Third Federal’s CRA rating stuck at ‘needs to improve’

WASHINGTON — For the second time in three years, Third Federal Savings and Loan Association in Cleveland has received a “needs to improve” rating on its Community Reinvestment Act examination for making too few home loans in low-income communities.

The $14.5 billion-asset Third Federal, a unit of TSF Financial, has its branches in Ohio and Florida but makes loans in 23 states and the District of Columbia. Its business is almost exclusively residential mortgage lending. In the period evaluated by the Office of the Comptroller of the Currency, from 2015 to the end of 2019, 86% of its loans were one- to four-family mortgages and the rest were home equity lines of credit.

According to the OCC, Third Federal’s performance under both the lending and investment tests of CRA needs improvement. While it said the bank’s volume of lending activity reflected “excellent responsiveness” to the credit needs of its assessment areas, the geographic distribution of its home mortgage loans as well as its investments in community development were considered to be “poor.”

In Cleveland, where Third Federal is headquartered and has the strongest concentration of its banking business, the OCC found that its share of lending to low- to moderate-income areas was “significantly below” its potential capacity. While 5.7% of the assessment area’s occupied housing fell into census tracts classified as “low income” between 2015 and 2016, only 0.7% of Third Federal’s orginated mortgages went to those areas during that period.

Regulators noted that the thrift originated the majority of its mortgages outside of its assessment areas during the evaluation period and that its volume of loans in markets other than Ohio and Florida has increased over time. In 2016, just under 52% of Third Federal’s loans originated outside of its assessment areas, a figure that grew to 60% by 2019.

The OCC said it did not find any evidence of discriminatory or otherwise illegal credit practices in the course of its evaluation. Third Federal last received a “satisfactory” CRA rating in 2012.

Third Federal did not respond to requests for comment.

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