[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
                     PERSPECTIVES AND PROPOSALS ON

                     THE COMMUNITY REINVESTMENT ACT

=======================================================================


                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                          AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 15, 2010

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 111-123




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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York         PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois          EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina       RON PAUL, Texas
GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California             WALTER B. JONES, Jr., North 
GREGORY W. MEEKS, New York               Carolina
DENNIS MOORE, Kansas                 JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West 
WM. LACY CLAY, Missouri                  Virginia
CAROLYN McCARTHY, New York           JEB HENSARLING, Texas
JOE BACA, California                 SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts      J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina          JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia                 RANDY NEUGEBAUER, Texas
AL GREEN, Texas                      TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri            PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois            JOHN CAMPBELL, California
GWEN MOORE, Wisconsin                ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire         MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota             THADDEUS G. McCOTTER, Michigan
RON KLEIN, Florida                   KEVIN McCARTHY, California
CHARLES A. WILSON, Ohio              BILL POSEY, Florida
ED PERLMUTTER, Colorado              LYNN JENKINS, Kansas
JOE DONNELLY, Indiana
BILL FOSTER, Illinois
ANDRE CARSON, Indiana
JACKIE SPEIER, California
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York

        Jeanne M. Roslanowick, Staff Director and Chief Counsel
       Subcommittee on Financial Institutions and Consumer Credit

                 LUIS V. GUTIERREZ, Illinois, Chairman

CAROLYN B. MALONEY, New York         JEB HENSARLING, Texas
MELVIN L. WATT, North Carolina       J. GRESHAM BARRETT, South Carolina
GARY L. ACKERMAN, New York           MICHAEL N. CASTLE, Delaware
BRAD SHERMAN, California             PETER T. KING, New York
DENNIS MOORE, Kansas                 EDWARD R. ROYCE, California
PAUL E. KANJORSKI, Pennsylvania      WALTER B. JONES, Jr., North 
MAXINE WATERS, California                Carolina
RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West 
CAROLYN McCARTHY, New York               Virginia
JOE BACA, California                 SCOTT GARRETT, New Jersey
AL GREEN, Texas                      JIM GERLACH, Pennsylvania
WM. LACY CLAY, Missouri              RANDY NEUGEBAUER, Texas
BRAD MILLER, North Carolina          TOM PRICE, Georgia
DAVID SCOTT, Georgia                 PATRICK T. McHENRY, North Carolina
EMANUEL CLEAVER, Missouri            JOHN CAMPBELL, California
MELISSA L. BEAN, Illinois            KEVIN McCARTHY, California
PAUL W. HODES, New Hampshire         KENNY MARCHANT, Texas
KEITH ELLISON, Minnesota             CHRISTOPHER LEE, New York
RON KLEIN, Florida                   ERIK PAULSEN, Minnesota
CHARLES A. WILSON, Ohio              LEONARD LANCE, New Jersey
GREGORY W. MEEKS, New York
BILL FOSTER, Illinois
ED PERLMUTTER, Colorado
JACKIE SPEIER, California
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 15, 2010...............................................     1
Appendix:
    April 15, 2010...............................................    43

                               WITNESSES
                        Thursday, April 15, 2010

Askew, William E., Senior Policy Advisor, The Financial Services 
  Roundtable.....................................................    10
Bradford, Calvin, Board Member, The National People's Action.....    14
Ludwig, Hon. Eugene A., Chief Executive Officer, Promontory 
  Financial Group, LLC...........................................    18
Reinhart, Vincent, Resident Scholar, American Enterprise 
  Institute for Public Policy Research...........................    20
Richardson, Cy, Vice President, Housing and Community 
  Development, National Urban League.............................     9
Rodriguez, Eric, Vice President, Office of Research, Advocacy, 
  and Legislation, National Council of La Raza (NCLR)............    12
Taylor, John, President and CEO, National Community Reinvestment 
  Coalition (NCRC)...............................................     7
Willis, Mark A., Resident Research Fellow, Furman Center for Real 
  Estate and Urban Policy, New York University...................    16

                                APPENDIX

Prepared statements:
    Askew, William E.............................................    44
    Bradford, Calvin.............................................    52
    Ludwig, Hon. Eugene A........................................    92
    Reinhart, Vincent............................................   118
    Richardson, Cy...............................................   123
    Rodriguez, Eric..............................................   130
    Taylor, John.................................................   139
    Willis, Mark A...............................................   187

              Additional Material Submitted for the Record

Gutierrez, Hon. Luis:
    Business Week article entitled, ``Community Reinvestment Act 
      had nothing to do with subprime crisis,'' dated September 
      29, 2008...................................................   201
    Preliminary Staff Report from the Financial Crisis Inquiry 
      Commission entitled, ``The Community Reinvestment Act and 
      the Mortgage Crisis,'' dated April 7, 2010.................   203
    Written statement of the National Association of Federal 
      Credit Unions (NAFCU)......................................   210


                     PERSPECTIVES AND PROPOSALS ON


                     THE COMMUNITY REINVESTMENT ACT

                              ----------                              


                        Thursday, April 15, 2010

             U.S. House of Representatives,
             Subcommittee on Financial Institutions
                               and Consumer Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:02 a.m., in 
room 2128, Rayburn House Office Building, Hon. Luis V. 
Gutierrez [chairman of the subcommittee] presiding.
    Members present: Representatives Gutierrez, Watt, Moore of 
Kansas, Waters, Hinojosa, Baca, Green, Clay, Cleaver, 
Perlmutter; Hensarling, Royce, Garrett, Neugebauer, Lee, and 
Paulsen.
    Chairman Gutierrez. This hearing of the Subcommittee on 
Financial Institutions and Consumer Credit will come to order.
    Good morning, and thanks to all of the witnesses for 
agreeing to appear before the subcommittee today. Today's 
hearing will examine proposals for improvements to the 
Community Reinvestment Act, given the changes in the financial 
services marketplace over the last decade.
    We will be hearing from the lending industry, the advocacy 
community, and the academics on their perspectives of how CRA 
should be improved to make it more effective in its goal of 
increasing access to credit in low- and moderate-income 
neighborhoods.
    We will be limiting opening statements to 10 minutes per 
side, but without objection, all members' opening statements 
will be made a part of the record.
    We may have members who wish to attend, but do not sit on 
this committee. As they join us, I will offer an unanimous 
consent request for each member to sit with the committee and 
ask questions, when time allows.
    I yield myself as much time as I may consume.
    So much of the news we see and hear concerns Wall Street 
bankers. Today, we will focus on the other end of the spectrum. 
We will look at the safeguards for the little guy.
    The Community Reinvestment Act is one of the programs that 
keeps our communities moving and keeps the economy moving. It 
literally ensures that the lifeblood of the economy--small 
businesses, homeownership, and investments in low- to moderate-
income communities--keeps flowing.
    The Community Reinvestment Act is one of the most important 
legacies of the civil rights struggles of the 1960's, that 
resulted in landmark consumer rights legislation, such as the 
Fair Housing Act, the Equal Opportunity Credit Act, and the 
Home Mortgage Disclosure Act.
    These laws have become indispensable for consumers and are 
often taken for granted in our current political environment. 
These laws help to give all of our citizens access to 
affordable credit, credit that is safe, free from bias, and 
free from discrimination, based on income, race, or even 
something as simple as the zip code where someone lives or the 
ward in which they vote.
    As good a job as CRA has done over the past years, there 
remains so much more for this committee and this Congress to 
do. Minority communities have been targeted by non-CRA mortgage 
brokers for predatory loans, and many in our communities 
continue to rely on high-cost lending for paycheck-to-paycheck 
survival.
    Lending to underserved communities has increased by the 
CRA. That is a documented fact.
    At the same time, however, the FDIC announced in December 
that even though 75 percent of the banks they surveyed were 
aware of significantly underserved populations in their market 
area, only 18 percent of them included expanding access to 
credit to those communities as a priority in their business 
strategy. And that is unacceptable.
    The CRA has done amazing things for our communities. As Mr. 
Taylor of the NCRC says in his written testimony, $4.6 trillion 
has been invested in our neighborhoods since the passage of the 
CRA through bank commitments, including $60 billion in small 
business lending in 2008 alone.
    And this is at a time when lending on all other fronts was 
decreasing nationwide. In order to help our constituents 
recover from the current recession, to help them stop paying 
outrageously high fees for check cashing and payday loans, and 
to help our small business owners buy that new truck, that new 
oven, or even hire those new workers, we must do what we can to 
expand the CRA obligations beyond its current scope.
    We must find ways to give Americans increased access to 
credit as well as find new ways to incentivize lenders to 
increase lending to underserved communities.
    I look forward to working with the financial services 
industry, stakeholders, and low- to moderate-income 
communities, Federal banking agencies, and Members of Congress 
to help make the CRA's goals of affirmatively providing 
affordable access to credit to all of our communities a more 
expansive reality.
    And before I close, I thought I would save the other side 
some time and allow them to focus on more substantive remarks 
and questions by stating that in no way did the CRA cause, 
facilitate, or exacerbate the mortgage crisis.
    I don't think I can be clearer than that. What do Chairman 
Bernanke, Chairman Bair, Comptroller Dugan, Federal Reserve 
empirical studies, Business Week, and the Financial Crisis 
Inquiry Commission's great study have in common? They all agree 
the CRA did not cause the crisis.
    Let's bear in mind the CRA was adopted to end redlining, a 
practice by which banks would literally draw a red line on a 
map around neighborhoods, usually where minorities lived, in 
which they did not want to offer financial services or capital 
to grow the economy. Let's talk about how to more effectively 
combat redlining today, and not about the red herring of CRA 
allegedly causing the financial crisis.
    So now that we don't have to deal with that distraction, we 
will have much more time to talk about constructive issues, 
like how to incentivize participation in the CRA and expand the 
benefits of this law to more and more Americans who are 
struggling to build a better life for themselves, their 
families, and the communities in which they live and work.
    I now yield to the ranking member, Mr. Hensarling.
    Mr. Hensarling. Thank you, Mr. Chairman.
    I believe that the Community Reinvestment Act has had a 
proud genesis. Thirty-three years ago, in 1977, redlining was 
clearly not insignificant. Too many low-income and minority 
individuals' credit opportunities were limited to a handful of 
banks that might have been reachable on a city bus route.
    But years later, much has changed. Interstate banking, 
branch banking, Internet banking, and risk-based pricing all 
have helped revolutionize and democratize credit in our society 
as never before.
    If you can gain access to the Internet at a public library, 
if you have access to a telephone to call a toll-free number, 
you can unlock countless credit opportunities for credit cards 
and home loans that were simply unavailable years ago.
    Market competition from companies such as LendingTree.com, 
BankRate.com, CardHub.com, and many, many others, now provide 
low-income Americans with a platform to access competitive bids 
on financial products all across the United States, not just in 
localized geographic communities. In fact, the concept of a 
localized geographic community for banks is simply antiquated.
    Now unfortunately, the recession, not to mention anti-
consumer legislation which has been passed by this Congress, 
continues to erode credit opportunities for many of these low-
income Americans.
    That is regrettable; but it brings us to the great irony of 
this hearing yet again. Thirty-three years ago, if you examine 
the Congressional Record, what you see is the debate 
surrounding CRA was all about financial institutions denying 
credit opportunities to low-income and minority individuals.
    Now today, much of the debate is about greedy financial 
institutions exploiting low-income and minority individuals by 
making too much credit available to these communities. So it 
begs the question: Is it too much or is it not enough?
    Regardless of what CRA was, today it is a costly and 
redundant anachronism that has contributed to our economic 
crisis, and still enables certain activist groups to 
essentially shake down financial institutions, harming credit 
and job opportunities for all Americans.
    Federal Reserve data has shown that well over 99 percent of 
all banks are already in full compliance with CRA; yet we know 
that community banks can spend up to $90,000 a year just to 
prove compliance.
    Again, it begs the question: Are we simply having banks pay 
all these great sums of money to prove that they're doing 
something they would do anyway? Do you really have to force a 
bank to make a profitable creditworthy loan? And if not, are we 
forcing them to make loans to a universe of people that they 
may not otherwise make loans to; and these loans may not be 
financially sound loans, and indeed, they may be loans that 
help contribute to our economic crisis?
    And when we talk about CRA loans contributing to the 
economic crisis, I have long contended it wasn't the size of 
the loans, it wasn't the number of loans, but it was one more 
precedent, where the United States Government put its 
imprimatur on a system that did not raise up the economic 
opportunities of the borrower, but instead lessened the credit 
standards of the lender. Thus, it played a role.
    Also, every community banker I speak to tells me that equal 
or second only to BSA, CRA is their most costly compliance 
matter. If they simply had the money that they are spending on 
compliance costs, they would instead be able to capitalize at 
least several small businesses in their community and create 
hundreds of jobs.
    Mr. Chairman, I would like to yield myself an additional 30 
seconds.
    Chairman Gutierrez. Absolutely.
    Mr. Hensarling. Shouldn't jobs be the number one priority 
of this Congress? Clearly it is not, though. Under the policies 
of Speaker Pelosi and President Obama, almost 4 million of our 
countrymen have lost their jobs since the President has been 
inaugurated. And we have the highest unemployment rate we have 
had in a quarter of a century, not to mention a tripling of 
national debt.
    One thing our committee could do that would take a positive 
step in creating more jobs in America is simply to repeal CRA.
    Today, I will be introducing legislation to do just that, 
and I urge its consideration.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Chairman Gutierrez. The gentleman yields back the balance 
of his time.
    Do we have any members on our side seeking time? Seeing 
none, Mr. Royce is recognized for 3 minutes.
    Mr. Royce. Thank you, Mr. Chairman.
    If we can learn anything from the recent crisis, it should 
be that giving private entities public missions is 
fundamentally flawed.
    The most glaring case was Fannie Mae and Freddie Mac, 
which, as Alan Greenspan put it last week, ``paid whatever 
price was necessary'' to reach affordable housing goals which 
were so important to their allies in Congress. This led to the 
GSEs taking on well over $1 trillion in junk loans, which then 
led to the GSEs' failure, and the collapse of the housing 
market.
    No one has said that CRA was the primary cause of the 
housing crisis. What economists have argued is that CRA was a 
contributor to this problem. CRA falls in the same category as 
Fannie and Freddie. Mandating that private institutions offer 
loans they otherwise would not offer contributed to the erosion 
of credit standards throughout the market.
    We can't have a situation where we in Congress muscle down 
20 percent downpayment rates to get them down to 3 percent or 
zero percent, by the way, and not think that is going to have 
an impact.
    And along those same lines, CRA also acted as a bargaining 
tool for activist organizations. The CRA requirement that banks 
have good CRA records for regulatory approval of a merger or 
acquisition gave groups like ACORN ammunition to shake down 
financial institutions. And that's what they were doing, 
shaking down financial institutions for either direct 
contributions or affordable housing commitments.
    According to the 2007 annual report of the National 
Community Reinvestment Coalition, the four largest U.S. banks--
Citi, Bank of America, Wells Fargo, and JPMorgan Chase--or 
their predecessors had made commitments under the CRA to make 
more than $4.5 trillion in CRA-type loans between 1993 and 
2007. Countrywide Financial, through a HUD program, created 
their own affordable housing goals and committed to make $1 
trillion in loans to low- and middle-income borrowers.
    While a number of those loans went to creditworthy 
borrowers, many did not. And by 2008, these programs resulted 
in over 2 million high-risk loans. With respect to all loans 
made under CRA by some instruments, half were made to borrowers 
who made downpayments of 5 percent or less, or had below prime 
credit scores, both characteristics that indicated a high 
credit risk.
    Instead of expanding this unsound law, I believe it should 
be significantly scaled back, or abolished altogether.
    If the goal is to ensure that lending practices are not 
based on race or where an individual lives, many experts agree 
that enforcing the existing fair lending and antitrust laws 
would get us there, if they were enforced.
    I look forward to hearing from our witnesses today, and I 
yield back.
    Chairman Gutierrez. Mr. Watt, you're recognized for 2 
minutes.
    Mr. Watt. Thank you, Mr. Chairman. I was going to pass and 
go to the witnesses. But I got kind of provoked by the ranking 
member's statement. Because I have this recollection of a time, 
when I came to this committee, and CRA and many of these 
financial services issues were bipartisan, non-partisan, non-
philosophical issues.
    I won't go into a line-by-line refutation of our ranking 
member's statement. I just think it's a sad commentary on what 
has happened to this committee and the leadership on the 
Republican side; and perhaps what has happened to the whole 
Republican side of every issue, which is just so far out there 
that nobody can embrace it, except the most radical extremist.
    And I thought this committee, I had hoped, was exempt from 
that. But I'm saddened to find we simply are not. So I'll just 
yield back, and let my statement stand for that.
    Chairman Gutierrez. The gentleman yields back his time. And 
we have Congresswoman Maxine Waters, who is recognized for 3 
minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    Let me begin by saying that I consider the Community 
Reinvestment Act to be one of the most significant pieces of 
legislation to help low-income and minority communities since 
its enactment in 1977.
    The CRA was necessary because financial institutions were 
discriminating against lower income and minority communities, 
in a practice we now call redlining.
    I remember too well the days of redlining. When I entered 
the California State Assembly back in 1976, prior to the 
passage of CRA, whole communities were excluded from mortgage 
opportunities, simply because financial institutions chose not 
to lend to them.
    The CRA was an important step to correct this problem, and 
did so by creating an explicit promise between federally 
insured banks and the government.
    If banks met the credit needs of their entire community, 
including minority and low-income borrowers, they would be 
permitted to expand and grow their businesses.
    Since the passage of CRA, small business lending and low- 
and moderate-income tracts increased from $33 billion in 1996 
to $60 billion in 2008.
    Furthermore, community development lending grew from $18 
billion in 1996 to $73 billion in 2008. It is clear that CRA 
has played a large role in increasing homeownership, decent 
affordable renting housing, small business ownership, and 
community development investments that would not have been 
possible otherwise.
    Yet, despite this data, critics have blamed CRA as one of 
the factors that led to the financial crisis for providing more 
lending opportunities to lower-income communities. We just 
heard a bit of that.
    And I continue to hear that with the tightening of credit, 
banks are making fewer and fewer loans to small, minority, and 
women-owned businesses.
    The facts demonstrate that CRA is not to blame, and these 
underserved populations should not bear the brunt of such 
unfounded claims.
    According to a recent study, based on HMDA data, CRA banks 
were significantly less likely than other lenders to make high-
cost loans, and the average APR and high-cost loans originated 
by CRA banks was appreciably lower than those by other lenders.
    Furthermore, it must also be noted that the largest 
financial institutions that are refusing to lend to underserved 
populations are the same banks that received billions in TARP 
payouts last year. They're taking taxpayer dollars, but failing 
to serve the communities that need it most.
    If we are to recover as a nation, then we must do it 
together by making sure that our underserved communities are 
provided the same access to credit and lending opportunities as 
our most served communities.
    That is why CRA is so important. As we move forward, we 
must make sure that we not only strengthen enforcement of the 
current role of CRA, but that we also improve upon the role of 
CRA, so that it can continue to help underserved populations 
gain access to homeownership, and community development 
opportunities, and help restore our economy.
    I look forward to hearing from today's witnesses about the 
ways in which we may further modernize CRA, and how CRA can be 
used to provide greater banking opportunities to underserved 
populations, while helping to restore the national economy.
    Thank you, Mr. Chairman. And I yield back the balance of my 
time.
    Chairman Gutierrez. We now will hear from the witnesses. We 
have Mr. John Taylor, who is the president of the National 
Community Reinvestment Coalition. You are recognized for 5 
minutes, Mr. Taylor.

