U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

57–741 PDF 2010

PERSPECTIVES AND PROPOSALS ON 

THE COMMUNITY REINVESTMENT ACT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

APRIL 15, 2010 

Printed for the use of the Committee on Financial Services 

Serial No. 111–123 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

LUIS V. GUTIERREZ, Illinois, Chairman 

CAROLYN B. MALONEY, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

DENNIS MOORE, Kansas 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

AL GREEN, Texas 

WM. LACY CLAY, Missouri 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

GREGORY W. MEEKS, New York 

BILL FOSTER, Illinois 

ED PERLMUTTER, Colorado 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JEB HENSARLING, Texas 

J. GRESHAM BARRETT, South Carolina 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

WALTER B. JONES, JR., North Carolina 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

KEVIN McCARTHY, California 

KENNY MARCHANT, Texas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

April 15, 2010 ................................................................................................... 1 

Appendix: 

April 15, 2010 ................................................................................................... 43 

WITNESSES 

THURSDAY, APRIL 15, 2010 

Askew, William E., Senior Policy Advisor, The Financial Services Roundtable 10 

Bradford, Calvin, Board Member, The National People’s Action ........................ 14 

Ludwig, Hon. Eugene A., Chief Executive Officer, Promontory Financial 

Group, LLC ........................................................................................................... 18 

Reinhart, Vincent, Resident Scholar, American Enterprise Institute for Public 

Policy Research .................................................................................................... 20 

Richardson, Cy, Vice President, Housing and Community Development, National Urban League ............................................................................................ 9 

Rodriguez, Eric, Vice President, Office of Research, Advocacy, and Legislation, 

National Council of La Raza (NCLR) ................................................................. 12 

Taylor, John, President and CEO, National Community Reinvestment Coalition (NCRC) .......................................................................................................... 7 

Willis, Mark A., Resident Research Fellow, Furman Center for Real Estate 

and Urban Policy, New York University ............................................................ 16 

APPENDIX 

Prepared statements: 

Askew, William E. ............................................................................................ 44 

Bradford, Calvin ............................................................................................... 52 

Ludwig, Hon. Eugene A. .................................................................................. 92 

Reinhart, Vincent ............................................................................................. 118 

Richardson, Cy .................................................................................................. 123 

Rodriguez, Eric ................................................................................................. 130 

Taylor, John ...................................................................................................... 139 

Willis, Mark A. ................................................................................................. 187 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Gutierrez, Hon. Luis: 

Business Week article entitled, ‘‘Community Reinvestment Act had nothing to do with subprime crisis,’’ dated September 29, 2008 ...................... 201 

Preliminary Staff Report from the Financial Crisis Inquiry Commission 

entitled, ‘‘The Community Reinvestment Act and the Mortgage Crisis,’’ 

dated April 7, 2010 ....................................................................................... 203 

Written statement of the National Association of Federal Credit Unions 

(NAFCU) ........................................................................................................ 210 

(1) 

PERSPECTIVES AND PROPOSALS ON 

THE COMMUNITY REINVESTMENT ACT 

Thursday, April 15, 2010 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:02 a.m., in room 

2128, Rayburn House Office Building, Hon. Luis V. Gutierrez 

[chairman of the subcommittee] presiding. 

Members present: Representatives Gutierrez, Watt, Moore of 

Kansas, Waters, Hinojosa, Baca, Green, Clay, Cleaver, Perlmutter; 

Hensarling, Royce, Garrett, Neugebauer, Lee, and Paulsen. 

Chairman GUTIERREZ. This hearing of the Subcommittee on Financial Institutions and Consumer Credit will come to order. 

Good morning, and thanks to all of the witnesses for agreeing to 

appear before the subcommittee today. Today’s hearing will examine proposals for improvements to the Community Reinvestment 

Act, given the changes in the financial services marketplace over 

the last decade. 

We will be hearing from the lending industry, the advocacy community, and the academics on their perspectives of how CRA 

should be improved to make it more effective in its goal of increasing access to credit in low- and moderate-income neighborhoods. 

We will be limiting opening statements to 10 minutes per side, 

but without objection, all members’ opening statements will be 

made a part of the record. 

We may have members who wish to attend, but do not sit on this 

committee. As they join us, I will offer an unanimous consent request for each member to sit with the committee and ask questions, when time allows. 

I yield myself as much time as I may consume. 

So much of the news we see and hear concerns Wall Street bankers. Today, we will focus on the other end of the spectrum. We will 

look at the safeguards for the little guy. 

The Community Reinvestment Act is one of the programs that 

keeps our communities moving and keeps the economy moving. It 

literally ensures that the lifeblood of the economy—small businesses, homeownership, and investments in low- to moderate-income communities—keeps flowing. 

The Community Reinvestment Act is one of the most important 

legacies of the civil rights struggles of the 1960’s, that resulted in 

landmark consumer rights legislation, such as the Fair Housing 

2 

Act, the Equal Opportunity Credit Act, and the Home Mortgage 

Disclosure Act. 

These laws have become indispensable for consumers and are 

often taken for granted in our current political environment. These 

laws help to give all of our citizens access to affordable credit, credit that is safe, free from bias, and free from discrimination, based 

on income, race, or even something as simple as the zip code where 

someone lives or the ward in which they vote. 

As good a job as CRA has done over the past years, there remains so much more for this committee and this Congress to do. 

Minority communities have been targeted by non-CRA mortgage 

brokers for predatory loans, and many in our communities continue 

to rely on high-cost lending for paycheck-to-paycheck survival. 

Lending to underserved communities has increased by the CRA. 

That is a documented fact. 

At the same time, however, the FDIC announced in December 

that even though 75 percent of the banks they surveyed were 

aware of significantly underserved populations in their market 

area, only 18 percent of them included expanding access to credit 

to those communities as a priority in their business strategy. And 

that is unacceptable. 

The CRA has done amazing things for our communities. As Mr. Taylor of the NCRC says in his written testimony, $4.6 trillion has 

been invested in our neighborhoods since the passage of the CRA 

through bank commitments, including $60 billion in small business 

lending in 2008 alone. 

And this is at a time when lending on all other fronts was decreasing nationwide. In order to help our constituents recover from 

the current recession, to help them stop paying outrageously high 

fees for check cashing and payday loans, and to help our small 

business owners buy that new truck, that new oven, or even hire 

those new workers, we must do what we can to expand the CRA 

obligations beyond its current scope. 

We must find ways to give Americans increased access to credit 

as well as find new ways to incentivize lenders to increase lending 

to underserved communities. 

I look forward to working with the financial services industry, 

stakeholders, and low- to moderate-income communities, Federal 

banking agencies, and Members of Congress to help make the 

CRA’s goals of affirmatively providing affordable access to credit to 

all of our communities a more expansive reality. 

And before I close, I thought I would save the other side some 

time and allow them to focus on more substantive remarks and 

questions by stating that in no way did the CRA cause, facilitate, 

or exacerbate the mortgage crisis. 

I don’t think I can be clearer than that. What do Chairman 

Bernanke, Chairman Bair, Comptroller Dugan, Federal Reserve 

empirical studies, Business Week, and the Financial Crisis Inquiry 

Commission’s great study have in common? They all agree the CRA 

did not cause the crisis. 

Let’s bear in mind the CRA was adopted to end redlining, a practice by which banks would literally draw a red line on a map 

around neighborhoods, usually where minorities lived, in which 

they did not want to offer financial services or capital to grow the 

3 

economy. Let’s talk about how to more effectively combat redlining 

today, and not about the red herring of CRA allegedly causing the 

financial crisis. 

So now that we don’t have to deal with that distraction, we will 

have much more time to talk about constructive issues, like how 

to incentivize participation in the CRA and expand the benefits of 

this law to more and more Americans who are struggling to build 

a better life for themselves, their families, and the communities in 

which they live and work. 

I now yield to the ranking member, Mr. Hensarling. 

Mr. HENSARLING. Thank you, Mr. Chairman. 

I believe that the Community Reinvestment Act has had a proud 

genesis. Thirty-three years ago, in 1977, redlining was clearly not 

insignificant. Too many low-income and minority individuals’ credit 

opportunities were limited to a handful of banks that might have 

been reachable on a city bus route. 

But years later, much has changed. Interstate banking, branch 

banking, Internet banking, and risk-based pricing all have helped 

revolutionize and democratize credit in our society as never before. 

If you can gain access to the Internet at a public library, if you 

have access to a telephone to call a toll-free number, you can 

unlock countless credit opportunities for credit cards and home 

loans that were simply unavailable years ago. 

Market competition from companies such as LendingTree.com, 

BankRate.com, CardHub.com, and many, many others, now provide 

low-income Americans with a platform to access competitive bids 

on financial products all across the United States, not just in localized geographic communities. In fact, the concept of a localized geographic community for banks is simply antiquated. 

Now unfortunately, the recession, not to mention anti-consumer 

legislation which has been passed by this Congress, continues to 

erode credit opportunities for many of these low-income Americans. 

That is regrettable; but it brings us to the great irony of this 

hearing yet again. Thirty-three years ago, if you examine the Congressional Record, what you see is the debate surrounding CRA 

was all about financial institutions denying credit opportunities to 

low-income and minority individuals. 

Now today, much of the debate is about greedy financial institutions exploiting low-income and minority individuals by making too 

much credit available to these communities. So it begs the question: Is it too much or is it not enough? 

Regardless of what CRA was, today it is a costly and redundant 

anachronism that has contributed to our economic crisis, and still 

enables certain activist groups to essentially shake down financial 

institutions, harming credit and job opportunities for all Americans. 

Federal Reserve data has shown that well over 99 percent of all 

banks are already in full compliance with CRA; yet we know that 

community banks can spend up to $90,000 a year just to prove 

compliance. 

Again, it begs the question: Are we simply having banks pay all 

these great sums of money to prove that they’re doing something 

they would do anyway? Do you really have to force a bank to make 

a profitable creditworthy loan? And if not, are we forcing them to 

4 

make loans to a universe of people that they may not otherwise 

make loans to; and these loans may not be financially sound loans, 

and indeed, they may be loans that help contribute to our economic 

crisis? 

And when we talk about CRA loans contributing to the economic 

crisis, I have long contended it wasn’t the size of the loans, it 

wasn’t the number of loans, but it was one more precedent, where 

the United States Government put its imprimatur on a system that 

did not raise up the economic opportunities of the borrower, but instead lessened the credit standards of the lender. Thus, it played 

a role. 

Also, every community banker I speak to tells me that equal or 

second only to BSA, CRA is their most costly compliance matter. 

If they simply had the money that they are spending on compliance 

costs, they would instead be able to capitalize at least several small 

businesses in their community and create hundreds of jobs. 

Mr. Chairman, I would like to yield myself an additional 30 seconds. 

Chairman GUTIERREZ. Absolutely. 

Mr. HENSARLING. Shouldn’t jobs be the number one priority of 

this Congress? Clearly it is not, though. Under the policies of 

Speaker Pelosi and President Obama, almost 4 million of our countrymen have lost their jobs since the President has been inaugurated. And we have the highest unemployment rate we have had 

in a quarter of a century, not to mention a tripling of national debt. 

One thing our committee could do that would take a positive step 

in creating more jobs in America is simply to repeal CRA. 

Today, I will be introducing legislation to do just that, and I urge 

its consideration. 

Thank you, Mr. Chairman. I yield back the balance of my time. 

Chairman GUTIERREZ. The gentleman yields back the balance of 

his time. 

Do we have any members on our side seeking time? Seeing none, 

Mr. Royce is recognized for 3 minutes. 

Mr. ROYCE. Thank you, Mr. Chairman. 

If we can learn anything from the recent crisis, it should be that 

giving private entities public missions is fundamentally flawed. 

The most glaring case was Fannie Mae and Freddie Mac, which, 

as Alan Greenspan put it last week, ‘‘paid whatever price was necessary’’ to reach affordable housing goals which were so important 

to their allies in Congress. This led to the GSEs taking on well over 

$1 trillion in junk loans, which then led to the GSEs’ failure, and 

the collapse of the housing market. 

No one has said that CRA was the primary cause of the housing 

crisis. What economists have argued is that CRA was a contributor 

to this problem. CRA falls in the same category as Fannie and 

Freddie. Mandating that private institutions offer loans they otherwise would not offer contributed to the erosion of credit standards 

throughout the market. 

We can’t have a situation where we in Congress muscle down 20 

percent downpayment rates to get them down to 3 percent or zero 

percent, by the way, and not think that is going to have an impact. 

And along those same lines, CRA also acted as a bargaining tool 

for activist organizations. The CRA requirement that banks have 

5 

good CRA records for regulatory approval of a merger or acquisition gave groups like ACORN ammunition to shake down financial 

institutions. And that’s what they were doing, shaking down financial institutions for either direct contributions or affordable housing 

commitments. 

According to the 2007 annual report of the National Community 

Reinvestment Coalition, the four largest U.S. banks—Citi, Bank of 

America, Wells Fargo, and JPMorgan Chase—or their predecessors 

had made commitments under the CRA to make more than $4.5 

trillion in CRA-type loans between 1993 and 2007. Countrywide Financial, through a HUD program, created their own affordable 

housing goals and committed to make $1 trillion in loans to lowand middle-income borrowers. 

While a number of those loans went to creditworthy borrowers, 

many did not. And by 2008, these programs resulted in over 2 million high-risk loans. With respect to all loans made under CRA by 

some instruments, half were made to borrowers who made 

downpayments of 5 percent or less, or had below prime credit 

scores, both characteristics that indicated a high credit risk. 

Instead of expanding this unsound law, I believe it should be significantly scaled back, or abolished altogether. 

