Comptroller Dugan Says CRA not Responsible for Subprime Lending Abuses

BALTIMORE—Comptroller of the Currency John C. Dugan said he categorically disagrees with suggestions that the Community Reinvestment Act is partly responsible for the ongoing credit crisis.

"CRA is not the culprit behind the subprime mortgage lending abuses, or the broader credit quality issues in the marketplace," Mr. Dugan said in a speech to the Enterprise Annual Network Conference.

"Indeed, the lenders most prominently associated with subprime mortgage lending abuses and high rates of foreclosure are lenders not subject to CRA," he added. "A recent study of 2006 Home Mortgage Disclosure Act data showed that banks subject to CRA and their affiliates originated or purchased only six percent of the reported high cost loans made to lower-income borrowers within their CRA assessment areas."

Mr. Dugan said he has had opportunities to see the benefits of CRA during his term as Comptroller.

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

Over the last decade, CRA helped spur a doubling of lending by banking institutions to small businesses and farms, to more than $2.6 trillion, and a tripling of community development lending to $371 billion. In addition, CRA projects often act as catalysts for other investments, for job creation, and for housing development, and can leverage public subsidies, perhaps as much as 10 to 25 times, by attracting additional private capital.

Mr. Dugan noted that many CRA equity investments can be made under the national banks’ public welfare investment authority.

"These bank investments have grown significantly over the years – totaling more than $25 billion over the past decade," Comptroller Dugan said. "To meet this demand, OCC successfully sought legislation last year to raise the cap on public welfare investments from 10 to 15 percent of a bank's capital and surplus. This rise will enable the amount of such investments to increase by as much as $30 billion."

Mr. Dugan said that CRA lending has generally been safe and sound. For example, he said, single family CRA-related mortgages offered in conjunction with NeighborWorks organizations have performed on par with standard conventional mortgages.

"Foreclosure rates within the NeighborWorks network were just 0.21 percent in the second quarter of this year, compared to 4.26 percent of subprime loans and 0.61 percent for conventional conforming mortgages," he added.

"As the credit market stabilizes, CRA-driven initiatives can also help us tackle such challenges as the preservation of homeownership opportunities and rental housing development," Comptroller Dugan said.

Related Links

• Remarks Before the Enterprise Annual Network Conference (PDF)
• Comptroller of the Currency John C. Dugan