The importance of CRA lies in the fact that regulators do two sets of bank examinations: one for financial safety and soundness, and the other for community reinvestment.Â Increasingly, this biannual bank CRA examination by federal regulators offers opportunities to comment on the bank`s performance to the regulatorsÂ and open a dialogue with the bank about neighborhood access to capital and financial services or lack thereof.CRA negotiations are most powerful during a bank acquisition or merger, when the regulators are carefully scrutinizing the bank`s activities. The regulators look at CRA, among other issues, in deciding whether to approve a bank application to purchase another financial institution. It is also possible, however, to negotiate CRA commitments when there is no acquisition pending. When well prepared with data, community organizations can use public pressure to convince banks that they can gain financially [and otherwise] with a commitment to a community partnership.CRA has helped community organizations win increased investments, charitable contributions, branches, and access to loans and financial services. More than $1 trillion dollars has been committed to community investments; the polices and practices of financial services have significantly changed; and the public`s and media`s views have shifted to support the need for equal access to capital and financial services-largely as a result of CRA advocacy.
... Some of the questions to survey for include:Lending Needs
- What are the business, housing and consumer loan needs of your community?
- What are banks doing in your community to meet community needs?
- Are neighbors being approved for loans? If not, is it discrimination or ignorance on the part of the lending institution?
- Does bank staff go out in the neighborhood to visit community organizations and businesses? Are they learning about community needs?
Like, say,Â yourÂ community-based nonprofit organization?
- What investments or charitable contributions would add to the economic vitality of the community?
- Do community-based nonprofit organizations receive charitable grants from banks?
- Do community and nonprofit housing development organizations get investment support from banks?
- What are the neighborhood service needs regarding branches (full service and in-store), technology, mortgage and business counseling, ATMs, etc.?
- Are there neighborhood bank branches? Are they full service branches?
- Does the Bank support mortgage and business loan counseling?
Analyze DataÂ back to topAnalyze HMDA data and compare to your community survey data. The following chart comprised from HMDA data illustrates home purchase lending for Oakland, California in 1998.
Reviewing this information reveals inequities:
These inequities need to be addressed in negotiations. Fairness requires new products that better meet the needs of people of color, true diversity among loan officers, and focused marketing to reach the previously underserved. These needs can also form the basis of letters to bank regulators.
- African American households received a proportion of home loans representing less than half their portion of the city population. They were denied loans more than twice as often as whites.
- Latinos and Asian Americans got loans proportionally less than their share of the population and were denied more often than whites.
- Applications taken from all people of color were significantly below their representation in Oakland. This means that the results of outreach efforts to potential homeowners of color werenotÂ proportionately adequate.
- African Americans were denied 2.3 times as often and Asian Americans, and Latinos were denied 1.3 times as often as white applicants. This indicates that the bank underwriting process may unfairly judge applicants of color.
- Build a coalition to advance your campaign.Â The broader the coalition is, the greater its power and the more varied the issues upon which it must collaborate. If the coalition is too broad, it may not be able to agree on key issues or tactics. [Like how to divide the loot.] If it is too small, it may have too little power.
- Prepare a list of community needs and recommendations to bank officials.Â Advocacy teams should include people with expertise in the issues to be discussed and those whose position or organizational affiliation will be impressive to the banker. The banker is likely to look for areas where bank products can be redirected to avoid negative publicity....
- Be a persistent, concrete, and persuasive advocate.Financial institutions may not quickly adopt recommendations for new products and approaches to meeting community needs. Bank staff often try to exhaust community activists by extending discussions and meeting dates. Work to understand the financial sector`s culture and language and to address their interests and concerns. While bankers may see themselves as open to new opportunities, the educational process takes time.
- Persuade banks and savings and loans to expand their current lines of businessÂ rather than create new lending programs. In other words, if the financial institution does not do business lending, don`t expect it to be easy to get them to agree to meet small business credit needs. Demanding new products may not be practical, and alternative approaches should be explored.
- Explore other avenues if rebuffed by local bank officials,such as assistance from the bank`s regulator, or an appeal to the CRA officer at the state or national headquarters of the bank. Obtain assistance from other organizations that have a relationship with the bank. If these methods don`t yield results, more aggressive approaches may be necessary.
- Set minimum goals between the bank and the coalitionUnderstand that the relationship is part of a long-term process. In Stockton, California, activists failed to win an end to the Bank of America`s business relationship with an anti-union corporation, but they did secure increased support for local nonprofit groups, increased marketing through local minority-owned media, and continued operation of the bank`s branch in South Stockton.[So, who cares about the workers, really? The important thing is that the activists and their media allies got to "secure increased support."]