If the goal is to ensure that lending practices are not based on 

race or where an individual lives, many experts agree that enforcing the existing fair lending and antitrust laws would get us there, 

if they were enforced. 

I look forward to hearing from our witnesses today, and I yield 

back. 

Chairman GUTIERREZ. Mr. Watt, you’re recognized for 2 minutes. 

Mr. WATT. Thank you, Mr. Chairman. I was going to pass and 

go to the witnesses. But I got kind of provoked by the ranking 

member’s statement. Because I have this recollection of a time, 

when I came to this committee, and CRA and many of these financial services issues were bipartisan, non-partisan, non-philosophical 

issues. 

I won’t go into a line-by-line refutation of our ranking member’s 

statement. I just think it’s a sad commentary on what has happened to this committee and the leadership on the Republican side; 

and perhaps what has happened to the whole Republican side of 

every issue, which is just so far out there that nobody can embrace 

it, except the most radical extremist. 

And I thought this committee, I had hoped, was exempt from 

that. But I’m saddened to find we simply are not. So I’ll just yield 

back, and let my statement stand for that. 

Chairman GUTIERREZ. The gentleman yields back his time. And 

we have Congresswoman Maxine Waters, who is recognized for 3 

minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

Let me begin by saying that I consider the Community Reinvestment Act to be one of the most significant pieces of legislation to 

help low-income and minority communities since its enactment in 

1977. 

The CRA was necessary because financial institutions were discriminating against lower income and minority communities, in a 

practice we now call redlining. 

6 

I remember too well the days of redlining. When I entered the 

California State Assembly back in 1976, prior to the passage of 

CRA, whole communities were excluded from mortgage opportunities, simply because financial institutions chose not to lend to 

them. 

The CRA was an important step to correct this problem, and did 

so by creating an explicit promise between federally insured banks 

and the government. 

If banks met the credit needs of their entire community, including minority and low-income borrowers, they would be permitted to 

expand and grow their businesses. 

Since the passage of CRA, small business lending and low- and moderate-income tracts increased from $33 billion in 1996 to $60 

billion in 2008. 

Furthermore, community development lending grew from $18 bil- lion in 1996 to $73 billion in 2008. It is clear that CRA has played 

a large role in increasing homeownership, decent affordable renting 

housing, small business ownership, and community development 

investments that would not have been possible otherwise. 

Yet, despite this data, critics have blamed CRA as one of the factors that led to the financial crisis for providing more lending opportunities to lower-income communities. We just heard a bit of 

that. 

And I continue to hear that with the tightening of credit, banks 

are making fewer and fewer loans to small, minority, and womenowned businesses. 

The facts demonstrate that CRA is not to blame, and these underserved populations should not bear the brunt of such unfounded 

claims. 

According to a recent study, based on HMDA data, CRA banks 

were significantly less likely than other lenders to make high-cost 

loans, and the average APR and high-cost loans originated by CRA 

banks was appreciably lower than those by other lenders. 

Furthermore, it must also be noted that the largest financial institutions that are refusing to lend to underserved populations are 

the same banks that received billions in TARP payouts last year. 

They’re taking taxpayer dollars, but failing to serve the communities that need it most. 

If we are to recover as a nation, then we must do it together by 

making sure that our underserved communities are provided the 

same access to credit and lending opportunities as our most served 

communities. 

That is why CRA is so important. As we move forward, we must 

make sure that we not only strengthen enforcement of the current 

role of CRA, but that we also improve upon the role of CRA, so that 

it can continue to help underserved populations gain access to 

homeownership, and community development opportunities, and 

help restore our economy. 

I look forward to hearing from today’s witnesses about the ways 

in which we may further modernize CRA, and how CRA can be 

used to provide greater banking opportunities to underserved populations, while helping to restore the national economy. 

Thank you, Mr. Chairman. And I yield back the balance of my 

time. 

7 

Chairman GUTIERREZ. We now will hear from the witnesses. We 

have Mr. John Taylor, who is the president of the National Community Reinvestment Coalition. You are recognized for 5 minutes, 

Mr. Taylor. 

STATEMENT OF JOHN TAYLOR, PRESIDENT AND CEO, 

NATIONAL COMMUNITY REINVESTMENT COALITION (NCRC) 

Mr. TAYLOR. Thank you, Chairman Watt, and Ranking Member 

Hensarling, as well. 

CRA is one law that has worked well for America’s blue-collar 

working-class people. CRA loans are made safely and soundly. CRA 

loans are not to be confused with the predatory and malfeasant 

loans made by institutions not covered by CRA, that brought down 

the American economy. 

In 1977, a very wise and thoughtful Congress dedicated to helping all Americans achieve their version of the American Dream, 

passed this law, this CRA, for two very important reasons: 

First, that Congress was not focused on just bailing out banks, 

but was rather making sure that our financial services system 

made loans to regular people, not only the well-heeled. 

Second, Congress determined that since the American taxpayer 

was on the hook for ensuring that people who made deposits and 

investments in these banks, they wisely concluded that it was important that such banks not only loan to the rich and big corporations, but to small business owners and to first-time home buyers, 

and to those working their way up the economic ladder. 

And the results are in. CRA has been an outstanding success. It 

is now well-documented that the significant lending increases and 

investment and service increases have been made safely and 

soundly to low- and moderate-income and blue-collar working-class 

Americans. 

For example, just taking the period 1996 to 2008, the total small 

business lending done under CRA was over $641 billion. The total 

community development lending under CRA for that brief period, 

which community development lending is about rental housing, 

economic development projects, community facilities, that totalled 

over $480 billion. Now that’s over a trillion dollars of private investments—not government investment, but private investment— 

in low-and moderate-income communities. That’s making capitalism work fairly for everybody. With 33 years of success story 

under CRA, there are also lessons learned on how to improve this 

vital law. Please see my detailed comments on pages 40 to 43 of 

my testimony. 

But let me just highlight a few brief recommendations. 

First, we need to expand CRA coverage for existing CRA-regulated banks, to include all their affiliate lenders and to where they 

do a significant amount of business. We need to expand CRA’s coverage to all financial institutions. Credit unions, insurance companies, independent mortgage companies, and investment banks 

should all have an affirmative obligation to safely and soundly loan 

to all Americans working their way up the economic ladder. 

Second, we must increase the opportunity for women business 

owners and others to have more access to small business loans, by 

8 

removing the veil of secrecy that now exists in banks, as to whom 

banks are making these loans to. 

As we do in housing loans, we need to have the banks report the 

details on their business loans. Are they loaning to only the wellheeled and big businesses? Or are they loaning to women-owned 

businesses, small businesses, minority-owned businesses, and others? 

Modernize the system for grading banks under CRA with more 

specific and detailed measures on how they are actually performing 

and making their loans available to working-class Americans. 

Finally, strengthen the enforcement mechanisms under CRA by 

requiring public comment hearings on major mergers. And if banks 

fail to pass the CRA exams, require them to improve, or penalize 

them for their bad behavior. 

CRA is about making capitalism work safely and soundly for the 

little guy and gal, not just about Wall Street and making the market work for Wall Street and big banks. 

For the remainder of my time, I want to address something that 

Representative Hensarling said, because I want to make sure that 

everybody in his district who watches C-Span understands that 

their elected official is actually arguing to end the system which 

says banks can’t ignore them as a working-class American—and 

you have to have someone in Dallas and you have to have someone 

in California—that this Representative is actually proposing to end 

a system that has worked very well, that would allow for safe and 

sound investments for working-class small business owners, all 

these people, Tea Party, and all these other people who are arguing 

that the banks aren’t lending and we’re bailing out the banks, that 

your Representative in Dallas, Texas, is arguing to end the system 

that says, ‘‘Hey, if you can pay the loan, and you’re a hard-working 

American, and you’re willing to pay your taxes, and you’re willing 

to play by the rules, you should have access to the financial services sector,’’ that they shouldn’t just ignore you and only loan to the 

rich and the well-heeled and the big corporations. 

That’s what you’re proposing, Representative Hensarling. 

And let me just say, on this shakedown comment you had, I’ll tell 

you, in my opinion, nobody shakes down the banks better than the 

Members of Congress. 

You yourself have received over $200,000 in contributions from 

financial institutions over the last 2 years. And that goes directly 

to you keeping your job. That is not what community organizations 

do. 

Community organizations sign CRA agreements with these 

banks to get them to make loans to underserved people, not loans 

to their campaign, that’s going to keep them in office and keep 

them getting re-elected. 

So I would be careful about where you point your finger and accuse people of shakedowns. 

Thank you for the opportunity to comment. 

[The prepared statement of Mr. Taylor can be found on page 139 

of the appendix.] 

Chairman GUTIERREZ. The time of the gentleman has expired. 

Next, we have Cy Richardson, who is the vice president of housing and community development for the National Urban League. 

9 

STATEMENT OF CY RICHARDSON, VICE PRESIDENT, HOUSING 

AND COMMUNITY DEVELOPMENT, NATIONAL URBAN LEAGUE 

Mr. RICHARDSON. Chairman Gutierrez, and Ranking Member 

Hensarling, thank you for the opportunity to share the perspectives 

and proposals of the National Urban League on CRA. 

Today’s hearing falls squarely within the economic empowerment 

discourse, both nationally and in our local communities. 

Given the limited time allotted, my remarks will focus on some 

general recommendations for modernizing and strengthening the 

core purpose and utility of CRA, followed by some specific ideas for 

amendments of the service test, an important and highly visible 

core component of CRA. 

I would request that my full written testimony be entered into 

the official record, please. 

Chairman GUTIERREZ. Without objection, it is so ordered. 

Mr. RICHARDSON. Before I share the Urban League’s views and 

proposals along these lines, it is important to first address, headon, as Mr. Taylor did, some of the disturbing and unpleasant rhetoric that surfaced during the recent period of dissonance concerning CRA and the foreclosure crisis. 

In the wake of the subprime meltdown, some observers and commentators have perpetuated a dangerous myth that minority and 

low-income borrowers, and measures to expand the opportunities 

for homeownership, such as CRA, were responsible for the 

subprime crisis. However, a number of recent reports and studies 

have forcefully debunked these attacks on the CRA. 

Our analysis indicates that the CRA has been effective in ensuring access to fairly priced credit for low- and moderate-income borrowers, as lenders covered by CRA are far less likely to make higher-cost loans than those not covered. 

These are the facts; yet a considerable amount of time and care 

has been spent, and indeed will continue to be spent, disarming 

what the president of the Urban League, Mark Morial, termed 

‘‘weapons of mass deception,’’ under which this line of argument 

generally falls. 

In our judgment, Congress must: 

One, keep the Act fundamentally intact and seek to build on its 

strength by fine-tuning the measurements to remain in step with 

shifting markets. 

We also call for a revitalized role for the public, particularly in 

light of the current priorities of regulatory agencies. 

The following changes, among others, would allow the test to 

more effectively measure a bank’s performance and should be included under an expanded reporting rubric. 

Since many lower-income people do not live in lower-income zip 

codes, examiners should conduct sample surveys of the income and 

race and ethnic distribution of an institution’s retail customers, to 

determine the percent of those customers who are lower income 

and members of minority communities. 

Examiners should also construct and report a systematic analysis 

of quantitative data of the number and income rates of customers 

who use alternate ways of accessing financial products—telephone, 

Internet banking, smart ATMs, etc.,—and those who facilitate wire 

transfers to other countries. 

10 

Banks should report data on the services they provide to 

unbanked households and their success in using those services to 

recruit new customers. 

Examiners should carefully examine banks’ relationships with 

high-cost fringe lenders, for example, and determine whether those 

fringe lenders’ disclosure activities, costs, terms, and conditions 

have a deceptive impact on their customers. 

Banks should be required to report quantitative details of the 

community development services, including the number of people 

who attend financial literacy events and seminars, and the number 

of accounts that result from such events. 

Finally, banks should also be examined to see whether they effectively market savings products to lower-income consumers. 

Moreover, with regard to small business lending, we believe 

CRAs should monitor bank-lending activities to small and minority 

businesses, to determine if their current lending practices are userfriendly for these business concerns. 

And CRA should also include an evaluation of bank participation 

and collaboration with local nonprofits, who themselves provide 

microlending to small businesses. 

Bringing the Community Reinvestment Act into the 21st Century 

requires the same kind of care and creativity that fostered the Act 

in 1977, and provided for its reform in the 1990’s. 

The CRA has established that it can help meet the needs of lowand moderate-income individuals and communities and their material needs. Indeed, after the crisis caused by the subprime turmoil 

rolls through these neighborhoods, their problems are likely to be 

even more acute. 

Finally, given the impetus for this important hearing, we strongly believe that CRA could become an even more powerful and catalytic engine to revitalize low- and moderate-income communities, 

coming to the fore just when the government’s ability to use tax 

revenues to pay for infrastructure improvement and to invest in 

urban development is greatly diminished. 

Thanks for the opportunity to comment. And I’ll take any questions. Thank you. 

[The prepared statement of Mr. Richardson can be found on page 

123 of the appendix.] 

Chairman WATT. Thank you so much, Mr. Richardson. 

William Askew is the senior policy advisor at the Financial Services Roundtable. And he’s next, please, for 5 minutes. 

STATEMENT OF WILLIAM E. ASKEW, SENIOR POLICY ADVISOR, 

THE FINANCIAL SERVICES ROUNDTABLE 

Mr. ASKEW. Mr. Chairman, Ranking Member Hensarling, and 

members of the subcommittee, I’m William E. Askew, senior policy 

advisor for the Financial Services Roundtable, on whose behalf I 

am appearing today. 

Thank you for the opportunity to address the Community Reinvestment Act. The CRA was enacted to promote loans and services 

to low- and moderate-income neighborhoods and residents of those 

neighborhoods. 

