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#2083896 - 06/16/16 09:16 PM
Which gross revenue to use?
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Member
Joined: Jun 2015
Posts: 62
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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
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Diamond Poster
Joined: Dec 2013
Posts: 1,399
CA
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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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The opinions expressed are mine, do not represent the opinions of my employer, and they are not to be taken as legal advice.
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#2083956 - 06/17/16 03:31 PM
Re: Which gross revenue to use?
KelliD
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Member
Joined: Jun 2015
Posts: 62
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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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#2084123 - 06/17/16 10:29 PM
Re: Which gross revenue to use?
KelliD
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Diamond Poster
Joined: Dec 2013
Posts: 1,399
CA
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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? 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.â€
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The opinions expressed are mine, do not represent the opinions of my employer, and they are not to be taken as legal advice.
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#2084126 - 06/17/16 10:39 PM
Re: Which gross revenue to use?
KelliD
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Diamond Poster
Joined: Dec 2013
Posts: 1,399
CA
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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?
_________________________
The opinions expressed are mine, do not represent the opinions of my employer, and they are not to be taken as legal advice.
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#2091950 - 08/05/16 05:58 PM
Re: Which gross revenue to use?
KelliD
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Diamond Poster
Joined: Apr 2013
Posts: 2,199
The West
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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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TryingToComply CRCM
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#2091970 - 08/05/16 06:35 PM
Re: Which gross revenue to use?
KelliD
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10K Club
Joined: Jul 2001
Posts: 83,227
Galveston, TX
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Who's revenues are you relying on and who is getting the loan??
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#2092018 - 08/05/16 08:27 PM
Re: Which gross revenue to use?
KelliD
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Diamond Poster
Joined: Apr 2013
Posts: 2,199
The West
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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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TryingToComply CRCM
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#2092049 - 08/05/16 10:16 PM
Re: Which gross revenue to use?
KelliD
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Diamond Poster
Joined: Apr 2013
Posts: 2,199
The West
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Randy,
Sorry, I neglected to mention that the trust is the borrower.
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TryingToComply CRCM
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#2092419 - 08/09/16 09:03 PM
Re: Which gross revenue to use?
KelliD
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Member
Joined: Jun 2015
Posts: 62
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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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#2093063 - 08/12/16 08:10 PM
Re: Which gross revenue to use?
KelliD
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Member
Joined: Aug 2012
Posts: 57
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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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#2094121 - 08/18/16 09:12 PM
Re: Which gross revenue to use?
KelliD
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Member
Joined: Aug 2012
Posts: 57
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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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#2094662 - 08/23/16 12:40 PM
Re: Which gross revenue to use?
KelliD
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Member
Joined: Aug 2012
Posts: 57
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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
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Member
Joined: Nov 2013
Posts: 54
USA
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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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