# Community Reinvestment Act; Interagency Questions and Answers Regarding Community Reinvestment; Notice > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3AE8-31116 ## Record - **Collection:** Federal Register - **Document type:** Notice - **Published:** January 6, 2009 - **Citation:** 74 FR 498 ## Text DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency [Docket ID OCC-2008-0027] FEDERAL RESERVE SYSTEM [Docket No. OP-1349] FEDERAL DEPOSIT INSURANCE CORPORATION DEPARTMENT OF THE TREASURY Office of Thrift Supervision [Docket ID OTS-2008-0022] RIN 3064-AC97 Community Reinvestment Act; Interagency Questions and Answers Regarding Community Reinvestment; Notice AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); Office of Thrift Supervision, Treasury (OTS). ACTION: Notice and request for comment. SUMMARY: The OCC, Board, FDIC, and OTS (the agencies) are adopting as final the Interagency Questions and Answers Regarding Community Reinvestment (Questions and Answers) that were proposed on July 11, 2007. In response to comments received, the agencies clarified several of the new and revised questions and answers that were proposed and are withdrawing the proposed revisions to an existing question and answer. Also, in response to comments we received, the agencies are proposing a new question and answer that would provide examples of how an institution can determine that community services it provides are targeted to low- and moderate-income individuals. The agencies are also proposing to revise two existing questions and answers to allow pro rata consideration in certain circumstances for an activity that provides affordable housing targeted to low-or moderate-income individuals. The agencies invite public comment on these proposed new and revised questions and answers. DATES: Effective date of amended Interagency Questions and Answers Regarding Community Reinvestment: January 6, 2009. We request that comments on the proposed questions and answers be submitted on or before: March 9, 2009. ADDRESSES: Comments should be directed to: OCC: Because paper mail in the Washington, DC area and at the Agencies is subject to delay, commenters are encouraged to submit comments by e-mail, if possible. Please use the title “Community Reinvestment Act; Interagency Questions and Answers Regarding Community Reinvestment” to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods: • E-mail: regs.comments@occ.treas.gov . • Mail: Office of the Comptroller of the Currency, 250 E Street, SW., Mail Stop 1-5, Washington, DC 20219. • Fax: (202) 874-4448. • Hand Delivery/Courier: 250 E Street, SW., Attn.: Public Information Room, Mail Stop 1-5, Washington, DC 20219. Instructions: You must include “OCC” as the agency name and “Docket ID OCC-2008-0027” in your comment. In general, OCC will enter all comments received into the docket without change, including any business or personal information that you provide such as name and address information, e-mail addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. You may review comments and other related materials that pertain to this notice by any of the following methods: • Viewing Comments Personally: You may personally inspect and photocopy comments at the OCC's Public Information Room, 250 E Street, SW., Washington, DC. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling (202) 874-5043. Upon arrival, visitors will be required to present valid government-issued photo identification and submit to security screening in order to inspect and photocopy comments. • Docket: You may also view or request available background documents and project summaries using the methods described above. Board: You may submit comments, identified by Docket No. OP-1349, by any of the following methods: • Agency Web Site: http://www.federalreserve.gov . Follow the instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm . • Federal eRulemaking Portal: http://www.regulations.gov . Follow the instructions for submitting comments. • E-mail: regs.comments@federalreserve.gov . Include docket number in the subject line of the message. • Fax: 202-452-3819 or 202-452-3102. • Mail: Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW., Washington, DC 20551. All public comments are available from the Board's Web site at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical reasons. Accordingly, your comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper in Room MP-500 of the Board's Martin Building (20th and C Streets, NW.) between 9 a.m. and 5 p.m. on weekdays. FDIC: You may submit comments, identified by RIN number 3064-AC97 by any of the following methods: • Agency Web site: http://www.fdic.gov/regulations/laws/federal/propose.html . Follow instructions for submitting comments on the Agency Web Site. • E-mail: Comments@FDIC.gov . Include the RIN number in the subject line of the message. • Mail: Robert E. Feldman, Executive Secretary, Attention: Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. • Hand Delivery/Courier: Guard station at the rear of the 550 17th Street Building (located on F Street) on business days between 7 a.m. and 5 p.m. Instructions: All submissions received must include the agency name and RIN number. All comments received will be posted without change to http://www.fdic.gov/regulations/laws/federal/propose.html including any personal information provided. OTS: You may submit comments, identified by OTS-2008-0022, by any of the following methods: • E-mail: regs.comments@ots.treas.gov . Please include ID OTS-2008-0022 in the subject line of the message and include your name and telephone number in the message. • Fax: (202) 906-6518. • Mail: Regulation Comments, Chief Counsel's Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, Attention: OTS-2008-0022. • Hand Delivery/Courier: Guard's Desk, East Lobby Entrance, 