CRC Hosts CFPB Mission District Tour on Small Business Displacement

Cover Picture

Liana Molina discusses displacement of local small businesses at the corner of 16th and Valencia in the Mission District, San Francisco

Yesterday, CRC hosted a visit and tour by the Consumer Financial Protection Bureau (CFPB) in the Mission District in San Francisco.  CFPB Director Richard Cordray and Assistant Director Grady Hedgespeth met with local small business owners and leaders from CRC member organizations including MEDA, Opportunity Fund, and Renaissance Entrepreneurship Center who support small businesses with capital and technical assistance.

Displacement in the Mission

In the past few years, growth in the tech sector has created enormous pressure not just on housing rents in the Bay Area, but on commercial rents as well.

The displacement of neighborhood serving small businesses in the Mission is especially troubling, given the critical role they play in supporting, serving and employing longtime residents of the Mission.  Small business owners have also complained about difficulty they face in obtaining bank loans, and research by CRC confirms that small business lending by the five largest banks has dropped dramatically since the recession.

Under the Dodd-Frank financial reform, the CFPB is charged with collecting data about small business lending.  In February this year, the CFPB announced that writing these rules is considered a near term priority goal. Similar to the Home Mortgage Disclosure Act, these new rules are expected to increase transparency (and accountability) about who is getting small business loans- and who isn’t.

Small business owners share their experiences and challenges

Director Cordray and Assistant Director Hedgespeth met with several of these small business owners during the CFPB’s visit.  The first stop on the tour was Venga Empanadas, where co-owner Pablo Romano shared his experience in obtaining financing to open his restaurant.  Denied financing by a bank, Mr. Romano connected with Opportunity Fund, a Community Development Financial Institution (CDFI) who provided him with a $45,000 loan, enabling him to sustain and grow his business which now has eight employees.

D'Maize

Luisa Estrada, owner of D’Maize Restaurant and Catering speaks with Director Cordray.

Next, Zenaida Merlin and Luis Estrada, owners of D’Maize Restaurant and Catering, shared how a small business loan of $80,000 from Mission Economic Development Agency’s (MEDA) new CDFI Adelante loan fund meant that D’Maize was recently able to expand their business to a full-service restaurant.  They now employ 22 people from the local community.

Elsa Valdez, the owner of El Salvador Restaurant, explained how she benefitted from working with MEDA, who helped her to get a loan from KIVA to help pay for improvements to her restaurant, which has been family owned for over 20 years.  Ms. Valdez wants to continue improvements to the restaurant and growing her business.

Paula

Paula Tejada, owner of Chile Lindo Delicatessen and Coffee Shop

Paula Tejada, known as “The Girl from Empanada” is the owner of Chile Lindo Delicatessen and Coffee Shop, a business she first purchased in 1995.  Working with Renaissance Entrepreneur Center, she received technical assistance on running her business, including their 14 week business planning class focused on marketing, management, operations and finance.

Lunch at San Jalisco

The tour concluded with lunch at San Jalisco, owned by Dolores “Josie” Padilla-Reyes.  She took over the restaurant from her parents in the 1970s, but after rent was increased threefold, she had to close the café and reopen the eatery in its current location.  Concerned about being displaced again, she worked with the Mission Economic Development Agency (MEDA) to secure a loan to purchase her building, preventing further displacement.

Len Rogers, the owner of the Electric Bicycle Superstore, also joined the lunch.  He launched his small business in 2008 and it has grown steadily since then.  Len was denied by multiple banks for credit, making him a perfect target for expensive merchant cash advance companies. After struggling with unsustainable payments required by multiple predatory finance companies, he connected with Opportunity Fund, who refinanced him into an affordable, responsible small business loan.  Len was also a client of Renaissance Entrepreneurship Center, who helped him get a KIVA loan and provided consulting services through their Bayview Office.

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The lunch concluded with a “Happy Birthday” cake presented to the CFPB staff, since yesterday was the Bureau’s fifth birthday. In that short time, the agency has secured over $11 billion in relief for over 27 million consumers and handled nearly 1 million complaints.

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Testimony on Need for CIT Group and OneWest Bank to Develop Stronger CRA Plan

The testimony of Stephon Taylor, Director of Programs with California Resources and Training (CARAT), about the proposed OneWest and CIT Group merger, is featured in its entirety below. If you were unable to attend the hearing, CRC live-blogged it here and you may also find our CIT Group/OneWest Merger resource page help.  It outlines why 21,000 people are opposing this merger along with 100 California and national organizations. Pictures of the rally against the merger are available here.

February 26, 2015

Thank you for the opportunity to speak today.  I will keep my comments brief.

I am Stephon Taylor, Director of Programs with California Resources and Training (CARAT), a 19 year old economic development non-profit in California.  CARAT’s primary focus over the last 19 years has been research and development, and program design and implementation as it relates to Technical Assistance (TA) services for small businesses in underserved communities in California. CARAT provides technology solutions training to over 3,000 small businesses. The majority of the small businesses that we serve have less than $1 million in annual revenues and fewer than 10 employees.

