oakland MORTGAGE GN NVR MORTAGE Oakland PIB COMPANY MORTGAGE Oakland SUNBELT CORP MORTGAGE NATIONAL Oakland Oakland THE C MORTGAGE HOME PRUDENTIAL CORPORATIO Philadelphia FUNDING COUNTRYWIDE GE SERVICES MORTGAGE CAPITAL Philadelphia MAIN BANK SAVINGS FEDERAL LINE Philadelphia . CO TRUST MAWR Philadelphia THE BRYN Philadelphia THE C MORTGAGE HOME PRUDENTIAL Phoenix MELLON COMPANY MORTGAGE BANK SAVINGS STATE Phoenix C MORTGAGE HOME PRUDENTIAL THE Phoenix CORPORATION PMORTGAGE Riverside OF GMAC Riverside RURAL -BRAHAM BANK AMERICAN WEYERHAEUSER . CO MORTGAGE Riverside San AMERICAN MORTGAGE Diego RESIDENTIAL St. Louis GMAC P OF CORPORATION MORTGAGE MFEDERAL OF BANK HOME SAVINGS St.Louis JAMES &COMPANY B.NUTTER St.Louis 1006 Louis KNUTSON CORPORATIONSt. MORTGAGE 925 BANK Louis THE COLONIAL St. 1255 LP COMPANY Tampa GREENTREE MORTGAGE 770 Tampa LINCOLN CORPORATION SERVICE & OMPANY CMARGARETTEN Tampa MORTGAGE SOURCE ONE 1683 Tampa CORP MORT UNION .FIRST Tampa Washington .CORP MORTGAGE HOME CHASE UNION CREDIT Washington FEDERAL NAVY Hisp .Total Apps Apps 750 44 695 53 347 1178 78 950 45 649 46 91932 860 62 6770 308 5534 147 6755 230 3078 38 1324 38 3569 131 2066 72 2978 164 985 22 1279 241 716 130 1070 243 3174 245 1891 69 3051 34 % 15 1.49 % 33 3.57 % 15 1.20 29 18 450 1991 1992 Black / oIndustry Total . %f Hisp Apps Average Apps 5.87 8%20.81 87 49 235 %7.63 50.81 36 2176 956 %6.30 0.81 6.62 %15.21 190 77 %35 4.74 175.21 18 7.09 1%5.21 59 258 298 113 9.76 %15.21 17.21 %85.21 18 57 %15.21 84.55 89 20 %82.66 .86 1487 33 8.86 %43.40 328 120 %82.86 1.23 417 14 8%2.87 9.86 67 28 8.86 % 23.67 309 69 93.48 %1.33 863 42 95.51 %5.33 76 6 9%2.23 6.33 54 11 1%18.84 2051 7.15 160 18.16 %27.15 · • 22.71 %2111 67.15 64 17.72 139 %23.35 324 543 83.65 %154.29 2%1.11 983 847.29 % 8.29 468 3 % 8.29 753 9 %952 11 8.29 %.68 * 83.77 * %85.68 4.00 09 12 219 68 81665 %14.56 76.68 15.23 052 93 %888.68 %84.74 738 354.68 96 22 19.50 %184 6.80 240 47 1937 %16496.80 4544 423 11.78 5511 Black / HBlack ./isp MSA 7%2.22 .84 %7.84 0.58 % 2.99 1.68 % 2.25 %5.14 % 5.14 1.20 % 1.16 % % 2.36 % 8.40 8.40 % 1990 Black / Black .H/isp MSA %of Hisp Total Industry IndustryTotal Hisp %of . . Apps Average Apps Apps Apps Apps Average 2%7.35 6.75 * 5.52 %240.20 * 08 30 6.53 %240.20 7.85 %246.75 59 17 33 34 174 132 5.95 %210.20 29.17 %16.75 331 122 7.04 1 6.47 %154.27 % 7.39 55 41 242 19 7.04 * 1%4.03 1%4.87 44.27 22 17 * 4.69 01 50 %15.55 00 41 %914.27 5%7.04 %111.11 7.04 351 46 1%78.71 4.27 65 85 %17.56 7.04 %154.27 6.97 82 44 * 1% 17.04 * 2.25 % 2.10 44.27 28 9 • %13.14 0.67 • 414 13 1%7.02 0.67 353 4075 %72.84 2.77 364 166 1084 6 10.67 %390 9 % 0.55 13.14 2.90 %75.84 %0.67 369 27 09 16 13.05 %0.67 417 25 %656 20 7.84 9.23 % 740 43 5.81 % 177 1 9.23 % % 1.04 1%5.14 055 77 7.30 . * 181 1 9.23 % . * • %24.50 848 213 17.46 15.22 7%22.64 96 139 %24.50 869 141 16.44 22.64 %937 154 22.83 %2168 16.72 74.50 2.64 36 771 176 1%5.98 125 . 22.13 4.85 2.80 576 * 9%4.52 .49 1096 68 63.50 149.82 084 11.58 733 %91.27 .49 622.82 844 16 * %64.51 0.64 % * 5.82 24 32 9.49 %351 9 6.82 % 2.56 · % 9.49 * 0.67 % 9.49 % . 6.82 %297 2 . %14.49 0.95 295 468 21 %14.40 0.95 * 364 16 15.65 %20.95 42 16 85.40 %5.58 66 32 1%8.00 0.95 * 75 54 %86.40 8.84 • 1%4.18 8%4.44 1320.95 3.40 11 44 10 %17.26 50 89 %164.87 3.79 49.24 89 39 131 111.64 %129.31 4.87 %248 19.24 194 / Black Black .H/isp MSA %of Industry Apps Average * % 29.47 3.70 29.47 % 11.24 %29.47 %7.79 17.85 . % 17.79 % 17.79 % 8.20 17.79 %13.11 % 17.79 17.79 % 12.50 % • % 12.50 % 8.66 1%2.31 2.50 17.32 %2.50 16.00 %2.50 %7.84 0.56 7.84 % %7.84 0.55 25.20 %25.12 25.20 %16.23 25.20 %22.83 12.76 % * %11.19 6.20 1.90 %1.19 1% % * 11.19 • % 11.19 % 11.19 * % 11.28 %16 5.42 % 11.28 • 6.61 % 11.28 % % 11.28 %11.28 4.10 27.98 %0.09 15.33 %2183 0.09 558 The National Community Reinvestment Coalition 202-986-7898 TABLE II .B.2 33 34 RATIOS D :--ENIAL 1993 1990 LENDERS WORST TABLE .B.3 II 1993 MSA Hisp .White Denial Rate 13.33 24.77 35.61 42.00 16.67 14.29 64.71 33.33 27.91 14.29 7.41 0.00 27.59 6.98 12.50 66.67 31.58 18.75 37.24 0.00 6.90 50.00 • 29.28 1990 / / Black Black Black /Black Hisp White Hisp . . . Hisp White to Denial Denial toWhite Denials Denials Rate Rate 1.28 52.94 41.26 1.34 14.37 19.23 . 4.07 3.18 6.12 1.51 30.39 34.09 1.12 1.68 * 0.00 • 19.05 11.16 26.32 2.36 2.43 2.66 19.00 44.44 2.34 13.07 36.36 2.78 3.59 2.65 35.00 13.21 • 8.37 25.00 2.99 2.72 2.38 • 29.41 2.64 11.16 2.23 2.97 7.51 21.88 2.91 3.73 22.22 33.33 1.50 100.00 8.26 21.43 2.59 3.28 30.00 8.14 14.29 1.76 3.92 • • 3.35 14.00 · 31.03 8.06 3.85 3.74 13.41 66.35 4.95 9.28 35.14 18.29 0.00 0.00 0.72 9.09 1.85 2.97 33.33 11.22 0.00 11.84 30.00 2.53 12.15 36.36 2.99 50.00 3.32 6.05 4.33 26.19 3.09 • 5.62 . 9.68 • • 2.31 • • 1.34 • • • 17.56 • 1.98 18.00 57.14 3.18 1.16 B • . 1.61 · 0.00 0.00 0.00 0.00 • • 0.00 * 5.94 8.23 30.77 3.74 16.48 26.32 1.60 4.02 19.15 35.71 1.87 • 12.15 30.82 2.54 2.93 35.45 42.11 1.19 1.00 27.45 9.25 23.33 559 The National Community Reinvestment Coalition 202-986-7898 Anaheim FINANCE CORP LOAN AMERICA Anaheim SA FEDERAL CALIFORNIA SOUTHERN Anaheim MORTGAGE . CO WEYERHAEUSER CORPORATION Anaheim MORTGAGE RSL CHOME Anaheim MORTGAGE PRUDENTIAL THE BANK Atlanta SAVINGS FEDERAL ALLATOONA CORPORATIONAtlanta FINANCIAL ENTRUST C MORTGAGE HOME Atlanta PRUDENTIAL THE TLAN AEAGLE D/BSERVICE CORP Atlanta B Baltimore SAVINGS FEDERAL REISTERSTOWN COMPANY Baltimore MORTGAGE B.F.SAUL Baltimore F.S.B. CITIBANK MORTGAGE SERVICES GE CAPITAL Boston CHOME Boston MORTGAGE THE PRUDENTIAL Chicago .HOME CORP MORTGAGE CHASE Chicago COMPANY MORTGAGE NBD Chicago CO INS LIFE MUTUAL PRINCIPAL CORPORATION MORTGAGE SHELTER Chicago COMPANY TRUST NORTHERN Chicago THE Dallas SERVICES CONSUMER U.S. CHASE COMPANY MORTGAGE GUARDIAN Dallas Dallas TMERCANTILE & RUST BANK Dallas HOME C MORTGAGE PRUDENTIAL THE Detroit BANK NATIONWIDE FIRST Detroit BANK REPUBLIC Detroit ONE MORTGAGE SOURCE COR MORTGAGE AMERICAN BARCLAYSHouston Houston COMPANY MORTGAGE MITCHELL C MORTGAGE HOME Houston PRUDENTIAL THE Los Angeles .HOME CORP MORTGAGE CHASE Los Angeles MORTGAGE GN CORP CAPITAL Minnesota FEDERAL FIRST .& INANCIAL CORP Minnesota FMORT HEIGL Minnesota CMARGARETTEN & OMPANY -Suffolk Nassau .HOME CORP MORTGAGE CHASE - uffolk CMORTGAGE SNassau HOME PRUDENTIAL THE . CORP York New MORTGAGE HOME CHASE York New BANK SAVINGS INDEPENDENCE York New CMARGARETTEN & OMPANY Black / Black / Black / Black / Hisp . White Hisp . Hisp .White Hisp . Denial Denial Denial toWhite Denial toWhite Denial Denials Rate Denials Rate Rate Rate Rate 24.28 29.63 1.22 · 9.44 15.84 1.68 17.20 20.45 1.19 • 14.97 35.48 2.37 4.19 • 5.40 12.28 2.27 · 14.77 1.37 28.13 18.66 38.84 2.08 20.51 1.25 14.32 1.36 17.74 21.43 22.22 15.81 7.83 2.50 15.52 6.57 18.00 6.21 2.74 13.38 4.55 20.19 4.35 10.71 4.44 2.46 11.71 1.32 1.76 9.75 12.82 9.32 16.43 2.11 18.95 9.00 • 2.11 10.34 4.90 5.88 6.12 2.13 12.50 1.89 2.52 4.76 6.23 6.00 17.28 2.89 12.93 2.77 4.48 29.04 1.55 39.25 60.98 12.44 27.45 2.21 11.21 16.67 32.22 61.90 1.92 2.44 6.83 26.79 17.06 42.86 2.51 1.42 16.13 11.32 9.16 6.84 24.44 3.57 4.84 1.39 3.49 7.12 6.15 8.43 1.37 3.98 11.36 2.85 4.18 2.49 5.97 2.40 4.02 12.14 3.02 3.82 0.68 4.69 6.92 2.43 10.67 4.39 3.79 4.78 36.68 7.67 3.87 20.98 5.42 1.29 15.46 20.00 12.69 ERR 10.14 0.00 4.00 1.87 10.81 5.78 0.00 2.14 ERR 1.83 1.77 0.00 0.00 0.00 1.57 ERR 15.06 1.88 27.78 14.77 0.44 10.72 24.14 8.93 4.04 33.67 8.33 4.20 22.22 5.29 1.49 1.72 3.45 2.32 3.80 11.92 3.14 2.65 3.02 1.71 4.55 4.08 1.53 6.25 9.30 7.93 3.03 0.38 0.54 13.79 7.43 3.80 1.60 6.67 14.45 4.16 38.46 0.38 15.95 17.86 2.24 7.99 0.31 27.17 8.50 1.82 16.18 21.97 40.00 41.54 18.46 2.25 23.18 1.34 28.26 37.86 1.34 23.47 31.38 2.69 0.00 0.00 5.10 0.00 2.77 7.49 0.00 0.00 0.00 0.00 2.04 1.16 3.86 23.08 5.97 3.97 12.50 3.15 12.43 15.97 28.26 1.77 12.83 20.00 1.56 2.32 • 31.25 1.23 13.46 15.57 12.66 9.98 2.08 39.63 19.07 10.42 26.35 2.53 27.37 1.89 28.17 53.09 1.81 44.92 24.81 2.52 3.88 14.29 1.16 3.68 6.67 5.76 . NAME 1991 1992 1991 1992 1993 Black Black / / White .White Hisp Hisp . Denial Denial NAME toWhite Denial MSA Rate Rate Denials Rate PROVIDENT BANK SAVINGS York New 8.59 6.23 11.36 1.82 York New 16.37 2.52 ROOSEVELT BANK SAVINGS 11.21 28.30 16.80 HOME C MORTGAGE 15.54 1.67 PRUDENTIAL THE York New 25.94 ALL COMPANY Oakland MORTGAGE PACIFIC 4.85 4.36 5.13 1.18 17.86 1.26 Oakland GN MORTGAGE 15.56 12.38 Oakland 7.46 MORTAGE NVR 3.21 23.91 6.92 10.46 PIB COMPANY MORTGAGE Oakland 11.31 24.18 2.31 10.38 SUNBELT CORP Oakland MORTGAGE NATIONAL 1.09 8.90 9.68 10.13 HOME C MORTGAGE 12.66 PRUDENTIAL THE Oakland 1.31 9.66 COUNTRYWIDE CORPORATIO Philadelphia 5.09 8.84 1.74 FUNDING 7.22 GE SERVICES MORTGAGE CAPITAL 3.00 Philadelphia 5.66 24.76 16.96 BANK MAIN SAVINGS FEDERAL LINE 18.42 3.81 6.33 4.84 Philadelphia 4.37 3.30 2.41 10.53 Philadelphia . CO TRUST MAWR BRYN THE 2.01 THE C MORTGAGE HOME PRUDENTIAL 22.90 Philadelphia 11.37 12.14 4.64 5.97 MELLON COMPANY MORTGAGE 1.86 Phoenix 11.11 1.12 Phoenix 4.37 4.88 7.48 BANK SAVINGS STATE THE C MORTGAGE HOME PRUDENTIAL Phoenix 1.66 31.82 21.91 19.21 2.15 Riverside 20.33 9.43 GMAC P OF CORPORATION MORTGAGE 9.44 RURAL -BRAHAM BANK AMERICAN 25.43 37.69 1.48 * Riverside Riverside 11.93 . CO MORTGAGE WEYERHAEUSER 3.98 1.86 6.41 MORTGAGE San AMERICAN RESIDENTIALDiego 9.66 8.74 13.06 1.49 2.31 2.51 Louis St. GMAC P OF CORPORATION MORTGAGE 4.23 5.80 Louis St. 7.97 HOME M OF BANK SAVINGS FEDERAL 11.76 2.59 4.54 33.33 JAMES &COMPANY B.NUTTER 0.00 4.08 Louis St. 8.17 6.45 Louis 3.18 KNUTSON CORPORATIONSt. MORTGAGE 3.81 12.12 1.69 Louis St. 7.65 BANK COLONIAL THE 3.95 6.67 Tampa GREENTREE LP COMPANY MORTGAGE 18.49 34.48 1.86 Tampa 22.33 CORPORATION SERVICE LINCOLN 27.78 0.66 18.30 Tampa 7.40 MARGARETTEN &COMPANY 18.42 9.30 0.40 13.64 Tampa 0.26 3.60 6.15 MORTGAGE ONE SOURCE Tampa 9.07 4.41 8.57 CORP MORT UNION .FIRST 1.94 Washington 17.69 2.03 20.11 9.93 . CORP MORTGAGE HOME CHASE Washington 1.33 0.68 7.40 10.88 UNION CREDIT FEDERAL NAVY / Black Hisp . Denial Rate 14.29 25.71 32.95 14.29 34.29 . 7.21 20.37 11.11 9.46 /Black Hisp . Denials 1.66 1.57 1.96 2.94 1.92 2.69 18.64 1.80 20.35 2.70 28.07 2.47 25.00 15.15 2.10 1.82 45.00 0.00 8.65 28.57 36.23 2.98 2.57 11.90 4.46 33.33 0.42 9.09 20.63 2.19 * 1.81 2.16 20.86 4.82 23.40 2.94 0.00 1.72 3.56 27.27 . 58.33 2.61 13.24 1.42 21.51 3.50 0.00 2.53 44.68 7.09 /Black Hisp . Denial Rate 16.67 45.08 White Denial toWhite Rate 7.94 17.29 28.54 6.23 20.00 29.41 7.76 7.79 10.04 12.17 22.22 0.00 0.00 7.92 5.75 0.00 5.68 43.75 15.88 11.19 18.60 8.90 33.77 • 9.28 22.30 28.48 48.70 7.92 21.13 2.90 12.68 0.00 0.00 8.77 11.19 50.00 19.02 16.38 43.75 0.56 3.13 7.41 37.04 8.39 38.46 25.35 1.38 1990 /Black Black / White Hisp .Hisp . .Hisp Denial Denial toWhite toWhite Denials Rate Rate Denials 2.10 • 2.55 44.12 11.54 41.18 3.57 22.36 53.03 2.37 1.58 1.96 12.20 7.62 10.53 1.38 • 1.47 . 16.00 0.00 2.06 0.00 0.00 1.51 11.76 21.64 34.78 1.61 3.17 31.82 • 1.83 • . 0.00 • · • 1.60 12.65 6.61 20.68 3.13 11.81 22.22 1.88 0.00 6.43 18.52 2.88 7.70 17.35 52.00 3.00 55.00 3.46 1.66 19.64 0.00 0.00 3.80 • · 23.23 0.00 0.00 * 2.40 9.61 12.21 1.27 45.39 1.71 2.16 21.02 10.08 26.70 2.65 2.33 18.45 1.36 28.80 16.33 2.82 8.82 3.13 5.63 8.57 18.75 2.19 31.82 2.51 0.00 • • 3.80 33.33 · • 4.47 • • . 