Loans secured by real eastate

Could someone please help me to understand the following?

The CRA Data Colletion & Reporting Guide, Appendix B, (page 47, top of third column) reads:
"EXCLUDE from commercial and industrial loans:
(1) Loans secured by real estate, even if for commercial and industrial purposes (report in Schedule RC-C, part 1, item 1)."

However, the CRA Loan Data Collection Grid created by the FRB-Dallas, reads that we should include them. I'm specifically referring to Page 2, Loans Made to For-Profit Entities.

Second table, Non-Residential Real Estate Secured. It states:
"Permanent loan to a for-profit entity secured by nonresidential real estate and equal to or less than $1 million.*"

This is marked that it is considered a small business loan, meaning it would be CRA reportable.

Help!

The word "permanent" is the clue. You cannot report temporary financing or construction lending if you don't have the permanent loan as well.

Thanks for responding Don.

I understand the that temporary financing is not reportable. Please allow me to clarify.

The CRA Data Colletion & Reporting Guide, Appendix B, (page 47, top of third column) reads: "EXCLUDE from commercial and industrial loans:
(1) Loans secured by real estate, even if for commercial and industrial purposes (report in Schedule RC-C, part 1, item 1)."

That statement is leading staff to believe that loans secured by real estate - any real estate, is not CRA reportable. For example loans secured by commercial property.

Where can I find a clear definition of what that statement is meaning? The Dallas FRB table seems to be more specific as it states nonresidential real estate .

Any additional assistance that you (or anyone else) can provide is appreciated.

Refer to the Reg BB / CRA Q&As. 228.42(a)-1 Q: Must institutions collect and report data on all commercial loans under $1 million at origination?

The ANSWER: "No. Institutions that are not exempt from data collection and reporting are required to collect and report only those commercial loans that they capture in the Call Report, Schedule RC-C, Part II and in the TFR Schedule SB. Small business loans are defined as those whose original amounts are $1 million or less AND that were reported as either 'Loans secured by nonfarm nonresidential real estate' or 'Commercial and Industrial loans' in Part I of the Call Report or TFR."

The key is the last sentence. And ensure your folks understand that "nonfarm, nonresidential real estate" is essentially commercial real estate. That term is used frequently in the CRA reporting guidelines and causes my staff to always ask "Why can't you just say 'commercial real estate'.?

Schedule RC-C Part 1, Item 1 is where you report all loans secured by real estate on your call report. There is a special sub category for loans secured by commercial real estate...otherwise known as "secured by nonfarm nonresidential properties". This category is CRA reportable as a small business loan and so are loans that are reported under "commercial and industrial".

I'm tagging on to this thread as I have somewhat a similar question. We have a small business loan that is secured by a 2nd mortgage on the borrower's home (residential real estate) as well as a blanket lien on business assets. I understand that we are not to report loans secured by residential real estate; however what do you do if you have mixed collateral like this? Thank you for your help.

The key is what is the PRIMARY collateral for the loan? If your primary collateral is the business assets, then you would report it on your Call Report as a small business loan, and likewise on your CRA Register.

If the 2nd mortgage is the primary collateral, then the loan is considered to be secured by residential real estate and thus not reportable on your CRA Register. (You could still retain the information on that loan to show your examiners as a "Type 03" which is a business loan secured by residential property.)

Bonnie, in looking back at this loan the bank also had a personal guaranty of the owner of the business. The total liquidation value of the 2 pieces of collateral is less than the loan amount. On the loan memo the lender mentioned that the primary source for repayment is the business income, with the liquidation of personal assets secondary. I'm checking on how the lender may have reported this, but the loan has paid out.

I'm just following up to my last post. I went back through the Interagency CRA Q&A and found my question(and answer). Basically it states that loans secured by nonfarm residential real estate that are used to finance small businesses must be reported as "loans secured by real estate" unless the security interest is taken only as an abundance of caution. It further states that if the nonfarm residential real estate was not taken only as an abundance of caution, the bank could report it as a community development loan if approriate or maintain it separately as "Other Secured Lines/Loans for Purposes of Small Business". I suppose it would help if I would read first. What I did find out on our loan is that the lender considered the 2nd mortgage his primary collateral. So that tells me it should not be on the LR, but because it was not only for an abundance of caution, we could maintain the information separately to be shown to the examiners when they do our CRA review. Thank you Bonnie for your response.

Anon, your type 3's are only of value if your overall small business lending isn't pretty. If it's looking kind of whimpy or it's showing high use among mid and upper tracts but not much at all among the low and mods you can offset some of the negative effects of this by showing that your small business loans with residential RE are given to a majority of low and mod tracts (that would be your hope of course).

I don't even look at my type 3's as my other numbers are so strong. (knock on wood and stuff)!

I take a very conservative approach to small business loans secured with residential realestate. I don't care what position it's in when it comes to collateral (ie 1st assets of business/2nd residential RE/3rd lucky rabbits foot). If there's a home attached to the deal and it's relied on for repayment in any way it's a type 3. I did this after a great deal of research of the reg and research of folks who's been beaten up on data integrity. Personally, I'd advise this approach.

Our lenders attempted the ABC (my term for Abundance of Caution) approach a few years ago. If it's relied on for repayment it's not abundance of caution. Lenders are famous for abusing this issue! We don't allow any ABC deals. You either take the collateral or you don't. If you file a deed...it's a piece of collateral like all the rest.

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The word "permanent" is the clue. You cannot report temporary financing or construction lending if you don't have the permanent loan as well.

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Don, I hope I haven't missed something here, but where in the reg does it say that otherwise qualifying small business or small farm loans are not to be reported if they are temporary financing? As long as it is the first and only event in a calendar year I have always treated these as reportable. In fact, I asked this of an OCC examiner during a panel discussion at an ABA conference a couple years ago and she affirmed this. ????