Our bank has purchased mortgage backed securities in the past for CRA Investment credit. The MBS have always consisted of loans to LMI borrowers with about 50% of the loans being in our AA, and the other 50% outside our AA. We are currently looking at a MBS where 100% of the LMI borrowers are outside our AA, but in neighboring counties. Would this still qualify as benefiting a broader, regional area (such as our state which includes our AA)? Do we have to prove we met the needs of our AA first?

Thanks.

I have seen examiners totally discount MBS that are outside the AA, usually because the bank does not have enough activity within its AA.

If you have met the needs within your capability within the AA it is possible to receive credit for activity in adjacent areas.

How do you get credit on MBS? Our examiner will not give credit for these unless we can prove they are in an LMI area or benefit LMI individuals. I based our decision on the avg loan amount within each fund. If they are $150,000 or less we submitted. But this is not enough to get credit.

KelliD...our investment broker had that information with the package we looked at.

Same as Jen. We had the collateral address and geocoded it. We also had the borrower's annual income at the time of the loan so we could classify them as LMI.

Broker packaged the loans based on criteria that the bank established. Borrower and census tract income (LMI) and within the bank's assessment area(s).

Are these counted for each year they're on the books? For example: 2016 the MBS balance was $3MM; 2017 balance was $2.7MM. Exam is in 2017 - would the aggregate balance be considered or just the 2017 balance? It was always my understanding that a bank would get credit for each year they're on the books and we're currently going through an exam and it appears they're only considering the most recent balance.

Thank you!

My CRA examiner explained it as follows:

Investment made in prior exam period and still on the books as of the date of the exam, is given credit for the current book value.
Investment made in prior exam period and called/matured prior to current exam date, no credit given.
Investment made in the current exam period, full credit is given even if it's called/matured prior to the exam date.

Does that make sense? They didn't look at the investments "each year" but a cumulative over the exam cycle.

Thanks RR Jen. So I think they're looking at the cumulative balance and not each years balance. Thank you!

You're welcome!

Our examiner treats investments the same way. If they were made during a previous exam cycle, they're examined at book value.