THE COMMUNITY REINVESTMENT ACT:

THIRTY YEARS OF ACCOMPLISHMENTS,

BUT CHALLENGES REMAIN

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

FEBRUARY 13, 2008

Printed for the use of the Committee on Financial Services

Serial No. 110–90

(

THE COMMUNITY REINVESTMENT ACT: THIRTY YEARS

OF ACCOMPLISHMENTS, BUT CHALLENGES REMAIN

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THE COMMUNITY REINVESTMENT ACT:

THIRTY YEARS OF ACCOMPLISHMENTS,

BUT CHALLENGES REMAIN

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

FEBRUARY 13, 2008

Printed for the use of the Committee on Financial Services

Serial No. 110–90

(

(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, 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

DEAN HELLER, Nevada

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

C O N T E N T S 

Page 

Hearing held on: 

February 13, 2008 ............................................................................................ 1

Appendix: 

February 13, 2008 ............................................................................................ 63

WITNESSES 

WEDNESDAY, FEBRUARY 13, 2008

Barnes, Rahn V., Vice President/CRA Officer/Manager of the Community 

Development Department, Provident Bank, on behalf of the American 

Bankers Association ............................................................................................. 47

Barr, Michael, Professor, University of Michigan Law School ............................ 37

Blankenship, Cynthia, Vice Chairman and Chief Operating Officer, Bank 

of the West, on behalf of the Independent Community Bankers Association . 51

Braunstein, Sandra F., Director, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System ................................ 6

Fish, Lawrence K., Chairman, Citizens Financial Group .................................... 45

Homer, Ron, Chief Executive Officer, Access Capital Strategies, LLC ............... 48

Jaedicke, Ann, Deputy Comptroller for Compliance Policy, Office of the Comptroller of the Currency ......................................................................................... 8

Kennedy, Judy, President and Chief Executive Officer, National Association 

of Affordable Housing Lenders ............................................................................ 52

Pitkin, Howard F., Commissioner, Connecticut Department of Banking ........... 12

Seidman, Ellen, Director, Financial Services and Education Project, New 

America Foundation ............................................................................................. 29

Taylor, John, Chief Executive Officer, National Community Reinvestment 

Coalition ................................................................................................................ 31

Thompson, Sandra L., Director, Division of Supervision and Consumer Protection, Federal Deposit Insurance Corporation .................................................... 7

White, Lawrence, Professor of Economics, New York University-Stern School 

of Business ............................................................................................................ 35

Williams, Marva, Senior Program Officer, Chicago Local Initiatives Support 

Corporation ........................................................................................................... 34

Yakimov, Montrice Godard, Managing Director, Compliance and Consumer 

Protection, Office of Thrift Supervision .............................................................. 10

APPENDIX 

Prepared statements: 

Marchant, Hon. Kenny ..................................................................................... 64

Barnes, Rahn V. ............................................................................................... 66

Barr, Michael .................................................................................................... 77

Blankenship, Cynthia ....................................................................................... 88

Braunstein, Sandra F. ...................................................................................... 98

Fish, Lawrence K. ............................................................................................. 118

Homer, Ron ....................................................................................................... 121

Jaedicke, Ann .................................................................................................... 127

Kennedy, Judy .................................................................................................. 152

Pitkin, Howard F. ............................................................................................. 158

Seidman, Ellen .................................................................................................. 167

Taylor, John ...................................................................................................... 179

Thompson, Sandra L. ....................................................................................... 213

White, Lawrence ............................................................................................... 238

Williams, Marva ............................................................................................... 247

Page

IV

Prepared statements—Continued

Yakimov, Montrice Godard .............................................................................. 252

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Frank, Hon. Barney: 

Letter from former Governor Larry Lindsey, Board of Governors of the 

Federal Reserve System, dated April 12, 1995 ........................................... 267

Thompson, Sandra L.: 

Written responses to questions from Hon. Barney Frank ............................ 269

Written responses to questions from Hon. Keith Ellison .............................. 272

Written responses to questions from Hon. Maxine Waters .......................... 273

(1)

THE COMMUNITY REINVESTMENT ACT: 

THIRTY YEARS OF ACCOMPLISHMENTS, 

BUT CHALLENGES REMAIN 

Wednesday, February 13, 2008

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10 a.m., in room 2128, 

Rayburn House Office Building, Hon. Barney Frank [chairman of 

the committee] presiding. 

Members present: Representatives Frank, Waters, Maloney, 

Velazquez, Watt, Capuano, Clay, Baca, Scott, Green, Cleaver, 

Sires, Ellison, Klein, Murphy; Bachus, Manzullo, Biggert, Capito, 

Brown-Waite, and Bachmann. 

The CHAIRMAN. The hearing will come to order. Would someone 

close that door, please? This hearing begins what will be one of the 

most important initiatives that this committee will be undertaking, 

and that I hope the whole Congress will undertake. In 1977, before 

any of us on this committee got here, Congress passed the Community Reinvestment Act under the leadership, at the time, of the 

Senate Banking Committee chairman, Senator Proxmire. It has 

worked very well. 

I made a point of asking Larry Lindsey, who was the Federal Reserve Governor with responsibility for consumer and regulatory affairs some years ago, but not all that long ago, how he evaluated 

the Community Reinvestment Act and other consumer protection 

acts. Particularly, I wanted to ask him if he thought they had 

interfered with the ability of the institutions covered, the banks, to 

perform their very important function, the function of intermediation in our financial system, of gathering up relatively small 

amounts of money from a large number of people and making it 

available for useful work. He wrote me back a very useful letter, 

and I forgot to bring it with me. 

I will insert it in the record, saying that—and this is Mr. 

Lindsey, a conservative who had served in Republican Administrations—and his conclusion was that there was no evidence of any 

harm, that there was no indication that this had in any way interfered with safety and soundness, and that in fact it has done a 

great deal of good. 

We are now looking at this Act 31 years later, and there are two 

areas where I believe we should be amending it to enhance its effectiveness. First, if you go back to 1977, the Community ReinvestVerDate 0ct 09 2002 16:42 Apr 23, 2008 Jkt 041181 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\41181.TXT TERRIE
2

ment Act covered most of the institutions that did the kind of activity it was meant to cover. 

Thirty-one years later, there has been a great increase in the 

number and type of institutions that engage in these forms of activities who are not covered by CRA. And so the first question we 

will address is whether or not, and if so how, to expand the obligations of the Community Reinvestment Act to institutions that now 

do the kinds of things that banks were doing 31 years ago but either weren’t doing them then or didn’t exist then. That is a much 

smaller piece of the relevant action is now covered by CRA that 

should have been. 

Secondly, there are questions about the enforcement of CRA. 

There have been arguments from some that there has been excessive paperwork, and we are open to listening to that, particularly 

from some of the smaller institutions. But there is also a concern 

that many people have, myself included, that there is a limited 

chance to enforce CRA. 

CRA ratings come into play when there is a change in ownership 

of the bank, but that shouldn’t be the only time in which that happens. There ought to be, I believe, some forms of enforcement, and 

not just enforcement in the negative sense, but reward for those institutions that have done well. There are also questions about 

whether or not the range of activities covered, and for which entities get credit, should be expanded. 

So that’s the topic. It’s a serious one to me. I think the Community Reinvestment Act is a very important operation of our overall 

system. The urban areas in particular are concerned about it, and 

this hearing begins what will be a fairly thorough study, and I am 

hoping that we will begin the legislative process. We may not be 

able to complete it this year. It is February of the second year of 

a term, and we had other things to accomplish. But this is the beginning of a serious legislative process. 

Finally, I just want to apologize. At 12:30, I will have to go to 

a meeting that the Speaker has asked me to attend, and at 1:15, 

I leave for the White House to be at the signing of the stimulus 

bill, and I will therefore be leaving the hearing in about 21⁄2 hours, 

and we have a long panel. But I do want to assure people that we 

are monitoring this very closely, and those who will be testifying 

later are not going to be speaking to a bunch of vacant chairs. We 

give this a great deal of serious consideration. 

It’s a busy week. We’re only in for a couple of days this week, 

and the attendance does not reflect the interest, I can assure you. 

And with that, I’m glad to call on the ranking member of the Subcommittee on Housing and Community Opportunity, the gentlewoman from West Virginia, Mrs. Capito. 

Mrs. CAPITO. Thank you, Mr. Chairman, and I want to thank all 

of the folks who have come in through this difficult weather to testify today on an important issue. The ranking member of the full 

committee extends his apologies for not being here and has asked 

me to come in his stead and offer the statement. 

No government mandate should continue in perpetuity without 

congressional oversight, and CRA is no exception. The banking industry and our credit markets have changed dramatically, we all 

know, since CRA was first enacted in 1977. American innovation, 

3

along with increased industry competition, has created credit opportunities today that were unimaginable years ago. These market 

forces have prompted some to question whether significant regulatory burdens imposed by CRA, particularly on small community 

banks, have come to outweigh any benefits the law was originally 

intended to confer upon underserved communities. 

The evidence suggests that deregulation and technological advances have spurred new lending to once underserved communities 

over the past 3 decades. For example, a 2000 study by an economist at the Dallas Federal Reserve Bank found that CRA covered 

lenders as a group devoted about the same proportion of their 

home purchase loans to low-income neighborhoods from year to 

year. Even though those institutions were subject to CRA, their 

lending in low-income communities grew no faster than other types 

of lending. In other words, CRA may not be necessary to ensure 

that all segments of our economy enjoy access to credit. 

There are some who argue that CRA should be extended to credit 

unions and other segments of the financial services industry that 

currently fall outside the law’s coverage. Indeed, rather than expanding the regulatory dragnet, our focus must be on providing appropriate regulatory relief to our financial institutions so they’re 

free to serve the needs of their communities unshackled by outdated regulatory mandates and bureaucratic red tape. 

It is for that reason that I look forward to working with my colleagues on both sides of the aisles to develop an appropriate regulatory relief package that Congress can act on this year. The bill 

we passed last year was a good first step, but much remains to be 

done if we are serious about maintaining a strong community 

banking sector in this country. 

Thank you again, Mr. Chairman, for holding this important hearing. Although we may have some philosophical differences—imagine that—we agree on the need for this committee to fulfill its oversight responsibility to review the law’s implementation and the effect it has had on depository institutions, underserved communities, and our economy. 

Let me again thank the witnesses for their testimony. I look forward to the hearing. Thank you. 

The CHAIRMAN. I thank the gentlewoman. And I would just comment, if you have no objection, that I appreciate seriously her reference to philosophical differences. There is an understandable unhappiness that some people have with disagreement that appears 

to be for its own sake. But the notion that legitimate philosophical 

differences among elected officials shouldn’t be expressed has started to bug me. I will confess all this talk about being post-partisan 

seems to me to devalue democracy. I’m beginning to suffer from 

post-partisan depression here. 

[Laughter] 

The CHAIRMAN. Because I don’t want to see legitimate issues 

that ought to be discussed somehow subordinated or that discussion devalued. And I am very proud of the fact that under my predecessor, Mike Oxley, and now, I think we have been a model of how 

you can have legitimate philosophical debate without in any way 

impinging on our ability to work together in some other areas. So 

I thank the gentlewoman for saying that. And we’re going to conVerDate 0ct 09 2002 16:42 Apr 23, 2008 Jkt 041181 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\41181.TXT TERRIE
4

tinue to be a place where we will be partisan sometimes and bipartisan other times without either one eating into the legitimate area 

of the other. 

The gentleman from Texas. 

Mr. GREEN. I thank you, Mr. Chairman. I thank you and the 

ranking member. I concur with you that honorable people can have 

honorable disagreements. I am so proud to be here this morning 

with the CRA being a topic of discussion. 

I had the good fortune of being president of a branch of the 

NAACP, and I have a firsthand understanding of how the CRA can 

be of great benefit in terms of helping financial institutions to go 

into areas that they may not have had a real good look at. It has 

been a great benefit to organizations like the NAACP, communitybased organizations, and I am hopeful that we will be able to make 

sure that it continues to help and aid in the communities that are 

underserved. 

I, unfortunately, will have to leave. I have a Homeland Security 

meeting. Secretary Chertoff is before the Homeland Security Committee that I sit on, and I also have a piece of legislation on the 

Floor of the House. But I assure you, I will be monitoring the hearing, and I am eager to do what I can to make sure that the CRA 

continues to be of benefit to underserved communities. 

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

time. 

The CHAIRMAN. Next, we will hear from the gentlewoman from 

California, who as chairwoman of the Housing and Community Opportunity Subcommittee has, of course, a great interest and involvement in these areas. Ms. Waters. 

Ms. WATERS. Thank you very much, Mr. Chairman. I will be 

brief, because I know we have three large witness panels to hear 

from and may be interrupted by votes. So let me start by saying 

that I consider the Community Reinvestment Act to be one of the 

most significant pieces of legislation of the 3 decades that have 

elapsed since its enactment. 

I, too, well remember the days of redlining where minorities simply could not get access to the capital they needed to purchase 

homes and start businesses. Indeed, when I entered the California 

Assembly in 1976, just prior to congressional passage of CRA, these 

practices were in full force. 

The impact of CRA on investments in underserved communities 

by covered financial institutions has become enormous. Its effect 

has been documented by studies like the one conducted by Harvard’s Joint Center on Housing Studies, which showed that CRA 

encouraged financial institutions subject to its reach to originate a 

higher proportion of loans to lower-income people and communities 

than they would have if the law did not exist. 

Recently, Federal Reserve Chairman Bernanke himself acknowledged that CRA has helped institutions discover and enter new 

markets that were previously underserved or entirely ignored. 

But I don’t need academics or others to credentialize CRA. I have 

seen its impact with my own eyes in the communities I have represented in the California State legislature and here in Congress. 

To those who suggest that CRA has unnecessarily distorted the 

market and that increased access to credit by low-income and miVerDate 0ct 09 2002 16:42 Apr 23, 2008 Jkt 041181 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\41181.TXT TERRIE
5

nority communities would have happened on the same timetable 

without it, I say that’s not true. Without CRA, we still would be 

sitting here wringing our hands about what to do to get sound 

credit flowing into underserved communities. 

I’m thankful that today rather than having to fend off an attempt to gut CRA, the kind of battle which I’m afraid occurred with 

some frequency in congressional sessions from 1994 until now, we 

can instead begin the process of carefully analyzing how to improve 

the program. And I think one of the first things we need to think 

about seriously is extending its reach. 

I earlier emphasized the importance of CRA in extending sound 

credit into underserved communities, because rigorous analysis of 

recent HMDA data reveals that CRA-covered institutions were less 

likely to originate the kind of high-cost loans that fuel foreclosures 

and more likely to retain loans in their portfolio rather than risking the risk of default into the secondary market. The result has 

been lower foreclosure rates in places with high concentrations of 

bank branches. 

The problem is that today CRA covers less of the credit market 

than it ever has, thanks to the evolution of the financial services 

industry and technology. For example, less than a third of all home 

loans are subject to CRA review. This is in part due to the entry 

of nondepository and often underregulated institutions into the 

mortgage and other credit markets too often to disastrous effect. It 

is also due in part to CRA’s outdated notion of an assessment area 

which harks back to 1977 when we all had to go into an actual 

bank branch to carry out a financial institution. There were no 

ATMs outside even, if you can imagine that. 

Today CRA-covered entities make many loans that escape CRA 

review because they are originated in communities in which the financial institutions maintain no physical presence. I look forward 

to hearing from witnesses about how we can update CRA so that 

it can provide some assurance of safe and sound lending practices 

for a larger share of the market. 

Similarly, I’m interested in expanding the CRA enforcement tool 

box beyond just acting to slow a merger, acquisition or application 

to open a new branch. These opportunities are becoming fewer and 

farther between as the financial services industry consolidates and 

the need for new branches wanes in the face of advancing technology, and enforcement is completely absent when an institution 

has no ambitions to expand. This is unwise. 

Again, I thank you, Chairman Frank, for holding this hearing 

and look forward to hearing the witnesses’ perspectives on improving this linchpin of our financial regulatory structure. 

The CHAIRMAN. I thank the gentlewoman. Are there any further 

requests? If not, we will go to our panel. We have three panels 

here: The first consists of representatives of the regulatory agencies; the second consists of various advocacy groups on one side or 

the other; and the third consists of people who are in the business 

of either lending or borrowing for these purposes. 

So we will begin with Sandra Braunstein, who is the Director of 

the Division of Consumer and Community Affairs of the Federal 

Reserve Board. 

Ms. Braunstein. 

6

STATEMENT OF SANDRA F. BRAUNSTEIN, DIRECTOR, DIVISION OF CONSUMER AND COMMUNITY AFFAIRS, BOARD OF 

GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Ms. BRAUNSTEIN. Thank you. Chairman Frank, Congresswoman 

Capito, and members of the committee, thank you for the opportunity to discuss the Community Reinvestment Act or CRA. 

I have been active in community development in a variety of positions in the government, private, and nonprofit sectors for the 

past 30 years. From my experience, I know that CRA is an important law for households and communities big and small, rural and 

urban. Commensurate with the CRA’s importance, the Board implements the law through a separate Division for Consumer and 

Community Affairs, which I direct, and through separate CRA examinations conducted by reserve bank examiners specially trained 

in CRA and consumer compliance. 

The Board has had a separate consumer compliance and CRA examination program since the late 1970’s. Our implementation of 

CRA is guided by the long-standing statutory principle that insured 

depository institutions must serve the convenience and needs of the 

communities in which they are chartered. CRA requires the agencies to encourage institutions to help meet the credit needs of their 

local communities and to do so in a safe and sound manner. 

The law gives the agencies considerable discretion and flexibility 

to fashion rules, programs, and procedures. This flexibility has enabled the agencies to modify their CRA regulations over time to respond to changes in communities and markets. At the same time, 

the agencies have duly respected, as they must, the boundaries on 

their authority, both expressed and implied by the Act. 

CRA examinations are at the core of our efforts to encourage 

State member banks to help meet the credit needs of their communities. Examiners look especially closely at an institution’s record 

of serving low- and moderate-income households and communities. 

This record is a big factor in an institution’s rating. The examiners 

evaluate this record in the context of all relevant factors, such as 

a bank’s capacity and constraints and local economic conditions. 

These factors are important, because under CRA statue and regulations, insured depository institutions must meet the credit needs of 

their communities only through activities that are safe and sound. 

Research conducted over the years has generally suggested that 

CRA has helped to ensure that consumers and communities have 

access to financial services and products from their local depositories. The law and regulations are a catalyst for depository institutions to become involved in lending and community development 

projects that may not have been completed without their involvement. 

As successful as it has been, CRA does face challenges. The 30 

years since the CRA’s enactment have been marked by major structural changes in the banking and financial services markets. Banks 

have significantly expanded their role in the broader financial services industry. At the same time, nonbank financial institutions 

have increasingly offered traditional banking services, including a 

full range of credit products. 

With these trends, competition in the marketplace has increased, 

and the lines between banks and nonbanks have blurred. These 

7

changes have created challenges for the implementation of CRA. 

One challenge is that many financial transactions are now being offered by nonbank service providers and other types of nondepository financial entities which are not covered by CRA. 

Insured banks and thrifts remain the primary conduit for many 

financial services, including the full range of deposit accounts. 

However, Federal Reserve surveys of small business and consumers document the increasing tendency of small businesses and 

households to use nondepository financial institutions. Some have 

suggested that these institutions should be covered by CRA. Such 

an expansion of CRA would require a searching reevaluation of 

CRA’s conceptual underpinnings. 

CRA is based on a fundamental quid pro quo. The banks and 

thrifts covered by CRA receive special benefits, such as deposit insurance. In exchange for these benefits, banks are expected to help 

meet the credit needs of their local communities. By definition, this 

conceptual underpinning of the statute does not apply where nondepository financial institutions are concerned. 

Covering such institutions would seem to require that the Congress articulate a new conceptual foundation to guide it in deciding 

such difficult questions as the type of entities to cover, the scope 

of the responsibilities, how to evaluate them, and which Federal 

agency or agencies to vest with these duties. 

I appreciate this opportunity to appear before the committee and 

welcome any questions you may have. 

[The prepared statement of Ms. Braunstein can be found on page 

98 of the appendix.] 

The CHAIRMAN. Thank you, Ms. Braunstein. 

Next we have Sandra Thompson, who is the Director of the Division of Supervision and Consumer Protection at the Federal Deposit Insurance Corporation. 