1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention: Regulation Comments, Chief Counsel's Office, Attention: OTS-2008-0022. Instructions: All submissions received must include the agency name and docket number for this rulemaking. All comments received will be entered into the docket and posted on Regulations.gov without change, including any personal information provided. Comments, including attachments and other supporting materials received are part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. Viewing Comments Electronically: OTS will post comments on the OTS Internet Site at http://www.ots.treas.gov/pagehtml.cfm?catNumber=67&an=1 . Viewing Comments On-Site: You may inspect comments at the Public Reading Room, 1700 G Street, NW., by appointment. To make an appointment for access, call (202) 906-5922, send an e-mail to public.info@ots.treas.gov , or send a facsimile transmission to (202) 906-6518. (Prior notice identifying the materials you will be requesting will assist us in serving you.) We schedule appointments on business days between 10 a.m. and 4 p.m. In most cases, appointments will be available the next business day following the date we receive a request. FOR FURTHER INFORMATION CONTACT: OCC: Karen Tucker, National Bank Examiner, Compliance Policy Division, (202) 874-4428; or Margaret Hesse, Special Counsel, Community and Consumer Law Division, (202) 874-5750, Office of the Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219. Board: Anjanette M. Kichline, Senior Supervisory Consumer Financial Services Analyst, (202) 785-6054; or Brent Lattin, Attorney, (202) 452-3667, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW., Washington, DC 20551. FDIC: Deirdre Foley, Senior Policy Analyst, Division of Supervision and Consumer Protection, Compliance Policy Branch, (202) 898-6612; or Susan van den Toorn, Counsel, Legal Division, (202) 898-8707, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. OTS: Celeste Anderson, Senior Project Manager, Compliance and Consumer Protection, (202) 906-7990; or Richard Bennett, Senior Compliance Counsel, Regulations and Legislation Division, (202) 906-7409, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552. SUPPLEMENTARY INFORMATION: Background The OCC, Board, FDIC, and OTS implement the Community Reinvestment Act (CRA) (12 U.S.C. 2901 et seq. ) through their CRA regulations. See 12 CFR parts 25, 228, 345, and 563e. The OCC, Board, and FDIC revised their CRA regulations in a joint final rule published on August 2, 2005 (70 FR 44256) (2005 joint final rule). OTS did not join the agencies in adopting the August 2005 joint final rule; OTS published separate final rules on August 18, 2004 (69 FR 51155), March 2, 2005 (70 FR 10023), April 12, 2006 (71 FR 18614), and March 22, 2007 (72 FR 13429). On July 1, 2007, the March 2007 revisions to OTS's CRA regulation became effective, making OTS's CRA regulation substantially the same as the CRA regulations of the OCC, Board, and FDIC. The agencies' regulations are interpreted primarily through the “Interagency Questions and Answers Regarding Community Reinvestment” (Questions and Answers), which provide guidance for use by agency personnel, financial institutions, and the public. The Questions and Answers were first published under the auspices of the Federal Financial Institution Examination Council (FFIEC) in 1996 (61 FR 54647), and were revised on July 12, 2001 (2001 Questions and Answers) (66 FR 36620). Subsequent to the adoption of the 2005 joint final rule, the OCC, Board, and FDIC, after notice and public comment, published new guidance in the form of questions and answers on March 10, 2006 (71 FR 12424) (2006 Questions and Answers). The 2006 Questions and Answers addressed primarily matters related to the 2005 joint final rule. On September 5, 2006, after notice and public comment, OTS published new guidance in the form of questions and answers pertaining to the revised definition of “community development” and certain other provisions of the CRA rule common to all four agencies (OTS's September 2006 Questions and Answers). 71 FR 52375. On July 11, 2007, the agencies published for comment proposed guidance, which updated and revised the 2001 Questions and Answers and combined the 2006 Questions and Answers and OTS's September 2006 Questions and Answers. The proposal also introduced nine proposed new questions and answers (Q&As). 72 FR 37922. OTS also proposed four new and revised Q&As that the OCC, Board, and FDIC had adopted in the 2006 Questions and Answers, primarily relating to intermediate small savings associations. Together, the agencies received comments from 58 different parties. The commenters represented financial institutions and their trade associations, community development advocates and organizations, members of Congress, and others. As discussed below, this document adopts the nine new Q&As that were proposed in 2007, with revisions, as appropriate, in response to comments received. The agencies are also adopting, with minor revisions, as appropriate, all but one of the proposed revised Q&As. The agencies are withdrawing the proposed revisions to Q&A § __.23(e)-2. The agencies also are proposing one new and two revised Q&As, which are discussed below. These proposed Q&As have been developed in response to comments received by the agencies. The Interagency Questions and Answers are grouped by the provision of the CRA regulations that they discuss, are presented in the same order as the regulatory provisions, and employ an abbreviated method of citing to the regulations. For example, the small bank performance standards for national banks appear at 12 CFR 25.26; for Federal Reserve System member banks supervised by the Board, they appear at 12 CFR 228.26; for state nonmember banks, they appear at 12 CFR 345.26; and for thrifts, the