CRA Loan Sales (Community Reinvestment Act)

New York (5/24/2019)

Written by the Loan Sales & Real Estate Sales Team

Community Reinvestment Act

The Community Reinvestment Act (CRA) is a federal law that requires the Federal Reserve, FDIC and the Office of the Comptroller of the Currency (OCC) to encourage financial institutions to lend to low and moderate income (LMI) neighborhoods. The CRA was passed in 1977 as part of an effort to reverse urban blight and redlining of the time by requiring lenders to address the banking needs of all members within their respective footprints. The regulatory agency’s ratings are somewhat subjective, as there are no specific quotas banks must meet, but each bank ends up with one of four post-assessment ratings: Outstanding, Satisfactory, Needs to Improve or Substantial Noncompliance. The CRA applies to all FDIC insured institutions, such as national banks, state-chartered/community banks and thrift institutions. The ratings are made available to the public on the FDIC website.

An institution’s CRA rating is important because it is considered when regulators review applications for deposit facilities, branch openings and mergers & acquisitions. Due to the subjectivity of the CRA ratings and application review process, it is in the lender’s best interest to exceed regulatory standards beyond a doubt as failure to comply could diminish growth opportunities. Also, maintaining a strong CRA track record results in less frequent CRA evaluations in the future which will decrease compliance costs. While banks are encouraged to make CRA loans, they are not required to sacrifice lending standards as their loans should be “consistent with safe and sound banking operations”, per the FDIC.

Recently there have been calls to modernize the CRA from regulators, economists and politicians. As lending moves increasingly online from branch-based origination, many believe that the proximity rules in the CRA are out of date. Currently banks must lend in “assessment areas” or places surrounding where banks have branches or offices. Comptroller Joseph Otting of the OCC recently floated the idea of eliminating these “assessment areas” before backing off after several community groups expressed concern that the change would lead to decreased investments in LMI neighborhoods. Conversely, the current “assessment area” approach underserves rural distressed areas because there are not enough local banks to meet LMI needs.

The secondary market can match lenders that have excess CRA production with banks that are seeking this product. Demand arises due to lack of direct origination channels, inadequate production, bank acquisition (with or without overlapping footprint), and CRA rating remediation efforts. Mission Capital can source CRA loan production for banks with highly specific geographic and product needs from lenders with excess CRA loans. While typically sold on a servicing-released basis, CRA loans can may be acquired on a servicing-retained basis. In these trades, the seller benefits from retaining a servicing strip while the purchaser increases CRA exposure without having to board and service loans. This option is also useful for lenders looking to diversify their CRA product exposure across asset classes they typically do not focus on; small business loans for banks focused on consumer lending or single-family mortgage loans for banks primarily engaged in commercial banking.

While changes may be on the horizon for CRA, banks endeavoring to comply with existing regulations should consider loan acquisitions as means of supplementing existing origination channels on a wholesale basis.

Resources for Additional CRA Information:

HELOC Portfolio Sales With David Tobin

David Tobin, Principal, discusses how underlying HELOC fundamentals continue to improve alongside a strengthening US labor market and continued housing price appreciation. Secondary market HELOC pricing/yields have benefitted from the recent rally in the fixed income and credit markets.


William David Tobin is one of two founders of Mission Capital and a founder of EquityMultiple, an on-line loan and real estate equity syndication platform seed funded by Mission Capital. He has extensive transactional experience in loan sale advisory, real estate investment sales and commercial real estate debt and equity raising. In addition, Mr. Tobin is Chief Compliance Officer for Mission Capital.

Under Mr. Tobin’s guidance and supervision, Mission has been awarded and continues to execute prime contractor FDIC contracts for Whole Loan Internet Marketing & Support (loan sales), Structured Sales (loan sales) and Financial Advisory Valuation Services (failing bank and loss share loan portfolio valuation), Federal Reserve Bank of New York (loan sales), Freddie Mac (programmatic bulk loan sales for FHFA mandated deleveraging), multiple ongoing Federal Home Loan Bank valuation contracts and advisory assignments with the National Credit Union Administration.


From 1992 to 1994, Mr. Tobin worked as an asset manager in the Asset Resolution Department of Dime Bancorp (under OTS supervision) where he played an integral role in the liquidation of the $1.2 billion non-performing single-family loan and REO portfolio. The Dime disposition program included a multi-year asset-by-asset sellout culminating in a $300 million bulk offering to many of the major portfolio investors in the whole loan investment arena. From 1994 to 2002, Mr. Tobin was associated with a national brokerage firm, where he started and ran a loan sale advisory business, heading all business execution and development.

Mr. Tobin has a B.A. in English Literature from Syracuse University and attended the MBA program, concentrating in banking and finance, at NYU’s Stern School of Business. He has lectured on the topics of whole loan valuation and mortgage trading at New York University’s Real Estate School. Mr. Tobin is a member of the board of directors of H Bancorp (, a $1.5 billion multi-bank holding company that acquires and operates community banks throughout the United States. Mr. Tobin is a member of the Real Estate Advisory Board of the Whitman School of Management at Syracuse University and a board member of A&M Sports / Clean Hands for Haiti.