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Comptroller Says CRA Reform Could Reduce Foreclosures
By James Comtois
Speaking before the National Association of Affordable Housing Lenders, John C. Dugan, comptroller of the currency, recommended making changes to how the Community Reinvestment Act is regulated in order to prevent more foreclosures.
"We urge a change to the CRA regulations to enable banks to obtain CRA credit for lending, investment and service activities in distressed middle-income areas hit by foreclosures," he said. "It's time to reflect on whether CRA should cover not just banks, but also non-banks that now provide so many of the same financial services as banks, especially mortgages."
The comptroller of the currency cited an example where a middle-income suburb of Cleveland is plagued by high foreclosure rates. Maple Heights, which is located in Cuyahoga County and has a population of 27,000 people, has 30% of its subprime loans in the county either delinquent or in foreclosure. The city ranks first in the county in foreclosures per capita and is in the top half of 1% nationally of all zip codes experiencing foreclosures.
The mayor of Maple Heights says that middle-income residents living next to these empty houses are getting discouraged and leaving the community and the city as a whole is also suffering. Unfortunately, despite the city's declining median income, Maple Heights was classified as middle-income at the time of the last census, preventing most areas of the city from receiving national bank public welfare investments under the new standard.
Congress, according to Mr. Dugan, needs to fix this by restoring the original scope of the public welfare investment authority of national banks. If Congress restores the standard that will help economically distressed middle-income areas as well as low- and moderate-income neighborhoods, it will serve as a boon to the collective efforts to address the consequences of rising foreclosures.
Mr. Dugan suggested to the association that CRA regulations can be changed "to encourage the full range of CRA-eligible activities in a broader range of communities devastated by foreclosures," adding that he would support an amendment to do just that.
This amendment, according to Mr. Dugan, would offer CRA consideration for lending, investment and services in middle-income communities that are distressed as a result of foreclosures and related economic factors affecting the area.
"If the other regulators agree - and I would strongly urge them to do so - we can do this quite simply and promptly, by proposing a revision to the definition of 'community development' in the CRA rules. With this change, we would give favorable CRA consideration for - and encourage - loans, services and investments in more communities suffering from the consequences of foreclosures."
"There is clear precedent for the proposed change," he said. "When the agencies recognized the need to expand the CRA rules in 2005, we revised the 'community development' definition to provide CRA credit for underserved and distressed middle-income rural areas and for designated disaster areas."
Mr. Dugan said that the change he is calling for is consistent with the flexibility available under the CRA statute to implement the law and to adapt rules as necessary to respond to changing circumstances and changing community needs.
"We need to seize this opportunity to add another tool to help communities that are struggling to overcome the devastating effects of mortgage foreclosures."
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