California has a vast underserved population of small businesses needing access to capital as well as management and technical assistance (TA) support services to assist them in starting and sustaining their business operations.  They need affordable capital and appropriate financing vehicles.

The economic downturn in the country hit California as well and many of the existing businesses are still in need of restructuring and stabilization assistance. Additionally many people out of work turned to self employment as an option and need (TA) assistance to grow and expand their businesses.

My concerns around the proposed merger OneWest/CIT merger are as follows:

  1. Lack of banking access in LMI communities. Only two of the banks’ 73 branches are in low income census tracts, and one of those branches is slated to close post-merger. Our work with our small business constituency has shown that physical branch locations are a necessity. Mobile banking, while a great supplemental tool, is not a substitution for physical branches.
  2. The banks’ track record of performance related to community development. In the past, both OneWest and CIT have made minimal contributions to support technical assistance and economic development. Without a definitive and robust CRA plan to address those areas, I don’t see how the merger meets the “conveniences and needs” of the affected communities.
  3. The banks’ track record of performance related to small business lending. The majority of OneWest’s small business lending has been to businesses with over $1M in revenue, and they have not committed to serving smaller businesses. Their publicly stated goals to increase their lending to businesses with revenue under $1M have also fallen short of the mark.

In conclusion, my concern is that OneWest/CIT needs to bring products and services into California that fit the market needs of our small business owners, which aren’t adequately served by their current product mix.  My second concern is that there is a miniscule commitment, if any, to supporting, in a philanthropic way, economic development and business TA services that are needed.

California is always in need of more great corporate citizens. CARAT would welcome the opportunity to work with OneWest/CIT to meet the needs of the underserved small businesses within the state.

However, there is an immediate need for OneWest/CIT to develop a more robust, comprehensive and public CRA plan that details the commitments they will make to their California constituency.

I would urge that a philanthropic and community benefit commitment is made by OneWest/CIT to California that truly supports the needs of California Small Businesses.

OneWest Bank Small Business Lending Track Record: Testimony by Robert Villareal at Fed Hearing

Robert Villarreal’s testimony about the proposed OneWest and CIT Group merger is featured in its entirety below. If you were unable to attend the hearing, CRC live-blogged it here and you may also find our CIT Group/OneWest Merger resource page helpful as well. Pictures are available here.

Thank you for allowing my statement to be read into the record. My name is Robert Villarreal and I am the Senior Vice President of Community Development for CDC Small Business Finance. CDC is the largest SBA 504 and 7(a) Community Advantage lender in the country and it recognizes its responsibility to economic development and its communities. To that end, over the last 25 years CDC has created a number of small business lending products to serve small businesses located in low-moderate income communities and those owned by minority entrepreneurs. All of the lending through these programs is under $250,000

The small businesses that we serve with our programs were devastated by the Great Recession. Banks which eagerly, and sometimes recklessly, provided capital through 2007, suddenly went silent. Loans under $100,000, which have been proven to be effective in reaching minority businesses and those located in LMI neighborhoods, fell dramatically. In fact through 2013, loans under $100,000 have yet to reach one-third of their 2007 level. Here in Los Angeles, for example, loans under $100,000 from regulated financial institutions fell 68% between 2007 and 2013. But at least they are doing better than the Inland Empire, where similar lending dropped 72%.

While we believe that the large banks have failed the State’s small business community, at least some have made efforts to improve access to capital. However, one player absent in those efforts has been OneWest. In 2013 OneWest made zero loans; that is Zero loans for under $100,000 in California (FFIEC website). In that same year here in Los Angeles, only 8 loans were made under $250,000 and less than half the dollars funded were made to businesses located in LMI neighborhoods. In San Diego, where CDC is headquartered, no loans at all were made under $250,000 in 2013.

While it has failed to directly serve the small businesses discussed here, it has also done little to nothing in reaching out to mission-based lenders across its assessment area to support lending programs, technical assistance or referral initiatives; all programs which much smaller institutions readily participate.

OneWest and CIT have not demonstrated the integrity and commitment to the communities it is required to serve, yet it has benefited from the largesse of the US taxpayer. Therefore, I implore the Federal  Reserve to require that CIT and OneWest develop a comprehensive and publicly written CRA plan with commitments applicable to the size of the new bank and that also take into consideration the errors of their past and the benefits they have received from the public trust.

Thank you.

Seven Home Mortgage Disclosure Act Updates the CFPB Should Make

Home Mortgage Disclosure Act

In October 2014, the California Reinvestment Coalition and 40 additional California organizations sent a letter to the Consumer Financial Protection Bureau, urging updates to the Home Mortgage Disclosure Act that will increase transparency while allowing regulators, advocates, and industry to identify troubling trends, such as widowed homeowners being unnecessarily pushed into foreclosure.  The recommendations are included below:

Monica Jackson
Office of the Executive Secretary
Consumer Finance Protection Bureau
1700 G. St. NW
Washington DC 20552

RE: Docket No. CFPB-2014-0019: California community group comments

Dear Ms. Jackson:

The undersigned community groups submit this letter to the Consumer Financial Protection Bureau (CFPB) in response to the recent proposal to amend the Home Mortgage Disclosure Act (HMDA) regulations.