11.47 25.00 2.18 1.00 19.05 2.67 • 5.56 25.00 2.46 10.18 5.00 • 3.90 4.59 40.00 10.26 1.48 38.46 1.42 36.00 26.00 5.74 14.75 7.30 10.08 2.57 /Black 560 The National Community Reinvestment Coalition⚫ 202-986-7898 RATIOS -1993 :D ENIAL WORST 1990 LENDERS TABLE .B.3 II 35 36 RATES APPROVAL M ·-:- INORITY 1993 1990 LENDERS WORST .B.4 II TABLE 85 20 50 27 46 231 6144 82 50 173 52 40 101 1592 37 15 26 118 2798 117 4630 3115 181 67 2187 324 7 21 44 126 2383 9011 133 60 25 16 67 %7.46 % 3.31 % 5.52 3.76 % % 5.46 % 4.17 5.76 % % 5.86 % 2.80 % 6.34 4.22 % 1.50 % 2.76 57 % 1.65 % % 2.30 % 5.29 % 1.48 % 2.74 % 4.46 % 3.47 %38 2.44 374 % 0.36 5 34 1.09 % %28 0.76 % 11.37 %17.16 1.37 %1.37 13.49 11.37 % % 10.82 % 10.82 % 10.82 % 10.82 %9.53 6.39 1.21 %3.05 14.81 % 12.53 %4.81 1%4.32 4.81 10.23 % 10.23 % 10.23 % % 13.51 %30.40 14.49 % 1.52 % 1.52 % 1.52 Total Industry o%f Aprvs Average 10.29 % 10.29 % % 10.29 % 10.29 1%0.29 3.07 %9.48 9.48 % 9.48 % 9%.48 6.45 % 9.00 94.67 %.00 9.00 % % 2.69 2%0.71 .69 % 12.32 12.32 % %12.32 3.99 12.32 % % 9.09 % 9.09 9.09 % %.57 43.87 % 4.57 %1.93 14.07 1%2.47 %1.93 %1.93 15.19 %7.80 213.62 % 1.22 1.22 % % 1.22 • 758 %853 10.29 1253 378 476 1328 655 516 850 321 192 194 891 1%831 12.32 961 880 655 9.09 %244 721 328 209 1634 1.63 %41.57 284 938 241 229 382 09 97.80 2%1.91 1490 543 398 2070 • • 26 38 82 7 17 85 29 0 10 36 18 2 0 28 31 43 24 96 10 25 7 6 63 28 40 7 1 13 13 214 1 3 27 • % 3.43 % 4.45 % 6.54 % 1.85 % 3.57 % 1.94 4.24 % % 5.61 1.04 % % 0.00 % 3.14 % 4.47 4.10 % % 3.47 % 2.13 % 2.87 4.26 % % 2.90 0.44 % % 3.40 % 1.43 % 0.75 % 1.30 % 11.44 % 11.44 % 11.44 % 11.44 % 11.44 % 11.44 13.16 % 11.87 % % 11.87 % 11.87 4.02 % % 4.02 % 15.00 % 15.00 1%5.00 2.73 % 12.22 % 12.22 12.22 % % 12.22 8%3.86 .43 8%2.18 .43 % 8.43 % 13.64 % 13.64 % 13.64 % 30.68 %0.68 314.36 .67 1%0.18 % 1.67 % 1.67 Total Industry %oHisp .f Aprvs Average 221 16 319 21 730 46 478 35 352 29 . %410 28 13.16 47 %176.40 3.16 35 87 21 %23.16 14.43 307 13 189 3 . 231 24 616 25 158 4 755 22 98 18 81%5.00 1.69 · • 594 20 61 35 %145.00 14.66 143 0 500 10 222 21 224 7 1071 31 · • • • 252 6 • · • • 286 1 . . 1714 18 / Black HBlack ./isp MSA Industry %oHisp .f Average Aprvs % 13.55 % 7.24 6.58 %13.55 13.55 % % 6.30 % 13.55 % 7.32 % 13.55 % 8.24 % 13.55 • %14.01 6.83 14.01 % % 4.69 % 14.01 % 7.32 % 14.01 % 4.23 % 13.66 % 1.59 % 13.66 • %3.66 110.39 % 4.06 4.97 % 2.53 %4.97 18.04 % % 2.91 % 18.04 % 2.00 % 18.04 • 1%8.04 3.37 %18.04 7.59 10.46 % % 0.00 1%0.46 2.00 %0.46 19.46 % 10.46 % 3.13 % 6.64 % 2.89 % 6.64 % 6.64 . % 12.34 • % 12.34 • % 12.34 % 2.38 % 34.05 34.05 % · % 0.35 % 1.76 % 1.76 • 1.76 % % 1.05 561 The National Community Reinvestment Coalition 202-986-7898 CORP 1140 FINANCE Anaheim AMERICA LOAN Anaheim 605 SA FEDERAL CALIFORNIA SOUTHERN 698 .MORTGAGE CO WEYERHAEUSER Anaheim Anaheim 773 MORTGAGE GN CORPORATION Anaheim 833 MORTGAGE RSL CHOME Anaheim MORTGAGE PRUDENTIAL THE 1503 BANK Atlanta SAVINGS FEDERAL ALLATOONA 1200 CORPORATION FINANCIAL ENTRUST Atlanta 3003 CTHE MORTGAGE HOME Atlanta PRUDENTIAL 888 Atlanta TLAN D/BASERVICE CORP EAGLE BSAVINGS Baltimore 1431 FEDERAL REISTERSTOWN Baltimore COMPANY MORTGAGE B.F.SAUL Baltimore 579 F.S.B. CITIBANK 916 SERVICES MORTGAGE CAPITAL Boston GE 2157 CHOME Boston MORTGAGE PRUDENTIAL THE Chicago .HOME CORP MORTGAGE CHASE Chicago COMPANY MORTGAGE NBD CO INS Chicago LIFE MUTUAL PRINCIPAL 1552 CORPORATION MORTGAGE SHELTER Chicago COMPANY Chicago TRUST NORTHERN THE Dallas 468 SERVICES CONSUMER U.S. CHASE 2067 COMPANY MORTGAGE GUARDIAN Dallas 1274 &TRUST BANK Dallas MERCANTILE 1917 CHOME Dallas MORTGAGE PRUDENTIAL THE Detroit BANK NATIONWIDE FIRST Detroit BANK REPUBLIC Detroit 2189 MORTGAGE ONE SOURCE COR Houston 561 MORTGAGE AMERICAN BARCLAYS 466 Houston COMPANY MORTGAGE MITCHELL C Houston 1929 MORTGAGE HOME PRUDENTIAL THE Los Angeles 1557 . CORP MORTGAGE HOME CHASE Los Angeles 2581 MORTGAGE GN Minneapolis 1374 CORP CAPITAL FEDERAL FIRST .&MORT CORP Minneapolis3110 INANCIAL FHEIGL Minneapolis 3680 &COMPANY MARGARETTEN Total Industry f Hisp . .%oTotal Hisp Average Aprvs Aprvs % 11.37 %615 38 6.18 % 502 35 6.97 • • % 1091 44 4.03 % 1303 74 5.68 %684 21 11.37 % 985 49 4.97 % 2022 83 4.10 % 1068 68 6.37 1193 77 % 1%087 28 2.58 9.53 1434 %67 9.53 % 341 16 4.69 % 2.74 3%1.64 2.05 92 8 563 4 % 1613 34 2.11 3463 76 2.19 % 2.80 24.81 254 %163 5.81 1528 61 % 9.97 183 114.81 %14.81 836 % 0.74 540 4 % 33 2.46 1344 % 844 11 1.30 % %463 13 2.81 10.23 %3358 130 6.15 6.15 %1722 28 %1899 42 2.21 % 6.15 %787 32 13.51 67 14 %153.51 3.43 887 46 %1097 21 30.40 3024 412 0.00 % 1043 0 % 0.71 2101 15 % 3254 20 0.61 . MSA HBlack /isp .MSA . /Misp H.Black SA Name / Black / Black Black .H/isp MSA Black / 1990 1991 1992 1993 Name THE MSA 2.84 306 -S33 Nassau %51846 .91 24uffolk CHASE . CORP MORTGAGE HOME 44 Nassau -S4475 5103 %22.30 uffolk .91 115 MORTGAGE CHOME PRUDENTIAL THE York New . CORP CHASE MORTGAGE HOME 1071 York New SAVINGS BANK INDEPENDENCE York New 612 MARGARETTEN &COMPANY York New 701 BANK PROVIDENT SAVINGS York New 608 BANK ROOSEVELT SAVINGS New York C MORTGAGE HOME PRUDENTIAL 1126 COMPANY MORTGAGE Oakland PACIFIC ALL 831 Oakland GN MORTGAGE Oakland 593 NVR MORTAGE COMPANY MORTGAGE PIB Oakland 822 783 NATIONAL MORTGAGE CORP Oakland SUNBELT MORTGAGE HOME C PRUDENTIAL THE Oakland CORPORATIO Philadelphia FUNDING COUNTRYWIDE Philadelphia MORTGAGE SERVICES GE CAPITAL Philadelphia2924 FEDERAL BANK SAVINGS MAIN LINE Philadelphia1289 CO .BRYN THE TRUST MAWR Philadelphia 3148 MORTGAGE CPRUDENTIAL THE HOME COMPANY 2021 MORTGAGE MELLON Phoenix BANK STATE SAVINGS Phoenix 793 CHOME Phoenix MORTGAGE PRUDENTIAL THE POF CORPORATION MORTGAGE GMAC Riverside RAHAM -BANK BAMERICAN Riverside 518 RURAL .MORTGAGE CO Riverside 988 WEYERHAEUSER San MORTGAGE Diego RESIDENTIAL AMERICAN 1845 P OF Louis St. CORPORATION MORTGAGE GMAC M OF BANK 2910 SAVINGS FEDERAL HOME Louis St. CNUTTER &B.OMPANY Louis St. 920 JAMES CORPORATION Louis 887 MORTGAGE KNUTSON St. 1205 BANK St. Louis COLONIAL THE 623 LP COMPANY Tampa MORTGAGE GREENTREE 366 CORPORATION Tampa SERVICE LINCOLN 1533 & OMPANY CMARGARETTEN Tampa 1613 MORTGAGE Tampa ONE SOURCE Tampa 704 .MORT ORP CUNION FIRST Washington 1726 .HOME CORP MORTGAGE CHASE Washington 5430 UNION CREDIT FEDERAL NAVY Black / HBlack ./isp MSA %of Industry Average Aprvs Black / / Black /HBlack isp .MSA 5%2.08 .35 65 %56 9.15 39 38 257 4616 74 38 35 69 56 6107 269 134 5247 3.01 %6347 191 31 34 7%2.64 .12 101 15 81 213 2886 65 30 10 14 19 13 62 76 1.89 % 7.97 % % 15.64 26.03 % 132154 8.31 %5.06 109 053 6.07 6%18.31 45 18.31 %501 5.56 %188.31 08 1%4.57 53.48 84 15.90 %13.48 164 18.39 %3.48 141 %173.48 7.15 23 %73.48 14.40 96 2.55 %71.12 377 7.12 %3232 265 1.06 %27.12 928 %% 5.48 7156 52847 .97 29 465 91132 34 16.96 %2192 6.03 * 1.03 % 1.16 %6%.94 3.05 %7.69 % 3.55 4.04 % 61.09 %4.94 68 6%3.27 729.94 04 877 • %391 7.69 7.69 %1103 73 79%.69 4.71 53 4.55 %7432.69 5.31 008 8.52 %1147 / Black %oIndustry Total f Hisp . Aprvs Average Aprvs .Total Hisp Aprvs 163 38 30 42 16.25 %4268.31 45 21%5.57 431 8.31 %118 16.57 125 %663.48 23 48 90 41 15 28 66 14 20 2%744.12 012 3.21 764 %%1737 3.17 64.97 4 10 127 6221.66 103 34 %214 6.03 2%1110 084 2.23 7.38 63.52 1.94 469 %43 36 %2738 6.94 3 8 8 • 5 59 73 22 26 383 449 11.07 %41601 5.31 17.47 %5.89 %7.47 15.99 %17.47 5.20 7.47 1%5.84 1.88 % 12.48 % %.97 52.04 .97 5%2.19 2.10 %4.07 %4.07 0.76 4.07 %2.15 %1.14 % 0.91 % 5.38 7.50 % % 7.24 %7.24 4.86 1%3.17 2.58 1%8.61 3.17 • 2.53 %5.35 01 1%5.34 859 7.47 581 332 373 349 31 %197.47 4.85 5.87 %512.48 18 1%3.94 32.48 36 1%4.12 82.48 27 02 %172.48 7.89 5.67 %152.48 14 375 52.03 %4.97 14 022 0.62 %51.97 74 4%5.97 2.16 544 654 942 • 213.60 %70.42 04 %639 20.42 16.25 %260.42 60 20.76 022 1%5.28 1.38 046 5%2.93 1.38 509 5%1.31 32 %5.38 0.64 318 5.38 %263 7.24 %379 7%1.28 3.24 00 7%5.35 5.24 62 609 281 509 2080 8 . 128 37 23 25 19 67 36 12 42 75 30 7 13 145 2169 6 9 9 35 51 • 108 79 137 89 41 15 24 6 1 17 9 31 34 8 32 223 % 1.60 %6.89 % 6.37 % 6.70 % 0.59 % 1.90 1.65 % % 5.35 % 5.41 4.40 % / Black Black / . Hisp Hisp .MSA %of Total Hisp Industry . Aprvs AverageAprvs Aprvs %384 14 7.57 %491 18 7.57 123.30 %701 110 2%95 11 23.30 * * %23.30 6.93 . % 23.30 • . 23.30 401 10 %5.44 83.30 71 7.12 %62 2%7.20 16.95 %25.19 23 17 %13.57 5.19 · . %15.19 500 5.08 %5.19 269 30 110.68 %15.19 5.84 %15.19 . 1.87 • %% 3.14 7.97 3756 280 6.69 %7.97 % 2.04 7.97 %343 7 7.97 % 342 22 % %336 12 3.57 7.97 7.86 % 142 1 · % 7.86 %130 1 7.86 15.34 %272.24 61 187 12.36 %262.24 52 77 20.76 %262.24 64 129 11.34 % • .18 %16061 3.92 60.99 70 13 %7.18 4.51 %6.18 • • • %6.18 • 1.89 • 6%0.38 .18 . • • 4.63 %12 9%4.49 .43 259 . . %9.43 3.00 % 9%5.52 .43 215 12 5.58 . %9.43 • 5.58 • % 2.78 9%2.85 .43 216 6 57 24 1%36.79 6.29 16.79 1141 156 %10.72 . Total .Hisp 1990 1991 1992 1993 MSA Industry %of Average Aprvs %9.07 3.65 93.67 %.07 26.47 %5.87 2%5.87 3.73 % 25.87 % 25.87 %25.87 2.49 % 25.87 6.34 1%7.62 % 16.34 1%8.20 416.34 11.15 %16.34 % 16.34 % 16.34 % 9.91 7.45 %9.91 9.91 % 6.43 %9.91 % 9.91 0.70 %6.50 6.50 % %6.50 0.77 24.57 %24.26 %4.26 211.81 %24.26 19.43 % 11.74 85.84 %62.39 %.39 81.69 % 8.39 8.39 % % 8.39 % 9.72 9.72 % % 9.72 % 9.72 9.72 % 18.01 %6.72 18.01 %13.67 562 The National Community Reinvestment Coalition 202-986-7898 RATES APPROVAL M INORITY 1990 :-1993 LENDERS WORST TABLE .B.4 II 37 38 S APPLICATION NCOME I -MODERATE AND OW:L 1990--1993 LENDERS WORST BII . .5 TABLE / Low / Low Mod MSA NAME % 10.25 % 15.09 % 11.41 11.68 % 11.93 % 112 % 12.28 5.62 % 17.17 % 14.33 % % 12.53 5.38 % % 12.75 616 13.80 % % 21.48 343 % 10.31 4.87 % % 5.68 327 % 12.99 %341 15.32 2226 18.73 18.73 18.73 18.73 22.62 22.62 22.96 22.96 17.82 %17.82 5.09 22.74 2.74 %2490 15.02 22.74 21.48 21.48 26.79 % 0.66 1.09 % 258 % 18.26 29.39 % 1127 6.08 % 6.99 % 2.53 % % 5.76 %119 2.16 % 2.15 24.22 24.22 7.24 7.24 7.24 7.24 /Low / Low Mod / Low Mod MSA / Low .f y Mod Industr .Total Total %oTotal Industry f %oMod .Mod Averag Apps e Apps Average % 84 15.67 % 1483 5.66 154 1632 18.73 9.44 % 15.67 794 64 8.06 * • · 67 6.34 % 1056 1 5.67 % 8.93 139 1557 * 7.57 %46 15.67 • 608 15.67 • * % 816 49 6.00 1%5.14 5.67 440 3.48 17317 298.73 3.24 %833 237 % 20.69 • 1235 156 12.63 % 310.69 4.08 222.62 3.29 %759 39 1186 105 519 % 16.10 %21056 0.69 170 18.83 2.62 20.23 281 12.05 %1567 20.69 257 2133 908 218 11487 14.66 % 15.50 %260 28.77 2.96 77 8.48 10.24 %59478 % 576 18.77 33 6.90 18.77 551 46 8.35 % % 1114 92 8.26 1217 % 3.69 %440 9.32 418.45 8 5.87 %1269 8.45 11 681 40 %22.79 10.78 3692 398 135 1008 22.79 % 2314 270 11.67 % 22.79 729 133 18.24 274 % 13.53 2025 22.79 918 190 % 20.38 314 22.74 1541 % 990 22.79 150 15.15 % 12.13 1740 211 22.74 % 2.10 18.91 % 334 7 859 30 3.49 56 18.91 752 % 1373 81 5.90 % 08.91 0.00 0.16 %1279 1.48 1 %2639 0.58 % 251 8.91 2.38 3.53 %1210 13 546 1.48 3.98 1812 25.26 194 12.18 % 3718 453 1309 224 25.26 1273 %1769 13.57 217 9380 212.27 6.79 % 25.26 969 152 15.69 13.00 % 252 1939 26.79 % %132 5.55 6.6 240 10 4.17 8.32 7.25 577 40 146.6 458 1.75 1970 8.32 %172127 1.88 40 % 1.88 16.6 266 5 % 18.32 853 19 2.23 12002 % 4.44 %901.41 4.50 6.53 %224 14304 3.59 191 3429 % 0.00 11414 1.41 1085 0 013.59 % .07 % 7.00 14.22 7.1 430 44 10.23 147 22101 %3174 8.60 273 % 17.1 558 104 18.64 11.74 % 129 1099 % 10.00 %17.1 2096 61 2.91 3390 339 12.94 % 5.82 . · 143 2457 16.13 %12.94 7.43 579 43 % 1561 110 7.05 16.13 % 2.94 408 12 6.57 2.71 % 887 24 % 41 9.47 433 6.57 % 536 29 5.41 % 6.57 1331 23 1.73 % 2956 42 1.42 % 6.57 347 13 3.75 % 14 2.67 524 MSA 13.04 13.04 13.04 13.04 13.04 13.04 28.83 28.83 28.83 %28.83 17.93 25.42 25.42 25.42 21.28 4.09 %21.28 %1981 9.69 24.67 192 %24.67 13.39 24.67 20.70 %24.67 24.67 25.26 27.45 %5.26 25.26 25.26 %32.07 10.71 317.11 %2.07 32.07 20.2 %20.2 3.06 20.2 9.88 9.88 29.5 29.5 29.5 15.68 15.68 9.07 9.07 9.07 9.07 / Low Total Industry o%f .Mod Average Apps Apps 508 30 762 41 568 29 374 11 383 25 322 34 339 10 468 98 942 125 . • 267 17 207 23 671 53 204 8 979 83 596 85 626 95 827 84 258 36 520 20 175 0 