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#1988850 - 01/15/15 02:46 PM Purchase of loans for CRA benefit
SaaL Offline
Gold Star
Joined: Mar 2008
Posts: 294
The Texas Hill Country
My bank is considering purchasing a small batch of loans originated withing our CRA AA in LMI census tracts from a private lender primarily to benefit us for CRA purposes. I know we will show these purchased loans on our LAR, and my concern from a Fair Lending standpoint is that the rate on these loans is quite high - over 10%. I'm concerned that buying these loans could hurt us more than help us. I'm not sure what the justification for the high rate is other than "these borrowers couldn't borrow anyplace else". I imagine these will be HOEPA loans and may look "predatory". Would appreciate some advice on pros/cons of doing this. We'll obviously do a file review for compliance and other due diligence - I'm most worried about Fair Lending considerations right now.
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Fair Lending
#1988860 - 01/15/15 03:02 PM Re: Purchase of loans for CRA benefit SaaL
Rocky P Offline
Power Poster
Joined: Jun 2003
Posts: 7,441
Florida
As I understand it, especially from FDIC Atlanta, organic lending is preferred to ensure that the assessment area is taken care of. Purchase loans count, but are second tier. (They help, cannot hurt.)

Pricing, on one side of the coin, your bank did not make the loan, and should not be criticized in any way. That being said, IMHO. a regulator "could" interpret this as facilitating high priced lenders.

One thing yo might do, is determine the types of products that are being offered. Is the rate higher due to more predatory products, or the additional credit risks? Are the lenders prominent because of their ties to the community, proximity to the area or other reasons?

Lastly, you might also give your CRA Liaison a call, and ask their opinion.
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#1988870 - 01/15/15 03:12 PM Re: Purchase of loans for CRA benefit SaaL
SaaL Offline
Gold Star
Joined: Mar 2008
Posts: 294
The Texas Hill Country
Thanks for your response. I just want to make sure we don't end up helping ourselves for CRA but ultimately hurting ourselves from a Fair Lending perspective. I'm guessing these high rate purchased loans will raise a red flag when the OCC is prepping for a Fair lending exam -or maybe not - perhaps they segregate or separately evaluate purchased loans when doing their statistical analysis.
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#1988993 - 01/15/15 05:24 PM Re: Purchase of loans for CRA benefit SaaL
Kathleen O. Blanchard Offline

10K Club
Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,281
Purchased loans count just like originated because the purchases allow the other lender to continue to make more loans, which can provide a bigger impact than your bank could do lending on its own. That should be addressed in your context.

However, banks have had CRA negatively affected by investments in pools of subprime loans found to be predatory or even by UDAAP findings in the bank's portfolio. A direct purchase of loans that could be construed as predatory could potentially have a similar impact.

Again, explaining why the loans are not predatory despite pricing would be key.

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Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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