CRA Compliance Remains A Big Deal

While the Fed is looking at relaxing CRA regulations, 95 percent of bank lenders who responded to a recent STRATMOR survey on CRA and LMI lending indicated that complying with CRA requirements is and will continue to be a very important part of bank mortgage lending.

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In the November issue of STRATMOR’s Insights report, bank-owned mortgage expert and STRATMOR Principal Tom Finnegan analyzes the survey data and reports his findings in,”  CRA Lending—Bank Perspectives Today and Ideas for Tomorrow.” Finnegan identifies six notable lender perspectives in the analysis and provides his insight into the details.

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“Bank lenders have a strong focus on the CRA, and they have put in place formal governance structures to assure compliance,” says Finnegan. “While two-thirds of our survey respondents agree that changes are needed, they want changes to the CRA to be made with the underlying goal clearly in mind—encourage the extension of mortgage credit that advances sustainable homeownership for their customers in their communities.”

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Finnegan outlines six perspectives on CRA lending from the survey data, including two surprises. First, the majority of responding banks believe that CRA lending is profitable and the majority don’t have specific CRA/LMI marketing budgets.

“We often hear that loans to low and moderate income (LMI) borrowers and in LMI areas are a loss leader and that banks can’t make money serving these customers,” says Finnegan. “In our survey, however, 61 percent of the respondents said their CRA/LMI lending is profitable, most without inclusion of any net interest income from retaining ownership of some CRA loans in the bank’s mortgage portfolio. A very high percentage of responding lenders originate FHA and VA mortgages as well as low down payment conventional mortgages. Since government loans can be especially profitable to originate, this type of production is likely contributing to the opinion being expressed.”

Second, “More than half of respondents indicated they have no specific CRA/LMI marketing budget, which is surprising given the level of focus on CRA lending,” says Finnegan. “This may be due to a view that bank institutional advertising is a key component of LMI marketing — typically, marketing activities are a shared responsibility between the mortgage lending group and corporate marketing. However, this approach appears to be inconsistent with overall bank goals for CRA compliance and may be an area where many banks can improve.”

The article concludes with a summary of what lenders would like considered as part of potential CRA changes.

In a second Insights article, “The Borrower Experience: Little Things Done Right,” MortgageSAT Director Mike Seminari asks the question: “How important is it to call the borrower prior to closing?’ Seminari explains that communicating closing numbers and details is as important as initial communications about the loan process. He notes that when the lender contacts the borrower prior to closing, the Net Promoter Score (NPS) is a very good 81, but if the lender fails to do this, their NPS score drops dramatically, from 81 to -19. Seminari offers four tips lenders can use to make sure borrowers are contacted with closing numbers and details and generate high Net Promoter Scores.

Click here to download the November 2018 edition of STRATMOR Insights for much more.

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