You should be aware that the new Census 2010 tracts will be used for CRA and HMDA purposes beginning with loans with a final action date of January 1, 2012 or later.
Many of you are probably wondering what impact this will have on your Assessment Area. There are at least two major impacts the new tracts will have on your community:
Explanation of Geographic categories used by OMB (Office of Management & Budget)
The construction of CRA Assessment Areas and the computation of income class for mortgage borrowers require an understanding about Metropolitan Statistical Areas (“MSA’s”) and other geographic area terminology defined by the OMB. This paper provides a brief description of critical and confusing geographic components that must be understood for CRA and Fair Lending purposes.
SBA published updated size standards
An important type of community development activity is "economic development" which is defined to me mean financing job creation, improvement or retention by small businesses as determined by US Small Business Administration rules. The SBA recently published updated size standards that qualify for SBA programs and pertain to this community development definition. GeoDataVision is providing to you a copy of the SBA Size Standards Tables in the attached document.
Fair Lending Webinar
Nervous about Fair Lending? Maybe you should be.
Today the “Fair Lending” laws are being enforced more vigorously than ever.
During the first two years of the Obama Administration there have been 60 Fair Lending referrals to the Department of Justice. During President Clinton’s eight years only 16 cases were referred to the DOJ and during President Bush’s two terms only 9 Fair Lending referrals were sent to the DOJ.
Fair Lending penalties can be very expensive too. One California Bank defended 5 potential violations at a cost of $6 million!
2011 Census Tract Reference Books
GeoDataVision President Len Suzio announced the release of the latest census tract reference books for all 50 states. The tract reference books contain tract identity, income class, distressed and underserved status and minority status. The tables also include the HUD EMFI and LMI threshold calculation. Finally, the tracts are arranged by state, county and minor civil division (town) making them more useful than most standard census tract reference books.
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.
Community Reinvestment Act Proposed Changes to Federal Reserve System
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
Washington, DC 20551 Reference: Docket No. R‐1386
Dear Sirs,
GeoDataVision has been working with community and regional banks as well as community organizations with respect to the Community Reinvestment Act (CRA) since 1994. In our capacity as consultants we have worked with more than 700 banks helping them to delineate and map their Assessment Areas, analyze their CRA performance and understand their communities’ need for credit services. Our experience gives us an in‐depth understanding of the Regulation, how it has been applied and how it can be improved to be more effective. The following are our suggestions for improving the regulatory implementation of the CRA.
- Assessment Area delineation: Changes in banking practices and technology have made the implicit assumption that banks primarily derive their deposits from the neighborhoods surrounding their branches obsolete. Today, widespread use of the Internet to attract deposits and remote deposit capture technology, increased use of brokered deposits for deposit gathering and developments in the secondary market, not only for mortgages but for government guaranteed loans (e.g., SBA small business loans) translate into a geographic area for funds much wider than the traditionally defined branch oriented approach. The Regulation needs an alternative for banks that employ non‐traditional funding sources. Regulators rightly have touted the “flexibility” inherent in the application of the CRA, but have taken a rigid and outdated approach to the delineation of Assessment Areas. We suggest that banks be given an alternative Assessment Area delineation method that corresponds to the geographic dispersion of the majority of their deposits or declare themselves to be a “brokered deposit bank” in cases where the majority of deposits are raised from brokers in which case the bank will be allowed to delineate “focus” areas based on where the majority of their lending activity is located.
New CRA Program Template available for Community Banks
CRA exams are more difficult and taking longer than ever these days and one of the biggest reasons is a lack of data integrity. Examinations now can last for 10 or 11 weeks because examiners may spend days researching and questioning the reliability of your CRA data. The most common cause of data integrity problems is the lack of a documented CRA program including policy and systems and procedures.
More Aggressive Fair Lending and CRA Examinations Announced by Obama Administration
January 14, 2010
"Justice Dept. Fights Bias in Lending"
The headline above published in the New York Times announced the Obama administration’s
initiation of a more aggressive enforcement of Fair Lending laws. The article announced,
Under federal civil rights laws, a lending practice is illegal if it has a disparate impact on minority borrowers, and the Obama administration is signaling that it intends to make the enforcing of fair lending laws a signature policy push in 2010.
Bank Size Threshold Lowered for 2010 CRA Exams!
On December 23, 2009 the Federal Financial Institutions Examination Council (FFIEC) published the new asset size thresholds for banks to be examined under the Community Reinvestment Act (CRA).
For the first time since the inception of the size standards, the size limits actually decreased!
Asset size for any bank is determined by the year-end balance sheet for the two most recent calendar years. Effective for exams conducted after January 1, 2010 the size thresholds (determined by the December 31, 2008 and 2009 balance sheets) will be:
