Accurately Defining Your REMA
For financial institutions, understanding your lending footprint is crucial. While terms like "assessment area" are common, there's another, often misunderstood, geographical concept that regulators scrutinize: the Reasonably Expected Market Area (REMA).
So, what exactly is a REMA? Simply put, it's the geographical area from which your institution has received applications and originated residential loans. While other factors can contribute, this forms the foundational starting point for defining the area regulators expect your institution to serve.
Think of it this way: if you were to plot every residential loan application and origination your institution has handled on a map, then drew a boundary around the vast majority of these points (aiming for upwards of 80%), that visual representation would begin to define your REMA. This data-driven approach helps to objectively determine your actual service area.
Understanding your REMA isn't just an academic exercise; it's a critical component of fair lending compliance and proactive risk management.
One of the most frequent and significant errors lenders make when defining their REMA is confusing it with their Community Reinvestment Act (CRA) Assessment Area.
While both are geographical concepts, they serve different purposes and have distinct definitions:
CRA Assessment Areas are strictly defined and have specific limitations. They are typically based on where your branches are located and geographies where you've originated a substantial portion of your loans.
REMA, on the other hand, is a much broader and more fluid concept. It's about your actual lending activity, regardless of arbitrary boundaries.
How to avoid this critical mistake:
It's imperative to analyze your lending activity outside of your defined CRA Assessment Area. If a significant percentage of your lending occurs in these "out-of-area" geographies, then you absolutely must understand the demographic makeup of those areas. These geographies need to be included as part of your REMA, and you should be monitoring the data from them appropriately.
Imagine the scenario: examiners define a different REMA for your institution, and you have no data or justification for that area. To prevent this, analyze your REMA at least annually and be prepared to present a clear justification to examiners as to why you've defined your REMA as you have. Proactive analysis is your best defense.
If you have questions about how you’re currently defining your REMA, contact us at SCA today! Our Consultants have the experience and knowledge, along with best practices for achieving success. Speak with our Director, Bill Dolan at wdolan@scapartnering.com or by phone at (617) 694-2617 to get in touch with our industry experts.