STATEMENT OF JOHN TAYLOR, PRESIDENT AND CEO, NATIONAL COMMUNITY 
                 REINVESTMENT COALITION (NCRC)

    Mr. Taylor. Thank you, Chairman Watt, and Ranking Member 
Hensarling, as well.
    CRA is one law that has worked well for America's blue-
collar working-class people. CRA loans are made safely and 
soundly. CRA loans are not to be confused with the predatory 
and malfeasant loans made by institutions not covered by CRA, 
that brought down the American economy.
    In 1977, a very wise and thoughtful Congress dedicated to 
helping all Americans achieve their version of the American 
Dream, passed this law, this CRA, for two very important 
reasons:
    First, that Congress was not focused on just bailing out 
banks, but was rather making sure that our financial services 
system made loans to regular people, not only the well-heeled.
    Second, Congress determined that since the American 
taxpayer was on the hook for ensuring that people who made 
deposits and investments in these banks, they wisely concluded 
that it was important that such banks not only loan to the rich 
and big corporations, but to small business owners and to 
first-time home buyers, and to those working their way up the 
economic ladder.
    And the results are in. CRA has been an outstanding 
success. It is now well-documented that the significant lending 
increases and investment and service increases have been made 
safely and soundly to low- and moderate-income and blue-collar 
working-class Americans.
    For example, just taking the period 1996 to 2008, the total 
small business lending done under CRA was over $641 billion. 
The total community development lending under CRA for that 
brief period, which community development lending is about 
rental housing, economic development projects, community 
facilities, that totalled over $480 billion. Now that's over a 
trillion dollars of private investments--not government 
investment, but private investment--in low-and moderate-income 
communities. That's making capitalism work fairly for 
everybody. With 33 years of success story under CRA, there are 
also lessons learned on how to improve this vital law. Please 
see my detailed comments on pages 40 to 43 of my testimony.
    But let me just highlight a few brief recommendations.
    First, we need to expand CRA coverage for existing CRA-
regulated banks, to include all their affiliate lenders and to 
where they do a significant amount of business. We need to 
expand CRA's coverage to all financial institutions. Credit 
unions, insurance companies, independent mortgage companies, 
and investment banks should all have an affirmative obligation 
to safely and soundly loan to all Americans working their way 
up the economic ladder.
    Second, we must increase the opportunity for women business 
owners and others to have more access to small business loans, 
by removing the veil of secrecy that now exists in banks, as to 
whom banks are making these loans to.
    As we do in housing loans, we need to have the banks report 
the details on their business loans. Are they loaning to only 
the well-heeled and big businesses? Or are they loaning to 
women-owned businesses, small businesses, minority-owned 
businesses, and others?
    Modernize the system for grading banks under CRA with more 
specific and detailed measures on how they are actually 
performing and making their loans available to working-class 
Americans.
    Finally, strengthen the enforcement mechanisms under CRA by 
requiring public comment hearings on major mergers. And if 
banks fail to pass the CRA exams, require them to improve, or 
penalize them for their bad behavior.
    CRA is about making capitalism work safely and soundly for 
the little guy and gal, not just about Wall Street and making 
the market work for Wall Street and big banks.
    For the remainder of my time, I want to address something 
that Representative Hensarling said, because I want to make 
sure that everybody in his district who watches C-Span 
understands that their elected official is actually arguing to 
end the system which says banks can't ignore them as a working-
class American--and you have to have someone in Dallas and you 
have to have someone in California--that this Representative is 
actually proposing to end a system that has worked very well, 
that would allow for safe and sound investments for working-
class small business owners, all these people, Tea Party, and 
all these other people who are arguing that the banks aren't 
lending and we're bailing out the banks, that your 
Representative in Dallas, Texas, is arguing to end the system 
that says, ``Hey, if you can pay the loan, and you're a hard-
working American, and you're willing to pay your taxes, and 
you're willing to play by the rules, you should have access to 
the financial services sector,'' that they shouldn't just 
ignore you and only loan to the rich and the well-heeled and 
the big corporations.
    That's what you're proposing, Representative Hensarling.
    And let me just say, on this shakedown comment you had, 
I'll tell you, in my opinion, nobody shakes down the banks 
better than the Members of Congress.
    You yourself have received over $200,000 in contributions 
from financial institutions over the last 2 years. And that 
goes directly to you keeping your job. That is not what 
community organizations do.
    Community organizations sign CRA agreements with these 
banks to get them to make loans to underserved people, not 
loans to their campaign, that's going to keep them in office 
and keep them getting re-elected.
    So I would be careful about where you point your finger and 
accuse people of shakedowns.
    Thank you for the opportunity to comment.
    [The prepared statement of Mr. Taylor can be found on page 
139 of the appendix.]
    Chairman Gutierrez. The time of the gentleman has expired.
    Next, we have Cy Richardson, who is the vice president of 
housing and community development for the National Urban 
League.

    STATEMENT OF CY RICHARDSON, VICE PRESIDENT, HOUSING AND 
          COMMUNITY DEVELOPMENT, NATIONAL URBAN LEAGUE

    Mr. Richardson. Chairman Gutierrez, and Ranking Member 
Hensarling, thank you for the opportunity to share the 
perspectives and proposals of the National Urban League on CRA.
    Today's hearing falls squarely within the economic 
empowerment discourse, both nationally and in our local 
communities.
    Given the limited time allotted, my remarks will focus on 
some general recommendations for modernizing and strengthening 
the core purpose and utility of CRA, followed by some specific 
ideas for amendments of the service test, an important and 
highly visible core component of CRA.
    I would request that my full written testimony be entered 
into the official record, please.
    Chairman Gutierrez. Without objection, it is so ordered.
    Mr. Richardson. Before I share the Urban League's views and 
proposals along these lines, it is important to first address, 
head-on, as Mr. Taylor did, some of the disturbing and 
unpleasant rhetoric that surfaced during the recent period of 
dissonance concerning CRA and the foreclosure crisis.
    In the wake of the subprime meltdown, some observers and 
commentators have perpetuated a dangerous myth that minority 
and low-income borrowers, and measures to expand the 
opportunities for homeownership, such as CRA, were responsible 
for the subprime crisis. However, a number of recent reports 
and studies have forcefully debunked these attacks on the CRA.
    Our analysis indicates that the CRA has been effective in 
ensuring access to fairly priced credit for low- and moderate-
income borrowers, as lenders covered by CRA are far less likely 
to make higher-cost loans than those not covered.
    These are the facts; yet a considerable amount of time and 
care has been spent, and indeed will continue to be spent, 
disarming what the president of the Urban League, Mark Morial, 
termed ``weapons of mass deception,'' under which this line of 
argument generally falls.
    In our judgment, Congress must:
    One, keep the Act fundamentally intact and seek to build on 
its strength by fine-tuning the measurements to remain in step 
with shifting markets.
    We also call for a revitalized role for the public, 
particularly in light of the current priorities of regulatory 
agencies.
    The following changes, among others, would allow the test 
to more effectively measure a bank's performance and should be 
included under an expanded reporting rubric.
    Since many lower-income people do not live in lower-income 
zip codes, examiners should conduct sample surveys of the 
income and race and ethnic distribution of an institution's 
retail customers, to determine the percent of those customers 
who are lower income and members of minority communities.
    Examiners should also construct and report a systematic 
analysis of quantitative data of the number and income rates of 
customers who use alternate ways of accessing financial 
products--telephone, Internet banking, smart ATMs, etc.,--and 
those who facilitate wire transfers to other countries.
    Banks should report data on the services they provide to 
unbanked households and their success in using those services 
to recruit new customers.
    Examiners should carefully examine banks' relationships 
with high-cost fringe lenders, for example, and determine 
whether those fringe lenders' disclosure activities, costs, 
terms, and conditions have a deceptive impact on their 
customers.
    Banks should be required to report quantitative details of 
the community development services, including the number of 
people who attend financial literacy events and seminars, and 
the number of accounts that result from such events.
    Finally, banks should also be examined to see whether they 
effectively market savings products to lower-income consumers.
    Moreover, with regard to small business lending, we believe 
CRAs should monitor bank-lending activities to small and 
minority businesses, to determine if their current lending 
practices are user-friendly for these business concerns.
    And CRA should also include an evaluation of bank 
participation and collaboration with local nonprofits, who 
themselves provide microlending to small businesses.
    Bringing the Community Reinvestment Act into the 21st 
Century requires the same kind of care and creativity that 
fostered the Act in 1977, and provided for its reform in the 
1990's.
    The CRA has established that it can help meet the needs of 
low-and moderate-income individuals and communities and their 
material needs. Indeed, after the crisis caused by the subprime 
turmoil rolls through these neighborhoods, their problems are 
likely to be even more acute.
    Finally, given the impetus for this important hearing, we 
strongly believe that CRA could become an even more powerful 
and catalytic engine to revitalize low- and moderate-income 
communities, coming to the fore just when the government's 
ability to use tax revenues to pay for infrastructure 
improvement and to invest in urban development is greatly 
diminished.
    Thanks for the opportunity to comment. And I'll take any 
questions. Thank you.
    [The prepared statement of Mr. Richardson can be found on 
page 123 of the appendix.]
    Chairman Watt. Thank you so much, Mr. Richardson.
    William Askew is the senior policy advisor at the Financial 
Services Roundtable. And he's next, please, for 5 minutes.