small savings association performance standards appear at 12 CFR 563e.26. Accordingly, the citation would be to 12 CFR__.26. Each Q&A is numbered using a system that consists of the regulatory citation and a number, connected by a dash. For example, the first Q&A addressing 12 CFR__.26 would be identified as § __.26-1. Although a particular Q&A may be found under one regulatory provision, e.g., 12 CFR__.22, which relates to the lending test applicable to large institutions, its content may also be applicable to, for example, small institutions, which are evaluated pursuant to small institution performance standards found at 12 CFR__.26. Thus, readers with a particular interest in small institution issues, for example, should also consult the guidance that describes the lending, investment, and service tests. The Questions and Answers are indexed to aid readers in locating specific information in the document. The index contains keywords, listed alphabetically, along with numerical indicators of questions and answers that relate to that keyword. The list of Q&As addressing each keyword in the index is not intended to be exhaustive. We welcome suggestions for additional entries to the index. Discussion of the Q&As Being Adopted as Final New Q&As Proposed in 2007 I. Investments in minority- or women-owned financial institutions and low-income credit unions . The agencies proposed a new Q&A § __.12(g)-4 that would interpret the statutory provision that allows the agencies to consider as a factor a majority-owned financial institution's activities in cooperation with a minority- or women-owned financial institution or low-income credit union. See 12 U.S.C. 2903(b). Twenty-five commenters addressed the new Q&A as proposed. Although five commenters believed that the proposed guidance went directly against the intent of the CRA regulations, the rest of the commenters were generally in favor of the new Q&A. Several commenters, however, suggested additions or modifications that could be made to the guidance. We are modifying the proposed Q&A to address some of these comments. Four commenters urged the agencies to allow consideration of activities in cooperation with minority- or women-owned financial institutions or low-income credit unions only if the majority-owned institution had adequately addressed the credit needs of its assessment area(s). The agencies believe that the statute currently does not impose such a limitation. However, in response to the comment, we have clarified that the impact of such activities on a majority-owned institution's rating will be determined in conjunction with an assessment of its overall performance in its assessment area(s). Two commenters specifically asked the agencies to provide examples of “other ventures” that could receive consideration if engaged in by a majority-owned financial institution in cooperation with a minority- or women-owned financial institution or low-income credit union. Several examples of “other ventures” have been added to the answer. Six commenters suggested that activities in cooperation with community development financial institutions (CDFIs) should be allowed the same broader geographic allowance that the statute allows for activities in cooperation with minority- or women-owned financial institutions or low-income credit unions. The statute does not provide a similar provision for activities in cooperation with CDFIs. Because the statute and regulation otherwise generally focus on a financial institution's activities that benefit its local community, the agencies do not believe it is appropriate to apply the relaxed geographic requirement to CDFIs or other entities. One other commenter suggested that the agencies should delete the final sentence of the proposed Q&A: “The activities must, however, help meet the credit needs of the local communities in which the minority- or women-owned institutions or low-income credit unions are chartered.” The commenter's concern was that this sentence might be read to require the majority-owned financial institution to prove that its involvement with the minority- or women-owned institution or low-income credit union ultimately can be directly linked to a specific CRA-related activity of the minority bank. The CRA statute specifically conditions consideration of activities in cooperation with minority- or women-owned institutions or low-income credit unions on those activities helping to meet the credit needs of the local communities in which the minority- or women-owned institutions or low-income credit unions are chartered. Therefore, the sentence has not been removed. The majority-owned financial institution should have a general understanding, prior to engaging in an activity in cooperation with a minority- or women-owned institution or low-income credit union, about how the activity will help to meet the credit needs of the community in which the minority- or women-owned institution or low-income credit union is chartered; however, no specific type of proof is required. II. Intermediate small institutions' affordable home mortgage loans and small business and small farm loans . The agencies received eleven comments addressing proposed new Q&A § __.12(h)-3, which would allow an intermediate small institution to select certain home mortgage, small business, and small farm loans, which are not required to be reported under the CRA or Home Mortgage Disclosure Act (HMDA) regulations, to be considered as community development loans. All of the commenters supported the proposed Q&A. The agencies are adopting the Q&A with clarifying revisions based on commenters' questions and suggestions. For example, one commenter asked whether an intermediate small institution's voluntary reporting of small business or small farm loan data would disqualify it from the optional