STATEMENT OF SANDRA L. THOMPSON, DIRECTOR, DIVISION 

OF SUPERVISION AND CONSUMER PROTECTION, FEDERAL 

DEPOSIT INSURANCE CORPORATION 

Ms. THOMPSON. Chairman Frank, Congresswoman Capito, and 

members of the committee, thank you for the opportunity to testify 

today on behalf of the FDIC regarding the Community Reinvestment Act. CRA was landmark legislation, and its effect has been 

significant in enhancing credit opportunities nationwide. 

Before CRA was enacted in 1977, there were severe shortages of 

credit available to low- and moderate-income neighborhoods, as 

well as concerns about redlining and discrimination. CRA was intended to expand access to credit and reduce discriminatory credit 

practices. Consistent with safe and sound operations, CRA assigns 

federally insured financial institutions a continuing and affirmative 

obligation to help meet the credit needs of their entire communities, including low- and moderate-income neighborhoods. 

CRA is a flexible tool for regulators, because it contains broad 

goals without detailed requirements about how to achieve them. 

With its focus on the needs of the community as opposed to specific 

products or services, it allows bankers to alter their offerings in response to changing credit demands. 

8

Studies have shown that banks can meet their lending obligations to their entire community, including low- and moderate-income borrowers, in a safe and sound manner that is also profitable. 

Yet there continue to be areas where CRA could have an important 

impact. Financial needs today in low- and moderate-income communities include basic banking services, savings programs, affordable small dollar loans, and foreclosure prevention programs. 

CRA’s flexibility ensures that it will continue to enhance the ability 

of all consumers to access and benefit from our banking system. 

Today, the FDIC is promoting the use of CRA to encourage solutions to several key consumer financial concerns, specifically, encouraging alternatives for homeowners facing mortgage foreclosures, meeting the need for affordable, small dollar loans, and 

addressing the exceptionally high cost of credit and the need for 

basic banking services in many underserved communities. 

For example, in April of this year, the Federal financial regulatory agencies issued guidance encouraging financial institutions 

to consider prudent workout arrangements to keep borrowers in 

their homes, and made clear that there may be favorable CRA consideration for programs to transition low- and moderate-income 

borrowers from higher cost loans to lower cost loans, provided that 

the loans are made in a safe and sound manner. And the agencies 

have proposed revisions to several CRA Q&As to encourage institutions to work with homeowners who are facing foreclosures. 

Patterns evident in the new HMDA data on higher priced home 

mortgage loans underscore questions about the scope of CRA and 

the way we evaluate the credit services provided by banks. While 

credit has become more available, a smaller percentage is subject 

to CRA evaluation, as nonbanks increase their share of mortgage 

originations. In addition, the HMDA data has highlighted the importance of focusing attention on not just whether loans are being 

made, but also at what price and by whom, particularly with regard to minority borrowers. 

In conclusion, while CRA’s current emphasis on lending has 

served important needs, the financial services industry and consumers have changed in recent years. CRA’s flexibility will ensure 

that it addresses the changing credit demands of consumers and 

their access to banking services. 

Thank you for the opportunity to testify today, and I look forward to answering questions. 

[The prepared statement of Ms. Thompson can be found on page 

213 of the appendix.] 

STATEMENT OF ANN JAEDICKE, DEPUTY COMPTROLLER FOR 

COMPLIANCE POLICY, OFFICE OF THE COMPTROLLER OF 

THE CURRENCY 

Ms. JAEDICKE. Chairman Frank, Ranking Member Bachus, Congresswoman Capito, and members of the committee, I am Ann 

Jaedicke, Deputy Comptroller for Compliance Policy at the Office 

of the Comptroller to the Currency. I am pleased to appear before 

you today to discuss the Community Reinvestment Act and the effectiveness of this law over the last 3 decades. 

CRA emerged as a seemingly simple concept. Banks that take deposits from the local community where they are chartered have an 

9

obligation to help meet the credit needs of that community, and 

CRA had a simple but powerful goal: to stop redlining. The law has 

had its measure of criticism, to be sure, but in my view it is working. It has proven to be a powerful tool that has brought real 

change and improved conditions in underserved and economically 

depressed communities. 

This hearing offers an excellent opportunity to reflect on the 

CRA and to exchange ideas about the challenges we face going forward. To further this discussion we offer the following perspectives: 

First, the CRA has proven to be a remarkably effective and resilient piece of legislation, and has provided the Federal banking 

agencies with the flexibility we need to respond to changing circumstances. 

Second, the CRA has acted as an incentive for insured depository 

institutions to provide billions of dollars in loans, investments, and 

services in communities across the country. 

And third, CRA lending and investments have proven to be safe, 

sound, and generally profitable. 

Yesterday, Comptroller Dugan gave a speech before the National 

Association of Affordable Housing Lenders. He described three recommendations related to CRA, and I’d like to recount them here 

today. First is the need for legislation to restore national bank public welfare investment authority. The Federal law that authorizes 

national banks to make public welfare investments was amended 

over a year ago. While the amendments increase the amount of investments permissible for national banks, they simultaneously decrease the types of investments that may be made. Comptroller 

Dugan has been very appreciative of your leadership, Chairman 

Frank, and of yours, Representative Bachus, in achieving bipartisan passage by the House of Representatives of H.R. 1066. H.R. 

1066 would restore the broader preexisting public welfare investment standard. A comparable bill recently has been introduced in 

the Senate, and the OCC urges that the public welfare investment 

authority of national banks be restored by enacting legislation like 

H.R. 1066. 

Second, yesterday the Comptroller proposed an important CRA 

regulatory initiative to assist communities that are being hard-hit 

by the rising tide of mortgage foreclosures. The Comptroller urged 

that the Federal banking agencies provide a CRA incentive for additional mortgage relief in middle-income communities significantly 

affected by the subprime mortgage turmoil. He called for the development of a targeted amendment to the inner agency CRA regulations. This amendment would provide a CRA incentive for community development investments that revitalized and stabilized middle-income urban and suburban communities that are distressed 

due to unprecedented foreclosures. With this change, the banking 

agencies could give CRA consideration for, and thereby encourage, 

loans, services, and investments in more communities suffering the 

consequences of foreclosures. We believe that we should be able to 

make this change by revising the definition of community development in the CRA rules. 

Finally, in the 30 years since CRA was enacted, the financial 

services industry has changed. While insured depository institutions previously may have provided most financial transactions of 

10

the type that are evaluated under CRA, now many non-bank companies provide such financial products and services. In light of 

these developments a legitimate question may be raised: What are 

the public policy reasons for continuing to restrict the application 

of CRA to insured depository institutions? As the Comptroller said 

yesterday, the time may be right to evaluate whether a legislative 

determination, made over 30 years ago about the scope and coverage of CRA continues to be appropriate given the significant 

changes in our financial market. 

Thank you, Mr. Chairman, for the opportunity to appear before 

you today. I would be pleased to answer any questions you might 

have. 

[The prepared statement of Ms. Jaedicke can be found on page 

127 of the appendix.] 

The CHAIRMAN. We will take this next witness, then we will go 

to vote, and we will come back. 

Please, Ms. Yakimov. 

STATEMENT OF MONTRICE GODARD YAKIMOV, MANAGING DIRECTOR, COMPLIANCE AND CONSUMER PROTECTION, OFFICE OF THRIFT SUPERVISION 

Ms. YAKIMOV. Thank you. Good morning, Chairman Frank, 

Ranking Member Bachus, Congresswoman Capito, and members of 

the committee. My name is Montrice Godard Yakimov, and I am 

the Managing Director for Compliance and Consumer Protection at 

the Office of Thrift Supervision. I thank you for the opportunity to 

testify on behalf of the OTS to commemorate the 30th anniversary 

of the Community Reinvestment Act, reflecting on its array of accomplishments and exploring how to move forward positively into 

the next 30 years. I’m pleased to help celebrate the role CRA has 

played to encourage regulated institutions to meet the credit needs 

of their communities. I have submitted a full statement for the 

record, so this morning, I will just highlight a few points. 

First, OTS strongly believes that CRA has played a significant 

and positive role and has helped the thrift industry meet the needs 

of low- and moderate-income households. One example is community development lending by savings associations, which increased 

from about $2 billion in 1996 to nearly $10.5 billion a decade later 

in 2006. CRA’s focus on community development has been one important reason. 

OTS-regulated institutions also continue to make sizeable 

amounts of CRA eligible investments, approximately $899 million 

by our large institutions in 2006 and 2007 alone. Savings associations also play a leadership role in originating multi-family loans, 

a key vehicle for affordable housing. In September 2007, OTS-regulated savings associations had about 4 percent of their assets in 

multi-family loans, where commercial banks had about 1 percent of 

their assets in such loans. CRA has contributed significantly to the 

rise in small business lending, an important driver in the economic 

empowerment of low- and moderate-income neighborhoods. In 

1996, OTS-supervised institutions originated about 36,000 small 

business loans totaling about $3.5 billion. A decade later, savings 

associations were originating about 5 million small business loans 

totaling about $29 billion. 

11

The second point I’d like to note is OTS’s interest in legislation 

that will empower savings associations to further contribute to 

community and economic development. OTS Director Reich has 

made recommendations to expand the ability of OTS-supervised institutions to engage in small business and commercial lending. 

This increase would not only strengthen OTS-regulated institutions 

by further diversifying their business signs, but would also increase 

the availability of credit in local communities. Small business and 

commercial lending are keys to economic growth and recovery, particularly in low- and moderate-income areas. Earlier versions of 

this proposal were part of legislation passed by the House in both 

the 108th and 109th Congresses, and we are hoping for favorable 

consideration by this body again. 

Third, I’d like to point out two important CRA developments in 

2007 that deserve mention. The first came in March when OTS 

published a final CRA rule, bringing our regulations back into 

alignment with the regulations of the other Federal banking agencies. These changes support the core principal and policy objectives 

of CRA and facilitate more consistent and effective evaluations of 

the CRA performance of banks and thrifts operating within the 

same market areas. The second took place in July 2007, when the 

OTS and the other Federal banking agencies issued for comment 

proposed questions and answers to clarify the types of foreclosure 

prevention activities eligible for CRA favorable consideration. For 

example, credit counseling to assist low- and moderate-income borrowers in avoiding foreclosure would receive CRA favorable consideration, as would loan programs to help low- and moderate-income 

homeowners facing foreclosures. 

There is one issue I would like to mention that underscores the 

commitment OTS has to consumer protection, and that is an advance notice of proposed rulemaking relating to unfair or deceptive 

acts or practices. The ANPR sought public comment on a proposal 

that OTS might consider in determining whether and to what extent additional regulation is needed to ensure that customers of 

OTS-regulated entities are treated fairly. We intend to move forward with the proposed rulemaking to establish a clear set of rules 

and standards for thrift institutions in this area. 

In conclusion, OTS can measure attention to the important role 

the Community Reinvestment Act has played over time and ways 

positive gains can be expanded. We stand ready to work with you 

and to serve as a resource in this exploration. I’d like to thank you 

again for inviting me here today, and I look forward to responding 

to your questions. 

[The prepared statement of Ms. Yakimov can be found on page 

252 of the appendix.] 

The CHAIRMAN. Thank you. We are going to break, but let me 

just make an announcement. There is a fight going on that is going 

to spill over here; there is a dispute about the decision of whether 

or not to take up the Foreign Intelligence Security Act. There may 

be procedural votes all day, so we may not be able to finish this 

hearing. I wanted to say this: Those witnesses who came at some 

expense, I have instructed the staff to find ways that we can reimburse them. As it is, we may have to ask some of the witnesses to 

return. If we do, we will provide travel expenses. This is an imporVerDate 0ct 09 2002 16:42 Apr 23, 2008 Jkt 041181 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\41181.TXT TERRIE
12

tant hearing. I regret the fact that it is going to get interrupted, 

but there may be a pattern of procedural votes that will keep us 

from doing much. Our Attention Deficit Disorder, which is inherent 

in our work, may be exacerbated by exogenous factors in this particular case. So we are going to break now, but we will be back. 

I do just want to note that the public welfare bill that was referenced, the House has again passed it, and we are hoping that the 

Senate will. We do agree that this is very important. We were told 

by various advocacy groups. So the House has passed that bill, and 

we’re hoping the Senate will do the same. We will return as soon 

as we can. 

[Recess] 

The CHAIRMAN. Mr. Bachus made a very good suggestion. If this 

keeps up, he and I will stay through the next set of votes—it is 

only the one vote—and some other Members—we are going to try 

to keep this going. We apologize. So we will now finish the panel 

with our representative from the States, Howard Pitkin, who is the 

commissioner of the Connecticut Department of Banking. 

Commissioner, please go ahead. 

STATEMENT OF HOWARD F. PITKIN, COMMISSIONER, 

CONNECTICUT DEPARTMENT OF BANKING 

Mr. PITKIN. Good morning, Chairman Frank, Ranking Member 

Bachus, and distinguished members of the committee. My name is 

Howard Pitkin, and I am pleased to be here today on behalf of the 

Connecticut Department of Banking to discuss the Community Reinvestment Act at work in Connecticut and other States. I also appear today as a member of the Conference of State Bank Supervisors and the National Association of State Credit Union Supervisors. As you know, these are the professional associations of State 

officials that regulate the banking and credit union industries. 

The Community Reinvestment Act has provided access to lending 

and investing programs by highlighting a need for community investment and development initiatives. The very nature of CRA is 

the expectation that banks and credit unions will seek out loans 

and investments that promote community development. The people 

of Connecticut have realized the benefit of this law through banks 

and credit unions’ participation in construction loans for affordable 

housing, low- and moderate-income mortgages, loans to small business and consumer and automobile lending. In pursuit of their 

CRA goals, these institutions have provided funds for the education 

of our children and made vital contributions to community-based 

organizations. Most importantly, the officers and employees of the 

banks and the credit unions are leaders within their communities. 

Our banks and credit unions have found CRA to be profitable, 

and the statistical analysis necessary to define a community’s credit needs are an important part of the strategic plan—the lending, 

business development, and developing deposit account relationships. Connecticut’s Community Reinvestment Act was enacted on 

July 1, 1990. The State statute uses Federal law as a model, but 

also requires each Connecticut bank to publish a State Community 

Reinvestment Act notice announcing the public access to the bank’s 

performance evaluation and clearly stating how to send written 

comments to the banking commissioner. Since July 1, 2001, ConVerDate 0ct 09 2002 16:42 Apr 23, 2008 Jkt 041181 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\41181.TXT TERRIE
13

necticut has enforced similar requirements for State-chartered community credit unions. These are credit unions that have assets of 

$10 million or more and draw their members from a well-defined 

community, neighborhood, or rural area. 

Connecticut State-chartered banks have had a long-standing 

record of compliance with both State and Federal CRAs. Since 

1999, no State-chartered Connecticut bank has a CRA rating below 

satisfactory. Since February 2005, Connecticut has administered an 

offsite program for monitoring banks’ CRA compliance. We develop 

a profile for each bank and require an update on an annual basis. 

We incorporate information from each bank’s Federal CRA examination into this profile, along with additional statistical analysis 

using the Home Mortgage Disclosure Act data and a software tool 

that analyzes lending statistics. Examiners also use peer information to compare bank performance with other competitors in the 

market place. 

We found this process to be very effective in monitoring CRA performance and making sure it remains a priority for our institutions. I have the power to deny or set conditions on many types of 

applications based on CRA performance. We found that this off-site 

CRA monitoring system not only reduces regulatory burden on our 

institutions, but also gives accurate and up-to-date information 

about lending performance and trends. In addition, the offsite program does not restrict the department’s authority to conduct an onsite examination if we deem it necessary. 

Connecticut and Massachusetts have implemented CRA requirements for credit unions. We use the same rating scale we use for 

banks. We look at several factors similar to the factors we use to 

asses the community reinvestment practices of our State-chartered 

banks, but taking into account credit unions unique structure and 

mission. Connecticut posts CRA rating for the banks and credit 

unions on our Web site and reports institutions that have a CRA 

rating of ‘‘needs to improve’’ or ‘‘substantial noncompliance’’ to the 

State treasurer. No bank or credit union included on that list can 

receive public deposits. 

The Community Reinvestment Act has been, in my opinion, a 

unique law requiring banks—and in our State, credit unions—to 

identify and serve the credit needs of their communities. They need 

to do that to be profitable. Six States plus the District of Columbia 

have enacted their own CRA laws. Some States have gone beyond 

the provisions of Federal law by expanding the application of their 

CRA statutes, what qualifies for CRA credit, or how CRA is enforced. Other States have simply mirrored the Federal statute, giving them the opportunity to enforce the Federal statute through 

their own laws. 

If Congress or the Federal regulators are considering changes to 

CRA, I suggest these changes may include consideration of fewer 

restrictions on the type of or dollar thresholds for investments. We 

should continue to encourage and foster community focused lending 

and investing, a building block in the foundation of community 

banking and credit union activity. 

Thank you for your time this morning and for inviting me to be 

here with you today to celebrate 30 years of accomplishments with 

the Community Reinvestment Act. 

14

[The prepared statement of Mr. Pitkin can be found on page 158 

of the appendix.] 

The CHAIRMAN. Thank you. Let me begin with Ms. Jaedicke. I 

know that Comptroller Dugan has proposed an expansion to give 

CRA credit to communities that have been victimized by the foreclosure issue when they would be above the general income level. 

The question I have is, would it be possible to do that for a timelimited period? That is, we understand the disruption for now, but 

how would you frame that so that 10 years from now, we will not 

still be giving CRA credit for investing in the type of communities 

that were not ordinarily thought of as CRA targets? 

Ms. JAEDICKE. Our proposal is to make a change to the definition 

of community development within the regulation. And we can put 

a sunset provision on it or a time limit on it, if— 

The CHAIRMAN. I know that you would do that. Again, we do understand that there are communities that are being hit by this, but 

I think I would ask you to ask the Comptroller to consider that—

some kind of sunset, because otherwise we hope that we will be 

able to resolve some of these issues. It’s a useful initiative, but I 

think it shouldn’t be a forever one. So that would be very helpful. 

Let me ask Mr. Pitkin. You mentioned that Connecticut and 

Massachusetts have covered credit unions. Now we have this 

issue—and in fact I will put in the record now, without objection, 

a letter from the National Association of Federal Credit Unions, 

and also a study by the law firm of Traiger and Hinckley on the 

Community Reinvestment Act. They title their study, ‘‘A Welcome 

Anomaly in the Foreclosure Crisis: Indications that the CRA deterred irresponsible lending in the 15 most populous U.S. metropolitan areas.’’ And we will make that part of the record. 

But let me ask, what has been the experience—are the credit 

unions in Connecticut unhappy? How long has it been in place and 

have they found it to be burdensome? I mean, their argument is, 

‘‘Well, we do this sort of thing anyway.’’ And many of them do. We 

do have the issue of some of the larger, less geographically based, 

but when did it go into effect and what has been the experience, 

and is there any effort by the credit unions now in Connecticut to 

repeal that coverage? 

Mr. PITKIN. Mr. Chairman, there is—our law passed in 2001 for 

community-type credit unions, and there has been no adverse reaction from the industry. We all felt that credit unions have a story 

to tell, and don’t often have a chance to tell it. While they lend to 

a delineated community field of membership, they also take part in 

community development activities and investment within their 

communities, and it’s significant. And we have had good experience 

with our industry; they have cooperated, and in the spirit of the 

law they have served the credit needs of their communities. 

The CHAIRMAN. You said, ‘‘community credit unions,’’ meaning 

those that are geographically based as opposed to others? 

Mr. PITKIN. Yes, Mr. Chairman. They generally have, in Connecticut, a county or two. The larger ones can serve up to three 

counties. We have not yet given a charter for a statewide— 

The CHAIRMAN. Oh. All right. So you have that? 

Mr. PITKIN. Right. Right. 

15

The CHAIRMAN. And I mention that because—and I understand 

people don’t like to feel that if they haven’t done anything wrong, 

they should be treated as if they might. And I would hope people—

and say we don’t regard this as punitive when we talk about expanding CRA. We think it is a useful tool, and as you said in some 

cases, I would say to people, ‘‘If you’re doing the right thing anyway, you’ll get better recognition for it. So we appreciate that.’’ 

Let me ask you, if any of the panel members now—and I understand it’s a congressional decision to us. I appreciate the spirited 

testimony in every case—let’s be clear: there is a consensus, I 

think, that CRA has worked well, and that in the last 31 years 

there have been changes in the industry. I think it’s fair to say 

this: If CRA were passed for the first time today it would have a 

wider footprint than the one it had in 1977. That is a decision we 

have to make. 

