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#2083896 - 06/16/16 09:16 PM Which gross revenue to use?
KelliD Offline
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Loan is to a newly formed single asset entity on a purchase of a building to be owner-occupied. The owner-occupied business is under another company name. SO, do I report -0- for GR since it is a new entity or do I report GR of the occupant? The reason I am questioning is because it owner-occupied but under a different business name.

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#2083898 - 06/16/16 09:57 PM Re: Which gross revenue to use? KelliD
JC (Darth HMDA) Offline
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IMO, unless the occupying entity is an affiliate of the borrower, you can only rely on the GR of the borrowing entity. In this case, as a new entity, I would report $0 historical revenue (unless YTD is available) and revenue code 1

good luck!
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#2083956 - 06/17/16 03:31 PM Re: Which gross revenue to use? KelliD
KelliD Offline
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Both companies are owned by the same people so that makes them an affiliate, right? In which case, I can use the income of the occupant for GR, right?

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#2083983 - 06/17/16 04:31 PM Re: Which gross revenue to use? KelliD
Kathleen O. Blanchard Offline

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The bank is likely looking at the revenue of the affiliated operating company, not the real estate holding company to approve the loan. You would report that operating revenue. Reporting the total of the two companies' revenues would double count the rent paid - assuming the tenant is the affiliate company with other revenues.

If the tenant was a third party, you would aggregate for the affiliated companies.
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#2084123 - 06/17/16 10:29 PM Re: Which gross revenue to use? KelliD
JC (Darth HMDA) Offline
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Originally Posted By Kelli, the Analyzer
Both companies are owned by the same people so that makes them an affiliate, right? In which case, I can use the income of the occupant for GR, right?


Kelli, IMO, one person wholly-owning two companies does not make those companies "affiliates" for CRA reporting purposes.

Based on the definition of “affiliate” under the FDIC’s CRA regulations (12 CFR 345.12(a)), a company has to own both entities when considering whether to aggregate revenues for reporting purposes. The term “affiliate” is defined as “any company that controls, is controlled by, or is under common control with another company. The term control has the meaning given to that term in 12 U.S.C. 1841(a)(2), and a company is under common control with another company if both companies are directly or indirectly controlled by the same company.”
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#2084126 - 06/17/16 10:39 PM Re: Which gross revenue to use? KelliD
JC (Darth HMDA) Offline
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Kaybee,

Not to argue, my understanding is this: If the operating company is an affiliate (under the definition above), the operating company is a guarantor, and the bank relied on the revenues of the operating company when making the credit decision we would use the revenues of the operating company.

If the operating company did not guarantee or was not a co-borrower, or was not an affiliate we would not be able to include their revenue in determining the CRA revenue/revenue code.

This is based on the definition above and CRA Q&A .___.42(a)(4)-1

However, if the institution considered and relied on revenues or income of a cosigner or guarantor that is not an affiliate of the borrower, such as a sole proprietor, the institution should not adjust the borrower’s revenues for reporting purposes.

Do you concur?
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#2091950 - 08/05/16 05:58 PM Re: Which gross revenue to use? KelliD
TryingtoComply Offline
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Question:

A trust is the owner of a building and the trustee's business occupies the building.

Are they affiliates?
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#2091970 - 08/05/16 06:35 PM Re: Which gross revenue to use? KelliD
rlcarey Online
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Who's revenues are you relying on and who is getting the loan??
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#2092018 - 08/05/16 08:27 PM Re: Which gross revenue to use? KelliD
TryingtoComply Offline
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For a purchase loan we are typically relying on the revenues of the operating company that will be occupying the building. They are usually the guarantor. So I'm trying to figure out what I should be reporting for GARs.

I'm hung up on the definition of "affiliate." Is a trust considered a "company" that can have affiliates?
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#2092049 - 08/05/16 10:16 PM Re: Which gross revenue to use? KelliD
TryingtoComply Offline
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Randy,

Sorry, I neglected to mention that the trust is the borrower.
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#2092419 - 08/09/16 09:03 PM Re: Which gross revenue to use? KelliD
KelliD Offline
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I am looking at one just like this today. I believe them to be affiliates and will use the GAR of the company occupying the building. Someone please advise if this is not correct!

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#2092663 - 08/11/16 02:36 PM Re: Which gross revenue to use? KelliD
Breeco Offline
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You need to read the credit write up to see who revenues were relied upon. If there is no mention of the holding company/parent, then go with revenues of the borrower. If there if reference to the holding company/parent supporting the credit then you use that. Like KB said, make sure if you don't double count.

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#2093063 - 08/12/16 08:10 PM Re: Which gross revenue to use? KelliD
Dcomply Offline
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So, if a real estate holding company and an operating company are owned by the same individual (not company), would they be considered affiliates for CRA reporting purposes?

We usually have the real estate holding company as borrower and the operating company as guarantor but we underwriting based on the operating company. The question is whether they are affiliates since they are both owned by the same individual (not company).

Wondering how people are reporting.

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#2093324 - 08/15/16 07:48 PM Re: Which gross revenue to use? KelliD
Breeco Offline
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Based on your scenario, the holding company would be an affiliate of the borrowing entity. Affiliate means any company that controls, is controlled by or is under common control with another company. Check pg 14 of the 2015 CRA Guide to Data Collection and Reporting.

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#2094121 - 08/18/16 09:12 PM Re: Which gross revenue to use? KelliD
Dcomply Offline
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Thanks for the response. The reference "common control" on page 10 of the guide then refers to the Bank Holding Company Act to define control. When u read the Bank Holding Company Act, it seems like the common control must be a company not an individual. It seems that it allows for the company to own a small percentage along with the individual. But it seems if only the individual owns the companies that is not an affiliate. Seems to make sense because most board members own there own businesses and they are not consider affiliated business under the bank holding company act (maybe respa but not the BHCA). Any thoughts?
Last edited by Dcomply; 08/18/16 09:23 PM.
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#2094300 - 08/19/16 05:10 PM Re: Which gross revenue to use? KelliD
Kathleen O. Blanchard Offline

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Don't read that too literally. Also, ask your CRA exam how they view this. I have discussed this with CRA examiners and many DO look at multiple small companies owned by the same individual, in aggregate, wanting to know if you are lending to a mini-mogul who owns 10 dry cleaners or to a single store owner.
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#2094662 - 08/23/16 12:40 PM Re: Which gross revenue to use? KelliD
Dcomply Offline
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Great idea, thank you! I appreciate the help.

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#2118490 - 02/16/17 05:04 PM Re: Which gross revenue to use? KelliD
Comply13 Offline
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After reading multiple threads on the topic of GAR and affiliates, as well as the CRA Guide, FAQ's, and exam manual, I would like to ask for some clarification. When taking into consideration and reporting revenues for affiliates, does an affiliate actually have to be a borrower, guarantor, or cosigner on the loan? Sometimes a credit approval will reference an affiliate's GAR but the affiliate is not a borrower.

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