Make Compliance Relaxing Sit back, relax. The webinar will begin at the top of the hour. CRA Mistakes & Misunderstandings While you are waiting, you may download the presentation outline at: QuestSoft.com/CRA Mistakes And for the latest compliance news: Facebook.com/QuestSoft Twitter.com/QuestSoft CRA Mistakes & Misunderstandings Your phones have been muted. If you re using the speakers on your PC you don t need to call in. Sit back, relax. The webinar will begin at the top of the hour. While you are waiting, you may download the presentation outline at: QuestSoft.com/CRA Mistakes And for the latest compliance news: Facebook.com/QuestSoft Twitter.com/QuestSoft CRA Mistakes & Misunderstandings Thank you for attending. The webinar has begun. QuestSoft.com 1
Housekeeping... Asking questions? Downloading materials? www.questsoft.com/cra Mistakes Technical difficulties? GoToMeeting Support (888) 259 8414 The Disclaimer... The First In A Series Save The Date & Watch Your Email June 3 @ 11 AM Pacific, 2 PM Eastern CRA Webinar Series, Part 2 Assessment Area Delineation, Lending Test Reports, Market Data, and More Today s Panelists Len Suzio President, GeoDataVision Leonard Ryan President, QuestSoft Scott Mortenson Marketing Director, QuestSoft QuestSoft.com 2
Community Reinvestment Act MISTAKES AND MISUNDERSTANDINGS Observations from 21 years of CRA Consulting Presented by Len Suzio, President, GeoDataVision Serving the Convenience and Needs of the Community Types of Systemic Mistakes Strategic and Tactical Mistakes Misunderstanding Technical Terms QuestSoft.com 3
Hot Topic: Small Business Demographics Discussion about the business demographics used by Regulators The fundamental flaw in the demographics about small businesses used by Regulators SYSTEMIC MISTAKES Out of Sight Out of Mind Failure to have documented systems and procedures STRATEGIC AND TACTICAL MISTAKES Waiting for examiner to rate your performance Assessment Area Construction Failure to voluntarily report data Failure to capture and scrub significant optional portfolio data QuestSoft.com 4
MISUNDERSTANDINGS What is Reported and what is not reported What defines a small business loan What disqualifies a small business loan What is a renewal? What is a refinance? How Loan Participations reported (CRA vs HMDA &Sm. Bus vs CD) What qualifies as community development for CRA purposes Different treatment of CD investments versus CD loans Collecting optional loan portfolios What address to use for geocoding Systemic Mistakes: Out of sight, out of mind Just because you don t report doesn t mean you aren t responsible About 12% of banks are mandatory CRA Reporters 100% of banks are mandatory CRA Performers!!! You can t control what you don t monitor You must collect & compile performance data Casually collected data is unreliable data Systemic Mistakes: Failure to have Documented Systems & Procedures Data Integrity Data Entry Guide Data Scrubbing policy Assigned Authority and Responsibility for data integrity QuestSoft.com 5
Strategic and Tactical Mistakes: Waiting for Examiner to rate your performance Analyze your data at least semi annually Compute your results for each Lending Test as well as Community Development activities Compare to the demographic and credit market driven standards Know your market: demographics and need for credit services If you have a weakness recognize it and develop plan of action STRATEGIC AND TACTICAL MISTAKES: Assessment Area Delineation Assessment Area Construction the most important CRA decision AA Delineation Affects not only your performance but also determines the performance standards applied to your bank Assessment Area delineation affects everything measured in CRA STRATEGIC AND TACTICAL MISTAKES: Failure to voluntarily report Small Business (and Small Farm) and Community Development Lending Based on surveys received from registrants to our May 21st webinar QuestSoft.com 6
STRATEGIC AND TACTICAL MISTAKES: Failure to voluntarily report Small Business (and Small Farm) and Community Development Lending Small Banks Should Voluntarily Report Data Qualifies for elective for determining CRA examination standard Many small banks are leading sources of residential or small business credit within their defined communities but don t get recognition because they don t report their activity If you don t report your lending data then examiners will conduct a sampling of your loan activity and rely on that sample for judging your performance. Do you want to be judged on a sample of data that you cannot dispute because you haven t collected and monitored your lending activity? STRATEGIC AND TACTICAL MISTAKES: Failure to voluntarily collect and report optional loan portfolio data All Banks, Large and Small should record activity for optional portfolios that have volume >=25% of the largest mandatory portfolio Creates potential to include loan activity that may help CRA performance May be done on a portfolio by portfolio basis If optional portfolios don t help don t exercise elective to include them in CRA PE this is a no lose proposition! The adequacy of loan volume has become an issue in some CRA exams. If you are not reporting a large volume of SB loans because of technical issues that disqualify those loans, your true lending volume may be underrepresented in your reported small business lending activity MISUNDERSTANDINGS: What is reported and not reported Difference between HMDA LAR and CRA Micro data file Only loans originated or purchased are reported for CRA Only aggregate data is reported by tract for CRA Disclosure data is not available below the county level QuestSoft.com 7
