CRA-Focused Lending. August Copyright 2018, STRATMOR Group

Transcription

1 August 2018

2 Contents Background Summary of Key Findings Governance Sales Structure and Compensation Products and Marketing Respondent Profile 2

3 Background The STRATMOR Group does topic-specific surveys that gives senior mortgage executives a unique way to obtain specific qualitative mortgage industry information about: What senior executives at other companies think about issues and significant new industry developments; and, What actions they are considering, planning or have taken. The survey was launched on June 1, 2018 and remained open until July 15, Responses were received from 19 unique lenders and represented financial institutions that originated less than $500M per year to those that originated more than $10B. Average Asset Size: $50.8 billion Average Bank Households: $2.1 million Average HFI Portfolio: $5.8 billion 3

4 KEY FINDINGS 4

5 Summary of Key Findings STRATMOR SURVEYS The responding banks indicated a strong focus on meeting CRA requirements and generating loans in LMI communities and to LMI borrowers. Governance structures are in place at all responding institutions. 90 percent of banks believe that it will be harder to meet these goals over the next 24 months than it is currently. More than half of banks believe that originating CRA/LMI loans is a profitable activity either in its own right or when combined with the net interest income benefits of owning portfolio loans. Two-thirds of respondents favor some change to the CRA lending test requirements. A significant issue is the impact of originations outside of the bank s delineated communities on the lending volume requirements inside the delineated communities the 50% test. (Banks feel constrained by the regulators requiring that 50 percent of their mortgage originations must be in the bank s trade area.) 5

6 Summary of Findings, cont d. Communication of goals via Community Commitment Plans is in use at two-thirds of the responding banks. More than half of the respondents supplement their own originations with purchases of targeted loans in the capital markets, but at relatively low levels as a percentage of overall LMI originations. More than half of respondents have a separate group of CRA/LMI sales people. This sales force reports to mortgage sales management in most institutions. The sales force has a broad CRA/LMI business development mission beyond merely taking loan applications. 6

7 Summary of Findings, cont d. The predominant compensation structure for CRA/LMI LOs is a base salary augmented with commission based on closed loan volume. Actual closed loan volume for these LOs is 3.4 loans per month, versus an expectation of 4.1 loans per month. 80 percent of CRA/LMI originations are sold in the secondary markets, with servicing retained 70 percent of the time. 61 percent of the responding banks also have proprietary CRA products available. Use of down payment assistance programs is important to 90 percent of respondents, although only 38 percent of respondents have their own bank-funded down payment assistance or grant programs. 7

8 Is CRA/LMI loan origination a significant topic or focus at your bank? All but one respondent viewed CRA/LMI loan origination as a significant topic at their bank. STRATMOR consistently hears that CRA/LMI lending is an issue that receives significant attention from management at bank-affiliated mortgage companies. 8

9 Do you believe that meeting CRA/LMI lending goals will be easier or harder in the next 24 months? Only 10 percent of respondents believed that meeting CRA/LMI lending requirements will be easier over the next 24 months. This is somewhat surprising given the review of CRA being undertaken in Washington and the general perception that credit requirements are easing somewhat. The lower level of overall mortgage originations appears to be a factor leading banks to this response. 90% of banks believe that it will be harder to meet these goals over the next 24 months than it is currently. 9

10 Do you believe origination of CRA/LMI mortgages is a profitable activity? 61 percent of the respondents believe that their CRA/LMI lending is a profitable activity, most without inclusion of any net interest income from owning portfolio products. This is a more positive response than might have been expected given the need for price concessions on these products, which is often expressed by lenders in informal discussions. 10

11 Do you favor any changes to the CRA lending test requirements? RESPONDENT COMMENTS Purchased Loans Change the rules for crediting non-originated CRA loans (purchased). The spirit of the regulation is to originate not acquire through purchase. The activity which should be used to test should be based on true origination volume in census tracks which apply to the institution. Two thirds of respondents favor some change to the CRA lending test requirements. Requirements Consideration for market competition in CRA areas that address reasonable/achievable goals CD Lending should not negatively impacting the overall lending test The 50% of lending within the designated footprint is not reflective of the current need for expansion beyond the bank's market. HMDA data - Aggregated performance metrics for Purchases and Refinances, not separate; Aggregated performance for Mod/Low tract and Mod/Low borrower (income); Not sure how HMDA data for secured home improvements helps LMI geographies. 11

12 GOVERNANCE 12

13 Governance Is there a CRA governance or similar committee in operation at the Bank? 100% of the respondents answered Yes Are the Bank's Low and Moderate Income lending and CRA goals for mortgage established in conjunction with overall Bank CRA and LMI lending goals? 100% of the respondents answered Yes Are specific LMI and CRA lending goals established at a Census Tract level? All banks in the survey have formal governance structures in place to deal with CRA requirements. Are CRA/LMI lending goals updated periodically for current trends in overall mortgage closed loan volume levels being experienced in the market? 13

