Community Reinvestment Act Proposed Changes to OCC

Office of the Comptroller of the Currency (OCC) Reference: Docket ID OCC‐2010‐0011
250 E Street, SW., Mail Stop 2‐3
Washington, DC 20219.

Dear Sirs,

Last week we submitted suggestions for improvement in the regulatory implementation of the Community Reinvestment Act (CRA). There is an additional important suggestion that we failed to include in our original document.

Many loans made to small businesses are structured to include personal guarantees from principals. A significant percentage of those loan guarantees are secured by liens on the personal residence of the guarantor. The Regulation has been interpreted to disqualify any small business loans that have been secured by residential property unless such collateral has been taken as “an abundance of caution”. Therefore, a very substantial volume of small business lending is not recognized in CRA small business loan data. This can seriously reduce the recognized lending and precipitate a significant disparity between what is reported and what small business lending is really occurring. This is detrimental to the accuracy of CRA performance ratings. How can regulators understand the true small business credit market when the reported activity omits a very substantial volume of small business lending? Moreover, how can they evaluate the true performance of individual banks when those banks own small business lending omits much of their small business lending for this technical reason? Banks are allowed to collect and request such disqualified loans be included in their performance ratings, but this just promotes inconsistency. Some banks will avail themselves of this option and others will not.

We suggest a modification of this interpretation. Since many small business loans are extended to non‐natural persons the residential collateral involved in securing such transactions normally is securing the guarantee of the loan and not the loan directly. The Agencies have recognized a distinction between “direct” and “indirect” collateral in their interpretation of what is reported as refinancing under HMDA. We encourage the Agencies to adopt the same interpretation with respect to small business lending. While there still may be small business loans extended to proprietorships that will continue to not be reported under

CRA at least a very substantial volume of small business lending extended to non‐natural persons will be recognized in the reported data and in the performance data of banks. This will produce a much more complete picture of the true small business loan markets as reported under CRA and include more accurate data of each examined bank’s real small business lending.

Without these changes we believe that not only reported CRA small business lending data will flawed but the data considered in a CRA examination will be incomplete and inaccurate as well. Data integrity rightfully has been emphasized by the Agencies. Without accurate and complete small business loan data CRA performance analysis can be misleading. Therefore, we consider this recommendation to be extremely important and we urge the Agencies to adopt a new interpretation.

Respectfully submitted by GeoDataVision
Len Suzio, President