Southwest Solutions comment about reforming the CRA regulatory framework

November 14th, 2018

Southwest Solutions is joining with many other organizations and individuals to express our concerns about proposed changes to the Community Reinvestment Act (CRA) that would significant weaken this landmark civil rights law which was enacted 50 years ago. Traditionally underserved communities have benefited tremendously from the CRA, which strongly encourages banks to meet the credit needs of households and businesses in low-to-moderate income areas. The CRA holds banks accountable if they fail to meet their obligations to local communities. The proposed regulatory changes could result in the loss of more than $100 billion in lending to underserved areas across the country over five years.

Southwest Solutions submitted its public comment through the Federal Register portal for this issue.

Here is the text of our comment.

November 14, 2018

Comment regarding “Reforming the Community Reinvestment Act Regulatory Framework”

RE: Docket ID OCC-2018-0008

To Whom it May Concern:

Southwest Solutions appreciates the opportunity to comment on the Office of the Comptroller of the Currency’s (OCC) Advance Notice of Proposed Rulemaking (ANPR) regarding the Community Reinvestment Act (CRA). CRA has leveraged significant amounts of loans and investments for low- and moderate-income communities. Since 1996, banks have issued almost $2 trillion in small business loans and community development loans and investments in low- and moderate-income communities.

In the Detroit area, in which my organization works, CRA has motivated banks to provide loans and investments for economic development and affordable housing and homeownership. For example, Southwest Solutions implemented the recent HomeLIFT program in metro Detroit. The program was supported through funds given by Wells Fargo through NeighborWorks America. HomeLIFT provided $15,000 in downpayment assistance to income-eligible, first-time homebuyers. Of the 245 homebuyers that received HomeLIFT funds through our program, 165 purchased in Detroit. HomeLIFT provided a much-needed and significant stimulus for the Detroit homeownership market, particularly in the neighborhoods. Indeed, of the 703 homes in Detroit purchased with mortgages in 2016, Southwest Solutions aided in 70, or 10%, and HomeLIFT was a major reason why.

In order to bolster CRA’s effectiveness, reforms are necessary to take into account changes in banking and technology. Yet, as the OCC contemplates reform, it must not rush to propose or implement changes that will make banks less accountable and responsive to community needs, which would be counter to the purpose of the CRA legislation. If the OCC proceeds to significantly diminish the importance of assessment areas on CRA exams, the progress in increasing lending to low- and moderate-income neighborhoods will be halted. NCRC estimates that low- and moderate-income neighborhoods could lose up to $105 billion in home and small business lending nationally over a five year time period. In my state, the loss could be $1.9 billion, and in my Congressional district, the loss could be $63 million.

We are concerned that an OCC idea commonly called the one ratio would make CRA exams considerably less effective in evaluating how banks are responding to local needs in metropolitan areas and rural counties. The one ratio would consist of the dollar amount of a bank’s CRA activities (loans, investments, and services to low- and moderate-income borrowers and communities) divided by the bank’s assets. The ratio is supposed to reflect CRA effort compared to a bank’s capacity.

The idea behind the one ratio is that it will immediately signal to banks whether they are in compliance with CRA and will pass their next exam. While all stakeholders seek clarity in CRA, the one ratio is a solution in search of a problem. Passing CRA exams is not a problem since 98 percent of banks have passed their exams over the last several years.

While not necessary to ease banker anxiety about passing CRA exams, the one ratio threatens to render CRA ineffective in making sure banks respond to local needs. The CRA statute requires that banks “have continuing and affirmative obligations to help meet the credit needs of the local communities in which they are chartered.” The key word is local. One ratio cannot tell an examiner, a bank, or a member of the public how responsive a bank is to its various service areas. CRA exams currently evaluate and rate bank performance in geographical areas called assessment areas where banks have branches. Examiners are required to solicit and consider comments from community members about performance in assessment areas. This critical part of CRA, considering public comments on local performance, will be significantly undermined if the one ratio replaces assessment areas or significantly diminishes the importance of assessment areas and public input on CRA ratings.

