HomeMy WebLinkAboutCRA Presentation - Rebekah LeonardCommunity Reinvestment ActFor Community Affordable HousingAdvisory Board (CAHAB)Bozeman City HallAugust 14,2019Rebekah F Leonard, CRCM.•^^^•t:^ ...;.-f,g»^..-^.:^,About the PresenterRebekah F Leonard is a Certified Regulatory Compliance Manager (CRCM) and theformer Sr. Vice President of Compliance for First Security Bank. A 20+ year bankcompliance veteran, she has successfully managed six Community ReinvestmentAct Exams with the FDIC, achieving the highest regulatory rating of "Outstanding"numerous times, a designation attained by less than 10% of all banks.She holds her Bachelors Degree in Organizational Leadership (Magna Cum Laude)from Chapman University.Rebekah presently is a Compliance Specialist with PPDocs Inc, an Arlington, Texasreal estate loan documentation company, and is launching her own bankcompliance consulting, auditing and training company in October. She has calledBozeman home with her husband and two children since 1997.f/-fr• i ^)^€'^
What is the Community Reinvestment Act (CRA)?A 1977 law that says banks (not credit unions) mustmeet the credit and banking needs of allcommunities they serve - regardless of how rich orpoor those areas are.: ''c^^M^')^^hr^•:v^t?••%•^%^&y-.rtm*;^^'*;-:•&:•s'^-:.rmB"*:'•.;/'.J^^K^raThe law was passed in response to "redlining",which was a practice that began as a way to gradethe strength of real estate collateral in cities, but ledT^;^1 c^.^'L- to an avoidance of old, poor districts in the center of' '.'. I Ell""" cities, which were usually black neighborhoods.-.•e,^:LECE110..I--TITaking and not givingr\^.^a1-^-I•,<((ir-a»'-T^~1Jl»»fc'lr-This practice was problematic on many levels. While financial institutions madeno hesitation accepting deposits from the residents and businesses in inner urbanareas, they were sometimes actively working to NOT lend in them.Many argued that urban economic decline was partially the result of this practice:taking deposits from these neighborhoods and investing or lending them to otherareas... called disinvesfanent.Congress responded by requiring all banks demonstrate how they are serving theirlocal communities, especially low and moderate income areas, by passing theCommunity Reinvestment Act (CRA).Credit Unions are exempt from CRA coverage and examinations, as they arepresiimed to have a core mission of community reinvestment for members.
1Ms^'>\»'^^;•)•^•\t- •^'.<<^>^.'),.'<.' !im•h\•',\•^^...;A' "•/'Defining Important TermsBefore proceeding, let's define important terms necessary to fully understand CRA. Most are allwithin the context of geographic boundaries and areas.Assessment Area: The geographic area within which a bank is examined for their CRAperformance. It must include the census tract where the bank has deposit-taking offices ordeposit-taking ATMs.• Census tracts: Relatively small, numbered divisions of a county, for use in the decennialCensus. The Census Bureau likes them to contain between 1,200 - 8,000 people (4,000 is ideal).Tract sizes, therefore, vary in geographic size by population.Perfonnance Evaluation: A regulator's formal written report of a bank's CRA performance,available publicly online or for free from any bank upon request.https://www.ffiec.eov7cra/ratines.htmMicropolitan Statistical Area: A geographic area with an urban core of 10/000 - 50,000 people,consisting of at least one county. Gallatin County is a micropolitan area, because Bozeman(urban core) presently has a census population of less than 50,000.Metropolitan Statistical Area (MSA): A geographic area with a relatively high populationdensity at its core (50,000 or more) and close economic ties within the area. Used for Federalgovernment statistics.An MSA must consist of at least the county containing the urban core but could also containadjacent counties that have a high degree of social and economic integration (measured bycommuting to work) with the urban core.There are presently only three MSAs in Montana:> Billings (Yellowstone and Carbon Counties)> Missoula (Missoula County)> Great Falls (Cascade County)Will the 2020 Census usher in the State's 4th MSA - Bozeman7! Will Park County be included?