We appreciate the great care that CFPB has taken to craft this proposal, and that the proposal suggests enhancements to HMDA that go beyond the requirements of the Dodd-Frank Act, as well as CFPB’s recent improvements to the HMDA website in response to recommendations by community groups.

At the same time, we have a number of concerns with this proposal, and feel that it does not go far enough to ensure that the data reported to the public meets the stated goals of HMDA; namely, to help the public determine if financial institutions are serving community housing needs, assist public officials in deciding how to distribute public investments, and identify possible discriminatory lending patterns. Specifically, our concerns with this proposal include:

1. The failure to address key priorities, such as:

a.The inclusion of loan modification data as required reporting;

b.The disaggregation of the overly broad “Asian” race category;

c.The absence of any fields relating to language access, including (at a minimum) American Sign Language, Braille, Chinese, Korean, Spanish, Tagalog and Vietnamese;

d.Whether a borrower will own the property with a non-borrowing party (the widows and orphans/successors in interest issue); and

e.Whether the borrower received pre-purchase housing counseling.

2. While proposing major advancements in some areas, the proposal does not go far enough:

a.Loans for multifamily rental housing should document the level of affordability of all units, include the number of bedrooms, and include construction lending;

b.Commercial loan and HELOC coverage should require reporting on whether a home secured loan was taken out for a “small business” purpose.

3.The reluctance of CFPB to require automatic disclosure to the public of all data collected pursuant to HMDA and the undue credence given to industry’s purported concerns about consumer privacy.

We discuss these concerns in greater detail below.

Loan Modifications: The performance of financial institutions in modifying loans is and will continue to be a major factor in determining whether they are meeting local housing needs and complying with fair housing and fair lending laws. We urge the CFPB to include in its final rule the requirement that financial institutions report data on all loan modification applications, denials, and modification terms, broken out by race, ethnicity, gender and age of applicants and census tract; and that this data be publicly disclosed.

The CFPB has the authority to require detailed reporting of loan modification data.  The HMDA statute speaks to the Bureau’s broad authority to provide for any “adjustments … for any class of transactions” (see 12 USC §2804) it deems proper to serve the goals of the Act.  Loan modifications represent the very kind of transaction Congress contemplated when crafting the Act, as they go to the heart of current efforts to serve the housing needs of our communities and to protect homeownership and equity in our neighborhoods.

The federal Home Affordable Mortgage Program (HAMP) and recent Department of Justice settlement agreements with large servicers are evidence of the prominence of loan modifications as part of federal housing policy and enforcement.

This data will also help answer the very serious question of whether discrimination is occurring in the foreclosure prevention context.  The California Reinvestment Coalition and the National Housing Resource Center have conducted surveys of nonprofit housing counseling agencies serving thousands of consumers a month, and found that housing counselors report repeatedly that borrowers of color are receiving worse loss mitigation outcomes than white borrowers.

Similarly, the National Community Reinvestment Coalition found that people of color in Washington, D.C., were more likely to go into foreclosure, even after controlling for borrower, loan, and neighborhood characteristics.   NCRC also surveyed homeowners seeking loan modifications and found that servicers pushed African American borrowers to foreclosure faster than white borrowers, and that white HAMP-eligible borrowers were more likely to receive a loan modification than African American and Latino HAMP-eligible borrowers.

Community groups nationally have decried the uneven distribution of loan modification, including loan modification relief offered as part of implementation of the National Mortgage Settlement and more recent Department of Justice settlement agreements with JPMorgan Chase, Citibank and Bank of America. Indeed, in March of last year, over 100 groups under the umbrella of Americans for Financial Reform signed a letter to the Office of Mortgage Settlement Oversight calling for greater transparency and accountability to ensure that banks comply with their fair lending obligations, and remedy the damage of foreclosures in communities of color and other low-to-moderate income communities.

Assisting distressed borrowers and saving homes from foreclosure is integral to reviving the housing market. Yet, a February General Accounting Office (GAO) report that analyzed nonpublic HAMP data confirmed the concerns of community groups in finding statistically significant differences in the rate of denials and cancellations of trial modifications, and in the potential for re-defaults of loan modifications for Limited English Proficient and African-American borrowers and other populations.

Although the public disclosures are currently limited, the HAMP program does in fact require loan modification reporting and disclosure with the added requirement that servicers report data by race and ethnicity in the public disclosure. This is an important precedent.

Directly consistent with the statutory purposes of HMDA, local governments are keen to understand whether, where and to whom loan modification relief is offered so that they can determine if financial institutions are meeting the needs of their communities and to identify whether further policy responses are necessary. As one example, the City and County of San Francisco, in its Request for Proposals for the city’s banking and credit card business, requests bank applicants to provide local data on the race, ethnicity, and census tract of foreclosure filings and loan modifications, broken out by type of modification.

