Reports Beget Reports and More In Busy Week for CRA

WASHINGTON - Congress, which has a penchant for naming weeks, could have called this Community Reinvestment Act Week.

On Monday the Federal Reserve Board had spin doctors around the Capitol working overtime when it unveiled a long-overdue study of the profitability and performance of CRA-related lending.

Treasury Secretary Lawrence Summers issued a comparison of the Fed's report to his department's April CRA study, and a community group released its own review of the 1977 law's impact. Finally, congressional Democrats introduced legislation to expand and strengthen CRA.

The Fed was required to prepare its report under the Gramm-Leach-Bliley Act of 1999. Eighty-two percent of the 500 institutions surveyed said they made money on CRA home loans, but 60% said these were less profitable than other types of loans.

"The profitability of serving these borrowers and communities helped to drive the 39% increase in CRA-eligible mortgage lending by banks and thrifts between 1993 and 1998," the Treasury Department said in a one-page summary of the reports. That is "more than double the rate of increase for mortgage lending by banks and thrifts in serving other markets."

According to Treasury's report, banks and thrifts made $467 billion in mortgage loans to lower-income borrowers from 1993 through 1998. From 1997 to 1998, such loans rose 80%, to $135 billion.

The National Community Reinvestment Coalition's review listed institutions includingBank of America Corp., First Union Corp., NationsBank, Sovereign Bank New England, and PMI Mortgage Insurance Co. among those reporting profitable community lending.

The Democrats' bill, introduced by Reps. Thomas Barrett of Wisconsin and Luis Gutierrez of Illinois, would extend CRA-like requirements to other financial services providers, such as mortgage banks, securities firms, and insurance companies. It would also undo changes that Gramm-Leach-Bliley made to CRA.

The CRA Modernization Act would kill the so-called sunshine provision, which requires banks and community groups to report the details of their CRA deals. It also would increase penalties for financial holding company subsidiaries that fail a CRA exam - including shutting them down, in certain cases - and would return the CRA exam cycle for small banks to every two to three years. Lobbyists, however, say the Democrats' bill has virtually no chance of passage this late in the legislative session, especially without Republican support.

While some in Congress are trying to overturn the new CRA disclosures, comments are due Friday on proposed regulations to implement Gramm-Leach-Bliley's sunshine provisions. In his comment letter, Senate Banking Committee Chairman Phil Gramm criticized the proposal, telling regulators it provides "avenues for parties to avoid compliance."

For example, he wrote, the proposal would incorrectly exclude agreements made without a signed contract, as well as meetings between banks and community groups that are not related to merger applications.

Sen. Gramm also asked the Fed to conduct a more in-depth study of CRA next year and said he may hold hearings before Congress adjourns this fall. His staff has not decided what information to require in a future report or what any hearings might focus on, a spokeswoman said.

Gramm-Leach-Bliley also requires that Treasury conduct a follow-up CRA report by November 2001.

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