- Do not sell the neighborhood (and its potential) shortÂ by compromising too quickly with a bank. Identify short- and long-term potential for the community and the bank.
Does "forge key CRA agreements" reflect exactly the right choice of words here?] Documentation is a key part of the CRA process. This process usually begins by filing a letter protesting the merger: To see the type of information that would be included in a protest letter,Â click here
- Avoid the general termÂ "Â affordable housingÂ ," as in "$50 million annually forÂ affordable housingÂ loans." While there is a specific amount of money to be lent over a specific amount of time, there is no definition of the kind of housing to be financed under the agreement.
- Specify for whom singleÂ (one to four units)Â or multi-family housingÂ (five units or more)Â is affordableÂ . Specify affordable rental housing or affordable homeownerships. Specify to whom loans will be made. Consider limited equity, rent-restricted, or market-rate properties.
- Use language that allows clear evaluation of accomplishmentsÂ : for instance, "$100 million minimum annually for multi-family rental housing loans with 66 percent of loans to very low-income tenants and nonprofit housing developers."
- Avoid calling for unspecifiedÂ "Â charitable contributionsÂ ," as inÂ "charitable contributions of $200,000 annually to nonprofit organizations."Â This language is too vague regarding community needs. [For example, a big wad of cash in a brown paper bagpassed under the table from the bank`s CRA Officer to the head Community Organizer is much less vague. But, if they insist on writing a check, take it. After all, it`s not taxable. You`re a nonprofit!]
- Set minimum contribution amountsÂ with mechanisms for increasing contributions: "Charitable contributions equal to 2% of net income or no less than $1 million annually, of which 40% is allocated to nonprofit organizations creating housing and fostering economic development." [Such asÂ yourÂ nonprofit organization.] The specific targeting of those contributions to affordable housing and economic development will form an important resource for your equitable development goals.
Securing Finance Products that WorkIn 1998, many newspapers carried a banner headline: Bank of America pledges $350 billion for community reinvestment. When the bank pledged $12 billion in 1992 and when Wells Fargo Bank pledged $45 billion in 1996, similar headlines appeared. What difference do these pledges really make for local businesses, neighbors and community organizations?Â The truth is that the commitments probably have had moreÂ andÂ less impact than anticipated.Â Direct commitmentsÂ result in short term impact, with increased loans and financial presence.Â Indirect commitmentsÂ slowly change the way banks operate, with long-term implications for the community. Both are important. With community residents and their organizations holding banks responsible, there can be scores of community investments and improvements occurring. The types of equitable development financing support to target include:Lending
- Small business loans (less than $50,000) previously unavailable, or only available at substantially higher interest rates.
- Mortgage loans with low down payments and reasonable interest rates available to moderate and low-income residents.
- Monitoring and correction of discriminatory practices.
- Financing of affordable rental housing built by nonprofit developers.
- Mortgage financing for long-term affordability properties including LEHCs and CLT housing.
- Corporate grant programs that support community-based organizations.
- Bank investments in nonprofit community development loan pools.
- Bank vendor purchase programs that offer business opportunities for minority-owned businesses.
- Retention of local bank branches.
ClarityHaving clear goals is critical to the success of a community coalition if its members expect the bank to consider its position for increased investment. CRA activism can position both the community and banks to win. There is a common interest between the community getting its financial needs met and the bank making a reasonable profit from its products.... Maintaining CoalitionThe other main challenge involves maintaining the coalition to achieve reinvestment goals. It is critical that the coalition agree on its goals, structure and process early in theÂ campaign, and stick to the agreement. The leaders need to balance the needs of stakeholders in a manner that keeps everyone moving forward together.Any coalition faces a difficult task in setting reinvestment goals. Thesegoals must relate directly to community needsÂ and stakeholder interests. The goals must be realistic and achievable.Since CRA campaigns can last a number of months, conflicts arise between stakeholders` short-term needs and the longer timeline of the campaign. Even after the bank makes a commitment, tensions can continue depending on what compromises have been made. As much as possible,Â set ambitious goals so that all parties see benefit in the final agreement.[Make the pie big enough so every hustler gets a big fat slice.] Resist bank attempts to undercut alliances by making grant offers to key coalition members contingent on their abandoning the campaign.... Review CRA EvaluationÂ : All large banks and savings and loans` CRA activities are examined at least every two years by federal banking regulators. ...Monitor Merger ApplicationsÂ : All financial institutions must file an application for approval of an acquisition or merger. Portions of the application are public and can contain useful information. These are announced on the regulators` web sites and, often, in newspapers.Evaluate CRA Public FilesÂ : All regulated financial institutions must keep all complaints for two years in at least one office in every metropolitan area as well as in the bank`s main office. They must also keep a record of their CRA goals and activities in the file.Review Fair Housing and Fair Lending PracticesÂ : It is illegal to discriminate against an applicant based on race, age, gender, or disability. Fair housing councils monitor violations, and can provide information about a bank`s fair lending practices.Monitor Annual Corporate Reports ...Examine Proxy StatementsÂ : At times of major corporate events, such as mergers, the corporation issues a proxy statement to its shareholders and the SEC that often has very useful information in it about legal suits against the bank, financial difficulties, or new lines of business.Scrutinize Home Mortgage (HMDA) DataÂ : All mortgage lenders must report home purchase, refinance, and rehabilitation loans on properties with one to four housing units and permanent loans for larger units. These reports include loan applications, denials, and approvals categorized by race, gender, income, and census tract. They also contain data on multifamily mortgage lending (five or more units). This is public information and can be obtained from a bank main office or any branch in a metropolitan area.Evaluate Business Lending DataÂ :...Compile Community KnowledgeÂ : Members of community organizations, neighbors and others are likely to know a great deal about historical lending discrimination and the needs of the community.Track Deposits and Market ShareÂ : ...Monitor Newspaper Articles and Public TestimonyÂ : ...