"Low- or Moderate-Income// (LMI)This term is foimdational for CRA, so it is crucial to understand exactly what it means. It is solely basedon a classification of each state's "Median Family Income" (MFI) for MSA and non-MSAs."srSince 2012, MFI has been calculated by the FFIEC (Federal Financial Institutions Examination Coundl)rather than HUD. Their methodology is based on 2011-2015 ACS (American Community Survey) Censusinformation, then estimated for the current year. The 2020 Census will provide fresh firm data.2018 Estimated Montana Median Family Income (MFI)Non-metropolitan (non-MSA) = $66,700 M..f<op-liiin .-irc.T, fMSA) = $ft2,800Income Category I % of MFINon MSA CountiesM.SA CuiintiesLow Income50% or less$33,350 or less$31,40()orlt;ssModerate Incoine51%-80%$33,351-$53,360>!i31,401-$50,240Middle Income81%-120%$53,361-$80,040$51,241 -$75,360Upper Income121% or more$80,041 +$75,361 +Source: hih)^://vvivw.ffiec.ti:ov/census/det:au]t.asuxGallatin CountyThis is 2018 data from the FFIEC22 Census Tracts in the CountyNote Income Levels:> One Low Income Area> Two Moderate Income Areas> The rest are all Middle- or Upper-Income Areas, and therefore "notimportant" for CRA purposes.> Let's visualize these areas on maps.httDS://www.ffiec.aQV/census/reoort.asDX?vear=2018&countv'031&m.sa=9V999&slate-3()&reDort=demQgtiiphic•H.Dtl.ltLHNPTMIK^MK Utttf,fmltyM.1)l K\I.M\\M IAI 1\SIIII IK)\sh\\MI\ VIIOMOl S< II.(>n i'l fittstti.atf m\hFFIEC Census ReportsBaSIS.SassS. Reron Helc Ss2018 FFiEC Census Report - Suminory Ccnsua DflfflOflraphic tnformaSonMSAWD- NA- NA (Qyts'ce of^SAff/DtState: 33 - -.'OMTANA <'VT;County OS1-OALba.TiMCOUNTVRecords - (nrwgh 2S 0^23ata Report L^r-isSssifaest iE3E<i2£S^2 i'?OE^:i Doou:a;fori'::?D?Si Hous'TOi'PaPS;• Wltt siftc'mancaliv hf inrliicfefl in (fip ?01fi Dii; sss(f<< o; Unfers'Tve''! Trad List"ff.y- a"5TnaTtactTractIncontflDirtrftfd Tnctor Undw MedtanCoda ",'h"l;" -*WVM) FamiL"" -'Tr'..li~ Incun2MB FFICC Et,WSA.WIDntm-Famify MSAWO Medianlnco«ne% Familylncoine^ S ^'"«."1n^-^"ffl-°s>~'%|^;1.^'; U^sriOOCM.OZ' Unwr:•:••: UfC!3^:.t?0. UppW3i?:?.??! yidaie:000»00; MkkDei3!K!^i Uctir ;:0005.0; UpfWi000c^' Uprori3005.tM, Upptr|OC!:':.Di;!MM:ere:?j;OOOT.OI Mkfdta|00:~.?:; MMC'f iloooeoo: wicuiejG'];?.?0;y2=-fB-ei10010^'; UppM;OT i;^^ ...Upper;0011 01 • Low10:|^»sr,.DO;" Upper'SQI?.^; MitfCi?^NWW- Up(WI'i;(Jo!••(;.N&NoNoN3NoHoNotieNotie-Ho!.l?Nol:c ••:.t?E?.:0129'l;-1 'S:112 ^ST.";.2)i:.L>4P.i,€,1s':l.d7"T,1:4||] :::;No^:-!-^-1!'"'IN«"-Ty. ir,"mx: _1:6.;^sai-:.136.66;1)64.3:iu a:l™i.700:;-:6.70<1;.700,,70.3;S66700:'^.S66,1"5.700:SW.700^i-.'OC?]566.700^JWSW TOO'^•5.700:SW.700Wi^W\'Sffi.'TW;_^f^SSS66700:iti.TOO!»e,70o;incoowH?.495;SS6.343^-.^4eiSS6,103:&;7,4?4;574.96A,-;??.sn,-3^.6731 7,38$;1:!.&5.i? :.?^5S!S11686E S13E.D54,;;,n5G|_ ^_<sm^ A^LS7?,06S. 1852:765!;[7-3iW82;'e»55^;-P2i447i166:': ];-7'.637: )04g:.'"'; _;i8^ZW1; 3557;<,I4.?-5-:—53&,::^4.£.-S60.24S.^:.5&3:K9.1t5;;.t^.:02i £??.~?5!$111,M6y S100,625;5".730i ST7.S23,638. 821,?;?.&4-T;S9&.423'^-.-?G5'K7.013-.SKi'»e\5157;'m-M642;:S;!°7:1M4:""-15&9r21&4;3^3?;•200-:67i;i17?3|715;:52.t;3S93:"i-?7?T: I:Se00[ 272;IKSi44J . W, Kc'59:1460!•L.a'l!SS4;503: 1594;fffl___s»_622. 139iH2S; 1328;2?-; 10?2; 1P47;475:SWSE^ SSIS,^^ ^W_^W___W^_^!K-»l, 152;''59^9441'" "SOSOr"-2^6;~~""'"m;-"~--1476^ 2215~7.^:;aw.wl;5t?.:535.;m-l&O'?!26471446; 1=03!272Q-