Southwest Solutions partners with 12 financial institutions for our programs to promote homeownership and financial literacy. Representatives from these financial institutions provided expert instruction to our more than 50 classes this year in these program areas. More than 100 people who attended our homebuyer education program closed on homes this year. Three-quarters of all the individuals we have served this year in our homebuyer, financial literacy and foreclosure mitigation programs are low-to-moderate income. Southwest Solutions is very concerned about the detrimental and de-incentivizing effect the one ratio could have on our partnerships with banks to serve our community and help disadvantaged families become economically self-sufficient and successful. Two-thirds of our annual budget for our homebuyer programs comes from our bank partnerships.

The OCC’s ANPR discusses the need to expand CRA exams to assess bank lending in areas beyond bank branches but does so in a way that further supports the one ratio concept. The ANPR says bank lending and deposit taking in geographical areas beyond bank branches has been increasing and that CRA exams should scrutinize this activity. However, the ANPR then hints that the dollar amount of this activity could be added to the numerator of the one ratio. Instead, the OCC should establish assessment areas for geographical areas where banks do not have branches but engage in a significant amount of business. This would better facilitate accountability to local needs and public input.

The OCC asks whether CRA consideration should be broadened for additional activities and populations. Industry trade associations have been advocating for CRA consideration for projects that have broad benefits such as financing hospitals that are not necessarily located in low- and moderate-income neighborhoods. However, the OCC must be reminded that the original purpose of CRA was to combat redlining in low- and moderate-income neighborhoods. If CRA exams award points for financing or activities that do not address lack of access to banking or community development needs in lower income neighborhoods, then CRA will be less effective in channeling resources to the communities that were the focus of the 1977 legislation.

In terms of expanding populations served by CRA, CRA exams must explicitly evaluate bank lending and service to people and communities of color. Senator Proxmire and the other members of Congress that drafted CRA and secured its passage were clearly concerned about disparities in lending in minority communities, especially inner-city neighborhoods. Since racial disparities in lending remain stubborn and persistent, CRA must include lending, investing, and service to people and communities of color in its evaluations.

Southwest Solutions is deeply aware of the inequitable opportunities in lending and how this chronic discrepancy harms the ability of individuals of color to secure home mortgages or commercial loans to start or grow their small businesses in the community. We have a mortgage lending program that specifically targets families who traditionally have had difficulties getting home loans. This program partners with local banks so that families can fulfill the American Dream of homeownership. Banks also support our small business loan program that targets ethnic and immigrant entrepreneurs. These programs stem from the intent of the CRA to address racial disparities and redlining in lending practices.

Lastly, the OCC asks whether branching in low- and moderate-income communities should continue to be considered on CRA exams. Research has shown that low- and moderate-income people rely on branches for access to loans and banking services. If CRA exams dropped branches from consideration, the amount of lending and bank services in low- and moderate-income neighborhoods would decrease significantly.

In southwest Detroit, branch-connected bank services are particularly important. More than half of the population in the area is Spanish-speaking, and the in-person culturally-competent lending and banking services cater to their needs. In addition, southwest Detroit is still largely a cash-driven economy, and cash deposits and withdrawals are essential to neighborhood economic functioning.

In conclusion, meaningful CRA reform could boost lending and access to banking for underserved communities. CRA ratings must be reformed so the pass rate is no longer 98 percent. Assessment areas must be added that include areas outside of bank branch networks in which banks make high volumes of loans. Lending and access to banking for people and communities of color must be considered on CRA exams. Mortgage company affiliates of banks must be included on CRA exams.

To ease bank anxiety about unclear aspects of CRA, communications among the federal agencies, banks, and community groups could be improved. However, easing bank anxiety via the one ratio and diminishing the importance of branches, assessment areas, and public input will decrease lending and access to banking in the communities that need it the most. The federal agencies also must not establish easier exams for any category of banks that excuse them from current requirements for community development financing. We urge the OCC to go back to the drawing board and develop reform proposals with the Federal Reserve Board and the FDIC. Thank you for your attention to our comments.


Joseph Tasse, FACHE
President and CEO
Southwest Solutions
5716 Michigan Avenue, Suite 3000
Detroit, Michigan 48210
313.481.3102 |


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