Since its enactment, the Act has more than achieved its goal. 

CRA has become an open and consultative community process. All 

11 

of the participants in the process, including lenders, regulators, 

and community organizations, have become more sophisticated, 

and focused on how best to achieve the goals of the statute. 

And most importantly, CRA has generated billions of dollars in 

new loans and investment services in both urban and rural areas 

around the country. This success story is well-documented. 

Despite this record of success, we believe there is still room for 

refinement of the implementation of CRA, so institutions and community groups can better achieve the goal of the Act. 

In the balance of my testimony, I’ll outline recommendations for 

enhancing compliance with CRA. I’ll also address the need to maintain the focus of CRA. 

Today the overwhelming majority of banks receive a satisfactory 

CRA rating, and only about 10 percent achieve an outstanding rating. This result should not be surprising. Achieving an outstanding 

rating requires considerable effort and expenditure on the part of 

banking institutions, as well as just complying satisfactorily. 

We believe that even more banking institutions should pursue 

this top rating. Toward that end, we recommend that the Federal 

banking agencies institute some measures to encourage more banking institutions to obtain an outstanding CRA rating. 

In my written testimony, I list some specific actions the agencies 

could take. 

Although the existing CRA regulations and interpretations encourage examiners to give extra consideration to projects and activity that are innovative and complex, our members observe that 

such recognition is, in fact, rare. 

We recommend that the Federal banking agencies pay greater 

attention to innovative and complex loans and investments in conducting CRA examinations. 

For example, CRA examiners should consider a bank’s efforts to 

open and maintain homeownership preservation offices in low- and 

moderate-income neighborhoods, and banks programs, to systematically offer and sell deep discounts or donate properties to local 

community-based organizations. 

The CRA regulations already acknowledge the unique character 

of an individual banking institution by encouraging institutions to 

perform their own performance context assessments in advance of 

CRA examination. 

We recommend that the Federal banking agencies encourage examiners to give sufficient attention in regard to these assessments 

and the conduct of the CRA examinations, rather than just relying 

on quantitative pure comparisons. 

In recent years, CRA examiners have placed an emphasis on 

mortgage lending. We recommend that the Federal banking agencies encourage examiners to give institutions sufficient recognition 

for non-mortgage-lending activity, such as lending to small businesses, to small farms, and community developmental lending. 

Given the successful implementation of CRA, we do not favor 

fundamental changes to the statute. For example, we do not support the extension of CRA to securities, brokerages, mutual funds, 

and insurance companies. CRA has succeeded because it is linked 

to the charter obligation of banks and thrifts to meet the convenience and needs of their local communities. 

12 

It should not be assumed that extending CRA to institutions that 

are not subject to a similar obligation would be successful. 

In summary, CRA has helped to transform urban and rural communities throughout the United States. The members of the 

Roundtable are very proud of the role they perform under the Act. 

We believe that with some minor refinements, the Federal banking 

regulators can encourage even greater benefits for local communities. 

We also believe that now is not the time to change the focus for 

CRA. We should write a new chapter in the story, but we don’t 

need to rewrite the story. 

Thank you. And I’m happy to answer any questions you may 

have. 

[The prepared statement of Mr. Askew can be found on page 44 

of the appendix.] 

Chairman GUTIERREZ. Thank you so much, Mr. Askew. 

And now, we’re going to hear from Eric Rodriguez from the National Council of La Raza. 

Eric, you are recognized for 5 minutes. 

STATEMENT OF ERIC RODRIGUEZ, VICE PRESIDENT, OFFICE 

OF RESEARCH, ADVOCACY, AND LEGISLATION, NATIONAL 

COUNCIL OF LA RAZA (NCLR) 

Mr. RODRIGUEZ. Thank you, Mr. Chairman, Ranking Member 

Hensarling, and members of the subcommittee. It’s a great privilege for us to be here. 

As you have already heard, CRA is one of the most important 

tools the public has to ensure that neighborhoods and communities 

with low-income families have fair and affordable access to mainstream banking services. 

The Act has helped to revitalize neighborhoods, and enable nontraditional borrowers, including many Latinos, to gain services. 

The Act has also helped to ensure that Latinos benefit directly 

from investments made by large mainstream banks, that might 

otherwise have left the community underserved, in many ways 

agreeing with what my colleague here said about many of the successes of the CRA. 

But it is a good time for us to revisit CRA. 

I think it’s clear that at its peak, banks covered by CRA increased lending activity in low-income communities, increased the 

share of their loan portfolios with CRA covered loans, and outpaced 

similar growth in lending to low- and moderate-income families 

compared to non-CRA covered institutions. 

Despite many of these important outcomes, developments in the 

financial markets, as you have already heard, have eroded some of 

the effectiveness of CRA. But the base purposes of this law are 

very strong, and the need for government and continued government intervention in mainstream markets is also very strong. 

I’ll give you a few examples. 

One, policy and practices among regulated mainstream financial 

institutions have evolved over time to provide prime loans to only 

those individuals with long and well-established credit histories. 

Automated underwriting practice by mainstream regulated financial institutions is an innovation that, in fact, minimized arbitrary 

13 

and potentially discriminatory lending decisions by bank loan officers. 

But it has also meant higher costs for mainstream banking institutions to serve effectively non-traditional borrowers. This high 

cost has often resulted in some credit rationing that effectively and 

unnecessarily pushed creditworthy, nontraditional borrowers, including young, foreign-born, minority, and other creditworthy borrowers into subprime markets, where predatory lending thrived. 

Second, many banks now, as you have already heard, conduct 

business well beyond the walls of their branches. CRA-covered institutions acquired non-covered affiliates and expanded their customer base through new delivery channels, such as mortgage brokers on the Internet. Regulated banks broadened their reach, without proportional increase in CRA coverage. 

Finally, an issue that’s important is grade inflation through 

exams, which I think has really undermined accountability in the 

system overall. 

As the effectiveness of CRA has waned over the years, providers 

of alternative forms of credit gained more presence and reach into 

low-income communities, the proliferation of non-covered institutions, including many unscrupulous lenders in low-income neighborhoods undermined the main goal of CRA to provide affordable 

credit to these residents. 

And yet the goal remains critical today and likely well into the 

future that we encourage investment in communities. 

To begin with, this decade has experienced a marked growth in 

influx of immigrant workers into low- and moderate-income neighborhoods. Many of these residents are non-traditional borrowers, 

who in many cases have short credit histories, and often no credit 

scores. 

Paradoxically, their thin credit files are often the product of highly sensible financial practices, such as paying in cash, avoiding 

debt, and limiting their use of credit cards. In addition, many 

Latino minority and low-income families today remain unbanked; 

hold high-interest credit cards; have become dependent on smalldollar and short-term loans such as payday and car title loans; are 

charged unnecessary fees for auto loans; and remain more likely to 

receive high-cost mortgages. This is in spite of their creditworthiness. 

In view of these disparities, it should be no surprise that the 

United States continues to maintain a persistent and staggering 

wealth gap between minority and White households. 

And as you know, this has severe implications on the socioeconomic development of the Nation, as Latinos and minorities become a greater share of the U.S. population through 2050. 

But CRA has good elements in place. It’s flexible, it leverages 

State and local resources, and was at its best when it had extensive 

coverage and meaningful measurements. 

I echo many of the recommendations that my colleagues have already put out there so far. And I would underscore that two important main goals need to be considered as we look at modernization: 

first, we have to make sure that we preserve and expand the aspects of CRA that encourage product innovation, lending, and services that are critical to helping low-income Latino families have acVerDate Nov 24 2008 16:49 Sep 13, 2010 Jkt 057741 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\57741.TXT TERRIE
14 

cess to affordable credit and build wealth; and second, we have to 

solidify incentives to direct capital toward community and economic 

development projects that would otherwise not gain support. 

Thank you. 

[The prepared statement of Mr. Rodriguez can be found on page 

130 of the appendix.] 

Chairman GUTIERREZ. Thank you. 

Next, we have Calvin Bradford, a board member with National 

Peoples’ Action. 

You are recognized for 5 minutes. 

STATEMENT OF CALVIN BRADFORD, BOARD MEMBER, THE 

NATIONAL PEOPLE’S ACTION 

Mr. BRADFORD. Thank you, Chairman Gutierrez, and Mr. Hensarling. 

As you recall, Mr. Chairman, the organizing that started to develop around CRA began in Chicago and in your neighborhoods. 

And I had the pleasure 34 years ago to work with Gale Cincotta 

of National Peoples Action, and Senator Proxmire and his staff, 

and officials from the South Shore Bank in Chicago, in drafting 

Senate Bill 406, which became the Community Reinvestment Act. 

I have already submitted our statement, which has a great deal 

of detail about some of the issues I want to raise and some of our 

recommendations. And so much has been already said. I would just 

like to try and take my time to supplement some of that. 

The first thing is, as we face the contemporary environment, we 

have to restructure the Community Reinvestment Act, so that it 

deals with our present conditions in the financial market, and how 

things have changed. 

One of those things that of course has changed is that we now 

have toxic loan products. Before, we only looked at trying to get 

every loan in the neighborhoods. Now we have to look at whether 

the loan has a discriminatory impact, or whether it has a detrimental impact on the community. And the law has to be revised 

to take account of that specifically. 

Another critical development obviously has been the merging and 

acquisition by the bank holding companies, so that they include investment houses and insurance companies. 

And a third one is the dominance of Wall Street over the growth 

and proliferation of financial markets, which wasn’t the case in the 

past. 

And we developed what I call a kind of three-legged askew stool 

for dealing with reinvestment in the mainstream and getting 

money out to Main Street. 

On the one hand, you have Wall Street and the banking industry, which have at their disposal their inherent power in the markets. And ultimately, I’m afraid we have to admit the fact that 

their values are shared by the regulatory bodies. 

Second, the Consumer Financial Protection Agency, which is the 

only real structure we have in our government to protect consumers from predatory lending, really hangs by a thread in Congress. 

What we’re left with, therefore, is the third leg, which is the community organizations, the consumer organizations and civil rights 

15 

organizations, which rely on the Community Reinvestment Act for 

enforcement, and we have to strengthen their tools. 

As a context for our recommendations, I just want to comment 

on sort of the good, the bad, and the ugly, about the present situation that we’re in. 

The good part we have already covered is the over $4 trillion ap- proaching $5 trillion worth of investment in communities in this 

country. And I would just like to say that the congressionally-required study by the Federal Reserve Board of the risks of reinvesting loans showed that if you looked at community reinvestment 

programs themselves—that is, the specific programs for community 

reinvestment, the loss rate in these programs was exactly zero. 

And so we have had this money invested. 

And I also think it’s important to point out as a context that the 

programs that have done this reinvestment have essentially all 

been created by community groups, or community groups in partnerships with banks. And so we have to look at that process. 

The bad has been that over the years, the regulations for the 

Community Reinvestment Act have been stripped of their power. 

The community has been taken out. In my testimony, I talk about 

some of the weaknesses. 

For example, there’s an example of three national banks that 

were given high CRA ratings at the same time they were sued by 

the Justice Department for race discrimination. They literally cut 

out of their service areas the City of Detroit, the City of Gary, Indiana; and the largest lender in Chicago at that time cut out the 

north side, west side, and south side minority communities of Chicago. 

In addition to that, I worked on lawsuits against a bank called 

Flagstar, which was twice found in violation of Federal fair lending 

laws in Federal court. And after the second time it violated those 

laws, the OTS raised its rating to outstanding. 

So I think we have to deal with that issue. 

We have to deal with the issue that oftentimes a lot of lending 

that’s detrimental isn’t counted. And I’m not talking just about 

subprime lending; I’m talking particularly about national banks, 

which not only made more loans than the Comptroller admits that 

were subprime, but they funded the subprime industry through 

lines of credit, warehouse loans. And in addition, on the other end, 

of course, the banks were involved in the securitization. 

So the entire subprime market essentially was financed by our 

national bank system. And today, they’re financing predatory payday loans. Those have to be taken into account as well. And they 

have not presently been taken into account. And some of the banks, 

like Wells Fargo we’re now seeing are essentially making their own 

predatory payday loans. 

So those things have to be fixed. I think there are three. I’ll say 

in ending that there are three major issues that I would like to address, and I’ll answer questions about. 

When you’re looking at how to reform CRA, the first thing is we 

need to improve on mortgage disclosure and other types of business 

disclosure. If nothing else happens, community people need to have 

better information. If we had had the information we asked for on 

the performance of loans in the past, we might have been able to 

16 

avert a great deal of this mortgage meltdown. We could have told 

you which lenders were making bad loans where, 10 years ago, 

when the neighborhood was raising these issues. 

And second, we need to look at all the various types of loans that 

are accounted, and particularly make any kind of fair-lending violation an automatic fail for CRA. 

And third, we have to put accountability back in the system, and 

to a great extent, that means putting the community back into the 

system, and allowing for challenges and a wider role for challenging what the banks do. 

Thank you. 

[The prepared statement of Mr. Bradford can be found on page 

52 of the appendix.] 

Chairman GUTIERREZ. The time of the gentleman has expired. 

When the light turns yellow, you have 60 seconds, so start thinking 

about winding down at that point. Thank you so much. 

Next, we have Mark Willis, resident research fellow at the 

Furman Center for Real Estate and Urban Policy at New York 

University. You are recognized for 5 minutes. 

STATEMENT OF MARK A. WILLIS, RESIDENT RESEARCH FELLOW, FURMAN CENTER FOR REAL ESTATE AND URBAN POLICY, NEW YORK UNIVERSITY 

Mr. WILLIS. Thank you very much, Mr. Chairman, and members 

of the subcommittee. I appreciate very much being invited to come 

to this hearing. 