selection of some of those loans as community development loans. The guidance clarifies that optional reporting of small business or small farm loan data will not prevent an intermediate small institution from choosing some of those loans to be considered as community development loans unless the intermediate small institution opts to be evaluated under the lending, investment, and service tests applicable to large institutions. One commenter asked whether an intermediate small institution that is required to report home mortgage lending under HMDA would be able to opt to have some of its home mortgage loans considered as community development loans. Because the home mortgage loans are required to be reported under HMDA, they may be considered only as home mortgage loans (unless they are multifamily dwelling loans). The guidance has also been revised to clarify that an intermediate small institution may select individual loans (other than home mortgage loans reported under HMDA) to be considered as community development loans. An institution need not select an entire portfolio for consideration as community development loans. The agencies note that intermediate small institutions that opt to have certain home mortgage, small business, and small farm loans considered as community development loans should notify their examiners which loans it has elected for this consideration prior to or at the start of their CRA examinations. III. Examples of “other loan data.” The agencies received seventeen comments addressing proposed new Q&A § __.22(a)(2)-4, which listed examples of “other loan data” that would be considered under the lending test. Most of the commenters supported the proposed Q&A. However, a number of commenters suggested that some of the types of “other loan data” should be treated the same as direct lending. Several commenters asserted that letters of credit should be treated as loan originations. They noted that, although letters of credit are not immediately (if ever) funded, the institution must underwrite them in the same way direct loans are underwritten and must also ensure that funds are available for eventual funding. Further, many community development projects would not be financed without the back-up support provided by a financial institution's letter of credit. For these reasons, commenters urged that letters of credit be considered as loan originations. The CRA regulations provide that letters of credit will be considered as “other loan data.” The agencies cannot change treatment of letters of credit in the regulations through interpretation. However, the agencies will consider the issue again in the event they undertake more comprehensive changes to the CRA regulations. The agencies also plan to remind examiners that letters of credit may deserve specific mention in the narrative of an institution's public performance evaluation. Commenters also asserted that an institution's loans for mixed-income housing should not be considered under “other loan data.” Instead, commenters proposed that institutions should receive consideration for such loans (or investments) that enable community development, such as mixed-income projects that have an affordable housing component, as community development loans (or qualified investments). The agencies are adopting Q&A § __.22(a)(2)-4 as proposed. However, as discussed below, we are also proposing for comment a revised Q&A § __.12(h)-8 discussing what is meant by a “primary purpose of community development.” If this proposed revision is adopted as final, “loans that do not have a primary purpose of community development, but where a certain amount or percentage of units is set aside for affordable housing” would be deleted from the list of examples of “other loan data” because these would be covered in that revised guidance which would allow an institution to receive pro rata consideration for the portion of a loan or investment that helps to provide affordable housing to low- or moderate-income individuals. In the meantime, however, institutions may continue to present such loans to examiners as “other loan data.” IV. Purchased loan participations . Ten commenters addressed proposed Q&A § __.22(a)(2)-6, which clarified that the purchase of a loan participation is treated as the purchase of a loan. The majority of the commenters supported the proposed guidance; however, one commenter expressed concern that loans could be resold numerous times merely to inflate their value for CRA evaluation purposes. We have modified this Q&A to clarify that examiners will consider whether loan participations (and other loan purchases) have been resold merely to inflate their value for CRA purposes when they evaluate an institution's lending activity. V. Small business loans secured by a one-to-four family residence . The agencies proposed § __.22(a)(2)-7 to provide guidance about small business and small farm loans where a dwelling serves as collateral. As discussed in the supplementary information published with the proposed guidance, the new Q&A was called for because of changes to the Board's Regulation C regarding the treatment of refinancings of home mortgage loans. See 72 FR at 37925. We received twelve comments addressing this proposed Q&A, primarily in support of the proposed Q&A. We are adopting the Q&A as proposed. VI. Investments in a national or regional fund. The agencies proposed Q&A § __.23(a)-2 to clarify how an institution that makes a loan or investment in a national or regional community development fund may demonstrate that the investment meets the geographic requirements of the CRA regulation. The proposed Q&A suggested alternative methods for documenting that the investment was intended to benefit the institution's assessment area. Thirty-three commenters addressed this guidance. One theme in many