Target Goal Culturally Appropriate Lending Develop flexible underwriting that responds appropriately to cultural borrowing habits of low-income people and people of color. Affordable Housing Lending Single Family Housing: Target loans to purchasers with incomes at or below 80% of median income; perform secondary review of denials.Â Â Multifamily Rental Housing: Favor developments where tenants have incomes at or below 50% of median income; priority to nonprofit housing developers; number of years that the housing will remain affordable to these tenants. Subprime Mortgage Lending Maintain a lending program that matches conventional loans in terms of fees charged, insurance required and other elements. Ensure cross-referrals to conventional mortgages. Small Business Lending Confirm at least 50% of loans at or below $50,000; perform secondary review of denials. Consumer Lending Match percentage of loans to low- and moderate-income borrowers to percentage of low- and moderate-income households in the bank`s assessment area. Consumer Services Provide free or low-cost checking accounts with low opening and balance requirements. Marketing Utilize local minority-owned media companies; support counseling programs for loan programs. Branch Distribution Open more full-service branches in low-income communities and communities of color; establish a clear procedure requiring community involvement before any branch is closed. Community Investments Increase investments in local Community Development Financial Institutions; improve the position of equity investments for Community Development Corporations. Capacity Grants Institute substantial grant programs to support capacity of community organizations, including community and housing developers. Vendor Program Establish programs focused on purchasing from minority-, disabled-, and women-owned firms; clear accounting by type of owner Rural Program Support programs that include self-help housing and other forms of rural assistance. Meetings Agree to share specific data prior to semiannual bank meetings. Diversity Provide a specific plan for diversifying the bank`s top executive levels.
More than $1 Trillion Invested through CRALenders and community organizations have negotiated $1.09 trillion in CRA dollars from 1992 to 2000. In contrast, $8.8 billion was negotiated from 1977 through 1991.Two major factors contribute to increased commitments since 1992. First of all, NCRC members and other community organizations are becoming increasingly sophisticated in terms of being able to articulate community needs as well as providing homeownership counseling and other types of services in partnerships with banks.The second major factor spurring the growth of CRA agreements is the structural evolution in the banking industry. As banks become regional and national in scope, they understand that it is important to maintain their local community lending and investing capacity. Large banks and thrifts make multi-state agreements with networks of community groups that tailor the lending and investing to fit local needs.
Provisions of CRA CommitmentsThis section is designed to assist lenders and community leaders in identifying the range of credit, capital, investment, and servicing needs that can be included in a CRA commitment. Below, are an overview and actual examples of CRA commitments that illustrate the range of programs and products that have been negotiated between community organizations-or local governments-and lenders. ...
Single-FamilySingle-family housing loans, for purchase or for home improvement, are the most frequently targeted form of housing in CRA commitments:
- In agreement with theÂ Massachusetts Association of Community Development Corporations, Citizens Bank pledged to make $10 million in affordable home mortgage loans to new immigrants over a five-year time period starting in 1999. Fannie Mae will purchase the loans. CRA agreements should, where possible, include commitments by secondary market institutions to purchase loans so that the banks can obtain more capital for making additional CRA loans.