I just want to briefly mention that I come to this hearing, this 

topic, with 19 years of experience, where I oversaw the community 

development programs at JPMorgan Chase. The last year-and-ahalf, I spent at the Ford Foundation as a visiting scholar, where 

I had the opportunity to write a couple of articles on how to rethink 

reform of CRA. And I also spent some years as an urban economist 

at the NY Fed, and was a New York City housing official. 

So I, in some way, wear many hats, or am fortunate to have experiences from many different perspectives. At this hearing, I represent solely myself. 

I am currently employed at the NYU Furman Center, where I 

am a resident research fellow. But I do solely represent myself. 

I have submitted formal testimony. I will try and give a quick 

overview of that. I also can mention that I wrote a couple of articles while at the Ford Foundation, and I have a third on the way. 

I would be happy to share those with members of the committee 

as well. 

As I say in my testimony, I think passage by Congress of the 

Community Reinvestment Act launched a bold experiment. CRA 

has played a really important role in helping to stabilize and revitalize many lower-income communities across the country. Others 

have made clear that it was not a driver of the subprime prices. 

I won’t spend any more time on that. 

But I do feel strongly that CRA has fallen short of its potential, 

and is losing ground. And so it is really important that we think 

about reforming it. 

The bases for that reform are a couple of things. We have 

learned a lot over 33 years about what works and doesn’t work. We 

17 

have also seen huge changes in the banking world, that is no 

longer just local banks taking local deposits, making local loans 

that was the core of our banking system. 

And we now have large national banks and Internet and industrial loan corporations serving national markets from a limited 

headquarters and limited deposit-taking geography. 

We do need a major revamp, and I think also part of thinking 

through the revamp is the need to set up a system that can continually correct itself. The term in business is ‘‘continuous improvement.’’ I think it’s very important for us to think about not just 

how to change it one time here, but how to create something that 

will continually be able to adjust to changes in the marketplace 

and also, by the way, to changes in how we view the best practice 

in community development. 

So I think there are a number of things that can be done here 

by Congress. The first is there are a number of aspects of the core 

of the legislation that could be looked at. And I’ll talk about those 

in a second. 

At the same time, I think it’s important that Congress also encourage the regulators to move forward here. They have been chastened by past experience and lots of debate amongst stakeholders 

as to what the best way to go forward is. I think it’s very important 

that they be encouraged to use the full discretion you gave in the 

original legislation, which is basically one line: To encourage banks 

to help meet the credit needs of local communities, and give the 

regulators more support here for them to go and make the necessary changes to make CRA more effective. 

One reason I focus on the regulators is I think, at least in theory, 

that their process would allow more opportunity for continuous 

change. I think well-designed legislation is a deliberative process, 

and one that takes time, and is not one designed necessarily to 

keep up with the changes that we have seen over the last 33 years, 

and that we will continue to see in the industry and in community 

development. 

As for specific areas for legislative consideration, obviously, you 

have heard discussion here about expanding to other financial services firms. There are two reasons to think about that. 

One is to level the playing field, so that all those who compete 

with each other will have the same responsibilities in the communities, whether they are banks or non-banks. 

And the other is the opportunity to bring more resources to the 

community development table. I think we have seen how successfully on a good business basis the resources from banks have been 

able to help low- and moderate-income communities. Obviously, if 

we could find ways to bring others in, to have the same constructive role, where everybody wins, would be a good idea. 

I think you also need legislative consideration about expanding 

CRA beyond credit. I think the regulators have tried to include 

other issues than just expanding access to credit— 

Chairman GUTIERREZ. The time of the gentleman has expired. 

Mr. WILLIS. Okay. 

Chairman GUTIERREZ. Your complete written statement will be 

in the record. 

Mr. WILLIS. All right. 

18 

[The prepared statement of Mr. Willis can be found on page 187 

of the appendix.] 

Chairman GUTIERREZ. Next, we have the Honorable Eugene Ludwig. He is a former Comptroller of the Currency, and is now the 

CEO of the Promontory Financial Group. We’re very happy to have 

him here with us this morning. 

Welcome, Mr. Comptroller. 

STATEMENT OF THE HONORABLE EUGENE A. LUDWIG, CHIEF 

EXECUTIVE OFFICER, PROMONTORY FINANCIAL GROUP, LLC 

Mr. LUDWIG. Mr. Chairman and members of the subcommittee, 

I want to commend you for your leadership in holding— 

Chairman GUTIERREZ. We want to hear your testimony. 

Mr. LUDWIG. Okay. 

Chairman GUTIERREZ. If you could just get that microphone a little closer. Thank you so much. 

Mr. LUDWIG. Okay. Thank you, Mr. Chairman. 

Chairman GUTIERREZ. You can start all over again. 

Mr. LUDWIG. Mr. Chairman and members of the subcommittee, 

I commend you for your leadership in holding this hearing to discuss the Community Reinvestment Act and to consider enhancements that will advance the cause of equitable credit availability, 

promote sound lending practices, and otherwise ensure banking 

services are readily available in underserved communities. 

I have a written statement I submitted for the record, so let me 

focus on the most important aspects of that statement, please. 

As this committee knows all too well, the CRA often has been 

misunderstood and mischaracterized over the past 33 years. The 

truth is that the application of the CRA has been a considerable 

success. It has incented banks to provide hundreds of billions of 

dollars in loans—we have even heard today trillions of dollars of 

loans and services—to low- and moderate-income Americans. 

These investments have transformed neighborhoods all over 

America for the better. And CRA lending has been profitable and 

safe, almost with exception. 

Nevertheless, the CRA needs to be modernized, because the financial system and the methods for delivering financial services 

have changed in ways no one could have predicted when the CRA 

was enacted. And while the facts on the ground in the LMI neighborhoods and communities have changed as well, the heart of the 

problem the CRA was intended to solve remains. That is, the need 

for the financial services sector to deliver enough support to local 

communities. 

Thoughtful research by respected economists and community development experts show there are identified market failures that 

require government action to address. I cite many of these studies 

in my written statement. 

We now have some critics who blame the CRA for the subprime 

mortgage meltdown and the global financial crisis. I strongly disagree. It is not only implausible that lending to low- and moderateincome Americans could have such an outsized impact on the global economy; it is also demonstrably not the case, as I go into detail 

in my written statement. 

19 

It is important to note, however, the economic crisis is at this 

moment altering our perceptions about who LMI borrowers are and 

where they live. High rates of unemployment are swelling the 

ranks of LMI borrowers in every State. Those who are unemployed 

are without a job for the longest period of time since the government began keeping such records in 1948. 

More and more LMI borrowers are not racial minorities, living 

in inner cities. Many unfortunate victims of the recession were 

plain-vanilla credit risks, until recently. 

These are just a few of the reasons why the hearing is so timely 

and so important, Mr. Chairman. And again, I commend you for 

holding it. 

The CRA is part of the solution to our current economic problems, not part of the problem. Small business has created over 64 

percent of the Nation’s jobs over the past 15 years, and the growth 

of small business depends on support from the banks, which is encouraged by the CRA. 

Moreover, excellent studies by the government, which have been 

based on CRA data have also helped in the small business area. 

So if we did not have CRA, we would want to enact it. It is the 

essential part of the tool kit for spurring sustainable economic recovery. 

Now let me return to the question of the CRA and the subprime 

meltdown. CRA loans and subprime loans are often viewed as synonymous; but they are not. The CRA lender making CRA loans 

tends to have a social, or at least a non-predatory objective. The 

non-bank, non-CRA lender, or the modern subprime lender, is driven to sell as many high-rate loans as it can with no particular social motivation. 

The subprime crisis resulted from practices that are the antithesis, the opposite, of the CRA lending goals and the CRA lending 

experience. 

After 2000, the subprime mortgage market evolved in a direction 

that made other influences on that market far more important 

than CRA. In one of his last pieces of research, the late Federal Reserve Board Governor, Ned Gramlich, calculated from HMDA data 

that only one-third of CRA mortgage loans to low- and moderateincome borrowers have rates high enough to even be considered 

subprime. 

Similarly, Tregaron Hinckley looked at banking companies that 

made CRA loans in the 15 most populous metropolitan statistical 

areas, and found they were more conservative in their lending 

practices than lenders not covered by CRA. 

Since 2004, over half of the subprime loans went to upper-middle-income borrowers in non-LMI tracts. An analysis of the HMDA 

data by Compliance Tech finds that in 2006, about 67 percent of 

subprime loans were upper or middle-income borrowers. LMI borrowers received only 28 percent. 

Chairman GUTIERREZ. The gentleman’s time has expired— 

Mr. LUDWIG. I realize I’m out of time. 

Chairman GUTIERREZ. I really like your testimony, but I’m sorry, 

I went a little overboard in terms of the time, and I apologize to 

everybody. It’s a bias. 

20 

[The prepared statement of Mr. Ludwig can be found on page 92 

of the appendix.] 

STATEMENT OF VINCENT REINHART, RESIDENT SCHOLAR, 

AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC POLICY 

RESEARCH 

Mr. REINHART. Thank you for the opportunity to discuss the 

Community Reinvestment Act. Redlining is pernicious. CRA was a 

successful legislative response to that societal failure. But it is appropriate to take time to consider how to best continue to achieve 

the mission of CRA. To do so properly requires examining four 

widely recognized failures. 

First, CRA was designed with a ‘‘hydraulic’’ view of banking. Deposit funds generated in particular locales were leaking out, because of an unwillingness of bankers to lend. CRA was to act as 

the catch basin to keep those funds within the community. That 

was a flawed view, even in 1977, and is far more out of sync with 

today’s reality. 

Second, far more lending decisions were made off bank premises, 

whether by intermediaries such as mortgage brokers, or on the 

Internet. CRA’s scope, therefore, is too narrow. 

This declining bank share is not entirely driven by technology, 

however. Rather, compliance costs associated with CRA and other 

bank regulations gave non-bank providers a decided competitive 

edge. 

Mortgage brokering, for instance, ran on under the radar screen 

of regulation to offer more varied products to poor communities. 

Sometimes, however, innovation slipped into predation. 

Third, CRA gives broad goals without detailed requirements 

about how to achieve them. This leaves much to the discretion of 

supervisory agencies, much to their delight. But experience has 

shown that agency attention to such matters swings like a pendulum. 

Fourth, enforcement of CRA is event-driven, really only getting 

teeth in advance of potential changes in ownership. As a consequence, bank management is especially vulnerable to interest 

groups that might lodge protests during the merger application 

process. 

CRA is at a crossroads. The wrong path would be to increase the 

scale and scope of regulation to address CRA’s apparent flaws. A 

more productive route is to recognize its design flaws. 

First, CRA was written when finance was a brick-and-mortar industry. In this century, banks are less important and lending opportunities are far more varied. 

Second, the financial crisis has shown that the mixed model of 

giving private entities a public purpose is a failure. Giving bankers 

diffuse goals that are only episodically relevant is a very inefficient 

means of extracting a quid pro quo for protection, and helping the 

underserved. 

Third, CRA is one part of the government’s overall policy of subsidizing housing. By construction, if the government oversubsidizes 

one activity, it disadvantages others. 

21 

The Congress would be better served by expanding opportunities 

to build capital, including through support of small businesses and 

increasing incentives for equity ownership. 

If the Congress decides to continue the support of homeownership, there is a better path. Price the Federal safety net so there’s 

an explicit quid pro quo for any protection to financial firms. Use 

some of those proceeds to subsidize the purchase of mortgage insurance for eligible borrowers in designated areas. Educate those 

households to opportunities to apply for loans, and enforce the existing Equal Opportunity laws if any of those who apply are wrongfully rejected. 

The problem lies not with the mission of CRA, but rather in its 

execution. I ask that my prepared remarks be included in the 

record. 

[The prepared statement of Mr. Reinhart can be found on page 

118 of the appendix.] 

Chairman GUTIERREZ. Thank you so much to all of you. 

First, I guess I want to ask Mr. Askew, from the Financial Services Roundtable, could you, in 15 to 20 seconds, describe who you 

represent, in terms of America? 

Mr. ASKEW. We represent the Nation’s 100 largest financial institutions. 

Chairman GUTIERREZ. And so it is, you’re representing the Nation’s 100 largest financial institutions. You have come here to say 

we should take a new look at CRA, but we shouldn’t eliminate 

CRA. Is that essentially your testimony today? 

Mr. ASKEW. I’m saying, yes, sir, and that it worked. 

Chairman GUTIERREZ. And that it worked. Thank you very much. 

I just want it on the record that it’s not just a cabal of liberals running around town, trying to get a program, between the 100 largest 

financial institutions have come and sent their representative here 

today. 

I want to go to Mr. Ludwig. Mr. Ludwig, you were giving us very 

important data. And in essence, then, you have found from extrapolating the data that you have looked at, that there is no correlation 

between the financial crisis. 

Why don’t you, in 30 seconds, give us your sense of the financial 

crisis, the subprime loan, and what CRA did or didn’t have to do 

with it? 

Mr. LUDWIG. Mr. Chairman, the crisis that we have lived 

through has really nothing to do with the CRA. The banks should 

celebrate their CRA portfolios. They have been the safest part of 

community lending; they have increased dramatically over the last 

33 years of the Act. 

Prior to my time in office, there were 17 billion; from my time 

forward, it’s been testified here today trillions of dollars of lending. 

And yet those CRA portfolios are safe. 

What did happen, which created the crisis, was a misuse—part 

of one of the elements—was a misuse of the concept of lending to 

low- and moderate-income people. 

