I would like 10 suggestions on how to best increase loan penetration in LMI AA tracts where very little loan activity has taken place by promoting, R/E loans, Refiances, H.I. and Small Business loans. We have stepped up calling and business development efforts. Our 3 branches are located within a 3-mile ring of the targeted AA area. Please note there are many other institutions in this MSA market that are a closer commute for the borrower and have a larger deposit base. I need to increase geographic penetration of the low and moderate tracts and also the number of loans made specifically to LMI individuals. (Bad credit plagues the LMI borrower as does insufficent income to service the debt) Please respond with some innovative marketing ideas, loan specials, getting mailing lists, etc. on how you would proceed to establish loan benchmarks for the situation described. Our lenders set benchmarks that they will make X amount of loans, however the CRA Board committee wants the AA progress plan to reflect how, and the result of the loans accomplished. Another words they do not want goose eggs on the WIZ report for the LMI tracts!

We have similar problems in markets we have entered and compete against dominant financial institutions as well as national mortgage originators. Two strategies we have employed:1)develop relationships with realtors that are active in listings in those census tracts and 2)buy whole loan flows from brokers active in those markets. We also incent loan officers to take applications out of those markets, but you are probably already doing that.

Oooh, what a rousing response! I'll take a whack at this, but keep in mind that I'm not a banker. I'm a regulator. So, maybe what I have to say will serve as somewhat of a lightening rod.

Increasing your penetration in any market isn't easy, at least not within the confines of safe and sound banking. What I mean by that is, you could easily penetrate any market by lowering your credit underwriting standards. Not a good idea. Or cutting your interest rates well below the competition. Probably also not a good idea since everyone operates on such thin margins that the loans would probably be loss leaders for you. So, what to do?

You have to figure out what loan products people in those LMI tracts need. There are probably community groups, community development nonprofits and other similar organizations with which you could meet to ask them what they need. And don't forget the churches. LMI tracts are usually predominantly minority, too, and the churches are a very important part of the community. They are a good channel through which to make community contacts.

Then figure out a way to deliver the product safely and profitably. Be prepared to offer flexible, not necessarily diminished, credit standards. LMI people can often prove they are good credit risks, but not through the usual means such as a credit bureau. So, many lenders let them demonstrate their credit worthiness through other means, such as utility bills, rent payments and the like.

Then market your product, review it and make adjustments as you go along. It's kind of a basic business cycle example, but if you don't go through that, any product you offer will probably flop in the market place.

Let's see. I suggested you 1) figure out what the customer needs; 2) create a product to meet that need; 3) market the product; 4) review the product; and 5) make changes. Anyone have 5 more suggestions to meet the magic number of 10? AR.

Goodnight, I apologize for responding Bob and not meeting AR's standards for attempting to help, please disregard my post.

Don, I don't think AR was being critical of you. Based on the time stamps of the posts, and on the length of AR's response, and my own personal experience, here's what I think happened.

AR saw the original post with no replies for almost 24 hours. He started his reply, from whence he is removed from the thread to a composition area. While he was composing his message, you also saw the original thread and composed a quicker response than AR. When AR finally got through and posted his message, it looked like his "rousing response" comment was directed at you. But it was really directed at the fact that NOBODY had responded when he started his response.

To add some thoughts to AR & Don's responses - consider partnering with another lender or a nonprofit agency to generate affordable housing loans (and I assume you've already verified that there is housing in that area; some low-income tracts in particular consist of large commercial buildings, where it's awfully difficult to generate a consumer loan...) Look into FHLB affordable housing grants/programs; sometimes doing a submission for participation in such things will garner CRA credit, even if you get refused for the current year's funding. Develop your own affordable housing initiative.

Good luck.....

The annnon regulator provided some good ideas, but I think it is more then just determining what products are needed. I think you need to provide some financial education of some sort.

Also, Government Regulators always tell you to team up with churches. With the recent happening in Alabama do you think they will stop suggesting this. Just a thought that popped into my head. Do you think some ACLU lawyer will sue the OCC to stop this?

I was kinda hoping Dawnie would chime in as this type of issue is one of her fortes, but I think she must be busy with her own CRA exam!

I don't have any magic bullets for this issue. This is one of those $60,000 questions for CRA and, as AR pointed out, not an easy thing to do within the confines of safe and sound banking.

The ideas posted above are all good suggestions. I will add one more that starts where the comment on competition ended.

Take a look at your competition and what they are doing. If you're a small bank in comparison to a "mega" bank that's wiping up the block with their loans, then you need to build that into your performance context.

