Flatirons Bank ‘satisfactory’ for CRA compliance

BOULDER – Just a few home and small business loans helped Boulder-based Flatirons Bank maintain a rating of satisfactory when it was examined for compliance with a low-income lending law earlier this month, although the bank rated poorly in an evaluation of the geographic distribution of its loans. The bank, with total loans of $77 million, made one home loan for $120,000 to a low-income family in 2013 and three small business loans to businesses with less than $500,000 in annual revenue, according to a report filed with the Federal Deposit Insurance Corp. when the bank was examined for compliance with the Community Reinvestment Act. The CRA, passed in 1977, is a federal law designed to help ensure low-income communities receive adequate banking services. It requires that each bank be evaluated periodically by federal banking regulators to determine if the bank offers credit in all communities in which they are chartered to do business. Banks are given one of four ratings: Outstanding, satisfactory, needs to improve or substantial noncompliance. Thresholds for acceptable lending practices under the CRA vary with each bank. The bank’s asset size, demographics of the area served and other factors are taken into consideration by examiners. Examiners usually base CRA evaluations on loans originated or purchased during the most recent full calendar year, said LaJuan Williams-Young, an FDIC spokesperson. In Flatirons’ case, the evaluation considered loans originated from Jan. 1, 2011, to Sept. 30, 2013, because of the change in bank management that occurred in 2012. President Kyle Heckman did not respond to requests for comment. While the percentage of loans granted to low-income families or small businesses was adequate according to the FDIC’s audit, geographic mortgage distribution reflected poor performance, according to the FDIC’s report. The bank did not grant home loans in the “low-income census tracts,” according to the report, but it noted that the low-income areas identified by the FDIC were mainly made up of the University of Colorado-Boulder campus, drastically limiting the lending opportunities there. The CRA has been updated twice, most recently in 2005, allowing banks with more than $1 billion in assets to meet their CRA lending requirements with 50 percent lending activity and 50 percent through a combination of lending, investment and services. Previously, the obligation had been for the second half to be made up of 25 percent services and 25 percent investments. While the act was passed with good intentions, there is little evidence of its effectiveness. A study in 2003 by the Federal Reserve and another in 2008 by the libertarian think tank Competitive Enterprise Institute could not find clear evidence that the act increased lending in low-income neighborhoods. The act is also considered by some to be a contributor to the financial crash in 2008. A paper published in 2012 by the National Bureau of Economic Research maintains that the CRA led to a deterioration of lending quality, causing banks to make riskier loans. The paper’s authors found that on average in the six quarters surrounding CRA exams, lending is elevated by about 5 percent every quarter and loans in those quarters default about 15 percent more often. Supporters of the CRA argue that legislation passed in 1977 could not have had an effect on the mortgage meltdown 30 years later. Molly Armbrister can be reached at 970-232-3129, 303-630-1969 or marmbrister@bizwestmedia.com. Follow her on Twitter at @marmbristerBW.

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