Tag Archives: Community Reinvestment Act

The CRA Modernization Recommendations by Treasury Department Are Good, Bad, and Yet-to-be-Seen

On April 3^rd, the U.S. Department of Treasury released its long-awaited set of recommendations to modernize the Community Reinvestment Act (CRA). The Association for Neighborhood & Housing Development (ANHD) believes that the Treasury Department document has the potential to lay the ground work for a meaningful dialogue to address some areas of commonly-held concern about the CRA, and we are cautiously optimistic that the recommendations can lead to a productive outcome. But, we have some concerns, and in all cases, the details truly matter.

ANHD fundamentally believes the CRA works. We see its overwhelmingly positive impact on the community development environment in New York City every day. The CRA remains an essential law to leverage bank reinvestment and hold banks accountable to reinvest and serve equitably in the areas where they do business. ANHD appreciates the thought the Treasury put into drafting these recommendations, taking into account the many and varied viewpoints they heard from hundreds of stakeholders, including advocates, bank regulators, and financial institutions. Here are some of the good, bad, and unclear key areas of the recommendations.

We urge the federal regulators to now work closely with the community to craft concrete recommendations, and ultimately regulations, that preserve the core of the CRA and address areas of weakness to take it into the 21^st century.

Summary of Treasury Recommendations

1) Assessment Areas: The geographic areas where banks are assessed on their CRA activities are called “assessment areas”. The Treasury recommendation is to base assessment areas both on branches and where banks take deposits and do substantial business. This recommendation grapples with important changes in the banking world, as more banks do some or all activity online or through other channels outside of a physical branch network. Finding the balance of flexibility, while absolutely maintaining the bank’s commitment to place – which is at the heart of the CRA – and the bank’s commitment not just to the quantity of investment activity but also to the quality of the investment activity and its real impact on each local place must be the goal of this reform. We also are unclear about the intent of the recommendation to allow for investment in “other low- and moderate-income (LMI) communities and identified areas.” Depending upon how it is implemented, we are concerned it could take away from investment in the assessment area.

2) Branches and Services: The Treasury report recommends significantly de-emphasizing the importance of bank branches in CRA exams. We certainly understand that new technology is impacting branch use and appreciate the encouragement to use technology to get people into the banking system. However, branches still matter. Large areas of New York City have been unbanked and underbanked for decades, leading people to use higher cost financial services providers. The CRA must still encourage banks to open in these areas, and we encourage regulators to pay more attention to bank products and the effectiveness of moving people into the banking system. In that context, we are glad the report places a strong emphasis on financial education. The Treasury also recommends expanding the framework of CRA-eligible services. As in other areas, details matter in determining the impact. The focus must remain on services that target LMI people and communities and that are related to community development and financial access/wealth-building, utilizing the expertise of the bank.

3) Community Benefit at Times of Bank Mergers and Branch Openings: ANHD appreciates that the memo recognizes Community Benefits Agreements as a way to demonstrate how a bank will benefit the community, either in connection to a merger application or improving upon a poor CRA rating. There is some confusion as to whether this recommendation applies to all banks, or only to banks that have a less than a Satisfactory CRA rating. We ask the Treasury to clarify that it is a useful tool for all banks, regardless of rating. We are also concerned with the language that appears to discourage comments for banks that pass exams. Given how few banks fail their exams, community input can help assess the local record of the bank and how a merger can better meet the needs of the local community.

Having said that, we disagree that a bank should be able to expand or merge if they fail their CRA exam. As it is, communities struggle to get banks and regulators to commit to a set of activities that will benefit the community at the time of a merger. Overall, 98% of banks pass their CRA exam, and this is one of the only concrete penalties when a bank fails. Any exception to this rule should only be considered if it demonstrably opens up access to banking in underserved communities. Locally, that may mean a new bank in unbanked areas of the South Bronx or Cypress Hills of Brooklyn, for example, coupled with products and services tailored to that community. Absent such a commitment, the expansion should be denied until the bank passes its CRA exam and corrects the behavior.

4) Clarity and Consistency on Exams: Overall, we support the Treasury’s recommendations for greater clarity on qualifying activities, regular communication with examiners, increased examiner training, and more standardized and timely exams. We remain cautious about recommendations regarding expanding the pool of eligible activities, as we do not know which activities they are considering, and we call for room for actual evaluation so the process is not strictly formulaic.

5) Downgrade Policy: The Treasury supports the Office of the Comptroller of the Currency (OCC) memo on fair lending reviews. This would restrict the ability to “double-downgrade” a bank for fair lending or consumer law violations (eg: going from “Outstanding” to “Needs to Improve”), and specifies that downgrades must be related only to lending considered on the CRA exam. However, if a bank’s practices are negatively impacting consumers in the community they are meant to be serving, a bank cannot be considered to be serving the needs of that community. Illegal or abusive behaviors that impact consumer loans or products should be considered relevant to a CRA exam.

