Question & Answer

Question: Our HMDA LAR shows a drop in activity from last year. Will this be a concern in our next examination?

Answer: A drop in loans made does raise a question and it's a good bet that your examiner will want to know what happened. However, you are already on the right track. Comparing this year's lending to previous years is a useful exercise. It is a vital part of knowing what you are doing to meet credit needs and will help you identify and respond to credit demand trends. When you see changes, you need to look further to understand what caused the change. That way, you can explain the difference to the examiner. When comparing 1995 data to 1994 data, there are several things you should look for first. Check the number and proportion of refinances and purchases. 1994 was a heavy refinance year; in 1995 the refinance market slowed down. It's likely that your 1994 data was boosted by borrowers who were seeking better rates while your 1995 data is dominated by purchasers. You may find a better result by comparing purchase loans in 1994 to purchase loans in 1995.

Other things you should look for are changes in your market such as patterns in housing developments, rate changes, and the impact of the economy. Compare the data also to your bank's CRA program to determine whether changes in borrowing patterns may result from your education and outreach activities.

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 4, 2/96