258 3 1133 97 • # 314 8 · • • • • • 286 56 1874 431 613 23 462 39 • 459 20 1174 24 • /Low Mod 5.91 % % 5.38 % 5.11 % 2.94 % 6.53 % 10.56 %2.95 % 20.94 % 13.27 % 6.37 % 11.11 % 7.90 % 3.92 % 8.48 % 14.26 % 15.18 % 13.95 3.85 % % 0.00 1.16 % % 8.56 • % 2.55 • • . • % 19.58 % 3.75 8.44 % % 4.36 % 2.04 MSA Industry %of Average Apps 11.38 11.38 11.38 11.38 11.38 11.38 26.73 26.73 26.73 26.73 27.11 27.11 27.11 19.95 19.95 22.98 22.98 22.98 22.98 %22.98 10.16 21.72 21.72 21.72 21.72 30.73 30.73 30.73 17.27 17.27 17.27 8.63 8.63 30.56 30.56 %30.56 23.00 24.08 24.08 12.02 12.02 12.02 12.02 563 The National Community Reinvestment Coalition 202-986-7898 MSA Anaheim 1054 108 CORPORATION MORTGAGE RSL Anaheim 742 112 . CO MORTGAGE WEYERHAEUSER 1052 120 Anaheim MORTGAGE GN 84 719 CALIFORNIA SA FEDERAL SOUTHERN Anaheim 151 1266 Anaheim CORP FINANCE AMERICA LOAN CHOME MORTGAGE Anaheim PRUDENTIAL THE 912 TLAN AEAGLE Atlanta D/BSERVICE CORP 187 3328 CPRUDENTIALAtlanta MORTGAGE HOME THE 1561 294 BANK SAVINGS Atlanta FEDERAL ALLATOONA 1235 212 CORPORATION FINANCIAL ENTRUST Atlanta COMPANY Baltimore 1677 MORTGAGE B.F.SAUL Baltimore 670 96 F.S.B. CITIBANK BFEDERAL Baltimore 1469 184 SAVINGS REISTERSTOWN Boston 985 53 SERVICES MORTGAGE CAPITAL GE 124 CMORTGAGE 2434 HOME PRUDENTIALBoston THE 4832 Chicago COMPANY MORTGAGE NBD 3263 Chicago CO INS LIFE MUTUAL PRINCIPAL Chicago 2348 324 COMPANY TRUST NORTHERN THE 1597 CORPORATION MORTGAGE SHELTER Chicago 2901 Chicago 299 .HOME CORP MORTGAGE CHASE 1294 63 Dallas TMERCANTILE & RUST BANK 2111 120 COMPANY MORTGAGE GUARDIAN Dallas 520 3 Dallas SERVICES CONSUMER U.S. CHASE CHOME Dallas 2156 76 MORTGAGE PRUDENTIAL THE Detroit 2518 BANK NATIONWIDE FIRST Detroit BANK REPUBLIC Detroit MORTGAGE SOURCE ONE Houston 552 COMPANY MORTGAGE MITCHELL Houston CHOME MORTGAGE PRUDENTIAL THE Houston 608 4 COR MORTGAGE AMERICAN BARCLAYS Angeles Los MORTGAGE GN Los Angeles 1928 21 .HOME CORP MORTGAGE CHASE Minneapolis .MORT CORP FHEIGL & INANCIAL Minneapolis1413 CORP CAPITAL FEDERAL FIRST Minneapolis3835 CMARGARETTEN & OMPANY Nassau -S312 uffolk C 5128 MORTGAGE HOME PRUDENTIAL THE Nassau -S68 973 uffolk .CORP MORTGAGE HOME CHASE 750 19 York New BANK SAVINGS PROVIDENT 695 40 York New BANK SAVINGS ROOSEVELT 5508 York CPRUDENTIAL New MORTGAGE HOME THE York 650 14 New CMARGARETTEN & OMPANY 1990 1991 . 1992 1993 NAME 1992 / Low MSA Mod /Low Mod / Low .Total Mod o%f o%f Industry 16.79 % 47 6.55 718 / Low . Mod Total Apps Apps 73 % 7.68 % 141 2.08 16.79 889 13 4.33 % 24.69 4328 400 2173.11 %576 4.10 63 7.21 %1863 149 2066 23.11 %298 654 9.95 985 193.11 1%716 6.4 * * 18.44 132 * 5.57 37 9.16 %664 1070 98 16.4 4.76 50 8.68 % 1279 11051 111 6.4 3174 7.27 169 18.10 %257 2324 5.17 13.95 %129 % 2111 753 9253.86 14.74 1006 14.51 2%146 % 3.86 468 28 5.98 2952 3.86 8.51 % %1255 10.68 81 134 122 2978 % 16.54 174 15.92 %3268 0.39 1052 68 5.58 %30.39 43 770 1029 % 18.67 5511 . 1991 /Low / Low Mod MSA MSA . Mod Total Industry Apps Average 3.78 .57 3.38 %9.07 %61456 3.64 800 35 .24 727 926 53 6%3841 39 1.33 51 %9.07 1.85 %2104 1.32 .24 32.57 72431 15422 12.69 %12.89 3.55 2.69 18.92 38 %12.09 6.79 73 582 %12.89 6.53 818 104 860 10.17 2.69 11.71 6.79 65 11178 1190 %555 12.39 121 % 12.89 146 54 765 %1298 7.55 2.69 7.06 6.79 16.65 98 % 62 12.89 932 %1258 6.20 15.87 % 2.69 7.66 696.79 901 78 103 1649 12.89 1%2.69 428 3 % 0.70 12.89 1.46 22.69 74 %18.88 14.54 509 22.69 %24 3.66 18.88 656 5.72 22.69 7.00 %414 %18.88 29 2364 %19.48 9.24 224 8.88 22.69 %22.69 5.63 4.26 %1084 1618.88 213.18 1055 %1.93 2.95 1139 % 5.49 % 21.93 3.38 %64 1740 5.49 8.65 21.93 %15.49 • 2.91 • 937 10.65 %48 5.12 10.91 10.65 10.91 736 % 18 2.45 % 10.65 10.91 21 2.64 796 %11.81 8.66 223 2576 13.22 %29.05 12.73 138 1084 15.60 %1543 12.44 192 2.95 2295 3.86 216.81 %9.05 22.95 351 59 %9.05 217.11 22.95 91 532 %29.05 15.98 2474 277 1733 2.95 15.54 %2983 13.68 408 3.86 %29.05 10.44 22.95 31297 12.30 46 %27.85 14.79 3738 % 12.47 0.39 496 61 2311 5.12 92 25.12 675 183 %27.85 27.11 %27.85 566 2.47 5.12 7.96 14 197 970.39 %321219 11.83 2%7.85 20.05 15.11 %15.72 3509 73 364 20.39 5.12 80 2%7.85 7.91 25.12 37468 %27.4 15.81 4544 15.49 25.31 %2704 337 2131 6.02 % 10.74 27.4 1990 / Low o%Industry Total f Mod . Average Apps Apps 459 15 1970 28 . • 242 25 351 43 500 42 . • 369 49 417 16 · 4075 336 390 32 177 6 181 4 869 67 771 56 848 75 • • 1096 203 . . • # 844 154 . 244 27 . • 242 9 * • 295 14 1194 250 489 /Low Mod MSA Industry %of Apps Average %12.02 3.27 %12.02 1.42 15.7 * 15.7 1%5.7 10.33 15.7 % 12.25 15.7 % 8.40 15.7 • % 13.28 26.42 26.42 % 3.84 26.42 % 8.25 26.42 % 8.21 26.42 26.87 %26.87 3.39 %26.87 2.21 %10.94 7.71 %10.94 7.26 %10.94 8.84 11.04 32.28 % 18.52 32.28 * 32.28 . % 32.28 18.25 32.28 . % 11.07 23.27 23.27 • % 3.72 23.27 23.27 * %23.27 4.75 20.94 %26.72 58 %26.72 11.86 564 MSA York New INDEPENDENCE BANK SAVINGS New York MORTGAGE .HOME CORP CHASE Oakland 950 MORTGAGE GN MORTGAGE CORP SUNBELT NATIONAL Oakland ALL COMPANY Oakland MORTGAGE PACIFIC Oakland PIB COMPANY MORTGAGE Oakland NVR MORTAGE MORTGAGE HOME C Oakland 6770 PRUDENTIAL THE 967 %14.27 10.55 Philadelphia . CO 4.69 102 189 21324 THE TRUST MAWR BRYN Philadelphia %2266 7.45 MORTGAGE CPRUDENTIAL 4.69 100 2309 HOME THE 3569 %1487 12.83 710 854.69 25534 COUNTRYWIDE CORPORATIO Philadelphia FUNDING MORTGAGE SERVICES 14.26 6755 %963 GE CAPITAL Philadelphia 24.69 103 Philadelphia SAVINGS BANK 296 2417 MAIN FEDERAL LINE 9.62 %3078 SAVINGS BANK Phoenix STATE Phoenix MELLON MORTGAGE COMPANY CTHE MORTGAGE HOME PRUDENTIAL Phoenix Riverside BANK -BAMERICAN RAHAM RURAL WEYERHAEUSER . CO MORTGAGE Riverside CORPORATION P OF Riverside MORTGAGE GMAC San AMERICAN MORTGAGE Diego RESIDENTIAL CORPORATION PMORTGAGE St. OF Louis GMAC 1891 CORPORATION Louis KNUTSON MORTGAGE St. Louis St. JAMES &COMPANY B.NUTTER SAVINGS MFEDERAL St. OF BANK 3051 HOME Louis BANK St.Louis COLONIAL THE Tampa ORP .CUNION MORT FIRST 1683 MORTGAGE SOURCE ONE Tampa Tampa 1665 CMARGARETTEN & OMPANY 450 LINCOLN CORPORATION Tampa SERVICE MORTGAGE LP COMPANY Tampa GREENTREE Washington UNION CREDIT FEDERAL NAVY 2131 689 Washington %11.46 10.56 1240 222 746.02 5.31 1937 MORTGAGE . CORP CHASE HOME 1993 22 The National Community Reinvestment Coalition⚫ 202-986-7898 I APPLICATIONS NCOME MODERATE -AND L OW1990--1993 :II.B.5 LENDERS WORST TABLE 39 40 APPROVALS NCOME -AND I MODERATE : OWL 1990-1993 LENDERS WORST TABLE .B.6 II /Low /Mod Low Name Total .Mod Aprvs %132 11.58 1140 833 773 698 605 95 100 68 204 273 104 176 239 1592 75 42 104 285 282 562 327 1552 1917 67 1274 60 2067 116 468 9011 1186 2189 2383 273 1929 31 466 30 561 1557 12 1200 1503 888 1431 579 916 2157 2798 2187 4630 % 12.29 % 11.24 4.86 %3003 146 17.00 % 18.16 % % 11.71 12.30 % 15.01 % % 12.95 % 4.59 % 4.82 % 10.19 14.57 % 3115 454 % 12.14 21.07 % % 3.50 % 4.71 % 5.61 0%1.21 % 13.16 11.46 % % 1.61 0%3.53 % 0.77 %6.63 2581 171 %1374. 17.90 246 1047 28.45 % 3680 257 3110 % 846 55 6.50 % 4475 275 6.15 % 2154 22 1.02 % 612 14 2.29 18.05 2.90 8.05 %1178 6144 19.96 %838.05 18.05 1%8.05 14.33 18.05 20.73 20.73 20.73 20.73 21.32 21.32 21.32 16.77 16.77 21.5 21.5 212.89 %1.5 21.5 21.5 18.54 18.54 18.54 18.54 24.06 4.06 %2331 15.12 15.31 %15.31 6.44 15.31 12.82 12.82 22.86 8.26 %22.86 14.6 14.6 5.76 5.76 / Low / Mod Low Total Industry o%f Mod %of . Average Aprvs Aprvs Aprvs % 615 33 5.37 % 684 19 2.78 1303 110 %101 9.26 1091 · . % 502 38 7.57 1068 34 3.18 % % 2022 226 11.18 985 150 % 1193 140 11.74 1087 88 % 341 28 8.21 % 292 19 6.51 % 563 25 4.44 1613 187 % 1836 170 9.26 % 3463 354 10.22 % 1528 310 20.29 % 463 10 2.16 844 29 % 1344 77 5.73 540 1 1722 202 1899 240 3358 % 24.06 336 10.01 887 14 % 567 31 5.47 787 18 % 0.00 1097 0 4.33 %131 3024 % 1043 119 11.41 % 3254 22.86 321 9.86 % 2101 147 7.00 % 1306 88 6.74 % 104 2115 4.92 % 3053 28 0.92 % 501 14 2.79 MSA 14.93 14.93 14.93 14.93 14.93 19.12 19.12 15.23 %19.12 19.12 %17.4 8.10 7.4 %1209 14.57 1434 17.4 17.39 17.39 11.59 %21.56 211.22 %1.56 253 2254 21.56 21.56 21.56 16.11 1%6.11 3.44 16.11 10.19 %6.11 %22.14 11.73 12.64 %22.14 22.14 1%3.4 1.58 13.4 %13.4 2.29 10.57 10.57 15.5 15.5 15.5 11.22 11.22 4.79 4.79 / Low /Low Mod Mod Total . Industry Aprvs Aprvs Average MSA • 1 66 51 59 * 21 213 90 . 40 67 22 5 4 132 128 89 164 184 6 6 48 0 215 145 151 1634 8 10 3 0 76 97 60 44 31 • 28 12 12.02 12.02 12.02 5.98 %12.02 %12.02 7.78 12.02 26.15 26.15 26.15 26.15 23.22 23.22 23.22 19.97 19.97 22.21 22.21 13.59 %22.21 %22.21 8.96 22.21 22.28 22.28 22.28 22.28 28.07 28.07 %28.07 9.24 16.69 16.69 16.69 8.99 8.99 %27.28 17.86 27.28 27.28 14.21 14.21 7.09 7.09 • 378 4.93 18.44 %1253 853 758 • 655 1328 476 516 850 321 192 194 891 961 655 1831 880 209 328 721 244 1284 938 382 229 241 909 1490 543 2070 398 501 • 1859 332 0.26 % % 5.27 • %3.21 % 16.04 % 18.91 % 7.75 % 7.88 % 6.85 % 2.60 % 2.06 % 14.81 % 13.32 20.91 % % 2.87 % 1.83 % 6.66 % 0.00 16.74 % % 15.46 % 2.09 % 4.37 % 1.24 % 0.00 % 5.10 % 2.90 % 11.06 % 6.19 . % 1.51 % 3.61 / Low /Mod MSA Low Industry %of Total Industry . %of Mod Average Aprvs Average Aprvs Aprvs 221 352 478 730 319 287 747 410 307 189 231 616 158 755 461 898 594 224 222 500 143 • 1071 252 • • • · • 286 1714 384 491 1701 8 • 24 25 38 8 8 76 81 30 22 · 13 50 7 78 • 32 66 89 3 29 19 0 • 88 3 . • • • 56 371 28 20 13 • 3.62 % % 6.82 % 5.23 %5.21 % 2.51 % 2.79 % 10.17 9.99 9.99 9.99 9.99 9.99 9.99 23.83 23.83 %23.83 19.76 29.77 %3.83 %11.64 0.2415 0.2415 • 0.2415 % 5.63 19.03 % 8.12 % 4.43 19.03 20.86 % 10.33 20.86 20.86 6.94 % 7.35 % 20.86 20.86 % 14.98 11.34 %8.93 % 13.06 18.93 % 3.80 18.93 % 0.00 18.93 25.8 • 25.8 · 8.22 % 25.8 14.23 1.19 % 14.23 14.23 • 7.42 • 7.42 • 19.58 %28.98 21.65 %28.98 28.98 . 22.41 % 7.29 %22.41 4.07 10.76 %0.13 10.13 565 The National Community Reinvestment Coalition 202-986-7898 MSA FINANCE CORP Anaheim LOAN AMERICA MORTGAGE CPRUDENTIAL THE HOME Anaheim CORPORATION Anaheim MORTGAGE RSL Anaheim GN MORTGAGE Anaheim MORTGAGE . CO WEYERHAEUSER SA FEDERAL Anaheim CALIFORNIA SOUTHERN CPRUDENTIAL MORTGAGE HOME Atlanta THE CORPORATION FINANCIAL ENTRUST Atlanta BANK FEDERAL SAVINGS Atlanta ALLATOONA Atlanta B/ASERVICE DTLAN CORP EAGLE Baltimore SAVINGS B FEDERAL REISTERSTOWN COMPANY MORTGAGE Baltimore B.F.SAUL CITIBANK F.S.B. Baltimore SERVICES MORTGAGE CAPITAL Boston GE C Boston MORTGAGE HOME PRUDENTIAL THE Chicago .HOME CORP MORTGAGE CHASE CO INS LIFE MUTUAL PRINCIPAL Chicago COMPANY TRUST NORTHERN Chicago THE Chicago COMPANY NBD MORTGAGE CORPORATION MORTGAGE SHELTER Chicago CTHE Dallas MORTGAGE HOME PRUDENTIAL RUST TMERCANTILE Dallas &BANK COMPANY MORTGAGE GUARDIAN Dallas Dallas SERVICES CONSUMER U.S. CHASE Detroit REPUBLIC BANK Detroit MORTGAGE ONE SOURCE Detroit BANK NATIONWIDE FIRST CPRUDENTIAL MORTGAGE Houston HOME THE COMPANY MORTGAGE MITCHELL Houston COR Houston MORTGAGE AMERICAN BARCLAYS Los Angeles .MORTGAGE CORP HOME CHASE Los Angeles MORTGAGE GN Minneapolis CORP CAPITAL FEDERAL FIRST Minneapolis CMARGARETTEN & OMPANY Minneapolis .