of the comments was that investments in national funds should be treated in the same manner as statewide or regional funds. The regulations state that the investment test evaluates an institution's record of helping to meet the credit needs of its assessment area(s) through qualified investments that benefit its assessment area(s) or a broader statewide or regional area that includes the institution's assessment area(s). See 12 CFR 25.23(a), 228.23(a), 345.23(a), and 563e.23(a). Investments in nationwide funds, like investments in other funds, are subject to these standards. An institution may wish to provide documentation from a nationwide fund to demonstrate the geographic benefit to the institution's assessment area(s) or the broader statewide or regional area that includes its assessment area(s). Because the proposed Q&A addressed investments in both national and regional funds, some commenters were confused about the types of investments the agencies intended to address in the proposed Q&A. The proposed Q&A was intended to address investments in nationwide funds or in any fund that is not limited to the statewide or regional area that includes the institution's assessment area(s). Because other existing Q&As address investments in statewide and regional funds, Q&A § __.23(a)-2 has been revised to address specifically investments in “nationwide” funds. Institutions that invest in statewide or regional funds should refer to Q&As § __.12(h)-6 and § __.12(h)-7 for guidance. The guidance in these Q&As has not been changed. Commenters also addressed a number of other issues. One commenter believed that the requirements in the proposed Q&A for an investment in a nationwide fund were more rigorous than the regulations required, in that the proposed Q&A focused on benefit to an institution's assessment area, without also considering benefit to the broader statewide or regional area that includes the institution's assessment area(s). The Q&A has been revised to clarify that investments in nationwide funds will be reviewed to determine whether they directly or indirectly benefit one or more of an institution's assessment areas or a broader statewide or regional area that includes the institution's assessment area(s). Several commenters understood the proposal to suggest that the documentation methods put forward in the proposed Q&A was an exclusive, mandatory list. The agencies have clarified the final Q&A to provide that the documentation methods identified are among those that may, at the institution's option, be provided. The agencies will accept any information provided by an institution that reasonably demonstrates that the purpose, mandate, or function of a nationwide fund includes serving geographies or individuals located within the institution's assessment area(s) or a broader statewide or regional area that includes its assessment area(s). Typically, information about where a fund's investments are expected to be made or targeted often will be found in the fund's prospectus, or other documents provided by the fund prior to or at the time of the institution's investment, and the institution, at its option, may provide such documentation in connection with its CRA evaluation. Some commenters also asserted that institutions should receive consideration for the full dollar amount of any investment in a nationwide fund if at least one project in which the fund invests is located in the institution's assessment area or the broader statewide or regional area that includes the institution's assessment area. The agencies have not incorporated this specific recommendation into the text of the Q&A. The agencies believe that the final Q&A provides sufficient flexibility to address a variety of different circumstances, given the evolving nature and significance of nationwide funds. VII. Examination as an intermediate small institution. Proposed new Q&A § __.26(a)(2)-1 clarified that there is no lag period between becoming an intermediate small institution and being examined as an intermediate small institution. Eight commenters addressed this new guidance; all were supportive. The agencies are adopting this new Q&A as proposed. Several commenters suggested that the agencies should provide technical assistance to small institutions that are about to become intermediate small institutions at the institutions' request. The agencies currently provide technical assistance to small institutions in transition to becoming “intermediate small” institutions. VIII. Reporting of a participation in a community development loan. The agencies proposed Q&A § __.42(b)(2)-4 to clarify that institutions that purchase community development loan participations should report only the amount of their purchase. The supplementary information published with the proposal noted that the requirement to report only the dollar amount of the participation purchased for community development loans differs from the requirements for reporting small business and small farm loan participations. When an institution reports participations or purchases of small business and small farm loans, it must report the entire loan amount at origination. Eight commenters addressed this proposed Q&A. One commenter recommended the agencies adopt consistent requirements governing the way loans are reported. Another commenter noted that different requirements may be appropriate because reporting the purchased amount of the loan more accurately reflects the actual dollar amount of an institution's community development lending. After consideration of the comments received, the agencies are adopting the Q&A as proposed because the agencies believe that reporting the amount purchased, rather than the amount at origination, more accurately portrays the institution's involvement in community development lending. IX. Refinanced