   STATEMENT OF WILLIAM E. ASKEW, SENIOR POLICY ADVISOR, THE 
                 FINANCIAL SERVICES ROUNDTABLE

    Mr. Askew. Mr. Chairman, Ranking Member Hensarling, and 
members of the subcommittee, I'm William E. Askew, senior 
policy advisor for the Financial Services Roundtable, on whose 
behalf I am appearing today.
    Thank you for the opportunity to address the Community 
Reinvestment Act. The CRA was enacted to promote loans and 
services to low- and moderate-income neighborhoods and 
residents of those neighborhoods.
    Since its enactment, the Act has more than achieved its 
goal. CRA has become an open and consultative community 
process. All of the participants in the process, including 
lenders, regulators, and community organizations, have become 
more sophisticated, and focused on how best to achieve the 
goals of the statute.
    And most importantly, CRA has generated billions of dollars 
in new loans and investment services in both urban and rural 
areas around the country. This success story is well-
documented.
    Despite this record of success, we believe there is still 
room for refinement of the implementation of CRA, so 
institutions and community groups can better achieve the goal 
of the Act.
    In the balance of my testimony, I'll outline 
recommendations for enhancing compliance with CRA. I'll also 
address the need to maintain the focus of CRA.
    Today the overwhelming majority of banks receive a 
satisfactory CRA rating, and only about 10 percent achieve an 
outstanding rating. This result should not be surprising. 
Achieving an outstanding rating requires considerable effort 
and expenditure on the part of banking institutions, as well as 
just complying satisfactorily.
    We believe that even more banking institutions should 
pursue this top rating. Toward that end, we recommend that the 
Federal banking agencies institute some measures to encourage 
more banking institutions to obtain an outstanding CRA rating.
    In my written testimony, I list some specific actions the 
agencies could take.
    Although the existing CRA regulations and interpretations 
encourage examiners to give extra consideration to projects and 
activity that are innovative and complex, our members observe 
that such recognition is, in fact, rare.
    We recommend that the Federal banking agencies pay greater 
attention to innovative and complex loans and investments in 
conducting CRA examinations.
    For example, CRA examiners should consider a bank's efforts 
to open and maintain homeownership preservation offices in low- 
and moderate-income neighborhoods, and banks programs, to 
systematically offer and sell deep discounts or donate 
properties to local community-based organizations.
    The CRA regulations already acknowledge the unique 
character of an individual banking institution by encouraging 
institutions to perform their own performance context 
assessments in advance of CRA examination.
    We recommend that the Federal banking agencies encourage 
examiners to give sufficient attention in regard to these 
assessments and the conduct of the CRA examinations, rather 
than just relying on quantitative pure comparisons.
    In recent years, CRA examiners have placed an emphasis on 
mortgage lending. We recommend that the Federal banking 
agencies encourage examiners to give institutions sufficient 
recognition for non-mortgage-lending activity, such as lending 
to small businesses, to small farms, and community 
developmental lending.
    Given the successful implementation of CRA, we do not favor 
fundamental changes to the statute. For example, we do not 
support the extension of CRA to securities, brokerages, mutual 
funds, and insurance companies. CRA has succeeded because it is 
linked to the charter obligation of banks and thrifts to meet 
the convenience and needs of their local communities.
    It should not be assumed that extending CRA to institutions 
that are not subject to a similar obligation would be 
successful.
    In summary, CRA has helped to transform urban and rural 
communities throughout the United States. The members of the 
Roundtable are very proud of the role they perform under the 
Act. We believe that with some minor refinements, the Federal 
banking regulators can encourage even greater benefits for 
local communities.
    We also believe that now is not the time to change the 
focus for CRA. We should write a new chapter in the story, but 
we don't need to rewrite the story.
    Thank you. And I'm happy to answer any questions you may 
have.
    [The prepared statement of Mr. Askew can be found on page 
44 of the appendix.]
    Chairman Gutierrez. Thank you so much, Mr. Askew.
    And now, we're going to hear from Eric Rodriguez from the 
National Council of La Raza.
    Eric, you are recognized for 5 minutes.

    STATEMENT OF ERIC RODRIGUEZ, VICE PRESIDENT, OFFICE OF 
  RESEARCH, ADVOCACY, AND LEGISLATION, NATIONAL COUNCIL OF LA 
                          RAZA (NCLR)

    Mr. Rodriguez. Thank you, Mr. Chairman, Ranking Member 
Hensarling, and members of the subcommittee. It's a great 
privilege for us to be here.
    As you have already heard, CRA is one of the most important 
tools the public has to ensure that neighborhoods and 
communities with low-income families have fair and affordable 
access to mainstream banking services.
    The Act has helped to revitalize neighborhoods, and enable 
non-traditional borrowers, including many Latinos, to gain 
services. The Act has also helped to ensure that Latinos 
benefit directly from investments made by large mainstream 
banks, that might otherwise have left the community 
underserved, in many ways agreeing with what my colleague here 
said about many of the successes of the CRA.
    But it is a good time for us to revisit CRA.
    I think it's clear that at its peak, banks covered by CRA 
increased lending activity in low-income communities, increased 
the share of their loan portfolios with CRA covered loans, and 
outpaced similar growth in lending to low- and moderate-income 
families compared to non-CRA covered institutions.
    Despite many of these important outcomes, developments in 
the financial markets, as you have already heard, have eroded 
some of the effectiveness of CRA. But the base purposes of this 
law are very strong, and the need for government and continued 
government intervention in mainstream markets is also very 
strong.
    I'll give you a few examples.
    One, policy and practices among regulated mainstream 
financial institutions have evolved over time to provide prime 
loans to only those individuals with long and well-established 
credit histories.
    Automated underwriting practice by mainstream regulated 
financial institutions is an innovation that, in fact, 
minimized arbitrary and potentially discriminatory lending 
decisions by bank loan officers.
    But it has also meant higher costs for mainstream banking 
institutions to serve effectively non-traditional borrowers. 
This high cost has often resulted in some credit rationing that 
effectively and unnecessarily pushed creditworthy, 
nontraditional borrowers, including young, foreign-born, 
minority, and other creditworthy borrowers into subprime 
markets, where predatory lending thrived.
    Second, many banks now, as you have already heard, conduct 
business well beyond the walls of their branches. CRA-covered 
institutions acquired non-covered affiliates and expanded their 
customer base through new delivery channels, such as mortgage 
brokers on the Internet. Regulated banks broadened their reach, 
without proportional increase in CRA coverage.
    Finally, an issue that's important is grade inflation 
through exams, which I think has really undermined 
accountability in the system overall.
    As the effectiveness of CRA has waned over the years, 
providers of alternative forms of credit gained more presence 
and reach into low-income communities, the proliferation of 
non-covered institutions, including many unscrupulous lenders 
in low-income neighborhoods undermined the main goal of CRA to 
provide affordable credit to these residents.
    And yet the goal remains critical today and likely well 
into the future that we encourage investment in communities.
    To begin with, this decade has experienced a marked growth 
in influx of immigrant workers into low- and moderate-income 
neighborhoods. Many of these residents are non-traditional 
borrowers, who in many cases have short credit histories, and 
often no credit scores.
    Paradoxically, their thin credit files are often the 
product of highly sensible financial practices, such as paying 
in cash, avoiding debt, and limiting their use of credit cards. 
In addition, many Latino minority and low-income families today 
remain unbanked; hold high-interest credit cards; have become 
dependent on small-dollar and short-term loans such as payday 
and car title loans; are charged unnecessary fees for auto 
loans; and remain more likely to receive high-cost mortgages. 
This is in spite of their creditworthiness.
    In view of these disparities, it should be no surprise that 
the United States continues to maintain a persistent and 
staggering wealth gap between minority and White households.
    And as you know, this has severe implications on the 
socioeconomic development of the Nation, as Latinos and 
minorities become a greater share of the U.S. population 
through 2050.
    But CRA has good elements in place. It's flexible, it 
leverages State and local resources, and was at its best when 
it had extensive coverage and meaningful measurements.
    I echo many of the recommendations that my colleagues have 
already put out there so far. And I would underscore that two 
important main goals need to be considered as we look at 
modernization: first, we have to make sure that we preserve and 
expand the aspects of CRA that encourage product innovation, 
lending, and services that are critical to helping low-income 
Latino families have access to affordable credit and build 
wealth; and second, we have to solidify incentives to direct 
capital toward community and economic development projects that 
would otherwise not gain support.
    Thank you.
    [The prepared statement of Mr. Rodriguez can be found on 
page 130 of the appendix.]
    Chairman Gutierrez. Thank you.
    Next, we have Calvin Bradford, a board member with National 
Peoples' Action.
    You are recognized for 5 minutes.

   STATEMENT OF CALVIN BRADFORD, BOARD MEMBER, THE NATIONAL 
                        PEOPLE'S ACTION

    Mr. Bradford. Thank you, Chairman Gutierrez, and Mr. 
Hensarling.
    As you recall, Mr. Chairman, the organizing that started to 
develop around CRA began in Chicago and in your neighborhoods. 
And I had the pleasure 34 years ago to work with Gale Cincotta 
of National Peoples Action, and Senator Proxmire and his staff, 
and officials from the South Shore Bank in Chicago, in drafting 
Senate Bill 406, which became the Community Reinvestment Act.
    I have already submitted our statement, which has a great 
deal of detail about some of the issues I want to raise and 
some of our recommendations. And so much has been already said. 
I would just like to try and take my time to supplement some of 
that.
    The first thing is, as we face the contemporary 
environment, we have to restructure the Community Reinvestment 
Act, so that it deals with our present conditions in the 
financial market, and how things have changed.
    One of those things that of course has changed is that we 
now have toxic loan products. Before, we only looked at trying 
to get every loan in the neighborhoods. Now we have to look at 
whether the loan has a discriminatory impact, or whether it has 
a detrimental impact on the community. And the law has to be 
revised to take account of that specifically.
    Another critical development obviously has been the merging 
and acquisition by the bank holding companies, so that they 
include investment houses and insurance companies.
    And a third one is the dominance of Wall Street over the 
growth and proliferation of financial markets, which wasn't the 
case in the past.
    And we developed what I call a kind of three-legged askew 
stool for dealing with reinvestment in the mainstream and 
getting money out to Main Street.
    On the one hand, you have Wall Street and the banking 
industry, which have at their disposal their inherent power in 
the markets. And ultimately, I'm afraid we have to admit the 
fact that their values are shared by the regulatory bodies.
    Second, the Consumer Financial Protection Agency, which is 
the only real structure we have in our government to protect 
consumers from predatory lending, really hangs by a thread in 
Congress.
    What we're left with, therefore, is the third leg, which is 
the community organizations, the consumer organizations and 
civil rights organizations, which rely on the Community 
Reinvestment Act for enforcement, and we have to strengthen 
their tools.
    As a context for our recommendations, I just want to 
comment on sort of the good, the bad, and the ugly, about the 
present situation that we're in.
    The good part we have already covered is the over $4 
trillion approaching $5 trillion worth of investment in 
communities in this country. And I would just like to say that 
the congressionally-required study by the Federal Reserve Board 
of the risks of reinvesting loans showed that if you looked at 
community reinvestment programs themselves--that is, the 
specific programs for community reinvestment, the loss rate in 
these programs was exactly zero.
    And so we have had this money invested.
    And I also think it's important to point out as a context 
that the programs that have done this reinvestment have 
essentially all been created by community groups, or community 
groups in partnerships with banks. And so we have to look at 
that process.
    The bad has been that over the years, the regulations for 
the Community Reinvestment Act have been stripped of their 
power. The community has been taken out. In my testimony, I 
talk about some of the weaknesses.
    For example, there's an example of three national banks 
that were given high CRA ratings at the same time they were 
sued by the Justice Department for race discrimination. They 
literally cut out of their service areas the City of Detroit, 
the City of Gary, Indiana; and the largest lender in Chicago at 
that time cut out the north side, west side, and south side 
minority communities of Chicago.
    In addition to that, I worked on lawsuits against a bank 
called Flagstar, which was twice found in violation of Federal 
fair lending laws in Federal court. And after the second time 
it violated those laws, the OTS raised its rating to 
outstanding.
    So I think we have to deal with that issue.
    We have to deal with the issue that oftentimes a lot of 
lending that's detrimental isn't counted. And I'm not talking 
just about subprime lending; I'm talking particularly about 
national banks, which not only made more loans than the 
Comptroller admits that were subprime, but they funded the 
subprime industry through lines of credit, warehouse loans. And 
in addition, on the other end, of course, the banks were 
involved in the securitization.
    So the entire subprime market essentially was financed by 
our national bank system. And today, they're financing 
predatory payday loans. Those have to be taken into account as 
well. And they have not presently been taken into account. And 
some of the banks, like Wells Fargo we're now seeing are 
essentially making their own predatory payday loans.
    So those things have to be fixed. I think there are three. 
I'll say in ending that there are three major issues that I 
would like to address, and I'll answer questions about.
    When you're looking at how to reform CRA, the first thing 
is we need to improve on mortgage disclosure and other types of 
business disclosure. If nothing else happens, community people 
need to have better information. If we had had the information 
we asked for on the performance of loans in the past, we might 
have been able to avert a great deal of this mortgage meltdown. 
We could have told you which lenders were making bad loans 
where, 10 years ago, when the neighborhood was raising these 
issues.
    And second, we need to look at all the various types of 
loans that are accounted, and particularly make any kind of 
fair-lending violation an automatic fail for CRA.
    And third, we have to put accountability back in the 
system, and to a great extent, that means putting the community 
back into the system, and allowing for challenges and a wider 
role for challenging what the banks do.
    Thank you.
    [The prepared statement of Mr. Bradford can be found on 
page 52 of the appendix.]
    Chairman Gutierrez. The time of the gentleman has expired. 
When the light turns yellow, you have 60 seconds, so start 
thinking about winding down at that point. Thank you so much.
    Next, we have Mark Willis, resident research fellow at the 
Furman Center for Real Estate and Urban Policy at New York 
University. You are recognized for 5 minutes.

