Table of Contents

• CRA Update
• Background of CRA
• Financial Modernization and CRA
• Misrepresentations of CRA
• The Need for Preservation/Expansion CRA
• The Beneficiaries of the CRA
• Examples of CRA Successes
• Letter from the Jesuit Conference supporting CRA
• Letter from UNHP supporting CRA
• More Information from NCRC

CRA Update
A recent article in the American Banker, CRA at 25: Reforming an Almost Perfect Law, discusses the benefits of CRA over the last 25 years for the banking industry and the need to streamline some of the processes. Click here to read.

Federal financial regulatory agencies including the Department of Treasury, Federal Reserve, FDIC, OCC and OTS have released the Final Rules on CRA-related disclosure and reporting requirements, set forth in The Financial Services Modernization Act of 1999 under the "Sunshine Provision". The rules, based on Senator Phil Gramm's (R-TX) desire to outlaw any possible "extortion" community groups are practicing on financial institutions, are available online in .pdf format here, or by searching the Office of Thrift Supervision website.

The regulations, which took effect May 12, 2001, require community groups and financial institutions to publicly disclose and report annualy any "covered agreements" made "in fulfillment of the CRA" for grants or cash payments in excess of $10,000 per year, or for loans in excess of $50,000 per year.

The Enterprise Foundation is recommending community groups read the actual rules carefully determine whether they are subject to the reporting requirments. Groups that solicit bank financing for housing and economic development projects without regard to the CRA may be exempt from the regulations.

For more information on the regulations from Enterprise Foundation, visit their website.

To read a summary of the rules and their implication for nonprofits in .pdf format, click here.

Background of CRA
For more than 20 years, the Community Reinvestment Act has been a major tool in the successful preservation and improvement of communities in the Bronx and other communities around the country. In 1974, Bronx tenant and community leaders decided that they could not depend on government funding and support to save their communities. They formed a community organization, the Northwest Bronx Community and Clergy Coalition. One of the group's priorities was to bring bank money back into their communities. They had anecdotal evidence of banks refusing to re-finance mortgages and knew that the continuation of that trend would doom their communities.

The Home Mortgage Disclosure Act passed in 1975 provided the information that confirmed the suspicion that mortgage availability was inconsistent and scarce in many low income and minority communities. This evidence bolstered the case for the passage of the Community Reinvestment Act in 1977. The Community Reinvestment Act states "regulated financial institutions have continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered." Under CRA, regulators can deny or delay a bank's application to merge with another bank or expand its services if the bank's CRA review is found inadequate. Community groups around the country have utilized this language to obtain loans and create programs to preserve and improve their neighborhoods.

In the past 22 years, CRA is credited by the National Community Reinvestment Coalition with leveraging $1 trillion in community reinvestment around the country. Millions of these dollars have come into neighborhoods of the Northwest Bronx. University Neighborhood Housing Program (UNHP), a non-profit organization formed by the Northwest Bronx Community and Clergy Coalition and Fordham University, has assisted in bringing many of those dollars into community controlled projects in the Northwest Bronx. Through its loan fund and technical assistance projects, UNHP has packaged loans which have assisted thousands of units utilizing bank and city programs rooted in the Community Reinvestment Act. This past year when Congress debated financial modernization legislation, both foes and supporters of CRA took a new look at the value and pertinence of the Community Reinvestment Act, but the outcome was mixed.

Financial Modernization and CRA
Signed into law by President Clinton on November 12, "The Financial Services Modernization Act of 1999" (a.k.a. The Gramm-Leach-Bliley Act) not only changed the way banks, securities and holdings companies do business, but also took a deep cut into CRA. The bill allows the previously mentioned groups to cross over into each others' business and create Wholesale Financial Institutions (WFIs or "Woofies"). Supporters of CRA are concerned that these Woofies will be able to easily move potential mortgage dollars from traditional banks and thrifts into entities that are not regulated by the CRA.

The attack on CRA was led by Senate Banking Committee Chairman Phil Gramm. During the debate over the bill, he at one point wrote: "What is at issue is an unsavory practice in which protesters [community groups] file official complaints [when financial companies wish to merge] under CRA regulations and pursue them until they are paid by the bank to stop protesting . . . That's extortion and it's wrong."

The final version of the bill that passed amends CRA in the following ways:

• Small banks (urban and rural) with assets under $250 million are now subject to CRA exams only once every four or five years, as opposed to every two years previously.
  
• The Sunshine Provision requires banks and community groups involved in CRA agreements (both grants and loans) to report these agreements to Federal agencies. However, these Federal agencies will be unable to monitor those same CRA agreements to ensure their actualization.
  