^"Gallatin County:The numbers represent differentCensus Tracts and are labeled byincome category.Census Tracts are geographicalareas created by the US CensusBureau, and the income labelrepresents the majority of residents inthat area.•'••s" i^ii1.02 Upper1.03 MiddleThtwGALlAtlNT^""??"SMUdle_v.<^4 Middle5.01 Upperffite•s.?cmj^c^-"f5^)2 UUUBflttp^16Up»ei>»Ur15 Middle^v.^Wwnwit'IBozeman:\Ya;;2 Upper [.. t/\\\^.••s^L5^2uppeiJ II'^5.03iyR.Uus^/5.03upper5.0265.04 Upper<r5.047.01}7.02/,'/J'">a-^Upper11.01) 1.0210.02 Upper0310.02^Uppe.IA^/(10.01n.02\»«5.02/.U.02 Upper/.I;>\/-nut ( ^^KV,^(1ti -\S^"P»«pn5.01 Upper\!,t5.01\
Bozeman,City detailrsIs^••FBaiter Rd • .EGnffff5.03 Upper^^.aOak StOwston7.02 Middle7.02s -;•y•"1910(s:">6.^,6 ModeratePeach»-•«•7.017.01 Middles<t»8 Middle? »•1^19 Mod L9 s 8vs*•as,,.. • CoNe(e^10.02 Uppersf 11.02 .11.01 <JTT02, 11.01 Low^j ^-^1 11.02 Upper J^^ ^^^•;~!<pa»4, ".~"F=ST-" ^r^j8y&«-11.02 UpperS<uclt» Rdt,..».T»';~«pa»-s».10.01 Uppera-^wwA Unique ChallengeMIDTOWNURBANRENEWALDISTRICTWith so few LMI geographic areas, it becomes very challenging for a bank todemonstrate their performance to seek out and serve them, as required by the CRA.Rather, banks look for ways to assist LMI individuals living within Middle- orUpper-Income areas, or find other recognized proxies that meet the goals of CRA.Examples include:Urban Renew Districts• "Empowerment Zones""Revitalization" districts or zones• Other such official areas established by local, state, or federal governments
CRA Examinationsii1FDIC^^,^^ipfls9^^0^>'s',','^•!•--•^($e%All banks in the US are examined for their CRA performance by their Federal Regulator(OCC, FDIC, or Federal Reserve). There are 4 possible CRA ratings:OutstandingSatisfactoryNeeds to ImproveSubstantial NoncomplianceThe CRA requires an automatic downgrade of one rating if there is evidence ofdiscrimination or other illegal practice! Most banks only strive for "Satisfactory".If"Consequencesof a poor ratingUnlike other bank ratings, CRA ratings are public knowledge.A poor CRA rating can result in poor public opinion about thebank, especially for banks that strive to be "community banks".In addition, a bank's CRA rating is considered by regulatorswhen a bank seeks to open or relocate a branch, merge withanother bank, or purchase assets from another bank.Regulators won't allow a bank to move into a new market ifthey feel the bank can't properly reinvest in the market wherethey are already located.Community ReinvestmentDoes Your Bank Measure Up?^»1^t^"•1!?-'..'1,>W
