We make many business loans secured by real estate. Most of the time the address showing is located at in one particular census tract but the collateral securing the loan is property at a totally different location and in a different census tract.
Am I correct in thinking that the examiners will look at the collateral address when determining our lending within our assessment area??

I think it is a good idea to collect every address that is or may be relevant. These include the borrower's address, the property location, and the location where the funds will be used. Then pick the one that makes your CRA record look best. But you do need to be fairly consistent in how you do this.
It is very useful to collect a loan purpose explanation from the loan officer when the loan is made. It is difficult to go back and get this later. Then use this explanation to support your choice of location for reporting purposes.

This has been my rule of thumb for geo-coding real estate secured loans. If the purpose of the loan is to purchase, refinance, or improve the real estate, then I use the real estate address for geo-coding.

However, if the business is simply pulling equity out of real estate to use for operations elsewhere, then I look to either where those proceeds will be used OR the borrower's main office address.

Also, if the real estate is taken as an "abundance of caution", then I use the business address instead of the real estate.

In other words - Follow the Money!

I have talked with the Federal Reserve more since my original question. Among other things they told me that the location securing the loan would determine what census track we used therefore, whether loan is inside or outside our assessment area.

Well I suppose that's a consistant way of treating things but I think it turns a blind eye to the real spirit of CRA. Let's suppose you have a business that operates in a high income area but owns a strip center in a moderate income area. The business pulls all of the equity out of the strip center so it can fund a new operation in a high income area.

Technically, you can report this as a loan made in a moderate income area, but truth of the matter is the equity in a moderate income area just got sucked out in favor of a high income area. That seems smack wrong in the face of CRA.

CONVERSLY - if you have a business located in a low income area that had a buidling in an upper income area, and the business seeks to pull the equity out of the upper income area to invest in business operations in a low income area, why should that loan be reported as being in an upper income area?

However, you just might have an examiner blind to the real intent of the legislation that will seek to cite you because you didn't follow their narrow interpretation of the rules. Nevermind if it makes sense or not, and I think we've all been there.

[This message has been edited by Bonnie M (edited 07-17-2001).]

The CRA Q&A addresses this issue. Q.§___.42(a)(3) tells us to record the loan location by either the location of the business headquarters or the location where the greatest portion of the proceeds are applied, as indicated by the borrower.