The Retail Lending Test in the new CRA will measure bank performance against “market” benchmarks (lending activity reported by other lenders) and “community” benchmarks” (community demographics). Many bankers, although not familiar with the specifics, have serious anxiety about the new performance standards and with good reason. Much of the anxiety is understandable because in the preamble to the new CRA rule the agencies published tables that indicated that if the Retail Lending Test and its standards had been implemented during 2018-2020 the failure rate on the CRA Lending Tests would have increased ten-fold!

We know that the “bar” for passing CRA tests was raised as touted by FDIC Chairman Martin Gruenberg. But until the OCC published its schedule of calibrated benchmarks in its 2020 CRA Rule (that was rescinded by the Biden Administration) there never has been a list of quantitative standards published by the regulators. We knew the reference points, but not the specifics. 

However, the OCC did publish its short-lived calibrated standards in 2020, so the new calibrated points can be compared to those benchmarks. And the comparison does indeed verify that the benchmarks have been raised. Under the OCC rule the calibrated market benchmark to attain at least a satisfactory performance rating under the lending test was 65%. Under the new rule it is 80%. Under the 2020 OCC rule the community benchmark was 55%. Under the new rule the community benchmark is 60%. So, a quantitative comparison does reveal the bar has been raised and it also measures how much the standard has been increased.

In light of all the uncertainty about how difficult it will be to pass the new performance measurements GeoDataVision researched the latest (2022) market and community data in all 3,226 counties in the USA. Specifically, GDV researched:

• Closed-end mortgage originations and small business loans in low-income tracts
• Closed-end mortgage originations and small business loans in moderate-income tracts
• Closed-end mortgage to low and moderate-income borrowers
• Small business loans to businesses with gross annual revenue of $1 million or less
• Owner-occupied housing in low-income and moderate-income tracts
• Low- and moderate-income families

Some of the observations are:

• Mortgages in low-income tracts average 2.54% in the country, with the highest incidence  reaching 100% but among counties with 100 or more mortgages Starr County Texas had the highest incidence of mortgages in low-income tracts (40.96%)
• Mortgages in moderate-income tracts averaged 16.92% with a 100% rate in 71 different counties. Among the 100% counties Schoharie County in NY had the most (541) mortgages in moderate-income tracts
• Cook County Illinois had the most mortgages extended to low-income borrowers (10,429)
• Maricopa County AZ had the most mortgage originated to moderate-income borrowers (23,737)
• Los Angeles had by far the highest count of small business loans (399,543)
• Harris County TX had the greatest number of small business loans in low-income tracts (15,843)
• Los Angeles had the most small business loan with Gross Annual Revenue less than or equal to $1 million (206,117)
• Los Angeles County had the most low-income families (528,119)
• Cook County had the most moderate-income families (364,012)
• Low-income families accounted for 21.63% of the population of families in the USA
• Moderate-income families make up 17.46% of the families in the country

The above market and community data determine the performance standards in the new CRA Retail Lending Test. A multiplier of 80% is applied to market (loan) data to determine what is satisfactory performance in any assessment area. A multiplier of 60% is applied to the demographic (community) benchmarks to identify the minimum performance to attain at least a low-satisfactory rating in any given defined community. Of course, the standards can vary widely, depending on the county.

Bankers have time to study their markets and form their judgments about how the new Retail Lending Test performance will impact their banks and to make decisions about how the new rule may affect their business strategies. The time to start that evaluation is now.

Visit GeoDataVision.com to learn more about the new Retail Lending Test calibrated performance standards available for your use