Exam Criteria^There are different levels of examinations, depending on a bank's asset size. Very simply, smallerbanks(under $250M) enjoy a more streamlined exam, while large banks (over about $1.B inassets) are subject to more stringent exam criteria. In between are Intermediate Small Bankcriteria that seek to strike a balance between the two.Regardless, banks are examined on three components:Lending performance - penetration and distribution of loans to borrowers of all incomelevels (business, ag, and residential)• InvestmentsServicesBanks are further tested on their "Community Development" efforts in their Assessment Areas.What is meant by "Community Development"?It is very important to understand what regulators mean by the term"Community Development". The efforts made in the community only"count" for CRA credit if they qualify under one of these four "hooks":1. Activities which promote affordable housing for LMI individuals.(Loans, investments, services)2. Activities targeted to benefit LMI individuals.3. Activities that promote economic development.4. Activities that revitalize or stabilize LMI geographies
What Does this Look Like for Affordable Housing efforts?Financing for affordable housing: Multi family or mobile housing; loans to non-profits for affordablehousing; less commonly, but still possible - affordable rental housing projects.*Note: if a loan is being counted under the "Lending Test" to an LMI borrower, it cannot also becounted under the "Community Development Test". Further, the loan must be very well documentedto prove it benefits LMI areas or individuals.Loans for infrastructure/ like water/ sewer plants in LMI areas.Financial education efforts for LMI individuals, including Affordable Housing classes.Investments in bonds or other things that provide funding for Affordable Housing.Serving on Community Affordable Housing Boards, in an official capacity that requires the bankemployee's financial / lending expertise."P?S?^fAFFORDABLE HOUSINGTHt-ljDUEEftWhat are Affordable Rentals for CRA? Below "Fair Market RentFY 2019 FAIR MARKET RENT DOCUMENTATION SYSTEM.//The FV 2019 FMRs for All Bedroom SizesFinal FY 2019 FMRs By Unit BedroomsYear Efficiency One-Bedroom Two-Bedroom Three-Bedroom Four-Bedroom!FY2019FMFt! $634 $683 $898 ¥1,298FY 2018 FMR i $651 $715 $928 $1,347$1,577$1,634Gallatin County, MT is a non-metropolitan county,Fair Market Rent Calculation MethodologyShow/Hsde Methodology Nan'aavsFair Market Rents for metropolitan areas and non-metropolitan FMR. areas are developed as follows;Source: https://www.huduser.eov/portal/datasets/fmr/fmrs/FY2019 code/2019summary,odnI
It's Not Easy, and Its a Lot of Work!Banks seeking to obtain CRA credit for their Affordable Housing efforts must be prepared tospend much time and resources toward the endeavor.They must identify eligible projects that meet the CRA "hook", well dociiment everything, andshowcase them to the examiner.The status quo of "Satisfactory" is usually considered to be good enough, as going the extra milefor "Outstanding" is often not seen as something realistic or attainable within the bank's meansand budget. Frequently, the matter also comes down to Examiner subjectivity and sometimeslaudable efforts go nowhere for CRA credit and regulatory recognition.Affordable Housing Loans and Investments for Banks ARE POSSIBLE! Anything done to help"package" projects for banks will help in their willingness to get involved.Questions, thoughts, comments?Thank vou!>/Rebekah F Leonard, CRCMreb ekahlcrcm@gmail.com•"'•,•"»,,«'•.11