Let me ask all of you now and in the future—and you raised this 

question—how do we deal with—there are a couple of issues. One 

is a conceptual. You know the quid pro quo. Well, I think we can 

deal with that one. There is no financial institution operating in 

America today that doesn’t get some benefits from the relationship 

with the government. 

But beyond the issue is where the institution in question does 

not have a geographic footprint. What would a CRA set of requirements look like? Does anyone want to respond to that now? But 

that is something I would ask all of you, in writing, to advise us. 

And I understand—we’re not asking you to endorse the broadening, 

but if we were to broaden this to cover lending institutions that 

don’t have a geographic footprint, how would you formulate the requirements? Do any of the witnesses want to try that now? 

Yes, Ms. Thompson? 

Ms. THOMPSON. Well, I would certainly include the public evaluation concept, because I think that is critical to make sure that the 

public is very aware and informed of an entity’s performance with 

regard to CRA. And I’d also try to figure out a mechanism for enforcement. That is a key issue. 

The CHAIRMAN. But also the question is, what would we be enforcing? And what is their obligation, if it is not a geographic one? 

Ms. THOMPSON. If it’s not a geographic obligation, you would 

have to define the customer base. Who are you lending to? And 

make sure that whatever parameters you put in place are enforcing 

responsible lending. Because what we found, again, is that CRA 

answered one question, and that was access to credit. There are 

other questions, such as cost of credit. And you’re finding that so 

many people have been told, ‘‘no,’’ that when they get the ‘‘yes’’ answer, they don’t ask the detailed questions. 

The CHAIRMAN. I appreciate that. The gentleman from Alabama. 

Mr. BACHUS. Thank you. A lot of my complaints from our small 

community banks are about the compliance cost of CRA. Can you 

give me an idea about what is the compliance cost? Have there 

been any studies or any figures on what the compliance cost is? 

And of all regulations, is it the most expensive? 

Ms. YAKIMOV. Congressman Bachus, what we have heard from 

institutions is as it had experience with the Community Reinvestment Act some 31 years, the complaints we have heard about costs 

16

there have subsided over time. Frankly, institutions have pointed 

to compliance costs associated with the Bank Secrecy Act, in fact, 

anti-money laundering as one of their key areas. That is on top of 

their wish list in terms of some regulatory rule. 

Mr. BACHUS. Well, actually, you’re right. It used to be CRA, but 

I think it is Bank Secrecy Act now. So that is good. 

Ms. BRAUNSTEIN. Congressman? I just wanted to say that, certainly, as the agencies, all of us have always been aware of the fact 

that there have been issues around compliance costs and we tried 

to address those in developing categories of compliance for CRA. 

You know, we have a small bank category, and we most recently 

developed an intermediate small bank category, and then a large 

bank category. 

And that was to help address some of those issues, as well as the 

Congress put in place a few years back a dictated schedule for examinations to help relieve some of the compliance burdens. So I 

think that these matters have been, you know, somewhat addressed over time. 

Mr. BACHUS. You know, I would agree. I think categorizing the 

banks has helped in exempting some of the smaller banks. In light 

of market changes over the last 30 years, what particularly, maybe 

the growth, you know. At one time, banks couldn’t expand across 

State lines. Now we have money center banks, some banks that 

have 8 and 10 percent of the total market in the country. 

Would you revise CRA in light of market changes? And, if you 

did, what would those revisions be? I notice the Comptroller of the 

Currency recently said that maybe in light of market changes, the 

CRA ought to be retooled. What would some of those changes be? 

I’ll just start. 

Mr. PITKIN. If I could, again. Congressman, I think the view that 

non-bank lenders should be included in CRA. At the State level we 

license thousands of those companies. And the Commonwealth of 

Massachusetts has recently passed a law which includes them 

under CRA and is staffing right now to include non-bank lenders 

in their examination program. 

All of the States are adopting examination guidelines to do the 

same thing. In addition, the National Mortgage Licensing System 

is being formed by CSBS, NACA, and Armor. And I think that will 

be a major step forward in consumer protection. So my feeling on 

non-bank lenders is, let’s let Massachusetts be the laboratory and 

watch how they make out doing it, and I think then take another 

step forward. 

Mr. BACHUS. I know that probably would be problematic for some 

of us, but I appreciate that suggestion. 

Anyone else? Seems like you’ve thrown a chill over the rest of the 

panel. 

Mr. PITKIN. Well, I certainly don’t mean to. The chairman encouraged differences of opinion, so. 

Mr. BACHUS. Anyone else? 

Ms. JAEDICKE. The Comptroller made the proposal yesterday as 

part of a speech that he made, and I would say that we haven’t 

worked out the details or the specifics about how expanding CRA 

might work. But we would be happy to work with other thought 

leaders in this area to see what might be done. 

17

Mr. BACHUS. Was he talking about expanding it or revising it? 

Ms. JAEDICKE. Well, he was really speaking to the changes in the 

financial services industry today—the fact that financial products 

are being offered by a lot of non-depository institutions, particularly mortgages. I think we’re all witnessing that. 

Mr. BACHUS. So the same thing the Commissioner was talking 

about, Commissioner Pitkin? 

Ms. JAEDICKE. Right. 

Mr. BACHUS. Okay. 

Ms. JAEDICKE. So we simply raised the question of, should there 

be a broader coverage of CRA? 

Mr. BACHUS. I see. How about for those institutions that are now 

covered. Any changes there, or no? 

Ms. THOMPSON. Well, one of the things that we have been looking at is how to bring underserved people into the banking sector 

and alleviate some of the high costs of products, like payday loans. 

We are advocating small dollar loans in the banking system. So, 

you want to bring people in and you want to make sure that the 

banking services that they get are going to receive some sort of 

credit. And we want to make sure that CRA is expansive enough, 

and we believe it is, to include basic banking services and products, 

as well as positive consideration for institutions that are currently 

offering those services and products. 

Mr. BACHUS. Thank you. 

Ms. BRAUNSTEIN. I would just say that one of the things that has 

made CRA so successful is the flexibility that was built into the 

statute from the beginning, which has allowed us to address credit 

needs and changes in markets as they have occurred. 

So I think that there are a number of things that we could discuss and those discussions are worth having. But something to 

keep in mind is the flexibility that is currently in the statute, and 

retaining that. 

The CHAIRMAN. Thank you. Ms. Yakimov. 

Ms. YAKIMOV. Chairman Frank, I would offer that OTS has had 

some experience with non-traditional thrifts—thrifts that operate 

outside of a traditional branch network that raise a significant 

amount of deposits through the Internet and other means—and 

there may be some lessons learned through our experience with examining those institutions with CRA that might be helpful. 

Looking first at how they satisfy their obligations within the assessment area, that meets the threshold looking outside, particularly with community development lending. So we would offer ourselves as a resource in that area. 

The CHAIRMAN. That would be very helpful if you would give us 

that result. I would just say with regard to, I think it was Ms. 

Thompson’s point, yes, we feel very strongly, and I know a lot of 

members in this committee feel that getting into the banking system is very important. 

Ms. Waters has had the lifeline banking issue. Others, Mr. 

Hinojosa and Ms. Biggert, have been worried about financial literacy, where the banks have been helpful with regard to check 

cashing, payday lending, remittances. 

I know people pay a much higher set of transaction costs than 

we do, and we want to keep mentioning that banks and credit 

18

unions are great assets for people here. In particular, we did take 

an initiative that the regulators responded to favorably; and, I 

think, the remittance services are now you get CRA credit for remittance services, and that has been very helpful in bringing down 

that cost. So we do intend to move on that. 

The gentleman from North Carolina. 

Mr. WATT. Thank you, Mr. Chairman. 

I perhaps want to be a little bit more direct with the panel than 

Mr. Bachus was on this issue of coverage of non-insured institutions under the CRA. When we did Gramm-Leach-Bliley, there was 

a proposal put forward at that time, an amendment offered at least 

to the bill, that would have expanded CRA to other parts of the financial institutions that would have given more flexibility for 

banks and lenders to be involved. 

Obviously, the rationale or the argument against it was that insured depository institutions received an implied subsidy, and historically have had an implied obligation therefore to their communities in exchange for that. A lot of non-insured institutions were 

basically doing a lot of banking activities—the same activities as 

insured depository institutions at that time—and Gramm-LeachBliley allowed that to happen even more, and expansion of activities substantially across line securities into banks, banks into securities, insurance. 

So the question I would ask is, number one, what are the institutions that we ought to be looking at? I guess I have heard each of 

you implicitly endorse the notion that CRA ought to be expanded. 

And I understand regulators don’t have the authority to do that. 

We have to do it as Congress. We could use the same language if 

we expanded the coverage. 

So I’m going to assume that each one of the regulators thinks 

that is at least something we ought to be exploring and looking at. 

And if you were going to do that, to what financial entities would 

you be talking about doing or at least considering doing? Ms. 

Thompson, if you want to go first, that would be great. 

Ms. THOMPSON. Yes. One category I would consider would be the 

mortgage lenders, in terms of non-depository institutions. 

Mr. WATT. Okay, so we have mortgage lenders on the table. Tell 

me who else. And I’m going to cut you off. I know we can talk 

about the rationale for each. I just want to get the laundry list on 

the table here, and, if we have time, we can talk about the rationale for including or excluding them. 

But what is the laundry list? Mortgage lenders; who has another 

one? Do you have another one, Ms. Thompson? I didn’t mean to cut 

you off if you had another one. I just didn’t want you to spend all 

my time telling me what the rationale for mortgage lenders was. 

Ms. THOMPSON. Congressman, I respect fully when asked to look 

at a category of high-cost service providers and mortgage lenders, 

because of the current crisis, leads that charge. And, if you recall, 

we were here in October and we specifically talked about HMDA 

data and the pricing differentials between non-bank lenders and 

bank lenders. 

So that was the reason I would discuss that. But I really categorize high-cost service providers. 

19

Mr. WATT. And who does that include? Mortgage lenders, who 

else? 

Ms. THOMPSON. Let’s see: check cashers; payday lenders. 

Mr. WATT. You’re saying we should include check cashers and 

payday lenders under CRA? That before I would get to insurance 

companies or securities dealers, I would be looking at check-cashers 

first? 

Ms. THOMPSON. Well, under CRA, we are looking at low- and 

moderate-income, generally speaking. And for securities, I know 

there are suitability requirements that apply to the purchase of 

most investments and most securities. So I’m thinking about the 

least educated, most vulnerable group of people who are paying 

more for products and services than other categories. 

Mr. WATT. Okay. Payday lenders, check cashers, mortgage lenders. Who else? You all are falling silent on me out there. 

Mr. PITKIN. Well, Congressman, being from Connecticut, I— 

Mr. WATT. Who do you all include? 

Mr. PITKIN. We include banks and credit unions. 

Mr. WATT. Credit unions? 

Mr. PITKIN. Under CRA. 

Mr. WATT. Okay. 

Mr. PITKIN. I think that we have two different industries here 

with mortgage lenders and brokers and originators. It is a Commission-driven industry and banks are concerned. When they write a 

mortgage with safety and soundness, it is a completely different approach to a mortgage. 

But mortgage brokers, lenders and originators report under 

HMDA and we can tell exactly where they’re lending, who has 

made the most loans in Connecticut, where they have lent, and 

how many are high cost. 

Mr. WATT. Well, I presume, we could make anybody who has a 

CRA requirement report on what they were doing in the community in one way or another. I still don’t have any takers on securities. 

That’s all right—I have a reluctant. I’ll yield back. 

The CHAIRMAN. I would say that of the things Mr. Pitkin suggested to me, one of the sort of conceptually obvious things would 

be to have CRA and HMDA tracked together. Because you were referring to entities that were covered by HMDA, but not CRA, and 

that would be one area where we’re doing it. 

The other I wasn’t sure, Mr. Pitkin, when you started to say as 

someone from Connecticut whether you were going to volunteer 

hedge funds to be under CRA, but we’ll pass on that one. But I do 

think at this point the HMDA tracking does seem to be. We will 

be talking about some of the others as well. 

The gentlewoman from Florida, Ms. Brown-Waite, I’m told is 

next. 

Ms. BROWN-WAITE. I thank the gentleman. 

And like many other members of the committee, I serve on another committee, which is why I wasn’t here for the opening statements and for the testimony of the panel. It is certainly not for lack 

of interest, and I thank you all for being here. 

If the CRA was enacted about 30 years ago in response to perceived redlining, are any of you aware of any institution that purVerDate 0ct 09 2002 16:42 Apr 23, 2008 Jkt 041181 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\41181.TXT TERRIE
20

posefully avoids doing business in particular neighborhoods or with 

particular customers, solely because of race? And, if so, wouldn’t it 

better to absolutely insist on the enforcement of anti-discrimination 

laws rather than force banks to make loans? 

And, you know, there is another form of redlining that is going 

on right now in my home State, Mr. Chairman. I don’t know if you 

are aware of it. And that is when you live in certain areas, and 

there are sinkholes, you are not going to get insurance, even 

though your house does not have a sinkhole. You probably aren’t 

going to get a mortgage for it. 

So there absolutely is existing redlining for purposes other than 

originally that the CRA was created for. And I would just like to 

have a response as to whether or not today when we have both 

Federal and State anti-discrimination laws, if CRA should be continued. 

Ms. YAKIMOV. I would offer, we have a host of tools to deal with 

any discrimination with respect to violations of the Equal Credit 

Opportunity Act, and the Fair Housing Act. And if we identified an 

institution that has fair lending violations, violations of such laws, 

it has an adverse impact on the CRA rating. 

So, in that sense, fair lending and CRA work together. But we 

would certainly not tolerate an institution that we identified purposely avoiding making loans on a prohibited basis, such as race 

as you described. 

Mr. PITKIN. Congresswoman, I think that what we have noticed 

in analyzing our subprime lending and high-cost lending in Connecticut is that the reverse really has happened where the high 

cost loans were contained, mainly in our inner cities. And it is a 

real problem when you target people who use English as a second 

language, or who might not be as financially savvy as most. 

They want their share of the American dream just like all of us. 

And I think in a lot of cases, because of piling loans into those 

areas of our State, for instance, the City of Bridgeport has 5,000 

subprime loans contained in it; the City of New Haven has 4,000. 

And I think it is going to be a long time working this problem out. 

Ms. BROWN-WAITE. Thank you, Mr. Chairman. If no one else is 

going to respond, I will yield back. 

The CHAIRMAN. The gentlewoman from New York. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Mr. Braunstein, last month during a roundtable I held in my 

congressional district in Brooklyn, New York, on solutions to the 

mortgage crisis, participants suggested expanding the coverage of 

CRA to non-banks and other financial entities as a solution to curb 

predatory lending. You suggest that changes in the financial sector 

warrant this expansion, but caution also about some of the issues 

that may arise as a consequence. Can you expand on those issues 

and tell us how the Federal Reserve plans to address them? 

Ms. BRAUNSTEIN. Yes, thank you. Actually, the expansion of CRA 

to entities other than depository institutions would really be a matter for Congress to decide. It is not something the Federal Reserve 

or any of the other agencies could undertake themselves. And what 

I was pointing out was that in that decision we certainly are quite 

happy and willing to work with you and discuss these issues with 

21

you. But there was a strong kind of underpinning for the original 

CRA that was a quid pro quo in terms of deposit insurance. 

And it seems that certainly changes in the financial services 

markets have warranted relooking at this. But there needs to be 

some kind of strong underpinning for any kind of CRA requirements that are put on other organizations, and that would definitely be worth a conversation. 

Ms. VELAZQUEZ. Okay. Thank you. I would like to address this 

question to any of the witnesses. 

In his testimony on behalf of the American Bankers Association, 

Mr. Barnes mentions that 98 percent of all banks and savings associations receive a CRA rating of satisfactory or both as a positive 

step. Some of us may see it differently, particularly where something like this may be called grade inflation. 

Can you explain why this is the case, particularly, when we have 

seen the effects of the subprime lending crisis in minority neighborhoods across the country and especially within my district? 

Ms. BRAUNSTEIN. Well one of the things I think we’ve all seen 

is that a large majority of the loans that were made of the 

subprime variety, especially the ones that are causing the problems, were not made by depository institutions which were covered 

by CRA. And that has been one of the issues and one of the reasons 

for the discussion of the expansion. And CRA has a very strong 

component of safety and soundness. 

And so banks would have discouraged our banks from competing 

in this communities, in those products, because those were not 

often safe and sound products, and there was a lot of loose underwriting. 

Ms. VELAZQUEZ. Wouldn’t that be a good argument to expand 

CRA to non-banking institutions? 

Ms. BRAUNSTEIN. Possibly, yes. Yes. And in terms of the grades, 

I would just say that CRA has been around for over 30 years and 

that most banks are quite familiar with the Act and what is required of the regulations. And so, in some ways, it is not surprising 

that banks have learned how to, you know, get good CRA grades 

and are doing the right things. And we have seen that CRA has 

been very successful on a number of fronts. 

Ms. VELAZQUEZ. Thank you. And, yes? 

Ms. YAKIMOV. I would add to that, that I think you have to look 

at not just the ratings breakdown but also the data, the numbers. 

The volume of small business loans, the volume of community development loans, and that completes the picture. At least it fills out 

the picture, so to the extent that institutions have had 30 years of 

experience, we saw when we came out with the new BSA exam 

manual, initially new procedures violations were at a level over 

time we’ve seen some of those ratchet down. So I think you have 

to look at not just the ratings, but also the picture behind it. What 

are institutions doing to support all their communities? 

Ms. VELAZQUEZ. Thank you. 

The CHAIRMAN. The gentlewoman from Illinois, Mrs. Biggert, the 

ranking member of the Subcommittee on Financial Institutions and 

Consumer Credit. 

Mrs. BIGGERT. Thank you, Mr. Chairman. In 1992, Grant Thornton reported that CRA compliance was the single most expensive 

22

regulatory burden placed on community banks, and over the past 

15 years, the Federal banking agencies have successfully reduced 

the unnecessary and unproductive paperwork burden imposed on 

community banks. I think that the agencies are to be commended 

for their efforts in this area, but is there more that can be done 

to relieve the administrative burden of compliance? 

Ms. BRAUNSTEIN. Well, one thing, Congresswoman, that the 

agencies did recommend in the report to Congress on regulatory 

burden is repeal of the CRA Sunshine Act; I have to say that I 

think we are all in agreement that hasn’t really produced much in 

the way of benefits, and it is a paperwork burden to financial institutions. So that is something that Congress could consider. 

Mrs. BIGGERT. Anybody else have any comment on that? 

[No response] 

Mrs. BIGGERT. Well, then maybe—and I’m sorry. I don’t know if 

these have been asked or not, but how much time do regulators 

spend in a bank doing the CRA examination? 

Mr. PITKIN. Well, Congresswoman, we in Connecticut do ours offsite, and we take into consideration the Federal examination that 

is done, but we have a profile of each of our banks. It is very detailed. There is a cottage industry of tools you can use with software to use on the HMDA data to create whatever market area the 

bank is operating in, and it has worked out very well for us. We 

update it yearly, and I think that is probably more often than most 

banks get their CRA exam onsite. We think it is very accurate and 

very effective in keeping track of banks’ compliance with CRA. 

Mrs. BIGGERT. So you think there are less burdens now than— 

Mr. PITKIN. Yes I do. I do think there are a lot less burdens, and 

that is the feedback from our institutions. 

Mrs. BIGGERT. Would anybody else like to comment? 

Ms. THOMPSON. At the FDIC, we supervise about 5,200 banks, 

and most of them are small community banks, and we typically 

spend about a week or so on our CRA and compliance exams. 

Mrs. BIGGERT. Okay. Thank you. Yes? 

Ms. JAEDICKE. For the OCC, I would say it varies dramatically 

based on the size of the financial institution, and we regulate some 

financial institutions that are extraordinarily large. But also we 

regulate a large number of small community banks. 

For our community banks, it takes about a week to do a CRA 

exam, and after Gramm-Leach-Bliley, when the examination schedule was extended, smaller community banks that have an outstanding rating will only receive an exam every 5 years. 

So I think the burden has been greatly reduced in terms of the 

amount of time we spend and the number of exams a bank gets 

over a certain period of time. For a large bank, it takes a significant amount of time to do a CRA exam, because they may have 

multiple assessment areas across the United States. 

Ms. YAKIMOV. Those institutions that we go into more frequently 

are those that received a less-than-satisfactory rating, where more 

active supervision is warranted. So I think we have done a lot to 

try to reduce, the Congress has done a lot to establish those benchmarks as well. 

23

Mrs. BIGGERT. When a bank receives a less-than-favorable rating, what steps do they take, or how do you work with them to improve that? 