&MORT CORP INANCIAL FHEIGL SNassau .CORP - uffolk MORTGAGE HOME CHASE CPRUDENTIAL SNassau MORTGAGE HOME - uffolk THE York New . CORP MORTGAGE HOME CHASE &COMPANY MARGARETTEN York New MSA 1990 1991 1992 1993 1993 MSA York New PROVIDENT BANK SAVINGS York ROOSEVELT New SAVINGS BANK C MORTGAGE HOME York New THE PRUDENTIAL York New BANK SAVINGS INDEPENDENCE PIB COMPANY MORTGAGE Oakland CORP Oakland MORTGAGE SUNBELT NATIONAL THE PRUDENTIAL C MORTGAGE HOME Oakland NVR MORTAGE Oakland Oakland MORTGAGE GN ALL COMPANY Oakland MORTGAGE PACIFIC GE SERVICES MORTGAGE CAPITAL Philadelphia Philadelphia THE C MORTGAGE HOME PRUDENTIAL BANK SAVINGS FEDERAL LINE MAIN Philadelphia Philadelphia . CO TRUST MAWR BRYN THE COUNTRYWIDE FUNDING CORPORATIOPhiladelphia Phoenix C MORTGAGE HOME PRUDENTIAL THE Phoenix STATE BANK SAVINGS COMPANY MELLON MORTGAGE Phoenix WEYERHAEUSER .MORTGAGE Riverside CO RURAL -BRAHAM Riverside BANK AMERICAN GMAC P OF CORPORATION MORTGAGE Riverside San AMERICAN MORTGAGE Diego RESIDENTIAL BANK MFEDERAL OF HOME SAVINGS St. Louis CJAMES & OMPANY B.NUTTER Louis St. KNUTSON CORPORATION MORTGAGE Louis St. St. Louis GMAC P OF CORPORATION MORTGAGE Louis BANK St. COLONIAL THE Tampa LP COMPANY MORTGAGE GREENTREE FIRST UNION CORP .MORT Tampa CORPORATION LINCOLN SERVICE Tampa Tampa & OMPANY CMARGARETTEN Tampa MORTGAGE ONE SOURCE Washington MORTGAGE .HOME CORP CHASE Washington UNION CREDIT FEDERAL NAVY 701 608 4616 822 783 593 831 1289 179 645 5247 920 125 1205 127 5.32 119.50 101 %518 1%995.32 8.75 1132 4.03 12886 %216 7.48 %2910 14.71 1.1 2428 %21.1 13.59 %119 13.42 :11 2887 1.1 %2287 15.56 1845 %21.1 10.54 4.63 25.14 623 %32 4.63 2%1533 10.83 166 4.63 21613 %15.44 249 ! Low /Low Mod %of Mod Total Industry . Average Aprvs Aprvs 808 18 445 19 %5.76 25 1.73 2431 % 645 17 2.64 % 1141 85 7.45 723 63 % 796 8 1.01 1164 69 37 % 584 6.34 104 1125 % 2.63 7.98 %26347 14.10 258 3232 895 % 3148 %2012 6.73 702.63 3.48 2212 %2265 2924 8.99 % 22.63 4.02 91 263 % %2928 13.89 912.63 9.81 1377 %73 12.29 22.63 %465 29.21 730.79 15 793 % 2847 %529 3.97 0.79 12 2.27 2113 %58 6.63 0.79 2134 1764 2021 % 988 %1875.32 34 5.36 8.81 634 • · % 39 934 4.18 2084 % 127 6.09 % 2738 344 12.56 468 28 704 98 1469 183 877 66 • · . 4.63 49 %453 11.79 83 2704 4.63 58 %2391 14.21 52 366 1103 83 973 146 %87 8.63 %4.07 10.14 175 21008 1726 4.07 4449 217.85 %657 14.77 %5430 969 MSA %4.79 2.23 %4.79 4.27 %4.79 1.03 4.79 11.57 18.71 %1.57 11.57 %11.57 5.93 11.57 19.24 %1.57 16.67 16.67 16.67 16.67 5.30 %16.67 %13.05 3.23 13.05 %13.05 3.29 9.71 9.71 9.71 11.95 20.01 %20.01 5.98 13.92 %20.01 212.46 %0.01 7.53 %20.01 22.68 %22.68 10.82 14.83 %22.68 7.52 %22.68 %22.68 15.01 25.16 / Low ! Low %oMod Total Industry .f Aprys Average Aprvs % 10 2.68 24 11 16 % 50 7.12 27 1 53 12 61 % 202 9.31 % 15 2.76 % 52 5.09 61 . %12.21 115 57 17 31 20 % 110 5.44 373 349 931 581 702 514 375 827 336 518 2169 544 1022 474 414 942 654 660 639 704 2022 1509 532 91 318 49 1046 129 263 28 379 35 281 41 300 60 562 14 2.49 % % 609 156 25.62 25.16 509 . Name 1991 1992 / Low /Low Mod MSA Total . Mod Aprvs 52.57 %.76 18 25 %5.76 4.11 80 1071 52.80 %.76 30 5.60 %15.51 46 11.37 %15.51 89 6107 1.85 %15.51 113 %15.51 92 15.51 %15.51 7.70 64 1%5.51 132 1126 11.72 1990 Mod MSA 7.09 7.09 %6.88 %7.09 1.18 2.75 %7.09 11.72 5.25 %11.72 0.27 %11.72 %11.72 6.41 %11.72 3.57 111.78 %1.72 19.2 19.2 19.2 %19.2 12.87 7.00 %29 19.2 19.94 19.94 %19.94 8.72 %9.51 2.58 4.85 %951 2.84 %951 10.7 %2204 4.35 13.52 %24.35 17.11 215.41 %4.35 12.33 %24.35 2%4.35 10.65 2%5.4 9.23 214.59 %5.4 %25.4 20.00 25.4 25.4 8.64 %2445.98 %2080 15.19 2316 5.98 / Low ! Low Mod MSA %of Industry Total Industry o%f Mod . Average Aprvs Average Aprvs • 10.13 • % 10.13 401 -11 2.74 %10.13 1.95 871 17 %10.13 2.03 295 6 % 11.90 14.36 269 32 14.36 · • • 14.36 • • • % 14.36 500 42 8.40 • 14.36 • • %14.36 10.31 223 23 %3.04 27.83 3756 294 %3.04 1.79 2 336 6 % 23.04 343 23 6.71 %23.04 11.99 342 41 23.04 · · • 21.89 130 4 % 3.08 21.89 · • · 2.82 %21.89 142 4 %9.23 7.23 664 48 652 45 %9.23 6.90 % 9.23 761 65 8.54 8.56 • • % 28.99 770 130 16.88 28.99 . • 28.99 %28.99 18.00 1061 191 28.99 5.41 %21.11 259 14 216 25 11.57 %21.11 21.11 • % 3.26 215 7 21.11 21.11 · . · 212.89 %464.74 357 219.63 4.74 %224 1141 566 The National Community Reinvestment Coalition 202-986-7898 APPROVALS :LNCOME 1990-1993 LENDERS WORST -I MODERATE AND OW- .B.6 II TABLE 41 567 SECTION III : THE WORST LENDERS IN AMERICA 1993 DATA TABLES 42 The National Community Reinvestment Coalition⚫ 202-986-7898 568 SECTION III EXPLANATION OF DATA TABLES FOR 1993 This section contains tables of data on the lenders selected as the worst performers for the year of 1993. The data is presented in two different ways: by the name of the lender ( Table A) and by the MSA ( Table B) . Each table presents data on each of the five indicators used to measure lending performance ( marketing to minorities, denial ratios, minority approvals, low- and moderate-income applications, and low- and moderate-income approvals) . The categories in each table are self-explanatory. MSA averages represent how the industry performed overall and are used as the benchmark for judging individual lender's performance. Table III. A.1: This table presents a list of the worst lenders alphabetically for the year 1993. The third column AGENCY indicates which regulatory agency the institution reports its HMDA data to. 1 is the Office of the Comptroller of the Currency ( OCC) , 2 is the Federal Reserve System ( FRS) , 3 is the Federal Deposit Insurance Corporation ( FDIC) , 4 is the Office of Thrift Supervision ( OTS) , 5 is the National Credit Union Administration ( NCUA) , and 7 is the Department of Housing and Urban Development ( HUD) . The next column TYPE OF INSTITUTION is a classification of the lender. A lender is either an independent mortgage company ( regulated by HUD, not subject to CRA, and not affiliated with a bank or bank holding company) , a commercial bank or savings bank ( subject to CRA and regulated by one of the four bank regulatory agencies) , a credit union ( not subject to CRA and regulated by the NCUA) , or a bank related mortgage company ( affiliated with a bank or bank holding company and not subject to CRA) . Table III. A.2: Table III. A.3: Table III. A.4: Table III. A.5: Table III. A.6: Minority applications for each lender. Denial rates between white and minority applicants. Minority approval rates. Low- and moderate-income applications. Low- and moderate-income approvals. Table II.B 1-6: These tables are exactly the same as the Tables A. 1-6, but lenders are organized by MSA rather than alphabetically. The National Community Reinvestment Coalition⚫ 202-986-7898 43 569 SECTION III : THE WORST LENDERS IN AMERICA 1993 DATA TABLES BY LENDER 44 The National Community Reinvestment Coalition 202-986-7898 570 TABLE III. A.1 LENDER ALLATOONA FEDERALSAVINGS BANK ALLIED SAVINGS BANK AMERICAN HOME FUNDING AMERICAN HOME MORTGAGE AMERICAN RESIDENTIALMORTGAGE AMERICAN RESIDENTIALMORTGAGE AMERICAN RESIDENTIAL MORTGAGE AMERICAN RESIDENTIALMORTGAGE AMERICAN RESIDENTIALMORTGAGE ASSURANCE MORTGAGE CORP OF AME ATLANTIC RESIDENTIAL MORTGAGE BANCBOSTON MORTGAGE CORP. BANCBOSTONMORTGAGE CORP. BANCBOSTON MORTGAGECORP. BANCORP MORTGAGE INC BARCLAYS AMERICAN MORTGAGE COR BARCLAYS AMERICAN MORTGAGE COR BROOKSAMERICAMORTGAGECORP. B.F.SAUL MORTGAGE COMPANY CAL COASTMORTGAGE CORPORATION CALIFORNIA UNITED BANK CARLI. BROWN AND COMPANY CHARLES FCURRY COMPANY CHASE HOME MORTGAGE CORP. CHASE HOMEMORTGAGECORP. CHASE HOMEMORTGAGE CORP. CHASEHOME MORTGAGECORP. CHASE HOME MORTGAGE CORP. CHASEHOMEMORTGAGE CORP. CHASE U.S. CONSUMER SERVICES CITIBANK F.S.B. COLONIALMORTGAGECOMPANY COLONIAL MORTGAGE COMPANY COLONIAL MORTGAGE COMPANY CORNERSTONEMORTGAGE COMPANY COUNTRYWIDEFUNDINGCORPORATIO COUNTRYWIDE FUNDING CORPORATIO COUNTRYWIDE FUNDING CORPORATIO COUNTRYWIDE FUNDING CORPORATIO COUNTRYWIDE FUNDING CORPORATIO COUNTRYWIDE FUNDING CORPORATIO COUNTRYWIDE FUNDING CORPORATIO CRESTARMORTGAGE CORPORATION CROSSLAND MORTGAGE CORP. CROSSLAND MORTGAGE CORP. CTX MORTGAGE COMPANY CTX MORTGAGE COMPANY DEDHAM INSTITUTIONFORSAVINGS DOLLARMORTGAGE CORPORATION EAGLESERVICE CORP D/B/AATLAN EASTCAMBRIDGE SAVINGS BANK EMIGRANTSAVINGS BANK EMIGRANTSAVINGS BANK ENTRUST FINANCIAL CORPORATION ENTRUSTFINANCIALCORPORATION FIRST FRANKLIN FIRST FRANKLIN FIRST FRANKLIN FIRST FRANKLIN FIRST HEIGHTS BANK THE WORST LENDERS IN 1993 MSA AGENCY 4 Atlanta 4 Oakland 3 Tampa Atlanta 7 7 Anaheim 7 Los Angeles 7 Oakland 7 SanDiego 7 St. Louis Boston 7 3 Baltimore Houston 1 1 Tampa 1 Washington 3 Philadelphia 2 Dallas Houston 2 7 Oakland Baltimore 4 7 SanDiego 1 Los Angeles 7 Tampa 7 Phoenix Boston 1 1 Chicago 1 LosAngeles Nassau-Suffolk 1 1 NewYork 1 Washington Dallas 2 St. Louis 4 7 Riverside 7 Atlanta Dallas 7 7 Houston 7 Houston Atlanta 7 7 Boston Nassau-Suffolk 7 7 Riverside SanDiego 7 7 St. Louis 7 Washington St. Louis 2 Dallas 7 Houston 7 7 Baltimore 7 Washington Boston 3 7 SanDiego Atlanta 4 Boston 3 Nassau-Suffolk 3 NewYork 3 7 Atlanta 7 Baltimore 7 LosAngeles 7 Oakland 7 Riverside 7 SanDiego Houston 4 TYPE OF INSTITUTION Commercial/Savings Bank Commercial/Savings Bank Bank Related Mortgage Company IndependentMortgage Company Independent MortgageCompany IndependentMortgageCompany IndependentMortgageCompany IndependentMortgageCompany IndependentMortgage Company IndependentMortgageCompany BankRelatedMortgageCompany Bank Related Mortgage Company Bank Related Mortgage Company Bank RelatedMortgage Company Bank Related Mortgage Company Bank RelatedMortgage Company Bank RelatedMortgage Company IndependentMortgageCompany Bank Related Mortgage Company IndependentMortgageCompany Commercial/Savings Bank IndependentMortgageCompany Bank Related MortgageCompany Bank Related MortgageCompany BankRelatedMortgage Company BankRelatedMortgage Company Bank Related Mortgage Company Bank RelatedMortgage Company BankRelatedMortgage Company Commercial/SavingsBank IndependentMortgageCompany IndependentMortgageCompany IndependentMortgageCompany IndependentMortgageCompany IndependentMortgageCompany IndependentMortgage Company Independent MortgageCompany IndependentMortgageCompany Independent MortgageCompany IndependentMortgageCompany Independent MortgageCompany IndependentMortgageCompany IndependentMortgageCompany IndependentMortgageCompany IndependentMortgage Company IndependentMortgage Company Commercial/Savings Bank IndependentMortgageCompany Commercial/SavingsBank Commercial/Savings Bank Commercial/Savings Bank IndependentMortgageCompany IndependentMortgageCompany IndependentMortgageCompany IndependentMortgageCompany IndependentMortgageCompany IndependentMortgageCompany Commercial/Savings Bank The National Community Reinvestment Coalition 202-986-7898 45 571 TABLE III. A.1 THE WORST LENDERS IN 1993 LENDER FIRSTLIBERTY BANK FIRST UNION MORT. CORP. FIRST UNION MORT. CORP. FLAGSHIP FEDERAL SAVINGS BANK FLEET MORTGAGE CORP. FRANKLIN MORTGAGE CAPITAL FRANKLIN MORTGAGE CAPITAL FRANKLIN MORTGAGE CAPITAL GE CAPITAL MORTGAGE SERVICES GECAPITAL MORTGAGE SERVICES GE CAPITAL MORTGAGE SERVICES GE CAPITAL MORTGAGE SERVICES GE CAPITAL MORTGAGE SERVICES GE CAPITAL MORTGAGE SERVICES GE CAPITAL MORTGAGE SERVICES GE CAPITAL MORTGAGE SERVICES GMACMORTGAGE CORPORATION OFP GMAC MORTGAGECORPORATION OFP GNMORTGAGE GNMORTGAGE GNMORTGAGE GNMORTGAGE GREENTREE MORTGAGE COMPANY LP GUARDIAN MORTGAGE COMPANY HEADLANDS MORTGAGE COMPANY HEADLANDS MORTGAGE COMPANY HEIGL MORT. & FINANCIAL CORP. HOMEFEDERAL SAVINGSBANK OF M HOMESTEAD MORTGAGE CORPORATION HORIZON SAVINGS BANK HOUSEHOLD BANK IMPERIAL CREDIT INDUSTRIES INDEPENDENCE SAVINGS BANK INTEGRA MORTGAGE COMPANY JAMES B. NUTTER & COMPANY J.J. KISLAK MORTGAGE CORP. KEYCORPMORTGAGE INC. KNUTSONMORTGAGE CORPORATION LAKELAND MORTGAGE CORP. LEEDS FEDERAL SAVINGS & LOAN LOAN AMERICA FINANCE CORP LOAN AMERICA FINANCE CORP LOAN AMERICA FINANCE CORP MAIN LINE FEDERALSAVINGS BANK MARGARETTEN & COMPANY MSA AGENCY 4 2 2 4 2 7 7 7 7 7 7 7 7 7 7 7 7 7 3 3 3 3 7 7 7 7 7 4 7 4 4 7 3 2 7 7 3 7 7 4 7 7 7 4 7 7 2 2 2 2 4 7 2 7 7 7 7 7 7 7 7 4 Atlanta Baltimore Tampa SanDiego Riverside Baltimore Dallas Washington Baltimore Boston Chicago Dallas Houston Oakland Philadelphia Washington Minneapolis Riverside Anaheim Los Angeles Oakland SanDiego Tampa Detroit Anaheim Oakland Minneapolis