• Finacial holdings companies are not required to maintain at least a Satisfactory CRA rating in order to continue providing insurance and securities products. If one of these companies failed their CRA exam, they would not be subject to any penalties, such as the possibility of divesting or ceasing the activities of the insurance and security company subsidiaries. Rather, the company only has to submit a plan to regulatory agencies for improving their failing CRA rating, while they continue to engage in new activities.
  
• Large bank mergers no longer require public hearings for community groups to express their (dis)satisfaction with the banks involved.
  
• Non-depository affiliates of financial holding companies are not subject to CRA. This failure to "modernize" CRA means that banks could transfer some lending and other traditional banking activities to these affiliates in order to escape CRA requirements.

CRA advocates would like to see financial modernization legislation expand CRA to cover affiliates of bank holding companies. There is currently a bill being proposed in the House that would "modernize" CRA to apply to these other holdings companies.

Misrepresentations of CRA
Senator Gramm's "extortion" language is both inaccurate and offensive to the many community and bank leaders that have been participants in the CRA activities. No one at UNHP can identify a senior bank executive that has been cowed into keeping their mouths closed about CRA abuses by community organizations. On the contrary, senior bank officials have spoken very positively of the Community Reinvestment loans and programs that they have established. Similarly, no one at UNHP can identify a Community Reinvestment record. There is a possibility that the demagogic attacks are intended to distract attention from the erosion of the amount of the country's financial assets that are regulated by CRA and to forestall attempts to expand the scope of CRA regulation in new legislation.

The Need for Preservation/Expansion CRA
The estimated $1 trillion in CRA loans may foster an atmosphere of over-confidence about the continued availability of money for community development. Moreover, the strong economy has resulted in a large amount of funds being made available for real estate development and some of it is coming into neighborhoods from unregulated sources. The Community Reinvestment Act has provided the framework to bring bank loans and investments funds into neighborhoods and communities around the country. Without that legal framework, there is no regulatory means of ensuring that funds keep coming into Community Reinvestment projects.

The unregulated sources of funds will disappear in many of our communities as soon as the economy tightens again. The weakening of CRA via Financial Modernization reduces communities' leverage to bring money back into their neighborhoods. The failure to expand CRA to include the affiliates that bank holding companies establish allows financial institutions to keep moving resources away from CRA regulation, reducing the leverage of low income communities to attract bank dollars for affordable housing and community development.

The Beneficiaries of CRA
In addition to the people living in neighborhoods around the country, there are a number of other beneficiaries of the Community Reinvestment Act. A number of banks and bankers speak openly about the value of the Community Reinvestment Act and the benefits of CRA to their institutions; for example, Chase Manhattan Bank and the Bank of America have publicly supported the Community Reinvestment Act in the current debate. The money coming into the neighborhoods is coming in the form of loans, and the banks are making money on these loans. These loans can support and develop deposit and other banking relationships with many people living in those communities.

Multi-family property owners have been great beneficiaries of CRA work. In the mid 70's many Bronx owners were forced to sell at discounted prices since they were unable to obtain traditional financing. In fact, some experts anticipated the abandonment of most older multi-family housing in the Bronx. The financing doors that CRA opened allowed those owners to maintain existing properties and look into additional investment opportunities. That financing for acquisition, refinancing and rehabilitation have preserved numerous management and superintendent jobs in many Bronx neighborhoods. The renovation work has created a market for contractors. The millions of dollars that were invested to substantially renovate the thousands of abandoned apartment building units in the Bronx created many financial and job opportunities for contractors in the metropolitan region.

Examples of CRA Successes
The testimony of the value of CRA can be seen in buildings, blocks and neighborhoods around the Bronx. The most recent example, the Tremont-Anthony project utilized bank funds at market rate from Chase Manhattan Bank combined with City funds at 1% interest to allow 31 units of housing to be purchased and renovated by a community organization in the Bronx. Many Bronx apartment buildings have been similarly renovated through the City's Participation Loan Program. A number of banks participate in the program. The bank's initial involvement in the program can be traced directly to the requirements of the Community Reinvestment Act. Many years later, some banks have institutionalized these lending programs. However, either an elimination or weakening of CRA may make it difficult for these banks to maintain these programs and commitments. If competitors can operate with limited or no regulatory pressure requirements, institutions currently sympathetic to CRA may change their views quickly as they review profit margins.