or renewed community development loans. The agencies proposed Q&A § __.42(b)(2)-5 to clarify that institutions should collect information about community development loans that they refinance or renew as loan originations. The Q&A also notes that, generally, the same limitations that apply to the reporting of refinancings and renewals of small business and small farm loans apply to the reporting of refinancings and renewals of community development loans. For example, an institution may only report one origination (including a renewal or refinancing treated as an origination) per loan per year, unless an increase in the loan amount is granted. Eight commenters commented on, and supported adoption of this proposed Q&A. The agencies are adopting the Q&A as proposed. Revised Q&As Proposed in 2007 That Were Specifically Described in the Supplementary Information I. Activities that promote economic development. The agencies proposed to revise Q&A § __.12(g)(3)-1, which describes the types of activities that promote economic development by financing small businesses and small farms. The revisions clarified the language of the guidance, and added loans to or investments in Rural Business Investment Companies (RBICs) and New Markets Tax Credit-Eligible Community Development Entities (CDEs) as types of loans or investments that the agencies will presume to promote economic development. Fourteen commenters addressed these proposed revisions, including five that represented community development financial institutions (CDFIs). All fourteen commenters supported adoption of the proposed revisions. The agencies are adopting the revised Q&A as proposed. CDFI representative commenters urged the agencies to also presume that loans to or investments in CDFIs promote economic development. Q&A § __.12(g)(3)-1 applies only to the prong of the definition of “community development” addressing promoting economic development by financing small businesses and small farms. The agencies have not adopted this suggestion. Existing Q&A § __.12(t)-4 lists as examples of qualified investments “investments, grants, deposits, or shares in or to * * * CDFIs that primarily lend or facilitate lending in low- and moderate-income areas or to low- and moderate-income individuals in order to promote community development, such as a CDFI that promotes economic development on an Indian reservation.” In addition, if a CDFI were engaged in activities that promote economic development by financing small businesses or small farms, investments in or loans to the CDFI would have a primary purpose of community development. II. Examples of community development loans. The agencies proposed to revise Q&A § __.12(h)-1, which provides examples of community development loans, to add a loan to a New Markets Tax Credit-Eligible CDE as an example of a community development loan. The agencies also proposed to revise this Q&A by adding a new bullet explaining that another example of a community development loan is a loan in an amount greater than $1 million to a business, when the loan is made as part of the Small Business Administration's 504 Certified Development Company program. The three commenters that addressed the proposed revisions to this Q&A recommended that they be adopted. The agencies are adopting this Q&A as proposed. III. Examples of community development services. The agencies proposed to revise Q&A § __.12(i)-3, which lists examples of community development services, to add as a new example of a community service “increasing access to financial services by opening or maintaining branches and other facilities that help to revitalize or stabilize a low- or moderate-income geography, a designated disaster area, or a distressed or underserved nonmetropolitan middle-income geography, unless the opening or maintaining of such branches or other facilities has been considered in the evaluation of the institution's retail banking services under 12 CFR __.24(d).” The agencies also proposed to revise this Q&A to highlight that credit counseling that can assist borrowers in avoiding foreclosure on their homes would be a community development service. Finally, the agencies proposed to add individual retirement accounts (IDAs) and free payroll check cashing services that increase access to financial services for low- or moderate-income individuals to the examples of financial services with the primary purpose of community development. The agencies received ten comments addressing these proposed revisions. All of the commenters generally favored adopting the proposed revisions. The agencies are adopting the proposed Q&A with several revisions. One commenter suggested that the reference to “free” check cashing should be changed to “affordable” or “low-cost” check cashing services that increase access to financial services for low- or moderate-income individuals. The agencies have revised the Q&A to reference free and low-cost check cashing. In addition, the agencies have clarified that low-cost bank accounts can be either savings or checking accounts. To help to address current economic conditions and issues, the agencies have added an additional example of a community development service: Foreclosure prevention programs to low-or moderate-income homeowners who are facing foreclosure on their primary residence with the objective of providing affordable, sustainable, long-term loan modifications and restructurings. The agencies have also clarified that, to qualify as a community development service, credit counseling to assist borrowers in avoiding foreclosure on their homes should be targeted to low- and moderate-income borrowers, based on the definition of community development at 12 CFR __ .12(g)(2). Finally, in the proposed Q&A, an existing bullet addressing school savings programs and financial education was split