St. Louis Minneapolis Tampa Chicago Riverside New York Philadelphia St. Louis Boston Nassau-Suffolk Minneapolis Minneapolis Baltimore Anaheim Chicago Minneapolis Philadelphia Tampa Phoenix Baltimore MELLONBANK ( MD) Washington Dallas MELLON MORTGAGE COMPANY MELLON MORTGAGE COMPANY Phoenix Dallas MERCANTILE BANK & TRUST METMOR FINANCIAL Phoenix Atlanta METROBANK METROPOLITAN SERVICE CORP. Anaheim METROPOLITAN SERVICE CORP. LosAngeles Riverside METROPOLITAN SERVICECORP. MICALMORTGAGE Riverside MIDCOASTMORTGAGE CORPORATION Nassau-Suffolk MIDLAND FINANCIAL MORTGAGES Chicago MIDLAND FINANCIAL MORTGAGES St. Louis Houston MITCHELL MORTGAGE COMPANY MTVERNON FEDERAL SAVINGS BANK Atlanta 46 TYPE OF INSTITUTION Commercial/Savings Bank Bank RelatedMortgage Company Bank RelatedMortgage Company Commercial/Savings Bank BankRelated Mortgage Company IndependentMortgage Company IndependentMortgage Company Independent MortgageCompany IndependentMortgage Company IndependentMortgageCompany IndependentMortgageCompany IndependentMortgage Company IndependentMortgage Company IndependentMortgage Company IndependentMortgageCompany IndependentMortgageCompany IndependentMortgageCompany IndependentMortgage Company BankRelatedMortgage Company BankRelated Mortgage Company Bank Related Mortgage Company Bank RelatedMortgage Company IndependentMortgageCompany IndependentMortgageCompany IndependentMortgageCompany IndependentMortgageCompany IndependentMortgage Company Commercial/Savings Bank IndependentMortgageCompany Commercial/Savings Bank Commercial/Savings Bank IndependentMortgage Company Commercial/Savings Bank Bank Related MortgageCompany Independent Mortgage Company IndependentMortgageCompany Bank Related Mortgage Company IndependentMortgageCompany IndependentMortgageCompany Commercial/Savings Bank IndependentMortgage Company IndependentMortgageCompany Independent Mortgage Company Commercial/SavingsBank IndependentMortgageCompany IndependentMortgageCompany Commercial/Savings Bank Commercial/SavingsBank BankRelated MortgageCompany BankRelatedMortgage Company Commercial/Savings Bank IndependentMortgageCompany Commercial/Savings Bank IndependentMortgageCompany IndependentMortgage Company IndependentMortgage Company IndependentMortgageCompany IndependentMortgageCompany Independent MortgageCompany IndependentMortgageCompany Independent MortgageCompany Commercial/Savings Bank The National Community Reinvestment Coalition · 202-986-7898 88-882 - 95 - 19 572 TABLE III.A.1 LENDER THE WORST LENDERS IN 1993 MSA AGENCY S Washington 2 Chicago 7 Philadelphia 2 Atlanta Boston 3 3 New York 7 Philadelphia 2 Anaheim 2 Oakland 7 Atlanta 7 Philadelphia 1 Los Angeles 1 New York 7 Chicago 4 Philadelphia 7 Dallas 4 NewYork Riverside 4 PROVIDENT SAVINGS BANK 4 PROVIDENT SAVINGS BANK SanDiego 4 Baltimore Detroit 3 3 St. Louis Nassau-Suffolk 3 7 Phoenix Nassau-Suffolk 3 Detroit 7 Nassau-Suffolk 3 3 New York 4 Anaheim 7 Oakland 7 SanDiego NewYork 7 7 Detroit 7 SOURCE ONEMORTGAGE Houston 7 SOURCE ONEMORTGAGE Tampa 7 Washington SOURCE ONE MORTGAGE 4 SOUTHERN CALIFORNIA FEDERALSA Anaheim 1 Tampa 4 SOVEREIGNBANK. A FED SAVINGS Philadelphia 4 Detroit STANDARD FEDERALBANK 4 Phoenix STATE SAVINGS BANK Detroit 7 ST.JAMES SERVICING CORP 7 Boston SUBURBAN MORTGAGE CO. 7 SUNBELTNATIONALMORTGAGECORP Houston 7 SUNBELTNATIONAL MORTGAGECORP Phoenix Boston 4 SUNCOAST SAVINGS & LOAN ASSOC. 4 SUNCOAST SAVINGS & LOAN ASSOC. Tampa Nassau-Suffolk 4 SUNRISE FEDERAL SAVINGS BANK 4 TEMPLE-INLAND MORTGAGE CO. Los Angeles Nassau-Suffolk 4 TEMPLE-INLAND MORTGAGE CO. THE BRYNMAWRTRUST CO. 3 Philadelphia THE COLONIAL BANK 3 St.Louis Boston 1 Detroit 1 Anaheim 7 7 Atlanta 7 Baltimore Boston 7 7 Chicago 7 Dallas 7 Houston 7 Los Angeles NAVY FEDERAL CREDITUNION NBD MORTGAGE COMPANY NORTH AMERICAN MORTGAGE CO OLD COLONY MORTGAGE CORPORATIO PEOPLES WESTCHESTER PHILADELPHIA MORTGAGE CORP. PIB MORTGAGE COMPANY TYPE OF INSTITUTION CreditUnion Bank Related Mortgage Company IndependentMortgageCompany Bank Related MortgageCompany Bank RelatedMortgage Company Commercial/Savings Bank IndependentMortgage Company Bank Related MortgageCompany BankRelatedMortgage Company IndependentMortgage Company Commercial/Savings Bank Commercial/Savings Bank Commercial/Savings Bank Commercial/Savings Bank Commercial/Savings Bank Commercial/Savings Bank Commercial/Savings Bank IndependentMortgage Company Commercial/Savings Bank IndependentMortgageCompany Commercial/Savings Bank Commercial/Savings Bank Bank Related Mortgage Company IndependentMortgage Company IndependentMortgage Company IndependentMortgageCompany IndependentMortgage Company IndependentMortgage Company IndependentMortgageCompany Independent Mortgage Company Commercial/Savings Bank Bank RelatedMortgage Company Commercial/Savings Bank Commercial/Savings Bank Commercial/Savings Bank IndependentMortgageCompany IndependentMortgageCompany IndependentMortgage Company IndependentMortgage Company Commercial/Savings Bank Commercial/Savings Bank Commercial/Savings Bank BankRelated Mortgage Company BankRelatedMortgage Company Commercial/Savings Bank BankRelated MortgageCompany Bank Related Mortgage Company IndependentMortgageCompany IndependentMortgage Company IndependentMortgageCompany IndependentMortgageCompany IndependentMortgageCompany IndependentMortgageCompany Independent MortgageCompany IndependentMortgage Company The National Community Reinvestment Coalition⚫ 202-986-7898 47 573 TABLE III.A.1 THE WORST LENDERS IN 1993 LENDER THE PRUDENTIAL HOME MORTGAGE C THE PRUDENTIALHOMEMORTGAGE C THE PRUDENTIAL HOME MORTGAGE C THEPRUDENTIAL HOME MORTGAGE C THE PRUDENTIAL HOME MORTGAGE C THEPRUDENTIAL HOME MORTGAGE C THEPRUDENTIAL HOME MORTGAGE C THE PRUDENTIAL HOME MORTGAGE C THE PRUDENTIAL HOME MORTGAGE C THEPRUDENTIAL HOME MORTGAGE C 48 MSA Minneapolis Nassau-Suffolk NewYork Oakland Philadelphia Phoenix Riverside SanDiego Tampa Washington Tampa Washington Phoenix Anaheim Los Angeles Phoenix Riverside Atlanta Chicago Minneapolis Riverside Anaheim Riverside Detroit AGENCY 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 1 2 7 7 7 7 7 7 TYPE OF INSTITUTION IndependentMortgage Company IndependentMortgageCompany IndependentMortgage Company IndependentMortgageCompany Independent Mortgage Company IndependentMortgage Company Independent Mortgage Company IndependentMortgageCompany IndependentMortgageCompany IndependentMortgageCompany Independent Mortgage Company Independent Mortgage Company IndependentMortgage Company IndependentMortgage Company IndependentMortgage Company IndependentMortgageCompany Commercial/SavingsBank BankRelated Mortgage Company IndependentMortgageCompany IndependentMortgage Company Independent MortgageCompany IndependentMortgageCompany IndependentMortgage Company Independent MortgageCompany The National Community Reinvestment Coalition⚫ 202-986-7898 574 TABLE III.A.2 THE WORST LENDERS IN 1993: MARKETING TO MINORITIES LENDER MSA ALLATOONA FEDERAL SAVINGS BANK ALLIED SAVINGS BANK AMERICAN HOME FUNDING AMERICAN HOME MORTGAGE AMERICAN RESIDENTIALMORTGAGE AMERICAN RESIDENTIAL MORTGAGE AMERICAN RESIDENTIALMORTGAGE AMERICAN RESIDENTIALMORTGAGE AMERICAN RESIDENTIAL MORTGAGE ASSURANCE MORTGAGE CORPOF AME ATLANTIC RESIDENTIAL MORTGAGE BANCBOSTON MORTGAGE CORP. BANCBOSTON MORTGAGE CORP. BANCBOSTON MORTGAGE CORP. BANCORP MORTGAGE INC BARCLAYS AMERICAN MORTGAGE COR BARCLAYS AMERICAN MORTGAGE COR BROOKSAMERICA MORTGAGE CORP. B.F.SAUL MORTGAGE COMPANY CALCOASTMORTGAGE CORPORATION CALIFORNIA UNITED BANK CARLL. BROWN AND COMPANY CHARLES FCURRYCOMPANY CHASE HOME MORTGAGE CORP. CHASEHOME MORTGAGE CORP. CHASE HOME MORTGAGE CORP. CHASEHOMEMORTGAGECORP. CHASE HOME MORTGAGE CORP. CHASE HOMEMORTGAGE CORP. CHASE U.S. CONSUMER SERVICES CITIBANK F.S.B. CITIZENS NATIONAL MORTGAGE COR COLONIAL MORTGAGE COMPANY COLONIALMORTGAGE COMPANY COLONIALMORTGAGE COMPANY CORNERSTONEMORTGAGE COMPANY COUNTRYWIDE FUNDINGCORPORATIO COUNTRYWIDE FUNDING CORPORATIO COUNTRYWIDE FUNDING CORPORATIO COUNTRYWIDE FUNDING CORPORATIO COUNTRYWIDE FUNDING CORPORATIO COUNTRYWIDEFUNDING CORPORATIO COUNTRYWIDE FUNDINGCORPORATIO CRESTAR MORTGAGE CORPORATION CROSSLAND MORTGAGE CORP. CROSSLAND MORTGAGE CORP. CTX MORTGAGE COMPANY CTX MORTGAGE COMPANY DEDHAM INSTITUTION FOR SAVINGS DOLLARMORTGAGE CORPORATION EAGLE SERVICE CORP D/B/A ATLAN EASTCAMBRIDGE SAVINGS BANK EMIGRANT SAVINGS BANK EMIGRANT SAVINGS BANK ENTRUST FINANCIAL CORPORATION ENTRUST FINANCIAL CORPORATION FIRSTFRANKLIN FIRST FRANKLIN FIRSTFRANKLIN FIRST FRANKLIN FIRST HEIGHTS BANK Atlanta Oakland Tampa Atlanta Anaheim Los Angeles Oakland SanDiego St. Louis Boston Baltimore Houston Tampa Washington Philadelphia Dallas Houston Oakland Baltimore SanDiego Los Angeles Tampa Phoenix Boston Chicago Los Angeles Nassau-Suffolk NewYork Washington Dallas St. Louis Riverside Atlanta Dallas Houston Houston Atlanta Boston Nassau-Suffolk Riverside SanDiego St. Louis Washington St. Louis Dallas Houston Baltimore Washington Boston SanDiego Atlanta Boston Nassau-Suffolk New York Atlanta Baltimore LosAngeles Oakland Riverside SanDiego Houston White Minority MSA %of Minority % of Minority Total Share of White Applications Applications Applications Applications Applications Applications Average 1561 1768 555 2135 2138 4511 2212 3174 1058 1606 2147 699 619 1916 2030 638 608 710 1677 1602 1718 1094 1240 820 2901 1928 973 2431 1937 520 681 2214 3433 1477 918 1181 3576 4929 1635 5287 9231 1020 2687 957 1311 1629 1079 1941 627 641 912 635 1010 1314 1235 550 3584 1409 735 1436 1709 1.03% 155% 0.64% 1.41% 158% 1.44% 1.94% 2.54% 0.81% 1.32% 2.11% 0.73% 0.71% 0.82% 1.02% 0.72% 0.63% 0.62% 1.65% 1.28% 055% 1.26% 0.88% 0.67% 1.07% 0.61% 1.17% 2.27% 0.83% 0.59% 0.52% 1.70% 2.27% 1.66% 0.96% 1.23% 2.36% 4.05% 1.96% 4.06% 7.39% 0.78% 1.15% 0.73% 1.48% 1.70% 1.06% 0.83% 0.51% 0.51% 0.60% 0.52% 1.21% 1.23% 0.82% 054% 1.14% 1.23% 0.56% 1.15% 1.78% 1461 1634 519 2076 2010 3777 2047 2929 1011 1585 2034 670 578 1798 2005 619 579 650 1561 1394 1639 1047 1104 808 2777 1863 943 2283 1753 513 654 1604 3281 1435 884 1097 3392 4867 1568 4313 8553 990 2397 943 1277 1555 1019 1797 623 576 854 628 973 1221 1179 511 3092 1282 645 1343 1596 The National Community Reinvestment Coalition 202-986-7898 93.59% 92.42% 93.51% 97.24% 94.01% 83.73% 92.54% 92.28% 95.56% 98.69% 94.74% 95.85% 93.38% 93.84% 98.77% 97.02% 95.23% 91.55% 93.08% 87.02% 95.40% 95.70% 89.03% 98.54% 95.73% 96.63% 96.92% 93.91% 90.50% 98.65% 96.04% 72.45% 95.57% 97.16% 96.30% 92.89% 94.85% 98.74% 95.90% 81.58% 92.66% 97.06% 89.21% 98.54% 97.41% 95.46% 94.44% 92.58% 99.36% 89.86% 93.64% 98.90% 96.34% 92.92% 95.47% 92.91% 86.27% 90.99% 87.76% 93.52% 93.39% 100 134 36 59 128 734 165 245 47 21 113 29 41 118 25 19 29 60 116 208 79 47 136 12 124 65 30 148 184 7 27 610 152 42 34 84 184 62 67 974 678 30 290 14 34 74 60 144 4 65 58 7 37 93 56 39 492 127 90 93 113 6.41% 7.58% 6.49% 2.76% 5.99% 16.27% 7.46% 7.72% 4.44% 1.31% 5.26% 4.15% 6.62% 6.16% 1.23% 2.98% 4.77% 8.45% 6.92% 12.98% 4.60% 4.30% 10.97% 1.46% 4.27% 3.37% 3.08% 6.09% 9.50% 1.35% 3.96% 27.55% 4.43% 2.84% 3.70% 7.11% 5.15% 1.26% 4.10% 18.42% 7.34% 2.94% 10.79% 1.46% 2.59% 4.54% 5.56% 7.42% 0.64% 10.14% 6.36% 1.10% 3.66% 7.08% 4.53% 7.09% 13.73% 9.01% 12.24% 6.48% 6.61% 12.46% 15.21 % 8.68% 12.46% 12.50% 33.10% 15.21% 13.35% 8.29% 3.50% 11.79% 16.42% 8.68% 16.80% 8.86% 12.35% 16.42% 15.21 % 11.79% 13.35% 33.10% 8.68% 9.33% 3.50% 16.37% 33.10% 6.86% 20.81% 16.80% 12.35% 8.29% 27.15% 12.46% 12.35% 16.42% 16.42% 12.46% 3.50% 6.86% 27.15% 13.35% 8.29% 16.80% 8.29% 12.35% 16.42% 11.79% 16.80% 3.50% 13.35% 12.46% 3.50% 6.86% 20.81% 12.46% 11.79% 33.10% 15.21% 27.15% 13.35% 16.42% 49 575 TABLE