Change in Call Report, with major implications for Community Reinvestment Act.

A change in the Call Report announced by the FDIC effective April 1, 2009 has potential major implications under the Community Reinvestment Act. The change pertains to Loans Secured By Real Estate and can be found at A58-a in the Call Report Glossary. The revision now employs a formula to determine if a loan is wholly or substantially secured by a lien or liens on real property. The formula states:

To be considered wholly or substantially secured by a lien or liens on real property, the estimated value of the real estate collateral (after deducting any more senior liens held by others) must be greater than 50 percent of the principal amount of the loan at origination.

Until now, when real estate has secured a loan it was assumed that the loan was reportable as real estate secured unless the real estate was taken as an abundance of caution. This has had the effect of disqualifying many loans to businesses which have been partially secured by a lien on the residence of a business principal as reportable small business loans. Now, many of those loans may be classified as Commercial & Industrial loans and will be considered as small business loans as defined for Call Report and CRA purposes. GeoDataVision has initiated an inquiry with the Federal Banking Agencies to confirm the implications for CRA purposes and will issue another bulletin when we a response. In the meantime, we suggest that you immediately review loans made for business purposes that have been partially collateralized by liens on residential real estate.