Knowledge and Insights

How CRA & HMDA Disclosures May Lend Help To Your Institution

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It’s that time of year again, when financial institutions are working diligently to prepare and validate their Community Reinvestment Act (CRA) and Home Mortgage Disclosure Act (HMDA) filings prior to the March 1 deadline. However, if this is the first time that your financial institution is accumulating or looking at this data, you may already be behind the curve. One of the underlying reason agencies require the filing of this data is to ensure that your institution is meeting the credit needs of your community in a fair manner. While the filings may provide regulators with data to ensure that these goals are being met, they also can serve a key role for your institution to monitor and adjust lending strategies throughout the year and may even help identify potential fair lending issues.

In January 2017, the federal banking agencies adjusted the asset-size thresholds used to define small and intermediate small institutions under the Community Reinvestment Act regulation based on a 0.84 percent increase in the Consumer Price Index. For the year 2017, a small institution will be one that had assets of less than $1.226 billion as of December 31st of either of the previous two calendar years. An intermediate small institution will be one that had assets of at least $307 million as of December 31 of both of the previous two calendar years, and less than $1.226 billion as of December 31 of either of the previous two calendar years.

If you find that your institution now will be assessed under a more rigorous category, it is important to develop a process to regularly (not only annually) monitor lending performance to ensure satisfactory compliance with CRA goals. While your primary focus should be inclusive of the elements of the lending test and identification of community development loans, your institution should also look at your community development services and qualified investments and potential room for improvement in these categories. Regulators will be looking at how your institution uses the data to take corrective action and develops strategies to address deficiencies identified during CRA monitoring. Strategies could include introduction of a new lending product, increasing marketing in certain markets, working with local communities to identify new services that are unique to their needs, etc. However, if you are only looking at your data prior to filing, you may find missed opportunities to improve.

Evaluating CRA lending performance can also be used to identify potential fair lending implications in your lending practices. Data points may reveal discriminatory or disparate practices in your underwriting such as:

  • Disparities in your approval/denial rates
  • Higher proportion of withdrawn/incomplete applications for prohibited basis characteristics groups;
  • Substantial disparities among prices quoted or charged to applicants differing by prohibited basis characteristics
  • Inconsistent approval of exceptions from underwriting policies
  • Redlining of geographic areas within the institution’s lending market

In addition, while the recent expansion of HMDA data points will initially prove to be an extensive project to implement and will require additional staff training and system upgrades, it can provide an opportunity for financial institutions to revolutionize how they look at their data. Financial institutions will now have more data points, related to their lending, at their fingertips than ever before. Identifying lending trends as well as potential fair lending violations, will be more easily facilitated through this data. Financial institutions should eagerly await the enhanced amounts of information that will now be accessible to them and the endless possible analyses that can be done.

Mercadien is available to help evaluate your current monitoring plan, develop new lending performance evaluations, validate the accuracy of your data or simply brainstorm with you and your staff on ways to improve a process you may already have in place. Please contact me at or 609-689-9700 to discuss.