Ms. YAKIMOV. We go onsite more frequently. We follow up on 

issues that were raised during the previous exam and make sure 

that they are following that, and if necessary, an enforcement action is an outcome. 

Mrs. BIGGERT. Thank you. Thank you, Mr. Chairman. I yield 

back. 

Mr. CLEAVER. [presiding] I have just one question, then we will 

move on to Mr. Sires. In the Community Reinvestment Act, the 

language, ‘‘local community’’ is all through the legislation. And it 

has occurred to me that the banking world has changed so dramatically that we don’t have much of a local community with regard to banks. I mean, much of their business is now done even 

through the Internet. The huge banking conglomerates have taken 

over, so there is no local community. And I’m curious about whether any of you would agree that perhaps we ought to revisit the language, ‘‘local community,’’ redefine ‘‘local community’’ in the language, or define it anew. 

Mr. PITKIN. Well, Congressman, I think we have talked about 

doing that in our home State, and I do think that the word ‘‘local’’ 

can restrict the delineation of a community bank’s identity in its 

community, and that the footprint—in the Northeast, I think we 

have the phenomenon of a barbell industry. We have small banks, 

and we have large banks, but we don’t have a lot in the middle. 

And there are consequences to that as far as lending authorities go 

and also identification in the community. 

But I do think that the word ‘‘local’’ should be removed from the 

law. 

Ms. BRAUNSTEIN. We discussed that. The agencies discussed 

those issues pretty thoroughly when we went through the last revision of CRA, and one of the things that we found is that for most 

banks, the current definition of assessment area worked pretty 

well, that even those banks that have a presence on the Internet, 

generally have some kind of brick-and-mortar presence, and that 

being able to define a local assessment area seemed to work except 

in a few cases. 

And we made some kinds of alterations to the regulation to allow 

people—and to the questions and answers—to allow institutions to 

make investments and lending and have activities outside of those 

assessment areas as long as they were taking care of their local assessment area. 

And it seems to be working, from what we are hearing, it seems 

to have worked fairly well, but I think it is always worth a conversation, because if we can improve it further, we are certainly 

willing to do that. 

Mr. CLEAVER. Well, some of the large banks may have in a community, in a neighborhood, just a drive-through operation. Is it the 

bank of that local community? 

Ms. BRAUNSTEIN. Yes. If they’re taking deposits and offering 

services, yes. 

Mr. CLEAVER. Well, normally those operations, they offer a service, but it’s deposit and withdrawal. That’s it. I mean, there are no 

24

loan applications taken there. In fact, it’s almost—I mean, it’s 

smaller than, you know, a Burger King. 

Anyone else? 

Ms. JAEDICKE. I’d offer that I think what makes this question 

difficult is that there are banks that still have a local community, 

and we still have a significant number of community banks in the 

United States that operate within a defined, fairly local neighborhood or community. 

But we also have many large banks in the United States whose 

assessment areas span across perhaps several States, or a significant part of the country, which I think is what makes the question 

difficult. 

Mr. CLEAVER. All right. Thank you. Mr. Sires. 

Mr. SIRES. Thank you, Mr. Chairman. I just want to get back to 

the ratings a little bit, because as I read here, it says here that according to the Federal Reserve, 99 percent of the banks and thrifts 

receive an outstanding or satisfactory rating. That leaves 1 percent. 

What do you have to do to get an unsatisfactory rating? 

Ms. THOMPSON. You have to not lend in your local defined assessment area, and we have had institutions that have been rated 

nonsatisfactory and needs to improve. But I will tell you that the 

public input into the process is critical. The financial institutions 

covet the outstanding and satisfactory ratings and will do what is 

necessary to achieve those ratings. 

For example, you cannot expand your branches if you have less 

than a satisfactory designation. 

Mr. SIRES. But, Ms. Thompson, I’m just talking about 1 percent. 

That seems—with all the problems that have been going on with 

lending and everything else, I would think that percent would be 

a little higher. How do you rate? You know, I don’t understand just 

1 percent. 

Ms. THOMPSON. Well, in our examination process, we look at the 

lending that is done in the assessment area, and we also, as part 

of our compliance examinations and CRA examinations, look at fair 

lending issues, and we look at the cost of credit. And we look for 

patterns and practice of discrimination. 

But, again, I would note that much of the lending in financial institutions, especially those in low- to moderate-income areas, is 

done in a safe and sound manner. 

Mr. SIRES. And it also says here that the Federal Reserve received, since 1988, 13,500 applications for formation of banks. Then 

it goes on to say that only eight were denied. I don’t know. I mean, 

that seems kind of low to me. 

Ms. BRAUNSTEIN. Well, yes, it does sound very low. But one of 

the things to consider is that most financial institutions, when they 

enter into an applications process, they know that they have to 

have good records in order to complete that process, so they don’t 

come forward unless they are doing the right things. 

And there also are cases for which I admit we don’t have numbers, we don’t track this, but there are cases where financial institutions may come forward who don’t have the best records and 

don’t have good records in various affairs, and it may be CRA, and 

they’re discouraged from entering an application. And that would 

not be captured in those numbers. 

25

But we don’t deny, at the Federal Reserve, we’re not denying applications for any reason. It’s not just CRA. There are a whole host 

of things that they’re rated on, but most banks know that they 

have to have all their ducks in a row before they come forward 

with an application. 

Mr. SIRES. I’m just wondering if anybody thinks that the rating 

process is a little lax. 

Mr. PITKIN. Congressman, if I could comment, I do think CRA 

has reached the point of maturity with the banking industry, and 

I think that the HMDA database is so extensive now that they 

know where their market is, and to be profitable, they have to 

serve that market. I can say that we have worked with our Federal 

counterparts at the Federal Reserve and the FDIC in holding up 

transactions for banks that didn’t have a satisfactory compliance 

rating or a CRA rating. And it’s not in the public interest to allow 

that rating to stand. It’s in the public interest I think to get that 

bank back between the lines and serving its community. And I 

think probably that’s where we’re coming from. 

Mr. SIRES. Mr. Chairman, may I have one more question? I see 

that my district, every time I wake up, I think there is a new bank 

on the main street. But worse, I see these, all these machines to 

extract money. They are everywhere; bodegas, pharmacies, I mean, 

you name it. When you do your review, is that part of it? You 

know, how does that work? Who reviews that when a bank puts 

a machine in a bodega or something and they charge you $2 or $3 

to take out $20? You know, how does that work? I’m a little naive. 

Ms. YAKIMOV. Well, ATMs aren’t considered branches for purposes of the Community Reinvestment Act, although we look at the 

way our institutions provide services in a broad sense. I guess I 

would offer that Community Reinvestment Act ratings are public, 

unlike the other ratings that we provide for fair lending and in 

other areas. 

So you may have an institution that—where we have seen issues 

and concerns that are not public. If there are fair lending violations 

and concerns, it has an adverse impact on the CRA rating, but 

wouldn’t necessarily take an institution from outstanding to, you 

know, substantial noncompliance, or from satisfactory all the way 

down to substantial noncompliance. 

So all these things are factored in in terms of our evaluation, but 

most of these ratings aren’t public. And because CRA ratings are 

public, I think there is even a greater incentive for institutions, 

they want to get it right. They don’t want to be embarrassed. Outside of the implications for approvals for mergers and branches, 

they don’t want an unsatisfactory rating that is public. 

Mr. SIRES. How many people do you know, that when they open 

a bank account, they look at the CRA rating? 

Ms. YAKIMOV. Probably none. 

Mr. SIRES. Okay. Thank you very much, Mr. Chairman. 

The CHAIRMAN. The gentlewoman from California, Ms. Waters. 

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

thank our panelists for being here today. From the time that I first 

became involved with CRA, we have been interested in trying to 

make sure that the ratings make good sense when they get excelVerDate 0ct 09 2002 16:42 Apr 23, 2008 Jkt 041181 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\41181.TXT TERRIE
26

lent or satisfactory ratings, it’s because they have basically complied with the spirit of CRA. 

We have been concerned about mergers and bank branches and 

all of that, and I think enough has been said or perhaps will be 

said today about the fact that banking services are provided in so 

many different ways now that increasingly, we’re not talking about 

the same certainly structures that we talked about before. 

I am interested in trying to delve into how we could possibly use 

CRA to deal with our subprime crisis. I have not thought it 

through, but I certainly would like to do something to encourage 

those banks, such as Countrywide, who were involved in a lot of 

the subprime lending, to do workouts and to do modifications and 

to help people stay in their homes. 

I also realize that a lot of this paper is not held by the traditional 

bank as we have known it. But let me just ask, has anybody given 

any thought to that? 

Ms. BRAUNSTEIN. Well, we did. The agencies issued guidance to 

the industry encouraging participation in workouts and saying that 

they would get CRA recognition for doing that. So we have— 

Ms. WATERS. Oh, you did? 

Ms. BRAUNSTEIN. Yes. 

Ms. WATERS. What kind of response did you get? 

Ms. BRAUNSTEIN. Well, I don’t—I mean, I think that there are 

a number of institutions that are trying to work towards disclosure—towards, I’m sorry, foreclosure mitigation. I don’t know—I 

mean, we haven’t measured a response specifically to our guidance. 

Our guidance, you know, also came out when other things were 

happening, before other things happened. After our guidance was 

out, the HOPE NOW coalition was formed, some other kinds of initiatives have gone on. 

Ms. WATERS. Yes. We are still hoping. 

Ms. BRAUNSTEIN. So, I don’t know if that was— 

Ms. WATERS. We are still hoping for the HOPE NOW coalition. 

Ms. BRAUNSTEIN. I’m sorry? 

Ms. WATERS. We are still hoping that the HOPE NOW coalition 

will do what it said it would or could do. 

Ms. THOMPSON. We are looking for ways to give CRA credit to 

institutions that are willing to transition borrowers from high-cost 

loans from some of the subprime exploding ARMs to low-cost loans. 

And we have also been working with institutions to give them credit for foreclosure prevention mechanisms, to keep the borrowers in 

their homes. 

So we think that CRA can be used in a proactive way. And in 

July, the agencies issued a number of Q&As that address the 

subprime issue and foreclosure and loan mitigation specifically. 

Ms. WATERS. I don’t know if that information has been made 

available to the committee, or I don’t think most of the Members 

of Congress know that or understand that you have issued guidelines and that you have found a way to give CRA credit for workouts and modifications and loan mitigation. So I certainly would 

like to have that information, and I would also, Mr. Chairman, 

would like to, since it only would take into consideration the institutions that are covered by CRA, aside from this kind of look at 

that, what we could do with the securitization firms and organizaVerDate 0ct 09 2002 16:42 Apr 23, 2008 Jkt 041181 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 K:\DOCS\41181.TXT TERRIE
27

tions that are involved with, you know, managing the paper with 

all of this. 

So, thank you. And we will follow up to get additional information about what you have issued and how the CRA credits you are 

creating work. Thank you very much. 

The CHAIRMAN. Those are clearly areas that tie in, because the 

role of the securitizers has become very significant, the potential 

legal issue there. That is one of the things we are most focused on. 

The gentleman from Minnesota. 

Mr. ELLISON. Thank you, Mr. Chairman. Also let me thank all 

the panelists; it has been a fascinating dialogue this morning. I 

want to talk to you about the 10 million people who are unbanked 

in our country, or that is the estimates that I have heard. How is 

the CRA addressing this unbanked population? Do you get credit 

for addressing all these people who are basically cash consumers, 

paying high fees for everything? How do you address the unbanked 

population? 

Ms. THOMPSON. Well, I can—the FDIC has established, through 

Chairman Bair’s leadership, a committee for economic inclusion, 

and we also have alliances for economic inclusion in nine areas of 

the country where we formed broad-based coalitions with financial 

institutions, regulators, and community groups to try to identify 

unbanked and underbanked people, people who— 

Mr. ELLISON. Underbanked. 

Ms. THOMPSON. —are not using banking services to the extent 

that they should, to bring them into the banking system. Chairman 

Bair has also established a small dollar loan pilot program to try 

to encourage financial institutions to provide small dollar loans at 

a reasonable price. We have about 30 banks participating in our 

pilot program so that we can try to figure out what some of the 

best practices are so we can fill the gaps in for some of the highcost credit products. 

Mr. ELLISON. How is it going? Have you been able to document 

whether you have made any progress? 

Ms. THOMPSON. We just started our pilot program this year, and 

we’re expecting information coming in from our institutions in the 

near term. 

Mr. ELLISON. Would you be able to send us that? 

Ms. THOMPSON. Absolutely. 

Mr. ELLISON. Thank you. What about this—I’m curious to know 

how it is that there could be so many unbanked people, given the 

existence of CRA. I mean, CRA is all about economic inclusion and 

bringing people in. Is CRA inadequate to address the needs of the 

unbanked? Do we need to change the law in some way to create 

better motivation for banks to reach down into this vast pool of 

people who are unbanked or underbanked? What do you think 

about that, Ms. Yakimov? 

Ms. YAKIMOV. Well, I think one step the agencies have taken to 

deal with this issue and bring more people into the financial services mainstream is giving credit for remittances, so institutions 

that provide that service a good opportunity to reach out to underbanked and unbanked people. 

Also the Treasury Department has the Financial Literacy Education Commission. They have had a series of meetings in various 

28

communities, African-American, and Latino communities, to try to 

understand why there is some reluctance for institutions to take 

advantage of financial services, how can the system be more attractive. I think those discussions and these meetings— 

Mr. ELLISON. Well, you know— 

Ms. YAKIMOV. —are really important. 

Mr. ELLISON. Excuse me, you know, Ms. Yakimov, it’s interesting, because it is kind of a—there are two ways to look at it. You 

can say well, the banks aren’t reaching out to these communities, 

or you can say these communities don’t want to go to banks. You 

can look at it both ways. I tend to think that paying $10 to cash a check for $100 is something most people wouldn’t want to do. And if they had a bank, 

they wouldn’t do it. So, if you assume consumers are rational actors 

in the market, then if you are unbanked, then there is some barrier 

to being banked. Don’t you agree with that? 

Ms. YAKIMOV. Well, it’s a good point you raise. And the service 

test is one way that we observe and we measure how our institutions are reaching and providing services in their communities. So, 

for example, we look at the branch network. We look at where 

they’re located. We look at whether they’re located in low- and 

moderate-income communities. So that’s an important tool in the 

arsenal with respect to CRA. 

Mr. ELLISON. Do you think the service test is adequate to really 

test what we’re trying to measure? Because, again, you know, we 

have a lot of people who are unbanked, so something’s not happening right. 

Ms. YAKIMOV. This is something I think the agencies need to look 

at. Director Reich has publicly said how important he believes it 

is for institutions to serve. Branches provide an anchor. 

Mr. ELLISON. Right. 

Ms. YAKIMOV. Particularly branches in low- and moderate-income 

communities, they provide a more cost-effective means to obtain financial services with respect to—vis-a-vis payday lenders and 

check cashers. So— 

Mr. ELLISON. Title loans. 

Ms. YAKIMOV. All of that. 

Mr. ELLISON. The whole nine—pawn shops. 

Ms. YAKIMOV. All of that. 

Mr. ELLISON. Yes, these kind of institutions, you know, in many 

ways, they work to, you know, reinforce poverty. Part of being poor 

is that you don’t get enough, and the other part is that you pay 

too much. And so access to a bank that can give you an affordable 

financial product is a very important anti-poverty measure. 

Ms. Braunstein, could you talk about how hard it is for people 

who are unbanked to make it? I mean, what are some of the barriers that they are facing? 

Ms. BRAUNSTEIN. I think it is very difficult for people who are 

unbanked in many ways. Sometimes it—well, it creates problems 

in terms of the costs that they pay for financial services, number 

one. It’s also more difficult for them to build up any kind of credit 

record, which is used not just for provision of financial services 

nowadays, but can be used in other means, getting insurance, other 

kinds of—in transactions, even sometimes getting employment. 

29

Also, sometimes employers are doing direct deposit now, and so 

if you don’t have a bank account, that can be a barrier for that. 

Although many employers are going to payroll cards, which, you 

know, present their own kinds of issues. It is certainly better if 

people have services, access to or serviced by a financial institution. 

Mr. ELLISON. My time is up. 

The CHAIRMAN. Thank you. I thank the panel. We will hope to 

hear from you more as we deal with this. This is, as I said, something we take seriously, and let’s get the next panel here. It does 

look to me now like we are going to be able to finish today. I will 

be gone, but I will have someone else sit here. So let’s move quickly, people. 

Do not impede the leaving of the table. Let’s sit down. You can 

shake hands and talk later. A minute may not sound like much to 

you now, but we are in a real hurry. Just sit down. 

I will begin with Ellen Seidman, who is the director of the financial services and education project at the New America Foundation. 

Ms. Seidman, please go ahead. 

Everybody’s full statements and material will be submitted for 

the record, so there will be no further need to request that. 

Go ahead. 

STATEMENT OF ELLEN SEIDMAN, DIRECTOR, FINANCIAL 

SERVICES AND EDUCATION PROJECT, NEW AMERICA FOUNDATION 

Ms. SEIDMAN. Chairman Frank, and members of the committee, 

thank you very much for this opportunity to testify today about the 

effectiveness and the future of the Community Reinvestment Act. 

You mentioned that I am currently directing the Financial Services 

and Education Project at the New America Foundation, but from 

October of 1997 to December of 2001, I was the Director of OTS. 

And as OTS Director, one of my priorities was to make certain that 

the institutions we regulated understood the importance of meeting 

both the letter and the spirit of CRA. 

My experience with CRA at OTS, with this New America Project, 

and also with my job at ShoreBank has taught me several lessons. 

First, what is measured, like residential loans, is what gets done. 

Measurement is incredibly important. CRA has focused heavily on 

residential loans and the kinds of investments that are easily 

measured. 

Second, the regulatory system can be significantly leveraged by 

information made directly available to the public. Third, CRA has 

generated a fair amount of innovation. I think this is really important with respect to some of the questions that were being asked 

earlier. CRA changed the hurdle rate for new products, services, 

and markets, encouraging banks and thrifts to look for investments 

and products for which a part of the return was in CRA credit rather than in dollars. Some of those products continue on purely financial terms. In other cases, the institutions understand the value of 

both CRA and the publicity that comes with it. 

Fourth, the implicit requirement that banks enter new markets 

for which gaining trust, getting business, and making a profit were 

not familiar has required partnership and collaboration with a wide 

variety of more community-oriented institutions. 

30

So those are the positive lessons, but there is plenty of room for 

improvement. Most obviously, as you have discussed, the CRA applies only to banks and thrifts. The myriad of other types of organizations that provide some or all of the same types of financial services to some or all of the people that CRA was designed to assist 

remain uncovered. 

Second, it has become a complex regulatory regime, especially 

with respect to service and investment. Third, the lack of an explicit enforcement mechanism beyond the merger situation works 

well in terms of major merger activity, but not as well otherwise. 

Some States and localities have been effective in adding other incentives such as linked deposits. We need to think of other ways 

to incent CRA performance. 

Fourth, the spatial origin of CRA has had several negative effects. They are described in my testimony, but let me just raise 

one: notwithstanding that redlining had its origin in racial discrimination, the statute is color-blind, which has limited its impact 

in many of the communities and populations it was meant to serve. 

The language of CRA is focused on communities, and the impetus 

for its enactment was redlining of entire neighborhoods. Nevertheless, the manner in which financial institutions dealt with people 

in low- and moderate-income communities, limiting their access to 

credit, closing branches, and moving out was also part of CRA’s origins. 

Our current debt crisis makes this a propitious time to consider 

how the ‘‘people’’ aspect of CRA can be improved. I go into this in 

much greater detail in my written testimony, but let me just say 

I think it’s time, at least to consider, a totally new paradigm for 

consumer financial services and one that is just as bold as CRA 

was 30 years ago; namely, any financial institution that provides 

an essential consumer product must make that product available 

in a fair and transparent manner to low- and moderate-income consumers, in all communities, in all broad geographies in which the 

entity does more than an incidental amount of business in the 

product. This paradigm would concentrate the attention of business, the public and government on what is important to consumers and would use the market forces generated by consumers 

with the knowledge and resources to demand high quality financial 

services to extend the reach of those products and services to the 

rest of the market. 

To bring CRA as applied to banks and thrifts more fully in line 

with both the modern financial services system and the principles 

proposed, some changes would be desirable. CRA should cover service to low- and moderate-income consumers everywhere a bank or 

thrift does a significant amount of business and a covered product. 