If you are a HMDA and/or CRA reporter, then you get the FFIEC Aggregate Disclosure for those loans. You can look up what your competition has recorded for your Assessment Area. If you cannot beat their pricing, or if their underwriting standards are looser than yours, you need to document those facts to help explain why you're market penetration is not as good.

If you are not able to make inroads against formidable competition, then this may be an area where you will look to Service or Investment vehicles to help meet the needs. Don't simply throw up your hands and say "We can't do anything." The key will be to conduct your Performance context and Assessment in a manner that your examiner can understand, and hopefully agree with.

Whoa. I cranked up the computer today and was I surprised!

Mr. Burback, I'm sorry you thought I was directing anything towards you, but MagicBanker hit the nail on the head with what happened. At the time I composed by response, NO one had answered the original message. I think you'll see from any of my posts, I never attack anyone here. I may make some sarcastic or cynical remarks, but I have never attacked anyone and don't intend to start now. Sorry for the bad timing of the post. AR.

AR:
Thanks for confirming Jim's premise that I got in with my comment before you did so that it appeared you were responding to me rather than the fact no one had responded at all. Isn't it terrible we are all sensitive to the slings and arrows of a very few of the posters on BOL. I have my wounds from those unnamed posters. Please accept my apologies for falsely assuming you had flamed me. I am an old examiner myself (FRB-Dallas and the predecessor to the OTS) and find your points of view very helpful to those of us struggling out here in the industry.

Don - if you're ever in doubt if someone responded to you or to another post in the same thread, click on the "Threaded" button at the top of the thread, and you'll see the posts laid out in a "root" sort of format.

In this instance, AR's post will show directly underneath Checkmates, and then your post also in line with Checkmates, but underneath AR's.

The advantage of viewing a thread in this manner is you can see who has responded to whom.

The disadvantage is you can only view one reply at a time.

Oh Dear...Dawnie went on vacation! But...the answer was pretty much covered by Bonnie and our dear AnonRegulator.

I'd look into your Federal Home Loan Bank (are you a member?) programs. HomeStart is a nifty program, offered under different names all over the country, but the basic program offeres grant funds up to $5M to match the savings of your borrower over a two year period. My borrowers save $1,666 and receive an additional $5M for down payment and closing costs from FHLB. A great program and a wonderful deal to increase low to mod loans.

But... before I started finding new programs I'd take a look at how I sat in the market place. There is no need to step up and take risks if you're already doing a decent job in that particular tract. It sounds like you're a wiz user...if so, pull your lending information on the examiner reports program (if you didn't add this to your wiz menu, pay the couple hundred bucks tomorrow and add it!) How do you sit in that tract?

For instance, I'm not a mortgage lender...I'm a small business bank. But, I do offer mortgage products as a side line. While I don't lead the state in loans booked, I do lead in market share in the low and mod tracts (particularly in the low tracts). I'm not eating up the market (about 10th place in purchase deals) but my purchase numbers are higher than the competition so I don't worry about extra marketing efforts.

Same goes for small business. I do lead in that area throughout the state, but this happens because I'm a small business bank. I work closely with the local economic development councils, the small business development centers, the YWCA and YMCA small business programs and the rural small business programs through the local colleges and universities (the college and university programs are a great investment as funding gives me both investment credit, and tax credits for funding colleges).

I market to some tracts to meet ethnic needs (is your low or mod tract ethnic based?) Nothing worse than spending a fortune marketing home purchase loans in english in a market where the majority of the residents are Spanish speaking. If this is the case, spend some bucks developing alternative language documentation for both business applications (financial statements) as well as HMDA applications and disclosures. (for consumer deals I personally recommend that you don't offer applications in alternative languages without disclosures in the same language, but I"m terribly conservative...really I am)

Have a presence in the area! I do a great deal of loans in very low income tracts because I travel to the tracts. I don't spend a few hours in the area...I stay overnight, or over a week if it's snowing I know the people in the area and they know that "Dawnie is the bank". A face with your efforts in the local market is worth ten million in marketing garbage mailed out!

Did that help any? I hope so. First step, pull the competitions figures, pull their exams, and READ the comments of the regulators in the exams. They often can lead you towards the right tract. Always remember, CRA isn't a give a way. I never propose a program only to meet the goals of CRA. As AnonRegulator pointed out, safety and soundness should be on your mind as well. If we give the bank away purely for high numbers in difficult areas...we could end up giving the bank a bad CAMEL rating in the long run. Bank Presidents never smile at CRA officers who lead the bank astray