BY LESLIE CALLAWAY, CRCM, CAMS, CAFP, MARK KRUHM, CRCM, CAFP
AND RHONDA CASTANEDA, CRCM
FROM THE
HOTLINE
CRA Loans
QWe track small business loans for CRA purposes. We modified a loan using a new note to decrease the
monthly payment and shorten the term. Would we receive
any consideration for this loan since it is not extending the
maturity date (term) of the loan or providing additional
funds?
APossibly. More information is needed before we can de- termine yes or no. Review the July 25, 2016 Interagency
Questions and Answers Regarding Community Reinvestment
( www.gpo.gov/fdsys/pkg/FR-2016-07-25/pdf/2016-16693.
pdf), specifically question §_. 42(a)- 5. The agencies indicate
that small business loans that are refinanced or renewed can
be collected and reported under the CRA. Since your example
involves a loan with a reduced term, by definition it is not a
renewal. However, if your loan meets the definition of a refinancing (existing loan satisfied and a new note is written), it
could be considered. The only restriction is that “an institution
may only report one origination (including a renewal or refinancing treated as an origination) per loan per year, unless an
increase in the loan amount is granted.” If your loan meets the
definition of refinancing and was refinanced in a subsequent
year to the original loan, then the loan would be given CRA
consideration. (Response Provided 01/2017)
Insider Interests
QOur chairman is considering the appointment of a new individual to our Board. This individual has
related interests with significant borrowings from the
bank. I understand that lending limits under Reg O for an
executive officer do not apply to the related interests of
an executive officer. However, the loans are all guaranteed
by this individual. Since the loans are guaranteed by this
individual, must they be considered when calculating the
lending limits for this potential insider? The amount of
$100,000 is insignificant in this environment.
Additionally, since the loans were granted prior to the
individual becoming an Insider, does that exempt them
from Reg O? If so, would that also be true for any lines of
credit, which are reviewed annually?
AThe answer to the first question is yes. Loans guaranteed by a person who becomes an ‘insider’ are included in the
lending limit going forward as they are by definition an ‘
extension of credit’; see 215.3(a)(4-). It states the term includes “An
acquisition by discount, purchase, exchange, or otherwise of
any note, draft, bill of exchange, or other evidence of indebtedness upon which an insider may be liable as maker, drawer,
endorser, guarantor, or surety”. As to your second question,
loans made prior to (and not in anticipation of) a person becoming an ‘insider’ are generally considered ‘nonconforming’,
and therefore, not a violation at the time the person becomes
an insider. See, for example, footnote 11 in the FRB’s Final
Rule from March 17, 1997 ( www.federalreserve.gov/board-
docs/press/boardacts/1997/19970317/) which states in part
“The Board’s practice concerning loans that are outstanding at the time a borrower becomes an insider has been not
to require that such loans be brought into conformity until
such loans are renewed, revised, or extended, which events
are deemed to be a new extension of credit subsequent to the
date the borrower became an insider. The dollar amount of
nonconforming loans, however, is counted toward the individual insider and aggregate insider lending limits whenever
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