Effective public disclosure regimes should be added to cover essential products beyond residential loans. Any for-profit subsidiary of 

a holding company that provides any of the essential products 

should be evaluated in the same manner and at the same time as 

the largest bank or thrift in the holding company group. 

With respect to consumer protection and fair lending responsibilities, the agencies have moved in that direction but they need to 

become much more firmly embedded in all CRA evaluations, inVerDate 0ct 09 2002 16:42 Apr 23, 2008 Jkt 041181 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 K:\DOCS\41181.TXT TERRIE
31

cluding in particular the investment test. And incentives should be 

established that are external to CRA. 

But as we all know, changing the rules for banks and thrifts is 

not enough, and in fact would make the unlevel playing field even 

more unlevel. It’s essential to extend the responsibility to serve all 

consumers fairly and equitably to all providers of essential consumer financial services. 

One could extend CRA’s language and regulatory system to other 

types of financial institutions, placing examination and enforcement responsibility on their regulators to the extent they have 

them or on surrogates such as HUD. However, for financial services entities operating under different types of or no regulatory regime, alternative solutions that take maximum advantage of regulatory systems and responsibilities already in place, such as the 

suitability standard in the securities industry, may be a better solution. 

In conclusion, by enacting CRA 30 years ago, the Federal Government challenged the banking industry to help lower income 

communities and their residents to achieve a better life. Consumers 

today are expected to take much greater responsibility for their financial health and stability, and many Americans are having a difficult time with this task. The new responsibility paradigm presented here challenges the entire financial services industry, as 

CRA did banks 30 years ago, to help American consumers to do 

better. 

Thank you. 

[The prepared statement of Ms. Seidman can be found on page 

167 of the appendix.] 

The CHAIRMAN. Thank you. 

Next, John Taylor, who is the chief executive officer of the National Community Reinvestment Coalition. 

STATEMENT OF JOHN TAYLOR, CHIEF EXECUTIVE OFFICER, 

NATIONAL COMMUNITY REINVESTMENT COALITION 

Mr. TAYLOR. Good afternoon, Chairman Frank, and thank you 

Representative Waters, Representative Watts, Representative 

Cleaver, and other members of the Financial Services Committee 

for the opportunity to offer the remarks of the National Community 

Reinvestment Coalition. 

Mr. Chairman, America, as you know, is in the grips of a foreclosure crisis. It is destroying family wealth, undermining communities, and destabilizing the economy. And the sad and unfortunate 

reality is that this problem was largely unnecessary and avoidable. 

The failure to protect consumers in the home loan market from 

rampant unfair and deceptive mortgage lending practices is the 

core of the problem that we face today. 

Improved coverage and enforcement of the Community Reinvestment Act could have provided much of the needed protection. The 

overwhelming share of subprime mortgages heading into foreclosures were made or funded by lending institutions that are not 

subject to CRA. CRA does not apply, for example, to independent 

mortgage companies, investment banks that securitize these loans, 

and many mortgage company affiliates of banks. 

32

These non-CRA-covered institutions issue hundreds of thousands 

of loans annually, without adequate oversight. Their misbehavior 

has now impacted all Americans regardless of whether they have 

a subprime loan. In fact, inadequate regulation of the subprime 

market is negatively impacting all Americans, regardless of whether they even own a home. 

Sadly, all signs suggest the worst of both the foreclosure crisis 

and the slumping economy remains ahead of us. In addition to the 

need to expand CRA’s coverage to other institutions, we must also 

improve the system of regulatory enforcement of this law. Regulators count less and less of the bank’s geographic areas in doing 

their CRA assessment of banks. They have less frequent examinations under this law, and the grading system for assessing a bank’s 

CRA performance has increasingly become inflated. 

Consider and compare just two 3-year periods of bank regulatory 

grading, 1990 to 1992, and 2004 to 2006. In the first period, 1990 

to 1992, when lenders primarily issued prime loans where we saw 

none of the predatory aspects that we have seen recently, the average failure rate was 10 percent bank failure of the CRA exam. 

Now, fast-forward to the recent 3-year period, 2004–2006. This, 

of course, was the height of much of the unfair lending practices 

that created the problems we have today. In a period of time when 

we had the most outlandish, most predatory, usurious, unfair, and 

discriminatory kind of lending, we saw a 900 percent drop in the 

percentage of failure CRA ratings that banks got on their CRA 

exam. So CRA-grade inflation was improper moding was promoted 

by allowing banks to pick and choose what activities and affiliated 

institutions to include in their CRA exams. Imagine that? The bank 

gets to say, well, yes we want this affiliate that does this kind of 

lending counted at our exam, or they don’t. 

And so they use it to manipulate the score, and the regulators 

go along with that. Moreover, we have not had a public hearing on 

a bank merger since 2004, despite several major mergers involving 

branch closures and other serious ramifications for working class 

and minority neighborhoods. Numerous studies have found that 

CRA encourages responsible lending to low- and moderate-income 

communities in a way that is consistent with safety and soundness 

concerns. A study by the Joint Center for Housing studies at Harvard University estimates that without CRA, over 336,000 fewer 

home purchases would have been made to low- and moderate-income neighborhoods between 1993 and 2000. 

The Federal Reserve Bank, in their review of the Home Mortgage 

Disclosure Act data, has found that home loans issued by banks 

are significantly less likely to be high-cost and exhibit risky features than those issued by the independent mortgage companies 

and other non-CRA-covered institutions. These studies offer an important endorsement for the value in the potential of CRA. 

Greater CRA coverage for banks and other financial services 

firms would improve on these impressive statistics and enhance financial services access for working families in their communities 

across the Nation. Curiously, Federal regulators often say that 

their principal focus is to ensure the safety and soundness of the 

financial system, yet, the foreclosure crises demonstrates that the 

key way to ensure safety and soundness of this financial services 

33

system is to ensure proper financial services protections for consumers is in the credit markets. 

As long as short-term bank profitability is the sole or principal 

measure of safety and soundness, crises like the one we face today 

could occur again. The changes to the law I have suggested today 

in my opening remarks and detailed in my testimony are largely 

included in H.R. 1289, the CRA Modernization Act of 2007, proposed by Representative Eddie Bernice Johnson from Texas and 14 

other co-sponsors. Passing that law is essential. 

Yet strengthening CRA will have little effect without enforcement. Congress also must ensure that the laws it enacts are thoroughly and fully enforced. In addition to the foreclosure crisis, we 

face today broader and systemic challenges of financial access. Payday lending, abusive credit card issuers, and related alternative 

high-cost financial services have grown exponentially over the past 

decade. Their growth has been accompanied by the closing and departure of bank branches from the same communities. With a CRA 

examination passing rate of 99 percent, it is clear that the Federal 

regulatory agencies are not seriously considering the Service Test 

of the CRA exam, or the overall history of opening and closing 

bank branches in minority or underserved communities. 

In conclusion, if this foreclosure crisis has taught us anything, it 

is that America must be effective in supporting efforts to sustain 

a Financially Inclusive Society. Consumer protection laws, CRA 

and the fair lending laws must be obeyed and they must be accompanied by adequate and effective regulatory enforcement mechanisms. The financial services needs of working class Americans 

must be respected and promoted if we are to have the kind of economic mobility that creates more stakeholders. 

And I’m wrapping up, Mr. Chairman. Thank you. 

Americans willing to work hard, pay their taxes, practice their 

faith, and who are seeking to build a more promising economic future for their families, should no longer be subjected to the kind 

of lending malfeasance that we have experienced in the past several years. The need for a strong and expanded CRA with meaningful enforcement has never been greater. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Taylor can be found on page 179 

of the appendix.] 

The CHAIRMAN. Next, we are going to have votes. We are back 

to real votes now. These are not procedural ones, so we will probably have a break for about a half hour, then I’m going to have to 

leave. But there will be other people testifying. 

Before I leave, I did want to ask Mr. Taylor one question. The 

legislation you mention by Congresswoman Johnson expands CRA 

coverage but does not expand it to credit unions, so I just wondered 

what your position would be on that. 

Mr. TAYLOR. Yes well, we were hoping that Representative 

McGovern has. It also, Mr. Chairman, does not call for— 

The CHAIRMAN. Well, let’s just talk about the issue I raised. 

Mr. TAYLOR. Yes, I totally agree. And in Massachusetts, our experience has been that they perform as well or as better than 

banks. And those that aren’t covered in Massachusetts because 

they are federally-chartered credit unions do not do as well. 

34

The CHAIRMAN. Well, because I was told that they weren’t there, 

and with regards to the bill, I just want to make sure that is where 

we were. Next, we’ll hear from Marva Williams, who is the senior 

program officer at the Chicago Local Initiatives Support Corporation. Ms. Williams? 

STATEMENT OF MARVA WILLIAMS, SENIOR PROGRAM OFFICER, CHICAGO LOCAL INITIATIVES SUPPORT CORPORATION 

Ms. WILLIAMS. Thank you. I appreciate this opportunity to testify 

today. 

My name is Marva Williams, and I am a senior program officer 

of the Chicago office of the Local Initiative Support Corporation, or 

LISC. 

As many people have testified today, CRA is critical to bringing 

capital and financial services to lower income communities, and it 

has encouraged banks and thrifts to increase sound and profitable 

lending, to devolve flexible and financial products, to make community and development loans and investments available, and to encourage partnerships between financial institutions and community-based organizations. 

Since 1980, LISC has worked in numerous partnerships involving banks and thrifts, nonprofit housing development organizations, and government agencies. LISC currently invests over $1 billion each year in these partnerships, leveraging $25 billion since 

1980. Our work covers a range of activities that contribute to sustainable communities, and in fact the Chicago office was one of the 

first LISC offices to devolve a sustainable. 

The CHAIRMAN. Ms. Williams, we are time-limited. We did want 

this to be about CRA and not LISC. 

Ms. WILLIAMS. Okay, thank you. 

As others have testified today, CRA has worked remarkably well. 

However, it has not kept pace with the financial industries’ trends 

over the last 30 years. Banks no longer originate a majority of 

home mortgage loans. They currently originate less than half of 

home mortgages. As Representative Cleaver noted, banks are no 

longer oriented to a local area, and so the assessment area is no 

longer appropriate or very useful. 

In 1977, the overriding concern was denial of credit in entire 

lower income neighborhoods. However, as John Taylor and others 

have mentioned, subprime lenders are now aggressively pursuing 

those communities. And I believe that the subprime mortgage crisis 

has shown us that prudent government regulation is important, not 

only for consumers and communities, but also for the safety and 

soundness of our financial system. And then last, banks and thrifts 

were peripheral to government housing and community development programs, and that is no longer true. 

I offer the following observations and suggestions for CRA. CRA 

coverage should be expanded beyond banks and thrifts. The CRA 

coverage to assessment areas around branches is no longer appropriate. Although CRA examinations occur regularly, CRA is most 

influential when a bank or thrift applies to merge with or acquire 

another institution. CRA should be enforced on a regular basis during examinations. The regulators should also actively and regularly 

invite public comment and public hearings. 

35

The community development activities of large banks and thrifts 

should be considered together. Community development activities 

are qualitively different from other kinds of activities such as home 

mortgages and small business loans. Community development activities are generally smaller in volume, and sometimes more complex, but they add value and should contribute to a concerted strategy. 

Many rural communities have few if any banks with sufficient 

capacity to address complex community development needs. Banks 

and thrifts that serve local community needs should receive full 

recognition for that. Data requirements and performance criteria 

have not changed significantly over the last 30 years. Some 

thought should be given to updating an institution’s qualitative 

and quantitative data reflecting recent learning in the asset development field. 

And, last, I am concerned about geographic redlining based on 

the predominant race of the community. Fair lending laws applied 

to individual borrowers and CRA applies to lower income communities, but neither law explicitly addresses disparate service to minority communities. 

In closing, I urge the Financial Services Committee to make CRA 

an effective tool for ending geographic discrimination and to increase the potential for asset development of lower income and minority communities and consumers. 

Thank you. 

[The prepared statement of Ms. Williams can be found on page 

247 of the appendix.] 

The CHAIRMAN. Thank you. We are going to break now for a vote. 

I apologize. We have probably a half hour or so that we will be 

gone. But the votes are 15 minutes, and we only have about 3 minutes left, and it is a substantive vote, and not a procedural one. We 

will resume. That is just the nature of the business that we are in. 

[Recess] 

The CHAIRMAN. As I was saying—actually, I am changing what 

I was saying. This really is a very important issue. I apologize for 

the disruptive day. I guarantee there were a lot of interested members; we had about 15 members at one point or another. That is 

indicative of real interest. We have talked among each other and 

there is real concern here. 

And this is more important to me than the photo op, so I will 

not be going to the White House. He can sign the bill without me. 

Although, when he acts without me, he does not do as well as when 

he acts with me. So we are just down to a signing now, so there 

is no problem. And I want to get this complete. 

I appreciate—this has been very useful to us. And I just want to 

again assure you that your time has not been wasted. We are paying serious attention here. 

Professor White, why don’t you go ahead. 

STATEMENT OF LAWRENCE WHITE, PROFESSOR OF ECONOMICS, NEW YORK UNIVERSITY-STERN SCHOOL OF BUSINESS 

Mr. WHITE. Thank you, Mr. Chairman. My name is Lawrence 

White, and I am a professor of economics at the NYU Stern School 

36

of Business. I am here solely representing myself. I appreciate this 

opportunity to be here and thank you for the opportunity. 

My views on the CRA differ from those of my fellow panelists. 

Despite the good intentions and worthwhile goals of CRA’s advocates, the CRA is simply the wrong instrument for achieving those 

goals. The CRA is fundamentally an effort to ‘‘lean’’ on banks and 

savings institutions in a vague and subjective process to make 

loans that its advocates believe would otherwise not be made. 

The CRA processes have gotten better over the years. But still, 

fundamentally, they are a vague and subjective process—because, 

‘‘meet the credit needs’’ is inherently a vague concept. 

There is a fundamental contradiction at the heart of CRA. If 

these loans are profitable, then banks and thrifts should already be 

making them, unless the banks are lazy or dumb or ill-intentioned. 

And maybe that is a decent characterization of what the banking 

world was like in the pre-1970’s era. But I think it is hard to describe the competitive banking world of 2008 in those terms. Banks 

may not be the perfect profit maximizers of economics textbooks, 

but to think that they systematically overlook profitable opportunities, I think, is just not correct. 

Or maybe there are spillover effects such that individual loans 

aren’t profitable, but collectively loans would be profitable. In that 

case, we ought to be seeing banks forming consortia and joint ventures among themselves. After all, this is a small numbers situation, and they do form consortia and joint ventures all the time. 

Or the loans are unprofitable. In which case, either those loans 

are going to have to be cross-subsidized by super-profitable areas—

but with increased competition there is going to be less and less 

super-profitable opportunities. Or the loans will cause losses. Or 

the obligations will be shirked in some manner. And none of these 

are good bases for policy. 

In sum, the localism orientation of the CRA is an anachronism. 

It is based on an inherent contradiction that runs counter to the 

broad sweep of public policy that has encouraged deregulation and 

greater reliance on competition. Ironically, at a time when residents of low- and moderate-income communities are having to rely 

on high-cost check cashing and payday lending services, which a 

number of the people testifying this morning have talked about, because of the absence of bank locations to which they can turn, the 

CRA obligations may well be discouraging banks from establishing 

locations in these communities and offering better priced services. 

This is especially if those locations are going to carry the burden 

not only of providing those services but also of forced lending to 

those communities. If bank branches are going to be characterized 

as institutions that drain deposits out of these communities, if 

banks are going to be told that just drive-through locations are not 

sufficient, if they are going to be given a hard time when they try 

to exit an area, then banks are not going to want to set up establishments in the first place. Barriers to exit are barriers to entry. 

There is a better way. First, vigorous enforcement of the Equal 

Credit Opportunity Act and other relevant statutes to prevent discrimination on the basis of racial or ethnic characteristics or other 

categories of personal discrimination is essential. It is terrifically 

important. 

37

Second, vigorous enforcement of the antitrust laws, to make sure 

that financial markets remain competitive is important. But competition should not be allowed to veer off into predatory behavior. 

Third, if there are socially worthwhile loans and investments 

that somehow are not being made by existing lenders, then those 

loans should be made through the public fisc in an on-budget and 

transparent process. The Community Development Financial Institutions Fund, which is financed through the public fisc, which is 

administered by the Treasury, is a good example of this kind of 

funding process. And, as appropriate, its funding should be increased so as to support these kinds of socially worthwhile investments and loans. 

Finally, if public policy persists with something that resembles 

the CRA, then the bank and thrift CRA obligations should be made 

explicit and tradable among banks. This would make an opaque 

process more transparent and would introduce the types of efficiencies and specialization that has made the cap-and-trade system 

for dealing with sulfur dioxide emissions among electric utilities 

such a successful program. 

Thank you again for the opportunity to testify this morning. I 

will be happy to answer questions from the committee. 

[The prepared statement of Professor White can be found on page 

238 of the appendix.] 

The CHAIRMAN. And our final witness on this panel is Professor 

Michael Barr of the University of Michigan Law School. 

STATEMENT OF MICHAEL BARR, PROFESSOR, UNIVERSITY OF 

MICHIGAN LAW SCHOOL 

Mr. BARR. Thank you, Chairman Frank, and distinguished members of the committee. It is an honor to be here today to discuss 

CRA. 

CRA has helped to revitalize low- and moderate-income communities and has provided expanded opportunities for low- and moderate-income households. Going forward, CRA could be strengthened to ensure its continued role in encouraging sound lending, investment, and services. At the same time, CRA cannot be expected 

to resolve the range of financial problems facing low- and moderate-income communities today. 

This committee has already taken strong leadership to clean up 

the mortgage business and I am confident that the committee will 

continue to lead in resolving our housing crisis. 

At its core, CRA helps to overcome market failures in low-income 

communities. By fostering competition among banks and thrifts 

serving low-income areas, CRA generates larger volumes of lending 

from diverse sources, adds liquidity to the market, and decreases 

the risk of each bank’s loan. Encouraged by the law, banks and 

thrifts have developed expertise and specialization in serving lowincome communities. And they have created innovative products 

that meet the credit needs of working families in low-income areas 

with manageable risks. 

Increased lending by responsible originators to low-income communities has occurred under CRA and such responsible lending has 

not led to the kind or extent of excessively risky activity undertaken outside of CRA’s purview. Despite the fact that CRA has inVerDate 0ct 09 2002 16:42 Apr 23, 2008 Jkt 041181 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 K:\DOCS\41181.TXT TERRIE
38

creased bank and thrift lending in low- and moderate-income communities, such institutions are not the only ones operating in these 

areas. 

In fact, subprime lending exploded in the late 1990’s, reaching 

over $600 billion and 20 percent of all originations by 2005. More 

than half of subprime loans were made by independent mortgage 

companies, another 30 percent by affiliates of banks or thrifts, and 

the remaining 20 percent were made by banks and thrifts themselves. 

Although reasonable people can disagree about how to interpret 

the available evidence, my own judgment is that the worst and 

most widespread abuses have occurred in the institutions with the 

least Federal oversight. The housing crisis we face today, driven by 

serious problems in subprime lending and spreading rapidly, suggests that our system of home mortgage regulation is seriously deficient. We need to fill what my friend the late Federal Reserve 

Board Governor Ned Gramlich aptly termed, ‘‘the giant hole in the 

supervisory safety net.’’ 

Banks and thrifts are subject to comprehensive Federal regulation and supervision, their affiliates far less so, and independent 

mortgage companies not at all. Market-based systems designed to 

ensure sound practices in this sector—broker reputational risk, 

lender oversight, investor oversight, rating agency oversight, and 

so on—simply have not worked. Conflicts of interest, lax regulation, 

and boom times covered up the abuses, at least for a while, at least 

for those not directly affected by the abusive practices. But no 

more. As has become all to evident, the subprime market has been 

plagued by serious problems. 

In some ways, CRA can help. Competition from banks and thrifts 

can help to drive out abusive practices. However, in recent years, 

there was intense competition among mortgage market participants to provide products that investors wanted, not those that 

households needed. Further Federal regulation is thus necessary to 

combat abusive practices, prevent a race to the bottom in bad lending behavior, and restore integrity to our housing markets. We 

need to ensure that all participants in the mortgage process have 

the right incentives to engage in sound lending practices. 

One step would be to include affiliates in the banks’ performance 

context for CRA. For example, CRA regulations provide that evidence of illegal credit practices will affect an institution’s CRA rating. Illegal credit practices of an affiliate should also be relevant 

to its affiliate bank’s rating, and the bank agency should engage in 

risk-based examination of affiliates. 

