The Federal Financial Institutions Examination Council has issued a policy statement that gives regulators ammunition to push more banks toward using software that closely tracks their consumer lending.
The statement by the coordinating body of all federal banks regulators calls on banks to have the ability to collect "sufficient data to make a reliable analysis and [sort] it in a geographic format" and to overlay information about the demographics of the local community.
"We are recommending very strongly that banks have a system to monitor where their loans criginate," said Debra Clements, consumer compliance analysis, at the council.
New Effort by Banks
The policy statement, approved last week, follows on the heels of several new reporting and disclosure requirements adopted under the Community Reinvestment Act and the Home Mortgage Disclosure Act that left banks scrambling.
However, the council does not require that all banks use "geocoding" mapping software to accomplish this. The agency points out that banks' needs will vary depending on their businesses; banks could use wall maps and pushpins to analyze the geographic distribution of their loans.
But many banks may find it necessary to invest in sophisticated mapping software, called geographic information systems.
Putting Loans on the Map
Among the vendors are Fannie Mae; Strategic Mapping, based in San Jose, Calif.; Map-Info, Troy, N.Y.; and Tydac, Arlington, Va. Typically, these systems allow a bank to display maps showing the location of customers street by street, combined with census and other demographic data to show the income level of the customers.
These systems, also called GIS, have been available for several years, but midsize and smaller banks are only beginning to look at these systems.
Most of the largest banks have employed some form of geocoding for several years. Some banks, such as Marine Midland, designed their own software in-house; others, such as Manufacturers Hanover Trust Co., send loan data to a vendor.
Hanover Changes Course
In August, however, Manufacturers Hanover installed a GIS in its affordable-housing unit to improve its compliance with CRA requirements and to reduce costs. Manufacturers, which received the highest rating for its activities under the act, plans to roll the software out to other areas of the bank beginning in January.
The software, from MapInfo, has streamlined the process for the bank of re-evaluating denied loans. The affordable housing unit automatically receives applications for mortgages that have been declined for reasons such as insufficient credit or income, or that have been declined in poor neighborhoods.
These loan applications may be eligible for a mortgage in the affordable housing unit. Manufacturers Hanover is using the software in conjunction with 1990 census data to look at areas it serves in neighborhoods of low to moderate income, down to the street level.
Lessening the Burden
"It just makes our work easier," said Michael Burke, manager of the unit at Manufacturers Hanover. "In the past, the application would have come over manually, and a lot of them slipped through the cracks."
The software allows a bank to visualize where customers are coming from, their income levels, or distance from the bank.
For many banks, sophisticated mapping and analytical software may save them money - by improving the data they submit to regulatory agencies and, in the long run, by improving their marketing ability.
"More than two-thirds of the errors in [the most recent] submissions to HMDA had to do with incorrect geographical information," said Terrence B. O'Brien, president of the Bank Marketing Group, Inc., based in Mt. Laurel, N.J. "There's a cost associated with providing the data, which is then multiplied when the Fed sends the data back and the institution has to correct it."
Software for geocoding ranges in price from about $500 for a modest personal computer-based package, to more than $10,000 for a highly sophisticated system.