6) Performance Context: Currently examiners and banks prepare the performance context, which is drafted to make the case for local needs and is meant to be used to determine if a bank is actually meeting those needs. The Treasury recommends that central community development staff at the regulatory agencies write these. The Federal Reserve Bank of San Francisco set a great precedence for this, and the Federal Reserve Bank of New York is piloting a similar program. ANHD believes this is a strong idea, as long as community input is a key component.

6) Non-bank Lenders: We are very pleased to see the recommendation to include affiliates on bank exams. However, they only call for monitoring the impact of independent nonbank lenders, as opposed to covering it under CRA.

What’s Missing?

Some areas were not mentioned in the memo at all. We outline here a few areas that we hope are addressed in future rulemaking. First, the CRA should no longer be colorblind; it must include an affirmative obligation to equitably serve borrowers and neighborhoods of color. Second, there should be penalties for harmful behavior outside of a fair lending review. If a bank’s lending fuels displacement or hazardous conditions, that should have a negative impact on their CRA rating. Third, we appreciate the recommendation for expanding the definition of assessment areas to include where banks take deposits, or do substantial business, but it’s unclear what will happen with limited purpose banks that are not evaluated on their consumer products as we believe they should be. It could also be beneficial if regulators looked at other loans more consistently, such as consumer loans and non-business credit card loans.

Jaime Weisberg, ANHD’s Senior Campaign Analyst

Cypress Hills LDC Gets at The Heart of The Community Reinvestment Act: Local Banks Must Reinvest Locally

On December 1^st, the East Brooklyn Reinvestment Committee, a group of East New York activists and Board and Staff members of the Cypress Hills LDC (CHLDC) held their annual Bank Reinvestment Forum. This powerful forum really gets at the heart of the Community Reinvestment Act (CRA), which requires banks to reinvest and lend equitably in the local areas where they do business – it doesn’t get any more local than this. This forum has historically focused on the five banks in the Cypress Hills / City Line area of Brooklyn: M&T, Chase, Citibank, Capital One, and City National of NJ (which has since closed). In recent years, it has expanded to include banks throughout Brooklyn Community District 5, which also includes Bank of America and HSBC.

The forum was well attended by community members and representatives from ten banks, the OCC which regulates most of the local banks, NYC Housing Preservation and Development (HPD), Congresswoman Nydia Velázquez’s office, and State Senator Martin Malavé Dilan’s office.  Through public data, bank data, stories, and the experiences of community members and CHLDC staff, the reinvestment committee revealed trends in the lending market, highlighted community needs, and made concrete recommendations for banks to follow.

The overall theme this year was, “Banks are going in the wrong direction”. They found that residential and small business lending among these banks was down from 2015 to 2016, and the percentage of home lending by local banks has been quite low for a number of years now. Worse, City National Bank of NJ left the Banking Development District (BDD) program two years ago and is now closing their branch, further reducing access to banking in an already underbanked area.

This year’s forum focused on four key areas. While the recommendations were very specific to the East New York area, many of them hold true citywide:

• Home Lending: Stagnant wages and rising home prices puts homeownership further out of reach for lower-income New Yorkers. Meanwhile, the existing housing stock is aging and in need of repair. Low-income and senior homeowners need access to capital to maintain and repair their homes. CHLDC outlined the characteristics of an affordable and accessible home repair product and urged all banks to offer a product that incorporates them.
• Small Business Lending: CHLDC supports over 300 small businesses on their end of Fulton Street in Brooklyn and has an active small business association made up of nearly 50 local businesses. They struggle to access credit to purchase property and expand and operate their businesses.  Their recommendations to the banks include affordable mixed-use mortgages for business owners to purchase their buildings; bilingual business banking staff; financial education; planning support and technical assistance; new lending products for small businesses; and working with CHLDC and the small business committee to carry out these recommendations.
• Responsible multifamily lending: After decades of neglect and disrepair in the affordable rent-regulated housing stock, the recent rezoning of Cypress Hills / East New York is now putting residents at greater risk of displacement due to real estate speculation and gentrification. Investors anticipate the area will command higher rents and higher property values as a result of the rezoning. This puts enormous displacement pressure on low-income tenants as landlords seek to push them out to make way for higher paying tenants. Now is exactly the time for banks to pay attention to the lending they do and ensure that it does not facilitate harassment or displacement. The reinvestment committee advocated with banks to commit to ANHD’s set of best practices for responsible lending: Responsible underwriting; proper vetting of landlords; and responding appropriately and proactively when problems arise.
• Access to Banking and a new BDD Bank Branch: The Banking Development District (BDD) program offers publicly-subsidized deposits so that banks are able to increase access to banking in underbanked areas through bank products, loans, investments and services. City National of NJ had a BDD branch for many years. However, they lost that designation and later announced they were closing the branch entirely. CHLDC is looking for another bank to fill in that gap by opening a new BDD branch in the same location. They want this BDD branch and all banks serving this neighborhood to offer affordable home and home improvement loans, a safe affordable bank account that accepts the IDNYC, small business loans and supports, and responsible multifamily lending.