Along with maintaining and strengthening CRA, Congress ought 

to enact a range of complementary policies. We need to give new 

authorities to FHA, Fannie Mae, and Freddie Mac to arrange 

through responsible originators for the refinancing of loans at 

terms that reduce the likelihood of default, foreclosure, and liquidation. We should take this opportunity to implement commonsense 

reforms to the mortgage market to reduce the likelihood of crises 

in the future, as this committee has in its mortgage reform bill. 

And we eagerly await that legislation being enacted by the other 

chamber and being signed into law. 

39

In moving forward, we should remind ourselves of Ned 

Gramlich’s question: ‘‘Why are the most risky loan products sold to 

the least sophisticated borrowers?’’ Well, lenders hid the ball. Many 

borrowers took out loans that they did not understand and could 

not afford, with predictable results. That is why we need a new 

opt-out home mortgage plan, a plan under which borrowers would 

be offered a standard set of mortgages with sound underwriting 

and straightforward terms. Borrowers could opt out of the plan, but 

lenders would face incentives not to push borrowers into loans that 

they could not understand or afford. 

CRA in the past has helped to expand access to responsible credit to low- and moderate-income households. And in my view, it can 

continue to do so in the future. Innovation has been a hallmark of 

our financial system and with the appropriate mix of private sector 

initiative, government policy, and regulatory supervision, we can 

expect our financial system once more to be vibrant, strong, and inclusive. 

[The prepared statement of Professor Barr can be found on page 

77 of the appendix.] 

The CHAIRMAN. Thank you. 

Mr. White, let me ask, as I understand the argument is that the 

notion that you have to push banks to make these loans is based 

on, as you said, the notion that they are either lazy or ill-intentioned or inefficient. And essentially, we can count on them to 

make loans that make sense. 

Mr. WHITE. That would be— 

The CHAIRMAN. Then why do we need the racial discrimination—

I find this glaring contradiction. You talk strongly about the need 

for racial enforcement. I must tell you the people whom I have 

heard previously make the argument, namely that you don’t have 

to tell profit-making institutions to make a profit, they know 

enough to do that, generally don’t want us telling them—I mean, 

is there something—they are not ill-intentioned, except that they 

are racist? Why, if the banks can do this on their own, is it so important that we deal with the race question? 

Mr. WHITE. Basically, because racial, ethnic, and other types of 

discrimination are simply unacceptable. 

The CHAIRMAN. But how does it—no. No, it is not—you don’t 

reach unacceptability. If we are dealing with rational, well-intentioned, efficient, non-lazy institutions that know how to get money 

to be made, why do we have to make an exception with regard to 

race? I mean, do we have a set of perfectly sensible, well-functioning, profit-maximizing institutions, but they are blind about 

race? That just doesn’t compute. 

In other words, you are making an exception for race, it seems 

to me, because nobody likes to say that we shouldn’t fight racism. 

But I don’t think it fits with your argument. 

Mr. WHITE. Well, you know, unfortunately, we have a history of 

discrimination of various kinds. And that is just unacceptable. 

The CHAIRMAN. I understand that. But we also have a history—

you said, well, this might have made sense in the 1970’s. I mean, 

has history cleaned up its act in some areas, but not others? You 

say, you know, there was a period with banks—just again, if the 

banks are the thoughtful, well-intentioned, profit—rational, effiVerDate 0ct 09 2002 16:42 Apr 23, 2008 Jkt 041181 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\41181.TXT TERRIE
40

cient profit maximizers you make, then it wouldn’t seem to me that 

we would need this. 

The other question I would have is this. Again, if these are 

banks—and not just banks, but other financial institutions, who 

made all those subprime loans? I mean, where did they come from? 

Were they made by efficient, well-intentioned profit maximizers? 

Mr. WHITE. In a world of securitization, there is clearly a problem of moral hazard, of a short-term perspective, reputation doesn’t 

come into the picture. People make the loan, pass it on to somebody 

else, and say, ah— 

The CHAIRMAN. That doesn’t sound like efficient profit maximizers who are well-intentioned to me. I am saying, you accept the 

fact that we have had these failures elsewhere. I don’t understand 

why you assume we don’t need to do anything in the other area. 

Mr. WHITE. I see competitive processes. I see the kinds of extra 

things that I mentioned in my statement, as providing an alternative to this really vague— 

The CHAIRMAN. But banks don’t compete for Black people? Why 

don’t competitive processes help the Black and Hispanic people? I 

mean, why don’t the competitive processes work there? 

Mr. WHITE. I think that you have informational problems, for 

sure. But the way to deal with those is not leaning on banks and 

thrifts— 

The CHAIRMAN. I think the problem is too much information. 

They know that they are black. Maybe if they didn’t, it wouldn’t 

be so bad. 

All right, let me tell the others where I have some agreement. 

When we are talking about imposing these requirements, as I believe we should, let me deal with the argument about the quid pro 

quo which we heard earlier, in the earlier panel. I don’t think there 

is an institution on whom we are considering imposing some requirements that cannot be shown to get some benefit from the Federal Government. So I don’t think this notion that we are picking 

people who are honestly just walking down the street, entirely 

minding their own business, and giving them this burden. 

But if we do decide that there should be requirements on people 

who don’t have a geographical footprint, how do we define the obligation? I understand there is enforcement and other issues. But it 

does seem to me if we get to it, that is going to be the critical, conceptual question. How do we define the obligation for people who 

don’t have a geographic footprint? Does anyone want to start? 

Ms. Seidman. 

Ms. SEIDMAN. I think that it is worth distinguishing on the geography issue between the community development issues and the 

consumer servicing issues. 

The CHAIRMAN. Agreed. 

Ms. SEIDMAN. If we just talk about the consumer service issues, 

Montrice, this morning, mentioned that OTS has been facing up to 

this issue for— 

The CHAIRMAN. For those of us who don’t spend quite as much 

time in these circles as you, Montrice was who, now? Please identify— 

Ms. SEIDMAN. Montrice Yakimov from OTS, earlier today. 

The CHAIRMAN. Thank you. 

41

Ms. SEIDMAN. OTS has been working those issues for about 10 

years now. Some of my co-panelists may not like fully the way that 

we did it then and I believe they still do it now, but if you start 

with a question, does an entity do any business in a broad, geographic area, then ask do they do an equivalent amount or an appropriate amount for low- and moderate-income consumers, you get 

somewhere. 

You also get somewhere if you just ask the national question. 

You just ask the question of, if I am doing home mortgage lending, 

how much am I doing in what income strata? How much—if we 

bring race into this, how much am I doing in what race strata? And 

then that is when it becomes critically, critically, critically important to make certain that the consumer protection and fair lending 

concepts are embedded in the analysis. 

The CHAIRMAN. I appreciate it. Because, you know, when I asked 

the others, one perfectly rational approach is to say, okay, it will 

be functional as opposed to geographical. Where there is no geographic footprint, then the obligations are functional and that is 

perfectly reasonable. But that is what—and you are right, Ms. 

Yakimov did mention the work that had been done going back to 

when you were there and offered to share that with us and we will 

look for that. 

Professor Barr. 

Mr. BARR. I agree with the chairman that a functional approach 

makes a lot of sense. And in particular, looking at the kinds of 

products and services that are being offered. 

We were talking in the earlier panel about the problems of the 

unbanked. One of the problems of the unbanked is that the products and services that banks and thrifts tend to offer, such as a traditional checking account, don’t make any sense for them. And so 

you would want to look at whether the bank is offering a low-cost, 

low-risk bank account that would be useful to low-income people. 

In the credit area, is the bank offering a credit product that makes 

sense for low-income people? And you can make that assessment in 

a qualitative way based on the kinds of products and services being 

offered. 

The CHAIRMAN. But what if we are talking about—Mr. Taylor. 

Mr. TAYLOR. Yes, I just wanted to get back to the original question of measuring nondepository institutions and— 

The CHAIRMAN. Right, that is a very important one. 

Mr. TAYLOR. There is data out there that can show you the pattern and practice of where their lending is occurring. And you are 

able to draw some conclusions about whether they are just sort of 

marketing and being very successful in making loans or disproportionately denying loans in what we would call protected areas, lowand moderate-income and minority neighborhoods, or whether they 

are just marketing all their loans and being very successful in middle and upper income suburbs. 

You know, I think what you do is you look at the data and then, 

you know, the regulator would say, well, gee, you know, you have 

an affirmative obligation, assuming CRA was extended, to make 

sure that creditworthy borrowers in other low-income communities 

which are not showing up in your data set and your market seems 

to be—you are heavily marketing in the northeast or nationally or 

42

whatever. You seem to be not being successful, I think you can do 

that through the available data. 

The CHAIRMAN. Anyone else? Yes, Ms. Williams. 

Ms. WILLIAMS. There have been some thoughts about how to improve the service tests that I think could apply to this area. And 

that is that it is possible to ‘‘geocode,’’ to determine the geographical location of people who have checking and savings accounts at an institution and to look at the market share ratio of 

those consumers compared to higher income consumers. And that 

would be one way of determining whether they are making an 

equal effort to low- and moderate-income communities and consumers and upper income consumers and communities. 

The CHAIRMAN. And I am going to turn to Mr. Baca now, because 

he is also here. I may return to this afterwards. 

The gentleman from California. 

Mr. BACA. Thank you very much, Mr. Chairman. And thank you 

for hosting this important meeting and asking so many important 

questions that you have just asked. 

Mr. Taylor, a question that I have: You mentioned that you think 

some sort of CRA-like program should be imposed on credit unions. 

Yet wasn’t CRA imposed on banks because there was clear demonstration and evidence of bank redlining on low-income minority 

communities that they didn’t find profitable? 

Mr. TAYLOR. Yes. And in fact, that is exactly what you will find 

with most credit unions, that when we have done studies and others have done studies on this, while they have improved in recent 

years, in most States, credit unions, particularly those that are geography based, lag banks. They are behind banks and thrifts in 

making loans to low-income and to minority borrowers. And in 

many States, to women borrowers. 

When we tell people this, they are always kind of shocked. Really, credit unions? Weren’t they created for the purpose of being an 

alternative to the banking system because it wasn’t serving people 

of small means? Wasn’t that the language in their act? 

It was. But unfortunately, the industry has evolved to the point 

where we really do need—and especially because not only do they 

have deposit insurance, but they actually have tax exemption. They 

should never lag, let alone even be competitive with banks, they 

should be far and ahead of banks and thrifts in serving traditionally underserved populations because of the extra benefit, the 

added benefits that they get from the U.S. taxpayer. 

Mr. BACA. And they are doing that in a lot of the areas. 

Just to follow up on that, why do you do so when Home Mortgage 

Disclosure Act data shows that the following to be true. A low- to 

moderate-income LMI application is more likely to get his or her 

loan approved at a credit union than at a CRA lender? And an LMI 

borrower is much less likely to be charged with higher rates, fees, 

at credit unions than at CHR lenders. And credit unions make a 

larger portion of their mortgage loans to LM borrowers than do 

CRA lenders, especially now, as we look at the foreclosures and the 

impact it has had on a lot of minorities, especially on Hispanics 

and African Americans? 

43

Mr. TAYLOR. Yes. Well, if you don’t make the loans, you are not 

foreclosing on anybody. And I would dispute the data that you just 

put forward, that is number one. 

Number two, most of the borrowing that comes to the populations that you expressed a concern about, minorities and low- and 

moderate-income people, are not coming from either the credit 

unions or from the banks. Unfortunately, the problem loans that 

we are talking about are coming from non-CRA regulated institutions. 

You would think that the credit unions would have been far and 

away, in serving that population, perhaps reducing the amount of 

exposure that traditionally underserved people have to these predatory aspects of the market that are not covered by CRA, but they 

are not. 

Mr. BACA. Okay. Mr. Taylor, could you please state for the record 

how much money NCLR gets from banking interests in the way of 

conference attendance and other sponsorship or services? 

Mr. TAYLOR. NCLR, the National Council of La Raza, I couldn’t 

tell you. But I assume you really mean to ask us how much NCRC 

gets. 

Mr. BACA. Right. 

Mr. TAYLOR. Right. We get about—well, we certainly get sponsored by financial institutions of all sorts for our annual conference, but we are primarily supported by grants and dues. We 

own a property, which generates income. So we have a very eclectic 

funding source. But we would be happy to have credit unions support us, if they were so moved. 

Mr. BACA. Thank you. 

Mr. TAYLOR. I do want to say that the disparities in white and 

black approval rates are higher at credit unions than they are at 

banks, the disparities in white/black approval rates are higher, according to the HMDA data, than they are—at credit unions than 

they are at banks. And we would be glad to give you that information. 

The CHAIRMAN. All right, let me—I just want to get back, because the other area, my colleague from North Carolina got into it. 

People who mend, it is one thing. The other question is, it gets into 

a harder area conceptually. Some of you heard Mr. Watt asking, 

well, what other institutions? 

There are firms not traditionally in the banking business who 

were major funders of the securitization of subprime loans. Are 

these entities that we should consider and what would the criteria 

be? You know, some of the financing of the subprime market obviously got far beyond the traditional. I agree with Mr. Taylor that, 

in fact, the regulated institutions did a much better job here than 

the others. 

Are we talking about securities firms or some aspects of securities firms? Are there entities that securitize mortgage loans? What 

would be the criteria, Ms. Seidman? 

Ms. SEIDMAN. There are a couple of things. First of all, to some 

extent, it was the securities side of the banks that were participating. In that respect, the investment test can be brought to bear. 

The CHAIRMAN. That is easy. What about the securities people 

who weren’t in parts of banks? 

44

Ms. SEIDMAN. On the consumer side, suitability seems to work 

reasonably well in the securities industry. The question is, can we 

make it work on the investment banking side? 

The current way that we think about regulation of the securities 

industry is disclosure and protection of the investor. First of all, we 

now know that there wasn’t disclosure and there wasn’t— 

The CHAIRMAN. If I wanted answers to the easy questions, I 

would ask somebody else. I mean, I understand all that. But the 

question is, let’s get to the hard question. Do we want to go beyond 

the current method? Do we want to impose some CRA-like requirements on those securities firms not parts of banks that have, in 

fact, the ones who entered into this through their role in the mortgage business? 

Ms. SEIDMAN. And I would respond in two ways. The first is that, 

as to their activities with respect to consumers, I think that there 

is the possibility of a positive, affirmative obligation. 

The CHAIRMAN. Okay, because remember, and here is the deal, 

look, this is the conversation. The issue here is that they are clearly involved with consumers, but not at the retail level. 

Ms. SEIDMAN. I understand. 

The CHAIRMAN. The question is, do you take an involvement with 

consumers at the wholesale level and translate that into one of 

these obligations? That is the kind of question we have to deal 

with. 

Ms. SEIDMAN. And I think the answer is that, if we can get to 

the goal of responsible products and services, we may be able to do 

it in the securities industry in a way that is not classically CRA— 

The CHAIRMAN. I see, by better regulation of the products? 

Ms. SEIDMAN. We ought to think about it in terms of 

functionality. 

The CHAIRMAN. Anyone else on that subject? 

Mr. BARR. I agree that there may be a narrower way of thinking 

about the question if we focus, for example, on a requirement of 

due diligence on the part of securitizers to assure that the products 

and services that they are packaging at least comply with underlying law. There is usually a recitation of that— 

The CHAIRMAN. A version of that is in the bill that we passed. 

Mr. BARR. Correct. 

Mr. TAYLOR. It just needs to be a little stronger than it is, in that 

there be an easier—that they are accountable in a way— 

The CHAIRMAN. Well with enforcement, there are two separate 

questions—the requirements and then the enforcement itself. 

Mr. TAYLOR. Yes. 

The CHAIRMAN. The enforcement, I realize, I think we need further work. But the principle, and I feel frankly rather proud that 

we breached that wall by being the first ones to impose this kind 

of requirement and now we will have conversations about how better to enforce it. Although I must say, in this case, I think for the 

near term, people are sufficiently scared. Giving them the requirement is going to have an impact. I think there is going to be a reluctance to get caught. 

We do need to build up enforcement. But again, we are all agreeing then that the obligation, in effect, is not a classic CRA obligaVerDate 0ct 09 2002 16:42 Apr 23, 2008 Jkt 041181 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 K:\DOCS\41181.TXT TERRIE
45

tion in that you have to provide this response to that consumer, but 

it is part of the regulatory process in general. 

Any further comments? Yes, Ms. Seidman? 

Ms. SEIDMAN. I would like to say something in response to Professor White’s point that you and he were talking about. 

The CHAIRMAN. Go ahead. And Professor, you will be able to respond. 

Ms. SEIDMAN. I think what we need to recognize is that in all 

businesses, choices are made about which opportunities to pursue 

and which opportunities to spend capital on and which opportunities to spend capital on in order to research to decide whether to 

pursue. 

What CRA does is say, look at our communities, look at the opportunities in our communities, just as you would look at the opportunities in China. I think it is an incredibly important rebalancing that doesn’t require one to assume that banks are stupid in 

order to say that it is valuable. 

The CHAIRMAN. Professor White, do you want to respond? 

Mr. WHITE. This sounds like 1975 to me; it doesn’t sound like 

2008. 

The CHAIRMAN. Well, I wish it was 1975. We wouldn’t have a 

subprime crisis. 

Any further discussion? If not, I thank the witnesses. 

Again, I just want to tell people that the Congressional Black 

Caucus had a previously scheduled, very serious, long meeting. 

That is why a number of my colleagues who were here earlier are 

not here now. But I again want to assure you, it is not a sign of 

lack of interest. The material is going to be read. Staff members 

have been monitoring the conversations and we will be dealing 

very seriously with this issue. 

We will call the next panel now. 

Again with my neighbor and banker—Mr. Larry Fish—who is 

the chairman of the Citizens Financial Group. Mr. Fish. 

STATEMENT OF LAWRENCE K. FISH, CHAIRMAN, CITIZENS 

FINANCIAL GROUP 

Mr. FISH. Thank you, Mr. Chairman, and members of the committee. I am Lawrence K. Fish, a banker and chairman of Citizens 

Financial Group, Citizens Bank. I appreciate the opportunity to 

testify here today to discuss my personal views, based on over 35 

years actually doing banking business, and my experience with the 

Community Reinvestment Act. 

In my opinion, this Act has brought tremendous benefits to our 

entire Nation. Specifically, I believe the Community Reinvestment 

Act: one, corrected a previous wrong; two, has been good for our 

communities; three, and maybe most importantly, has been good 

business; and, four, has been used as a guiding principle as policymakers consider how to ensure that the rapidly changing financial 

services industry appropriately contributes to the economic development of all our communities and our Nation in the future. 

First, the CRA helped right a previous wrong by addressing a 

practice common in the banking industry in the 1960’s and 1970’s 

known as redlining. CRA ended that practice. 

46

Second, CRA has been good for our communities. In the span of 

just one generation, the law has dramatically improved America’s 

previously underserved cities and neighborhoods. Since 1977, more 

than $1.5 trillion has been lent to communities for development. 

And as regulated bank mortgage lenders ventured into underserved neighborhoods, small business lenders followed. In 2005, nearly $11.6 billion worth of small loans were made to small business owners in low-income areas, up from $8 billion in 

1996. Together, home and business ownership build immense social 

capital. They begin a cycle of wealth creation, neighborhood stability, and even educational achievement. Seen in this way, CRAgenerated ownership has helped provide an economic corollary, in 

fact, to the Civil Rights Act. 

Third, and this may be a bit surprising coming to you from a 

banker like me, but I believe CRA is good business. Citizens Financial Group has built a highly successful business around these 

emerging markets. In the past 15 years, we have grown from the 

6th largest bank in the Nation’s smallest geographical State, to the 

8th largest bank in the United States, with over $160 billion in assets. Based in Providence, Rhode Island, we now have branches in 

13 States. 

This growth took place not in spite of our commitment to CRA, 

but in part because of it. We now speak more than 70 languages 

in our branches. Many of these branches are in markets that we 

might not have entered without CRA. 

Apparently other financial institutions have had similar results. 

According to the Federal Reserve, and I am surprised this wasn’t 

brought up this morning, 98 percent of large residential lenders reported that their CRA loans are profitable. Within that group, 24 

percent found them as profitable as or more profitable than conventional loans. Unexpectedly, banks came to see CRA communities as 

emerging markets. 

Finally, the question you are interested in, Mr. Chairman, where 

do we go from here? The Department of the Treasury recently renewed a far-reaching effort seeking public input to improve the 

overall financial regulatory structure to deal with fast changes in 

the industry. We understand that you, with your public comments, 

that this is also a priority of yours, one with which I wholeheartedly agree. 

