FAQs - Frequently Asked Questions

How do I list a loan for sale on LEX Edge?

After entering the site, subscribers can go to the “Listings” page and click on the “add new listing” icon in the upper right corner of the screen.Complete the “Loan Details” page and click “save”.Your loan will appear in the listing of loans for sale.

What loan categories are available?

Categories are broken into three basic Classes, with a number of subcategories or Loan Types:

• HMDA Reportable Loans
• Purchase
  
• Home Improvement
  
• Refinance

• Non-HMDA Loans
• Small Business Loans
• Small Farm Loans
• Other Business Lines & Loans
• Home Equity Lines & Loans
• Motor Vehicle Loans & Leases
• Other Consumer Loans

• Participations
• Commercial Purpose
• Consumer Purpose

What type of information must be provided in the loan listing?

In order to ensure that privacy is maintained, only necessary information may be provided, including the following:

• Loan ID number
• Class
• Type
• MSA/MD
• State Code
• County Code
• Census Tract
• Original Loan Amount
• Borrower Income
• Loan to Value or LTV (optional)
• Debt to Income or D:I (optional)

Where can I find the geographic codes needed to complete the MSA/MD, State Code, County Code and Census Tract?

For HMDA reportable loans, these numbers can be extracted directly from the HMDA LAR (loan application register). If your HMDA LAR is not readily accessible, click “geocode” on the Loan Details page and you will be directed to a federal government site (FFIEC.GOV). Input the street address of the property/business or individual, as applicable, and click “search”. The appropriate codes will be provided.

Why are geographic codes used instead of street addresses?

The Community Reinvestment Act (CRA) requires banks to define their market (assessment area) by census tract or “geography”. This method facilitates the CRA review process by allowing a review examiner or auditor to sort data regarding loan activity in a variety of ways including by geographic location, loan type, borrower income, etc.

What is CRA?

The Community Reinvestment Act or “CRA”, is a federal regulation (Federal Reserve Regulation BB) that requires bank’s to define their primary market (assessment area) and lend across all segments of the defined market, including low-moderate income areas or groups. Banking regulators then use loan origination data obtained from the bank, to ascertain whether or not a bank is effectively serving its market, with particular focus on low-moderate income areas or groups.

Who determines a bank’s assessment area and how is it determined?

Each bank defines its own assessment area. It is defined using MSA/MD, State Code, County Code and Census Tracts (geographies), and includes all of the bank’s branch offices and the surrounding market(s). It cannot exclude low and moderate-income areas.

What are the MSA/MD, State Code, County Code and Census Tract?

These are numerical values assigned by the US Census Bureau to identify property location. Together, they comprise the “geography” of an area. A bank’s assessment area must be defined by “geography” (census tract), and cannot exclude low and moderate-income areas.

How is CRA evaluated?

CRA is evaluated using data collected by banks regarding its home loans via the HMDA Loan Application Register (LAR) and small business/small farm and other loan types using CRA Data Collection software. Both software programs are provided free of charge by the federal government, specifically for this purpose. Data compiled using these programs is evaluated in conjunction with the bank’s defined assessment area to determine the adequacy of their performance regarding CRA.

What are HMDA and the HMDA-LAR?

The Home Mortgage Disclosure Act (Federal Reserve Regulation C) or HMDA requires all mortgage lenders (banks and mortgage bankers) to report certain data regarding applications received for home loans to their primary federal regulator. Data is reported using the HMDA-LAR, which is a spreadsheet format that contains data regarding each home loan application received during each calendar year. Information regarding loans originated, as well as, those that are denied and withdrawn, is included.

What type of Information is collected on the HMDA-LAR?

Information regarding the specific loan application (type and amount); property location data (geography); individual borrower(s) race, gender and income.

What types of loans are reported on CRA Data Collection Software?

Small business/small farm loans, home equity lines and loans, other business loans, motor vehicle loans, and a variety of other consumer loans.

What type of information is collected on CRA Data Collection Software?