Chairman GUTIERREZ. Let me, if I could just ask you, because 

I’m going to be very disciplined on my 5 minutes—just so that everyone here understands, the Comptroller of the Currency does exactly what succinctly, what did you have as a government official— 

22 

Mr. LUDWIG. Mr. Chairman, we regulate the national banks. And 

during my time in office, I was asked by the President to lead the 

regulatory community in a reform of the Community Reinvestment 

Act, which resulted in new regs in— 

Chairman GUTIERREZ. So as someone who regulated the financial 

industry, it’s your testimony that they should be happy that their 

CRA portfolio was there, because in balance, when they look at 

their CRA versus non-CRA portfolio, it did very well for the financial— 

Mr. LUDWIG. It’s a success story for the American banking system. Yes, sir. The CRA portfolios have performed well. 

Chairman GUTIERREZ. Okay. And I just want to ask one last 

question of Mr. Bradford. You have studied this. We have heard 

from the Roundtable; we have heard from the former Comptroller 

of the Currency. From your perspective, coming from the grassroots 

and understanding this, give us succinctly, CRA, the financial meltdown and the mortgage crisis, relationship, non-relationship, and 

why, in 30 seconds, or less. 

Mr. BRADFORD. The first thing I would say is that the community 

was protesting the subprime lending market and this crisis way 

back in the late 1990’s, when this thing started—not just recently 

when it all fell apart. And they were challenging the bank regulators as early as 1999 not to count subprime loans for CRA credit. 

And they were challenging HUD not to let the GSEs count these 

subprime loans for their credit. 

So on that side, I think you have to say the community has been 

raising the flag. They have been the canaries in the coalmine. And 

I think they take great offense at being blamed for the implosion 

when it takes place. 

Chairman GUTIERREZ. Okay. 

Mr. BRADFORD. They have been warning about this. 

The other thing is, most of the people who criticize the meltdown 

as related to CRA have played this kind of interesting sleight of 

hand with the numbers. What they do is they count every single 

loan that was made in a low- and moderate-income neighborhood 

as a CRA loan. And therefore, they end up counting every single 

predatory loan that was ever made in those neighborhoods as a 

CRA loan. 

Chairman GUTIERREZ. I only have a minute left. And I think 

your last point is excellent. 

I want to thank, obviously, Mr. Taylor, Mr. Richardson, Mr. 

Rodriguez, and all the others. I want to go around—5 minutes to 

ask everybody questions. 

I think your last point, Mr. Bradford, is exactly something that 

we need to examine. That is to say that it has been brought forward in testimony here that there were 2 million loans that were 

originated by Washington Mutual. It’s almost as though every loan 

from Washington—of what could be justifiably called a criminal enterprise of churning and burning. It’s though the folks at Washington Mutual woke up every day and said, ‘‘Wow, we really want 

to make sure those low- and moderate-income neighborhoods are— 

so we’re going to bill 2 million loans to them.’’ 

No. They charged a lot of money. They refinanced. And then they 

packaged and securitized those loans and infected the rest of our 

23 

system. Those loans at Washington Mutual didn’t have anything to 

do with CRA. They didn’t go to their regulator and say, ‘‘We want 

credit for these loans,’’ because they couldn’t get credit for those 

loans. 

The fact is only 6 percent of all subprime loans, of all high-risk 

loans were under CRA. Only 6 percent. And that’s assuming all of 

them went under. And we can’t assume all of them went under. 

You see what a small portion they were of the total picture. 

Mr. Hensarling, you are recognized for 5 minutes, sir. 

Mr. HENSARLING. Thank you, Mr. Chairman. It seems to me that 

as we continue to have a debate of who is going to control the lending decisions in a free society, I think as we witness what has happened in our economic turmoil, clearly there were those in private 

banking who made a number of mistakes, plenty of mistakes. 

But then I look at what government has done. And at least at 

the time I have studied the situation, I have concluded that we 

have had a number of Federal policies that either incented, cajoled, 

or mandated financial institutions to loan money to people to buy 

homes, who ultimately couldn’t afford them. The family suffered. 

Many of them would have been better off in rental housing. The 

Nation has suffered collectively. 

So I’m looking at what I believe to be an antiquated law, that 

might have served a great purpose in 1977. I’m not convinced it 

serves a great purpose today. 

Either you have a law that is forcing banks to lend to people that 

they would already lend to, and at least every banker I talk to tells 

me along with BSA, it’s their most expensive compliance cost. And 

if anybody believes that cost doesn’t get passed on to customers in 

the form of less credit, or more expensive credit, you’re reading a 

different economic textbook than I am. 

So either we’re forcing banks to do it, or we’re forcing banks to 

loan to a universe of people they otherwise wouldn’t loan to. 

And then are those people creditworthy or not creditworthy? And 

if they’re creditworthy, why aren’t the banks loaning to them? And 

if they’re not creditworthy, are we not going down the road of repeating the mistake in the first place? 

So again, I question the rationale for the law today. 

Now Mr. Taylor, you and I have had this discussion before. On 

the one hand, I think you have said that CRA has nothing to do 

with race; but you mention race in your testimony, and almost 

every other proponent mentions racial concerns, which are very 

valid concerns. Unfortunately, racial discrimination is still alive 

and well in the USA today, 

But is this about race? Is it not about race? And if it is about 

race, again I would ask the question: Is the Obama Administration 

not enforcing the Equal Credit Opportunity Act? Is the Obama Administration not enforcing the Fair Housing Act? Is the Obama Administration not enforcing HOEPA? Is the Obama Administration 

not enforcing the Civil Rights Act? So is CRA there to protect racial 

minorities? 

Mr. Taylor, you said in a previous testimony it’s not, although 

you mentioned it in today’s testimony. Is there somebody on the 

panel—now I’m just looking—it’s not a trick question, but I would 

like a yes or no—does CRA, in your opinion, serve to protect racial 

24 

minorities? And if the answer is ‘‘yes,’’ do you not believe the 

Obama Administration is enforcing the other anti-discrimination 

laws in our society? 

Mr. TAYLOR. Well, I may. Of course the law is written very explicitly on class lines. That is, working class, middle class, upper 

income— 

Mr. HENSARLING. It’s not a trick question. But could you reply 

with a yes or no? 

Mr. TAYLOR. Because of the racism that you referred to, disproportionately, those classes are people of color. So de facto, you 

have a disproportionate application of people of color being impacted by this law. 

We saw— 

Mr. HENSARLING. Unfortunately, Mr. Taylor, I have a limited 

amount of time here. If we have to have a law to force banks to 

lend money to this universe of individuals, do we need to have a 

law to force grocery stores to sell food to low-income individuals? 

Do we need to have a law to force auto dealers to sell cars? Food 

is vital, necessary for survival. Transportation, many people rely on 

an automobile to get to and from their place of employment. 

Does anybody believe we need the effective equivalent of CRA to 

be imposed upon grocery stores or auto dealers? 

Seeing none, we’ll move on. 

Mr. GREEN. I do. 

Mr. HENSARLING. I’m sorry? 

Mr. GREEN. I believe it. That’s what the Civil Rights Act was all 

about— 

Mr. HENSARLING. No, I would just say to my dear friend— 

[laughter] 

Chairman GUTIERREZ. The gentleman— 

Mr. GREEN. I’m sorry, please excuse me. 

Mr. HENSARLING. I’m sure my dear friend from Texas will have 

his 5 minutes to express his opinions. 

Chairman GUTIERREZ. We will give you an extra 15 seconds. 

Mr. HENSARLING. I appreciate that, Mr. Chairman. 

I’m also curious, again, about forcing banks to make these loans. 

I have seen a study by the Federal Reserve—the Dallas Branch of 

the Federal Reserve—that says in the last decade, credit unions 

and independent mortgage and finance companies not covered by 

CRA that are lending to low-income neighborhoods grew faster 

than CRA-covered institutions. This is a Federal Reserve study. 

I have seen statistics from the National Association of Federal 

Credit Unions that show that their loan approval rate for households with less than $40,000 of income, non-CRA-covered credit 

unions, was greater than that for banks subject to CRA. 

So again, it begs the question: Why are you forcing them to do 

something that apparently financial institutions are doing anyway? 

But I see I’m out of time. Thank you, Mr. Chairman. 

[Discussion was held off the record.] 

Chairman GUTIERREZ. And next, we have Congressman Watt. 

Mr. WATT. Thank you, Mr. Chairman. 

There is some question about whether we—I want to focus on the 

question of whether CRA or some aspects of it need to be extended 

to other non-bank institutions. 

25 

Mr. Askew, you had an opinion on that. And my specific question 

is: We extended some of the privileges that the Federal Government provides to a number of entities that were not typically having access to the discount window, FDIC insured, what have you. 

Would you concede that those entities ought to be covered by CRA? 

Or you think they should not? That’s one question. 

One of those entities is credit unions, for example. Do you think 

the CRA ought to be applied, or not be applied to them? 

Mr. ASKEW. That’s a good question about credit unions. But 

that’s not my wheelhouse. And so how the function is not. But I’ll 

try to answer that with this. Change in the assessment area and 

expanding this to other institutions, really you have to go back to 

the fundamental basis, the premise, the foundation of the CRA— 

Mr. WATT. Well, now, actually I didn’t go back there, because I 

didn’t want to get into that philosophical—I actually disagreed 

with your characterization of what CRA was intended to do. 

I looked at the statute. You say it was enacted to promote new 

loans and services to low- and moderate-income neighborhoods and 

consumers. The statute specifically says that it was enacted to help 

meet the credit needs of local communities, in which these institutions are chartered, consistent with safe and sound operations. I 

don’t see anything there, really, that talks about low- and moderate-income people. 

I guess a number of people have kind of made that leap. But I 

don’t really want to go there. I’m really trying to figure out whether we ought to be extending this, are there rationales for extending 

it to other entities. And if that’s not in your wheelhouse, I don’t 

need a lecture about the history of CRA, because obviously we disagree about what even the basic language means. 

So I— 

Mr. ASKEW. I apologize for the lecture. 

Mr. WATT. Yes. 

Mr. ASKEW. I did not intend it that way. And I agree with your 

point about what CRA, the Act, was intended to do. It was asking 

banks to serve the entire needs of their community, not just the 

low and middle, moderate— 

Mr. WATT. Okay. But I’m running out of time here, and I still 

haven’t had an answer from you about whether we should extend 

it to any of these other entities, or not. 

Mr. ASKEW. As far as expanding it to other entities, they do not 

have the basic—what I meant about the basic premise of the law 

was that they do not have a charter and a branching law, that was 

the basis of it with the FDIC Act, that said, ‘‘You’re getting the 

FDIC insurance’’— 

Mr. WATT. But that’s why I asked the question, how would you 

distinguish? 

We have extended the benefits of some of those charter provisions to other entities. FDIC insurance, access to the window. 

Shouldn’t we be extending CRA to at least those institutions? 

Maybe I can get Mr. Ludwig’s opinion on that. 

Mr. LUDWIG. Congressman Watt, I do think that the CRA ought 

to be expanded to non-banks for a couple of different reasons. 

26 

One, the marketplace has changed. It used to be when CRA was 

enacted, the banking marketplace was the financial services marketplace, almost 100 percent. Things have changed in 30 years. 

So we’re basically causing the banks to shoulder a burden that’s 

much broader than the banks, that ought to be extended. 

Similarly, even in the banking organizations, some of them have 

large non-bank activities. We really ought to expand this fairly 

across the system. 

Mr. WATT. Do you disagree with that, Mr. Askew? Just a yes or 

no. 

Mr. ASKEW. No. I do disagree. 

Mr. WATT. Okay. 

Mr. ASKEW. I disagree. 

Mr. WATT. Well, I was trying to get in one more question. But 

you stopped me from doing that. 

Chairman GUTIERREZ. The gentleman’s— 

Mr. WATT. That’s all right. I’ll yield back. 

Chairman GUTIERREZ. Mr. Neugebauer, you’re recognized for 5 

minutes, sir. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

I want to go back to, Mr. Askew, I think you mentioned that 99 

percent of the banks and thrifts received either an outstanding or 

a satisfactory CRA rating. So basically it sounds to me as if the financial institutions were basically meeting the requirements of 

CRA. 

I hear that some folks are thinking about devising a curve. In 

other words, I guess putting different criteria for one financial institution over the other. That would seem to be a major departure 

from the current system. What are your views on that proposal? 

Mr. ASKEW. Well, we think that would be the wrong thing to do. 

When we say that 99 percent comply, banks, it’s the law. It is the 

law to comply with CRA. And banks typically are in the 98 to 99 

percent in all of our compliance laws. We do comply with the laws. 

And so to put a bell curve on it would say that you’re going to 

have some banks always that are not going to be compliant with 

the law. Even if they’re doing everything that’s asked of them, 

they’re going to not be compliant with the law. 

So we think that is the wrong way to go, especially when the system that we have is working. 

Mr. NEUGEBAUER. Now I think also in my testimony, you said 

that it ought to be the goal of all of the banks to have the highest 

level of compliance. Did I misinterpret you? 

Mr. ASKEW. I’m sorry. Maybe I miscommunicated. I’m saying 

that other banks should aspire for the outstanding rating— 

Mr. NEUGEBAUER. Right, right, that’s what I— 

Mr. ASKEW. But we should have incentives for them to aspire to 

the outstanding rating. 

Mr. NEUGEBAUER. That’s exactly—and that I may not have restated what you said. 

But what are some of the things that you believe that incentives—because I’m kind of one of those folks, I like incentives over 

the big hammer—and so what are some of the incentives that 

might be put in place to encourage banks to all seek the highest 

level of compliance? 

27 

Mr. ASKEW. Thank you. Three things: First of all, we think there 

should be some form of public recognition, and a claim for the institutions that achieve an outstanding rating. The information is 

made public, and so all of this is very public. But perhaps this committee could design an official symbol or seal, proclaiming this. It 

is an historical act, and it is an historical process that we have 

gone through, that would recognize those outstanding performers. 