The San Francisco experience suggests not only that local governments are interested in such data, but also that banks are capable of providing it. To its credit, Bank of America has provided such data to the City and County. But all financial institutions should report this data to all jurisdictions via HMDA.

The data to be reported for loan modifications should be substantially the same as data currently collected under HMDA, in that loan modifications—like mortgages—are transactions which are secured by homes and require underwriting. Ideally, all loan modifications should be reported separately in HMDA data as a separate category under “loan purpose,” or possibly “loan type.”

If reporting in the current HMDA database is not feasible, we urge the CFPB to collect and publicly disclose loan modification information separately. Federal regulators are capable of this type of reporting; for example, the FFIEC currently does separate data collecting and public disclosure of Primary Mortgage Insurance (PMI).

Disaggregating Asian American Pacific Islander Communities in HMDA Data: The HMDA data on race and ethnicity has been ineffective in capturing the diversity of experiences of Asian American and Pacific Islander borrowers. While the HMDA data overall show that “Asian” borrowers tend to experience outcomes at least as favorable as whites, some sub-groups within the AAPI population experience less success in accessing homeownership and staving off foreclosure. We ask the CFPB to require the disaggregation of this data to better reflect the experiences of households within the AAPI community.

A 2007 report by the Census Bureau, entitled, “The American Community: Asians  2004,” part of the American Community Survey report series, analyzed experiences of several subcategories of Asian American families, including: Asian, Bangladeshi, Cambodian, Chinese, Filipino, Hmong, Indonesian, Japanese, Korean, Laotian, Malaysian, Pakistani, Sri Lankan, Taiwanese, Thai, Vietnamese, and other Asian. The report noted various differences in experiences for these groups, including differences in owner occupancy and home value.

We support the analysis of the National Coalition for Asian Pacific American Community Development that a workable, federal precedent for disaggregating the broad  “Asian” race category exists in Section 4302 of the Affordable Care Act, which calls for data reporting for Asian subcategories which include Asian Indian, Chinese, Filipino, Japanese, Korean, Vietnamese, and Other Asian, as well as Native Hawaiian and Other Pacific Islander subcategories including Native Hawaiian, Guamanian or Chamorro, Samoan, and other Pacific Islander.

HMDA should require disaggregated data for “Asians” that allow borrowers to identify as Cambodian, Chinese, Filipino, Hmong, Indian, Japanese, Korean, Laotian, Thai or Vietnamese American, amongst other subgroups.

Capturing Language Access. Relatedly, immigrant and Limited English Proficient borrowers and communities have been preyed upon by unscrupulous brokers, lenders and loan servicers over the last several years with painful results. While Census data show that 18 percent of Americans speak languages other than English in their homes, almost 40 percent of Californians fall into this category; more than half of this population speaks English less than “very well.”   Spanish, Chinese, Tagalog, Vietnamese and Korean are spoken by approximately 83 percent of all Californians who speak a language other than English.

In the summer of 2006, a series of borrowers and housing counselors testified at Federal Reserve Board hearings held in San Francisco regarding the then-increasing prevalence of “bait-and-switch” tactics perpetrated on borrowers who negotiated their loans in a non-English language but received English-only documents with less favorable terms than promised.

The California legislature responded to this very real dynamic by passing a law meant to require a translation of most financial documents when the contract was negotiated in any of the five most-spoken non-English languages spoken in the state.  Significant evidence shows that many lenders continue to fail to comply with the statute.  Among the results of CRC’s housing counselling surveys was that over 60 percent of responding agencies stated that they commonly saw non-English speakers (who presumably negotiated their loans in a non-English language) who did not receive any translations of their loan.  In those cases, 60 percent of the agencies noted that the loan terms that these Limited English Proficient borrowers actually received were less favorable than what they had been promised, and 65 percent reported that the loan was unaffordable when made to the borrower.  In another survey, this one by Neighborhood Legal Services of Los Angeles County, 40 percent of Spanish-speaking homeowners reported that they did not fully understand the terms of their loan documents.

The February 2014 GAO report discussed above found statistically significant disparities in the rate of loan modification denials, cancellations, and re-defaults for LEP borrowers and other protected groups as compared to non-Hispanic white borrowers after analyzing certain loan modification data under the HAMP program.

To help address these problems, HMDA should be enhanced to require the reporting of loan data that include:

·The primary language spoken by the loan or loan mod applicant;

·The language in which the loan or loan modification application and contract were negotiated;

·The language of the loan documents.

Widows Data. We propose a data field be crafted to capture whether there is a co-owner of the property who is not on the loan, or where that person co-owns the property with someone who signs the deed of trust as a “guarantor.”  Usually the other person is a spouse.  This phenomenon is not uncommon, particularly among limited English speaking families and families of color, and can cause significant problems upon divorce or the death of one spouse.  The practice could be a sign that the broker or originator is railroading the borrower into specific loan products, or that the broker or lender is wrongfully pressuring spouses to remove one spouse from title to make the broker’s or underwriter’s job easier.

Creating such a field would be consistent with the CFPB’s guidance on successors in interest, and similar concern about this issue as expressed by Fannie Mae, Freddie Mac, and the HAMP guidance and interpretive letters.