Loan type, amount, loan location information (geography), business size and for consumer loans, borrower income. Unlike HMDA, for CRA reporting purposes, only loans originated are reported.

Is there a primary focus in the evaluation process?

The primary focus or purpose of CRA is to ensure that banks lend throughout their defined assessment area, particularly in low-moderate income areas or to low-moderate income groups.

How does a bank know what portions of the assessment area are designated as low, moderate, middle or upper income?

The US Census Bureau categorizes each census tract by income level (low, moderate, middle and upper). To determine the income classification of a particular census tract, refer to our Useful Links (FFIEC Geocoding Tool). Using this tool, you can input any street address and obtain information regarding a specific “geography”, such as its location information, income category and demographic information, including housing and population statistics. Also, through this link you have access to demographic information including census tract population, income and housing statistics.

How does a bank know what borrowers/applicants are designated low, moderate, middle or upper income?

The US Census Bureau publishes a listing of median family income (MFI) by MSA/MD each year. Income levels are defined as follows:

These levels are used for each State, County and Census Tract located within any particular MSA/MD. Using our Useful Links, you can obtain the current MFI for any MSA/MD, nationwide. Then, simply apply the above parameters to define the various income groups for any MSA/MD.

How does a banking regulator determine if a bank’s efforts are adequate?

With a focus on LMI (low-moderate income), two separate tests are conducted as part of the Lending Test portion of a CRA evaluation. One test gauges loan penetration levels in designated areas (geographies). The other test gauges loan penetration levels across borrower income categories (individuals). The following methodology is utilized as a guide:

Geographic Income Levels
Once data is filed with banking regulators, it is combined with other reporting entities to create the “aggregate data” for any given market (MSA/MD). Each individual bank’s performance is compared to the aggregate data to determine if their lending efforts are representative of their market share.

Borrower Income Levels
Borrower income penetration levels are compared to household and family income levels, as defined by the US Census Bureau for each MSA/MD. Household and family income levels for each MSA/MD are updated annually by the US Census Bureau, to reflect current demographics.

What happens if a bank doesn’t pass the test?

From a regulatory standpoint, failure to perform adequately under CRA means that a bank cannot expand by opening new branch offices or by merging with other banks, until they remedy all identified weaknesses noted in the CRA Performance Evaluation conducted by their primary regulator.

From a practical standpoint, the punishment is more severe. CRA Performance Evaluations are public information and are readily available on the Internet, at any bank’s primary regulator website (occ.treas.gov, fdic.gov, frb.gov, ots.gov). Community groups use these negative ratings to publicize a banks weakness and capitalize on it. When prompted by community groups, newspapers will often print negative articles regarding the bank and its poor performance. This type of negative publicity can have a detrimental effect on a banks public perception as well as its earnings.

How do I locate a loan that interests me?

Once you become a LEX Edge subscriber, you can access the listing of loans for sale. Additionally, by setting specific search criteria, you can narrow the loan listing to include only those loans that meet your specific criteria. You can then contact the owner of a specific loan or group of loans to discuss purchase options.

Can a LEX Edge subscriber do both, buy and sell loans?

Yes. The ability to do both buy and sell loans, will provide banks with the tools needed to more effectively manage their loan portfolio, for CRA or other portfolio management purposes.

How will Investment Companies use LEX Edge?

In addition to the Lending Test, banks that qualify as “Large Banks” for CRA evaluation purposes must also pass an Investment Test, as part of their CRA Performance Evaluation. Investment companies that provide services to banks in fulfilling this requirement seek out loans that are located within a bank’s regional market. The loans that they seek out are either located within low-moderate income areas or, they involve low-moderate income borrowers. These loans are used as collateral for “mortgage backed securities”, which banks purchase in order to fulfill their obligation under the Investment Test portion of the CRA evaluation. Without an adequate level of “Community Development Investments”, it is near impossible for a large bank to achieve a Satisfactory CRA rating, overall.