I think I know the answer to this question, but here goes:

My business client's main office is in my AA. The property securing the loan is not. CRA yes or no?

If you make a loan to a client and you are classifying it as a Small Business Loan then it is reportable for CRA purposes regardless of where the property is. Was the loan made to purchase the property? If so, then you would use the property address (doesn't matter if its outside the AA) as thats where the money went.

If the loan was for another purpose and you just took the property as collateral, then use the business address of the client.

Great! Thank you.

Wait a second....just a quick second BE CONSISTENT!

You can report the address of the collateral (or the "follow the money" rule) or the address of the business. You can not choose which of these to use based on their location in or out of your AA aside from reasonable considerations (ie I don't use out of state addresses if I have an instate address because of ease of geocoding). So, your answer is, what address do you normally use? If it's the money trail or proceeds address, you report that, no matter where it is (within reason). IF you instead normally use the business address, you would use that, but you would not choose one or the other to boost your CRA numbers.

Dawnie,

From the regulatory guidance I've looked at we can report by the location of the collateral or the main office of the business. (But I'm new to all this CRA small business reporting.)

Playing the Devil's Advocate what violation would a reporter be cited for if the more favorable of the addresses were used? Put another way, where do the regs say we can't use the more favorable address?

Thanks in advance for your help... back to the file room.

Dawnie I must respectfully disagree. If your file is properly documented as to why a particular address is used for a particular loan, I would challenge any examiner to cite it because of some arbitrary "consistency" rule.

There is no such rule in CRA other than what some examiners may have come up with during a field exam because some bank was absolutely clueless.

Take a look at the following hypothetical and tell me WHY I would have to be consistent:

Scenario #1
Loan is to purchase a warehouse which the owner will use to distribute merchandise. The warehouse is located in an Enterprise Zone, and the owner will employ low and moderate income residents from the area that are referred by a state worker retraining program. Too bad the loan is only for $850,000 because it smacks of Community Development all up one side and down the other. The main business address for the owner is in a swanky office building in the affluent part of town.

Scenario #2
Business is located in a moderate income area, and the business owner employs 30 people to manufacture containers for shipping high tech equipment. The owner has received a new defense contract and needs additional money to pay for upfront costs to ramp up the manufacturing capacity. However, there is not enough lendable equity in the manufacturing property, and the Phase II environment report would give you hee-bee jee-bees anyways.

The owner also has a two story office building located in another county (not in your assessment area) which currently is only at a 29% LTV, so you agree to refinance the office building at 65% LTV which gives the owner the needed capital to meet the demands of the new contract. Your repayment source is the anticpated additional revenue plus an assignment of rents on the office building.

SO - do you follow the "One size fits all" address rule? Or do you document your file so that the address used makes sense.

Now for a shop that is reporting hundreds and hundreds of loans a year, it may not be worth it to go to this trouble. But many "large banks" only have 300 to 400 loans to report, and it hurts to have too many showing up in upper income or out of area locations when, in truth, the money really did go to the low/mod community.

Anon Above Here:

Has anyone come accross a regulatory cite saying we can't use the most favorable address?

Still can't find one...back to the file room

I'll dig one up.

Basically it all falls down to reporting your information in order to sway your outcome in your CRA exam. Either address is acceptable in Bonnie's examples, but if you pick the address specifically to sway your results you're violating the spirit of the reg.

If you want to put into your procedures "Pick the address that most benefits our CRA standing" go for it, but that's not going to be what an examiner wants to see. If you also say "use whichever tract has the lower income level, either the office or the collateral" you are once again specifically choosing to falsely boost your numbers.

I'm busy with CD loans right now, and since this isn't going to sway anyone's submission at this point, I'll get back to it.

If you note a tone of frustration...It's here because I hate it when people suggest faking their numbers! If you haven't read "be consistent" more than 12,000 times in the reg, you haven't read the reg!

I have seen banks do this both ways and none seem to have had an exam problem. We are talking about Corporate/Home office addresses and not that of general businesses. Its a lot easier to use a corportate home address and be consistant. However as has been stated, if the corp address is on Wilshire Blvd in Beverly Hills but is rehabing 1-4 SFR's in South LA. I'm going with the addressess where the money was used.

I would not want to deprive myself of geocoding the locations where funds were used by having a set policy of Corp address only. Geocoding addresses where funds were used will have some LMI and some mid/upper but it won't have the constant Upper or what ever the corp address classification is. In the long run this may be more beneficial to the banks reporting.

Its an option and one a compliance officer should select with the knowledge of the market area and what the examiners in their area deem acceptable.