The problem of successors in interest and non-borrower spouses will only grow as the population ages. These data are especially important and relevant as the CFPB here proposes to require the reporting of reverse mortgages, where the successors in interest dilemma is all too real.

Housing Counseling. Pre-purchase housing counseling can have a significant impact on a borrower’s ability to attain, and maintain homeownership, while avoiding predators who would seek to siphon off fees and equity. We agree with the National Housing Resource Center HMDA data should include data fields relating to counseling type (counseling or education), counseling mode (in-person, phone, online) and counseling agency HUD ID.

Other concerns. We observe that though a stated goal of HMDA is to identify discriminatory lending patterns, HMDA data do not track all protected groups under various fair housing and fair lending laws. In particular, we are concerned about the growing anecdotal evidence and cases relating to discrimination against disabled persons, including where disability can be ascertained by lenders based on source of borrower income. We are also concerned about discrimination against certain religious groups. We urge the CFPB to consider whether to link HMDA to all fair lending protections, and urge CFPB fair lending enforcement staff to be vigorous in ensuring ECOA violations are challenged.

In some respects, the proposal suggests important enhancements to data collection requirements, but does not go far enough.

Loans for Affordable Multifamily Lending: A severely underutilized aspect of HMDA is its multifamily lending data. There has been little to no analysis of this data, most researchers probably do not know it exists, and multifamily lenders may not even know whether and how to report it. It is critical to understanding whether community needs are being met to know whether institutions are supporting the development of affordable rental housing. We are very pleased to see that CFPB is considering requiring lenders to report on whether multifamily loans are for affordable housing, and how many units were constructed through use of the financing.

We further urge the CFPB to require reporting on the number of bedrooms per unit to help determine whether fair lending laws are being followed, include all construction loans which are an important way for lenders to meet community credit needs, and designate whether the developer is a nonprofit organization which is mission driven to serve the community. It is also important to know the level of affordability (for very low-, low-, or moderate-income tenants) for all units of housing. There is a strong precedent for this in Fannie Mae and Freddie Mac data collection efforts. Finally, lenders should be required to report on whether such housing is targeted to particular groups, such as seniors or persons with disabilities. These projects can be harder to finance, and the manner in which financial institutions deal with them can raise fair lending issues.

For financial institutions that are financing affordable, multifamily housing, enhancing data elements and transparency would enable them to better claim credit for this important work.

Commercial loans and “small business” purpose. We are pleased that the CFPB recognized that requiring the reporting of Home Equity Lines of Credit (HELOCs) is necessary in the wake of the problematic practices associated with these loan types during the 2000s. The proposal to require reporting of home-secured loans that finance businesses will also enhance our understanding of credit needs. But to illuminate the impact of lending practices on the intersection of small business ownership, homeownership, and jobs, commercial loan and HELOC coverage should require reporting on whether a home secured loan was taken out for a “small business” purpose, alongside “home purchase,” “home improvement,” and “refinance.” This is of particular relevance in immigrant communities, where home-secured lending is often used to help finance a small business and hire workers. We also recommend creation of a “consolidate consumer debt” loan purpose category.

Covered lenders and rural areas. We are grateful that the CFPB contemplates improving HMDA’s coverage of non-depository lenders. However, we are concerned that the proposed 25-loan threshold would eliminate 1,775 depository institutions as HMDA reporters, and we urge the CFPB to reject this proposal as it would significantly reduce coverage of lending in rural counties. The requirement of one loan to trigger HMDA reporting for depository institutions should be retained. Additionally, the 25-loan threshold (for non-depositories as we suggest, or all lenders as proposed) should require reporting by all lenders originating twenty five multi-family or single family loans.

There are a number of welcome enhancements proposed for HMDA reporting. We are particularly pleased to see CFPB go beyond the statutorily required data elements, to propose inclusion of other important data. We support the inclusion of all of these extra data fields.

Universal Loan ID. To the extent that a universal identifier could be created to track a loan across the life of the loan, this would be particularly useful, especially across servicing transfers or note sales.  In a market in which such transfers and sales are common, a standardized number could be useful for the consumer, regulators and for industry.  We would ask that the CFPB provide a common framework for identification, or that each financial institution be required to register its identifier with the CFPB, all other relevant federal regulators and state regulators.  It may be simplest to have a single registration location on-line for such a system. Identifiers should also be made publicly available.

We also support various other proposed enhancements, including:

·More transparency around lending for manufactured housing, which is a significant source of housing in California’s rural communities;

·Reasons for all loan denials;

·Age of borrower, which should be captured by actual age, or age ranges of five years;

·Reverse mortgages;

·Credit scores;

·Points and fees, origination charges, discount points;

·Loan to value and combined loan to value;

·Reporting of race, ethnicity and gender based on visual observation and surname if data are not provided by applicant;

·Nontraditional loan features, such as Interest Only, and balloon payments;

·Expanding occupancy fields to include “investment property with rental income.” This will help uncover the growth of investor purchasers of residential properties and their impact on neighborhoods;

·Considering the role of brokers in the mortgage crisis, the proposals for identifying wholesale and retail channels will make it easier for the public to identify market participants engaged in discriminatory, abusive, or illegal practices;

·Providing for quarterly reporting for larger institutions so the data are more timely and relevant.