This is likewise an opportunity for policymakers to consider modernizing community reinvestment requirements using CRA as a 

guiding principle. The financial services industry has changed significantly over the past 30 years and it is an appropriate moment 

to consider how the opportunities and benefits created by CRA 

might be extended. 

Let me give just two quick examples. Let’s consider giving more 

dynamic CRA credit for successful programs in financial literacy. 

Financial literacy is not just about having knowledge of financial 

products and services. It’s about how to access them. 

Second, we should consider expanding CRA participants to include credit unions. Credit unions operate in their communities 

and are regulated in exactly the same manner as similar banks. 

Given their number and their total assets, it’s logical that CRA 

benefits and opportunities be extended to them as well. 

47

I make these recommendations because I believe CRA has convinced me that when businesses invest in underserved communities, they are much more likely to return to health. 

Thank you for the opportunity of inviting me to be here today 

and I look forward to your questions. 

[The prepared statement of Mr. Fish can be found on page 118 

of the appendix.] 

The CHAIRMAN. Thank you, Mr. Fish. 

Next is Rahn Barnes, who is the vice president and CRA office 

manager of the community development department at Provident 

Bank, and he is testifying on behalf of the American Bankers Association. 

Mr. Barnes. 

STATEMENT OF RAHN V. BARNES, VICE PRESIDENT/CRA OFFICER/MANAGER OF THE COMMUNITY DEVELOPMENT DEPARTMENT, PROVIDENT BANK, ON BEHALF OF THE AMERICAN BANKERS ASSOCIATION 

Mr. BARNES. Thank you, Mr. Chairman. Mr. Chairman and 

members of the committee, my name is Rahn Barnes, and I am 

CRA officer and manager of community development for Provident 

Bank, a $6.5 billion bank headquartered in Baltimore, Maryland. 

I am pleased to be here today and present the views of the American Bankers Association. 

The ABA believes that bank compliance with the spirit and letter 

of the Community Reinvestment Act is healthy. Forging partnerships and developing a deeper understanding of the perspectives of 

all parties has led to an open and effective system that now more 

accurately reflects banks’ involvement in serving our communities. 

This evolution has not been without its difficulties, but it has led 

to improvements. This afternoon, I would like to talk briefly about 

the maturation of CRA compliance and suggest ways it can become 

more effective. 

CRA implementation has matured and clearly demonstrates that 

banks serve their communities well. The bank regulators’ initial attempt to meet the mandate of the Act put the emphasis on process 

rather than performance. CRA examinations became paper trails 

for talking the talk rather than recognition that banks were walking the walk. 

The dissatisfaction on the part of bankers, community activists, 

and regulators led to important changes in the regulatory requirements and examination process. These include balancing the burden between smaller and larger institutions, enlarging the range of 

lending that received CRA credit in rural communities, and requiring consideration of any evidence of discriminatory lending or violations of consumer credit protection laws. 

Moreover, the CRA examination process is now an open one, incorporating public opinion as well as the regulators’ review of 

banks’ compliance. It would be an exaggeration to say that banks 

are content with the burdens that remain, but the new CRA regulations are certainly a marked improvement over the old regulations and now better reflect banks’ contributions to their communities. 

48

The bottom line is that banks that do not serve the credit needs 

of their entire community do not prosper. Drill down in a CRA public evaluation and you will read about how we compete for market 

share across all income levels and all neighborhoods. It is therefore 

not surprising that the banking industry excels at satisfying community credit needs. 

Looking forward, bankers believe that the CRA process must continue to evolve to meet changing markets and participants. There 

are several areas where improvements can be made. First, the CRA 

regulations and examination are still too complex and should be 

simplified. For example, the banking agencies added an entirely 

new CRA examination, the intermediate small bank CRA examination. To add a third category which has a wholly new approach to 

assessing community development activities was an unnecessary 

complication of an already complicated regulation. 

Second, regulators also need to adjust the process to encourage 

responsiveness to changing markets. For example, the definitions 

for determining community development activities that qualify for 

CRA credit are still too complex and narrow in scope. Moreover, 

CRA regulations should recognize the financial literacy training 

provided by banks that benefits the entire community. Currently, 

CRA restricts consideration unless the majority of the participants 

are low- and moderate-income residents. 

Third, to fulfill the spirit of CRA, banks need broader authority 

to make public welfare investments. Without broader authority, 

banks are prevented from participating in some important community development projects. We appreciate your leadership, Mr. 

Chairman, and that of Ranking Member Bachus, to change this 

through your bill, H.R. 1066. 

In conclusion, the ABA believes that there has been significant 

evolution of the implementation of the Community Reinvestment 

Act. We believe the changes to simplify the process add flexibility 

and broaden the authority to make public welfare investments that 

will continue to improve CRA for the future. 

Mr. Chairman, I would be happy to answer any questions you or 

the committee may have. 

[The prepared statement of Mr. Barnes can be found on page 66 

of the appendix.] 

The CHAIRMAN. Thank you. 

Speaking of neighbors, Ron Homer, who is the chief executive officer of the Access Capital Strategies. 

STATEMENT OF RON HOMER, CHIEF EXECUTIVE OFFICER, 

ACCESS CAPITAL STRATEGIES, LLC 

Mr. HOMER. Good afternoon. Chairman Frank and members of 

the committee, I am particularly honored and pleased to have the 

opportunity to testify here before you today. By way of background, 

I have had 37 years of experience in banking and the financial 

services industry. I founded Access Capital Strategies in 1997. We 

operate a community investment fund that is a qualified CRA investment. We serve about 120 banks throughout the country. However, in addition, we have attracted investments from about 20 

nonbank institutions that comprise about 25 percent of the fund. 

49

Prior to that, I was a CEO of a community bank and had the opportunity in 1995 to testify before this body on behalf of the ABA 

on the revisions for the current CRA regulations that were—that 

the previous testifier mentioned changed from talking-the-talk to 

walking-the-walk regulations. 

So I am here to say that my experiences both as a banker, a 

businessman, an activist—I also serve as the vice chair of the Initiative of a Competitive Inner City, which was founded with Professor Michael Porter in 1994 to do research on market-based opportunities in inner city neighborhoods. 

So many of my experiences that I will relate to you and opinions, 

while they’re anecdotal, they are also backed by the study of the 

Joint Center for Housing Studies at Harvard, which was prepared 

as a result of the 25th anniversary of CRA, so I would refer you 

back to that for some of the data. 

Clearly, CRA has encouraged banks to better serve low- and 

moderate-income communities. In fact, the data shows that as a result of these regulations, CRA-regulated banks make a much higher percentage of conventional prime mortgage loans in the areas 

where their branches are located than all the other competition, despite the fact that they had a diminishing amount of the overall 

mortgage market in that area. So they are highly motivated to seek 

the most efficient products. In fact, their advantage in conventional 

prime loans among African Americans are a full 20 percent higher; 

among Latinos 16 percent higher. So in the areas which they have 

designated as their assessment area, they do a better job of providing low-cost mortgage loans and possibly, had the Act been expanded like the Joint Studies Housing Study recommended in 

terms of functionality across lines, some of the subprime lending 

activity might have been mitigated, through the borrowers themselves, who would have had a wider range of choices available to 

them. 

So that brings me to my first point. I would recommend that 

while the Act has been successful in motivating banks to find, as 

Larry Fish mentioned, new profit opportunities, there are ways in 

which the Act could function better and provide a national service. 

First, I encourage the consideration of expanding the traditional 

mortgage lending focus around assessment areas to the broad footprint of banks wherever they do business. And as I think you mentioned, to use functionality as the test as opposed to geography. 

In particular, I think the banks should be evaluated not just on 

the deposit taking parts of their institutions, but also on affiliated 

mortgage companies and other entities that might be engaged either in the securitization or the selling or the purchase of mortgage-related securities. And I think that would be a fact-based, 

easy way to monitor what they are doing. 

One of the criteria I suggest using, because it has been shown 

that between 35 to 50 percent of the mortgage lending that has 

taken place, particularly in some minority and Hispanic neighborhoods could have qualified for prime mortgages under the criteria. 

So one of the ways of measuring their relative performance is just 

a report card showing what percentage of the loans they make in 

these areas are conventional loans versus what percentage are 

subprime. 

50

In terms of the enforcement mechanism, I think that certainly 

this committee’s legislative oversight of the regulatory bodies would 

definitely be helpful. I think over the last 5 to 6 years, there has 

been not maybe enough attention about looking into how the regulations have been enforced. 

Secondly, because of the overall deregulation of the industry, 

looking at the remedies for noncompliance might look at branch expansion or expansion in business lines or other hurdles other than 

the actual acquisition and merger of institutions. 

The role of public comment. I think that public comment has 

been effective, particularly in getting commitments from major 

banks, fairly broad-scale major banks. But I think that over time, 

probably some mechanism that would get all the banks to have 

consistent effort and particularly around what some people think 

is the grade inflation. So I think maybe creating some type of safe 

harbor mechanisms where thresholds are met on performance 

would be helpful. It would take some of the tension around the actual acquisition merger scenario and spread it out so there is a 

more evenness of commitment over time. 

The changes in the structure of the Financial Services Committee definitely warrant looking at other nonbank entities or nondepository entities. I definitely think that those entities affiliated 

with banks should be included in CRA because, indirectly, they get 

the subsidy and the quid pro quo of the deposit insurance one way 

or the other, even if it’s in the bank holding company. How you do 

it and how you expand it to those who do not have deposit-taking 

entities, I’m not sure. But my experience, because we do a lot of 

business in Utah, is that just about ever investment bank that you 

have looked at in the subprime issue as a major player has an industrial loan corporation in Utah, so they probably could be pulled 

in, in any event. 

But last but not least, I think the law has principally been effective when activists, regulatory bodies, legislature, and the banking 

institutions that are regulated themselves, all are fairly clear as to 

what the goals and the objectives are of the Act. So I would encourage the work of your committee to help bring those parties together 

so that we have a clear and consistent message. 

As the name of our firm indicates, we have a goal of efficient access to capital for communities throughout the country. We understand that to build a healthy community, access to capital is critical. So we therefore stand ready to work with you and we commend you for taking on this issue and we stand prepared to work 

with you in the implementation of the current Act as well as any 

changes that might take place. Thank you. 

[The prepared statement of Mr. Homer can be found on page 121 

of the appendix.] 

The CHAIRMAN. Next, Cynthia Blankenship, who is the vice 

chairman and CEO of the Bank of the West, and she is here on 

behalf of the Independent Community Bankers. 

Ms. Blankenship. 

51

STATEMENT OF CYNTHIA BLANKENSHIP, VICE CHAIRMAN 

AND CHIEF OPERATING OFFICER, BANK OF THE WEST, ON 

BEHALF OF THE INDEPENDENT COMMUNITY BANKERS ASSOCIATION 

Ms. BLANKENSHIP. Thank you. Mr. Chairman and members of 

the committee, thank you for the introduction. I, in fact, do represent the Independent Community Bankers of America. I am 

pleased to have the opportunity to present the views of the ICBA 

on the implementation of CRA. 

ICBA represents 5,000 community banks. Bank of the West has assets of $250 million, serving small businesses in the Dallas/Fort 

Worth Metroplex and the agricultural community of Vernon, Texas. 

We have eight locations, three of which are located in low- to moderate-income areas. 

Community bankers are strongly committed to the goals of the 

Community Reinvestment Act. We appreciate the valuable improvements that the Federal financial regulatory agencies have 

made in the CRA examination procedures. ICBA strongly believes 

that the nation’s credit unions should also comply with CRA under 

these improved procedures. 

Community banks are locally owned and operated institutions. 

Community reinvestment and community development are what 

we are all about. We do it on a daily basis. We play a key role in 

local civic activities. We are focused only on serving our communities with loans and other services that promote development. 

The simple fact is the health of the community bank and the economic vitality of the community depend on one another. If our communities don’t survive and thrive, neither do we. 

Public policy can build on this by providing incentives and by removing unnecessary regulatory costs. For example, we urge the 

Senate to pass H.R. 1352, a bill to reduce SBA fees and permit a 

low documentation loan program for seasoned lenders. This will 

make the program more effective in our communities. 

Congress could also enhance our ability to serve our customers 

by enacting regulatory relief provisions included in Representative 

Velazquez’s Communities First Act. 

The Federal Home Loan Banks, Fannie Mae, and Freddie Mac 

already help community banks provide commonsense mortgages to 

their customers that enable them to both become and remain 

homeowners. CRA regulations and examinations are working well 

for community banks. 

Ten years ago, the Federal banking agencies adopted a tiered examination system for CRA and successfully reduced the unnecessary and unproductive paperwork burden imposed by CRA rules. 

Before the Clinton Administration initiated these changes, a Grant 

Thornton study found that community banks spent $1 billion each 

year on CRA paperwork, much of which focused on documenting 

the bank’s study of community needs. This contradicted the prediction by the primary author of the 1977 act, Chairman William 

Proxmire, that, ‘‘the regulations would be very minimal and would 

not require additional reporting.’’ 

The streamlined examination procedures for smaller banks that 

the regulators adopted in 1995 and improved beginning in 2004, 

helped CRA compliance costs toward Chairman Proxmire’s original 

52

intent. Community banks are still required to invest in their communities, which they would do regardless of the Act. However, performance, not production of paper is the examiner’s focus. The key 

factors are the bank’s loan to deposit ratio, the percentage of local 

lending, the distribution of loans to different income levels and 

business sizes, and geographic distribution of loans. In 2007, the regulators increased the small bank level from $250 million to $1 billion, but added an investment test for intermediate 

small banks between $250 million and $1 billion. Unfortunately, an 

important competitor for community banks, the tax exempt credit 

union industry, remains completely exempt from CRA. 

When CRA was enacted, credit unions mostly served members of 

a single group or a limited product line. That world has changed. 

Credit unions now offer business loans and serve so many different 

groups and communities that virtually anyone with a pulse can become a credit union member. 

Over 120 credit unions have more than $1 billion in assets. Studies show the rationale for the tax and CRA exemptions, that they 

serve limited memberships and people of modest means, no longer 

applies. In 2000, the National Credit Union Administration acted 

on these facts and adopted a rule requiring community credit 

unions to have a community action plan. Unfortunately, when 

NCUA’s board changed, it repealed the CAP rule, taking a giant 

step backward. 

We strongly recommend Congress build on the agency’s work in 

2000 and require credit unions to comply with CRA requirements 

in the same manner with the same asset size distinctions as banks 

and thrifts. 

Thank you very much for the opportunity to testify. 

[The prepared statement of Ms. Blankenship can be found on 

page 88 of the appendix.] 

The CHAIRMAN. Thank you. And our last witness, and we appreciate her patience as well as her good work, Judy Kennedy, who 

is the president and CEO of the National Association of Affordable 

Housing Lenders, and therefore represents one of the important 

constituency groups that is one of the vehicles through which CRA 

operates. 

Ms. Kennedy. 

STATEMENT OF JUDY KENNEDY, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL ASSOCIATION OF AFFORDABLE HOUSING LENDERS 

Ms. KENNEDY. Thank you, Chairman Frank, in recognizing that 

the members who are here are the choir to whom I am preaching. 

The CHAIRMAN. I would say, Ms. Kennedy, you do not have to 

apologize for preaching to the choir to the Reverend Cleaver, who 

has on occasion done that himself. 

Ms. KENNEDY. So, having heard a lot of great testimony, let me 

today just say who we are, suggest what’s working right, quickly 

what’s not working, and make a couple of suggestions about how 

to improve it. 

NAAHL’s members are major banks that won an outstanding 

rating and will do what it takes to get it, and their blue-chip nonprofit lender partners, like LISC, like Access, who help banks in 

53

achieving the numbers that get outstanding ratings. We are committed to bringing more private capital to low- and moderate-income communities. We are proud of the fact that we have learned 

how to lend and invest properly. 

But I thought Ellen Seidman hit the nail on the head when she 

said that CRA has helped banks to look at the hurdle rate differently. ‘‘Profitably’’ doesn’t mean double digit profits, but it does 

mean that you incorporate the social and the public good will 

achievements into the hurdle rate, and you do get a positive return. 

We have already learned how to help borrowers with little or no 

cash to bring to the closing table to become homeowners and to 

stay homeowners. 

Just a couple of statistics that are amazing. On the affordable 

rental housing side, private capital is leveraging the low income 

housing tax credit, depending on the locality, 10 to 25 times, which 

obviously allows us to produce a lot more units. In just each of the 

last 3 years alone, institutions reported over $50 billion each year 

of community development loans, largely for affordable rental housing, accessible to people under 80 and 50 percent of area median 

income, and for other community and economic development. 

During the same period, lenders reported making—and this is also staggering—$800 billion in each of those 3 years of mortgages, 

single-family mortgages and small business loans, to low- and moderate-income borrowers or in low- and moderate-income census 

tracts. 

So the numbers are pretty compelling. But I worked for Senator 

Proxmire and Representative McKinney, and I have to think that 

they are not smiling on Larry White this afternoon. 

The CHAIRMAN. I don’t think that is appropriate. Talk about substance. There is no reason to get into that. 

Ms. KENNEDY. He is a friend. He is a friend. 

We have a regulated system with tremendous supervision and 

examination that crosses every ‘‘T’’ and dots every ‘‘I’’ that has produced these numbers. It is all good news. 

But think of community and economic development as a threelegged stool and CRA is one strong leg of that stool. But we have 

two other legs, one missing and one weak. 

The weak part is the regulation and examination part. Believe 

it or not, we have a community development regulation that discourages banks from doing multifamily affordable housing. It treats 

small business lending and single-family mortgage lending as layers of a cake, but only if you get at least a satisfactory on those 

layers do you get any credit for doing the really hard stuff, the 

multi-layered, multi-subsidized, multifamily housing. 

And so we have highly recommended for the last 10 years that 

we treat community development lending for what it is, one of the 

most important types of what a bank can lend and invest in. 

Unfortunately, some examiners’ focus on assessment areas has 

discouraged what has been a tremendous success story of CRA: the 

pooling of banks’ money in loan and equity funds like Massachusetts Housing Investment Corporation and Massachusetts Housing 

Partnership. These funds have allowed banks to diversify their 

risk, hire the right skillset, and make a difference throughout their 

States. Asking a bank in North Carolina to invest in a loan fund 

54

that may produce housing in Durham, when they are not located 

within 100 miles of Durham, always seemed to be the norm but, 

all of a sudden, it is being discounted or even disallowed. 

So the regulation and examination, at least of institutions over $1 billion, still needs a lot of improvement. 

And then finally, given the numbers I just shared with you, given $50 billion a year in community development loans almost all 

under $3 million, and $800 billion in single-family, CRA-eligible 

mortgage loans, it would be great if Fannie Mae and Freddie Mac 

would bring the benefits of liquidity, particularly at this critical 

time, to the CRA market. 

[The prepared statement of Ms. Kennedy can be found on page 

152 of the appendix.] 

The CHAIRMAN. Thank you all. 

Let me ask in general some of the questions we have had before. 

Many of you represent the banking industry. The question of expanding this to entities not now covered, are there examples of 

lines of business, entities not now covered by CRA where it would 

be logical to extend it? Yes, Ms. Blankenship? 

Ms. BLANKENSHIP. Well, Chairman Frank, from a small community bank that was privately held and started in 1986, one of our 

biggest challenges to remain part of very many communities that 

we serve, many of those low- to moderate-income, is the competition. And— 

The CHAIRMAN. Well, you have mentioned credit unions. I am 

wondering, are there any additional entities? You have been very 

clear about wanting to cover— 

Ms. BLANKENSHIP. I think the mortgage industry has also been 

a competitor of ours. We do make some direct mortgages, but we 

saw a lot of that competition with the pricing and the aggressive 

nature of that. 

The CHAIRMAN. Well, I appreciate that. As you know, this committee’s bill that passed the House extends many of the actual regulations. In fact, what we tried to do was to conceptualize to a 

great extent the regulations that the banks regulators impose on 

depository institutions and apply them to all mortgage originators 

and we think that has worked well. 

We talked about, for instance, the securitizers who have played 

a very important role—is there a way to deal with them? Should 

we be dealing with them? 

Ms. KENNEDY. Well, we are in this mess because two unregulated, unexamined companies nurtured an alternative network of 

mortgage lenders that were not examined, regulated, or supervised. 

So, for example, had the CRA applied to Fannie Mae and Freddie 

Mac and if it had been enforced, we probably wouldn’t be in this 

pickle. 

