View
287
Download
1
Category
Tags:
Preview:
DESCRIPTION
Citation preview
The Community Reinvestment Act: The Community Reinvestment Act: Opportunities to improve the community Opportunities to improve the community
investment responsibility of the financial services investment responsibility of the financial services industryindustry
Tom FeltnerTom FeltnerVice PresidentVice President
Informing communities about the financial
services policy issues that impact them most
Documenting patterns in the financial services industry
and helping local organizations and media
understand problems
Giving communities the tools to make better, safer financial decisions
Woodstock Institute: Woodstock Institute: Applied research, policy development, and Applied research, policy development, and advocacyadvocacy
Woodstock Institute: Woodstock Institute: Applied research, policy development, and Applied research, policy development, and advocacyadvocacy
Woodstock Institute: Woodstock Institute: Informing the policy process with key, practical Informing the policy process with key, practical informationinformation
Woodstock Institute: Woodstock Institute: Informing the policy process with key, practical Informing the policy process with key, practical informationinformation
CRA Modernization: CRA Modernization: Overview of the Community Reinvestment ActOverview of the Community Reinvestment Act
1975
1977
1989
1992-96
1995
Home Mortgage Disclosure Act (HMDA)
1977-87
1990
Community Reinvestment Act (CRA)
Limited adherence to CRA requirements
“The Color of Money” story printed in Atlanta Journal Constitution
New data added to HMDA
Boston Fed analyses of CRA reports
lending, investments, services test added
1989 CRA Exams made public for the first time
2005 Regulators weaken exams
Source: Avery, et al. “The CRA within a Changing Financial Landscape“
CRA Modernization : CRA Modernization : Expanding the scope of CRAExpanding the scope of CRA
Recommendations
The CRA should apply to mortgage companies, mortgage brokers, mainstream credit unions, insurance companies, securities companies and others
Issues
Percent of household financial assets deposited in CRA-regulated financial institutions continues to decline
Increasing role and market share of non-CRA regulated mortgage lenders
Mainstream credit unions, which have a mission to serve people of “modest means,” in many cases do not do so.
Insurance companies, online bankers have few locations but sell financial products across the country
Figure 1. Shares of Households’ Financial Assets
Figure 2. Mortgages Originated by Institution Type
CRA Modernization: CRA Modernization: Improving CRA assessment areasImproving CRA assessment areas
Recommendation
Assessment areas should be defined as any state, metropolitan area or rural county where that institution maintains retail office or is represented by an agent, or has a significant market share
All exams should be full scope exams and include a comparative analysis, rather than a repetitive narrative
Assessment areas could be different depending on the test. For example, the lending test should include majority of mortgage loans, services test should be based on location of deposits
Issues
Assessment areas are defined by the location of bank branches, not where financial institutions actually lend
Mortgage lending is far more likely to occur through large mortgage banking affiliates or mortgage brokers.
Insurance companies selling financial products currently only have a community commitment where they are headquartered
Large online banks gather deposits and make mortgage loans across the country, but only have a physical presence where their headquarters are located.
Source: Avery, et al. “The CRA within a Changing Financial Landscape“
CRA Modernization: CRA Modernization: Expanding the relevance of CRA ratingsExpanding the relevance of CRA ratings
Recommendations
Regulators should develop an interagency performance context for metro areas or states to determine CRA-related needs and opportunities.
Performance contexts should be based on careful analysis of local employment, housing and other data and include a public comment process.
Performance context should be used to evaluate the performance of each institution in meeting local needs.
Issues
92 percent of all banks receive a satisfactory score
CRA Modernization: CRA Modernization: Expanding CRA complianceExpanding CRA compliance
Recommendations
If a bank receives a low satisfactory or lower, they should be required to submit a public improvement plan.
For financial institutions that still do not improve, we recommend that they be unable to sell mortgages to the GSEs, be ineligible to contract with federal agencies, and/or pay any applicable fines to a national reinvestment fund.
Issues
Fewer CRA exams conducted by regulators
The consolidation of the banking and thrift industry means fewer opportunities for actionable public scrutiny of a bank’s CRA performance.
Fewer mergers of healthy institutions. Many recent mergers happened on an emergency basis with no opportunity for public comment.
Figure 4. Number of CRA Exams conducted1990 to 2009
CRA Modernization: CRA Modernization: Summary of key reformsSummary of key reforms
Regulatory changes and legislation are necessary to modernize the Community Reinvestment Act
Regulatory changes are needed to improve assessment areas, performance ratings, and services test. Legislative changes are needed to expand CRA to all financial institutions
Expand the scope of the CRA to include financial institutions such as:
1.Mortgage companies and brokers2.Insurance companies3.Securities companies4.Mainstream credit unions
Modernize the CRA Services Test
Banks should disclose, and regulators should consider information on account holders, accounts, and transactions including such critical variables as census tract location, account holder, number of new accounts opened, age of account, and percent of bank income generated by fees.
Ensure investment obligations are applied consistently
Regulators should develop an interagency performance context for metro areas or states to determine CRA-related needs and opportunities. CRA ratings should be based on how well a financial institution meets local needs.
Financial institutions should invest where they do business:
Assessment areas should be defined as any state, metropolitan area or rural county where that institution maintains retail office or is represented by an agent, or has a significant market share
All exams should be full scope exams and include a comparative analysis, rather than a repetitive narrative
Assessment areas could be different depending on the test. For example, the lending test should include majority of mortgage loans, services test should be based on location of deposits
The Community Reinvestment Act: The Community Reinvestment Act: Opportunities to improve the community Opportunities to improve the community
investment responsibility of the financial services investment responsibility of the financial services industryindustry
Tom FeltnerTom FeltnerVice PresidentVice President
Recommended