 STATEMENT OF MARK A. WILLIS, RESIDENT RESEARCH FELLOW, FURMAN 
  CENTER FOR REAL ESTATE AND URBAN POLICY, NEW YORK UNIVERSITY

    Mr. Willis. Thank you very much, Mr. Chairman, and members 
of the subcommittee. I appreciate very much being invited to 
come to this hearing.
    I just want to briefly mention that I come to this hearing, 
this topic, with 19 years of experience, where I oversaw the 
community development programs at JPMorgan Chase. The last 
year-and-a-half, I spent at the Ford Foundation as a visiting 
scholar, where I had the opportunity to write a couple of 
articles on how to rethink reform of CRA. And I also spent some 
years as an urban economist at the NY Fed, and was a New York 
City housing official.
    So I, in some way, wear many hats, or am fortunate to have 
experiences from many different perspectives. At this hearing, 
I represent solely myself.
    I am currently employed at the NYU Furman Center, where I 
am a resident research fellow. But I do solely represent 
myself.
    I have submitted formal testimony. I will try and give a 
quick overview of that. I also can mention that I wrote a 
couple of articles while at the Ford Foundation, and I have a 
third on the way. I would be happy to share those with members 
of the committee as well.
    As I say in my testimony, I think passage by Congress of 
the Community Reinvestment Act launched a bold experiment. CRA 
has played a really important role in helping to stabilize and 
revitalize many lower-income communities across the country. 
Others have made clear that it was not a driver of the subprime 
prices. I won't spend any more time on that.
    But I do feel strongly that CRA has fallen short of its 
potential, and is losing ground. And so it is really important 
that we think about reforming it.
    The bases for that reform are a couple of things. We have 
learned a lot over 33 years about what works and doesn't work. 
We have also seen huge changes in the banking world, that is no 
longer just local banks taking local deposits, making local 
loans that was the core of our banking system.
    And we now have large national banks and Internet and 
industrial loan corporations serving national markets from a 
limited headquarters and limited deposit-taking geography.
    We do need a major revamp, and I think also part of 
thinking through the revamp is the need to set up a system that 
can continually correct itself. The term in business is 
``continuous improvement.'' I think it's very important for us 
to think about not just how to change it one time here, but how 
to create something that will continually be able to adjust to 
changes in the marketplace and also, by the way, to changes in 
how we view the best practice in community development.
    So I think there are a number of things that can be done 
here by Congress. The first is there are a number of aspects of 
the core of the legislation that could be looked at. And I'll 
talk about those in a second.
    At the same time, I think it's important that Congress also 
encourage the regulators to move forward here. They have been 
chastened by past experience and lots of debate amongst 
stakeholders as to what the best way to go forward is. I think 
it's very important that they be encouraged to use the full 
discretion you gave in the original legislation, which is 
basically one line: To encourage banks to help meet the credit 
needs of local communities, and give the regulators more 
support here for them to go and make the necessary changes to 
make CRA more effective.
    One reason I focus on the regulators is I think, at least 
in theory, that their process would allow more opportunity for 
continuous change. I think well-designed legislation is a 
deliberative process, and one that takes time, and is not one 
designed necessarily to keep up with the changes that we have 
seen over the last 33 years, and that we will continue to see 
in the industry and in community development.
    As for specific areas for legislative consideration, 
obviously, you have heard discussion here about expanding to 
other financial services firms. There are two reasons to think 
about that.
    One is to level the playing field, so that all those who 
compete with each other will have the same responsibilities in 
the communities, whether they are banks or non-banks.
    And the other is the opportunity to bring more resources to 
the community development table. I think we have seen how 
successfully on a good business basis the resources from banks 
have been able to help low- and moderate-income communities. 
Obviously, if we could find ways to bring others in, to have 
the same constructive role, where everybody wins, would be a 
good idea.
    I think you also need legislative consideration about 
expanding CRA beyond credit. I think the regulators have tried 
to include other issues than just expanding access to credit--
    Chairman Gutierrez. The time of the gentleman has expired.
    Mr. Willis. Okay.
    Chairman Gutierrez. Your complete written statement will be 
in the record.
    Mr. Willis. All right.
    [The prepared statement of Mr. Willis can be found on page 
187 of the appendix.]
    Chairman Gutierrez. Next, we have the Honorable Eugene 
Ludwig. He is a former Comptroller of the Currency, and is now 
the CEO of the Promontory Financial Group. We're very happy to 
have him here with us this morning.
    Welcome, Mr. Comptroller.

 STATEMENT OF THE HONORABLE EUGENE A. LUDWIG, CHIEF EXECUTIVE 
            OFFICER, PROMONTORY FINANCIAL GROUP, LLC

    Mr. Ludwig. Mr. Chairman and members of the subcommittee, I 
want to commend you for your leadership in holding--
    Chairman Gutierrez. We want to hear your testimony.
    Mr. Ludwig. Okay.
    Chairman Gutierrez. If you could just get that microphone a 
little closer. Thank you so much.
    Mr. Ludwig. Okay. Thank you, Mr. Chairman.
    Chairman Gutierrez. You can start all over again.
    Mr. Ludwig. Mr. Chairman and members of the subcommittee, I 
commend you for your leadership in holding this hearing to 
discuss the Community Reinvestment Act and to consider 
enhancements that will advance the cause of equitable credit 
availability, promote sound lending practices, and otherwise 
ensure banking services are readily available in underserved 
communities.
    I have a written statement I submitted for the record, so 
let me focus on the most important aspects of that statement, 
please.
    As this committee knows all too well, the CRA often has 
been misunderstood and mischaracterized over the past 33 years. 
The truth is that the application of the CRA has been a 
considerable success. It has incented banks to provide hundreds 
of billions of dollars in loans--we have even heard today 
trillions of dollars of loans and services--to low- and 
moderate-income Americans.
    These investments have transformed neighborhoods all over 
America for the better. And CRA lending has been profitable and 
safe, almost with exception.
    Nevertheless, the CRA needs to be modernized, because the 
financial system and the methods for delivering financial 
services have changed in ways no one could have predicted when 
the CRA was enacted. And while the facts on the ground in the 
LMI neighborhoods and communities have changed as well, the 
heart of the problem the CRA was intended to solve remains. 
That is, the need for the financial services sector to deliver 
enough support to local communities.
    Thoughtful research by respected economists and community 
development experts show there are identified market failures 
that require government action to address. I cite many of these 
studies in my written statement.
    We now have some critics who blame the CRA for the subprime 
mortgage meltdown and the global financial crisis. I strongly 
disagree. It is not only implausible that lending to low- and 
moderate-income Americans could have such an outsized impact on 
the global economy; it is also demonstrably not the case, as I 
go into detail in my written statement.
    It is important to note, however, the economic crisis is at 
this moment altering our perceptions about who LMI borrowers 
are and where they live. High rates of unemployment are 
swelling the ranks of LMI borrowers in every State. Those who 
are unemployed are without a job for the longest period of time 
since the government began keeping such records in 1948.
    More and more LMI borrowers are not racial minorities, 
living in inner cities. Many unfortunate victims of the 
recession were plain-vanilla credit risks, until recently.
    These are just a few of the reasons why the hearing is so 
timely and so important, Mr. Chairman. And again, I commend you 
for holding it.
    The CRA is part of the solution to our current economic 
problems, not part of the problem. Small business has created 
over 64 percent of the Nation's jobs over the past 15 years, 
and the growth of small business depends on support from the 
banks, which is encouraged by the CRA.
    Moreover, excellent studies by the government, which have 
been based on CRA data have also helped in the small business 
area.
    So if we did not have CRA, we would want to enact it. It is 
the essential part of the tool kit for spurring sustainable 
economic recovery.
    Now let me return to the question of the CRA and the 
subprime meltdown. CRA loans and subprime loans are often 
viewed as synonymous; but they are not. The CRA lender making 
CRA loans tends to have a social, or at least a non-predatory 
objective. The non-bank, non-CRA lender, or the modern subprime 
lender, is driven to sell as many high-rate loans as it can 
with no particular social motivation.
    The subprime crisis resulted from practices that are the 
antithesis, the opposite, of the CRA lending goals and the CRA 
lending experience.
    After 2000, the subprime mortgage market evolved in a 
direction that made other influences on that market far more 
important than CRA. In one of his last pieces of research, the 
late Federal Reserve Board Governor, Ned Gramlich, calculated 
from HMDA data that only one-third of CRA mortgage loans to 
low- and moderate-income borrowers have rates high enough to 
even be considered subprime.
    Similarly, Tregaron Hinckley looked at banking companies 
that made CRA loans in the 15 most populous metropolitan 
statistical areas, and found they were more conservative in 
their lending practices than lenders not covered by CRA.
    Since 2004, over half of the subprime loans went to upper-
middle-income borrowers in non-LMI tracts. An analysis of the 
HMDA data by Compliance Tech finds that in 2006, about 67 
percent of subprime loans were upper or middle-income 
borrowers. LMI borrowers received only 28 percent.
    Chairman Gutierrez. The gentleman's time has expired--
    Mr. Ludwig. I realize I'm out of time.
    Chairman Gutierrez. I really like your testimony, but I'm 
sorry, I went a little overboard in terms of the time, and I 
apologize to everybody. It's a bias.
    [The prepared statement of Mr. Ludwig can be found on page 
92 of the appendix.]