Conclusion

We greatly appreciate that the CFPB is proposing to require data reporting beyond Dodd-Frank requirements, as this will greatly assist in monitoring trends in access, affordability, and sustainability of home loans. We urge the agency to consider our additional recommendations—in particular around including loan modifications, disaggregating AAPI data, language access, refining affordable multi-family housing data—and to make all the data publicly available so that the core statutory purposes of HMDA, such as holding lenders accountable for meeting housing needs and identifying discriminatory lending patterns, can be attained.

Thank you for your consideration of our views. Should you have any questions about this letter, please contact Kevin Stein.

Signed,

 

Advocates for Neighbors, Inc.

AnewAmerica Community Corporation

Asian Pacific Islander Small Business Program

Asian Pacific Policy & Planning Council (A3PCON)

California Coalition for Rural Housing

California Housing Partnership

California/Nevada Community Action Partnership

California Reinvestment Coalition

California Resources and Training (CARAT)

Community Action Agency of Butte County, Inc.

Community HousingWorks

Community Housing Council of Fresno

Community Legal Services in East Palo Alto

Consumer Action

East Bay Asian Local Development Corporation (EBALDC)

East Bay Housing Organizations (EBHO)

East Los Angeles Community Corporation

East Palo Alto Community Alliance Neighborhood Development Organization (EPA CAN DO)

Fair Housing Council of the San Fernando Valley

Fair Housing of Marin

Housing and Economic Rights Advocates

Housing California

Inland Fair Housing and Mediation Board

Korean Churches for Community Development

Law Foundation of Silicon Valley

Montebello Housing Development Corporation

National CAPACD

National Housing Law Project

Neighborhood Housing Services Silicon Valley

Neighborhood Partnership Housing Services

NeighborWorks Orange County

Non-Profit Housing Association of Northern California (NPH)

Northbay Family Homes

Oakland Business Development Corporation

Orange County Community Housing Corporation

Project Sentinel

Public Counsel

Rural Community Assistance Corporation

Sacramento Hosing Alliance

California Reinvestment Coalition Asks Regulators “Is There Community Benefit in Too Big To Fail Merger of OneWest and CIT Group?

OneWest Bank MergerCapping a five-day awareness public awareness campaign, the California Reinvestment Coalition focused on the community benefits (or lack thereof) of a merger between OneWest Bank (former IndyMac) and CIT Group.

Both banks have already received considerable financial support and subsidy from taxpayers and bank regulators. Under the Bank Holding Company Act, regulators are required to consider the public benefit of a proposed bank merger.
CIT Group Merger

One way regulators can measure public benefit is through a bank’s Community Reinvestment Act (CRA) Plan,  a written commitment outlining how the bank will serve the community in the future.

Thus far, the draft plan offered by the leadership at CIT Group and OneWest appears to have been created without community input, commiting the bank to very little in the way of reinvesting in California communities.

CRC, and 37 other organizations have sent letters to bank regulators, opposing the merger in its current form.

According to Kevin Stein, associate director at the California Reinvestment Coalition, the community benefit is lacking from the proposed merger: “Right now, this merger doesn’t pass muster. Investors and the CEOs will benefit greatly, but what about California communities, especially those that were already harmed by OneWest through thousands of foreclosures and inadequate reinvestment? This merger will create the newest Too Big To Fail Bank, facilitate investor and bank officer windfalls, and provide for ongoing public subsidy. Yet the merger offers no public or community benefit. The regulators should reject this merger until a strong public benefit is guaranteed through a Community Reinvestment Plan to ensure communities don’t lose out again.”

CIT Group Merger with OneWest Bank

Roberto Barragan, president of Valley Economic Development Corporation, comments: “Here’s two banks that wouldn’t be alive without the support of taxpayers and bank regulators, and yet, they’re not willing to outline a strong plan of reinvesting in the communities where they do business? Until they are willing to come to the table with the community, this is a no-brainer for regulators. No public benefit means no merger approval.”

Regulators can also assess whether a bank is meeting the community’s credit needs by examining a bank’s history of reinvestment in the community. 

OneWest’s Community Reinvestment Record:

1) Bank Branches: 15% of OneWest’s branches are located in low and moderate-income census tracts, as compared to a statewide average of 30% of bank branches being located in LMI tracts.  Only two of the bank’s 73 branches are located in low-income tracts, according to research by the LA Local Development Corporation.

2) Small Business Lending: The majority of “small-business” loans originated by OneWest bank are to businesses with revenue of over $1 million, leaving smaller businesses behind.

3) Foreclosures: 35,000 Californians have lost their homes due to foreclosures by OneWest and its subsidiary, Financial Freedom.