Unfortunately, community reinvestment projects rarely raise the same level of excitement that other types of financing can generate. A boiler loan in the Bronx may not look as exciting as a multi-million dollar commercial loan in mid-town. However, the risk of the boiler loan is much more limited and the benefits of the boiler loan are much more tangible. CRA has helped make the "boiler" type of loan a priority with financial institutions. A reduction in the scope of CRA will make this type of lending less appealing once again.

Letter from the Jesuit Conference supporting CRA
Below is a letter from the Jesuit Conference to conference committee members regarding the CRA last year during deliberations:

JESUIT CONFERENCE
THE SOCIETY OF JESUS IN THE UNITED STATES

The Honorable __________
United States Senate/House of Representatives
Washington, DC 20515

August 2, 1999

Dear _____________,

 

I am writing to you on behalf of the Jesuit Conference, which represents the Society of Jesus in the United States, as you begin negotiations on a financial modernization bill. There are 3,894 U.S. Jesuit priests and brothers working in 28 Jesuit-affiliated universities and colleges, more than 60 high schools and middle schools, nearly 100 parishes, and various other projects throughout the country. Because our faith requires an overriding commitment to empower individuals, families, and communities most at-risk in our society, the Jesuit community is deeply concerned about the status of the Community Reinvestment Act (CRA).

 

CRA has leveraged an enormous amount of reinvestment for working class and minority communities and has extended home and small business ownership to millions of Americans. Federal Reserve Governor Edward Gramlich recently estimated that CRA has been responsible for about $117 billion annually in home, small business, and community development lending and investing. Because we have seen the quality of life improved in many communities across the nation as a result of CRA, we urge you to preserve the elements of H.R. 10 that strengthen the Community Reinvestment Act.

 

Specifically, the Jesuit Conference firmly believes that inclusion of the following provisions from H.R. 10 is essential for the final bill:

• CRA should be applied to Wholesale Financial Institutions
• There should be a public hearing requirement for mergers involving banks above $1 billion.
• The requirement to maintain satisfactory CRA ratings as a necessary condition for a merger is just that--necessary.

 

Also, we insist that these provisions in S. 900 be excluded in the course of the Conference Committee:

• the Safe Harbor Provision,
• the Small Bank Exemption,
• and the illusory Sunshine Provision.

 

Finally, should it be offered and considered, we encourage the Conference Committee to adopt Rep. Barbara Lee's amendment that would prohibit insurance companies in violation of court consent decrees correcting fair housing violations from affiliating with banks. This is an important protection against discrimination in lending.

 

Sincerely,

 

 

Rev. Richard Ryscavage, S.J.
Secretary
Jesuit Social & International Ministries

Letter from UNHP supporting CRA
The following is a copy of the letter UNHP sent to members of the Financial Modernization Conference Committee in August, 1999. The letter specifically cites UNHP's work as a constructive use of CRA.

August 5, 1999

Dear Senator/Representative,

 

I am writing to you on behalf of University Neighborhood Housing Program (UNHP) as you begin negotiations on a finalized financial modernization bill. UNHP is a non-profit organization in the Northwest Bronx, formed in 1983 as a partnership between Fordham University and the Northwest Bronx Community and Clergy Coalition. UNHP combines the unique qualities of these two groups in its efforts to provide the research and information necessary to increase the sophistication of tenant groups and non-profits as they try to meet the challenges of creating and maintaining affordable housing. UNHP has provided the necessary financing, loan packaging assistance, tenant organizing and technical assistance, enabling more than 50 multifamily buildings to become community controlled.

 

 

Many of our accomplishments in the Bronx, including the recent transformation of 31 unit building into a community-owned property, have been funded by Community Reinvestment Act dollars leveraged from banks. CRA is vital to the stabilization and growth of the Northwest Bronx and many other low- and moderate-income neighborhoods throughout the City and the State. As a member of the Financial Modernizaiton Conference Committee, you have the opportunity to protect CRA and the economically depressed/recovering communities that depend on it.

 

 

We urge you to preserve the elements in H.R. 10 that strengthen CRA:

• Apply CRA to Wholesale Financial Institutions.
• Require a public hearing for mergers involving banks above $1 billion.
• Require banks to maintain satisfactory CRA ratings as a condition for a merger.

 

Also, we insist that these three anti-CRA provisions be excluded from the final bill:

• The Safe Harbor Provision
• The Small Bank Exemption
• The Sunshine Provision

 

Without the strength of CRA, low- and moderate-income neighborhoods will lose reinvestment dollars from local banks, slowing revitalization to a crawl.

 

 

Sincerely,

 

 

James Buckley

Director

More Information from NCRC
For Additional Information on CRA, visit the National Community
Reinvestment Coalition's Web Site.