   STATEMENT OF VINCENT REINHART, RESIDENT SCHOLAR, AMERICAN 
        ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH

    Mr. Reinhart. Thank you for the opportunity to discuss the 
Community Reinvestment Act. Redlining is pernicious. CRA was a 
successful legislative response to that societal failure. But 
it is appropriate to take time to consider how to best continue 
to achieve the mission of CRA. To do so properly requires 
examining four widely recognized failures.
    First, CRA was designed with a ``hydraulic'' view of 
banking. Deposit funds generated in particular locales were 
leaking out, because of an unwillingness of bankers to lend. 
CRA was to act as the catch basin to keep those funds within 
the community. That was a flawed view, even in 1977, and is far 
more out of sync with today's reality.
    Second, far more lending decisions were made off bank 
premises, whether by intermediaries such as mortgage brokers, 
or on the Internet. CRA's scope, therefore, is too narrow.
    This declining bank share is not entirely driven by 
technology, however. Rather, compliance costs associated with 
CRA and other bank regulations gave non-bank providers a 
decided competitive edge.
    Mortgage brokering, for instance, ran on under the radar 
screen of regulation to offer more varied products to poor 
communities. Sometimes, however, innovation slipped into 
predation.
    Third, CRA gives broad goals without detailed requirements 
about how to achieve them. This leaves much to the discretion 
of supervisory agencies, much to their delight. But experience 
has shown that agency attention to such matters swings like a 
pendulum.
    Fourth, enforcement of CRA is event-driven, really only 
getting teeth in advance of potential changes in ownership. As 
a consequence, bank management is especially vulnerable to 
interest groups that might lodge protests during the merger 
application process.
    CRA is at a crossroads. The wrong path would be to increase 
the scale and scope of regulation to address CRA's apparent 
flaws. A more productive route is to recognize its design 
flaws.
    First, CRA was written when finance was a brick-and-mortar 
industry. In this century, banks are less important and lending 
opportunities are far more varied.
    Second, the financial crisis has shown that the mixed model 
of giving private entities a public purpose is a failure. 
Giving bankers diffuse goals that are only episodically 
relevant is a very inefficient means of extracting a quid pro 
quo for protection, and helping the underserved.
    Third, CRA is one part of the government's overall policy 
of subsidizing housing. By construction, if the government 
oversubsidizes one activity, it disadvantages others.
    The Congress would be better served by expanding 
opportunities to build capital, including through support of 
small businesses and increasing incentives for equity 
ownership.
    If the Congress decides to continue the support of 
homeownership, there is a better path. Price the Federal safety 
net so there's an explicit quid pro quo for any protection to 
financial firms. Use some of those proceeds to subsidize the 
purchase of mortgage insurance for eligible borrowers in 
designated areas. Educate those households to opportunities to 
apply for loans, and enforce the existing Equal Opportunity 
laws if any of those who apply are wrongfully rejected.
    The problem lies not with the mission of CRA, but rather in 
its execution. I ask that my prepared remarks be included in 
the record.
    [The prepared statement of Mr. Reinhart can be found on 
page 118 of the appendix.]
    Chairman Gutierrez. Thank you so much to all of you.
    First, I guess I want to ask Mr. Askew, from the Financial 
Services Roundtable, could you, in 15 to 20 seconds, describe 
who you represent, in terms of America?
    Mr. Askew. We represent the Nation's 100 largest financial 
institutions.
    Chairman Gutierrez. And so it is, you're representing the 
Nation's 100 largest financial institutions. You have come here 
to say we should take a new look at CRA, but we shouldn't 
eliminate CRA. Is that essentially your testimony today?
    Mr. Askew. I'm saying, yes, sir, and that it worked.
    Chairman Gutierrez. And that it worked. Thank you very 
much. I just want it on the record that it's not just a cabal 
of liberals running around town, trying to get a program, 
between the 100 largest financial institutions have come and 
sent their representative here today.
    I want to go to Mr. Ludwig. Mr. Ludwig, you were giving us 
very important data. And in essence, then, you have found from 
extrapolating the data that you have looked at, that there is 
no correlation between the financial crisis.
    Why don't you, in 30 seconds, give us your sense of the 
financial crisis, the subprime loan, and what CRA did or didn't 
have to do with it?
    Mr. Ludwig. Mr. Chairman, the crisis that we have lived 
through has really nothing to do with the CRA. The banks should 
celebrate their CRA portfolios. They have been the safest part 
of community lending; they have increased dramatically over the 
last 33 years of the Act.
    Prior to my time in office, there were 17 billion; from my 
time forward, it's been testified here today trillions of 
dollars of lending. And yet those CRA portfolios are safe.
    What did happen, which created the crisis, was a misuse--
part of one of the elements--was a misuse of the concept of 
lending to low- and moderate-income people.
    Chairman Gutierrez. Let me, if I could just ask you, 
because I'm going to be very disciplined on my 5 minutes--just 
so that everyone here understands, the Comptroller of the 
Currency does exactly what succinctly, what did you have as a 
government official--
    Mr. Ludwig. Mr. Chairman, we regulate the national banks. 
And during my time in office, I was asked by the President to 
lead the regulatory community in a reform of the Community 
Reinvestment Act, which resulted in new regs in--
    Chairman Gutierrez. So as someone who regulated the 
financial industry, it's your testimony that they should be 
happy that their CRA portfolio was there, because in balance, 
when they look at their CRA versus non-CRA portfolio, it did 
very well for the financial--
    Mr. Ludwig. It's a success story for the American banking 
system. Yes, sir. The CRA portfolios have performed well.
    Chairman Gutierrez. Okay. And I just want to ask one last 
question of Mr. Bradford. You have studied this. We have heard 
from the Roundtable; we have heard from the former Comptroller 
of the Currency. From your perspective, coming from the 
grassroots and understanding this, give us succinctly, CRA, the 
financial meltdown and the mortgage crisis, relationship, non-
relationship, and why, in 30 seconds, or less.
    Mr. Bradford. The first thing I would say is that the 
community was protesting the subprime lending market and this 
crisis way back in the late 1990's, when this thing started--
not just recently when it all fell apart. And they were 
challenging the bank regulators as early as 1999 not to count 
subprime loans for CRA credit. And they were challenging HUD 
not to let the GSEs count these subprime loans for their 
credit.
    So on that side, I think you have to say the community has 
been raising the flag. They have been the canaries in the 
coalmine. And I think they take great offense at being blamed 
for the implosion when it takes place.
    Chairman Gutierrez. Okay.
    Mr. Bradford. They have been warning about this.
    The other thing is, most of the people who criticize the 
meltdown as related to CRA have played this kind of interesting 
sleight of hand with the numbers. What they do is they count 
every single loan that was made in a low- and moderate-income 
neighborhood as a CRA loan. And therefore, they end up counting 
every single predatory loan that was ever made in those 
neighborhoods as a CRA loan.
    Chairman Gutierrez. I only have a minute left. And I think 
your last point is excellent.
    I want to thank, obviously, Mr. Taylor, Mr. Richardson, Mr. 
Rodriguez, and all the others. I want to go around--5 minutes 
to ask everybody questions.
    I think your last point, Mr. Bradford, is exactly something 
that we need to examine. That is to say that it has been 
brought forward in testimony here that there were 2 million 
loans that were originated by Washington Mutual. It's almost as 
though every loan from Washington--of what could be justifiably 
called a criminal enterprise of churning and burning. It's 
though the folks at Washington Mutual woke up every day and 
said, ``Wow, we really want to make sure those low- and 
moderate-income neighborhoods are--so we're going to bill 2 
million loans to them.''
    No. They charged a lot of money. They refinanced. And then 
they packaged and securitized those loans and infected the rest 
of our system. Those loans at Washington Mutual didn't have 
anything to do with CRA. They didn't go to their regulator and 
say, ``We want credit for these loans,'' because they couldn't 
get credit for those loans.
    The fact is only 6 percent of all subprime loans, of all 
high-risk loans were under CRA. Only 6 percent. And that's 
assuming all of them went under. And we can't assume all of 
them went under.
    You see what a small portion they were of the total 
picture.
    Mr. Hensarling, you are recognized for 5 minutes, sir.
    Mr. Hensarling. Thank you, Mr. Chairman. It seems to me 
that as we continue to have a debate of who is going to control 
the lending decisions in a free society, I think as we witness 
what has happened in our economic turmoil, clearly there were 
those in private banking who made a number of mistakes, plenty 
of mistakes.
    But then I look at what government has done. And at least 
at the time I have studied the situation, I have concluded that 
we have had a number of Federal policies that either incented, 
cajoled, or mandated financial institutions to loan money to 
people to buy homes, who ultimately couldn't afford them. The 
family suffered. Many of them would have been better off in 
rental housing. The Nation has suffered collectively.
    So I'm looking at what I believe to be an antiquated law, 
that might have served a great purpose in 1977. I'm not 
convinced it serves a great purpose today.
    Either you have a law that is forcing banks to lend to 
people that they would already lend to, and at least every 
banker I talk to tells me along with BSA, it's their most 
expensive compliance cost. And if anybody believes that cost 
doesn't get passed on to customers in the form of less credit, 
or more expensive credit, you're reading a different economic 
textbook than I am.
    So either we're forcing banks to do it, or we're forcing 
banks to loan to a universe of people they otherwise wouldn't 
loan to.
    And then are those people creditworthy or not creditworthy? 
And if they're creditworthy, why aren't the banks loaning to 
them? And if they're not creditworthy, are we not going down 
the road of repeating the mistake in the first place?
    So again, I question the rationale for the law today.
    Now Mr. Taylor, you and I have had this discussion before. 
On the one hand, I think you have said that CRA has nothing to 
do with race; but you mention race in your testimony, and 
almost every other proponent mentions racial concerns, which 
are very valid concerns. Unfortunately, racial discrimination 
is still alive and well in the USA today,
    But is this about race? Is it not about race? And if it is 
about race, again I would ask the question: Is the Obama 
Administration not enforcing the Equal Credit Opportunity Act? 
Is the Obama Administration not enforcing the Fair Housing Act? 
Is the Obama Administration not enforcing HOEPA? Is the Obama 
Administration not enforcing the Civil Rights Act? So is CRA 
there to protect racial minorities?
    Mr. Taylor, you said in a previous testimony it's not, 
although you mentioned it in today's testimony. Is there 
somebody on the panel--now I'm just looking--it's not a trick 
question, but I would like a yes or no--does CRA, in your 
opinion, serve to protect racial minorities? And if the answer 
is ``yes,'' do you not believe the Obama Administration is 
enforcing the other anti-discrimination laws in our society?
    Mr. Taylor. Well, I may. Of course the law is written very 
explicitly on class lines. That is, working class, middle 
class, upper income--
    Mr. Hensarling. It's not a trick question. But could you 
reply with a yes or no?
    Mr. Taylor. Because of the racism that you referred to, 
disproportionately, those classes are people of color. So de 
facto, you have a disproportionate application of people of 
color being impacted by this law.
    We saw--
    Mr. Hensarling. Unfortunately, Mr. Taylor, I have a limited 
amount of time here. If we have to have a law to force banks to 
lend money to this universe of individuals, do we need to have 
a law to force grocery stores to sell food to low-income 
individuals? Do we need to have a law to force auto dealers to 
sell cars? Food is vital, necessary for survival. 
Transportation, many people rely on an automobile to get to and 
from their place of employment.
    Does anybody believe we need the effective equivalent of 
CRA to be imposed upon grocery stores or auto dealers?
    Seeing none, we'll move on.
    Mr. Green. I do.
    Mr. Hensarling. I'm sorry?
    Mr. Green. I believe it. That's what the Civil Rights Act 
was all about--
    Mr. Hensarling. No, I would just say to my dear friend--
    [laughter]
    Chairman Gutierrez. The gentleman--
    Mr. Green. I'm sorry, please excuse me.
    Mr. Hensarling. I'm sure my dear friend from Texas will 
have his 5 minutes to express his opinions.
    Chairman Gutierrez. We will give you an extra 15 seconds.
    Mr. Hensarling. I appreciate that, Mr. Chairman.
    I'm also curious, again, about forcing banks to make these 
loans. I have seen a study by the Federal Reserve--the Dallas 
Branch of the Federal Reserve--that says in the last decade, 
credit unions and independent mortgage and finance companies 
not covered by CRA that are lending to low-income neighborhoods 
grew faster than CRA-covered institutions. This is a Federal 
Reserve study.
    I have seen statistics from the National Association of 
Federal Credit Unions that show that their loan approval rate 
for households with less than $40,000 of income, non-CRA-
covered credit unions, was greater than that for banks subject 
to CRA.
    So again, it begs the question: Why are you forcing them to 
do something that apparently financial institutions are doing 
anyway?
    But I see I'm out of time. Thank you, Mr. Chairman.
    [Discussion was held off the record.]
    Chairman Gutierrez. And next, we have Congressman Watt.
    Mr. Watt. Thank you, Mr. Chairman.
    There is some question about whether we--I want to focus on 
the question of whether CRA or some aspects of it need to be 
extended to other non-bank institutions.
    Mr. Askew, you had an opinion on that. And my specific 
question is: We extended some of the privileges that the 
Federal Government provides to a number of entities that were 
not typically having access to the discount window, FDIC 
insured, what have you. Would you concede that those entities 
ought to be covered by CRA? Or you think they should not? 
That's one question.
    One of those entities is credit unions, for example. Do you 
think the CRA ought to be applied, or not be applied to them?
    Mr. Askew. That's a good question about credit unions. But 
that's not my wheelhouse. And so how the function is not. But 
I'll try to answer that with this. Change in the assessment 
area and expanding this to other institutions, really you have 
to go back to the fundamental basis, the premise, the 
foundation of the CRA--
    Mr. Watt. Well, now, actually I didn't go back there, 
because I didn't want to get into that philosophical--I 
actually disagreed with your characterization of what CRA was 
intended to do.
    I looked at the statute. You say it was enacted to promote 
new loans and services to low- and moderate-income 
neighborhoods and consumers. The statute specifically says that 
it was enacted to help meet the credit needs of local 
communities, in which these institutions are chartered, 
consistent with safe and sound operations. I don't see anything 