MISUNDERSTANDINGS: The Definition of What is a Small Business Loan Small Business Loans are not always loans to small businesses Size Does Matter! Business size is not determinative Loan size is the key MISUNDERSTANDINGS: What disqualifies a small business loan Residential Collateral? When does this disqualify a small business loan The 50% rule When does this not disqualify a small business loan Abundance of Caution Direct collateral versus indirect collateral Residential Property Developers When are these loans small business loans and when are they HMDA reported loans Renewed Lines? Demand loans MISUNDERSTANDINGS: What is a renewal Extension of the maturity of the obligation Renewed lines of credit Traditional time notes Revolving lines of credit evidenced by demand note QuestSoft.com 8
MISUNDERSTANDINGS: How Loan Participations are recognized CRA versus HMDA Small Business loans & Small Farm Loans Community Development Loans MISUNDERSTANDINGS: Community Development What qualifies as community development for CRA purposes Four Definitions of Community Development Only one definition requires activity to be in a LMI tract or underserved or distressed tract Primary Purpose The pro rata alternative for affordable housing MISUNDERSTANDINGS: Community Development How measurement of CD loans is different from CD investments QuestSoft.com 9
MISUNDERSTANDINGS: Collecting Optional Loan Portfolio data Other Loans/Lines of Credit for Small Business Consumer Loans (loan types 4 8) Other Loans (loan type 9) MISUNDERSTANDINGS: What address to use for geo coding Borrower HQ Location of use of proceeds Example ABC Cars is a small, independent dealership doing business as WESELL CARZ. ABC Cars (main headquarters) is located at 00 Ucan Drive, Sylacauga, Alabama. The owner currently leases a car lot and office space over at 111 Myownlot, Sylacauga, AL and has been granted a loan by the bank to purchase the leased lot. Will 111 Myownlot be the appropriate address to use as the loan location for reporting purposes since the loan proceeds will be used to finance the purchase of this lot? The car lot and office space is the collateral for the loan also. QuestSoft.com 10
Bonus Topic: Business Demographics Examiners often take the relative percent of businesses that have GAR <= $1 Million as a target penetration rate Structure of proprietary data not readily available Census Bureau County Business Patterns and Fed Reserve Banks 2014 Joint Small Business Credit Survey Report QuestSoft.com 11
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Small Business Demographic Summary About 79% of all businesses are self employed individuals Only a small percentage apply for credit Only a small percentage operate profitably Only a small percentage get the credit they apply for A high percentage rely on personal savings Therefore the business demographic overstates the percent that borrow 2013 CRA Aggregate Data show 48.6% of all reported CRA Small Business loans were extended to businesses <=$1Million GAR Community Reinvestment Act MISTAKES AND MISUNDERSTANDINGS Solutions Addressing the Presentation Today Presented by Leonard Ryan, President, QuestSoft QuestSoft.com 13
CRA SOLUTIONS CRA RELIEF Accounts for ALL Reportable Loan Types Allows You to Select the Loans Types You Wish to Report AFTER Your Analysis Integrates HMDA data from HMDA RELIEF (used by almost 2,000 banks, credit unions and mortgage companies) Integrates HMDA data from FFIEC Integrated Mapping Module Integrated Market Data Module based on AA Integrated Creation of FFIEC Encrypted Files and Email to Regulatory Agencies 2015 QuestSoft Corporation CRA RELIEF 2015 QuestSoft Corporation CRA RELIEF Mapping Module 2015 QuestSoft Corporation QuestSoft.com 14
CRA RELIEF Market Data Automatically accesses established Assessment Areas and compiles all market data comparison for those specific combinations of census tracts. Very fast database. Usually performed regardless of complexity in under a minute. Great tool to help establish or revise assessment areas especially after an acquisition, branch opening or closure. Provide your bank s BOD the information they need on the day of the meeting. 2015 QuestSoft Corporation Compliance RELIEF 2015 QuestSoft Corporation QuestSoft Clients Match Industry 2015 QuestSoft Corporation QuestSoft.com 15
QuestSoft is now the Dominant Industry Vendor There are 4,104 institutions that originate more than 250 reportable mortgage loans per year. 46.7% use QuestSoft. More than WKFS, More than all others combined. 2015 QuestSoft Corporation What Our Customers and the Industry Think About Us 2015 QuestSoft Corporation Questions? You can enter your question in the GoToWebinar application box in the Questions section. We ve received many questions if we can t get to yours during this session, we will create a Q & A document with all the questions and answers for your review. QuestSoft.com 16
Question When indicating whether a small business or small farm loan has gross annual revenue of less than or equal to $1 million or greater than $1 million, should the immediate past fiscal year income be used to make that determination? For example, a lender uses the 2013 tax returns rather than the 2014 tax returns to make the determination for a loan originating in 2015. Your Questions? QuestSoft Corporation 23441 South Pointe Drive Suite 270 Laguna Hills, CA 92653 1559 www.questsoft.com QuestSoft Sales Department 800 575 4632 Option 1 sales@questsoft.com Don t Forget! Save The Date & Watch Your Email June 3 @ 11 AM Pacific, 2 PM Eastern CRA Webinar Series, Part 2 Assessment Area Delineation, Lending Test Reports, Market Data, and More products For information referenced on during products this presentation, referenced during contact this QuestSoft presentation, 800 575 4632 contact QuestSoft option 1 or at visit 800 575 4632 www.questsoft.com option 1 or QuestSoft.com 17
Thanks for joining us today! Now it s time to make CRA relaxing For more information on CRA solutions, call (800) 575 4632 option 1 or visit us at www.questsoft.com/cra QuestSoft.com 18