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#385981 - 07/14/05 06:33 PM CRA Reporting
Perkins Offline
Junior Member
Joined: Dec 2004
Posts: 46
Louisville, KY
Our bank makes loans from applications sent to us by brokers. Since many of the brokers send apps from outside of our MSA, this will make our CRA rating not what it could be. My question is; Is there a rule that applies somewhere that will let us preclude the brokered loans from 1 to 2 states away?

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#385982 - 07/14/05 06:47 PM Re: CRA Reporting
Don_Narup Offline

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Joined: Jul 2001
Posts: 3,708
Las Vegas Nevada
No, The bank originated the loan and it is originations that are reportable for CRA purposes.


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#385983 - 07/14/05 06:49 PM Re: CRA Reporting
HRH Dawnie Offline
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HRH Dawnie
Joined: Aug 2002
Posts: 7,353
Anchorage Alaska
I'm assuming that you are originating the loans at your bank from these applications right?

If so, you'll be happy to hear that all of your troubles will be over if you do one little thing....sell off all assets keeping you above $250 million your reporting worries will be over

That's probably not realistic No you can't exclude the loans from one or two or twelve states away. If you choose to do business that way, and the loan is reportable in all other ways, you need to report it with your other loans.

The Inside/Outside Ratio is a VERY small part of your rating. The quality of the lending you are doing is much more important. I do some lending outside of my AA and it receives extra credit in my exam because no other banks will help these folks.

Unless your inside/outside ratio is really low, I wouldn't let it worry me. To know what "low" is, you want to compare yours with your peers and see how you measure up. If you're in line with them, don't worry about it. If you're far below, look at the lending data and see how you're doing on the loans you do provide. If they're serving LMI populations significantly, even that low figure won't kill you. You just have to write a performance context that covers you.
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Dawn Coursey VP/CRA Queen

CRA Rating is in...Oh who cares...I'm home with the baby.

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#385984 - 07/14/05 07:01 PM Re: CRA Reporting
Perkins Offline
Junior Member
Joined: Dec 2004
Posts: 46
Louisville, KY
Thanks Dawnie. About 16% of our loans are within the MSA. This arises out of the fact that our bank started out as a mortgage broker, and has a very strong wholesale dept. So you think this really won't affect our CRA Rating? What does the acronym LMI mean? Low income, minority???

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#385985 - 07/14/05 07:10 PM Re: CRA Reporting
HRH Dawnie Offline
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HRH Dawnie
Joined: Aug 2002
Posts: 7,353
Anchorage Alaska
16% inside...yikes that's beyond a bad number Perkins Are you a limited purpose institution?

How to say this nicely...forgive me if I sound bad here.....The fact that you don't know what LMI means is probably a bigger indicator of trouble at exam time than the inside/outside ratio Low or Moderate Income (that could be tract or household income). Have you or anyone at the institution done an analysis of the loans you're providing? Or an analysis of the AA you've chosen? You're not limited to MSA specificly. Would it be reasonable to expand your AA somewhat and pull in several of those 84% that are currently outside the AA?

Yes, 16% is really low. I'd have phrased my initial question not as "many of our loans are outside" but instead said "the majority" or "most" But, again there is the need to check out your peers (your examiner picked some for you in the last exam) or you might want to pick some on a more national basis or regional basis that do what you are doing. Pull their exams and see how much they were beat up about the ratio, and compare your LMI lending to theirs...see how you stand up.

I pull both exams of banks in my state who examiners see as peers and other banks in the nation with similar challenges to mine but who are regulated by the same agency. I'd advise the same for you so you can get a feel for how this is going to effect the exam. You'll get some good performance context from the PE's you pull as well to get your context ball rolling.
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Dawn Coursey VP/CRA Queen

CRA Rating is in...Oh who cares...I'm home with the baby.

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#385986 - 07/14/05 07:23 PM Re: CRA Reporting
Perkins Offline
Junior Member
Joined: Dec 2004
Posts: 46
Louisville, KY
Thanks for your reply. I am not the CRA Officer, nor do I have much experience with it. I have heard that percentage thrown around lately and I was really curious. We are trying to essentially go from one type of business to another. Not a defense, but I did think perhaps LMI was low to moderate income. A bank that is established in the wholesale lending business really shouldn't neglect that focus in an attempt to raise the percentage of loans in their MSA, or should they? The local market is somewhat saturated. Thanks for your patience with me. Love the cat.

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#385987 - 07/14/05 07:36 PM Re: CRA Reporting
HRH Dawnie Offline
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HRH Dawnie
Joined: Aug 2002
Posts: 7,353
Anchorage Alaska
see how you made my kitty smile So do you have a CRA officer? Sounds like the two of you should get together. I see so many banks where decisions like this are made by others with no consult on how it's going to effect CRA. Fortunatley my bank keeps me in the loop when it makes major changes so I'm always ready to develop a performance context to protect our rating.