into two separate bullets. This change has not been adopted; however, the agencies are adopting a minor revision incorporating the commonly used term, “financial literacy,” to the bullet. IV. Federal Home Loan Bank (FHLB) unpaid dividends. The agencies proposed to revise Q&A § __.12(t)-3 to clarify that funds retained by FHLBs to support the Affordable Housing Program (AHP), rather than being paid out to investor financial institutions as dividends, are not qualified investments by the financial institutions. The agencies received three comments addressing this proposed revision. One commenter supported confirmation of the existing policy. The other two commenters were concerned that this position may have the unintended effect of creating a disincentive for FHLB member institutions to participate in the AHP and, ultimately, undermine industry support for the program. The agencies considered this comment, but still believe that funds that are retained by the FHLBs are not qualified investments by the financial institutions that do not receive them as dividends. The Q&A continues to point out that institutions' other activities in connection with the FHLBs' AHP program would be considered in an institution's CRA evaluation—for example, providing technical assistance to applicants would be considered as a community development service. The agencies are adopting this Q&A as proposed. V. Examples of qualified investments. The agencies proposed to revise Q&A § __.12(t)-4, which lists examples of qualified investments, to add an investment in a New Markets Tax Credit-Eligible CDE as an additional example. The proposal also would have added as an example of a qualified investment an investment in a community development venture capital company that promotes economic development by financing small businesses. The agencies received two comments on these proposed revisions, which recommended adoption. The Q&A is being adopted as proposed. VI. Small institution adjustment. The agencies proposed to revise Q&A § __.12(u)(2)-1, which provides information about the annual adjustments to the asset-size thresholds for small institutions and intermediate small institutions, to refer the reader to the FFIEC's Web site for historical and current asset-size threshold information. The two commenters that addressed this proposed change supported its adoption. The agencies are adopting the Q&A as proposed. VII. Responsive lending activities. The agencies proposed to revise Q&A § __.22(a)-1, which discusses types of lending activities that may warrant favorable consideration as being responsive to the credit needs of the institution's assessment area(s). The proposed revision highlighted that establishing loan programs that provide relief to low- and moderate-income homeowners who are facing foreclosure is a lending activity that would warrant consideration as being responsive to the needs of an institution's assessment areas. The agencies received six comments addressing this proposed revision. All supported the proposed revision. The agencies are adopting the proposed revised Q&A with clarifying changes. First, the agencies have provided examples of the types of loan programs that provide relief from foreclosure, e.g., establising loan programs with the objective of providing affordable, sustainable, long-term relief through refinancings, restructures, or modifications. Second, the word, “homes,” has been replaced by “primary residences” to clarify the scope of the Q&A. In April 2007, the agencies issued a joint statement entitled, “Statement on Working With Mortgage Borrowers.” In that statement, the agencies encouraged institutions to work with borrowers who are financially unable to make their contractual payment obligations on their home loans. The statement noted that financial institutions may receive favorable CRA consideration for programs that transition low- and moderate-income borrowers from higher cost loans to lower cost loans, provided the loans are made in a safe and sound manner. Consistent with the statement, the proposed Q&A addressed only loan programs that provide relief to low- and moderate-income homeowners who are facing foreclosure as a type of lending activity that would warrant consideration as being responsive to the credit needs of an institution's assessment areas. However, under the regulation, the agencies assess an institution's responsiveness to credit needs in each of its assessment area(s). See 12 CFR parts 25, 228, 345 and 563e at App. A(b)(1)(i). The agencies believe that foreclosure assistance to homeowners who are facing foreclosure on their primary residences would be responsive to the needs of an institution's assessment area(s). Therefore, the agencies have revised the final Q&A to refer to “homeowners” generally. VIII. Constraints on affiliate lending. Q&A § __.22(c)(2)(i)-1 provides that an affiliate may not claim a loan origination or loan purchase for CRA purposes if another institution claims the same loan origination or loan purchase. The agencies proposed to revise this Q&A to add an example and to clarify that the guidance applies to all institutions, whether they are subject to the lending test, small institution examination standards, or the community development test applicable to wholesale or limited purpose institutions. Six commenters addressed these proposed revisions. Two commenters supported the clarifications. Four commenters expressed concern that the new example appears to give “double credit” for one loan because the purchasing institution is an affiliate of the originator. Each financial institution that is subject to CRA is separately evaluated for its CRA performance, regardless of whether it has affiliates that are also institutions subject to the CRA. The CRA regulations provide that the agencies will consider both