What You Need to Know About REMAs
Fair Lending continues to be a primary focus for regulators. They want to ensure that lenders are providing equal access to credit regardless of race, ethnicity or any other prohibited characteristic. Examiners will often analyze a lender’s HMDA data to determine if there are any gaps in its lending among different demographic areas. Lending performance is often compared to peers in the market in order to assess credit needs and performance context for examiners.
A major factor in Fair Lending examinations is the concept of redlining, which occurs when a lender provides unequal access to credit in majority minority neighborhoods. This is where the concept of a Reasonably Expected Market Area (REMA) comes in. Although not all regulators use the term REMA, the FDIC defines it as the area where “the institution actually marketed and provided credit and where it could reasonably be expected to have marketed and provided credit."
Lenders often struggle with REMAs since the determination is often subjective and determined initially by the examiner. It is important to note that REMAs can extend beyond a bank’s assessment area or a mortgage lender’s market area.
While lenders do not intentionally redline, understanding the credit needs and demographics of the communities where they lend is critical.
Determining your REMA requires a review of:
- Advertising and marketing efforts including print, telemarketing, and direct mail campaigns.
- Where you actually received applications and where you originated loans.
- Physical presence including the location of branches/offices, LPOs, brokers, and other third-party originators.
- The market area as defined by written policies.
Redlining risk factors include, but are not limited to the following practices:
- Offering different loan programs in different areas
- Marketing efforts that exclude and/or target certain geographies
- Loan programs that exclude certain types of residential property
- Loan minimums without consideration of the average home value
REMAs are not defined by fair lending laws, but the concept is not new. The Interagency Fair Lending Examination Procedures reference, “credit markets in which the institution is doing business”.
So how can a lender analyze redlining risk if it doesn’t identify its REMA?
First and foremost, you should know where your bank is doing business and why it’s not doing business in certain areas. Mapping software can help tell your story. The first step is to plot your applications and loan originations on a map, while paying careful attention to majority-minority tracts (MMT), including majority black tracts (MBT), and majority Hispanic tracts (MHT). Next, you need to review marketing efforts to ensure you are reaching all areas of the communities you serve.