4) CRA Grades: The Bank earned a “Low Satisfactory” on its last Performance Evaluation for its investments in the community

5) Contracting with MWDBE: The Bank hesitates in setting goals to hire businesses owned by Minorities, Women, and Disabled Persons (MWDBE).

6) Philanthropy: It appears OneWest’s historical charitable contributions are below the level of its peers.

7) Reinvesting Consumer Deposits: The Bank currently takes $14 billion in deposits via the Internet from throughout the country, but only reinvests these deposits back into its Salt Lake City assessment area, frustrating the purposes of the Community Reinvestment Act. It has no meaningful plans to reinvest Internet deposits back into communities where its Internet customers reside.

Additional Background on other Banks Creating Community Benefit and Reinvestment Plans as Part of Mergers
There is a precedent for banks committing to the communities they serve through the development of Community Benefit and Reinvestment Plan. Recent examples include:

1) Banc of California: After opposition from the California Reinvestment Coalition and 46 other organizations, in September 2014, leadership at Banc of California negotiated a five-year, public Community Benefit and Reinvestment Plan as part of its acquisition of 20 Banco Popular branches. Under the plan, Banc of California (which about one-tenth the size of the proposed CIT/OneWest merger) is devoting an amount equal to or greater than 20% of its annual deposits to community reinvestment activities.

2) Pacific Western Bank acquired CapitalSource, which was also opposed by the California Reinvestment Coalition, citing a record of “low satisfactory” CRA ratings and a lack of a public CRA plan. After an FDIC-facilitated meeting with CRC and the Greenlining Institute, PacWest Bank agreed to develop a CRA plan with input from the community.

3) Umpqua Bank applied to purchase Sterling Bank, but did not have a CRA plan. CRC opposed the merger, and the Federal Reserve later made its approval of the merger contingent on Umpqua developing a CRA plan.

To see the previous four issues highlighted in this week’s campaign:

Day 1: Bank Merger Would Benefit Investors, But What About Communities?

Day 2: Advocates Question If FDIC Loss-Share Agreements Should Continue As Part of Bank Merger

Day 3: Community Groups Question OneWest’s Foreclosure Record

Day 4: How Much Government Welfare Can One Bank Accept?

CRC’s detailed letter to the Federal Reserve Bank of New York includes an analysis of the merger and a long list of concerns and unanswered questions about the proposed merger.

Community Letter to John Thain (CIT Group) and Joseph Otting (OneWest Bank)

Editor’s note: The letter below was sent to the CEOs of OneWest Bank and CIT Group, two banks who have proposed to the Federal Reserve to merge.  The California Reinvestment Coalition and its members and allies are concerned about the proposed merger and outline these concerns in the letter below:

 

September 16, 2014

Joseph Otting

OneWest Bank

 

John Thain

CIT Group

 

Dear Mr. Otting and Mr. Thain:

This letter is meant to suggest a framework for discussing how a combined OneWest/CIT Bank could effectively meet community credit needs by developing a strong and public Community Benefits and Reinvestment Plan with commitments proportional for a bank of its prospective size.

The California Reinvestment Coalition (CRC), based in San Francisco, is a nonprofit membership organization of over three hundred (300) nonprofit organizations and public agencies across the state of California. We work with community-based organizations to promote the economic revitalization of California’s low-income communities and communities of color. CRC promotes increased access to credit for affordable housing and community economic development, and to financial services for these communities.

We believe that strong partnerships with local community organizations, coupled with a strong Community Benefits and Reinvestment Plan that provides a roadmap for the bank’s planned CRA activity specifically geared to Southern California’s low and moderate income communities and communities of color, are essential components to the overall success of the bank’s CRA program and to its acceptance in the community.

We offer the following recommendations in the spirit of CRC and its members working to identify community needs and the appropriate reinvestment benchmarks for a bank of your size.  CRC and its members urge the Bank to agree to a 5 year Community Reinvestment and Benefits Plan that the Bank would file with the Federal Reserve Board as a supplement to your application. Plan components include:

