WASHINGTON -- Jeanine Catalano is constantly amazed that many banks have no idea if they will pass their next fair-lending exam.
Ms. Catalano, a senior vice president in San Francisco with Washington-based Secura Group, said the exams are so complicated that many institutions aren't sure if their lending policies are right.
If I were the regulators, I would have embarked on an education campaign," Ms. Catalano said.
Experience as Regulator
Fair lending is the catchall term encompassing the Fair Housing Act, the Equal Credit Opportunity Act, the Home Mortgage Disclosure Act, and the Community Reinvestment Act.
Banks hire Ms. Catalano to identify policies and practices that may be. criticized by examiners and to advise them on how to correct problems before the exams take place.
She has a good sense of what pleases examiners, having worked as a regulator for the Office of Thrift Supervision, the Office of the Comptroller of the Currency, and the Federal Reserve Board.
Ms. Catalano once was asked to take a quick look at a bank that thought it was doing an outstanding job of complying with the Community Reinvestment Act.
She found the case to be exactly the opposite - the bank would never have passed the exam.
Not only was the bank clearly sidestepping some rules, but it wasn't documenting what it was actually doing right, said Ms. Catalano.
She found the institution was a strong lender to small businesses, something that it hadn't considered important for the exam.
"Their analysis was flawed in a way that made them look bad," Ms. Catalano said.
On the same note, she has encountered banks who are desperately worried about an upcoming CRA exam and call her in to help change their whole documentation system.
She frequently finds these institutions to have very few problems, she said.
"Banks are often doing a good job but don't know it," Ms. Catalano said.
Understanding the Examiner
However, there are three main steps banks can and should take to do as well as possible on their exams, she said.
First, said Ms. Catalano, banks need to understand the approach examiners take.
She said it is vital to know both the facts and the language examiners are seeking. The vocabulary a bank uses to explain something to an examiner can make a big difference, she said.
Ms. Catalano also said banks should watch out for examiners who don't compare similar borrowers. She said examiners may look carefully at a borrower's history to the exclusion of all other factors, including present circumstances. "They need to get the whole picture," she said.
Evaluation and Documentation
The second step for the bank to take, she said, is to conduct an internal review, meaning an evaluation of the loans and documentation process of the institution.
The third step - detailed documenting of files - is the reason many banks receive unwarranted unsatisfactory ratings, Ms. Catalano said.
For example, she said, a bank might have a loan officer who asked a potential borrower a number of questions but didn't write down the answers.
The examiners will only rely on what is written in the files and not what the loan officer tells them afterward. she said.
As Long as It Takes
The longest Ms. Catalano has spent with a bank was five weeks, which meant it was in serious trouble. She ran training seminars, helped them develop an action plan, and discovered and explained in writing what positive things they were doing to make credit available to their community.
The shortest time she ever spent in a bank was six hours. she said. Strangely enough, that bank - on its way to an outstanding rating without even knowing it - had frantically called her to revamp its entire system.