We're new to large bank reporting requirements. Can you help me decipher how to report participation loans? We are not the original lender, but we have purchased a portion of the loan. Do we just report, as an origination, our portion or does the lead lender report the whole thing and we report nothing?

Can you clarify ? Do you purchase a portion of a single family residential loan or a multifamily loan ? Or are you purchasing a portion of a small business loan ?

This depends on if your question is in regards to CD credit for a participation loan or general reporting.

The call report instructions define the loan amount (the ORIGINAL) loan amount of a participation amount as the entire amount of the credit originated by the lead lender.

If you're the lead lender you report the loan on your LR (if it's reportable). If you are a secondary lender, you do not report the deal on your LR but you can take CRA CD Credit for either the portion you purchased or the portion not being take by other participants. (If you'd like to hear more on that let me know. I'm running out for a meeting so I must quit typing)

Sorry but I was out a couple of days. We are purchasing a piece ($1,000,000 or less) of a commercial loan. (No affordable housing, no Community Development) Is that portion we purchased reportable?

Still may not have enough information to be absolute, but if your question is whether you can report a $1 million participation for CRA small business reporting, the answer is no. I also assume this participation is not for multi-family.

No you would not report the piece you purchased. If it was reportable the originating (or lead) lender would do the reporting.

Think in terms of the goals of CRA. The goals are to report what small business loans we're really doing out there. (Loans under $1MM). Your loan really isn't a small business loan, even if you only picked up a chunk of the deal, it was still over $1MM in size when generated.

The only value of this loan to your bank is in the general earnings you pick up from loans, (interest, fees, blah blah). It is not a CRA loan, and unfortunately not a CD loan (as you mentioned) so you can set that file aside and move to the next!

Dawnie - our bank purchased this year 50% of a $1.95MM loan outside of our assessment area. The loan originated in 2001 and was to help purchase and renovate a shopping center in an LMI area. When the borrower purchased the property it was basically empty. The center is now about 90% occupied. Basically the selling bank is over their lending limit which is why we purchased a portion of it. We were initially thinking it might have some CDL value, but now as I am typing this, I'm not sure. The revenues of the borrower are greater than $1MM.

In another scenario, we sold a loan this year (100%) to an affiliate bank in the amount of $3.9MM. The loan was made to a local hospital authority for the purpose of providing short-term financing for the hospital's Indigent Care Trust Fund (ICTF). The fund allows the state to help the federal government's Medicaid program. The state then receives matching dollars from the government to pay for the cost of care of the indigent patients. They tell us that this is an extremely critical funding source for them since it allows them to provide care that is needed and they participate in this transfer at least twice a year. This appears to be a CDL loan, but since we have sold it can we take credit for it? Also, in looking at this I was beginning to wonder if this could be looked at as an "investment" but wasn't sure what the criteria would be for a loan to be an "investment"? Appreciate your thoughts.

I hope I didn't scare anybody off with my questions. Don, perhaps you may have some thoughts? Thanks.

The loan to the fund for indigent care would not qualify for credit under the investment test, but you should try to get credit for a CDL, I use a wide a brush as possible in identifying CDLs. Every exam I got some thrown out, but better to have asked and be successful than not include some that would qualify.

So would you agree the first one is not a CDL? Also, could there be an opportunity where a loan could be looked at as a "qualified investment"? I've gone back and looked at the Q&A and couldn't really get a good feel for this.

Thanks again!

Ari:
Yes, I agree that the first could not be claimed as a CDL loan by your bank. Second, I cannot think of a loan circumstance that shouldn't be reported as a loan for the purposes of the Lending Test. Loans will not get you any Investment Test credit. Isn't it dissappointing that the regulators didn't address the Investment Test in their latest notice of proposed rulemaking for CRA. The Investment Test is such an irritant !

Sorry Ari, I've been out sick a few days.

I'm going to have to beg to differ with Don again Forgive me Don?

Loan one: If the property in an a LMI area, and the loan was purchased during your current exam period, I wouldn't exclude it from your CDL write-ups. You had a shopping center which was becoming run down due to lack of occupancy. These properties often turn into areas of crime due to the lack of occupancy which leads to a lack of security on the property. Empty malls are eyesores in LMI areas all over the nation. Renovation of these properties is seen as a bonus for the communities as well as providing job opportunities to the LMI individuals in the area. I've had several of these approved over the years. I see no reason why yours wouldn't be except...