III. A.2 THE WORST LENDERS IN 1993: MARKETING TO MINORITIES White Minority % of Minority %of Total Share of White LENDER MSA Applications Applications Applications Applications Applications Applications 80 6.07% 1239 93.93% 1319 0.87% Atlanta FIRST LIBERTY BANK 4.72% 95.28% 29 615 586 0.60% FIRSTUNION MORT. CORP. Baltimore 35 703 95.26% 4.74% 738 0.85% FIRSTUNION MORT. CORP. Tampa 48 704 6.38% 752 0.60% 93.62% FLAGSHIP FEDERAL SAVINGS BANK SanDiego 285 721 71.67% 28.33% Riverside 1006 0.77% FLEETMORTGAGE CORP. 18 97.00% 3.00% 582 600 0.59% Baltimore FRANKLIN MORTGAGE CAPITAL 32 2.36% 1356 1324 97.64% Dallas 1.53% FRANKLIN MORTGAGE CAPITAL 93.14% 274 3992 3718 6.86% 1.70% FRANKLINMORTGAGE CAPITAL Washington 6.14% 688 45 93.86% Baltimore 733 0.72% GE CAPITAL MORTGAGE SERVICES Boston 18 985 98.17% GE CAPITAL MORTGAGE SERVICES 0.81 % 967 1.83% 167 2038 1871 91.81% 8.19% 0.75% GE CAPITAL MORTGAGE SERVICES Chicago 19 Dallas 4.05% 469 450 95.95% GECAPITAL MORTGAGE SERVICES 0.53% 615 0.68% 652 94.33% 37 5.67% Houston GECAPITAL MORTGAGE SERVICES 5.91% 94.09% 54 Oakland 913 859 0.80% GE CAPITALMORTGAGE SERVICES 230 3.40% 6755 3.40% 6525 96.60% GE CAPITAL MORTGAGE SERVICES Philadelphia 92.02% 269 7.98% GE CAPITAL MORTGAGE SERVICES 3373 1.44% 3104 Washington 98.69% 1.31% 2402 32 2434 1.21% GMACMORTGAGE CORPORATION OF P Minneapolis 1038 241 18.84% 1279 81.16% GMAC MORTGAGE CORPORATION OF P Riverside 0.98% 1013 39 3.71% Anaheim 1052 0.78% 96.29% GNMORTGAGE 84.11% 545 15.89% 2884 GNMORTGAGE 3429 1.09% Los Angeles 950 45 Oakland 905 95.26% 4.74% GNMORTGAGE 0.83% 681 0.55% 636 45 6.61% 93.39% SanDiego GNMORTGAGE 741 29 770 96.23% 0.88% 3.77% GREENTREE MORTGAGE COMPANY LP Tampa 98.78% Detroit 1230 1215 15 1.22% 0.52% GUARDIAN MORTGAGE COMPANY 748 690 58 Anaheim 92.25% 7.75% HEADLANDS MORTGAGE COMPANY 0.55% 1300 144 90.03% 1444 9.97% Oakland 1.26% HEADLANDS MORTGAGE COMPANY 3174 3140 34 98.93% 1.07% HEIGLMORT. & FINANCIAL CORP. 158% Minneapolis 3017 34 3051 2.33% 98.89% 1.11% HOME FEDERAL SAVINGS BANK OFM St. Louis 27 2986 1.49% 2959 99.10% 0.90% HOMESTEAD MORTGAGE CORPORATION Minneapolis 564 529 35 6.21% 0.65% 93.79% HORIZON SAVINGS BANK Tampa 5265 HOUSEHOLD BANK 5605 2.06% 93.93% 340 6.07% Chicago 1290 Riverside 1582 81.54% IMPERIAL CREDIT INDUSTRIES 1.22% 292 18.46% 1456 118 1.36% 1338 91.90% 8.10% INDEPENDENCE SAVINGS BANK NewYork 1011 1053 42 96.01% 0.53% 3.99% INTEGRAMORTGAGE COMPANY Philadelphia St. Louis 1006 991 98.51% 0.77% 15 JAMES B. NUTTER & COMPANY 1.49% Boston 18 1441 1.18% 1423 98.75% J.J. KISLAK MORTGAGE CORP. 1.25% 40 97.11% 1383 KEYCORPMORTGAGE INC. 2.89% Nassau-Suffolk 1.66% 1343 4175 KNUTSONMORTGAGE CORPORATION Minneapolis 4143 32 0.77% 2.08% 99.23% LAKELAND MORTGAGE CORP. 3393 1.69% 3358 98.97% 35 1.03% Minneapolis 630 20 LEEDS FEDERAL SAVINGS & LOAN Baltimore 610 96.83% 3.17% 0.62% 1266 92.02% 1165 101 Anaheim LOAN AMERICA FINANCE CORP 0.93% 7.98% 1649 1527 92.60% 122 LOAN AMERICA FINANCE CORP 0.61% 7.40% Chicago 1019 12 1007 LOAN AMERICA FINANCE CORP 0.51% 98.82% 1.18% Minneapolis 3040 3078 38 1.55% 98.77% MAIN LINE FEDERAL SAVINGS BANK 1.23% Philadelphia 1589 76 1665 95.44% 4.56% 1.91% MARGARETTEN & COMPANY Tampa 1935 93 Phoenix 2028 95.41% 4.59% 1.45% 635 Baltimore 664 0.65% 95.63% 29 4.37% MELLON BANK( MD) 1898 1673 88.15% 225 11.85% 0.81% MELLON BANK ( MD) Washington 475 Dallas 507 93.69% 32 MELLON MORTGAGE COMPANY 6.31% 0.57% 72 2066 96.52% MELLONMORTGAGE COMPANY Phoenix 1.47% 1994 3.48% MERCANTILE BANK & TRUST 21 Dallas 1294 1273 98.38% 1.46% 1.62% 822 771 METMOR FINANCIAL Phoenix 0.59% 93.80% 51 6.20% METROBANK Atlanta 760 733 96.45% 27 0.50% 3.55% 2338 METROPOLITAN SERVICE CORP. Anaheim 2186 152 1.73% 93.50% 6.50% METROPOLITAN SERVICE CORP. 2519 0.80% 2114 83.92% 405 16.08% Los Angeles METROPOLITAN SERVICE CORP. 687 Riverside 581 0.53% 84.57% 106 15.43% MICAL MORTGAGE Riverside 2136 71.11% 617 1.64% 1519 28.89% 2788 2647 MIDCOASTMORTGAGE CORPORATION Nassau-Suffolk 3.34% 141 94.94% 5.06% MIDLAND FINANCIAL MORTGAGES 2330 2189 0.86% 141 93.95% 6.05% Chicago 1388 MIDLAND FINANCIAL MORTGAGES St. Louis 1373 1.06% 15 1.08% 98.92% Houston 552 MITCHELL MORTGAGE COMPANY 0.58% 95.29% 26 526 4.71% 1153 0.76% MTVERNON FEDERAL SAVINGS BANK Atlanta 1069 92.71% 7.29% 84 50 MSA Minority Average 12.46% 11.79% 8.68% 13.35% 27.15% 11.79% 12.35% 16.80% 11.79% 3.50% 16.37% 12.35% 16.42% 15.21% 8.86% 16.80% 1.69% 27.15% 12.50% 33.10% 15.21% 13.35% 8.68% 7.38% 12.50% 15.21% 1.69% 8.29% 1.69% 8.68% 16.37% 27.15% 20.81% 8.86% 8.29% 3.50% 6.86% 1.69% 1.69% 11.79% 12.50% 16.37% 1.69% 8.86% 8.68% 9.33% 11.79% 16.80% 12.35% 9.33% 12.35% 9.33% 12.46% 12.50% 33.10% 27.15% 27.15% 6.86% 16.37% 8.29% 16.42% 12.46% The National Community Reinvestment Coalition · 202-986-7898 576 TABLE III.A.2 THE WORST LENDERS IN 1993: MARKETING TO MINORITIES LENDER MSA NAVY FEDERAL CREDIT UNION NBD MORTGAGE COMPANY NORTH AMERICAN MORTGAGECO NORWEST MORTGAGE OLD COLONY MORTGAGE CORPORATIO PEOPLES WESTCHESTER PHILADELPHIA MORTGAGE CORP. PIB MORTGAGECOMPANY PIB MORTGAGE COMPANY PINE STATE MORTGAGE CORPORATIO PINNACLE MORTGAGE INVEST. CORP PNC MORTGAGECORP. OF AMERICA PNCMORTGAGE CORP. OF AMERICA PRINCIPAL MUTUAL LIFE INS CO PROGRESS FEDERAL SAVINGS BANK PROGRESSIVE SOUTHERN MORTGAGE Washington Chicago Philadelphia Atlanta Boston New York Philadelphia Anaheim Oakland Atlanta Philadelphia Los Angeles New York Chicago Philadelphia Dallas New York Riverside SanDiego Baltimore Detroit St. Louis Nassau-Suffolk Phoenix Nassau-Suffolk Detroit Nassau-Suffolk New York Anaheim Oakland SanDiego New York Detroit Houston Tampa Washington Anaheim Tampa Philadelphia Detroit Phoenix Detroit Boston Houston Phoenix Boston Tampa Nassau-Suffolk LosAngeles Nassau-Suffolk Philadelphia St. Louis Boston Detroit Anaheim Atlanta Baltimore Boston Chicago Dallas Houston Los Angeles PROVIDENT SAVINGS BANK PROVIDENT SAVINGS BANK REISTERSTOWN FEDERAL SAVINGS B REPUBLIC BANK REPUBLIC BANK REPUBLIC BANK FOR SAVINGS RIDGEWOOD SAVINGS BANK ROCK FINANCIAL CORPORATION ROOSEVELTSAVINGS BANK ROOSEVELT SAVINGS BANK RSLMORTGAGE CORPORATION RYLAND MORTGAGE COMPANY SAN DIEGO FUNDING SIBLEYMORTGAGE CORPORATION SOURCE ONEMORTGAGE SOURCE ONEMORTGAGE SOURCE ONEMORTGAGE SOURCE ONE MORTGAGE SOUTHTRUSTMORTGAGE CORP. SOVEREIGN BANK. A FED SAVINGS STANDARD FEDERALBANK STATE SAVINGS BANK ST.JAMES SERVICING CORP SUBURBAN MORTGAGE CO. SUNBELTNATIONALMORTGAGE CORP SUNBELTNATIONAL MORTGAGE CORP SUNCOASTSAVINGS & LOAN ASSOC. SUNCOAST SAVINGS & LOAN ASSOC. SUNRISE FEDERAL SAVINGSBANK TEMPLE-INLAND MORTGAGE CO. TEMPLE-INLAND MORTGAGE CO. THE BRYN MAWR TRUST CO. THE COLONIAL BANK THE HUNTINGTON MORTGAGE CO THE HUNTINGTON MORTGAGE CO THE PRUDENTIAL HOME MORTGAGE C THE PRUDENTIAL HOME MORTGAGE C THE PRUDENTIAL HOME MORTGAGEC THE PRUDENTIAL HOME MORTGAGEC THE PRUDENTIAL HOME MORTGAGE C THE PRUDENTIALHOME MORTGAGE C THE PRUDENTIAL HOME MORTGAGE C THE PRUDENTIAL HOME MORTGAGE C White Minority %of Minority %of Share of White Total Applications Applications Applications Applications Applications Applications 4862 88.22% 649 11.78% 5511 2.35% 132 4700 4832 1.78% 97.27% 2.73% 20 1215 0.61% 1195 98.35% 1.65% 90 1553 1643 94.52% 1.09% 5.48% 7 867 860 0.71% 0.81% 99.19% 1574 1.47% 93.33% 105 1469 6.67% 3128 98.33% 53 1.60% 1.67% 3181 74 7.85% 943 869 92.15% 0.70% 9.76% 932 841 91 0.82% 90.24% 96 1093 91.93% 1189 0.79% 8.07% 2583 2633 1.32% 50 1.90% 98.10% 298 19.10% 1560 1262 0.50% 80.90% 76 0.63% 598 88.72% 11.28% 674 3057 206 3263 1.20% 93.69% 6.31% 1003 985 98.21% 18 1.79% 0.50% 639 48 0.72% 591 92.49% 7.51% 750 706 44 5.87% 94.13% 0.70% 1351 209 15.47% 1142 1.04% 84.53% 1014 0.81% 945 93.20% 69 6.80% 1469 1.44% 1427 97.14% 42 2.86% 9380 9229 98.39% 151 1.61% 3.94% 2430 2486 56 2.25% 1.90% 97.75% 1135 40 1.36% 1095 96.48% 3.52% 39 668 94.48% 707 0.50% 5.52% 1035 42 4.06% 1.24% 993 95.94% 7664 3.22% 197 7467 97.43% 2.57% 1708 1617 91 94.67% 2.05% 5.33% 695 0.65% 642 92.37% 53 7.63% 990 1054 0.78% 93.93% 64 6.07% 626 568 0.55% 90.73% 58 9.27% 2256 1.81% 2052 204 90.96% 9.04% 890 0.83% 851 39 95.62% 4.38% 2226 2162 97.12% 64 0.93% 2.88% 505 537 94.04% 32 0.56% 5.96% 1683 1595 94.77% 88 5.23% 1.93% 1228 1125 91.61% 0.52% 103 8.39% 719 688 31 4.31% 0.53% 95.69% 470 16 0.54% 454 3.40% 96.60% 1896 1856 0.95% 40 2.11% 97.89% 15.37% 36603 35325 96.51% 1278 3.49% 2978 2.12% 2814 164 5.51% 94.49% 1322 1302 20 0.56% 98.49% 1.51% 684 663 21 0.56% 96.93% 3.07% 44 597 0.62% 553 92.63% 7.37% 88 1263 1175 93.03% 0.90% 6.97% 672 686 14 0.56% 97.96% 2.04% 16 479 463 3.34% 0.55% 96.66% 425 16 0.51% 409 96.24% 3.76% 1840 85.27% 271 0.59% 1569 14.73% 0.66% 527 95.82% 23 550 4.18% 1324 38 0.67% 1286 97.13% 2.87% 1255 1240 0.96% 15 1.20% 98.80% 6437 5.29% 6349 88 98.63% 1.37% 1926 0.81% 1882 44 97.72% 2.28% 7317 7023 5.40% 294 95.98% 4.02% 2.20% 3328 3121 93.78% 207 6.22% 1914 1.88% 1846 68 96.45% 3.55% 2403 2434 2.00% 31 1.27% 98.73% 2432 0.89% 2300 94.57% 132 5.43% 2156 2098 2.43% 58 97.31% 2.69% 2127 2.22% 2035 92 95.67% 4.33% 14538 4.64% 13613 93.64% 925 6.36% The National Community Reinvestment Coalition • 202-986-7898 MSA Minority Average 16.80% 16.37% 8.86% 12.46% 3.50% 20.81% 8.86% 12.50% 15.21% 12.46% 8.86% 33.10% 20.81% 16.37% 8.86% 12.35% 20.81% 27.15% 13.35% 11.79% 7.38% 8.29% 6.86% 9.33% 6.86% 7.38% 6.86% 20.81% 12.50% 15.21% 13.35% 20.81% 7.38% 16.42% 8.68% 16.80% 12.50% 8.68% 8.86% 7.38% 9.33% 7.38% 3.50% 16.42% 9.33% 3.50% 8.68% 6.86% 33.10% 6.86% 8.86% 8.29% 3.50% 7.38% 12.50% 12.46% 11.79% 3.50% 16.37% 12.35% 16.42% 33.10% 51 577 TABLE III.A.2 THE WORST LENDERS IN 1993: MARKETING TO MINORITIES White Minority % of % of Minority Share of White Total LENDER MSA Applications Applications Applications Applications Applications Applications 19 0.86% 2211 2192 99.14% THE PRUDENTIAL HOME MORTGAGE C Minneapolis 1.10% 122 2.38% 5006 97.62% 5128 THE PRUDENTIAL HOME MORTGAGEC Nassau-Suffolk 6.14% 347 5161 93.70% 6.30% 5508 5.14% THE PRUDENTIAL HOME MORTGAGE C New York 308 6462 95.45% 4.55% 5.93% 6770 THE PRUDENTIAL HOME MORTGAGE C Oakland 96.33% 131 3.67% THE PRUDENTIAL HOME MORTGAGE C Philadelphia 3569 1.79% 3438 22 985 963 2.23% 0.70% 97.77% THE PRUDENTIAL HOME MORTGAGE C Phoenix 1679 176 1503 89.52% 10.48% THE PRUDENTIAL HOME MORTGAGEC Riverside 1.29% 4032 165 3.93% 4197 3.36% 96.07% THE PRUDENTIAL HOME MORTGAGEC SanDiego 35 THE PRUDENTIAL HOME MORTGAGE C Tampa 958 1.10% 923 96.35% 3.65% 361 5328 2.27% 4967 93.22% 6.78% THE PRUDENTIAL HOME MORTGAGE C Washington 688 0.79% 678 98.55% 10 TMC MORTGAGE CO. 1.45% Tampa 2327 2273 97.68% 54 2.32% 0.99% Washington 6.50% Phoenix 785 734 93.50% 0.56% 51 1238 1171 67 5.41% Anaheim 0.91% 94.59% 1968 0.63% 1708 86.79% 260 13.21% UNIONSECURITYMORTGAGE Los Angeles Phoenix 2756 2493 90.46% 263 9.54% 1.97% VENTURE FINANCIAL SERVICES 99 VINEYARD NATIONALBANK Riverside 698 599 85.82% 14.18% 0.54% Atlanta 180 WACHOVIAMORTGAGE CO 2484 92.75% 7.25% 1.64% 2304 2659 2810 151 WASHTENAW MORTGAGE COMPANY #2 Chicago 94.63% 1.03% 5.37% 1031 9 WASHTENAWMORTGAGE COMPANY #2 Minneapolis 0.51% 1022 99.13% 0.87% WESTERN CITIES MORTGAGE CORPOR Riverside 1725 1.33% 1331 394 77.16% 22.84% Anaheim WEYERHAEUSER MORTGAGE CO. 742 685 0.55% 92.32% 57 7.68% Riverside 1070 827 77.29% 243 WEYERHAEUSER MORTGAGE CO. 0.82% 22.71% 1987 WORLDWIDE FINANCIAL SERVICES Detroit 0.83% 1965 22 1.11% 98.89% 52 MSA Minority Average 1.69% 6.86% 20.81% 15.21 % 8.86% 9.33% 27.15% 13.35% 8.68% 16.80% 8.68% 16.80% 9.33% 12.50% 33.10% 9.33% 27.15% 12.46% 16.37% 1.69% 27.15% 12.50% 27.15% 7.38% The National Community Reinvestment Coalition⚫ 202-986-7898 578 TABLE III.A.3 THE WORST LENDERS IN 1993: DENIAL RATIOS LENDER ALLATOONA FEDERAL SAVINGS BANK