  • The bank will set annual goals for total CRA activity (in the areas of lending, community development investing, contributions and financial services) that exceed 25% of California deposits.
  • The bank will devote at least .30% of deposits annually towards community development investments.  These community development investments could include affordable housing development, small business lending, and equity equivalents to California CDFIs, CDC’s and other non-profit community development funds. No more than half of community development investments should be for tax credits or mortgage backed securities. The bank should set a subgoal for community development investments targeted to affordable projects at or near transit stops that are being developed in LMI communities, and actively provide both residential and commercial loan products that inspire affordable developments.
  • The bank will set aside an initial $30 million philanthropic fund for community and economic development activities that target small businesses and families still hurting from the economic recession. Additionally, starting in year one, the bank will devote at least .030% of deposits annually towards contributions.  Of this amount, 60% or more will be towards housing and economic development activities that support low/moderate income people including organizations providing technical assistance to small businesses, fair housing or mortgage counseling, affordable housing development, and other similar activities.
  • The bank should commit at least 1% of deposits for community development lending that supports the construction and rehabilitation of housing that is deed restricted as to be affordable to very low, and low income households.
  • The bank should develop a one stop construction to permanent loan product for multi-family housing finance.
  • The bank should develop a line of credit for nonprofit housing developers to enable them to acquire properties, including REOs, for the benefit of borrowers, including low to moderate income first time homebuyers.
  • The bank will designate at least one staff person who will work with nonprofit groups representing homeowners seeking to secure loan modifications and/or Keep Your Home California program benefits.
  • The bank will develop a policy to prefer nonprofits and owner occupants in the sale of distressed loans and REO properties.
  • The bank will make available affordable mortgage loan products with flexible underwriting guidelines for families earning less than 120% AMI adjusted for family size. The bank should allow nonprofits, CDFIS and other affordable mortgage loan providers to become brokers through all of its distribution channels.
  • The bank should originate SBA loans to borrowers of color at a percentage that approximates their representation among businesses in the Bank’s assessment or service area, and continue to offer loans in smaller loan sizes.
  • An annual goal of half of the number of CRA-qualified small business loans shall be to businesses with annual revenue of less than $1 million or consist of loans less than $150,000 excluding credit card loans. Small business lending in LMI census tracts should approximate the % of businesses located in LMI census tracts with the bank’s assessment area.
  • The bank should develop a small business loan and technical assistance referral program so that businesses unable to qualify for small business loans from the bank can be referred seamlessly to local CDFIs and other nonprofit providers that may be able to make the loan and/or provide technical assistance in order to help borrowers better prepare themselves to qualify for conventional financing.
  • The bank will participate in the state’s small business Loan Guarantee Program.
  • The bank will develop a strong MWDBE vendor program and set a goal of 30% sourceabale spend, with at least 20% spending with MBE contractors.
  • The bank will ensure that CalWORKs recipients accessing their funds using Electronic Benefits Transfer cards will not be assessed a fee at OneWest/CIT Bank ATM machines.
  • The bank will develop a bank account that complies with CRC’s Safe Money standards.
  • The bank will commit that 30% of new branches established outside of a merger will be located in LMI census tracts.
  • The bank will sign the Plan, make the Plan public and file it with its application to merge.
  • The bank will meet annually with CRC and its members to report on progress in meeting the commitments in its CRA Community Benefit and Reinvestment Plan.
  • The bank will strive to have a diverse workforce that reflects the bank’s customer base.
  • The Bank will commit to having at least one representative from the Latino, Asian American and Pacific Islander, and African-American community on its board of directors within 3 years.

With a strong CRA plan in place, CRC and its members are willing and ready to work with the bank to further the bank’s CRA and overall business objectives.

We look forward to discussing this proposal with you further when we meet in September.  If you have any questions or would like to discuss further, please call Kevin Stein at (415) 864-3980.  We look forward to the ongoing dialogue on behalf of California communities.

Sincerely,

Affordable Housing Clearinghouse

ASIAN Inc.

Asian Pacific Islander Small Business Program

Asian Pacific Policy & Planning Council (A3PCON)

Business Resource Group

California Housing Partnership

California Reinvestment Coalition

California Resources and Training (CARAT)

CAMEO

Community HousingWorks

Community Housing Development Corporation

Community Housing Improvement Program (CHIP)

Consumer Action

East Los Angeles Community Corporation

Fair Housing of Marin

Greenlining Institute

Housing and Economic Rights Advocates

Housing Rights Center

Inland Fair Housing and Mediation Board

Korean Churches for Community Development

LA Voice

Los Angeles Local Development Corporation

Multi-Cultural Real Estate Alliance for Urban Change

Neighborhood Housing Services of Los Angeles County

Neighborhood Housing Services of Silicon Valley

NeighborWorks Orange County

Northbay Family Homes

NPHS, Inc.

Pacific Asian Consortium in Employment (PACE)

Public Counsel

Renaissance Entrepreneurship Center

Sacramento Housing Alliance

Strategic Actions for a Just Economy (SAJE)

Suburban Alternatives Land Institute

Valley Economic Development Corporation

Women’s Economic Ventures

 

Small Business Lending in California: Banks Still Aren’t Lending, Esp. to Minority and Women Small Biz Owners

CRC recently released its fourth report focused on small business lending, entitled: Small Business Access to Credit- The Little Engine that Could: If Banks Would Help.

Why does CRC care if the largest banks are lending to small businesses, especially those owned by women, Latinos, and African-Americans?

Beyond CRC’s mission of promoting equal and fair access to credit for low income communities and communities of color, and beyond the fact that demographics are changing rapidly in California, there are other reasons why access to small business loans is particularly important:

  • Minority-owned and women-owned businesses are more likely to hire people from their local communities;
  • Small businesses are a wealth-building tool;
  • Strong small businesses help strengthen local business districts; and
  • Small businesses are estimated to create two out of every three new jobs in the U.S.

To review a few figures from our December 2013 report, visit our press release:  New Report Finds 60% Drop in Small Business Lending

You can read CRC’s previous 3 reports looking at this issue here:

2010: Small Business Access to Credit

2007: Small Business Access to Credit

2003: Small Business Access to Credit