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#2273055 - 07/19/22 04:58 PM Open Letter to ABA Re: CRA NPR
Len S Offline
Diamond Poster
Joined: Oct 2004
Posts: 2,084
Connecticut
I read the ABA's comments on the CRA NPR. Among other things, you expressed concerns about the 100 mortgage and 250 small business loan thresholds for the Retail Lending Assessment Areas.

But I didn't see a word about something far more preposterous in the NPR - the concept of applying the retail lending test to "Outside Retail Lending Areas" which has no minimum volume requirement of any sort! As long as a product constitutes 15% of a large bank's lending outside its 2 types of assessment areas, it would be incorporated in a performance rating under the retail lending test at the institution level.

So a bank in Florida that extends a single closed-end mortgage in Los Angeles, CA would have that mortgage be included in the evaluation of the bank's performance. Think of how absurd that is, especially when it could be applied to hundreds of loans extended anywhere in the US. Comparisons to all the "local" (MSA or statewide non-MSA) calibrated benchmarks would have to be compiled and weighted for each loan! As far-fetched as the Retail Lending Assessment Area concept may seem, this is even more absurd! It's completely divorced from common sense and reality. It's stunning that the regulators would even propose something like this.

There are other examples of very serious flaws in the proposed Rule. The consolidation of years of data into a single metric for an undefined "evaluation period" during which demographics such as tract income class can change is not only impractical, it's impracticable without compromising the metrics themselves.

I've already submitted 4 sets of comments about the proposed Rule. I am planning on submitting another set before August 5. But unless much stronger objections are raised by the ABA as the industry leader I believe the proposed Rule may likely pass largely unchanged and the consequences will be devastating for everyone (not just banks, but the very communities they serve).

I urge the ABA to take very strong leadership on this issue before it is too late.
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#2273072 - 07/19/22 08:27 PM Re: Open Letter to ABA Re: CRA NPR Len S
Monster Offline
Platinum Poster
Joined: Sep 2015
Posts: 500
I'm not sure ABA is on BOL, but if this post is intended to reach them you might be better off reaching out directly. They are very receptive to feedback on comments for NPRs. If you do reach out to them directly, I'd be surprised if it isn't brought up in their next CRA committee meeting.

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#2273078 - 07/19/22 09:14 PM Re: Open Letter to ABA Re: CRA NPR Len S
Len S Offline
Diamond Poster
Joined: Oct 2004
Posts: 2,084
Connecticut
I did hear back from them - so BOL has some influence!!

Having said that, there are only 17 days before the comment period is over and then it's too late to have any influence. All bankers should be urging their associations to send comments before August 5.

The small banks are not getting the break they think they are getting. Section 1071 - will require them to report their small business lending in much more detail than CRA ever has done. And the Retail lending tests that the small banks think they escaped - its the same tests that have been used for 27 years packaged to sound different. It's all about lending in the LMI tracts and to LMI borrowers. The big difference is the benchmarks will be officially calibrated, whereas the regulators would never acknowledge what was needed to attain a satisfactory rating. When bankers understand that, they will know that in the field the same tests for them will use the same metrics as the big banks.
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#2273241 - 07/21/22 10:27 PM Re: Open Letter to ABA Re: CRA NPR Len S
Care4RCommunity Offline
100 Club
Care4RCommunity
Joined: Apr 2012
Posts: 110
NJ
I've read, I've listened, and now I am trying to process everything. I need to ensure that I have this straight as I prepare a comment letter so I am using a hypothetical situation:

Let's assume the following: Note: I am not including small business loans in this example
2021 mortgage loans = 1000
2021 mortgage loans inside the current AA (several counties surrounding branches) = 600 (in/out ratio is 60%)
The other 400 loans were originated throughout the country, with no more than 100 in any single MSA or state-wide non-MSA areas

Impact of the above scenario:
I have the FBAA
I do not have the RLAA (threshold not met for any MSA)
I will be evaluated on loans in the FBAA as is currently the case
I will be evaluated on those 400 loans that are outside of the FBAA, but will have to analyze each loan location to calculate metrics based on the MSA where each loan is located.
- So if I had 4 loans in 100 MSAs, I would have 100 different areas to analyze! (Plus the FBAA analysis)
- My 4 loans in each MSA would be compared to the demographics and market metrics????

Please tell me that I am not understanding this correctly!

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#2273243 - 07/21/22 11:36 PM Re: Open Letter to ABA Re: CRA NPR Len S
Len S Offline
Diamond Poster
Joined: Oct 2004
Posts: 2,084
Connecticut
Sounds like you got it right. That's the way I read it and I've read it over and over because this is so stunning it's hard to believe the Agencies proposed it.

The concept of evaluating lending outside the traditional branch-based assessment area contradicts the statute and 45 years of regulatory enforcement. It will distract from what should be a bank's real focus - the communities where it maintains its branches and where its employees, officers, and directors live. I would think community advocates would be opposed to this.

From Pages 236-237 of the NPR:

Banks that engage in retail lending outside of their assessment areas do not all have the same regional distributions of lending across the country. As such, the lending opportunities in the communities served by different banks in outside retail lending areas are not the same. The agencies propose to tailor performance expectations for outside retail lending areas to match the opportunities in the regions in which the bank lends.
The agencies propose to tailor performance expectations by setting performance ranges relative to bank-specific tailored benchmarks. These tailored benchmarks are calculated as the average of local market and community benchmarks across the country, weighted by the retail lending the bank does in each region. Specifically:
• For each major product line, the agencies would calculate market benchmarks and community benchmarks for the geographic and borrower distribution tests for every MSA, and the non-MSA portion of every state, in the country. Calculations of these benchmarks would follow the method described in Section IX.E.2.
• Each MSA and the non-MSA portion of each state is assigned a weight, calculated as the percentage, by dollar volume, of the bank’s outside retail lending that was in that MSA or non-MSA portion of a state.
• Tailored community benchmarks and tailored market benchmarks are then calculated as the weighted average of the community benchmarks and market benchmarks in every MSA and the non-MSA portion of every state, weighted by the percentage of the bank’s outside retail lending in that region.
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#2273253 - 07/22/22 12:59 PM Re: Open Letter to ABA Re: CRA NPR Len S
Len S Offline
Diamond Poster
Joined: Oct 2004
Posts: 2,084
Connecticut
One thing I meant to say - what's evaluated in the outside retail lending areas are the major product line loans. The determination of what loans are qualified as such is based on 15% of the outside retail lending area loans. So some or all of your 400 loans will be evaluated. For sure, at least one type of those 400 loans outside your AA's will be evaluated as proposed in the Rule.
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#2273303 - 07/22/22 07:25 PM Re: Open Letter to ABA Re: CRA NPR Len S
Care4RCommunity Offline
100 Club
Care4RCommunity
Joined: Apr 2012
Posts: 110
NJ
Thanks again. This is truly incredible.

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