14 Does the Bank have formal Community Commitment Plans in place for its key markets relative to LMI lending? Two thirds of banks have Community Commitment Plans in place for their key markets. 14

15 How are the CRA/LMI goals expressed? STRATMOR SURVEYS Goals for minority borrowers or majority-minority census tracts are part of plans for more than two-thirds of institutions. 15

16 Does your bank source CRA/LMI mortgages through loan brokers and what percent of loans are sourced through brokers? Only 21 percent of respondents source CRA/LMI loans through brokers as an additional way to generate volume and penetrate these markets. 16

17 Does your bank purchase closed loans in the capital markets in order to supplement CRA/LMI origination goals and what percent of loans are purchased? More than half of respondents do engage in closed loan purchases as a way to augment CRA loan volume. However, most banks source less than 10 percent of their overall volume using this approach. 17

18 SALES STRUCTURE & COMPENSATION 18

19 Is the overall Loan Originator sales force tasked with any CRA/LMI origination goals? Is there a separate group of Loan Originators who are specifically charged with originating loans in CRA target areas or to targeted LMI income individuals? 63 percent of respondents ask their overall LO sales force to participate in CRA/LMI origination via establishment of goals for these loans. At the same time, more than half have a separate group of sales people who focus specifically on CRA/LMI originations. 19

20 Where do the CRA/LMI LOs report? STRATMOR SURVEYS How many LOs are employed in the CRA/LMI group? Origination Volume Average Count of LOs % of CRA LO to Total LO Under $500 Million % Between $500 Million and $1 Billion % Between $1 Billion and $2 Billion % Between $2 Billion and $5 Billion % Between $5 Billion and $10 Billion % Over $10 Billion % Overall Average % For all but one institution, the CRA/LMI LOs report to mortgage sales management. The targeted CRA LOs represent an average of 8.6 percent of the overall LO sales force for the respondents which have a separate group. 20

21 Which of the following are included in the CRA/LMI LO job descriptions? The CRA/LMI LOs are tasked with a wide variety of business development activities for nearly all responding institutions. Home equity loans are not included in this role for all but a small minority of respondents. 21

22 Which of following best describes compensation structure for the CRA/LMI LOs? Only nine percent of respondents use a commissions against draw structure for the specialized group of LOs 82 percent of the CRA/LMI Loan Officers are classified as Non- Exempt which means that they are eligible for overtime The predominant structure is to provide a base salary augmented by commission on closed loans. 22

23 Which of the following are factors in commission calculations? The lack of use of nonvolume factors in commission structure is a somewhat surprising finding, given the broad business development tasks assigned to these specialist LOs. Most plans appear to use volume only in calculating commissions. Presumably the salary portion of compensation is used to cover the other responsibilities of the position. 58 percent of respondents have a minimum commission for lower balance loans. Volume is the primary driver of CRA/LMI Originators incentives. 23

24 What is the closed loan productivity level expected from CRA/LMI LOs? What was the actual closed loan productivity level in 2017 from CRA/LMI LOs? Expected production ranged from three to five loans per month Actual production ranged from two to seven loans per month The CRA/LMI Originators are falling short of the monthly volume expectations. 24

25 PRODUCTS & MARKETING 25

26 Do you have proprietary portfolio products targeted toward serving LMI borrowers and communities? What products? Most of the responding banks offer an array of products to assist in meeting CRA/LMI goals. FHA and VA products are the most popular products along with Low Down Payment Conventional programs. However, only 61 percent offer proprietary portfolio products as part of their product mix. 26

27 Do you participate in down payment assistance programs offered in your market areas? Do you offer any bank funded down payment assistance or grant programs? While all but two respondents participate in down payment assistance programs as part of their product offerings, only 39 percent have their own bank-funded down payment assistance programs. 27

28 What percentage of CRA/LMI originations are sold in the secondary market? What percentage of loans were sold Servicing Retained vs. Released? Most banks sell a very large percentage of their CRA/LMI originations in the secondary markets, meaning that standard products are predominantly used to meet these obligations. 70 percent of loans are sold servicing retained providing an ongoing relationship with the LMI customer. 28

29 Is there a specific marketing budget for first mortgage CRA/LMI originations? What area controls this budget? More than half the respondents indicated that there is no specific CRA/LMI marketing budget somewhat surprising given the level of focus on this area indicated in earlier responses. 29

30 RESPONDENT PROFILE 30

31 What was your total mortgage origination volume for first half of 2018? The respondents represented a cross section of origination volume and bank size. 31

32 What are your top 3 states where CRA delineated areas are located? Respondents were concentrated in the eastern and central states. 32

33 Contact Us Tom Finnegan Principal STRATMOR Group Phone: Nicole Yung Sr. Partner STRATMOR Group Phone: For more information on STRATMOR Surveys Contact: 33