Yes, astute bankers know that CRA does provide plenty of significant profit opportunities! One of the best opportunities relates to mortgage lending in so-called LMI Areas
and to LMI Applicants.
High profit margins and very competitive interest rates are possible simultaneously because there are funding sources willing to buy these mortgages with subsidized rates. Major money center banks covet these mortgages and have been known to pay surprising premiums for portfolios of LMI mortgages. This allows a community bank to offer a mortgage package with special benefits to the borrower (e.g., waiver of application fee, subsidized closing costs, or below market interest rate) and still earn a healthy profit.
Two years ago, one of our community bank clients sold a $10,000,000 portfolio of LMI mortgages for a nice $750,000 premium - in other words, a premium of more than $10,000 per mortgage! A little known provision in the Community Reinvestment Act allows both the originating lender and the purchasing lender to get credit under the Lending Test
for these loans. Smart bankers have developed mortgage programs attractive to this market and have identified tools to help them qualify LMI applicants early in the process. This is a win-win
situation for both the borrower and the banker.
