Mortgage Lenders Deal With Last Year of 1990 Census

By Martin Sohovich

While "the ship has sailed" for many organizations as they transition to Census 2000 data, mortgage lenders are in many ways still "at the dock." Under Federal Institutions Examination Council (FFIEC) guidelines for CRA (Community Reinvestment Act) and HMDA (Home Mortgage Disclosure Act) reporting, mortgage lenders must continue to use 1990 Census tract and demographic information for the year 2002. It is anticipated, but not confirmed, that lenders will be allowed to use Census 2000 data starting in 2003.

For those not familiar with regulatory oversight of mortgage lending, the Community Reinvestment Act of 1977 was a capstone in a series of banking laws enacted in response to social inequities in lending. Substantial evidence existed that financial institutions discriminated in allocation of credit. The Act was passed with the requirement that lenders define the local community they served, including political or demographic boundaries, effective lending territory radius, or other reasonably-defined geographically defined area. Reasonably close low and moderate-income areas were to be included in the lenders' trade area.

Lenders are assessed on their performance in policy development, planning, marketing, and provision of local lending services, and actual activity in taking loan applications and issuing loans.Lenders are required to geocode loan information based on Census tracts, as well as by state, county, and metropolitan statistical area (MSA). Lenders provide both written reports and maps as part of their compliance under these laws.

Census demographic information is also appended to loan applications. Median household income statistics by Census Tract and MSA are to be identified for each loan applicant to determine if the low-income threshold is met. Census population information by Census Tract allows racial composition analysis to determine if the loan application correlates with low to moderate-income areas.

Mortgage lenders must also be careful to assess the potential demand for loans in their market area as a defense to potential allegations that they are not meeting the needs of low and moderate-income communities. Some trade areas may have limited opportunity to service the needs of the impoverished and disadvantaged. Some lending areas may have a proportionately high number of rental units or military housing that minimizes market demand for housing loans. It is recommended that lenders conduct their own market survey and demographic research in their trade areas to assess community demand for their financial services.

Loan application reporting must also contain the specific census tract wherein the property that is the subject of the loan is located. This requires the use of precise address geocoding method, such as ZIP+4 or street database matching, or the use of the property latitude/longitude coordinates with polygonal boundary matching and Census Tract boundaries. Given sparse ZIP+4 coverage in rural areas, lenders facing HMDA/CRA geocoding challenges should supplement their process with street matching sources and other methods.

Many banks have seen the value of geocoding and demographic coding of customer address files and have extended the use to support other activities such as CRM and relationship marketing. Geocoding customer location is also widely used to help better position store/branch locations and remote ATMs to better service customers. It is unfortunate that banks must hold back from using the latest Census data or maintain both 1990 and 2000 Census data to support regulatory compliance and marketing needs. But such is life. Hopefully, mortgage lenders will soon be allowed to "sail away" like other Census data users and code with the latest Census 2000 summary demographics and geocoding information.

Published Tuesday, July 16th, 2002

Written by Martin Sohovich

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