ALLIED SAVINGS BANK AMERICAN HOME FUNDING AMERICAN HOME MORTGAGE AMERICAN RESIDENTIAL MORTGAGE AMERICAN RESIDENTIAL MORTGAGE AMERICAN RESIDENTIALMORTGAGE AMERICAN RESIDENTIAL MORTGAGE AMERICAN RESIDENTIAL MORTGAGE ASSURANCEMORTGAGE CORP OFAME ATLANTIC RESIDENTIAL MORTGAGE BANCBOSTON MORTGAGE CORP. BANCBOSTON MORTGAGE CORP. BANCBOSTON MORTGAGE CORP. BANCORPMORTGAGEINC BARCLAYS AMERICAN MORTGAGE COR BARCLAYS AMERICAN MORTGAGE COR BROOKSAMERICAMORTGAGE CORP. B.F.SAULMORTGAGE COMPANY CAL COASTMORTGAGE CORPORATION CALIFORNIAUNITED BANK CARLI. BROWN AND COMPANY CHARLES F CURRY COMPANY CHASE HOME MORTGAGE CORP. CHASE HOME MORTGAGE CORP. CHASEHOMEMORTGAGE CORP. CHASE HOMEMORTGAGE CORP. CHASEHOMEMORTGAGE CORP. CHASE HOMEMORTGAGE CORP. CHASE U.S. CONSUMER SERVICES CITIBANK F.S.B. CITIZENS NATIONAL MORTGAGE COR COLONIAL MORTGAGE COMPANY COLONIAL MORTGAGE COMPANY COLONIAL MORTGAGE COMPANY CORNERSTONE MORTGAGE COMPANY COUNTRYWIDE FUNDING CORPORATIO COUNTRYWIDE FUNDING CORPORATIO COUNTRYWIDE FUNDINGCORPORATIO COUNTRYWIDE FUNDINGCORPORATIO COUNTRYWIDE FUNDING CORPORATIO COUNTRYWIDE FUNDING CORPORATIO COUNTRYWIDE FUNDINGCORPORATIO CRESTAR MORTGAGE CORPORATION CROSSLAND MORTGAGE CORP. CROSSLANDMORTGAGE CORP. CTX MORTGAGE COMPANY CTX MORTGAGE COMPANY DEDHAM INSTITUTION FOR SAVINGS DOLLAR MORTGAGE CORPORATION EAGLESERVICE CORP D/B/AATLAN EASTCAMBRIDGE SAVINGS BANK EMIGRANT SAVINGS BANK EMIGRANT SAVINGS BANK ENTRUST FINANCIAL CORPORATION ENTRUST FINANCIAL CORPORATION FIRST FRANKLIN FIRST FRANKLIN FIRSTFRANKLIN FIRSTFRANKLIN FIRST HEIGHTS BANK Total Minority Minority Applications Applications Denials 1561 100 18 Atlanta 134 17 1768 Oakland 555 36 9 Tampa 1 2135 Atlanta 59 26 2138 128 Anaheim 734 175 4511 Los Angeles 2212 165 38 Oakland 245 32 3174 SanDiego 47 16 1058 St. Louis 0 Boston 1606 21 113 12 Baltimore 2147 29 8 Houston 699 41 6 619 Tampa 118 11 1916 Washington 25 4 2030 Philadelphia 638 19 Dallas 2 29 608 4 Houston 60 710 19 Oakland Baltimore 1677 116 15 1602 208 52 SanDiego 1718 79 18 Los Angeles 1094 47 14 Tampa Phoenix 136 6 1240 4 820 12 Boston 2901 6 124 Chicago 65 27 1928 Los Angeles 6 973 30 Nassau-Suffolk 148 39 2431 NewYork 184 37 1937 Washington 7 0 Dallas 520 681 27 St. Louis 13 2214 610 143 Riverside 152 10 Atlanta 3433 42 S Dallas 1477 Houston 918 34 1 1181 84 26 Houston 184 28 Atlanta 3576 62 4 Boston 4929 67 9 Nassau-Suffolk 1635 5287 974 137 Riverside 678 107 SanDiego 9231 1020 30 St. Louis S 2687 43 290 Washington 0 St. Louis 14 957 Dallas 2 1311 34 74 1629 6 Houston 11 1079 60 Baltimore Washington 144 19 1941 Boston 4 627 1 641 15 SanDiego 65 912 58 6 Atlanta 7 Boston 635 4 37 6 Nassau-Suffolk 1010 1314 93 21 NewYork Atlanta 56 6 1235 Baltimore 550 39 3 492 3584 113 Los Angeles Oakland 127 1409 22 90 19 Riverside 735 SanDiego 1436 93 17 113 Houston 1709 34 MSA The National Community Reinvestment Coalition⚫ 202-986-7898 Minority Denial Rate 18.00 12.69 25.00 1.69 20.31 23.84 23.03 13.06 34.04 0.00 10.62 27.59 14.63 9.32 16.00 10.53 13.79 31.67 12.93 25.00 22.78 29.79 4.41 33.33 4.84 41.54 20.00 26.35 20.11 0.00 48.15 23.44 6.58 11.90 2.94 30.95 15.22 6.45 13.43 14.07 15.78 16.67 14.83 0.00 5.88 8.11 18.33 13.19 25.00 23.08 10.34 57.14 16.22 22.58 10.71 7.69 22.97 17.32 21.11 18.28 30.09 White Denial Rate 2.74 7.10 7.71 1.25 11.54 15.99 14.46 8.74 9.59 0.95 3.88 12.24 5.02 3.56 9.53 4.85 7.43 16.92 4.48 10.11 14.15 18.43 1.00 3.34 3.49 18.46 12.83 10.42 9.93 10.14 12.08 17.71 3.44 3.00 2.26 4.65 8.67 3.76 5.80 13.68 13.26 5.15 5.34 2.33 2.35 3.34 4.22 2.78 8.51 18.58 2.11 18.15 9.35 11.79 2.46 1.57 15.39 9.52 14.57 12.06 7.39 Minority toWhite Denial Ratio 6.57 1.79 3.24 1.35 1.76 1.49 1.59 1.49 355 0.00 2.74 2.25 2.91 2.62 1.68 2.17 1.86 1.87 2.89 2.47 1.61 1.62 4.41 9.98 1.39 2.25 156 2.53 2.03 0.00 3.99 1.32 1.91 3.97 1.30 6.66 1.76 1.72 2.32 1.03 1.19 3.24 2.78 0.00 2.50 2.43 4.34 4.74 2.94 1.24 4.90 3.15 1.73 1.92 4.35 4.90 1.49 1.82 1.45 152 4.07 53 579 TABLE III. A.3 THE WORST LENDERS IN 1993: DENIAL RATIOS Total Minority Minority Applications Applications Denials MSA 12 80 Atlanta 1319 Baltimore 29 S 615 3 738 35 Tampa 48 12 752 SanDiego 285 34 1006 Riverside 600 4 Baltimore 18 1356 32 0 Dallas 274 33 Washington 3992 45 7 Baltimore 733 985 3 18 Boston 2038 167 47 Chicago 19 6 Dallas 469 6 37 652 Houston 10 Oakland 913 54 230 39 6755 Philadelphia 3373 269 37 Washington 2434 9 32 Minneapolis 49 1279 Riverside 241 39 12 1052 Anaheim 3429 171 545 Los Angeles 7 45 Oakland 950 681 45 15 SanDiego 770 29 10 Tampa 15 0 Detroit 1230 Anaheim 748 58 29 144 37 Oakland 1444 0 34 3174 Minneapolis 4 3051 34 St. Louis 2986 27 1 Minneapolis 3 35 564 Tampa 340 69 5605 Chicago Riverside 1582 76 292 1456 118 53 New York 42 1053 6 Philadelphia St. Louis 1006 15 5 1441 18 1 Boston 40 Nassau-Suffolk 1383 5 4175 3 32 Minneapolis 35 0 3393 Minneapolis 20 Baltimore 630 3 101 1266 16 Anaheim 1649 122 21 Chicago 1019 12 3 Minneapolis 3078 38 7 Philadelphia 1665 76 14 Tampa 2028 93 1 Phoenix 4 Baltimore 664 29 1898 225 54 MELLONBANK ( MD) Washington 7 MELLONMORTGAGE COMPANY Dallas 507 32 2066 72 MELLON MORTGAGE COMPANY Phoenix 8 Dallas 1294 21 0 MERCANTILE BANK & TRUST 822 51 METMOR FINANCIAL Phoenix S METRO BANK 760 27 Atlanta 3 29 152 Anaheim 2338 METROPOLITAN SERVICE CORP. 2519 METROPOLITAN SERVICE CORP. Los Angeles 405 89 METROPOLITAN SERVICE CORP. Riverside 687 106 24 617 Riverside MICAL MORTGAGE 2136 88 MIDCOAST MORTGAGE CORPORATION Nassau-Suffolk 2788 141 29 2330 MIDLAND FINANCIAL MORTGAGES 141 24 Chicago St. Louis MIDLAND FINANCIAL MORTGAGES 2 15 1388 Houston 26 MITCHELL MORTGAGE COMPANY 552 10 MTVERNON FEDERALSAVINGS BANK Atlanta 84 1153 14 LENDER FIRST LIBERTY BANK FIRSTUNIONMORT. CORP. FIRST UNIONMORT. CORP. FLAGSHIP FEDERAL SAVINGS BANK FLEETMORTGAGE CORP. FRANKLIN MORTGAGE CAPITAL FRANKLIN MORTGAGE CAPITAL FRANKLIN MORTGAGE CAPITAL GECAPITAL MORTGAGE SERVICES GE CAPITAL MORTGAGESERVICES GECAPITAL MORTGAGESERVICES GECAPITAL MORTGAGE SERVICES GE CAPITAL MORTGAGE SERVICES GE CAPITAL MORTGAGESERVICES GE CAPITAL MORTGAGE SERVICES GE CAPITAL MORTGAGE SERVICES GMAC MORTGAGE CORPORATION OF P GMAC MORTGAGE CORPORATION OFP GNMORTGAGE GNMORTGAGE GNMORTGAGE GNMORTGAGE GREENTREE MORTGAGECOMPANY LP GUARDIANMORTGAGE COMPANY HEADLANDS MORTGAGE COMPANY HEADLANDS MORTGAGE COMPANY HEIGLMORT. & FINANCIAL CORP. HOME FEDERAL SAVINGS BANK OF M HOMESTEAD MORTGAGE CORPORATION HORIZON SAVINGS BANK HOUSEHOLD BANK IMPERIAL CREDITINDUSTRIES INDEPENDENCE SAVINGS BANK INTEGRAMORTGAGE COMPANY JAMES B. NUTTER & COMPANY J.J. KISLAK MORTGAGE CORP. KEYCORPMORTGAGEINC. KNUTSON MORTGAGE CORPORATION LAKELAND MORTGAGE CORP. LEEDS FEDERAL SAVINGS & LOAN LOAN AMERICAFINANCECORP LOAN AMERICA FINANCE CORP LOAN AMERICA FINANCE CORP MAIN LINE FEDERAL SAVINGS BANK MARGARETTEN & COMPANY 54 Minority Denial Rate 15.00 17.24 8.57 25.00 11.93 22.22 0.00 12.04 15.56 16.67 28.14 31.58 16.22 18.52 16.96 13.75 28.13 20.33 30.77 31.38 15.56 33.33 34.48 0.00 50.00 25.69 0.00 11.76 3.70 8.57 20.29 26.03 44.92 14.29 33.33 5.56 12.50 9.38 0.00 15.00 15.84 17.21 25.00 18.42 18.42 1.08 13.79 24.00 21.88 11.11 0.00 9.80 11.11 19.08 21.98 22.64 14.26 20.57 17.02 13.33 38.46 16.67 White Minority Denial to White Rate Denial Ratio 4.20 3.57 7.68 2.24 4.41 1.94 2.05 12.22 7.49 159 10.31 2.16 0.53 0.00 2.63 4.57 5.96 2.61 6.83 2.44 4.54 6.20 11.33 2.79 2.50 6.50 7.10 2.61 5.66 3.00 3.22 4.27 3.46 8.13 9.44 2.15 1.17 26.36 23.47 1.34 1.26 12.38 26.57 1.25 1.86 18.49 1.07 0.00 26.52 1.89 10.69 2.40 2.04 0.00 4.54 2.59 0.95 3.89 3.97 2.16 2.23 9.08 19.69 1.32 1.81 24.81 2.87 4.98 4.08 8.17 1.55 3.59 7.22 1.73 2.16 4.34 0.00 ERR 3.44 4.36 9.44 1.68 6.61 2.60 5.66 4.42 4.84 3.81 7.43 2.48 0.22 4.91 9.29 1.48 6.22 3.86 5.89 3.71 1.86 5.97 0.00 1.57 3.44 2.85 2.39 4.64 1.85 10.34 12.25 1.79 15.49 1.46 10.93 1.30 2.88 7.14 8.22 2.07 5.68 2.35 14.15 2.72 5.14 3.24 The National Community Reinvestment Coalition 202-986-7898 580 TABLE III.A.3 THE WORST LENDERS IN 1993: DENIAL RATIOS Total Minority Minority Applications Applications Denials MSA 48 649 5511 Washington NAVY FEDERAL CREDIT UNION 132 4832 15 NBDMORTGAGE COMPANY Chicago 20 2 1215 NORTH AMERICAN MORTGAGE CO Philadelphia 24 1643 90 Atlanta NORWEST MORTGAGE 7 3 867 OLDCOLONYMORTGAGE CORPORATIO Boston 1574 40 105 NewYork PEOPLESWESTCHESTER 53 8 3181 PHILADELPHIAMORTGAGE CORP. Philadelphia 74 19 943 Anaheim PIB MORTGAGECOMPANY 91 932 22 Oakland PIB MORTGAGE COMPANY 96 15 1189 PINE STATE MORTGAGE CORPORATIO Atlanta 2633 50 1 PINNACLEMORTGAGE INVEST. CORP Philadelphia 62 Angeles 1560 298 Los PNCMORTGAGE CORP. OF AMERICA 13 76 674 NewYork PNCMORTGAGE CORP. OFAMERICA 206 25 3263 PRINCIPAL MUTUAL LIFE INS CO Chicago 18 10 1003 PROGRESS FEDERAL SAVINGS BANK Philadelphia 48 22 Dallas 639 44 750 S New York 72 Riverside 1351 209 PROVIDENT SAVINGS BANK 69 26 1014 PROVIDENT SAVINGS BANK SanDiego 1469 42 2 Baltimore 151 18 Detroit 9380 REPUBLICBANK 2486 56 14 St. Louis REPUBLICBANK 6 40 Nassau-Suffolk 1135 REPUBLICBANKFOR SAVINGS 707 39 1 Phoenix 42 8 Nassau-Suffolk 1035 197 Detroit 31 7664 16 91 Nassau-Suffolk 1708 15 New York 695 53 1054 Anaheim 18 64 Oakland 626 58 16 2256 204 9 SanDiego 1 890 39 New York 2226 64 4 Detroit SOURCE ONEMORTGAGE 3 SOURCE ONEMORTGAGE 537 32 Houston 12 88 1683 SOURCE ONEMORTGAGE Tampa 1228 103 SOURCE ONEMORTGAGE 13 Washington 11 31 719 Anaheim 2 16 470 Tampa 8 40 Philadelphia 1896 SOVEREIGN BANK. A FED SAVINGS Detroit 36603 1278 91 STANDARD FEDERALBANK 2978 8 Phoenix 164 STATESAVINGS BANK 1 ST. JAMES SERVICING CORP Detroit 1322 20 21 Boston 684 15 SUBURBAN MORTGAGECO. 3 44 597 SUNBELTNATIONALMORTGAGE CORP Houston 22 1263 88 SUNBELT NATIONAL MORTGAGE CORP Phoenix Boston 7 686 14 SUNCOAST SAVINGS & LOANASSOC. 16 2 SUNCOASTSAVINGS & LOAN ASSOC. 479 Tampa 1 425 16 SUNRISE FEDERAL SAVINGS BANK Nassau-Suffolk 271 54 TEMPLE-INLAND MORTGAGE CO. 1840 Los Angeles 23 4 TEMPLE-INLAND MORTGAGE CO. Nassau-Suffolk 550 38 4 1324 THE BRYN MAWRTRUST CO. Philadelphia 15 THE COLONIAL BANK St. Louis 1255 1 88 7 Boston 6437 Detroit 1926 44 16 Anaheim 294 63 7317 3328 207 Atlanta 34 1914 68 Baltimore 12 31 Boston 5 2434 132 2432 24 Chicago 58 Dallas 2156 14 92 Houston 2127 25 925 249 14538 Los Angeles LENDER The National Community Reinvestment Coalition⚫ 202-986-7898 Minority Denial Rate 7.40 11.36 10.00 26.67 42.86 38.10 15.09 25.68 24.18 15.63 2.00 20.81 17.11 12.14 55.56 45.83 11.36 34.45 37.68 4.76 11.92 25.00 15.00 2.56 19.05 15.74 17.58 28.30 28.13 27.59 4.41 2.56 6.25 9.38 13.64 12.62 35.48 12.50 20.00 7.12 4.88 5.00 71.43 6.82 25.00 50.00 12.50 6.25 19.93 17.39 10.53 6.67 7.95 36.36 21.43 16.43 17.65 16.13 18.18 24.14 27.17 26.92 White Denial Rate 0.68 3.98 5.44 6.37 7.56 17.43 8.57 14.96 10.46 3.75 0.62 10.62 6.69 4.02 3.76 19.63 6.23 21.02 24.66 2.52 3.80 6.17 8.13 0.30 7.85 4.08 7.11 11.21 20.51 15.49 1.32 4.82 1.53 3.37 3.64 2.93 14.97 3.96 9.59 1.71 4.37 1.38 19.91 1.08 6.98 25.15 20.30 2.93 15.17 6.45 2.41 3.95 2.11 7.60 15.81 9.32 11.86 11.32 13.52 10.72 8.50 17.81 Minority toWhite Denial Ratio 10.88 2.85 1.84 4.19 5.67 2.19 1.76 1.72 2.31 4.17 3.23 1.96 256 3.02 14.78 2.33 1.82 1.64 153 1.89 3.14 4.05 1.85 853 2.43 3.86 2.47 2.52 1.37 1.78 3.34 0.53 4.08 2.78 3.75 4.31 2.37 3.16 2.09 4.16 1.12 3.62 359 6.31 358 1.99 0.62 2.13 1.31 2.70 4.37 1.69 3.77 4.78 1.36 1.76 1.49 1.42 1.34 2.25 3.20 151 55 581 TABLE III.A.3 THE WORST LENDERS IN 1993: DENIAL RATIOS Total Minority Minority LENDER MSA Applications Applications Denials 4 2211 19 THE PRUDENTIAL HOMEMORTGAGE C Minneapolis 122 19 THE PRUDENTIAL HOMEMORTGAGE C Nassau-Suffolk 5128 347 5508 90 THE PRUDENTIAL HOME MORTGAGE C New York 308 6770 39 THE PRUDENTIAL HOME MORTGAGE