there, really, that talks about low- and moderate-income 
people.
    I guess a number of people have kind of made that leap. But 
I don't really want to go there. I'm really trying to figure 
out whether we ought to be extending this, are there rationales 
for extending it to other entities. And if that's not in your 
wheelhouse, I don't need a lecture about the history of CRA, 
because obviously we disagree about what even the basic 
language means.
    So I--
    Mr. Askew. I apologize for the lecture.
    Mr. Watt. Yes.
    Mr. Askew. I did not intend it that way. And I agree with 
your point about what CRA, the Act, was intended to do. It was 
asking banks to serve the entire needs of their community, not 
just the low and middle, moderate--
    Mr. Watt. Okay. But I'm running out of time here, and I 
still haven't had an answer from you about whether we should 
extend it to any of these other entities, or not.
    Mr. Askew. As far as expanding it to other entities, they 
do not have the basic--what I meant about the basic premise of 
the law was that they do not have a charter and a branching 
law, that was the basis of it with the FDIC Act, that said, 
``You're getting the FDIC insurance''--
    Mr. Watt. But that's why I asked the question, how would 
you distinguish?
    We have extended the benefits of some of those charter 
provisions to other entities. FDIC insurance, access to the 
window. Shouldn't we be extending CRA to at least those 
institutions?
    Maybe I can get Mr. Ludwig's opinion on that.
    Mr. Ludwig. Congressman Watt, I do think that the CRA ought 
to be expanded to non-banks for a couple of different reasons.
    One, the marketplace has changed. It used to be when CRA 
was enacted, the banking marketplace was the financial services 
marketplace, almost 100 percent. Things have changed in 30 
years.
    So we're basically causing the banks to shoulder a burden 
that's much broader than the banks, that ought to be extended.
    Similarly, even in the banking organizations, some of them 
have large non-bank activities. We really ought to expand this 
fairly across the system.
    Mr. Watt. Do you disagree with that, Mr. Askew? Just a yes 
or no.
    Mr. Askew. No. I do disagree.
    Mr. Watt. Okay.
    Mr. Askew. I disagree.
    Mr. Watt. Well, I was trying to get in one more question. 
But you stopped me from doing that.
    Chairman Gutierrez. The gentleman's--
    Mr. Watt. That's all right. I'll yield back.
    Chairman Gutierrez. Mr. Neugebauer, you're recognized for 5 
minutes, sir.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    I want to go back to, Mr. Askew, I think you mentioned that 
99 percent of the banks and thrifts received either an 
outstanding or a satisfactory CRA rating. So basically it 
sounds to me as if the financial institutions were basically 
meeting the requirements of CRA.
    I hear that some folks are thinking about devising a curve. 
In other words, I guess putting different criteria for one 
financial institution over the other. That would seem to be a 
major departure from the current system. What are your views on 
that proposal?
    Mr. Askew. Well, we think that would be the wrong thing to 
do. When we say that 99 percent comply, banks, it's the law. It 
is the law to comply with CRA. And banks typically are in the 
98 to 99 percent in all of our compliance laws. We do comply 
with the laws.
    And so to put a bell curve on it would say that you're 
going to have some banks always that are not going to be 
compliant with the law. Even if they're doing everything that's 
asked of them, they're going to not be compliant with the law.
    So we think that is the wrong way to go, especially when 
the system that we have is working.
    Mr. Neugebauer. Now I think also in my testimony, you said 
that it ought to be the goal of all of the banks to have the 
highest level of compliance. Did I misinterpret you?
    Mr. Askew. I'm sorry. Maybe I miscommunicated. I'm saying 
that other banks should aspire for the outstanding rating--
    Mr. Neugebauer. Right, right, that's what I--
    Mr. Askew. But we should have incentives for them to aspire 
to the outstanding rating.
    Mr. Neugebauer. That's exactly--and that I may not have 
restated what you said.
    But what are some of the things that you believe that 
incentives--because I'm kind of one of those folks, I like 
incentives over the big hammer--and so what are some of the 
incentives that might be put in place to encourage banks to all 
seek the highest level of compliance?
    Mr. Askew. Thank you. Three things: First of all, we think 
there should be some form of public recognition, and a claim 
for the institutions that achieve an outstanding rating. The 
information is made public, and so all of this is very public. 
But perhaps this committee could design an official symbol or 
seal, proclaiming this. It is an historical act, and it is an 
historical process that we have gone through, that would 
recognize those outstanding performers.
    Second, we believe that we should provide for a longer term 
between examinations for those institutions. You're right, 
Ranking Member Hensarling, it is a costly process to go through 
the examination. And so for those banks, it would be an 
incentive, and then they could take that money and they could 
apply it more to the process, if they were achieving 
outstanding. So longer terms between examinations.
    And third, decline the request for hearings, if an 
institution has an outstanding rating, so that if they're 
branching into a new market, if they're developing a new 
charter, then that would give them another incentive for 
achieving an outstanding rating.
    Mr. Neugebauer. And I guess the third part of my question, 
along the same lines: Since we do have almost 99 percent of the 
banks and thrifts are meeting the outstanding or satisfactory 
category, are the requirements too loose? Are they not strong 
enough?
    Or as a professor at a university might say, ``Ninety-nine 
percent of my kids are making `As.' Am I giving a hard-enough 
test?''
    So what would be your response to that question?
    Mr. Askew. It's very difficult to achieve an outstanding 
rating. It's very difficult to achieve a satisfactory rating, 
if you're a large bank, on the test that they have, the three 
areas of the test: The lending, the surface investment test.
    If you go through an examination, there are literally 
thousands of pages of data, where you're being compared in all 
of your markets and areas to meet the needs of the community.
    So it is very difficult. But it's the law. And so you have 
to comply. And I don't think it's too easy. Oh, my gracious, I 
have been through these before, and so it's very difficult.
    Mr. Neugebauer. Well, I haven't heard any of my bank 
friends say that it was an easy process.
    I think the other area is within the industry--and you 
represent the hundred largest financial institutions--do you 
have an idea, just say industry-wide--and every once in a while 
I'll see this number pop up--but do you know compliance cost 
industry-wide what that number is?
    Chairman Gutierrez. You can answer that question, Mr. 
Askew, please.
    Mr. Askew. I do not. But I will get you that information, 
and I will bring that back for the record.
    Mr. Neugebauer. That would be great. Thank you.
    Chairman Gutierrez. Mr. Moore of Kansas is recognized for 5 
minutes.
    Mr. Moore of Kansas. Thank you, Mr. Chairman.
    Mr. Askew, you suggest in your testimony that responsible 
behavior should be rewarded, and basically increase the time 
between examinations, if an institution is at the top of the 
rating system.
    Would you elaborate on this point? Explain how this will 
drive firms to reinvest more in their communities, sir?
    Mr. Askew. Yes. The whole idea would be, to go to that 
outstanding rating takes extraordinary effort. But it takes 
extraordinary expense as well.
    And so just to offset some of that would be to limit those 
examination periods. Every year, annually, you're reporting all 
of your data, but every 2 years, you're going through a full 
examination. So limiting those and then avoiding the cost.
    And it's not just the here in itself. Avoiding the process 
that leads up to that would be beneficial to the institution. 
And then encourage them to achieve that outstanding rating.
    Mr. Moore of Kansas. Thank you.
    Mr. Taylor, you have a different perspective on this issue. 
Why should we use limited government resources for more 
examinations for firms that are contributing the most to our 
communities? Shouldn't examiners be focused on the bad actors?
    Mr. Taylor. Yes. Well, first off, you're not using 
government resources. The Federal Reserve through their fees 
pays for that process.
    Secondly, in 1990, 1 out of 10 banks failed their CRA exam. 
Today, it's 1 of out of 100. The grade inflation that Cal spoke 
to, and other referenced, is rampant. It really is an easy task 
to get a passing CRA grade. What we're suggesting is that the 
better system would be to put more clarity into what that grade 
really is, and more levels of definitions of how well they 
passed. Did they barely pass? Did they pass strongly? Did they 
get an outstanding or barely pass? And put some numbers to 
that, so that elected officials, community leaders, and the 
public can see just how well the bank is doing on their exam.
    Right now, it's just everybody passes. It's a stamp of 
approval. And I don't want to come between the bank friends 
that your colleague mentioned, who just left the hearing, but 
he might want to talk to some consumers about how difficult it 
really is--and we hear it every day--to get bank loans, because 
it really continues to be a problem.
    Much as CRA has been a success story, it needs to be 
bolstered and strengthened in a number of ways, one of which is 
we have to deal with this grade inflation, as you said, 
everybody gets an ``A.''
    Mr. Moore of Kansas. Thank you. Some have suggested, Mr. 
Askew, that CRA ratings be handed out on a bell curve, so that 
only a few institutions receive the highest rating, and more 
are given average ratings.
    I know the importance of bright lines and clarity with 
respect to the compliance for the law. You either are breaking 
the law, or you're not. What are your views on grading CRA on a 
bell curve? And what are the advantages and disadvantages, from 
your perspective, sir?
    Mr. Askew. I think it would be a major disadvantage, and I 
think it would create problems for the regulators and for the 
industry. I think it would create a--the spirit of the law 
right now, what's happening with CRA is the people from the 
banks are involved and engaged in this process of finding ways 
to improve their community, finding ways to make their 
communities better.
    They're engaged in the process. If you sit there and put a 
bell curve on it, and you say you're going to be brought into a 
class of performance, just based upon where you fall in the 
curve, it's just inappropriate. And it would be discouraging to 
institutions that are really performing great work, to attain 
those ratings.
    Mr. Moore of Kansas. Thank you.
    Mr. Ludwig, what are your views on this, sir?
    Mr. Ludwig. Well, I think that Mr. Taylor has hit on 
something, that by expanding the number of categories, one 
might be able to get a better definitional background in terms 
of who's really doing the most.
    I think the banks have done a solid job here. And I'm wary 
of a bell curve solution, because if you have really done an 
``A'' job, you ought to get an ``A.'' But perhaps more 
definition in terms of what an ``A'' means would add value.
    Mr. Moore of Kansas. Thank you. Mr. Chairman, I yield back.
    Chairman Gutierrez. Thank you, sir.
    Mr. Garrett, you are recognized for 5 minutes.
    Mr. Garrett. Thank you, Mr. Chairman.
    Since the beginning of the financial crisis, there has been 
a lot of debate, as we see here, and throughout the country, as 
to whether the CRA requirements played any role, or what role, 
in the collapse of the housing industry.
    I know the folks on the other side of the aisle and most 
people on this panel continue to point to the performing CRA 
loan data as proof that CRA had nothing to do with the housing 
crisis. But I really think that misses the larger point.
    For as with the affordable housing goals that put Fannie 
and Freddie in the situation they are in, CRA requirements 
provided an implicit government endorsement of loans with lower 
underwriting standards and less creditworthy borrowers.
    Both of these requirements paved the way for financial 
institutions to begin to develop new ways to underwrite and 
approve. And we see all that happened with that.
    Eventually, these new methods became more and more 
mainstream, with the subprime market expanding. So I think it's 
very easy, actually, for us to be able to connect the dots on 
how the affordable housing goals of the GSEs and the lending 
requirements at CRA eventually led to the massive explosion in 
the subprime market, and the eventual collapse.
    And now--this is the important part--we actually have a 
proposal to expand CRA to security firms, insurance firms, and 
credit unions. And I'm not even sure how traditional CRA 
requirements would apply to some of these industries.
    And I would like to hear from you on this.
    Would security firms have to purchase specific amount of 
MBS's that contain riskier loans? Isn't that exactly what we 
did with Fannie and Freddie, and that's what caused them to 
collapse?
    Now you want to saddle all security firms with similar 
requirements.
    And so it's no wonder, when you think about it, why the 
majority wants to separate safety and soundness from consumer 
protection in the regulatory proposal. Because that's the only 
way that this would work.
    When security firms eventually fall under the jurisdiction 
of a new consumer credit restriction entity, I find it hard to 
believe that the prudential regulator would ever sign off on 
something like this.
    So I ask the panel, how would this expansion--I know only 
one member had the opportunity to answer that--how would this 
expansion apply to effectively work with the expansion outside 
of this area that it's currently in?
    Anyone? Yes?
    Mr. Taylor. Well, I'll take a stab at it, Mr. Garrett.
    First off, I just want to make sure--you keep referring to 
Fannie Mae and CRA, and of course, Fannie Mae has no CRA 
obligation--they have affordable housing goals, which are not 
CRA goals.
    Mr. Garrett. No. I didn't refer to them that way. I said 
it's the underwriting standards that the CRA allowed for to 
change, and the underwriting standards that came about through 
these, and then which led then to the changes in the 
underwriting standards in the rest of the market.
    But could you address the question as to how this would 
expand?
    Mr. Taylor. Sure. So just in terms of the institutions that 
we have proposed expanding CRA to, there are the credit unions, 
there are independent mortgage companies, there are investment 
banks, securities firms. Obviously, credit unions are a no-
brainer. They already have depositor's insurance, just like the 
banks. But they actually have an added reason for us to want to 
make sure that they loan safely and soundly to LMI areas, as 
well.
    Mr. Garrett. Okay. I understand--
    Mr. Taylor. And tax-exempt.
    Mr. Garrett. I understand credit unions--
    Mr. Taylor. Insurance companies, it really matters in the 
end whether they make policies, whether it's property insurance 
and other kind of business policies available to the health and 
well-being of the neighborhood.
    So getting them to report and getting them to ensure that 
they're, in fact, making their products available is incredibly 
important.
    For investment banks, investment banks are critical to some 
of the community development lending and other kinds of major 
projects that need investments from the these institutions in 
LMI areas. So having them--
    Mr. Garrett. So would they have to end up buying a specific 
class of MBSs that may end up being riskier than--
    Mr. Taylor. Not by class, but what they would have to do is 
the same thing the banks do. They couldn't ignore whatever 
economic or financial opportunities products were available in 
