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FDIC Federal Register Citations


Habitat for Humanity International
The Washington Office
1010 Vermont Ave. N.W., Suite 900
Washington, D C 20005

TO: Robert E. Feldman, Executive Secretary

Comments on FDIC NPR on Community Reinvestment
Published August 20, 2004
RIN #3064-AC50

September 17, 2004

Mission of Habitat for Humanity International

Habitat for Humanity International (HFHI) is a non-profit organization with 1,689 affiliates in the United States. Habitat for Humanity’s mission is to build or rehabilitate simple, decent, affordable homes with people in need of housing and to eliminate substandard housing from the face of the earth. In this role, HFHI affiliates are the recipients of certain types of benefits under the Community Reinvestment Act requirements, which is why Habitat for Humanity is submitting comments on this proposed regulatory change.

Summary of Proposed Rule

The FDIC is proposing revisions to 12 CFR Part 345, regulations implementing the Community Reinvestment Act (CRA) that would: (a) change the definition of “small bank” to raise the asset size threshold from $250 million to $1 billion regardless of holding company affiliation; (b) add a mandatory community development performance criterion for those banks in the $250 million - $1 billion range; and (c) for rural areas, expand the definition of “community development” to encompass a broader range of activities.

General Comments

Habitat for Humanity International does not have expertise on banking regulatory matters or familiarity with any burden on “small banks” of complying with the current regulations, so it does not intend to comment on those issues. However, HFHI affiliates have been able to provide the American Dream of homeownership to more families as a result of benefits received from local banks under the Community Reinvestment Act.

It is the understanding of HFHI that the Administrative Procedure Act requires a cost/benefit analysis to be a part of any proposed rulemaking. Indeed, the financial institutions regulated by these regulations recommended, in response to the July 2001 Advance Notice of Proposed Rulemaking, that any change to the regulations take into account both process costs and the benefits of change (69 FR 5729, February 6, 2004, at 5731). HFHI does not see any indication that the following data were compiled or analyzed by the FDIC: (1) the costs of complying with the current regulation for banks having $250 million - $1 billion in assets; (2) the reduced costs (if any) to these banks of the proposed change in definition; or (3) the potential lost benefits to communities from no longer requiring banks of this size to comply with the full range of CRA requirements. Instead, the FDIC in its preamble to the Notice dated August 20, 2004, simply summarizes the cost and benefit claims made by the various organizations commenting on the proposal, without doing an actual cost/benefit analysis of its own. HFHI urges that such an analysis be done before making such a major change in the regulations.

Section 345.26. Small Bank Performance Standards.

FHI affiliates have been receiving the following types of benefits from banks having assets worth over $250 million (i.e., those not defined currently as “small”), for which those banks have received CRA credit under various regulatory tests:

  • Grants for housing.
  • “Pro bono” mortgage servicing; and
  • Bank sponsorship of Federal Home Loan Bank Affordable Housing Program grants.

Under the current regulations, banks defined as “small” only have to comply with the so-called “streamlined test” in order to meet the performance standards under the CRA, a test focused mainly on lending activities. HFHI affiliates normally do not obtain loans from banks because in most cases the affiliate acts as the lender for its homeowners. The benefits that HFHI affiliates have been receiving under the CRA, such as housing grants, free mortgage servicing, and Affordable Housing Program grants, are evaluated currently under the “investment test,” and thus are not part of the present “streamlined test” for small banks.

The proposed rule recommends adding a community development criterion to the streamlined test for small banks. The proposed rule would evaluate, in subsection (b)(3), a small bank’s responsiveness to “community development needs;” and in (b)(4), the bank’s “indirect activities,” including “community development services provide by an affiliate of the bank.” How these terms will be defined or applied is not explained. If this proposed rule is eventually adopted, HFHI recommends that the rule require the inclusion of activities such as housing grants, pro bono mortgage servicing, and sponsorship of Federal Home Loan Bank Affordable Housing Program grants when applying the proposed expanded streamlined test to the newly defined “small banks” – i.e., those having between $250 million and $ 1 billion in assets.

Section 345.12. Definitions, and Development in Rural Areas.

HFHI is pleased to note that this new community development requirement within the streamlined test is covered in the proposed definitions in section 345.12(g), which defines “community development” to include: (1) affordable housing for low- or moderate-income individuals or for individuals in rural areas; (2) community services targeted to low- or moderate-income individuals or to individuals in rural areas; and (3) activities that revitalize or stabilize low- or moderate-income geographies or rural areas. Since HFHI has many affiliates in rural areas working to eliminate substandard housing, it supports giving CRA credit to banks doing activities that revitalize or stabilize low- or moderate-income housing in rural areas.

However, the definitions as presently written could be interpreted to permit CRA credit for activities in rural areas that are not focused on low- or moderate-income individuals, or on revitalizing rural areas. Under that interpretation, it could be possible that a “small bank” supporting a development designed for affluent individuals, but located in a rural area, could receive CRA credit. If that is the intent of the definition of “community development,” HFHI respectfully suggests that such a result is not within the original goals of the Community Reinvestment Act.

Conclusion

As a first priority, HFHI recommends, as did the financial institutions in February of 2004, that a cost/benefit analysis be done before this proposed rule is adopted as a final rule.

Secondly, if the FDIC does adopt a final rule, HFHI urges the FDIC to include a community development criterion in the test, and to give credit to “small banks” for activities such as housing grants, pro bono mortgage servicing, and Federal Home Loan Bank Affordable Housing Program grants.

Thank you for the opportunity to comment on this important regulatory matter.

Sincerely,

David Williams
Executive Vice President and Chief Operating Officer

 

Last Updated 09/17/2004 regs@fdic.gov

Last Updated: August 4, 2024