WASHINGTON - Mark Willis, a J.P. Morgan Chase & Co. executive vice president, defies the cold-hearted corporate stereotype - he has headed bank community development efforts for more than a decade, and he writes and lectures widely on reinvestment and other urban issues.
But his company is also making a profit on such development, and that, he emphasized, is the key to sustaining it over the long term.
"It's important for this to be viewed as a business - and one that is profitable," Mr. Willis said in an interview last week. "Community development is all about bringing in lots of private capital - and you don't do that through charity. You do that by showing that you're doing good business."
His message is simple: Banks should manage community investment, lending, and services the way they manage conventional lines. Though he is not the first to utter it, the idea was alien to many attendees of a Consumer Bankers Association community reinvestment conference last week. Many of them still perceive the Community Reinvestment Act as something to be complied with rather than a source for profit.
Furthermore, Mr. Willis, the chairman of the group's community reinvestment committee, offered three prescriptions to bankers and policymakers that, he said, would help such business boom.
First, he proposed that banks diversify their efforts beyond mortgages.
"It's hard to get the focus off of mortgages, but the CRA has driven such competition among lenders for low- and middle-income market share that we have slashed pricing on mortgages to an irrational and unsustainable level," he said. "We're concerned that the focus on mortgage lending has become disproportionate - and there are opportunities in other areas."
Morgan Chase has capitalized on these opportunities already: It financed the building of a supermarket in Harlem in 2000, a project that created jobs and services in the community. In addition, it has financed more than 10,000 units of housing over the last decade, he said.
But such successes are more difficult for banks to trumpet than mortgage lending, said Mr. Willis, because of a dearth of easily accessible, aggregated data on community development activities and their impact on lower- and middle-income markets. "Most of us see the results of our activities every day, but most policymakers never see the beautiful new properties built on long-vacant, rubble-strewn lots."
Meanwhile, "endless permutations" of mortgage lending figures are available to lawmakers, because the Home Mortgage Disclosure Act requires financial institutions to make home loan data public, he said.
Creating incentives to nonmortgage activities is the motivation for Mr. Willis' second recommendation: Increase flexibility in the examination process.
He said he was hopeful that the Federal Financial Institutions Examination Council would revise its guidelines within a few years to give examiners more leeway in weighting the lending, investment, and service test scores that form the overall CRA rating for banks with more than $250 million of assets. (The lending test counts for 50% of the combined score, and the other two account for 25% each.)
For example, if the mortgage needs of a community are already well met, examiners could give more weight to what a bank is doing in terms of community development.
"Community development should be viewed as a core piece of the lending test - not something extra," Mr. Willis said. "And there's nothing in the regulations that prevents that."
Third, he called for changes to the CRA regulations that would, among other things, cement his recommendations on exam scores and require that reinvestment programs be profitable. He said he regretted that the current ratings had "absolutely nothing to do with the profitability of a bank's CRA program."
However, he also said that he is not holding his breath - changing regulations is very difficult, and does not expect a long-awaited update to come anytime soon.
"We cannot wait for the CRA to rearrange itself to meet our individual bank and community needs," Mr. Willis said. "We need to figure out what we can accomplish within the confines of our current rule that will get us to our ideal state - profitability and maximum impact on our communities."
In the meantime, he is urging bankers to develop a strong rapport with their examiners to help affect change.
"We need to make the examiners our allies," he said. "Examiners who understand our business will be good advocates for changes in policy that we need to build a sustainable CRA business. We need the examiners to understand that community development lending is not the gravy but rather the meat of today's real community credit needs."
Mr. Willis joined Chase Manhattan Bank, a predecessor of Morgan Chase, in 1989 as the president of its Chase Community Development Corp. In 1998 he became the president of the Chase Manhattan Foundation, and by late 1999 he had become an executive vice president of there.
Before joining Chase, he had held various positions with the City of New York, culminating in his appointment as the deputy commissioner for development in the Department of Housing Preservation and Development. He has served as the director of the Office of Tax Policy, and as the special assistant to the deputy mayor for finance and economic development.
He has also held posts in the research department of the Federal Reserve Bank of New York and with Maine Printing Co.
Mr. Willis has an undergraduate degree in economics and a Ph.D. in urban economics and industrial organization from Yale University, as well as a degree from Harvard Law School. He lives in Manhattan with his wife, Carol.