LMI areas. No one's forced under CRA to buy or to make any type 
of loan. No one's forced. It still has to be prudent, safe, and 
sound.
    Mr. Ludwig. Yes. I might add to that. I think you can give 
examples. That is, obviously it wouldn't be a credit example 
for securities firms. But in low- and moderate-income 
neighborhoods, there is need for financial advice and other 
products that are other than the credit product, that for small 
businesses and for some low-and moderate-income individuals 
would be quite helpful. Just requiring that those products be 
made available throughout the community on a fair basis, I 
think, would actually add to the fabric of those communities.
    Mr. Garrett. With that, I yield the remaining minute to the 
gentleman from Texas.
    Mr. Hensarling. I thank the gentleman for yielding.
    Mr. Taylor, does your organization make its contributors 
public?
    Mr. Taylor. Yes, we do.
    Mr. Hensarling. Have you, you organization, or any 
affiliate ever requested or received a contribution, including 
an in-kind contribution like real estate from a federally-
insured depository institution subject to CRA?
    Mr. Taylor. Yes.
    Mr. Hensarling. Would that be listed in your public 
disclosure?
    Mr. Taylor. Yes.
    Mr. Hensarling. And have you, your organization, or any 
affiliate ever received a below-market loan from a federally 
insured depository institution, subject to CRA?
    Mr. Taylor. Yes.
    Mr. Hensarling. Have you, your organization, or any 
affiliate ever entered into a joint venture with a federally 
insured depository institution, subject to CRA?
    Mr. Taylor. Joint venture? No. We have very good 
relationships with financial institutions, because we obviously 
try to get them to do more in low-income communities, and they 
think our approach is one that the support.
    But we do not take any operating funds from banks.
    Chairman Gutierrez. The time of the gentleman has expired.
    The gentlewoman from California is recognized for 5 
minutes.
    Ms. Waters. Thank you very much. Let me thank not only you, 
Mr. Chairman, but our panelists for being here today.
    I think it was the gentleman from the Urban League, Mr. 
Richardson, who talked about looking at other ways to credit 
the financial institutions for their CRA ratings.
    What did you have in mind?
    Mr. Richardson. Ms. Waters, I don't think that was the 
statement that I had made.
    Ms. Waters. Well, let me go to a statement that you made 
perhaps a little bit different than the one I just asked about. 
Do you believe it would be effective to require greater CRA 
credit for institutions providing more difficult banking 
services, such as offering principal reduction and loan 
modifications, or serving areas and populations, that are 
culturally and geographically distant from metropolitan areas?
    Mr. Richardson. I don't think I could have said it better 
myself. Yes, we would wholeheartedly agree with such an 
approach. Particularly as this conundrum gets to the credit 
needs of a community.
    I think we need to expand the scope of the conversation 
around how one prepares disadvantaged families to take on 
assets, and to sustain them. This involves information around 
financial education, around principal reduction, as you 
mentioned, on existing mortgages, and to ensure that we're 
connecting clients to products that are both affordable and 
suitable for them.
    So I would agree with your statement, yes. I think banks 
that have made overtures toward principal reduction should 
receive credit commensurately.
    Mr. Watt. Thank you very much.
    Mr. Taylor, I know that you're involved in advocacy for 
low- and moderate-income housing opportunities, and on and on 
and on. Do you think we ought to also pay more attention to 
community development efforts to go along with the housing 
opportunities? And how should we score that? Is there some 
thought you may have given to what we can do to get more 
investment in economic development and community development?
    Mr. Taylor. Yes. I like the idea of where you're reasoning 
and the question is going. And that is, trying to give banks 
credit where credit is due. There are some loans that are no-
brainers. Some banks will just buy a pool of loans and they'll 
get CRA credit for that, if they're to LMI borrowers.
    And then there are others who do more difficult things, 
like investing in community health centers, or in low-income 
rental housing.
    And I think we ought to explore giving more credit to 
financial institutions that do the more difficult-to-do 
projects. And perhaps that could be reflected in the grading 
and the scoring that we were talking about earlier.
    Ms. Waters. And lastly, we always say to the community that 
you can check the CRA ratings. You can get your banks to tell 
you what they're doing and how they're doing. You can meet with 
bank managers.
    But it really doesn't happen that way. The community does 
not put enough pressure on the banks to come meet with the 
community to talk about what it's doing and what its vision is 
for community support.
    And I'm trying to think about ways that we, here in 
Congress, can support the idea that banks have to meet with the 
community within a certain radius of the bank, to report and to 
update and to get input from the community about how that bank 
can better serve that community.
    I would like you to give that some thought, not necessarily 
right now.
    Mr. Taylor. Okay.
    Ms. Waters. Because I think this is going to take a little 
bit of planning to maybe come up with some legislation that 
would accomplish that. But do you think that is something we 
ought to be doing?
    Mr. Taylor. I think it is imperative that we do that. And 
further, I think it's imperative that they really go back to 
the days when they actually had public hearings, particularly 
when something significant was going to happen with an 
institution, like a merger or an acquisition.
    And we average one a year now, when before we had much more 
opportunity for the public to be able to come to the microphone 
and say, ``Hey, this is what the bank is doing or not doing.'' 
And you get positive and negative feedback in that.
    But that whole system has been undermined by the lack of--
even on major mergers like Wachovia and Wells, and Chase and 
WAMU, there weren't public hearings, which is outrageous that 
there wasn't the opportunity for the community to give input--
not just one community, but many communities--on the impacts of 
these kinds of mergers.
    Ms. Waters. Well, I certainly agree with that.
    Thank you very much. I yield back the balance of my time.
    Mr. Green. [presiding] Madam Chairwoman, I believe I'm next 
in line, given that Mr. Lee is not--we're going to him next.
    Madam Chairwoman, do I need to yield 30 seconds of my time 
to you to finish?
    Ms. Waters. Thank you very much, Mr. Chairman. I'm 
finished.
    Mr. Green. Okay.
    Ms. Waters. Okay.
    Mr. Green. By agreement, I will be next. And what I would 
like to do, with my very good friend, who is seated next to me, 
is invite him to dinner. And I'm confident that he will accept. 
We are good friends, and we'll do this within the next 30 days.
    Now having said that, it was invidious discrimination that 
caused the CRA to come into being. And invidious discrimination 
is what caused us to develop the Civil Rights Acts of 1964 and 
1965. Invidious discrimination is what we have been fighting.
    And to blame the CRA is to let the rascals go. The CRA did 
not promulgate--and I defy anyone to show me language wherein 
the CRA mandated subprime loans with prepayment penalties that 
coincided with teaser rates.
    Show me where the CRA required that we have collateralized 
debt obligations, known as CDOs. Show me where the CRA 
promulgated and promoted credit default swaps. Show me where 
the CRA required negative amortization. Show me where the CRA 
produced or caused to be promulgated all of these exotic 
products, that ultimately caused not only a crisis in this 
country, but we were at the precipice of a crisis worldwide. 
And to blame poor people for a collapse, a potential collapse 
of a worldwide market is just incorrect.
    It is written that if you know the truth, the truth shall 
set you free. I hope to free some souls with the next few 
seconds that I have.
    The truth is, we ought to be grateful that there was a CRA 
in place, just as we are grateful for the Civil Rights Act of 
1964, 1965, and the Thirteenth Amendment.
    These are to a certain extent cornerstones of the society 
that we live in today. The diversity that we talk about didn't 
come about because of beneficence, and because someone just 
woke up one morning and decided the world would be a better 
place.
    People marched, they fought, they lived, and some died--
namely, Dr. Martin Luther King--so that we could have these 
opportunities.
    I am going to fight to the end anyone who wants to end the 
CRA. And my good friend and I will have dinner, we're going to 
continue to love each other. But we will fight to the end this 
piece of legislation to end the CRA.
    All of those who would like to end the CRA, end it on this 
panel, raise your hands, please. If you want to end it?
    [show of hands]
    My friend appears to be alone in his effort to end the CRA. 
Now he will be a better person after we have dinner.
    [laughter]
    Mr. Green. But until then, I suspect that I am going to 
have to do the honorable thing. I have some time left. I will 
yield to him some of my time. I have a minute and 28 seconds. I 
took some of your time, when I responded to your request. You 
wanted to know, does anybody think that we really have to have 
laws to require certain institutions to do business with 
certain people?
    And the answer is yes. That's how we got here. Yes. Rosa 
Parks took that seat on that bus, and went to jail. The bus 
companies didn't really want to let some people ride and 
refused to.
    I have stood in lines wherein I was rejected. I have been 
through what I talk about. This is not something that is a 
theory with me.
    By the way, it was a white woman, Virginia Durr, who posted 
the bail to get Rosa Parks out of jail. We didn't get here by 
ourselves. There were plenty of people of good will of all 
ethnicities, who worked with us and helped us to get where we 
are.
    But I will not allow the clock to be rolled back. And 
today, Dr. Benjamin Hooks died. I speak on behalf of a man who 
stood for civil rights and human rights all of his life, and 
was fond of quoting C.A. Tinsley: ``Harder yet may be the 
fight. Right may often yield to might. Wickedness awhile may 
seem to reign, and Satan's cause may seem to gain. But there's 
a God who rules above with a hand of power and a heart of love. 
And when we're right, He'll help us fight.'' Or she. ``Because 
He loves us, we will be free.''
    I yield the balance of my time to my friend.
    Chairman Gutierrez. I ask unanimous consent that Mr. 
Hensarling be given 2 minutes.
    Mr. Hensarling. Well, thank you, Mr. Chairman. I don't 
think I need 2 minutes to accept your generous offer to go out 
to dinner. I am somewhat curious. I guess that means you're 
buying.
    Mr. Green. I can afford it.
    Mr. Hensarling. Yes. And I want to say publicly that you 
are my friend. And I have never, ever doubted your heart. Your 
heart is always in the right place. Occasionally, we may 
differ, where my head is and where your head is. But I have 
never doubted your heart, and I look forward to that dinner.
    And I think that something can always be improved in this 
institution with better understanding.
    I would say a couple of things, again. There seems to be 
some debate among the panel and among many here on whether or 
not this is part and parcel of civil rights legislation aimed 
at ending, as you put it, invidious discrimination.
    Again, I would ask the question--because this is very 
costly to institutions, and in your economic theory, that might 
come out of bonuses and profits. In my economic theory, the 
cost of compliance is coming out of loans to the very people 
that theoretically you're trying to help. It comes at the cost 
of less credit, more expensive credit, equating to fewer jobs.
    Now that's what I see happening in the real world.
    The other thing I would say to my friend, whom I know, 
whose heart is pure: If we're only going to support a law 
because of its proud birth--and if you listen to my comments, I 
agree; the genesis of this law was good, was noble, was pure, 
was needed--I question whether it is still effective today.
    But I wonder about the converse. When you speak of 
invidious discrimination, Davis Bacon has its roots in 
invidious discrimination. That is well established in history. 
Yet, I believe you and most of my other friends on your side of 
the aisle support Davis Bacon, notwithstanding the fact that 
its whole purpose was to try to ensure that as Blacks emigrated 
from the South to the North, that they could not be hired.
    So I wouldn't necessarily equate support of a policy today 
with its genesis. Because as you look at the family trees of 
some of these pieces of legislation, it may not be too pretty.
    And I do look forward to our dinner.
    Mr. Green. Thank you.
    I ask unanimous consent for 1 minute, to respond.
    Chairman Gutierrez. Without objection.
    Mr. Green. Every test that involves empirical evidence 
commonly known as testing, wherein you send out persons to test 
lending institutions and other institutions, every legitimate 
test shows that people of color are discriminated against in 
lending.
    Find a legitimate test. This is a broad statement. Find 
legitimate tests, where you have actually done the testing, 
where you have sent out the persons, equally qualified--and you 
will get the results, the empirical evidence--you find that 
people of color are still being discriminated against.
    My point to you is this: If the world changed on January 
20, 2009, it did change for the better. Why January 20, 2009? 
Something significant took place thereabouts. But there were 
some things that remained the same. And these things we have to 
continue to work to change.
    My belief is that you and I working together can improve 
the CRA. But my belief also is that you and I will never work 
together to end the CRA.
    We have an opportunity before us, and I look forward to 
working with you on it. And I'm going to not continue this, 
because I have been more than unfair to the Chair by 
encroaching on the time.
    And I yield back, Mr. Chairman. Thank you.
    Chairman Gutierrez. Mr. Lee, you are recognized for 5 
minutes.
    Mr. Lee. Thank you. And I apologize. I didn't get to hear a 
lot of the opening statements. But I'm a big believer in the 
fact that through this financial crisis, we had some good 
stewards, and these were the community banks, who today 
continue. They survived during difficult economic times, and 
they continue to be a lender throughout the communities.
    I skimmed some of the testimonies, and I think maybe I want 
to start with Mr. Taylor, because I know that the CRA audits 
are typically every, is it every 4 to 5 years? And based on 
your testimony, it appeared that you had concerns that there 
was a problem with this and that they were potentially gaming 
in the system. I was curious as to what empirical evidence you 
suggest proves that.
    Mr. Taylor. Let me start by saying I'm with you on 
community banks. I think the more locally-based banks, where 
you actually have a board of directors who live in the 
communities, even in the same State where these banks are 
located, is a good thing. And I think competition is a good 
thing.
    So I'm with you on that.
    The gaming in the system happens in a lot of ways. And in 
fact, it's bankers who have brought this to my attention. A CRA 
exam will come up, and they'll quickly look to see, ``Have we 
done anything on this law?'' And they'll find that they're 
deficient.
    So they'll call a brother or sister financial institution, 
and say, ``What do you have in the way of CRA loans on your 
shelf?'' And they'll say, ``Well, we have $100 million worth of 
housing loans.'' ``Can I buy those for you? I'll pay you a 
percentage fee, if I can purchase those.''
    And then they'll purchase them for the purpose of the exam, 
and then resell them back to that institution. So when their 