Second, we believe that we should provide for a longer term between examinations for those institutions. You’re right, Ranking 

Member Hensarling, it is a costly process to go through the examination. And so for those banks, it would be an incentive, and then 

they could take that money and they could apply it more to the 

process, if they were achieving outstanding. So longer terms between examinations. 

And third, decline the request for hearings, if an institution has 

an outstanding rating, so that if they’re branching into a new market, if they’re developing a new charter, then that would give them 

another incentive for achieving an outstanding rating. 

Mr. NEUGEBAUER. And I guess the third part of my question, 

along the same lines: Since we do have almost 99 percent of the 

banks and thrifts are meeting the outstanding or satisfactory category, are the requirements too loose? Are they not strong enough? 

Or as a professor at a university might say, ‘‘Ninety-nine percent 

of my kids are making ‘As.’ Am I giving a hard-enough test?’’ 

So what would be your response to that question? 

Mr. ASKEW. It’s very difficult to achieve an outstanding rating. 

It’s very difficult to achieve a satisfactory rating, if you’re a large 

bank, on the test that they have, the three areas of the test: The 

lending, the surface investment test. 

If you go through an examination, there are literally thousands 

of pages of data, where you’re being compared in all of your markets and areas to meet the needs of the community. 

So it is very difficult. But it’s the law. And so you have to comply. And I don’t think it’s too easy. Oh, my gracious, I have been 

through these before, and so it’s very difficult. 

Mr. NEUGEBAUER. Well, I haven’t heard any of my bank friends 

say that it was an easy process. 

I think the other area is within the industry—and you represent 

the hundred largest financial institutions—do you have an idea, 

just say industry-wide—and every once in a while I’ll see this number pop up—but do you know compliance cost industry-wide what 

that number is? 

Chairman GUTIERREZ. You can answer that question, Mr. Askew, 

please. 

Mr. ASKEW. I do not. But I will get you that information, and I 

will bring that back for the record. 

Mr. NEUGEBAUER. That would be great. Thank you. 

Chairman GUTIERREZ. Mr. Moore of Kansas is recognized for 5 

minutes. 

Mr. MOORE OF KANSAS. Thank you, Mr. Chairman. 

Mr. Askew, you suggest in your testimony that responsible behavior should be rewarded, and basically increase the time between 

examinations, if an institution is at the top of the rating system. 

28 

Would you elaborate on this point? Explain how this will drive 

firms to reinvest more in their communities, sir? 

Mr. ASKEW. Yes. The whole idea would be, to go to that outstanding rating takes extraordinary effort. But it takes extraordinary expense as well. 

And so just to offset some of that would be to limit those examination periods. Every year, annually, you’re reporting all of your 

data, but every 2 years, you’re going through a full examination. 

So limiting those and then avoiding the cost. 

And it’s not just the here in itself. Avoiding the process that 

leads up to that would be beneficial to the institution. And then encourage them to achieve that outstanding rating. 

Mr. MOORE OF KANSAS. Thank you. 

Mr. Taylor, you have a different perspective on this issue. Why 

should we use limited government resources for more examinations 

for firms that are contributing the most to our communities? 

Shouldn’t examiners be focused on the bad actors? 

Mr. TAYLOR. Yes. Well, first off, you’re not using government resources. The Federal Reserve through their fees pays for that process. 

Secondly, in 1990, 1 out of 10 banks failed their CRA exam. 

Today, it’s 1 of out of 100. The grade inflation that Cal spoke to, 

and other referenced, is rampant. It really is an easy task to get 

a passing CRA grade. What we’re suggesting is that the better system would be to put more clarity into what that grade really is, 

and more levels of definitions of how well they passed. Did they 

barely pass? Did they pass strongly? Did they get an outstanding 

or barely pass? And put some numbers to that, so that elected officials, community leaders, and the public can see just how well the 

bank is doing on their exam. 

Right now, it’s just everybody passes. It’s a stamp of approval. 

And I don’t want to come between the bank friends that your colleague mentioned, who just left the hearing, but he might want to 

talk to some consumers about how difficult it really is—and we 

hear it every day—to get bank loans, because it really continues to 

be a problem. 

Much as CRA has been a success story, it needs to be bolstered 

and strengthened in a number of ways, one of which is we have to 

deal with this grade inflation, as you said, everybody gets an ‘‘A.’’ 

Mr. MOORE OF KANSAS. Thank you. Some have suggested, Mr. 

Askew, that CRA ratings be handed out on a bell curve, so that 

only a few institutions receive the highest rating, and more are 

given average ratings. 

I know the importance of bright lines and clarity with respect to 

the compliance for the law. You either are breaking the law, or 

you’re not. What are your views on grading CRA on a bell curve? 

And what are the advantages and disadvantages, from your perspective, sir? 

Mr. ASKEW. I think it would be a major disadvantage, and I 

think it would create problems for the regulators and for the industry. I think it would create a—the spirit of the law right now, 

what’s happening with CRA is the people from the banks are involved and engaged in this process of finding ways to improve their 

community, finding ways to make their communities better. 

29 

They’re engaged in the process. If you sit there and put a bell 

curve on it, and you say you’re going to be brought into a class of 

performance, just based upon where you fall in the curve, it’s just 

inappropriate. And it would be discouraging to institutions that are 

really performing great work, to attain those ratings. 

Mr. MOORE OF KANSAS. Thank you. 

Mr. Ludwig, what are your views on this, sir? 

Mr. LUDWIG. Well, I think that Mr. Taylor has hit on something, 

that by expanding the number of categories, one might be able to 

get a better definitional background in terms of who’s really doing 

the most. 

I think the banks have done a solid job here. And I’m wary of 

a bell curve solution, because if you have really done an ‘‘A’’ job, 

you ought to get an ‘‘A.’’ But perhaps more definition in terms of 

what an ‘‘A’’ means would add value. 

Mr. MOORE OF KANSAS. Thank you. Mr. Chairman, I yield back. 

Chairman GUTIERREZ. Thank you, sir. 

Mr. Garrett, you are recognized for 5 minutes. 

Mr. GARRETT. Thank you, Mr. Chairman. 

Since the beginning of the financial crisis, there has been a lot 

of debate, as we see here, and throughout the country, as to whether the CRA requirements played any role, or what role, in the collapse of the housing industry. 

I know the folks on the other side of the aisle and most people 

on this panel continue to point to the performing CRA loan data 

as proof that CRA had nothing to do with the housing crisis. But 

I really think that misses the larger point. 

For as with the affordable housing goals that put Fannie and 

Freddie in the situation they are in, CRA requirements provided an 

implicit government endorsement of loans with lower underwriting 

standards and less creditworthy borrowers. 

Both of these requirements paved the way for financial institutions to begin to develop new ways to underwrite and approve. And 

we see all that happened with that. 

Eventually, these new methods became more and more mainstream, with the subprime market expanding. So I think it’s very 

easy, actually, for us to be able to connect the dots on how the affordable housing goals of the GSEs and the lending requirements 

at CRA eventually led to the massive explosion in the subprime 

market, and the eventual collapse. 

And now—this is the important part—we actually have a proposal to expand CRA to security firms, insurance firms, and credit 

unions. And I’m not even sure how traditional CRA requirements 

would apply to some of these industries. 

And I would like to hear from you on this. 

Would security firms have to purchase specific amount of MBS’s 

that contain riskier loans? Isn’t that exactly what we did with 

Fannie and Freddie, and that’s what caused them to collapse? 

Now you want to saddle all security firms with similar requirements. 

And so it’s no wonder, when you think about it, why the majority 

wants to separate safety and soundness from consumer protection 

in the regulatory proposal. Because that’s the only way that this 

would work. 

30 

When security firms eventually fall under the jurisdiction of a 

new consumer credit restriction entity, I find it hard to believe that 

the prudential regulator would ever sign off on something like this. 

So I ask the panel, how would this expansion—I know only one 

member had the opportunity to answer that—how would this expansion apply to effectively work with the expansion outside of this 

area that it’s currently in? 

Anyone? Yes? 

Mr. TAYLOR. Well, I’ll take a stab at it, Mr. Garrett. 

First off, I just want to make sure—you keep referring to Fannie 

Mae and CRA, and of course, Fannie Mae has no CRA obligation— 

they have affordable housing goals, which are not CRA goals. 

Mr. GARRETT. No. I didn’t refer to them that way. I said it’s the 

underwriting standards that the CRA allowed for to change, and 

the underwriting standards that came about through these, and 

then which led then to the changes in the underwriting standards 

in the rest of the market. 

But could you address the question as to how this would expand? 

Mr. TAYLOR. Sure. So just in terms of the institutions that we 

have proposed expanding CRA to, there are the credit unions, there 

are independent mortgage companies, there are investment banks, 

securities firms. Obviously, credit unions are a no-brainer. They already have depositor’s insurance, just like the banks. But they actually have an added reason for us to want to make sure that they 

loan safely and soundly to LMI areas, as well. 

Mr. GARRETT. Okay. I understand— 

Mr. TAYLOR. And tax-exempt. 

Mr. GARRETT. I understand credit unions— 

Mr. TAYLOR. Insurance companies, it really matters in the end 

whether they make policies, whether it’s property insurance and 

other kind of business policies available to the health and wellbeing of the neighborhood. 

So getting them to report and getting them to ensure that 

they’re, in fact, making their products available is incredibly important. 

For investment banks, investment banks are critical to some of 

the community development lending and other kinds of major 

projects that need investments from the these institutions in LMI 

areas. So having them— 

Mr. GARRETT. So would they have to end up buying a specific 

class of MBSs that may end up being riskier than— 

Mr. TAYLOR. Not by class, but what they would have to do is the 

same thing the banks do. They couldn’t ignore whatever economic 

or financial opportunities products were available in LMI areas. No 

one’s forced under CRA to buy or to make any type of loan. No 

one’s forced. It still has to be prudent, safe, and sound. 

Mr. LUDWIG. Yes. I might add to that. I think you can give examples. That is, obviously it wouldn’t be a credit example for securities firms. But in low- and moderate-income neighborhoods, there 

is need for financial advice and other products that are other than 

the credit product, that for small businesses and for some low-and 

moderate-income individuals would be quite helpful. Just requiring 

that those products be made available throughout the community 

31 

on a fair basis, I think, would actually add to the fabric of those 

communities. 

Mr. GARRETT. With that, I yield the remaining minute to the 

gentleman from Texas. 

Mr. HENSARLING. I thank the gentleman for yielding. 

Mr. Taylor, does your organization make its contributors public? 

Mr. TAYLOR. Yes, we do. 

Mr. HENSARLING. Have you, you organization, or any affiliate 

ever requested or received a contribution, including an in-kind contribution like real estate from a federally-insured depository institution subject to CRA? 

Mr. TAYLOR. Yes. 

Mr. HENSARLING. Would that be listed in your public disclosure? 

Mr. TAYLOR. Yes. 

Mr. HENSARLING. And have you, your organization, or any affiliate ever received a below-market loan from a federally insured depository institution, subject to CRA? 

Mr. TAYLOR. Yes. 

Mr. HENSARLING. Have you, your organization, or any affiliate 

ever entered into a joint venture with a federally insured depository institution, subject to CRA? 

Mr. TAYLOR. Joint venture? No. We have very good relationships 

with financial institutions, because we obviously try to get them to 

do more in low-income communities, and they think our approach 

is one that the support. 

But we do not take any operating funds from banks. 

Chairman GUTIERREZ. The time of the gentleman has expired. 

The gentlewoman from California is recognized for 5 minutes. 

Ms. WATERS. Thank you very much. Let me thank not only you, 

Mr. Chairman, but our panelists for being here today. 

I think it was the gentleman from the Urban League, Mr. Richardson, who talked about looking at other ways to credit the financial institutions for their CRA ratings. 

What did you have in mind? 

Mr. RICHARDSON. Ms. Waters, I don’t think that was the statement that I had made. 

Ms. WATERS. Well, let me go to a statement that you made perhaps a little bit different than the one I just asked about. Do you 

believe it would be effective to require greater CRA credit for institutions providing more difficult banking services, such as offering 

principal reduction and loan modifications, or serving areas and 

populations, that are culturally and geographically distant from 

metropolitan areas? 

Mr. RICHARDSON. I don’t think I could have said it better myself. 

Yes, we would wholeheartedly agree with such an approach. Particularly as this conundrum gets to the credit needs of a community. 

I think we need to expand the scope of the conversation around 

how one prepares disadvantaged families to take on assets, and to 

sustain them. This involves information around financial education, around principal reduction, as you mentioned, on existing 

mortgages, and to ensure that we’re connecting clients to products 

that are both affordable and suitable for them. 

32 

So I would agree with your statement, yes. I think banks that 

have made overtures toward principal reduction should receive 

credit commensurately. 

Mr. WATT. Thank you very much. 

Mr. Taylor, I know that you’re involved in advocacy for low- and 

moderate-income housing opportunities, and on and on and on. Do 

you think we ought to also pay more attention to community development efforts to go along with the housing opportunities? And 

how should we score that? Is there some thought you may have 

given to what we can do to get more investment in economic development and community development? 

Mr. TAYLOR. Yes. I like the idea of where you’re reasoning and 

the question is going. And that is, trying to give banks credit where 

credit is due. There are some loans that are no-brainers. Some 

banks will just buy a pool of loans and they’ll get CRA credit for 

that, if they’re to LMI borrowers. 

And then there are others who do more difficult things, like investing in community health centers, or in low-income rental housing. 

And I think we ought to explore giving more credit to financial 

institutions that do the more difficult-to-do projects. And perhaps 

that could be reflected in the grading and the scoring that we were 

talking about earlier. 