Was your purchased amount over one million? If so, include it. If not, did the original bank take CD credit for it in their 2001 exam? If not you can claim CD credit for the whole deal (original amount). You do need to verify they didn't take credit for it (the entire amount when booked). If $1.95MM was over their lending limit I'd guess they didn't take credit for it as they're just a little bank.

Revenues of the borrower have no effect on CRA reporting for both loan reporting on the LR as well as CD loans. It's the benefit to the community that you focus on, not the revenues of the borrower. My largest CD loans are all to borrowers with revenues far in excess of one million annually.

Oh, one other thing, the "outside of your AA". If it serves your AA or a broader regional or statewide area...you can take credit for it IF!!! you demonstrate you've served your area appropriately. Again, many of my CD deals are outside of my AA. I rock at serving my AA, but there are some areas outside of my AA that no one serves. I do, and I get credit for doing so as the need is great.

Loan two:
Slam dunk CD Loan. You booked it originally, so you can take credit for it. A stupid loop in CRA allows the bank purchasing it to take credit as well Nifty for all. Generally what you've told us about the deal is what you need to share with your examiner. I'd suggest you use a write up sheet like mine:

http://www.bankersonline.com/tools/tools_compliance.html#cdforms (Under Dawn Lowrie, CD Tracking forms)

Document your loan with supporting docs and turn this puppy into your examiner.

Loans as Investments:
Here's my "beg to differ" issue. I have received credit for loans that have all of the characteristics of investments. They passed data integrity and will be included in my next exam. These are tax exempt loans to native organizations which have a yield far in excess of their stated interest return. It gets more complicated, but they are approved as investments. The same can be said for loans we've booked in conjunction with bonds the bank has underwritten.

Your loan Ari, does not seem to have any of these characteristics so I see no way to include it in your investment test. But..it's a nice CD loan that had great benefit to the community and hopefully the bank Nice work

Dawnie:
I am so glad you are back, but it sure bugs me when we disagree. My only point was that the first bank must have taken full credit for the CDL, don't you think ? Did we disagree on the second question about taking investment credit for a loan ? Goodnight, I am in the doghouse with the Queen again.

LOL Don, no we didn't disagree about the second being investment credit worthy, but I thought I read between the lines in your comment that loans never qualified for investment credit. I like to push the envelope or the button or something dangerous, so I took investment credit for my tax exempt deals and had them approved. In all other aspects these loans are loans (ie call report etc.) but they do qualify for investment credit due to their unique structure (tax exempt).

On that first loan, since she said that the other bank had to sell off half due to loan limits, I was taking a guess that they actually didn't take credit (if a little loan like this throws them over I'm guessing they're a tiny bank, not CRA reporting) but of course that would need to be verified

Purchasing banks can take credit for CD deals they purchase though. But the deal needs to meet the size requirements (or have been otherwise not reported on the LR) of course

Heh heh, you're never in the doghouse Don! (I have cats)

Thanks Dawnie and Don for your help with this. I had to redirect so I haven't had a chance to get back. The first loan I asked about was for $1.0 MM even and I do not know if the other bank took credit for it. As I mentioned the loan is outside our investment area. The lender indicated on his notes that the shopping center has minority businesses that are in an LMI, but discovered that the city is actually in a middle income area (not LMI) as I thought. All of the census tracts are Middle. So I'm thinking we probably would not try to take CD credit for that one unless you have something else I should consider.

Minority businesses wouldn't really be a key factor in CD lending unless you can somehow link up a specific minority population that is low or mod income in this area that took advantage of the empty mall to provide jobs for others, perhaps within their same minority group. I caution on this though unless you REALLY know your minority markets. Are 90% of the Russians living in this area low income due to their recent move from some war torn region of Russia? Or do the Korean individuals in your area have significant historical low or mod incomes due to some factor? You really have to know and be able to document a specific population in need of the benefits of the CD deal. Many markets won't support this but some smaller markets and some very large markets do have the ability to determine factors like this.

Run down malls in middle and high income areas aren't a huge worry for the goverment. If the property isn't in a regeneration/revitilization, etc. zone (some of which can encumpas middle and high income areas) then you're probably not seeing a CD deal here.