In this post, we will answer some of your most simple yet essential questions about REMAs, including what they are and why they matter. Read on to learn 7 regulator-approved facts about REMAs that will help with successful Redlining Analysis.
Lately, we've been getting a lot of questions about REMAs, or Reasonably Expected Market Area(s), from what it is and how to define it, to why it matters.
This makes sense; Redlining and Fair Lending compliance continue to dominate headlines and top lists of regulatory priorities, and REMA(s) are essential to both. These are great questions to ask, and it's important that you feel comfortable with REMA(s) in order to truly understand your Redlining risk.
In this post, we will share 10 facts about REMAs directly from the regulators that will help you analyze your data for Redlining risk successfully.
1. The REMA is "where the institution actually marketed and provided credit, and where it could reasonably be expected to have marketed and provided credit," according to the FFIEC's Interagency Fair Lending Examination Procedures.
Said differently, a REMA is the geographic area that regulators believe an institution can serve based on its distribution of applications and loans, as well as its marketing and outreach efforts.
[Free eBrief: Understand Your Redlining Risk in 3 Simple Steps]
2. The REMA is a different way of defining who and where you serve, and as such, is different from Market Area, Assessment Area, Metropolitan Statistical Area (MSA), Performance Context or Census Tract.
That said, it will likely be similar to some of those other definitions, and include units such as majority-minority census tracts.
3. Your institution's REMA(s) will be used to analyze your data and evaluate Redlining risk.
Redlining analysis will look at lending and level of services in majority-minority census tracts, among other items. This analysis is designed to determine if a finaicial institution is providing equal access to credit to those within its REMA.
Note: We offer a Redlining Analytics software than helps financial institutions analyze their data for Redlining risk. Below is an example of one of those dashboards:
4. It's a good idea to have your regulator approve the REMA(s) you use for internal Redlining analysis and monitoring so that you're on the same page.
Consider sharing with them your proposal for your REMA definitions, and reconfirm when changes to your business may occur. Unlike your CRA Assessment Area, your REMA(s) will be decided by your regulator.
5. Regulators will consider many different factors when defining the REMA(s). As you build and maintain your own Redlining analysis plan as part of your risk management, it is helpful to consider these factors.
Some of those include:
- Discussions with the financial institution;
- Branch and ATM network;
- Marketing efforts, including print advertising, phone calls, and direct mail;
- Brokers or realtors to assess locations and areas serves;
- Location of the institution's loan applications, originations and deposit customers;
- Significant barriers to lending, such as
- Geographic barriers,
- Limited housing stock, and/or
- Low population levels.
6. Make sure neither your REMA used for internal analysis nor your actual loan distribution look like a croissant or a donut.
It shouldn't appear that you're skipping over a geographic area in your marketing, applications, or originations. (For more examples of REMAs and lending distributions that are likely to attract regulatory attention for Redlining risk, check out slides 20-25 in this presentation from the FDIC in New York.)
7. Plot your loans on a map and compare it to your REMA(s) to check and confirm accuracy.
This seems like a simple recommendation, but it is a powerful one. After you've determined a REMA that you feel comfortable with, plot your applications and loans on the map to see how they're distributed across your REMA(s). Not only with this help you ensure that your REMA is accurately defined, it's one of the best tactics for determining Redlining risk exposure.
A good Redlining analysis software will do this for you in a way that is easy-to-read and share, and provides clear visibility into your REMA definitions. To learn more about TRUPOINT's Redlining Analytics software, and view more sample maps, click here.
TRUPOINT Viewpoint: Your REMA definition is the foundation for successful Redlining analysis. Take some time to talk with your regulator about defining your REMA. After you REMA is defined, you can begin analyzing your data in depth for Redlining compliance.
This analysis is a critical part of yourcompliance risk management, as it can help identify potential Redlining risk exposure, allow you to stand in the examiners' shoes and see what they see, and also ensure that your good efforts to improve are working as intended.
Get this free eBrief to learn more about REMAs, Redlining analysis and how it can help strengthen your compliance program.