The federal Office of Management and Budget (OMB) has issued new statistical definitions and revised existing ones, with important implications for bank reporting of data pertinent to the Home Mortgage Disclosure Act (HMDA) and Community Reinvestment Act (CRA), and for CRA programs generally. As a result, there are changes in the designation of some tracts as low, moderate, middle, or upper income.
The OMB issued new definitions on June 6, 2003, as part of its once-a-decade comprehensive review of statistical area standards and definitions, which take commuting patterns into account. The OMB then released its December 2003 updates on February 18, 2004. According to the updates, there are 49 new metropolitan statistical areas (MSAs) and a new group of classifications-578 micropolitan statistical areas, 29 metropolitan divisions (MetroDivs), and 123 combined statistical areas (CSAs). Definitions of these terms are provided on Table 3.
Noteworthy changes in the Third Federal Reserve District include the following:
Effective January 1, 2004, HMDA and CRA reporters must use the new geographic designations when collecting data for reporting in March 2005. Under HMDA and CRA, the new definitions will be viewed as metropolitan areas (MSAs and MetroDivs) or non-metropolitan areas (micropolitan statistical areas and unclassified counties). When reporting loan applications in a metropolitan area, one must now identify a property's metropolitan statistical area/metropolitan division (MSA/MD), rather than the metropolitan area (MA) that was required in 2003. Lenders will report the MetroDiv when properties are located in an MSA that has been subdivided into MetroDivs. Lenders will report the MSA when properties are located in an MSA that has not been subdivided into MetroDivs.
The use of MSA/MDs and the changes to metropolitan area boundaries could result in a change of income-level designations for some tracts. Income-level designations are obtained by dividing the median family income (MFI) of the census tract by the MFI of the metropolitan area. In 2003, the value of the ratio was represented as the "tract to MSA median family income percentage," which was calculated by dividing the census tract MFI by the MSA or primary metropolitan statistical area (PMSA) MFI. In 2004, the ratio is represented as the "MSA/MD median family income percentage," which is calculated by dividing the census tract MFI by the MSA MFI or the MetroDiv MFI for the MSAs that are subdivided into MetroDivs.
For example, in 2003, the "tract to MSA median family income percentage" for census tract 45 in Philadelphia County was 79.7 percent ($46,524÷$58,395), which meets the definition of a moderate-income census tract (see Table 1). However, in 2004, the "MSA/MD median family income percentage" for the same tract is 81.6 percent ($46,524÷$56,993), which meets the definition of a middle-income census tract.
The extent of tract-level income changes for the three states in the Third Federal Reserve District can be seen in Table 2. As a result of the OMB definitions in June 2003, 285 tracts in Pennsylvania, New Jersey, and Delaware (5.4 percent of census tracts in the three states) were in a higher-income category, and 160 tracts (3.0 percent of census tracts in the three states) were in a lower-income category. More specifically, 86 tracts that were previously considered moderate income are now considered middle income under the new definitions; 70 tracts that were previously considered middle income are now considered moderate income.
Maps showing the census tract changes in the Third Federal Reserve District will be provided soon on the web page of the Philadelphia Fed's Community Affairs Department.
Financial institutions will want to be proactive in determining the impact of the new OMB definitions on their CRA assessment areas. Institutions may also want to contact their regulatory agencies for information on the latest reporting requirements.
Source: OMB Bulletin No. 03-4 and accompanying attachment.