No bank should change their focus in an effort to make regulators on CRA happy IF their focus is not seen as detrimental to their community. I'm a small business bank, and I could probably be a bigger consumer focused bank if I was in the mood which could really boost our CRA, but we've got many great consumer institutions surrounding us, so if we did make that change, sure CRA might do well but our profits would suffer, and eventually we'd fold. CRA focus has to be safe and sound, and if this change in your focus means your inside/outside ratio suffers, well so be it. You shouldn't completely neglect your focus to deal with that one little ratio. (breathing a sigh of relief?) BUT! now the hard work come in. You do need to consider coming up with a strong performance context to protect you in the next exam.

This is the job of your CRA officer. Since you've cleared up my mind and told me that isn't your duty, you need to chat with them and be sure they're on line with these changes and working on that context as we speak (or type) As I mentioned, pull those exams and see how you stack up against them. Check out your lending figures within your AA and outside of your AA and see how you look in the LMI markets. There are many institutions to compare yourself against out there. They face this same delima, and while they do live through it, they probably have to spend more time than the average joe making sure the rest of their data looks strong at exam time. I see one or two of you at the PCI conference in CRA essentials every year wondering how to "fix" the inside/outside ratio So take heart in the knowledge that you're not alone

Schedule that meeting with the CRA folks right away and share your concerns and willingness to work with them on this issue and I think you'll find you can protect the bank from a bad exam. Now I caution that with...if your major focus is high income lending products, and you have squat for LMI deals inside or outside...you might consider learning to feel comfortable with the words "needs to improve" or you might JUMP!!! right on the band wagon and figure out a way, product, focus, etc., to pull those LMI figures up to protect you!
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Dawn Coursey VP/CRA Queen

CRA Rating is in...Oh who cares...I'm home with the baby.

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#385988 - 07/14/05 11:01 PM Re: CRA Reporting
Don_Narup Offline

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Joined: Jul 2001
Posts: 3,708
Las Vegas Nevada
Perkins, If you are an OCC regulated institution, then the minimum acceptable percentage of loans inside your Assessment Area needs to be greater than 50%. Some examiners at other agencies will look to a 60% or 70% figure.

The percentage you are speaking of will unquestionably have an effect on your CRA rateing.

It would indeed be rare if your peer group has less then 50% so IMO you have a problem. It comes down to the fact that you are supposed to be serving the credit need of your community (Assessment Area)

You can look to expanding your AA but it sounds like loans are coming from far away.

I think you may have more than a CRA issue. The fact that you are using brokers to generate a large percentage of the loan portfolio opens the door for all kinds of Fair Lending issues. For example Examiners could find that the brokers are used for Pre-Screening and thats a no no. The criteria you have set up to the brokers could have some "Exclusionary" provisions.

I don't think we know enough about the geography of your AA to give any set advice It really would take some analysis of the AA and portfolio to get the whole story and to see what, if anything, you could do to bump up that percentage. Have you tried to find brokers within your AA that will send deals to you?

Do you know the number, dollars and percent of loans in each of the income classifications. I.E if you have 100 loans an 98 of them or outside the AA in Upper income census tracts and all 100 are from White applicants, you have a problem.
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#385989 - 07/15/05 12:15 AM Re: CRA Reporting
HRH Dawnie Offline
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HRH Dawnie
Joined: Aug 2002
Posts: 7,353
Anchorage Alaska
I ran into a couple of financial institutions like this a year ago at training Don. They had very unique relationships with their examiners (one of whom was in the class). It's a similar problem to internet banks that have one branch somewhere and do lending throughout the US. They have a very unique need to spend a GREAT deal of time on that performance context issue.

I was going to recommend to Perkins that if the CRA officer at the bank isn't up to speed on this unique need that they really need to get with a good consultant to develop a plan for the future. Since you went ahead and posted I'll tell Perkins that I know a guy named Don Narup who would probably be a good value if they need someone (I actually mean that Perkins...Don never pays me a dime to be nice to him)

It's important to get on this ASAP though. As I mentioned, you can offset, but it's going to be a very specific effort on behalf of the bank that is necessary to overcome the numbers if they're not where they need to be.
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Dawn Coursey VP/CRA Queen

CRA Rating is in...Oh who cares...I'm home with the baby.

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#385990 - 07/15/05 02:46 AM Re: CRA Reporting
Don_Narup Offline

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Joined: Jul 2001
Posts: 3,708
Las Vegas Nevada
Thanks Dawnie, Thats what I ment by not having enough info to be really specific in their particular case.
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