Congressman Barney Frank
Representing Massachusetts' 4th District

Comptroller of the Currency Dugan Refutes Unfair Attacks on the Community Reinvestment Act

November 21, 2008

Mr. FRANK of Massachusetts. Madam Speaker, during the recent campaign, motivated I believe by an effort to stave off much-needed legislation establishing appropriate regulation for currently unregulated aspects of the financial industry, a number of people launched a concerted effort to blame the Community Reinvestment Act for our current financial crisis. Their argument--wholly inaccurate--was that the Community Reinvestment Act was the reason that a large number of irresponsible subprime loans were made.

I was very pleased--although not surprised--that Comptroller of the Currency John C. Dugan, an appointee of President Bush, took the time on November 19th to refute these accusations. Comptroller Dugan is as well qualified to discuss this as anyone in the country, because he has a prime responsibility for the regulation of the safety and soundness of banks and the banking system. Given that, I believe it is essential that all Members have the benefit of his analysis.

Comptroller Dugan is characteristically forthright in addressing the question of the role that CRA has played:

``There are even some that suggest that CRA is responsible for the binge of irresponsible subprime lending that ignited the crisis we now face. Let me squarely respond to this suggestion: I categorically disagree. While not perfect, CRA has made a positive contribution to community revitalization across the country and has generally encouraged sound community development lending, investment and service initiatives by regulated banking organizations.

``CRA is not the culprit behind the subprime mortgage lending abuses, or the broader credit quality issues in the marketplace. Indeed, the lenders most prominently associated with subprime mortgage lending abuses and high rates of foreclosure are lenders not subject to CRA ..... (B)anks subject to CRA and their affiliates originated or purchased only six percent of the reported high cost loans made to lower-income borrowers within their CRA assessment areas.''

Madam Speaker, to make it clear that the forceful defense of CRA that I have just quoted is taken fully in context, I ask that those portions of Comptroller Dugan's speech that discuss the CRA be printed here in their entirety. This firm statement by President Bush's appointee with prime responsibility for the safety and soundness of the banking system should help us end the inaccurate, politically-motivated misrepresentation of the role that CRA has played.

REMARKS BY JOHN C. DUGAN--COMPTROLLER OF THE CURRENCY BEFORE THE ENTERPRISE ANNUAL NETWORK CONFERENCE--NOVEMBER 19, 2008

"..... Indeed, all of these efforts are fully in keeping with the OCC's mission and the way that we approach our regulatory and supervisory responsibilities, including those under the Community Reinvestment Act. CRA supports banks doing what they do best and what they should want to do well--making viable lending and investment decisions, with acceptable rates of return, consistent with their business plans, I their own communities.

Given recent public discussion, it is appropriate to ask about the role that CRA plays in the credit challenges we face on so many fronts. In my view, it plays a very positive role. Unfortunately, however, current market disruptions have clouded the accomplishments that CRA has generated, many of which we recognized last year during its 30th anniversary. There are even some who suggest that CRA is responsible for the binge of irresponsible subprime lending that ignited the credit crisis we now face.

Let me squarely respond to this suggestion: I categorically disagree. While not perfect, CRA has made a positive contribution to community revitalization across the country and has generally encouraged sound community development lending, investment, and service initiatives by regulated banking organizations.

CRA is not the culprit behind the subprime mortgage lending abuses, or the broader credit quality issues in the marketplace. Indeed, the lenders most prominently associated with subprime mortgage lending abuses

and high rates of foreclosure are lenders not subject to CRA. A recent study of 2006 Home Mortgage Disclosure Act data showed that banks subject to CRA and their affiliates originated or purchased only six percent of the reported high cost loans made to lower-income borrowers within their CRA assessment areas.

Over the last ten years, CRA has helped spur the doubling of lending by banking institutions to small businesses and farms, to more than $2.6 trillion. During this period, those lenders more than tripled community development lending to $371 billion. Overwhelmingly, this lending has been safe and sound. For example, single family CRA-related mortgages offered in conjunction with NeighborWorks organizations have performed on a par with standard conventional mortgages. Foreclosure rates within the NeighborWorks network were just 0.21 percent in the second quarter of this year, compared to 4.26 percent of subprime loans and 0.61 percent for conventional conforming mortgages. Similar conclusions were reached in a study by the University of North Carolina's Center for Community Capital, which indicates that high-cost subprime mortgage borrowers default at much higher rates than those who take out loans made for CRA purposes.

Of course, not all single-family CRA mortgages performed this well, because these loans have experienced the same stresses as most other types of consumer credit. Nevertheless, a number of studies have shown that when these loans are made in conjunction with a structured homebuyer counseling program, mortgage performance is substantially improved. Affordable CRA multi-family projects utilizing low-income housing tax credits have also performed well, with an average foreclosure rate through 2006 of 0.08 percent on the underlying mortgages.

During the community tours I have taken over the past three years, I personally witnessed the positive impact that CRA partnerships have had in transforming communities, expanding homeownership, and promoting job creation and economic development. These partner ships between communities and financial institutions have also helped house senior citizens and people with special needs, built community facilities, and assisted small businesses serving low-income areas.

In the Anacostia community of D.C., an area of economic resurgence that I have toured on several occasions, Enterprise's Wheeler Creek project was a critical link in stabilizing a neighborhood that had been plagued by a troubled public housing project. Wheeler Creek involved development of for-sale homes in conjunction with a bank community development corporation, as well as a bank's purchase of low-income housing tax credits for rental housing.

CRA projects also act as catalysts for other investments, job creation, and housing development. Such infusion of capital into these markets leverages public subsidies, perhaps as much as 10 to 25 times, by attracting additional private capital. Many of these CRA equity investments can be made under national banks' public welfare investment authority. These bank investments have grown significantly over the years--totaling more than $25 billion over the past decade. Indeed, the OCC recently held its Managers Conference at the Grand Masonic Lodge on North Charles Street here in Baltimore, a public welfare investment funded by a national bank. To meet the demand to invest in similar types of projects, OCC successfully sought legislation last year to raise the cap on public welfare investments from 10 to 15 percent of a bank's capital and assets. This rise will enable the amount of such investments to increase by as much as $30 billion.

Interpreting national bank public welfare investment authority, OCC recently issued an approval related to energy conservation that may be of interest to Enterprise. This approval clarifies that such authority extends to bank investments in renewable energy tax credits primarily benefiting low-and moderate-income individuals and areas, government revitalization areas, rural underserved and distressed middle-income areas, and designated disaster areas. The investing bank can claim the credits and, in some instances, receive positive CRA consideration under the investment or community development testes.

Your Green Communities initiative, and others like it, may be able to take advantage of these tools to obtain additional resources under the public welfare investment authority, CRA, and other available incentives to build many more sustainable homes and communities across the country. The research and examples described on your Web site demonstrate that moving to a green economy can generate a significant number of jobs, stimulate economic growth, and create a healthy environment in communities that Enterprise serves.

As the credit market stabilizes, CRA-driven initiatives can also help us tackle challenges such as the preservation of homeownership opportunities and rental housing development. Opportunities also lie ahead for bank partnerships with Enterprise affiliates and other nonprofits to help mitigate the impact of foreclosures in communities across the country.....

Our nation has accomplished much since CRA's passage. Perhaps even Jim Rouse could not imagine how much the flow of CRA-related capital and credit has contributed to affordable homeownership, jobs and business development, and healthy neighborhoods. In today's challenging economy, the need for the positive results that CRA has generated are even greater, and the same is true for organizations like Enterprise.

Thank you very much.''