I'm getting conflicting opinions on this and don't see anything in writing. If we are coming up short in our attempts to make loans in Majority Minority Census Tracts, would it help our performance at all, to go purchase loans that had already been made by other banks?

If it does help, does it matter which year the loan was originated in?

Does it matter if we service the loan?

Thank you!

I'm going to continue giving you an ambiguous answer, MAYBE!

That depends on the regulator, and the mood de juir. I've heard it as:
YES, it helps, since you are freeing up cash for another institution to make loans there,
MAYBE, it's not organic, we can't count it in the first pass but it can help if the bank is short, and
NO, we only concerned about loans marketed and underwritten by the bank.

Fair Lending is changing, and examiners have been given marching orders, depending on regulator and field office. Historically, Majority-Minority tracts referred to the aggregate minority population being greater than the white, non-Hispanic population. Certain regulators (and field offices) have defined Minority tracts as excluding Asians others as only Black and Hispanic. And with the new CRA, who can even guess.

If your overall penetration into the Majority Minority tracts appears significantly less than the penetration in your assessment area, document the reasons "why". It could be size, proximity to branches, language issues, etc. If someone has to drive 20 minutes and go by 35 other lenders to get to your shop, you are NOT going to get much business unless you have a half-off sale. In your documentation reference the reasons: limited marketing budget, drive time, greater accessability to other lenders, etc. and put a comment in that explains the reasoning - you cannot do it, but are making funds available for a more accessable lender to have the cash flow to make more loans. Also remember the difference between a regulator and a terrorist - you can negotiate with the terrorist.

All I can say is that you asked if it can "help fair lending" then that answer is a resounding "no". If your policies and procedures are discriminatory, purchasing loans is not going to help you. Now, if you are talking about CRA, that a whole other story that I will let the CRA experts address.

OP here: By "Help fair lending" I mean:

We have already been criticized by our regulator in writing for a low percentage of our applications/originations being in certain census tracts (containing a high percentage of a certain race or ethnicity) as compared to peer lenders. They demand that before they return, we increase that percentage.

Despite having spent an extraordinarily high amount of money and focus on marketing to those tracts, and doing other things to increase originations there (things that cost a lot of money for us), our percentage there has somehow fallen.

So, in trying to think of what else will "help" improve our future numbers there, we are thinking of purchasing loans. But those will be an action code "6" on the LAR rather than a "1." Will those "count" the same as loans we originated, or be entirely discarded?

Why are you not having this discussion with your EIC? How would we know the answer to this as we have no idea how the regulators would view this based on their specific findings.

We could easily tell you - oh sure, that will do the trick, and your regulators tell you otherwise. If they are making the demands, then sit down and have a discussion with them.

OP here: Oh, we definitely will.

I was just trying to confirm whether there is any regulation, rule, guidance, or FAQ that even remotely suggests it is a Yes or a No. As Rocky suggested, it seems it's a firm Yes, Maybe, or No, and as you emphasized, it seems to be up to the subjective interpretation of our EIC/regulator rather than, say, based on an actual rule or guidance.

This discussion highlights the unfairness of fair lending enforcement. In, for instance, Reg CC or Reg Z, we have clear expectations and something is either right or wrong. In fair lending enforcement, it's feels much like it is based on a whim and can change from one exam to the next.

This feels like having a CTR rule that says "File a CTR at $10,000 or above, or at $25,000 or above if you're in the Southwest region, or well, just check with your EIC and see what they want you to do."

That is what your ombudsman is for

on top of what Randy is stating, the other thought that comes to mind is if you don't have a branch in these population areas you are discussing, it will be hard to generate any significant loan volume there.

OP here. Happy, you got that right! Thanks! (Any thoughts on how to cope with that fact of life? We already told them in the prior exam about all our obstacles in trying to compete with "peer lenders" who have 30 branches in that city and have been a name in the community for decades. Didn't matter.)

(And my thanks to Randy also)

The subjectivity may be at a higher level than your EIC, but it is definitely subjective. Some of it depends on where purchased loans fit in your overall strategy. (A lender with a significant correspondent mortgage business is more likely to get fair lending credit for action code 6 loans, as is a lender that outsources application and underwriting to a third party.) In general, though, it seems to be getting harder to get credit for purchased loans from a fair lending standpoint.