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Community Reinvestment Act

September 15, 2009

The Obama administration is finally getting around to reforming our financial system, right when the underlying anger about banking may be relenting.

The experts who judge our economy believe that we may be about to exit this recession.  Ben Bernanke said as much today during a talk at the Brookings Institution.  He believes that unemployment has reached its peak, that we can expect moderate growth, and that consumer confidence is coming back.  All of that would point to a rebound.  Granted, the evidence is still not visible on Main Street - unemployment tops 10 percent in much of the country. In North Carolina, unemployment is currently 11 percent.  In foreclosure-rich states like California and Florida, unemployment has increased approximately 60 percent from July 2008.

Today is significant for a few reasons - for one, it marks the one year anniversary of the collapse of Lehman Brothers. 

August 31, 2009

Let's put the people back in charge of our banking system.

I work with data about mortgage lending that the Federal Financial Institutions Examination Council provides through the Home Mortgage Disclosure Act.  Making this data better would help people in their efforts to seize control over their relationships with their local banks.

HMDA Data Needs to be Fixed

There are a few stories that I can tell with HMDA data.  Sometimes, its a story that seems to make no sense, with one data point contradicting the other.  Sometimes, each additional data point only tells the same story.  In that

August 27, 2009

The OCC announced results on 20 CRA evaluations today. Not surprisingly, 19 of the 20 banks got a "satisfactory" and the other received an outstanding.

It has been our feeling for some time that the CRA exams are a charade.  They are supposed to uncover a lack of performance in low or moderate-income census tracts. In any year, more than 2,000 banks are evaluated. In 2008, 2,051 institutions were evaluated.  Twenty-nine were deemed "needs to improve," and four received a "substantial non-compliance.  That won't lead to much change, because it doesn't take a rocket scientist to realize that the regulators are avoiding conflict.  In fact, the market appears to be a stronger enforcement agent - the two largest lenders to get anything below satisfactory were Countrywide and AIG.

This cycle's outstanding score went to Ephrata National Bank.  (Ticker - ENBP) Here is the pdf of the exam.  Ephrata

August 17, 2009

The GAO has spoken, but will the regulators listen?

The General Accounting Office issued a blistering report that put much of the blame for our financial crisis on the feet of the regulatory agencies. The GAO also made some specific policy suggestions.  Many of those proposals, incidentally, are contained in some form within the Consumer Financial Protection Act (CFPA).

The GAO said that both a lack of adequate data collection and a system that is too broken up were important in

July 31, 2009

You cannot regulate it if you can't regulate it.

The four financial regulator agencies accepted comments up to Thursday afternoon on a proposed rulemaking to apply the Community Reinvestment Act to the private student loan industry.  The proposed rule asked commenters for suggestions about how CRA credit could be designed to encourage the supply of low-cost student loans to low-income students.

We made the following comments (pdf) 11 pages.

July 29, 2009

Its a maxim that regulators can never quite catch up with the changes made by practitioners.  Mobile banking threatens to become the next example of that concept.  It very well could lead to undermine the Community Reinvestment Act (if unwittingly) unless some kind of regulatory fix occurs first.

The new Community Reinvestment Act Modernization bill (HR 1479) seeks to help that legislation catch up with the set of financial innovations that have occurred since the bill was last modified in 1993.  A lot has happened.  There is a lot of catching up to do.

That bill was drafted this spring.  Even now, though, it appears that the market is changing so fast that there could be a need for new amendments to the bill's language before it is heard by the House Financial Services committee in the fall.

Today, there is news out of Charlotte than Bank of America is going to close one out of every ten of

July 28, 2009

You can't solve a problem until you identify its essence.  That is one of the challenges facing policy makers trying to get our economy back on its footing.

One of the root causes of the recession is the overhang that we are suffering through as so many bad mortgages slowly deplete the balance sheets of our banks. The troubles on Wall Street have spread to Main Street.  Many of our communities have fallen hard and fast.

It was a time of fast lending.  It was a time of loose underwriting.  The share of subprime mortgages

July 23, 2009

You may have heard some of the arguments against the CFPA:

  • it will thwart innovation of financial products
  • it will harm choice, including choices for low-income consumers
  • it will add an unneeded layer of regulation

It should not be surprising that a lot of these arguments are made by people who have a friendly view of big

July 22, 2009

Community Development Financial Institutions (CDFI) may be challenged by the riches in the near future. On Sept. 22nd, 2008, Goldman Sachs was converted to a bank holding company by the Federal Reserve.  Morgan Stanley has gone through the same process. The Federal Reserve's intention was to be able to shore up the capitalization of these firms through its TARP program.

As banks, though, GS and MS are suddenly under the regulatory scope of the same forces that govern other banks.  This includes the examination under the Community Reinvestment Act.

These firms have undergone some scrutity for the CRA in the past.  They have each fared well.  Goldman Bank

May 15, 2009

Today (Friday, May 15th) is the last day to comment on the proposed re-organization of Bank of America, specifically with how it introduces Countrywide into is larger corporate framework.

The address for comment is: