RBO Ordinances, CRA, HMDA

NCRC Presentation at NCDA Annual Conference June 2013

HMDA Purposes

• Are financial institutions meeting housing needs• To assist public officials in distributing public

sector investment in such a way as to encourage private sector investment to flow to areas in need.

• Fair lending enforcement

Analysis of Impediments

• Analyze lending to groups of borrowers• Categories of census tracts• Loan originations, prime and high cost lending

trends• Denial rates• HMDA to improve in future years to have more

information on creditworthiness, home values, loan terms and conditions, age of borrower

Application of HMDA Data:San Diego MSA, CA, 2011

Community Reinvestment Act

• Affirmative obligation to meet credit needs consistent with safety and soundness

• A report card – members of public can comment

• Mergers and acquisition – key time for enforcement; public benefits must be demonstrated

Federal CRA Greatly Beneficial but not Enough Local Accountability

• JP Morgan Chase, NA – 2010 OCC Exam, $1.6 trillion in assets, 23 states, For Georgia, exam has three pages and looks at Atlanta metro area, not city or its neighborhoods.

• Bank of America, 2009, OCC exam, $1.4 trillion in assets, 32 states and DC. For Georgia, exam has three pages and looks at Atlanta metro area, not city.

Responsible Banking Ordinance: Rationale

Whereas, bank practices and products have a measurable impact on tax base, quality of life, and overall economic viability.

Be it resolved, in return for the privilege of safeguarding and investing the community’s wealth and doing business with the City, the institutions have a continuing and affirmative obligation….

NCRC Model Bill

• Inspired by Philadelphia, Cleveland, New York, Los Angeles, Pittsburgh

• Why local ordinances – Federal CRA exams do not usually evaluate activities in cities or their neighborhoods

• Elements – Disclosure, Reinvestment Plans, Community Reinvestment Committee, Public Input, Accountability

Annual Data Disclosure

• HMDA, home equity, modifications, loan performance

• CRA small business loan data, race and gender • Community development loans and investments

on census tract level• Deposits by census tract• Consumer loan data• Minority and female employees – loan officers &

senior officers

Community Reinvestment Plan

• Two year plan for loans, investments, and services targeted to minority and low- and moderate-income communities.

• How bank will match or exceed peer performance in providing safe and sound products

• In addition to addressing loans & investments, how will bank offer bank services including alternatives to payday loans

• How will bank market its products

Community Reinvestment Committee

• Composition – 11 members• City Treasurer (chair rotates)• Director, Dept of Housing & Com Dev• Director, Dept of Economic Development• Two members of City Council• Six members from community

organizations whose purpose is neighborhood development or civil rights enforcement

CRC Committee – Data Collection and Study

• Collects annual data disclosure and Community Reinvestment plans (CRP)

• Once every two years, issues an RFP for a study comparing and ranking banks that receive city deposits

• Use annual data, study, and CRP to determine which banks are in compliance with affidavits and eligible to receive deposits

CRC Committee & Public Input

• Data, study, and community reinvestment plans available to public

• CRC Committee holds a 60 day comment period

• CRC Committee holds hearings to solicit public input on bank performance

CRC Committee Recommendations

• CRC is to consider study, community reinvestment plans, and public input

• CRC recommends which institutions receive city deposits

• CRC recommends dollar amount and percentage of deposits received by institutions

Anti-Predatory Safeguards

• City Treasurer will not make deposits in or invest in any institution that makes predatory loans

• Will not invest in MBS or other securities that finance predatory lending

• Six month divestiture process

Affidavit

• Depository signs an affidavit requiring commitment to responsible lending and investing

• Provide loan officers focused on neighborhood development finance

• Willingness to participate in publicly-subsidized neighborhood development projects

• Commit to affirmatively market products

Branch Closures

• 120 days prior to closing, depository provide written notice to Mayor and City Treasurer

• Depository to participate in public meetings with CRC Committee, state, and/or federal agencies, community organizations, and members of the public to consider alternatives to branch closure

Reflections on NCRC Philadelphia Studies

• Conducted studies in ‘05 and ‘06 using 2003 and 2004 data

• Nine banks receiving city deposits at that time• Most success in prime home lending, home

purchase lending in particular, when compared to peers. More than half of depositories exceeded performance of their peers on 14 of 15 indicators in 2004 for home purchase lending

NCRC reflections on Philadelphia study contd.

• Less success in small business – more than half of city depositories exceeded performance of other lenders on just 40 percent of indicators in 2004; same results in 2003.

• Depositories commendable in target neighborhoods – higher market share than overall in city, but lending in target neighborhoods overall lagged that in city as a whole.

Conclusion

• Elements for success – publicly available data, CRP, studies, using CRA/fair lending performance as part of criteria for municipal deposits

• Transparency, accountability, public input• Accountability on multiple fronts – City law, CRA

exams/bank mergers, Analysis of Impediments

Appendix: More specifics for a few cities

Philadelphia: CRA Goals and Strategic Plan for Depositories

• Each depository required to provide an annual statement of CRA goals including number of home & small business loans and investments in LMI neighborhoods

• A long term strategic plan addressing race and gender disparities. Plan must indicate how bank will meet or exceed peer lending performance

• City Treasurer shall certify compliance & has authority to withdraw funds from banks not in compliance

Philadelphia contd.

• Commissions annual study of overall lending trends and performance of city depositories in home, small business lending, branching patterns, CRA and fair lending performance

• City extended the ordinance to cover payroll deposits

• City also requires depositories to provide 90 day notice to city of branch closures and reasons for closures as well as statistical or other information in support of such reasons

City of Cleveland

• City evaluates banks on their reinvestment performance & awards banks deposits based on their rankings

• More than $550 million in municipal deposits including $450 million in payroll

For more information

• Josh Silver, Vice President of Research and Policy

• 202-464-2708• jsilver@ncrc.org• http://www.ncrc.org