C Oakland THE PRUDENTIAL HOME MORTGAGE C Philadelphia 3569 131 30 985 7 THE PRUDENTIAL HOME MORTGAGE C Phoenix 22 176 47 THE PRUDENTIAL HOMEMORTGAGEC Riverside 1679 4197 165 THE PRUDENTIAL HOME MORTGAGE C SanDiego 33 THEPRUDENTIAL HOMEMORTGAGE C Tampa 10 958 35 79 361 THEPRUDENTIAL HOME MORTGAGE C Washington 5328 688 10 3 TMCMORTGAGE CO. Tampa Washington 2327 5 54 785 Phoenix 7 51 1238 67 22 Anaheim 1968 260 90 Los Angeles UNION SECURITY MORTGAGE 2756 263 29 VENTURE FINANCIAL SERVICES Phoenix 18 698 99 VINEYARD NATIONALBANK Riverside Atlanta 2484 180 12 WACHOVIAMORTGAGE CO 151 4 2810 WASHTENAWMORTGAGE COMPANY#2 Chicago 1031 9 2 WASHTENAWMORTGAGE COMPANY #2 Minneapolis 1725 68 WESTERN CITIES MORTGAGE CORPOR Riverside 394 7 742 Anaheim WEYERHAEUSERMORTGAGE CO. 57 Riverside 1070 29 WEYERHAEUSER MORTGAGE CO. 243 Detroit 1987 22 0 WORLDWIDE FINANCIAL SERVICES 56 Minority Denial Rate 21.05 15.57 25.94 12.66 22.90 31.82 26.70 20.00 28.57 21.88 30.00 9.26 13.73 32.84 34.62 11.03 18.18 6.67 2.65 22.22 17.26 12.28 11.93 0.00 White Denial Rate 12.23 12.66 15.54 9.66 11.37 19.21 24.28 17.56 19.28 9.91 6.64 2.38 3.81 19.39 22.60 3.49 13.69 1.74 2.44 1.57 8.79 5.40 6.41 1.83 Minority toWhite Denial Ratio 1.72 1.23 1.67 1.31 2.01 1.66 1.10 1.14 1.48 2.21 452 3.89 3.60 1.69 153 3.16 1.33 3.83 1.09 14.15 1.96 2.27 1.86 0.00 The National Community Reinvestment Coalition 202-986-7898 582 TABLE III.A.4 THE WORST LENDERS IN 1993: MINORITY APPROVALS White Minority MSA Total White % of Minority %of Minority Approvals Approvals Approvals Approvals Approvals Average 82 1503 1421 9454% 5.46% 10.82% ALLATOONAFEDERALSAVINGS BANK Atlanta 1518 92.84% 117 7.16% 13.48% Oakland 1635 ALLIED SAVINGS BANK 5.34% 7.69% 506 27 479 94.66% AMERICAN HOME FUNDING Tampa 2108 58 2.75% 10.82% Atlanta 2050 97.25% AMERICAN HOME MORTGAGE 1778 94.57% 102 1880 5.43% 11.37% AMERICAN RESIDENTIAL MORTGAGE Anaheim 559 14.98% 30.40% 3732 3173 85.02% AMERICAN RESIDENTIALMORTGAGE Los Angeles 1878 127 1751 93.24% 6.76% 13.48% AMERICAN RESIDENTIAL MORTGAGE Oakland 213 7.38% 12.23% 2886 2673 92.62% AMERICAN RESIDENTIAL MORTGAGE SanDiego 31 945 3.28% 6.94% AMERICAN RESIDENTIAL MORTGAGE St. Louis 914 96.72% 1591 1570 98.68% 21 1.32% 3.05% ASSURANCEMORTGAGE CORP OF AME Boston 2056 1955 95.09% 101 4.91% 9.53% Baltimore ATLANTIC RESIDENTIAL MORTGAGE 588 9655% 609 Houston 21 BANCBOSTONMORTGAGE CORP. 3.45% 13.51% 584 549 94.01% 35 BANCBOSTONMORTGAGE CORP. 5.99% 7.69% Tampa 107 1841 1734 94.19% 5.81% 15.30% BANCBOSTONMORTGAGE CORP. Washington 21 1835 1814 98.86% BANCORPMORTGAGE INC 1.14% 7.12% Philadelphia 606 589 97.19% 17 2.81% 10.23% BARCLAYS AMERICAN MORTGAGE COR Dallas 25 4.46% 13.51% 561 536 9554% BARCLAYS AMERICAN MORTGAGE COR Houston 7.06% 13.48% 540 92.94% 41 Oakland 581 BROOKSAMERICAMORTGAGECORP. 1592 Baltimore 1491 93.66% 101 6.34% 9.53% B.F.SAULMORTGAGE COMPANY 156 1409 1253 88.93% CALCOASTMORTGAGE CORPORATION SanDiego 11.07% 12.23% 1468 61 1407 95.84% 4.16% 30.40% CALIFORNIAUNITED BANK Los Angeles 887 3.72% 7.69% 854 96.28% 33 CARLI. BROWN AND COMPANY Tampa 1093 89.37% 130 1223 Phoenix 10.63% 7.97% CHARLES F CURRY COMPANY 781 Boston 789 98.99% 8 1.01% 3.05% CHASEHOME MORTGAGE CORP. 2798 2680 95.78% 118 4.22% 14.81 % CHASE HOMEMORTGAGE CORP. Chicago 1557 CHASEHOMEMORTGAGE CORP. 1519 9756% 38 2.44% 30.40% Los Angeles 24 2.84% 5.91% 822 97.16% Nassau-Suffolk 846 CHASEHOME MORTGAGE CORP. NewYork 2154 2045 94.94% 109 5.06% 18.30% CHASE HOME MORTGAGE CORP. 1726 1579- 91.48% 147 8.52% 15.30% CHASE HOME MORTGAGE CORP. Washington 468 Dallas 461 7 98.50% CHASEU.S. CONSUMER SERVICES 1.50% 10.23% CITIBANK F.S.B. St. Louis 589 575 97.62% 14 2.38% 6.94% 1320 73.87% 1787 467 CITIZENS NATIONALMORTGAGE COR Riverside 26.13% 26.03% 4.29% 10.82% Atlanta 3168 95.71% 142 3310 COLONIAL MORTGAGE COMPANY Dallas 1429 1392 97.41 % 37 COLONIALMORTGAGE COMPANY 2.59% 10.23% 897 864 96.32% 33 COLONIAL MORTGAGE COMPANY Houston 3.68% 13.51% 1104 1046 94.75% CORNERSTONE MORTGAGE COMPANY Houston 58 5.25% 1351% 3098 95.21% 3254 156 4.79% 10.82% COUNTRYWIDE FUNDINGCORPORATIO Atlanta 4684 98.78% COUNTRYWIDEFUNDINGCORPORATIO Boston 4742 58 1.22% 3.05% COUNTRYWIDEFUNDING CORPORATIO Nassau-Suffolk 1535 1477 96.22% 58 3.78% 5.91% 3723 81.64% COUNTRYWIDE FUNDING CORPORATIO Riverside 4560 837 18.36% 26.03% 7990 COUNTRYWIDE FUNDING CORPORATIO SanDiego 7419 92.85% 571 7.15% 12.23% 964 939 25 COUNTRYWIDE FUNDING CORPORATIO St. Louis 97.41% 2.59% 6.94% 2516 2269 90.18% 247 COUNTRYWIDEFUNDINGCORPORATIO Washington 9.82% 15.30% 935 921 14 CRESTAR MORTGAGE CORPORATION St. Louis 98.50% 1.50% 6.94% CROSSLAND MORTGAGE CORP. Dallas 1279 1247 97.50% 32 2.50% 10.23% Houston 1571 68 CROSSLAND MORTGAGE CORP. 1503 95.67% 4.33% 1351% 976 95.22% CTX MORTGAGE COMPANY Baltimore 1025 49 4.78% 9.53% 1747 93.32% 1872 CTX MORTGAGE COMPANY 125 6.68% 15.30% Washington Boston 573 570 99.48% 3 0.52% 3.05% DEDHAM INSTITUTION FOR SAVINGS DOLLARMORTGAGE CORPORATION SanDiego 519 9.63% 12.23% 469 90.37% 50 888 EAGLE SERVICE CORP D/B/A ATLAN 836 94.14% Atlanta 52 5.86% 10.82% EASTCAMBRIDGE SAVINGS BANK Boston 517 514 99.42% 3 0.58% 3.05% EMIGRANT SAVINGS BANK Nassau-Suffolk 913 882 96.60% 31 3.40% 5.91% 1077 93.73% New York 1149 EMIGRANT SAVINGS BANK 72 6.27% 18.30% 1200 ENTRUST FINANCIAL CORPORATION Atlanta 1150 95.83% 50 4.17% 10.82% ENTRUST FINANCIAL CORPORATION Baltimore 539 503 93.32% 36 6.68% 9.53% FIRSTFRANKLIN 2995 379 2616 87.35% 12.65% 30.40% Los Angeles FIRSTFRANKLIN Oakland 1265 1160 91.70% 105 8.30% 13.48% 551 FIRST FRANKLIN Riverside 622 71 88.59% 11.41% 26.03% FIRSTFRANKLIN SanDiego 1257 76 1181 93.95% 6.05% 12.23% Houston FIRST HEIGHTS BANK 1557 1478 94.93% 79 5.07% 1351% LENDER MSA The National Community Reinvestment Coalition · 202-986-7898 57 583 TABLE III.A.4 THE WORST LENDERS IN 1993: MINORITY APPROVALS LENDER FIRST LIBERTYBANK FIRSTUNION MORT. CORP. FIRSTUNIONMORT. CORP. FLAGSHIP FEDERAL SAVINGS BANK FLEETMORTGAGE CORP. FRANKLIN MORTGAGE CAPITAL FRANKLIN MORTGAGE CAPITAL FRANKLIN MORTGAGE CAPITAL GECAPITAL MORTGAGE SERVICES GE CAPITAL MORTGAGE SERVICES GE CAPITAL MORTGAGESERVICES GE CAPITALMORTGAGE SERVICES GE CAPITAL MORTGAGE SERVICES GE CAPITALMORTGAGE SERVICES GE CAPITAL MORTGAGE SERVICES GECAPITALMORTGAGESERVICES GMACMORTGAGE CORPORATION OF P GMAC MORTGAGE CORPORATION OF P GNMORTGAGE GNMORTGAGE GNMORTGAGE GNMORTGAGE GREENTREE MORTGAGE COMPANYLP GUARDIAN MORTGAGE COMPANY HEADLANDS MORTGAGE COMPANY HEADLANDS MORTGAGE COMPANY HEIGLMORT. & FINANCIAL CORP. HOME FEDERAL SAVINGSBANK OFM HOMESTEAD MORTGAGE CORPORATION HORIZON SAVINGS BANK HOUSEHOLD BANK IMPERIAL CREDITINDUSTRIES INDEPENDENCE SAVINGS BANK INTEGRAMORTGAGE COMPANY JAMES B. NUTTER & COMPANY J.I. KISLAK MORTGAGE CORP. KEYCORP MORTGAGE INC. KNUTSON MORTGAGE CORPORATION LAKELAND MORTGAGE CORP. LEEDS FEDERAL SAVINGS & LOAN LOAN AMERICA FINANCE CORP LOAN AMERICAFINANCE CORP LOAN AMERICA FINANCE CORP MAIN LINE FEDERAL SAVINGS BANK MARGARETTEN & COMPANY MEDALLION MORTGAGE COMPANY MELLONBANK ( MD) MELLONBANK ( MD) MELLON MORTGAGE COMPANY MELLONMORTGAGE COMPANY MERCANTILE BANK & TRUST METMORFINANCIAL METRO BANK METROPOLITAN SERVICE CORP. METROPOLITAN SERVICE CORP. METROPOLITAN SERVICE CORP. MICAL MORTGAGE MIDCOAST MORTGAGE CORPORATION MIDLAND FINANCIAL MORTGAGES MIDLANDFINANCIALMORTGAGES MITCHELL MORTGAGE COMPANY MTVERNON FEDERAL SAVINGS BANK 58 White Total White % of Minority Approvals Approvals Approvals Approvals MSA 68 1255 1187 9458% Atlanta 24 565 541 95.75% Baltimore 672 95.45% 32 704 Tampa 618 94.50% 36 654 SanDiego 251 918 667 72.66% Riverside 14 Baltimore 536 522 97.39% 32 1349 1317 97.63% Dallas 241 3548 93.64% 3789 Washington 38 685 647 94.45% Baltimore 15 916 901 98.36% Boston 120 1786 93.70% 1906 Chicago 13 Dallas 412 399 96.84% 31 606 575 94.88% Houston 44 Oakland 798 94.77% 842 6156 96.99% 191 6347 Philadelphia 232 3236 3004 92.83% Washington 23 2342 2319 99.02% Minneapolis 192 940 83.04% Riverside 1132 27 746 Anaheim 773 9651% 2581 374 2207 85.51% Los Angeles 793 95.43% 38 831 Oakland 30 497 467 93.96% SanDiego 19 623 604 96.95% Tampa 1202 98.77% 15 Detroit 1217 29 536 507 94.59% Anaheim 1268 107 1161 91.56% Oakland 3076 98.91% 3110 34 Minneapolis 2910 2880 98.97% 30 St. Louis 2931 99.12% 26 2957 Minneapolis 32 540 508 94.07% Tampa 5058 271 4787 94.64% Chicago 1252 216 1036 82.75% Riverside 65 1071 New York 1006 93.93% 1018 982 36 96.46% Philadelphia 920 10 St. Louis 910 98.91% 1401 98.80% 17 Boston 1418 1246 97.27% 35 Nassau-Suffolk 1281 29 3992 3963 99.27% Minneapolis 35 3393 3358 98.97% Minneapolis Baltimore 606 17 589 97.19% 1140 1055 92.54% 85 Anaheim 1426 93.39% 1527 101 Chicago 959 9 950 99.06% Minneapolis 2893 98.94% 2924 31 Philadelphia 1533 1471 95.96% 62 Tampa 1932 92 1840 95.24% Phoenix Baltimore 601 576 95.84% 25 1740 1569 90.17% 171 Washington Dallas 447 472 25 94.70% 64 Phoenix 2021 1957 96.83% Dallas 1274 1253 98.35% 21 Phoenix 46 795 749 94.21% Atlanta 723 24 699 96.68% 2083 1960 94.10% 123 Anaheim 2171 1855 85.44% 316 Los Angeles Riverside 573 491 82 85.69% 1882 Riverside 529 1353 71.89% Nassau-Suffolk 2570 2458 95.64% 112 2126 117 2009 94.50% Chicago St. Louis 1295 99.01% 13 1308 466 450 16 Houston 96.57% Atlanta 1084 1014 93.54% 70 Minority %of Approvals 5.42% 4.25% 4.55% 5.50% 27.34% 261% 2.37% 6.36% 5.55% 1.64% 6.30% 3.16% 5.12% 5.23% 3.01% 7.17% 0.98% 16.96% 3.49% 14.49% 4.57% 6.04% 3.05% 1.23% 5.41% 8.44% 1.09% 1.03% 0.88% 5.93% 5.36% 17.25% 6.07% 3.54% 1.09% 1.20% 2.73% 0.73% 1.03% 2.81% 7.46% 6.61% 0.94% 1.06% 4.04% 4.76% 4.16% 9.83% 5.30% 3.17% 1.65% 5.79% 3.32% 5.90% 14.56% 14.31% 28.11% 4.36% 5.50% 0.99% 3.43% 6.46% MSA Minority Average 10.82% 9.53% 7.69% 12.23% 26.03% 9.53% 10.23% 15.30% 9.53% 3.05% 14.81% 10.23% 1351% 13.48% 7.12% 15.30% 1.52% 26.03% 11.37% 30.40% 13.48% 12.23% 7.69% 6.15% 11.37% 13.48% 1.52% 6.94% 1.52% 7.69% 14.81% 26.03% 18.30% 7.12% 6.94% 3.05% 5.91% 1.52% 1.52% 9.53% 11.37% 14.81% 1.52% 7.12% 7.69% 7.97% 9.53% 15.30% 10.23% 7.97% 10.23% 7.97% 10.82% 11.37% 30.40% 26.03% 26.03% 5.91% 14.81% 6.94% 1351% 10.82% The National Community Reinvestment Coalition 202-986-7898 584 TABLE III.A.4 THE WORST LENDERS IN 1993: MINORITY APPROVALS LENDER MSA The National Community Reinvestment Coalition⚫ 202-986-7898 20 Washington Chicago Philadelphia Atlanta Boston NewYork Philadelphia Anaheim Oakland Atlanta Philadelphia Los Angeles NewYork Chicago Philadelphia Dallas NewYork PROVIDENT SAVINGS BANK Riverside PROVIDENT SAVINGS BANK SanDiego REISTERSTOWNFEDERAL SAVINGS B Baltimore Detroit REPUBLIC BANK St. Louis REPUBLIC BANK Nassau-Suffolk REPUBLIC BANK FOR SAVINGS Phoenix Nassau-Suffolk ROCK FINANCIAL CORPORATION Detroi: Nassau-Suffolk ROOSEVELT SAVINGS BANK NewYork ROOSEVELT SAVINGS BANK RSLMORTGAGE CORPORATION Anaheim Oakland RYLAND MORTGAGE COMPANY SANDIEGO FUNDING SanDiego SIBLEYMORTGAGE CORPORATION NewYork Detroit SOURCE ONEMORTGAGE Houston SOURCE ONE MORTGAGE SOURCE ONE MORTGAGE Tampa SOURCE ONE MORTGAGE Washington Anaheim SOUTHTRUSTMORTGAGE CORP. Tampa SOVEREIGN BANK. A FED SAVINGS Philadelphia STANDARD FEDERAL BANK Detroit Phoenix STATESAVINGS BANK ST.JAMES SERVICING CORP Detroit Boston SUBURBAN MORTGAGE CO. SUNBELT NATIONALMORTGAGECORP Houston SUNBELT NATIONALMORTGAGE CORP Phoenix Boston SUNCOAST SAVINGS & LOAN ASSOC. SUNCOAST SAVINGS & LOAN ASSOC. Tampa Nassau-Suffolk SUNRISE FEDERAL SAVINGS BANK TEMPLE-INLAND MORTGAGE CO. Los Angeles TEMPLE-INLAND MORTGAGE CO. Nassau-Suffolk THE BRYN MAWRTRUST CO. Philadelphia THECOLONIALBANK St. Louis Boston Detroit Anaheim Atlanta Baltimore Boston Chicago Dallas Houston Los Angeles NAVY FEDERAL CREDIT UNION NBDMORTGAGE COMPANY NORTH AMERICAN MORTGAGE CO
@FedFRASER