Suggestions? How to address? We are to have our loans inside the assessment area at well above 50% (some say 70%) in order to avoid examiner criticisms.

2016 CRA exam rating was Satisfactory. At that time we had several branches and two out-of-state mortgage offices. The mortgage offices weighed us down; the exam noted that their performance was bringing down our otherwise excellent lending performance, for an overall reasonable/satisfactory result for the lending test. Based on how that exam was conducted, I am concluding that every loan originated in our mortgage offices is counted in our lending test, including the in & out ratio. The examiners also noted that the "number" of loans was being weighted more heavily than the dollar volume.

Since then, we have opened up numerous additional mortgage offices, all out of state, all nowhere near a branch. They are extremely productive. Their HMDA reportable transactions, combined, total 2,000 per year. Our bank's HMDA reportables are under 300 loans per year. Maybe I'm wrong but this feels like a spectacularly unworkable strategy, from a CRA perspective. But it has been done. My role now is to figure out a) how to predict our next CRA rating b) how long that will take us to work out of that, and c) whether there is anything we can do in advance to mitigate the likelihood of a bad CRA exam.

What solutions/fixes would you offer management, if you were in my (compliance officer) shoes? I've thought of a few, but none seem workable:

1. Close those mortgage production offices immediately. Obviously, management won't want to do that, so...
2. Open new branches in those locations. They definitely won't go for that, due to expense etc., so...
3. Purchase, from other lenders, loans that will geocode to inside our assessment area. The problem with that is the volume. What, are we going to purchase over 1,701 loans in our area, each year, to make it so that the majority of the number of loans are inside our area? Totally unfeasible. So...
4. I'm out of ideas. The mortgage production offices should not have been opened in the first place. This brings me back to recommendation #1. For some reason, it's never super popular when compliance says "You need to stop making money."

Spin the mortgage operations into a separate mortgage affiliate of the holding company.

A couple other options,

1. Look at your AA and see if there is an opportunity to expand it in such a way that will improve your AA concentration without hampering your other tests. Do you do a lot of lending in a contiguous MSA? Maybe you can include that.

2. Look at performance context, what is the mortgage demand like within you AA? Are you meeting or exceeding competition? This could provide some justification for additional outside lending.

3. Devote additional focus on the borrower profile and geographic distribution components. If you aren't as strong in AA concentration, make up for it with really strong performance in these other areas. If you devote resources to making loans in LMI areas or to LMI borrowers you can pull yourself up.

The size of your institution makes a difference here as well, my ideas are from a small bank/ISB perspective.

OP here: Great idea, Randy! I wish I could do that right now. Unfortunately it does not appear that management will consider taking me up on that suggestion, at least until they see the horrendous results of the next CRA exam.

Good options, Inspector, but...

1. Are there a lot of loans in contiguous MSAs near our assessment area? No. The problem is that all this new lending activity is happening in areas that are many hundreds of miles away from our AA and deposit customer base. The way our AA is, the areas just outside of and contiguous to our AAs are mostly wilderness and national parks and stuff like that, like extremely low-population areas where we have 0 or 1 loan per year.

2. Performance context...good idea, I'll have to buy some of that.

3. I don't understand anything you said in #3, sorry. Kind of new here. Can anyone phrase that for me a little differently?

#3 - if your geographic distribution isn't optimal, can you offset that by saying "Yes, BUT - over X amount of our loans by dollar amount / by number go to low and moderate income people, or low and moderate income tracts, or small farms, or small businesses...."

CRA is all in the way you "sell" your particular version of the story.