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If we have a loan that is under 1MM and is secured by both commercial and residential real estate, the call reporting instructions suggest that the combined value of the properties should be considered and if the combined values of the properties exceed 50%, then it is a real estate secured loan.
For real estate secured loans where there is both commercial and residential properties securing the loan, does the value of the residential real estate need to be considered separately? For example, if the value of the residential real estate outweighs the commercial, would it then be a residential real estate secured loan? Also, in that scenario, must the value of the residential real estate be greater than 50% to be considered a residential real estate secured loan?
We are trying to prevent reporting of residential real estate secured loans as CRA small business loans. Feedback is appreciated.
Small business loans are defined as those whose original amounts are $1 million or less and that were reported on the institution’s Call Report as either “Loans secured by nonfarm or nonresidential real estate” or “Commercial and industrial loans.”
Loans secured by nonfarm residential real estate used to finance small business must be reported as “loans secured by real estate” when the real estate collateral taken is greater than 50 percent of the principal amount of the loan at origination unless the security interest in the nonfarm residential real estate is taken as an abundance of caution and where the loan terms as a consequence have not been made more favorable than they would have been in the absence of the lien or liens. If the estimated value of the real estate collateral is 50% or less of the loan amount, the loan should be reported in another category based on the purpose of the loan (such as Commercial and Industrial).
I am not aware of any guidance that requires evaluating residential real estate separately from commercial real estate.
I am finding conflicting information regarding loan type 4 – Home Equity. We are under OCC and use the FFIEC CRA Guide as a reference. Based on this guide code 4 is still used, it is also still listed in our loan program (LaserPro) and Compliance Reporter. I see the 2021 CRA Updates stating that code 4 was removed but before I remove it from our source document, I would like to verify. Thanks.
1 – Small Business Loan
2 – Small Farm Loan
3 – Other Lines/Loans for Purposes of Small Business
4 – Home Equity (Consumer Loans)
5 – Motor Vehicle (Consumer Loans)
6 – Credit Card (Consumer Loans)
7 – Other Secured Consumer Loans – is a secured consumer loan that is not included in one of the other categories
8 – Other Unsecured Consumer Loans – is an unsecured consumer loan that is not included in one of the other categories
9 – Other Loan Data
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