- In the wake of its takeover of H.F. Ahmanson`s Home Savings of America, Washington Mutual [Hey, where have we heard that name before?] signed a $120 billion CRA agreement with theCalifornia Reinvestment Committee (CRC), theÂ Greenlining Institute, theÂ Washington Reinvestment Alliance, and other community groups. More than $80 billion of the ten-year commitment will be for single family lending to minorities and borrowers in low- and moderate-income census tracts. Low- and moderate-income borrowers (under 80 percent of median family income) will receive $30 billion of the loans.
- Led by theÂ Woodstock InstituteÂ and CANDO, theÂ Chicago CRA CoalitionÂ of over 100 organizations signed a pioneering CRA agreement with First Chicago NBD in the summer of 1998. First Chicago will make 35,879 affordable, single-family home loans by the end of 2004. In each year, the bank`s share of the market in low- and moderate-income areas will equal or exceed its share of the market in middle- and upper-income areas. Subprime lending will not be included in the lending increases to low- and moderate-income areas. In 1999, the Chicago CRA Coalition negotiated similar agreements with Old Kent Bank and Charter One.
- In its 1999 agreement with theÂ Chicago CRA Coalition, Old Kent promised to maintain a LMI-to-MUI market share ratio of 1.5 for multifamily lending for three years. In other words, the bank`s market share of multifamily loans in low- and moderate-income census tracts will be 1.5 times greater than its market share of loans in middle- and upper-income communities.
- The California Reinvestment Committee (CRC) and the Greenlining Institute, as part of their 1995 $45 billion agreement with Wells Fargo Bank of San Francisco, committed the bank to apply 60 percent of the $7 billion allotted to low-income housing towards low-income rental housing construction.
Nonprofit and Minority Housing Developers
- The Washington Reinvestment Alliance, in its 1992 agreement with Key Bank, committed the bank to provide $10 million in lines of credit for community-based nonprofits and housing authorities engaged in the construction and rehabilitation of housing for low-income or first-time home buyers. ...
Housing Cooperatives, Land Trusts, and Mobile/Manufactured HousingAlthough rare, a few CRA agreements have also included provisions specifying loans for these types of housing. [In other words, trailer trash are a CRA afterthought. I wonder why?] ...Â
Target PopulationsSeveral agreements include provisions to ensure that the needs of underserved populations are met.
- In its 1999 agreement withÂ New Jersey Citizen ActionÂ and the Affordable Housing Network of New Jersey (now theÂ Housing and Community Development Network of New Jersey), the Bank of New York pledged to allocate $10 million under a pilot program that would offer lower rate refinance loans to borrowers holding subprime loans. Under the pilot, borrowers will not be required to have a minimum credit score, provided they can demonstrate 18 months of satisfactory mortgage payments.
Lower Interest LoansBelow market interest rates for housing loans are also included in CRA commitments. With the advent of subprime lending, community groups have also secured promises from lenders that curb excessive costs from subprime loans.
- U.S. Bank has opened an "Alternative Loan Division" that will make subprime home equity loans to borrowers who do not qualify for prime loans. In the fall of 2000, U.S. Bank promised the California Reinvestment Committee that all home equity operations of the bank will adhere to pricing guidelines consistent with fair lending laws. In addition, the bank promises to implement fair lending guidelines for business relationships with New Century and other subprime lenders.
DistressDistressed properties are properties that are under the threat of foreclosure due to missed loan payments. Some CRA agreements contain provisions committing the lender to exercise greater forbearance for distressed properties in low- and moderate-income and minority neighborhoods.
- ACORN, Philadelphia, in a 1986 agreement with Fidelcor, committed the bank to exercise greater forbearance prior to foreclosure. Specifically, the bank agreed to allow a moratorium on payments of up to six months where the failure to make payments is caused by circumstances beyond the control of the borrower, and there is a reasonable prospect that the borrower`s situation will improve. The bank also agreed to allow repayment agreements permitting up to two years for a borrower to catch up on delinquent payments.
Loan CounselingEven with concessions on loan terms and flexible underwriting criteria, low-income and minority individuals sometimes require counseling and education in order to be creditworthy for housing loans. A number of lenders in CRA agreements have committed to support loan counseling programs.
- In its 1998 agreement withÂ Inner City Press/Community on the Move,Â Equity OneÂ committed to paying up to $250 for credit counseling for borrowers 31 days late on loan payments. Equity One is a subprime lender that specializes in offering loans to people with blemished credit histories. A commitment to paying for credit counseling is an indication that the lender will not seek to profit from delinquencies and foreclosures.
Specific Loan TargetsWhile housing loans have been the primary focus of CRA agreements, community groups are increasingly using CRA agreements as a tool to promote economic development. CRA agreements include provisions setting dollar targets for small businesses, minority and women-owned enterprises, micro businesses, and economic development projects.
