Hi BOLers,

Forgive me if I have asked this before (I keyword searched first).

What method do you use to identify CRA CD loans within your portfolio?

We've just hit ISB status and I plan to review our portfolio quarterly sorting by census tract (LMI) to identify potential loans.

Is this the best approach? If not, how do you review for CD loans and what filters are you using?

One-man show here.

Thanks.

I ask for a pipeline report by officer every quarter, so I can gauge what may be coming in the future as CD loans. Then I also get a monthly report of closed loans to review for potential CD status. After reviewing the loan file, I ask the loan officer any unanswered questions before deciding whether to report.

Thanks Pale. Are you reviewing all booked loans for the month or are you filtering by census tract?

LMI tracts is a start, but will miss a lot of possibilities. Businesses in adjoining middle income tracts could be providing revitalization to the nearby area and offering jobs to the LMI people down the street. Do you have a way to identify loans to non-profits to see if their mission/programs would qualify? Can you identify multifamily residences to see if they are below fair market rents for the county? (See HUD website.) Have you made any loans to municipalities that support services to LMI residents?

Ideally, educating your lenders about community development loans and asking them to let you know if they think they have one would be good. But in my experience, that can't be the only thing you count on.

Good luck.

Your bank is small enough to ask lenders to keep you in formed (or loan ops). They can let you know of loans for start ups, new locations, or business expansions that might qualify for jobs creation, as well as rental properties, especially multifamily, in low/md tracts. Also construction in low/mod or bordering low/mod tracts.

I have done community development training and had lenders go back to their desks and present compliance with lists of loans that they were previously unaware might qualify.

I have also worked at banks where lenders raised flags but loan ops also kept their eyes open and set credit approval memos aside for compliace to periodically review.

See if you have coding that could flag some of these loan types and run reports.

We included a question on our loan write-up that lists the four categories of CD loans. If the LO marks any of the boxes, a code is assigned to the loan where I can pull a report and view them all. We still have LOs that completely miss the mark, but at least it acts as a reminder.

1- check out all loans to non-profits. While a loan to a non-profit is not a community development loan on that fact alone, it frequently is a good indicator of a potential CD loan
2- check out any construction loans for business purpose - construction of new facilities or rehab of existing facilities usually correlates with business expansion which means new jobs and therefore economic development (plus you don't have to worry about a potential conflict as a small business loan)
3- check out all multifamily mortgages for potential affordable housing qualifications
4- know any geographic areas targeted for economic development and then identify loans extended in those areas

Len does #4 include distressed/underserved middle income geographies?

#4 would include Enterprise Zones, Apple Zones, etc - any geographic area "targeted" by federal, state, local or tribal government for economic development. That would potentially include LMI tracts, and distressed and underserved tracts

Would a letter of credit qualify if it meets the community development definition? I know they're not reportable under CRA for small business loans but didn't know if they would qualify under community development.

Thank you!

Interesting question fretzer - until drawn down the LOC is not a loan or investment. But maybe you could make the argument it is a service if it meets the definition of CD. I am just thinking out loud, so pay no attention until you hear from someone that knows what they are talking about.

Thanks Pale Rider! I like your quote :-)

Look forward to hearing what others say.

Letters of credit are evaluated under the Lending Test as "other loan data". I do not believe they would be considered as community development loans. From the interagency Q & A.

The CRA regulations provide that letters of credit will be considered as ‘‘other loan data.’’ The agencies cannot change treatment of letters of credit in the regulations through interpretation. However, the agencies will consider the issue again in the event they undertake more comprehensive changes to the CRA regulations. The agencies also plan to remind examiners that letters of credit may deserve specific mention in the narrative of an institution’s public performance evaluation.

§ll.22(a)(2)–1: How are lending commitments (such as letters of credit) evaluated under the regulation?
A1. The agencies consider lending commitments (such as letters of credit) only at the option of the institution, regardless of examination type. Commitments must be legally binding between an institution and a borrower in order to be considered. Information about lending commitments will be used by examiners to enhance their understanding of an institution’s performance, but will be evaluated separately from the loans.

There are cases where letters of credit have qualified for CD credit, because the issuance of the letter of credit was the critical factor in the remainder of the financing being made available for a major project to proceed. If you have an LC that serves a CD purpose, do not neglect to present it to examiners.

Is there a centralized database that list areas such as this, e.g. - Enterprise Zones, Empowerment Zones, Business Improvement Districts, Redevelopment Districts, Community Development Districts, etc., etc.)? It would be great if our software vendor could incorporate this, however currently it is restricted to distressed and underserved middle-income census tracts.

Many of those zones are at the state and local level and gathering for one database would be quite a task.

I don't know what zones exactly that Policy Map has but it would be worth a try. I do know they have data points for LIHTC projects and some other housing data points. I've found it fairly useful for information like that.

Try this:

https://www.policymap.com/industries/finance/

It depends on the state. I have been lucky and most of the places that I deal with have central locations for everything. Here is a good example of one.

https://www.ded.mo.gov/EEZLocations.aspx

I have had issues with other areas that are assessment areas are in. It also depends on the knowledge of the people in the areas as well as plans by local EDCs, Planning Departments, or Chambers. I hope that information helps you. It helped me in my search!

I've always been of the mind that if you believe a loan has the potential for CD, do your best to document and summarize to present to the examiners. If you have any doubts about a loan qualifying as CD, simply don't hang your hat on that loan to carry you to the goal post and do your best to identify the "sure things" and encourage lenders and management to keep going.

IMHO - it is better to present more loans for CD and have the examiners disqualify a few, than to come up short in your exam and then wonder if those couple of "iffys" might have made a difference.

Couldn't agree more!

I have asked the lenders to let me know about community development loans, however not many were reported to me. I review loan committee minutes myself to look for community development loans.

Like PR, I do not believe in over editing what is presented. If something has a chance, do you best write up explaining why the loan qualifies. I find many banks leave a lot on the table. As long as you aren't being ridiculous, there is no penalty for a loan being rejected but you can't get approved if you don't present the loan.

I have found that training with examples pulled from exam reports (not just your own) can go a long way to open lenders eyes to recognizing what is in their own portfolios right now.

Also, ask areas that are reviewing loan packages to also keep an eye out...credit analysts, loan ops, etc. Loan ops or credit can also set aside a copy of the loan packages/approval memos for compliance to review every few weeks.

A combination of efforts, along with the methods discussed above re reviewing specific loan types, locations, etc. can bring the best results.

Hi Norman,

One "woman" show here as well and I know it can get overwhelming if you do not have a good system that works. Instead of waiting until the end of the quarter, I use a daily closed loan report where I look at the purpose of the loan, the loan proceeds address and verify if it is located in a LMI area (for every loan). I find that waiting for the lenders to inform you of a CD loan can be difficult. Not all of them or the underwriters will inform you when there is a potential CD loan. I also use a weekly pipeline report to see if there may be anything that could qualify. If there are any potential loans, then I request additional information. The quicker I review the loan before/after closing, the better chance of getting more information. Hope this helps.