exam comes around, they too have those same loans.
    So there's a lot of this kind of gaming of the system that 
really isn't meaningful CRA investment. And we have brought 
this to the attention of the regulators. And there has been--
    Mr. Lee. Well, how do you correct that problem?
    Mr. Taylor. Well, I think it's up to the regulatory 
agencies, and I think part of the problem with CRA right now is 
we really don't have a sheriff who is enforcing the law, and 
not just that law, that really ensures the goal of trying to 
end discrimination and end unfairness in lending.
    You have to have regulatory institutions that are willing 
to go in and look at the loan files and really see what's going 
on. And we just haven't had that kind of impetus from these 
agencies for a long time.
    Mr. Lee. Well, let me jump in for a second, because I agree 
with that. And Washington unfortunately has this propensity, 
when we were having an issue, that we always have an over-
correction. The pendulum swings very far in one direction, and 
we seem to lock in, rather than coming back closer to what we 
need.
    My fear again, as we go through this financial regulatory 
restructuring, is that the community banks may begin to suffer 
with additional regulation outside of CRA. I think CRA has 
performed a need in this for the communities.
    My concern as we go forward is that we are going to 
continue to add more regulation. And at the end of the day, 
community banks have a limited amount of capital that they have 
to spread the costs around.
    Mr. Taylor. As you put--Mr. Lee--
    Mr. Lee. And as my friend from Texas pointed out, higher 
costs of compliance translate to higher interest rates. And 
again, it's almost destructive in the fact that we want to open 
up capital, again to ensure that all people have access of it.
    I guess let me ask this question. I want to switch places, 
let me go to Mr. Reinhart for a second. With regards to 
legislation, as I say, all legislation--I think CRA was a very 
important part for this country--but like all legislation as 
time changes, is making sure that the legislation keeps up.
    And I guess your view, going forward, is this legislation 
still achieving its original intent?
    Mr. Reinhart. I think that the existing legislation served 
a very important purpose, but that it is inefficient, and those 
inefficiencies have grown over time, and that the Congress 
would be right to reconsider how best to achieve the mission.
    Mr. Lee. Can you highlight some of those inefficiencies, or 
where we would need to modify to help reduce the burden on 
community banks, so they can better serve their constituents in 
these communities?
    Mr. Reinhart. Among other things, CRA is event-driven. It 
only really comes into play when there's a change in ownership. 
But everybody is reporting, so there's data collection, and a 
reporting burden associated with that.
    I think it would be better to try to empower the borrower 
rather than think in terms of the institution.
    Let me also say that part of the logic of CRA is there is 
this quid pro quo, that there's a Federal safety net, and you 
price this Federal safety net by imposing these costs on 
institutions.
    That's a very opaque way of doing it. We would be much 
better off if we charged explicitly the financial institutions 
that get the protection. Community banks, among others, weren't 
the source of the problem, so it's not obvious to me why they 
are paying to fund the solution.
    Mr. Lee. All right.
    Mr. Cleaver. [presiding] Thank you. Time has expired. I 
recognize the gentleman from Missouri, Mr. Clay.
    Mr. Clay. Thank you, Mr. Chairman. And I want to thank the 
Chair for conducting this hearing.
    I am sitting here and listening to the exchange between my 
colleagues, and I just find it incredulous that my friend and 
colleague from Texas would question the need of still needing 
CRA after what we have just experienced as far as the financial 
meltdown, the steering of Brown and Black borrowers into 
predatory products.
    The situation cries out. I'm just curious as to what planet 
my friend has resided on over the last 20 years. Perhaps, Mr. 
Richardson, you can share with the committee some of your most 
recent empirical data, your most recent studies in regard to 
discrimination that still exists in the area of borrowing.
    And then I would like to also ask Mr. Rodriguez, perhaps, 
to share some of his recent data, that certainly proves out the 
need and bears out the need for the CRA.
    Mr. Richardson?
    Mr. Richardson. Mr. Clay, the number of studies--
    Mr. Clay. Go ahead, turn on your microphone.
    Mr. Richardson. The number of studies are legion, which 
point to the steering of African-American and Hispanic 
prospective borrowers into subprime products.
    We have been over this terrain many times before. Half of 
the borrowers who received subprime products could have 
qualified for a conventional mortgage. This is within the 
context of this discussion, I think I appreciate you expanding 
the scope.
    Ms. Waters previously mentioned ways to qualitatively judge 
or weight credit that banks could get within the rubric of CRA.
    I think more weight should be given to the financial 
education, the housing counseling, where we're now seeing 
greater efficacy, in terms of preparing folks to know what 
their credit needs, in fact, are. That is what they're capable 
of taking on to realize the American Dream.
    So I think we need to step back and look at how banks are 
preparing clients to make use of the credit that's becoming 
available in their communities. I think that is the kind of 
better balance we're looking to effect between the kind of 
brick-and-mortar credit that banks get to more of the 
qualitative, softer preparatory services that banks can provide 
to create a more responsible and informed consumer of the 
products that they should be offering.
    Mr. Clay. Mr. Rodriguez?
    Mr. Rodriguez. Thank you, Congressman. I think I ticked 
off--and you'll find it in my testimony--just clear disparities 
in financial markets, there, whether it's higher numbers of 
unbanked more likely to receive high-cost mortgages, even 
though they could have qualified for prime loans, more likely 
to receive fees or highly packed auto loans with fees and 
higher costs, despite their creditworthiness.
    I think we're seeing this across-the-board, which says that 
we still have very, very serious issues in financial markets. 
That warrants government intervention.
    I think the question was raised before that if we had a 
situation where we didn't have grocery stores serving the 
community, would we not see that as government intervention? I 
think the answer is yes, if low-income people could not find a 
grocery store in their communities, you better believe there 
would be a reason to intervene in that market and make sure 
that they could.
    And I think we still see the same problems with 
disparities, and a large and staggering wealth gap, which has 
to do with financial markets and how they're shaped. And that 
has to be fixed.
    Mr. Clay. As far as fine-tuning the CRA, what is the number 
one improvement you see that we need to make?
    Mr. Rodriguez. Well, I think we have raised a number of 
issues. Coverage has to be a big factor there, because the CRA 
currently covers so few institutions that are doing lending to 
low-income and minority communities proportionately, that has 
to be fixed.
    Mr. Clay. Thank you for that response.
    Really quickly, Mr. Taylor, your number one recommendation 
for fine-tuning CRA?
    Mr. Taylor. It is to make sure that all the banks' 
affiliates and where they do significant business is counted 
under their CRA exam, and that CRA is expanded to credit 
unions, independent mortgage companies, insurance companies, 
and investment banks.
    Mr. Clay. Thank you so much for your responses. And Mr. 
Chairman, I yield back.
    Mr. Cleaver. Thank you, Mr. Clay.
    Mr. Perlmutter from Colorado?
    Mr. Perlmutter. I pass.
    Mr. Cleaver. Then I'll yield myself such time as I may 
consume.
    Let me begin with one of the questions maybe that we had 
not spoken publicly enough about what the law actually says, 
because there are a lot of misconceptions. And if you look at 
Section 802(b), it says that the Act mandates that all banking 
institutions that receive FDIC insurance be evaluated by 
Federal banking agencies to determine if the bank offers 
credit--this is important--in a manner consistent with safe and 
sound operations.
    Are all of you familiar with that section?
    Mr. Taylor. Yes.
    Mr. Richardson. Yes.
    Mr. Rodriguez. Yes.
    Mr. Cleaver. Is that explicit enough? Do we need to maybe 
tweak the language to say something that's even more explicit, 
that this Act is not saying you give loans, you give money to 
people who can't pay?
    Are any of you attorneys?
    Mr. Taylor. [raises hand]
    Mr. Cleaver. Counselor, is there another interpretation in 
a manner consistent with safe and sound operations, that may 
be--
    Mr. Taylor. No. It's clear to the banks, it's clear to the 
regulators, and it's certainly clear to anybody who's really 
paying attention, how this works.
    It's crystal clear. And that's why you have 94 percent of 
all the loans that are done by these CRA-regulated institutions 
are good performing loans.
    Mr. Cleaver. I guess the question is, I keep hearing that's 
somehow--one of my colleagues, who was not here earlier today 
is still arguing that the recession, the deepest recession we 
have had in the history of the Republic, was still influenced 
by CRA. And I just--Mr. Bradford?
    Mr. Bradford. Well, I think the language is clear, but I 
think the problem is that you have to honestly face the fact 
that the regulators have essentially betrayed that language.
    It was the regulators who decided to let banks pick the 
affiliates they wanted to do, and count all the subprime loans 
as positive credit toward the CRA. Even though they issued all 
these statements warning about predatory lending and about 
payday lending, they counted all those loans. I have never seen 
a single CRA evaluation where any one of these lenders, big 
lenders who supported it--Bank of America, Wells Fargo, all 
these large lenders--who supported, had their affiliates and 
did the subprime lending, and who supported the payday 
industry; and not one regulator has ever dinged them one bit on 
a CRA report for that.
    So it isn't that the language isn't clear. What needs to be 
fixed is the fact that the regulatory agencies have literally 
betrayed Congress and the people in these communities.
    Mr. Cleaver. So we need Chairman Bair sitting at this 
table.
    Mr. Bradford. You need the people who are out there, and 
that's also true of the criticisms they make of GSEs, because 
it was the community people and civil rights people who told 
HUD not to let them count the subprime loans as GSE goals. And 
HUD--
    Mr. Cleaver. It needs to rehire Eugene Ludwig.
    Mr. Bradford. Yes, we need Gene back.
    Mr. Cleaver. Raise your hand, Mr. Ludwig. I'm going to 
swear you in.
    [laughter]
    Mr. Ludwig. Mr. Chairman, there are many causes to the 
horrible crisis we have lived through. I was asked that 
question, and I didn't answer it completely. The simplest 
answer is that we had too much liquidity and we had too little 
regulation, too little serious regulation in the last decade.
    But the one thing that it is not about, it is not about 
CRA. All the data, all the studies, the Federal Reserve Bank of 
Boston has studied it. The Federal Reserve Bank of San 
Francisco has studied it. The Board has studied it.
    Nothing shows that the CRA has caused this kind of problem. 
And indeed, the CRA loans are better loans. What has happened 
is that people, either with good intentions or bad intentions, 
have conflated CRA loans with subprime loans. And in a sense, 
this whole CRA area--but it really angers me, because it's sort 
of like blaming the sheep for the fact that there are wolves--
there were wolves here that took advantage of people in these 
low- and moderate-income communities.
    But that's not CRA. That's exactly the antithesis of CRA.
    Mr. Willis. Mr. Chairman, if I could just add very quickly 
from my own personal experience, the loans that were 
specifically done by CRA by the institution that I worked for, 
were all done with fixed rates. Many of them with mortgage 
counseling. And those loans have always continued to perform 
well. So they were clearly safe and sound loans to be made to 
low- and moderate-income people, separate from all of this 
other discussion.
    Mr. Cleaver. One of the problems that I find is that CRA 
examinations have dropped 50 percent, 50 percent since 2004. So 
the examiners are not even showing up.
    That's one of the problems, that the people who are arguing 
against CRA are winning, because the examiners are not doing 
their jobs. Does anyone disagree?
    Mr. Taylor. No. That gives me the opportunity to make the 
comment that I was trying to make to Mr. Lee, because out of 
his own mouth, he mentioned that small bank exams for these 
community development banks are happening every 4 or 5 years, 
closer to 5 years. So that means in a 10-year period, they see 
the examiner once, in the middle of that 10-year period for an 
exam.
    And that's a 50 percent reduction of what it was. So this 
inordinate irrational concern about this regulatory burden on 
banks, as opposed to a more rational concern about whether 
consumers have access to credit and capital fair and fixed 
terms and good quality credit and capital--I just don't see the 
balance there.
    And I think as long as we talk about CRA and its impact, 
and its contribution to anything bad that happened, we're not 
really getting at what really occurred, which was the free 
market being free to cajole, free to cheat, free to practice 
malfeasance, and being unregulated those years of deregulating 
these institutions. And this is what we got.
    It wasn't CRA; it was the free market, free to do whatever 
it wanted, without any hand stepping in and saying, ``That's 
not right, that's unsafe or unsound, we shouldn't do it that 
way,'' and simply this is what we ended up with.
    But as long as we keep talking about CRA, right, we're not 
going to talk about Wall Street and securities firms, and--
    Mr. Cleaver. Right--
    Mr. Taylor. Banks and the others.
    Mr. Cleaver. Yes.
    Mr. Ludwig. Mr. Chairman, your question made a number of 
implied excellent points.
    Number one, that statute itself calls for safe and sound 
lending. So if there's not safe and sound lending going on 
under the CRA, it's not the cause of the fall of the CRA per 
se; it's the cause of how it has been implemented, number one. 
But in fact, it has been implemented in a way that is safe.
    The second thing I think is very important is it is indeed 
a credit statute. And in today's day and age, in terms of 
expansion, it should go beyond being just credit. Our low- and 
moderate-income communities--all of our communities--need a 
whole plethora of financial services, not just credit.
    So credit's important, and that certainly shouldn't be de-
emphasized. But it certainly ought to be broader, it seems to 
me. And that's the implication--
    Mr. Cleaver. Thank you.
    My time has expired.
    I ask unanimous consent that the following documents be 
entered into the record: a letter from NAFCU; an article from 
Business Week, supporting CRA; and the Staff Report on CRA from 
the Financial Crisis Inquiry Commission.
    Any objections?
    [No response.]
    Mr. Cleaver. I want to thank all of you for being here 
today, and for none of you wanting CRA to evaporate. The Chair 
notes that some members may have additional questions for the 
witnesses, which they may wish to submit in writing. Therefore, 
without objection, the hearing record will remain open for 30 
days for members to submit written questions to the witnesses, 
and to place their responses in the record.
    If there are no other comments, this subcommittee hearing 
is now adjourned.
    [Whereupon, at 12:09 p.m., the hearing was adjourned.]


                            A P P E N D I X


                             April 15, 2010


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