Do you need to modify your CRA assessment area? Here's a 6-Step Process ...
I apologize to readers at mortgage companies, but the compliance straight talk for today is on the Community Reinvestment Act.
Struggling with CRA? Poor performance in CRA can slow up or even prevent a merger, acquisition, or the establishment of a new branch.
Problem: Too Few Loans inside Assessment Area
Let's focus on problems created by doing too few loans in your own assessment area (say under 50%). Note: This ratio is being calculated by the number of loans, rather than the amount of loans, if that helps you at all!
From our perspective, there are two ways to attack this issue (we're ruling out doing fewer loans, because, well, you know):
Option #1) Increase lending in your Assessment Area
Generally, you all have this covered better than us, but can I ask one question: Have you considered using a mortgage broker as-needed,
to help with CRA compliance?
You might say: "I tried two years ago to sign up a local mortgage broker, I can't compete with Wells and BOA!" But if we can respectively offer one counterpoint: With the advent of ATR/QM, mortgage brokers may need community banks and credit unions more than they did before. A local community bank can do a 44% DTI jumbo in some cases where larger investors will be scared off by ATR/QM. And that's just one example! Special Note: This is especially true for "small creditors." Brokers can originate to the standards of a Small Creditor QM so long as the loan closes in the bank's name.
#2) Change your Assessment Area
Your assessment area does not have to stay the same forever. Actually, a bank will ideally review it every year and change it where it is "reasonable" to do so.
Looking to determine how to modify your assessment area? Here's a six-step framework that we use to do these types of reports - maybe you'll find it helpful. This is adopted from a St. Louis Fed article; the author is Kristina Stierholz (AVP with the St. Louis Fed) and the article is from 2010 and called "Look Near and Far to Cover CRA Assessment Lending Areas."
Step #1: Start with your primary (obvious) locations.
There are some areas you have to include in your area. Look for these obvious areas:
Main office location
Branches
Deposit-taking ATMs
Any areas where you do a "substantial portion" of your loans
Note: While not required to be included in your assessment area, a loan production office (LPO) will often produce enough lending that the area should be included.
Step #2: Stretch this out a bit further -- How far out could you go?
Map out the outer limits that you think your bank could possibly serve. This is an "include everything/cut out later" mentality.
Step #3: Identify town and county lines
Depending on your size, towns or county lines may be more relevant. If you have a large branch network that covers many parts of a spacious county, maybe the county is most relevant to drawing your assessment area. On the other hand, if you have a single location, the most relevant political subdivision may be that particular town.
Note: An assessment area will almost always mirror MSAs or contiguous political subdivisions (towns, counties, etc.). An assessment area that does not will raise a red flag. There are legitimate reasons for you to deviate from this standard, however, maybe a large body of water separates your assessment area from the other side of the county, or perhaps the county is simply too big for your bank to serve.
Step #4: Ask, "Should this be adjusted downwards?"
Now that we have everything included, and have an idea of the political lines we want to use as parameters, it's time to cut out the fat. Look to cut out areas that the bank is not well-positioned to serve.
Step #5: Don't adjust for unlawful reasons
This is really part of Step 4, but it's helpful to break it out. When you're cutting out areas in Step 4, make sure no one could argue you're doing so for illegal reasons. For example, to avoid including low-income geographies or a high-minority area in your assessment area.
Step #6: Final/Miscellaneous Questions
At this point, we're almost finished. But we need to step back and look at the bigger picture. Does the assessment area have a strange shape? Does it look like a Rorschach Test? Are there low-to- moderate income areas that are just outside? Focus here on what you're excluding, not just what is included within the borders. If the answer to any of these questions is yes, this tells you, "Go back and take a second look at Steps 1-5."
In other news:
The DOB has issued proposed regulations on the MA Flood law, which you can find here. Any gripes or constructive criticism? Send them to me and I will make sure the MMBA hears about it.
Anyone interested in co-marketing with Zillow? My colleague Colin spoke to a CFPB attorney yesterday about the issue of Zillow's "preferred lender" language. The CFPB attorney said (informally), that this appeared to be A-OK despite the obvious Section 8 concerns (this assumed it was fair market value, etc.). Feel free to discuss this further with him at (781) 356-2772 or CQuillinan@scapartnering.com.
Check out the terms on the loan from this Native American Lending Company, listed towards the end of the video. 116.73% APR! Imagine explaining that during an exam to your regulator!
The CFPB released a proposed rule to substantially clarify many of its servicing regulations. Click here for what looks like a good summary.
When I think of dangerous jobs, I think of alligator wrestlers, stunt men, coal miners ... you know, not mortgage bankers! But according to a Scientific American article I read the other day ("Killer Chairs" by James Levine), I may have to rethink think this! Apparently sitting down all day long is destroying our skeletal and cardiovascular systems. While the average agricultural worker sits for 3 hours a day, people like us sit for an average of 15 hours. It's a scary thought; we're sitting in meetings, sitting at our desk, sitting for meals, and sitting in the car. As a result, we have a 50% higher likelihood of death, largely due to increased risks of diabetes, heart disease, and arthritis.
Are there any ways to avoid this that don't include being worse at your job? Well, James Levine thinks that you don't even need to exercise. He says that "nonexercise" activities can protect us from these troubles. In other words, just standing or walking more often during the day- anything to decrease the amount of time we spend planted in a chair. (Technical term = "nonexercise activity thermogenesis" or NEAT). The benefits include slimming down, and lower stress, blood pressure, and cholesterol. Some options?
Walking meetings
Standing desk or ... dare I say it, a treadmill desk!
Having meetings while standing (thought to increase creativity and definitely likely to shorten the average time of meetings)
Standing up to talk on the phone (interesting how, while technology creates this problem, it gives us one way out- we're no longer anchored to our chair because of a land line).
"Give me six hours to chop down a tree and I will spend the first four sharpening the axe.
- Abraham Lincoln
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**These are our opinions. We're not authorized, or willing, to express those of others.**