Ms. WATERS. And lastly, we always say to the community that 

you can check the CRA ratings. You can get your banks to tell you 

what they’re doing and how they’re doing. You can meet with bank 

managers. 

But it really doesn’t happen that way. The community does not 

put enough pressure on the banks to come meet with the community to talk about what it’s doing and what its vision is for community support. 

And I’m trying to think about ways that we, here in Congress, 

can support the idea that banks have to meet with the community 

within a certain radius of the bank, to report and to update and 

to get input from the community about how that bank can better 

serve that community. 

I would like you to give that some thought, not necessarily right 

now. 

Mr. TAYLOR. Okay. 

Ms. WATERS. Because I think this is going to take a little bit of 

planning to maybe come up with some legislation that would accomplish that. But do you think that is something we ought to be 

doing? 

Mr. TAYLOR. I think it is imperative that we do that. And further, I think it’s imperative that they really go back to the days 

when they actually had public hearings, particularly when something significant was going to happen with an institution, like a 

merger or an acquisition. 

And we average one a year now, when before we had much more 

opportunity for the public to be able to come to the microphone and 

say, ‘‘Hey, this is what the bank is doing or not doing.’’ And you 

get positive and negative feedback in that. 

But that whole system has been undermined by the lack of— 

even on major mergers like Wachovia and Wells, and Chase and 

33 

WAMU, there weren’t public hearings, which is outrageous that 

there wasn’t the opportunity for the community to give input—not 

just one community, but many communities—on the impacts of 

these kinds of mergers. 

Ms. WATERS. Well, I certainly agree with that. 

Thank you very much. I yield back the balance of my time. 

Mr. GREEN. [presiding] Madam Chairwoman, I believe I’m next 

in line, given that Mr. Lee is not—we’re going to him next. 

Madam Chairwoman, do I need to yield 30 seconds of my time 

to you to finish? 

Ms. WATERS. Thank you very much, Mr. Chairman. I’m finished. 

Mr. GREEN. Okay. 

Ms. WATERS. Okay. 

Mr. GREEN. By agreement, I will be next. And what I would like 

to do, with my very good friend, who is seated next to me, is invite 

him to dinner. And I’m confident that he will accept. We are good 

friends, and we’ll do this within the next 30 days. 

Now having said that, it was invidious discrimination that 

caused the CRA to come into being. And invidious discrimination 

is what caused us to develop the Civil Rights Acts of 1964 and 

1965. Invidious discrimination is what we have been fighting. 

And to blame the CRA is to let the rascals go. The CRA did not 

promulgate—and I defy anyone to show me language wherein the 

CRA mandated subprime loans with prepayment penalties that coincided with teaser rates. 

Show me where the CRA required that we have collateralized 

debt obligations, known as CDOs. Show me where the CRA promulgated and promoted credit default swaps. Show me where the 

CRA required negative amortization. Show me where the CRA produced or caused to be promulgated all of these exotic products, that 

ultimately caused not only a crisis in this country, but we were at 

the precipice of a crisis worldwide. And to blame poor people for a 

collapse, a potential collapse of a worldwide market is just incorrect. 

It is written that if you know the truth, the truth shall set you 

free. I hope to free some souls with the next few seconds that I 

have. 

The truth is, we ought to be grateful that there was a CRA in 

place, just as we are grateful for the Civil Rights Act of 1964, 1965, 

and the Thirteenth Amendment. 

These are to a certain extent cornerstones of the society that we 

live in today. The diversity that we talk about didn’t come about 

because of beneficence, and because someone just woke up one 

morning and decided the world would be a better place. 

People marched, they fought, they lived, and some died—namely, 

Dr. Martin Luther King—so that we could have these opportunities. 

I am going to fight to the end anyone who wants to end the CRA. 

And my good friend and I will have dinner, we’re going to continue 

to love each other. But we will fight to the end this piece of legislation to end the CRA. 

All of those who would like to end the CRA, end it on this panel, 

raise your hands, please. If you want to end it? 

[show of hands] 

34 

My friend appears to be alone in his effort to end the CRA. Now 

he will be a better person after we have dinner. 

[laughter] 

Mr. GREEN. But until then, I suspect that I am going to have to 

do the honorable thing. I have some time left. I will yield to him 

some of my time. I have a minute and 28 seconds. I took some of 

your time, when I responded to your request. You wanted to know, 

does anybody think that we really have to have laws to require certain institutions to do business with certain people? 

And the answer is yes. That’s how we got here. Yes. Rosa Parks 

took that seat on that bus, and went to jail. The bus companies 

didn’t really want to let some people ride and refused to. 

I have stood in lines wherein I was rejected. I have been through 

what I talk about. This is not something that is a theory with me. 

By the way, it was a white woman, Virginia Durr, who posted 

the bail to get Rosa Parks out of jail. We didn’t get here by ourselves. There were plenty of people of good will of all ethnicities, 

who worked with us and helped us to get where we are. 

But I will not allow the clock to be rolled back. And today, Dr. 

Benjamin Hooks died. I speak on behalf of a man who stood for 

civil rights and human rights all of his life, and was fond of quoting 

C.A. Tinsley: ‘‘Harder yet may be the fight. Right may often yield 

to might. Wickedness awhile may seem to reign, and Satan’s cause 

may seem to gain. But there’s a God who rules above with a hand 

of power and a heart of love. And when we’re right, He’ll help us 

fight.’’ Or she. ‘‘Because He loves us, we will be free.’’ 

I yield the balance of my time to my friend. 

Chairman GUTIERREZ. I ask unanimous consent that Mr. Hensarling be given 2 minutes. 

Mr. HENSARLING. Well, thank you, Mr. Chairman. I don’t think 

I need 2 minutes to accept your generous offer to go out to dinner. 

I am somewhat curious. I guess that means you’re buying. 

Mr. GREEN. I can afford it. 

Mr. HENSARLING. Yes. And I want to say publicly that you are 

my friend. And I have never, ever doubted your heart. Your heart 

is always in the right place. Occasionally, we may differ, where my 

head is and where your head is. But I have never doubted your 

heart, and I look forward to that dinner. 

And I think that something can always be improved in this institution with better understanding. 

I would say a couple of things, again. There seems to be some 

debate among the panel and among many here on whether or not 

this is part and parcel of civil rights legislation aimed at ending, 

as you put it, invidious discrimination. 

Again, I would ask the question—because this is very costly to 

institutions, and in your economic theory, that might come out of 

bonuses and profits. In my economic theory, the cost of compliance 

is coming out of loans to the very people that theoretically you’re 

trying to help. It comes at the cost of less credit, more expensive 

credit, equating to fewer jobs. 

Now that’s what I see happening in the real world. 

The other thing I would say to my friend, whom I know, whose 

heart is pure: If we’re only going to support a law because of its 

proud birth—and if you listen to my comments, I agree; the genesis 

35 

of this law was good, was noble, was pure, was needed—I question 

whether it is still effective today. 

But I wonder about the converse. When you speak of invidious 

discrimination, Davis Bacon has its roots in invidious discrimination. That is well established in history. Yet, I believe you and most 

of my other friends on your side of the aisle support Davis Bacon, 

notwithstanding the fact that its whole purpose was to try to ensure that as Blacks emigrated from the South to the North, that 

they could not be hired. 

So I wouldn’t necessarily equate support of a policy today with 

its genesis. Because as you look at the family trees of some of these 

pieces of legislation, it may not be too pretty. 

And I do look forward to our dinner. 

Mr. GREEN. Thank you. 

I ask unanimous consent for 1 minute, to respond. 

Chairman GUTIERREZ. Without objection. 

Mr. GREEN. Every test that involves empirical evidence commonly known as testing, wherein you send out persons to test lending institutions and other institutions, every legitimate test shows 

that people of color are discriminated against in lending. 

Find a legitimate test. This is a broad statement. Find legitimate 

tests, where you have actually done the testing, where you have 

sent out the persons, equally qualified—and you will get the results, the empirical evidence—you find that people of color are still 

being discriminated against. 

My point to you is this: If the world changed on January 20, 

2009, it did change for the better. Why January 20, 2009? Something significant took place thereabouts. But there were some 

things that remained the same. And these things we have to continue to work to change. 

My belief is that you and I working together can improve the 

CRA. But my belief also is that you and I will never work together 

to end the CRA. 

We have an opportunity before us, and I look forward to working 

with you on it. And I’m going to not continue this, because I have 

been more than unfair to the Chair by encroaching on the time. 

And I yield back, Mr. Chairman. Thank you. 

Chairman GUTIERREZ. Mr. Lee, you are recognized for 5 minutes. 

Mr. LEE. Thank you. And I apologize. I didn’t get to hear a lot 

of the opening statements. But I’m a big believer in the fact that 

through this financial crisis, we had some good stewards, and these 

were the community banks, who today continue. They survived 

during difficult economic times, and they continue to be a lender 

throughout the communities. 

I skimmed some of the testimonies, and I think maybe I want 

to start with Mr. Taylor, because I know that the CRA audits are 

typically every, is it every 4 to 5 years? And based on your testimony, it appeared that you had concerns that there was a problem 

with this and that they were potentially gaming in the system. I 

was curious as to what empirical evidence you suggest proves that. 

Mr. TAYLOR. Let me start by saying I’m with you on community 

banks. I think the more locally-based banks, where you actually 

have a board of directors who live in the communities, even in the 

36 

same State where these banks are located, is a good thing. And I 

think competition is a good thing. 

So I’m with you on that. 

The gaming in the system happens in a lot of ways. And in fact, 

it’s bankers who have brought this to my attention. A CRA exam 

will come up, and they’ll quickly look to see, ‘‘Have we done anything on this law?’’ And they’ll find that they’re deficient. 

So they’ll call a brother or sister financial institution, and say, 

‘‘What do you have in the way of CRA loans on your shelf?’’ And 

they’ll say, ‘‘Well, we have $100 million worth of housing loans.’’ 

‘‘Can I buy those for you? I’ll pay you a percentage fee, if I can purchase those.’’ 

And then they’ll purchase them for the purpose of the exam, and 

then resell them back to that institution. So when their exam 

comes around, they too have those same loans. 

So there’s a lot of this kind of gaming of the system that really 

isn’t meaningful CRA investment. And we have brought this to the 

attention of the regulators. And there has been— 

Mr. LEE. Well, how do you correct that problem? 

Mr. TAYLOR. Well, I think it’s up to the regulatory agencies, and 

I think part of the problem with CRA right now is we really don’t 

have a sheriff who is enforcing the law, and not just that law, that 

really ensures the goal of trying to end discrimination and end unfairness in lending. 

You have to have regulatory institutions that are willing to go 

in and look at the loan files and really see what’s going on. And 

we just haven’t had that kind of impetus from these agencies for 

a long time. 

Mr. LEE. Well, let me jump in for a second, because I agree with 

that. And Washington unfortunately has this propensity, when we 

were having an issue, that we always have an over-correction. The 

pendulum swings very far in one direction, and we seem to lock in, 

rather than coming back closer to what we need. 

My fear again, as we go through this financial regulatory restructuring, is that the community banks may begin to suffer with additional regulation outside of CRA. I think CRA has performed a 

need in this for the communities. 

My concern as we go forward is that we are going to continue to 

add more regulation. And at the end of the day, community banks 

have a limited amount of capital that they have to spread the costs 

around. 

Mr. TAYLOR. As you put—Mr. Lee— 

Mr. LEE. And as my friend from Texas pointed out, higher costs 

of compliance translate to higher interest rates. And again, it’s almost destructive in the fact that we want to open up capital, again 

to ensure that all people have access of it. 

I guess let me ask this question. I want to switch places, let me 

go to Mr. Reinhart for a second. With regards to legislation, as I 

say, all legislation—I think CRA was a very important part for this 

country—but like all legislation as time changes, is making sure 

that the legislation keeps up. 

And I guess your view, going forward, is this legislation still 

achieving its original intent? 

37 

Mr. REINHART. I think that the existing legislation served a very 

important purpose, but that it is inefficient, and those inefficiencies 

have grown over time, and that the Congress would be right to reconsider how best to achieve the mission. 

Mr. LEE. Can you highlight some of those inefficiencies, or where 

we would need to modify to help reduce the burden on community 

banks, so they can better serve their constituents in these communities? 

Mr. REINHART. Among other things, CRA is event-driven. It only 

really comes into play when there’s a change in ownership. But everybody is reporting, so there’s data collection, and a reporting burden associated with that. 

I think it would be better to try to empower the borrower rather 

than think in terms of the institution. 

Let me also say that part of the logic of CRA is there is this quid 

pro quo, that there’s a Federal safety net, and you price this Federal safety net by imposing these costs on institutions. 

That’s a very opaque way of doing it. We would be much better 

off if we charged explicitly the financial institutions that get the 

protection. Community banks, among others, weren’t the source of 

the problem, so it’s not obvious to me why they are paying to fund 

the solution. 

Mr. LEE. All right. 

Mr. CLEAVER. [presiding] Thank you. Time has expired. I recognize the gentleman from Missouri, Mr. Clay. 

Mr. CLAY. Thank you, Mr. Chairman. And I want to thank the 

Chair for conducting this hearing. 

I am sitting here and listening to the exchange between my colleagues, and I just find it incredulous that my friend and colleague 

from Texas would question the need of still needing CRA after 

what we have just experienced as far as the financial meltdown, 

the steering of Brown and Black borrowers into predatory products. 

The situation cries out. I’m just curious as to what planet my 

friend has resided on over the last 20 years. Perhaps, Mr. Richardson, you can share with the committee some of your most recent 

empirical data, your most recent studies in regard to discrimination that still exists in the area of borrowing. 

And then I would like to also ask Mr. Rodriguez, perhaps, to 

share some of his recent data, that certainly proves out the need 

and bears out the need for the CRA. 