The CHAIRMAN. Fannie and Freddie? How— 

Ms. KENNEDY. They would have had the same kind of examination, regulation on both the fair lending and the HMDA side as 

well as the Community Reinvestment side, that— 

The CHAIRMAN. Except they were buying—well, on the HMDA 

side? What’s the— 

Ms. KENNEDY. Well, for example, not only did they buy the loans, 

Chairman Frank, but in 2004, I am told— 

55

The CHAIRMAN. You are told? I need you to be sure. I’m told— 

Ms. KENNEDY. Okay. It’s in a HUD report. It’s in a HUD report 

from July. But I think your staff have heard this too from Bill 

Apgar and John Weicher. Fannie and Freddie persuaded HUD to 

let them use AAA-rated securities backed by subprime loans with 

many of the characteristics we are now dealing with, as counting 

towards ‘‘affordable housing’’ goals. That is how they achieved their 

goals for 2004, and it is probably how they will achieve them for 

2005 and 2006. That is when the runup occurred. 

Had there been a CRA examination, by something like a bank 

regulator, of Fannie and Freddie, the GSEs could never have used 

AAA-rated securities as their home mortgage lending in low-income 

census tracts or to low-income borrowers. So, in other words, instead of the GSEs engaging in the low end of the market, they nurtured the high-cost end of the market. 

The CHAIRMAN. But it was the low end of the market. 

Ms. KENNEDY. No, it wasn’t the low-cost, low-balance end. I 

mean, basically, on a day when prime mortgage rates were at 6 

percent, GSEs were financing subprime MBS with mortgages probably yielding between 8 and 10 percent. 

The CHAIRMAN. Any other entities that people think ought to be 

covered? 

Mr. HOMER. Well, as I mentioned, I think the mortgage industry, 

because that is where we are focusing on, and the spillover to 

subprime and the fact that it looks like there is inefficiency in delivering products to certain communities where they are not getting 

the best deal, looking at bank holding companies and all of their 

various affiliate organizations and their engagement in the mortgage market to understand what percentages in CDOs and 

subprime, what percentages conventional, etc., would be a first step 

at least to know who is doing what and then to rank them and 

then maybe give them bonus points for being more efficient and 

putting more— 

The CHAIRMAN. I don’t see your point. 

Mr. HOMER. —effort in that area. And it could be through safe 

harbor on expansion— 

The CHAIRMAN. I appreciate that. It just occurred to me that 

what we have done in the subprime area is to extend some regulation of the prohibitory sort, but you might want to then take a step 

further and then give some incentives to do some things. And that 

might be helpful because we’re being told, oh, if you put these limits on subprime lending, then not just bad loans but good loans will 

disappear; people will be afraid of the whole area. And one way to 

potentially dilute that would be to give, along with the prohibitions, some incentives so that people—you change the risk calculation there. So it is not simply, oh, if you make those loans, you 

might get hurt. The answer is, yes, if you make them inappropriately, you might be hurt, but if you make them appropriately, you 

will get some credit. 

And so CRA credit in that area would be a logical concomitant 

of what we have done. I appreciate that. 

Mr. HOMER. Right. 

Ms. KENNEDY. Chairman Bair, obviously, is moving in that direction. But my members tell me that in Louisiana and New York reVerDate 0ct 09 2002 16:42 Apr 23, 2008 Jkt 041181 PO 00000 Frm 00061 Fmt 6633 Sfmt 6633 K:\DOCS\41181.TXT TERRIE
56

cently, banks that move into areas that lack insured institutions 

with branching in underserved areas are now getting government 

deposits as an incentive. 

The CHAIRMAN. As an incentive, yes. 

No, I think that is very important that you don’t just prohibit. 

Because people can overreact to the prohibition, and one way you 

deal with that is to give some incentives and some awards. 

Anything else? 

If not, Mr. Watt. 

Mr. WATT. Thank you, Mr. Chairman. 

I missed the opportunity to question the last panel and missed 

most of the testimony of this panel and I am sorry for that. But 

I understand who would supervise and administer a CRA requirement for credit unions. That would be easy, because we have a regulator. Who would supervise and administrator a CRA regimen for 

mortgage lenders, for example, or would it be necessary to—I 

mean, I can understand we can set up some criteria. But unless 

there is some enforceability to it either by a regulator or by a private right of action, for example, I don’t know how it would be administered. Does anybody have any ideas about that? 

Mr. HOMER. There are a good portion of mortgage originators, 

and after the subprime, more and more will be part of bank holding companies. So bringing in unaffiliated mortgage companies 

owned by bank holding companies would bring in a good percentage. 

The remaining mortgage lenders are generally licensed by States 

or more and more States are bringing them in under licensure so 

that would probably be the vehicle. Or if you want to be extreme, 

you could require Federal licensing of mortgage lenders. 

Mr. WATT. I think our bill actually at least sets some standard. 

I don’t know about licensing itself. But the bill, the anti-predatory 

lending bill— 

Mr. HOMER. Much like the securities industry, where there is a 

minimum threshold of amounts of capital, etc., and bring them 

under. 

Mr. WATT. I have heard a couple people suggest—and I am not 

sure if it was on this panel because I didn’t hear the testimony on 

this panel—but somebody suggested that the suitability standards 

for non-CRA participants is somehow a substitute. I understand—

I am a strong supporter of suitability standards and I think that 

is important. And it—it helps to clarify the standards for those that 

you do serve. But I am not sure how it imposes any obligation such 

as CRA to serve. 

So can somebody explain how that would—well, at least that is 

what I thought somebody on the prior panel suggested, that in 

some measure suitability standards served the same purpose as 

CRA. 

You all obviously didn’t say that, so you can’t explain it. All 

right. All right, in that case, I won’t ask you to explain it if you 

didn’t say it. I missed my opportunity to ask the last panel that 

question, and it is gone forever, except my staff heard it and they 

will propound it in writing maybe to the last panel. 

I appreciate you all being here. I am sorry I don’t have more 

questions because I wasn’t here to hear most of the testimony, and 

57

I have already been with Ms. Kennedy earlier today, and spoke to 

their group, so we already had an exchange about some of these 

issues. 

So I will yield back the balance of my time and recognize the 

gentleman, Representative Cleaver. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

I want to revisit this whole issue that I raised earlier. If you read 

the language—I am sorry. As you know, in the language of CRA 

is the term, local community. And as I mentioned earlier, things 

have changed dramatically since 1977 when this legislation was enacted. And so we don’t have banks that serve communities as much 

as we do now. I guess, Ms. Blankenship, you might have more in 

your organization. 

And so I raised the question earlier about redefinition of ‘‘local 

community.’’ But I want to add to that a couple of other issues. 

First of all, I used to do an NPR radio talk show, and I went 

after the payday lenders. And I had a show with a live audience. 

I ended up in the audience with a whole row of poor people who 

came to support the payday lenders. And they came to support the 

payday lenders because they said without the payday lenders, they 

had no place to cash their checks. They go to work, they come 

home. The only place, payday lenders. 

So, you know, there is an absence in the poorest neighborhoods, 

I think, you might agree, of banks that are participating in CRA. 

And then, Ms. Blankenship, you were mentioning credit unions, 

that perhaps we ought to extend CRA to credit unions. Well, can 

you legitimately and fairly include credit unions without including 

payday lenders, check cashers, and remittance agents? I mean, 

where do we stop? Because in my world, the payday lenders are far 

more dangerous in terms of putting something back in the community than credit unions. It is a conundrum. Fix it. Please. 

Ms. BLANKENSHIP. Well, to answer your question, Congressman, 

I think that there should be more regulation on those entities that 

don’t fall under CRA, as we do, a local bank that really provides 

services in low- to moderate-income areas. I think a good place to 

start is the credit unions. But we are certainly not opposed to you 

extending that regulation to the other entities, which you addressed. 

Mr. CLEAVER. You realize, that would probably close them down. 

I mean, if you required CRA for Joe Willy’s Friday Check Cashing 

Company, I mean, he is out of business. And that is okay if you 

are in banking. But if you are in politics and Joe Willy’s can’t cash 

Ms. Thompson’s check, and that is the only place to cash it, then 

we have a problem. 

Ms. BLANKENSHIP. But I would argue respectfully that the community banks fill more of a role in that than maybe some of the 

large national bank chains, as far as accommodating the check 

cashing and some of the needs of those low- to moderate-income 

areas. Because I know that we do in several of our markets. And 

we have the flexibility to do that. 

Mr. CLEAVER. Mr. Homer? 

Mr. HOMER. Your question, well, one, going back to the local 

community issue, I think if you changed ‘‘local community’’ to ‘‘underserved communities’’ and then gave institutions the flexibility to 

58

choose the underserved community that they desired, that would 

be one way to get at it, to give them a menu. Because you are absolutely right. When I ran a bank, I was not going to not accept a 

deposit because it didn’t come from my community. I accepted 

them—I was a community bank in Boston but I had customers in 

California and all over. So changing that one word from local community to underserved communities, I think, would have a tremendous impact in attracting capital and services into areas that need 

it. 

Mr. FISH. I would like to comment on that, Representative. 

Mr. CLEAVER. Yes, Mr. Fish? 

Mr. FISH. I think—I don’t know what community you represent. 

Mr. CLEAVER. I represent Kansas City, Missouri, and the surrounding area. 

Mr. FISH. So I have great sympathy for the comments that you 

made. But I think it is dangerous to apply the presumption that 

local communities are underserved by all banks based on the experience in Kansas City. 

Let me explain what we do. And I can—I don’t know if you were 

here for my comments, but we look at these markets as emerging 

markets and we believe that there is good business to be done in 

these markets. So some of these things, we try and look like a local 

bank, in a branch that is in an underserved community. And what 

do we do? 

Well, we give every branch in those communities somewhere between $2,500 and $3,500 a year so they can participate in a community sense, so that if somebody walks in and needs $25 for the 

Boy Scouts, or $50 for the Lions Club, our branch manager doesn’t 

need to say, I’ll take it up with the head office. 

We try and look like the neighborhood inside those branches. So 

we speak their language. We try and make the office friendly as 

opposed to intimidating. 

Despite all of that, in our neighborhoods, our biggest competitors 

are not the other banks; our biggest competitors are the check 

cashers, Western Union and the payday lenders. And I think the 

long-term answer to that, it is so expensive for these neighborhoods 

to do their financial services business. If they came into a bank and 

opened a checking account with overdraft protection and a savings 

account, their life would be so much simpler. 

We can’t cash checks; it’s difficult to cash checks for people who 

don’t have accounts with the bank. I could go into that. 

Mr. CLEAVER. No, I understand all that. 

Mr. FISH. Okay, so you understand all that. 

So my point is, the answer to this is financial literacy. The answer to this is not only education for the consumer in these underserved neighborhoods about their personal finances, but financial 

literacy in terms of education about the fact that they can go into 

a bank. 

Mr. CLEAVER. I want to interrupt you, and then I am finished, 

Mr. Chairman. 

Mr. FISH. I was being long-winded, but I feel very passionate 

about it. 

Mr. CLEAVER. No, and I can tell you are passionate about it. 

59

The frustration of being on this committee—I mean, this is a 

committee I wanted to be on. I was blessed to be on the exact committee I wanted to be on. However, whenever we start talking 

about regulations, what inevitably is injected into the conversation 

is financial literacy. I mean, I don’t care what the subject is. You 

know, as a substitute for whatever we might be proposing, the panelists, at least one, somebody says, well, the solution is financial literacy. 

I don’t disagree. We may be talking about 10 or 15 years to raise 

the level of financial literacy to a point where people are not going 

to Sam’s Friday payday check cashing place. 

The problems we have are today. I mean, they are right—they 

are on us today, tonight. I mean, people are going to the payday 

places today. And so it is an issue for me. I mean, it goes back—

do you regulate everybody? Or do you just tell everybody their 

problem is financial literacy? Just become literate? 

Mr. FISH. Regulate payday lenders. 

Mr. CLEAVER. And impose CRA requirements? On them? 

Mr. FISH. I suspect you will diminish service to the community. 

Ms. KENNEDY. After Representative Watt left us this morning, 

we had a 21⁄2 hour agonizing debate with the best advocates, the 

best bankers, some government officials, and Ms. Seidman who has 

been on both sides. And, you know, we ended with financial literacy, still very important. 

Because how it feels to the bankers and the nonprofits that are 

responsible lenders is that they proved that CRA lending was good 

business. Not the highest profitability, but it was good business 

and it could be done responsibly, with consumer-friendly terms. 

And the bad guys moved in without any scruples, without any oversight, any regulation, or any examination. 

So I think we are reaching a point where banks would say regulate the payday lenders. But we would also say, you know, this 

multifaceted problem, what Representative Watt called an onion, 

involving many, many layers, one piece of which is a credit scoring 

system that may not reflect our multinational demographics anymore. Members are working on an alternative credit scoring system 

through NeighborWorks America and Citigroup. 

We have so many facets of this problem. But surely having a 

highly tightly regulated banking regime that is very ‘‘bean-counting,’’ while having totally unregulated, unexamined entities that 

have no oversight, is a huge part of the problem. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

The CHAIRMAN. Mr. Murphy. 

Mr. MURPHY. Thank you, Mr. Chairman. I don’t have any original questions of my own. I think Mr. Cleaver’s line of questioning 

is an important one and an interesting one and we sort of are 

bracketed by two different ways of approaching that and so I want 

to fill in the middle here and ask that question to the panel. 

Because I think whether we are talking about CRA or other obligations, I think it is an important one that major urban communities like Kansas City face, but smaller urban communities like 

Waterbury, Connecticut, and Danbury, Connecticut, that I represent face. So I might just pose that question to the rest of the 

panel, maybe focusing on CRA as it relates to nonbank entities 

60

such as payday lenders, as a way of talking about whether we 

should be looking at a new Federal regulatory structure for the—

for payday lenders and like entities. 

Mr. HOMER. I will go back to the old saying, you have to go 

where the money is. And so I think a change in the definition of 

how entities that are regulated now and maybe broadening it to 

their whole slew of ammunition, bullets, so these banks are all affiliated with other financial services entities, changing the definition to serving underserved communities as opposed to local, and 

thereby engaging all of the tremendous talent and innovation that 

is in these markets, they created CDO quads and sold them to people so they can do just about anything, would be a part of the beginnings of today’s solution. 

Because I think—I will give you an example. One of the values 

of CRA, we create mortgage-backed securities that are guaranteed 

by Fannie and Freddie that only comprise loans to people below 80 

percent of median. Now, intuitively, people say well that is either 

kind of risky or it is not going to—the fact is that those mortgages 

consistently outperform the mortgage backed index in the Lehman 

A, for the simple reason that people don’t—they just don’t prepay 

as fast and as much as other clients. 

So over time, we have shown to public pension funds and other 

investors, that actually taking the time to invest in those areas will 

actually give you a better return over time. So some parts of the 

regulation can help introduce profit-making organizations so people 

who are looking for good investments, to opportunities they otherwise would have ignored just for the lack of information or experience. 

And so incenting people who have capital and the capacity and 

the talent to come up with these products in an efficient way 

through regulation and introducing them to them may be one way 

of getting them engaging and building incentives to—we provide a 

lot of incentives for renewable energy, for all kinds of things that 

we think have a long-term social good. 

So also figuring out how you can build in regulatory incentives 

or even particular subsidies or tax credits around how well they do 

this may be another way to—to reinforce it. Because we have to address the problems of these communities if we are going to be 

strong as a nation. 

Mr. BARNES. I would like an opportunity to address the question 

as you raised it, Congressman Murphy, and also Congressman 

Cleaver. 

I think the ‘‘local community’’ is still relevant. There is always 

the opportunity for change. But as a small, large bank under the 

CRA regulations, we still aggressively look at our local community. 

We can feel what our colleague down the table has suggested, the 

pressure from our friends in the credit union leagues, credit 

unions. But basically we do try to address what is happening in our 

local marketplace. 

I am in Baltimore. The FDIC has identified our City as one of 

their alliance for economic inclusion target cities, pilot markets. 

And in essence, we are trying to identify a small dollar loan that 

would be an alternative to payday lenders. 

61

This is a tight credit market to be considering that type of product. But clearly, through some collaborative efforts of other ABA 

members and banks in our market, we are looking to try to provide 

a product that might be an alternative to the payday loans. 

Ms. BLANKENSHIP. Well, just to follow up on your question, I 

think you really have to look at the spirit of who is currently regulated and why they are complying with CRA. For instance, we don’t 

comply with it only because we have to; we comply with it just as 

a matter of staying in business. We chose those markets, and 

whether there were a CRA or not, we would comply with it and fulfill the spirit of the law. 

I think where your focus needs to be are on the non—the currently nonregulated entities, the nonregulated mortgage companies, the nonregulated payday lenders. 

The CHAIRMAN. Thank you all. Let me just add one last question. 

I forgot to do it before, so I would ask you to think about this 

and get back to us. One obvious area that we just didn’t get to 

enough is the various forms of insurance companies, major financial entities that evolved in many ways over the years. Does it 

make sense to put some sort of community reinvestment type obligation on the insurance companies of various sorts and, if so, how 

would we do it? Yes, Ms. Kennedy? 

Ms. KENNEDY. Our group believes strongly that the nexus to the 

Federal benefits is an important one for CRA as we know it. But 

we also believe strongly that insurance companies that have any 

kind of benefits should have to insure properties that our members 

make loans on. 

The CHAIRMAN. So you would cover them under CRA? 

Ms. KENNEDY. We would require them to have—well, we would 

propose that they have an affirmative obligation to insure in underserved areas. 

The CHAIRMAN. Which is a type of CRA obviously relevant to 

them. You don’t give insurance companies an obligation to do 

things other than insurance. 

Ms. KENNEDY. Right. 

The CHAIRMAN. Any others? Ms. Blankenship? 

Ms. BLANKENSHIP. Again, just, you know, the playing field 

should be level with respect to CRA. Banks have learned to comply 

with it. 

The CHAIRMAN. I will throw this out right here. You mentioned 

the duck didn’t come down, as it would have for the older people, 

on Groucho Marx, on You Bet Your Life, if you said the magic 

word—level playing field. 

I have been looking. I frequently am told about the problems of 

the playing field not being level and it is often invoked by people 

who point out that they are at the bottom of an unlevel playing 

field. 

I am still looking for the entity in America that is at the top of 

the unlevel playing field. I have not found one. It appears to be an 

extraordinary geometrical or geographical foundation. It is always—people are always at the bottom and no one is at the top. 

So if you ever find anybody who has benefitted from the unlevel 

playing field in his or her mind, let me know. 

Mr. Homer. 

62

Mr. HOMER. I would say to the extent that the insurance companies are competing for investments and then deploy those investments through communities that—looking at the insurance industry and imposing some type of requirement. Again, as you can tell 

from my testimony, my bent is always with a carrot rather than 

a stick, so providing some built-in incentives for the insurance industry to be engaged in these communities through regulation or 

subsidy would be the preference. 

The CHAIRMAN. Thank you. Mr. Barnes. 

Mr. BARNES. As a CRA officer, the water is just fine, come on in. 

Love to have investment bankers and insurance industry. As was 

alluded to earlier by Ms. Kennedy, one of the challenges is when 

you are trying to lend in certain markets, you can’t get insurance. 

So effectively you almost have an issue that you can’t do mortgages. So I think that is an obvious example— 

The CHAIRMAN. That is a very important point. 

Mr. BARNES. —of where they need to be involved affirmatively. 

And I appreciate the comment from Mr. Homer about the carrot as 

opposed to the punitive version, if it could be fashioned in a manner that would be an incentive to be involved, it would be a positive. 

The CHAIRMAN. I have to say this with regard to insurance, as 

you mentioned, Mr. Kanjorski is really focusing our efforts on insurance. There was a lot of discussion about whether or not there 

should be an optional Federal charter. And without indicating one 

way or the other, I will tell you this, if there is one, it is going to 

come with significant social responsibilities. I think that is one of 

the things that people should contemplate. And again, that would 

go along with what Ms. Kennedy said, because that would be—

there would be a nexus there, in terms of a Federal benefit. 

Mr. Fish, we appreciate it. Do you want to finish up? 

Mr. FISH. No, I have nothing to add. 

The CHAIRMAN. All right, I thank the panel. And please feel free 

to elaborate on any of this. 

We will be in touch with all of you because this is an ongoing, 

important issue for this panel. The hearing is now adjourned. 

[Whereupon, at 3:03 p.m., the hearing was adjourned.] 

(63)

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February 13, 2008

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