Small BusinessSmall business, while one of the main employment generators in the country, has traditionally faced problems accessing credit. A number of CRA agreements contain provisions committing lenders to target small businesses in low- and moderate-income areas....
Minority- and Women-Owned Business
- In 1999, The Detroit Alliance for Fair Banking persuaded Michigan National Bank to target African-American businesses for loans under $500,000 including micro-loans up to $35,000. The bank will conduct second reviews of denied loans. The bank will promise that it will utilize the exemption under Regulation B for special purpose programs to report the number of loans made to minority business owners as well as those denied and loans made after second reviews.
Consumer ProductsWhile not the primary focus of the CRA, community organizations have used CRA agreements as a means to increase access to consumer loan products for low-income and minority individuals.Â
Addressing Farm NeedsMany small, family farmers and minority farmers have trouble accessing credit from lenders. However, only a few CRA agreements have focused on rural credit needs.[Hicks from the sticks are a CRA afterthought. I wonder why?]
Support for Community Development Credit Unions (CDCUs)CDCUs are member-owned and controlled nonprofit financial institutions that bring both credit and financial service to people and communities with limited access to mainstream financial institutions. Community groups have committed banks to support CDCUs in a number of ways. ...Â
Grants to Community-Based OrganizationsCRA agreements contain provisions committing lenders to provide grants to community-based organizations.
- In its 1997 agreement with the California Reinvestment Committee and the Greenlining Institute, Home Savings of America pledged to make charitable contributions of at least 2% of after tax income. At least 80 percent of this will benefit underserved communities. Home Savings will make at a minimum $72 million of charitable contributions over the next 10 years. ...
Banking ServicesA pervasive problem in low-income and minority neighborhoods is the lack of access to basic banking services, forcing communities to use private check cashing outlets that often charge high fees. CRA agreements have committed banks to offer basic banking services at low cost to their communities.
Offer Basic or Lifeline CheckingLifeline checking offers accounts with low, or no, fees and minimum balances.[This seems fine to me because it`s not a loan that the taxpayers via the FDIC are on the hook for. This helps poor people save money rather than borrow money. This is a straightforward subsidy of calcuable, finite cost to the bank.Â ] ...
Bilingual InitiativesIn communities where English is not the prominent language, banks have committed to hire staff that reflect the varied languages spoken in the community.
- TheÂ Fair Lending Coalition, in its 1991 agreement with Norwest Bank, committed the bank to hire and train bilingual staff at all branches where language barriers might pose an impediment to customer service.
Diversify BoardSome lenders have committed to appoint women or minorities to the board.
- Native ActionÂ and otherÂ Northern Cheyenne Reservationorganizations, in their 1992 agreement with First Interstate, committed the bank to maintain at least one Northern Cheyenne Tribal member as a board member.
Credit Needs AssessmentTo ensure that a lender is offering loan products and services that are most appropriate to the specific credit needs of a community, many CRA agreements contain commitments by lenders to conduct a needs assessment of the community....
- The Shelby County Community Reinvestment Coalition, in a 1990 agreement with Union Planters National Bank, committed the bank to focus more of its advertising efforts towards making new and existing customers in targeted census tracts aware of the bank`s products and services. Specifically, the bank agreed to advertise on/in radio stations targeting minorities, in minority newspapers, post information in low- and moderate-income neighborhoods, advertise in neighborhood association newsletters, and advertise the bank`s real estate lending services in minority real estate publications. [I wonder how much financial overlap there is between community organizers and these for-profit media?]
Reports and Disclosure ...
Where to Access DataHMDA Data: These are available athttp://www.ffiec.gov/hmda/default.htm, on the Federal Financial Institutions Examination Council (FFIEC) site.Small Business Lending Data: Available by state, county, and MSA (Metropolitan Statistical Area) at the Federal Financial Institutions Examination Council (FFIEC) site:http://www.ffiec.gov/webcraad/craaggr.htm.Corporate Financial Reports: These are available from the bank itself or the US Securities and Exchange Commission (www.sec.gov). Phone number (202) 942-8088.CRA Public Evaluations: Evaluations The Federal Reserve, FDIC, Office of the Comptroller, and Office of Thrift Supervision are available atÂ http://www.ffiec.gov/cracf/crarating/main.cfm. Other relevant data is available athttp://www.ffiec.gov/cra/Fair Housing Information: This is available from your local Fair Housing Council or the National Fair Housing Advocate atwww.fairhousing.com.Population Data: This is available from the US Census Bureau atwww.census.govÂ and your county and state governments. Phone number (301) 457-4608.Local Data:Â This is available from your city or county planning office.