The Community Reinvestment Act is one of most important tools we have to bring banks to the table.  Cypress Hills is an excellent example of a local organization doing just that – literally bringing banks to the table to learn about local needs. We now call on these and all banks in New York City to act by responding to these needs with products, loans, investments and services.

Jaime Weisberg, ANHD’s Senior Campaign Analyst

Bad Landlord, Bad Lending Continued

Signature Bank continues to finance known bad-actor landlord Ved Parkash

A bad landlord damages a community, sometimes with serious consequences. In the case of Ved Parkash’s 750 Grand Concourse, the building’s long-term rodent infestation problems recently flared up into a major public health scare. Tenants in Parkash’s buildings have been dealing with problems for years, including poor conditions, vermin, and scores of potentially meritless eviction proceedings for nonpayment of rent. He is a regular on the Public Advocate’s Worst Landlord List. Then things got much worse. Last week, newspapers reported that the building is stricken with a rare rat-transmitted illness that sickened two people and killed one.

But conditions like these are nothing new with Ved Parkash. His lender – Signature Bank – should have known better.

Tenant organizers at New Settlement Apartments Community Action for Safe Apartments (CASA) and the Northwest Bronx Community and Clergy Coalition (NWBCCC), along with legal support from the Urban Justice Center (UJC), have long been working with tenants in multiple buildings owned by Ved Parkash. Tenants from these organizations publicly announced the formation of the Parkash Tenants Coalition in June 2016, which includes residents in over 10 buildings who are working collectively to address issues in their homes.  The coalition is currently suing Parkash in housing court over four buildings where Signature Bank holds the mortgage, including 750 Grand Concourse, 1530 Sheridan Ave, 2454 Tiebout Ave, and 315 East 196^th St.

But, as we’ve said before, bad landlords cannot do it alone: they need financing. Signature Bank made an $11.6 million loan to Ved Parkash for 750 Grand Concourse in March of 2016. At that time, Ved Parkash was named number one on the NYC Public Advocate’s List of 100 Worst Landlords, which “according to the list, the worst buildings in the Bronx include 2075 Wallace Ave., 750 Grand Concourse, 20 West 190th St. and 875 Longwood Ave.”

In addition to being on the list, conditions at 750 Grand Concourse and other Parkash buildings were covered by the press before this loan was made, including a January 2016 Bronx News 12 story. “At another of Parkash’s buildings, this one on Grand Concourse, another tenant’s ceiling is falling apart due to a leak,” the story reported. “Alice Funmilayo, 70, says that the damage returns every winter. Nothing, she says, is permanently fixed.” Signature Bank was notified about both of these buildings in ANHD’s letter to the bank and its federal regulators at the time of their 2016 Community Reinvestment Act (CRA) exam. One month later, the bank made the loan.

Tenant organizers at CASA have been working in 750 Grand Concourse since September 2015.  Organizers have witnessed serious leaks, rampant vermin, paint peeling (including lead paint), bathroom appliances detached from the walls, and shoddy repair work.  One woman’s toilet and sink were removed and dumped in her bathtub in order to “replace tiles,” where they remained for several days. While holes get loosely patched over, tenants have been without access to their laundry room for over a year because Parkash has not fixed a gaping hole there.

An April 2016 Daily News article about a tenant-led housing court lawsuit leads with the rat problem; “Inside a building on the Grand Concourse blocks from Yankee Stadium, Rico Moreno hears rats scratching at his rotting bathroom tiles when he tries to take a shower,” the article read.

While the number of HPD violations may have gone down in recent months, especially after tenants sued Mr. Parkash for repairs, this February 2017 New York Times article about the recent tragedy outlines longstanding issues in the building, as well as the fact that the Department of Buildings Commissioner reported 750 Grand Concourse as having “some two dozen open violations against the property.” The article also describes how tenants have suffered through his behavior for years.

Yet, Signature ignored the problems, and even continued to work with him by financing his most recent purchase of 2905 Kingsbridge Terrace and 2988 Kingsbridge Terrace with a $16.5 million mortgage. UPDATE: And in early February, Signature made another $5 million loan to Parkash to finance his latest purchase of 11 West 172 Street.