Mr. Richardson? 

Mr. RICHARDSON. Mr. Clay, the number of studies— 

Mr. CLAY. Go ahead, turn on your microphone. 

Mr. RICHARDSON. The number of studies are legion, which point 

to the steering of African-American and Hispanic prospective borrowers into subprime products. 

We have been over this terrain many times before. Half of the 

borrowers who received subprime products could have qualified for 

a conventional mortgage. This is within the context of this discussion, I think I appreciate you expanding the scope. 

Ms. Waters previously mentioned ways to qualitatively judge or 

weight credit that banks could get within the rubric of CRA. 

I think more weight should be given to the financial education, 

the housing counseling, where we’re now seeing greater efficacy, in 

38 

terms of preparing folks to know what their credit needs, in fact, 

are. That is what they’re capable of taking on to realize the American Dream. 

So I think we need to step back and look at how banks are preparing clients to make use of the credit that’s becoming available 

in their communities. I think that is the kind of better balance 

we’re looking to effect between the kind of brick-and-mortar credit 

that banks get to more of the qualitative, softer preparatory services that banks can provide to create a more responsible and informed consumer of the products that they should be offering. 

Mr. CLAY. Mr. Rodriguez? 

Mr. RODRIGUEZ. Thank you, Congressman. I think I ticked off— 

and you’ll find it in my testimony—just clear disparities in financial markets, there, whether it’s higher numbers of unbanked more 

likely to receive high-cost mortgages, even though they could have 

qualified for prime loans, more likely to receive fees or highly 

packed auto loans with fees and higher costs, despite their creditworthiness. 

I think we’re seeing this across-the-board, which says that we 

still have very, very serious issues in financial markets. That warrants government intervention. 

I think the question was raised before that if we had a situation 

where we didn’t have grocery stores serving the community, would 

we not see that as government intervention? I think the answer is 

yes, if low-income people could not find a grocery store in their 

communities, you better believe there would be a reason to intervene in that market and make sure that they could. 

And I think we still see the same problems with disparities, and 

a large and staggering wealth gap, which has to do with financial 

markets and how they’re shaped. And that has to be fixed. 

Mr. CLAY. As far as fine-tuning the CRA, what is the number one 

improvement you see that we need to make? 

Mr. RODRIGUEZ. Well, I think we have raised a number of issues. 

Coverage has to be a big factor there, because the CRA currently 

covers so few institutions that are doing lending to low-income and 

minority communities proportionately, that has to be fixed. 

Mr. CLAY. Thank you for that response. 

Really quickly, Mr. Taylor, your number one recommendation for 

fine-tuning CRA? 

Mr. TAYLOR. It is to make sure that all the banks’ affiliates and 

where they do significant business is counted under their CRA 

exam, and that CRA is expanded to credit unions, independent 

mortgage companies, insurance companies, and investment banks. 

Mr. CLAY. Thank you so much for your responses. And Mr. 

Chairman, I yield back. 

Mr. CLEAVER. Thank you, Mr. Clay. 

Mr. Perlmutter from Colorado? 

Mr. PERLMUTTER. I pass. 

Mr. CLEAVER. Then I’ll yield myself such time as I may consume. 

Let me begin with one of the questions maybe that we had not 

spoken publicly enough about what the law actually says, because 

there are a lot of misconceptions. And if you look at Section 802(b), 

it says that the Act mandates that all banking institutions that receive FDIC insurance be evaluated by Federal banking agencies to 

39 

determine if the bank offers credit—this is important—in a manner 

consistent with safe and sound operations. 

Are all of you familiar with that section? 

Mr. TAYLOR. Yes. 

Mr. RICHARDSON. Yes. 

Mr. RODRIGUEZ. Yes. 

Mr. CLEAVER. Is that explicit enough? Do we need to maybe 

tweak the language to say something that’s even more explicit, that 

this Act is not saying you give loans, you give money to people who 

can’t pay? 

Are any of you attorneys? 

Mr. TAYLOR. [raises hand] 

Mr. CLEAVER. Counselor, is there another interpretation in a 

manner consistent with safe and sound operations, that may be— 

Mr. TAYLOR. No. It’s clear to the banks, it’s clear to the regulators, and it’s certainly clear to anybody who’s really paying attention, how this works. 

It’s crystal clear. And that’s why you have 94 percent of all the 

loans that are done by these CRA-regulated institutions are good 

performing loans. 

Mr. CLEAVER. I guess the question is, I keep hearing that’s somehow—one of my colleagues, who was not here earlier today is still 

arguing that the recession, the deepest recession we have had in 

the history of the Republic, was still influenced by CRA. And I 

just—Mr. Bradford? 

Mr. BRADFORD. Well, I think the language is clear, but I think 

the problem is that you have to honestly face the fact that the regulators have essentially betrayed that language. 

It was the regulators who decided to let banks pick the affiliates 

they wanted to do, and count all the subprime loans as positive 

credit toward the CRA. Even though they issued all these statements warning about predatory lending and about payday lending, 

they counted all those loans. I have never seen a single CRA evaluation where any one of these lenders, big lenders who supported 

it—Bank of America, Wells Fargo, all these large lenders—who 

supported, had their affiliates and did the subprime lending, and 

who supported the payday industry; and not one regulator has ever 

dinged them one bit on a CRA report for that. 

So it isn’t that the language isn’t clear. What needs to be fixed 

is the fact that the regulatory agencies have literally betrayed Congress and the people in these communities. 

Mr. CLEAVER. So we need Chairman Bair sitting at this table. 

Mr. BRADFORD. You need the people who are out there, and 

that’s also true of the criticisms they make of GSEs, because it was 

the community people and civil rights people who told HUD not to 

let them count the subprime loans as GSE goals. And HUD— 

Mr. CLEAVER. It needs to rehire Eugene Ludwig. 

Mr. BRADFORD. Yes, we need Gene back. 

Mr. CLEAVER. Raise your hand, Mr. Ludwig. I’m going to swear 

you in. 

[laughter] 

Mr. LUDWIG. Mr. Chairman, there are many causes to the horrible crisis we have lived through. I was asked that question, and 

I didn’t answer it completely. The simplest answer is that we had 

40 

too much liquidity and we had too little regulation, too little serious regulation in the last decade. 

But the one thing that it is not about, it is not about CRA. All 

the data, all the studies, the Federal Reserve Bank of Boston has 

studied it. The Federal Reserve Bank of San Francisco has studied 

it. The Board has studied it. 

Nothing shows that the CRA has caused this kind of problem. 

And indeed, the CRA loans are better loans. What has happened 

is that people, either with good intentions or bad intentions, have 

conflated CRA loans with subprime loans. And in a sense, this 

whole CRA area—but it really angers me, because it’s sort of like 

blaming the sheep for the fact that there are wolves—there were 

wolves here that took advantage of people in these low- and moderate-income communities. 

But that’s not CRA. That’s exactly the antithesis of CRA. 

Mr. WILLIS. Mr. Chairman, if I could just add very quickly from 

my own personal experience, the loans that were specifically done 

by CRA by the institution that I worked for, were all done with 

fixed rates. Many of them with mortgage counseling. And those 

loans have always continued to perform well. So they were clearly 

safe and sound loans to be made to low- and moderate-income people, separate from all of this other discussion. 

Mr. CLEAVER. One of the problems that I find is that CRA examinations have dropped 50 percent, 50 percent since 2004. So the examiners are not even showing up. 

That’s one of the problems, that the people who are arguing 

against CRA are winning, because the examiners are not doing 

their jobs. Does anyone disagree? 

Mr. TAYLOR. No. That gives me the opportunity to make the comment that I was trying to make to Mr. Lee, because out of his own 

mouth, he mentioned that small bank exams for these community 

development banks are happening every 4 or 5 years, closer to 5 

years. So that means in a 10-year period, they see the examiner 

once, in the middle of that 10-year period for an exam. 

And that’s a 50 percent reduction of what it was. So this inordinate irrational concern about this regulatory burden on banks, as 

opposed to a more rational concern about whether consumers have 

access to credit and capital fair and fixed terms and good quality 

credit and capital—I just don’t see the balance there. 

And I think as long as we talk about CRA and its impact, and 

its contribution to anything bad that happened, we’re not really 

getting at what really occurred, which was the free market being 

free to cajole, free to cheat, free to practice malfeasance, and being 

unregulated those years of deregulating these institutions. And this 

is what we got. 

It wasn’t CRA; it was the free market, free to do whatever it 

wanted, without any hand stepping in and saying, ‘‘That’s not 

right, that’s unsafe or unsound, we shouldn’t do it that way,’’ and 

simply this is what we ended up with. 

But as long as we keep talking about CRA, right, we’re not going 

to talk about Wall Street and securities firms, and— 

Mr. CLEAVER. Right— 

Mr. TAYLOR. Banks and the others. 

Mr. CLEAVER. Yes. 

41 

Mr. LUDWIG. Mr. Chairman, your question made a number of implied excellent points. 

Number one, that statute itself calls for safe and sound lending. 

So if there’s not safe and sound lending going on under the CRA, 

it’s not the cause of the fall of the CRA per se; it’s the cause of how 

it has been implemented, number one. But in fact, it has been implemented in a way that is safe. 

The second thing I think is very important is it is indeed a credit 

statute. And in today’s day and age, in terms of expansion, it 

should go beyond being just credit. Our low- and moderate-income 

communities—all of our communities—need a whole plethora of financial services, not just credit. 

So credit’s important, and that certainly shouldn’t be de-emphasized. But it certainly ought to be broader, it seems to me. And 

that’s the implication— 

Mr. CLEAVER. Thank you. 

My time has expired. 

I ask unanimous consent that the following documents be entered into the record: a letter from NAFCU; an article from Business Week, supporting CRA; and the Staff Report on CRA from the 

Financial Crisis Inquiry Commission. 

Any objections? 

[No response.] 

Mr. CLEAVER. I want to thank all of you for being here today, 

and for none of you wanting CRA to evaporate. The Chair notes 

that some members may have additional questions for the witnesses, which they may wish to submit in writing. Therefore, without objection, the hearing record will remain open for 30 days for 

members to submit written questions to the witnesses, and to place 

their responses in the record. 

If there are no other comments, this subcommittee hearing is 

now adjourned. 

[Whereupon, at 12:09 p.m., the hearing was adjourned.] 

(43) 

A P P E N D I X 

April 15, 2010 

44 


57741.001
45 


57741.002
46 


57741.003
47 


57741.004
48 


57741.005
49 


57741.006
50 


57741.007
51 


57741.008
52 


57741.009
53 


57741.010
54 


57741.011
55 


57741.012
56 


57741.013
57 


57741.014
58 


57741.015
59 


57741.016
60 


57741.017
61 


57741.018
62 


57741.019
63 


57741.020
64 


57741.021
65 


57741.022
66 


57741.023
67 


57741.024
68 


57741.025
69 


57741.026
70 


57741.027
71 


57741.028
72 


57741.029
73 


57741.030
74 


57741.031
75 


57741.032
76 


57741.033
77 


57741.034
78 


57741.035
79 


57741.036
80 


57741.037
81 


57741.038
82 


57741.039
83 


57741.040
84 


57741.041
85 


57741.042
86 


57741.043
87 


57741.044
88 


57741.045
89 


57741.046
90 


57741.047
91 


57741.048
92 


57741.049
93 


57741.050
94 


57741.051
95 


57741.052
96 


57741.053
97 


57741.054
98 


57741.055
99 


57741.056
100 


57741.057
101 


57741.058
102 


57741.059
103 


57741.060
104 


57741.061
105 


57741.062
106 


57741.063
107 


57741.064
108 


57741.065
109 


57741.066
110 


57741.067
111 


57741.068
112 


57741.069
113 


57741.070
114 


57741.071
115 


57741.072
116 


57741.073
117 


57741.074
118 


57741.170
119 


57741.171
120 


57741.172
121 


57741.173
122 


57741.174
123 


57741.075
124 


57741.076
125 


57741.077
126 


57741.078
127 


57741.079
128 


57741.080
129 


57741.081
130 


57741.082
131 


57741.083
132 


57741.084
133 


57741.085
134 


57741.086
135 


57741.087
136 


57741.088
137 


57741.089
138 


57741.090
139 


57741.091
140 


57741.092
141 


57741.093
142 


57741.094
143 


57741.095
144 


57741.096
145 


57741.097
146 


57741.098
147 


57741.099
148 


57741.100
149 


57741.101
150 


57741.102
151 


57741.103
152 


57741.104
153 


57741.105
154 


57741.106
155 


57741.107
156 


57741.108
157 


57741.109
158 


57741.110
159 


57741.111
160 


57741.112
161 


57741.113
162 


57741.114
163 


57741.115
164 


57741.116
165 


57741.117
166 


57741.118
167 


57741.119
168 


57741.120
169 


57741.121
170 


57741.122
171 


57741.123
172 


57741.124
173 


57741.125
174 


57741.126
175 


57741.127
176 


57741.128
177 


57741.129
178 


57741.130
179 


57741.131
180 


57741.132
181 


57741.133
182 


57741.134
183 


57741.135
184 


57741.136
185 


57741.137
186 


57741.138
187 


57741.139
188 


57741.140
189 


57741.141
190 


57741.142
191 


57741.143
192 


57741.144
193 


57741.145
194 


57741.146
195 


57741.147
196 


57741.148
197 


57741.149
198 


57741.150
199 


57741.151
200 


57741.152
201 


57741.157
202 


57741.158
203 


57741.159
204 


57741.160
205 


57741.161
206 


57741.162
207 


57741.163
208 


57741.164
209 


57741.165
210 


57741.166
211 


57741.167
212 


57741.168
213 


57741.169