There are good reasons to consider loans granted to the LMI census tracts as requirements to comply with the CRA. Not only is geography the historical basis of the CRA, but these loans encourage income diversity in lower-income areas. However, 60 percent of the dollar value of loans in LMI census districts will not go to LMI borrowers. The bank's evaluation area does not contain low- or moderate-income census sections.
Low and moderate-income (LMI) individuals and families represent 20 percent of the population within the evaluation area. In addition, the area is experiencing a high level of population growth, with most of the growth in middle and upper income families. While descriptors such as “working poor” or “middle class” may be artistic terms when used by policy makers and advocates, the LMI identifiers for the CRA are fairly simple. Thirty percent of loan counting loans were considered LMI, and 21 percent were granted to LMI borrowers and 14 percent to LMI areas.
So who borrows in LMI areas? Table 2 shows that loans to LMI borrowers (those who earn less than 80 percent of the area's median income, or AMI) represent approximately 40 percent of total loans in LMI areas. LMI census districts are identified by calculating the average household income of a census district relative to the average household income of the MSA or Maryland or to the average household income of a non-metropolitan area at the state level. Bank loans related to real estate and the total amount of consumer loans to individuals and families in the LMI offer a reasonable distribution depending on the borrower's income level. A person's income is considered an LMI based on how it compares to the average household income in the area.
However, while lending to middle- and high-income borrowers in LMI communities can encourage community diversity, they should not be the predominant form of single-family CRA lending. The dollar volume of LMI loans is 20 percent, 12 percent to LMI borrowers and 11 percent to LMI areas. The proportion of bank loans to LMI borrowers is 16 percent by volume in dollars, compared to 23 percent for non-bank lenders. Banks obtain credit under the CRA to grant single-family mortgages to LMI borrowers and to provide loans to borrowers in the census sections of the LMI, regardless of the borrowers' income.
In reality, the analysis of the average loan size shown in Table 3 shows that missing securities are more likely to be loans to people with high incomes, so the analysis in Table 2 could exaggerate the participation of LMI borrowers. When analyzing the bank's credit pattern during the evaluation period, the examiners concluded that the bank's history of lending to LMI borrowers was poor and did not reasonably reflect the demographics of the evaluation area. Since the CRA focuses on the LMI communities in which banks operate, it makes sense to grant some CRA credits both for loans in LMI communities and for loans to LMI borrowers. Both provide more loans to LMI borrowers than to LMI areas, but the volumes in dollars are not that different, since loans to LMI borrowers are smaller than loans from LMI areas.