The Toledano Tenants Coalition has also asked Signature Bank to be accountable for their lending. They represent tenants from buildings owned by known bad-actor landlord, Raphael Toledano. Signature made a collateral loan to Madison Realty Capital backed by these buildings.

Lenders must be held accountable for the impact their lending to bad-actor landlords has on communities. This is especially true for lenders like Signature Bank that are covered by the CRA since banks can get CRA credit for loans on apartment buildings where the rents are affordable to lower-income tenants. But regulators are becoming increasingly aware of the problems caused by bad landlords and bad underwriting, and will sometimes not give CRA credit if the buildings are in bad condition or if the loans lead to displacement or a loss of affordable housing. This is clearly the case with 750 Grand Concourse and other Parkash loans. It is time for Signature Bank to reform its practices and make a stronger commitment to responsible multifamily lending in New York City.

Bad Landlord, Bad Lending

Tenants and Elected Officials Call Out Madison Realty Capital and Signature Bank

Last week, tenants living in a portfolio of 20 buildings in the Lower East Side owned by the notorious landlord Rafael Toledano took to the streets, accompanied by elected officials and a brass marching band, and marched from the headquarters of Madison Realty Capital to Signature Bank to call them out for financing Toledano. (See press from the event in EV Grieve, The Villager, and The Bowery Boogie.)

Irresponsible multifamily lending has real consequences. Bad lending includes loans that are too large to support the current rents, and it can also include simply lending to known bad actor landlords who have a track record of harassment and neglect. Both circumstances appear to be the case for buildings owned by Rafael Toledano.

Rent-regulated multifamily housing is one of the most important sources of affordable housing in the city, and rent regulation is a key part of preserving that affordability. But our City is losing rent-regulated housing at an alarming rate – we lose over 11,000 units of rent-regulated housing every year.

Too often, unscrupulous landlords use illegal and semi-legal tactics to push out low-rent paying tenants so they can take advantage of loopholes in rent-regulation to dramatically increase rents. For a family that is evicted, losing that affordable housing can be a devastating blow, especially in our City where affordable units are already scarce and irreplaceable once gone. This alleged type of behavior by Toledano is what led tenants across these 20 buildings to come together to form the Toledano Tenants Coalition. Under Toledano’s ownership tenants have faced a lack of essential services like cooking gas, buyouts with no attempts to follow new applicable laws (local laws 79, 80, 81); irresponsible construction that has led to collapsed ceilings and high lead dust contamination; and numerous lawsuits brought against tenants.

Toledano can’t do this alone – he needs financing. In September of 2015, private equity lender Madison Realty Capital loaned Toledano $124 million to buy 16 buildings throughout the East Village. He paid just $97 million for the portfolio. News coverage has documented some of the risky lending patterns that Madison Realty Capital maintains. The Real Deal later quoted a veteran real estate investor regarding this deal, saying that MRC’s $124 million loan to Toledano left him “over leveraged,” and that Toledano is now “pushing up rents to pay off a high mortgage.” One of the mortgages Madison Realty Capital issued Toledano went as far as to require him to spend $2 million of the loan exclusively on tenant buyouts or renovations – practices which often trigger huge rent increases. As outlined above, tenants in Toledano’s buildings have faced alleged harassment and extensive building issues ever since he took ownership. Signature Bank played a role here as well. On the same day the mortgage was made to Toledano, Signature issued a loan to Madison Realty Capital with this same portfolio held up as collateral. All of this financing happened despite numerous articles about Toledano’s practices, the most public being his alleged harassment of tenants through aggressive buyouts at 444 E. 13^th Street, which led to a reported $1 million settlement.

Lenders must be held accountable, especially bank lenders like Signature Bank that are covered by the Community Reinvestment Act (CRA).  Under the CRA, banks can get community development credit for multifamily loans where the rents are affordable to lower-income tenants. At the same time, most regulators will not give credit if the buildings are in bad condition or if the loans lead to displacement or a loss of affordable housing, as was the case with Toledano’s portfolio.  Due to the nature of the loan, Signature would likely not submit it for CRA credit; but regardless, banks should uphold both the letter and the spirit of the CRA by ensuring that the loans they make and the loans they use as collateral uphold these standards to preserve affordable housing and protect tenant’s rights.

Landlords like Toledano should not have access to financing without strong tenant protections in place.  Signature should not allow these loans to be used as collateral without similar protections. Finally, bank and non-bank lenders should be monitoring their loans and collateral to ensure they are held to the highest of standards with regards to quality and tenant protections.

ANHD urges all involved parties to push Toledano to restore essential services and end his harassment of tenants through buyout offers, court cases, and aggressive construction tactics. The tenants deserve no less.