loan originations and loan purchases when evaluating an institution's CRA performance. To address commenters' concerns about sales of loans merely to inflate their value for CRA purposes, however, the agencies are adopting the revised Q&A with a new cross reference to Q&As § __.22(c)(2)(ii)-1 and § __.22(c)(2)(ii)-2. These Q&As provide that the manner in which loans are allocated among affiliated institutions for CRA purposes must reflect actual business decisions about the allocation of banking activities, and should not be designed solely to enhance their CRA evaluations. IX. Retail banking services delivery systems. The agencies proposed to revise Q&A § __.24(d)-1, which explains how examiners evaluate the availability of an institution's systems for delivering retail banking services. The proposed revision would conform the existing Q&A to more closely track the service test performance criteria in the regulations. The agencies received only one comment on the proposed revisions to this Q&A, which supported the clarifications to the Q&A. The agencies are adopting the revised Q&A as proposed. X. Assessment areas may not extend substantially beyond metropolitan statistical area (MSA) boundaries. The agencies proposed to revise Q&As § __.41(e)(4)-1 and § __.41(e)(4)-2, which address the maximum size of an assessment area, to adopt the revised terminology in the Standards for Defining Metropolitan and Micropolitan Statistical Areas adopted by the Office of Management and Budget, and to incorporate guidance that the agencies provided in connection with the technical corrections made to the CRA regulations in 2005. See 70 FR 15570. The two comments on these proposed revisions supported adopting them. The agencies are adopting the revised Q&As as proposed. XI. Reporting data under the CRA regulations. The agencies proposed to revise Q&A § __.42-1, which addresses when an institution must collect and report data, to refer generally to the definition of a small institution, rather than to the current dollar amount of the asset threshold of such institutions, because the asset threshold is revised annually. The agencies also revised the mailing address in the Q&A. The agencies received no comments on these proposed revisions. The revised Q&A is being adopted as proposed. XII. Reporting home equity lines of credit for both home improvement and business purposes. The agencies proposed to revise Q&A § __.42(a)-7, which addresses the reporting of a home equity line of credit, used in part for home improvement purposes and used in part for small business purposes, to make the Q&A consistent with changes that were made to the Board's Regulation C requirements. The agencies received only one comment addressing the proposed revised Q&A in support of the proposed revision. The agencies are adopting the revised Q&A as proposed. XIII. Participations in small business or small farm loans. The agencies proposed to revise Q&A § __.42(a)(2)-1, which provides guidance regarding the reporting of the amount of a small business or small farm loan that an institution purchases, to clarify that the guidance also applies to purchases of small business or small farm loan participations. The agencies received five comments addressing this proposed revision. One commenter agreed that the reporting of loan participations purchased should be treated in the same manner as the reporting of whole loans purchased. The other four commenters addressed the inconsistency between the reporting requirements for small business and small farm loan purchases (either whole loans or participations in loans) and the reporting requirements for community development loan purchases (whole or partial). As discussed above, the CRA regulations at 12 CFR __.42(a)(2) require the reporting of the loan amount at origination when reporting small business and small farm loan data. Thus, the agencies are adopting the revised Q&A as proposed. Withdrawal of Proposed Revisions to Existing Q&A § __.23(e)-2 Q&A § __.23(e)-2 addresses how examiners evaluate an institution's qualified investment in a fund with a primary purpose of community development. The agencies proposed to revise the Q&A's discussion of consideration of legally binding commitments recorded by the institution according to GAAP. The agencies received two comments, both of which opposed the change. In response to these comments, and because the proposal was inconsistent with an interagency CRA interpretive letter published by the agencies in 1997 (OCC I.L. No. 800 (Sept. 11, 1997)), the agencies are withdrawing the proposal. Therefore, when evaluating a financial institution, examiners will continue to include in the dollar amount of qualified investments any legally binding commitments recorded by the institution according to GAAP. Clarifying Revisions to Existing Q&As Q&A § __.12(g)-3 Three commenters addressed Q&A § __.12(g)-3, which addresses flexibility in considering performance in high-cost areas. Q&A § __.12(g)-3 provides an example of a situation when examiners could take into account the high cost of housing when an institution provides a community development loan or qualified investment to an organization that assists middle-income, as well as low- and moderate-income, people and areas. Even though the agencies had not proposed revisions to this existing guidance, after consideration of the comments, the agencies are revising this Q&A by adding a cross reference to Q&A § __.12(h)-8, which provides information on “primary purpose” of community development. Q&A § __.12(g)(4)(i)-1 The agencies did not receive any comments directly mentioning Q&A § __.12(g)(4)(i)-1. However, several commenters expressed their general support for the additional foreclosure prevention references that were proposed in other Q&As. Q&A § __.12(g)(4)(i)-1 addresses activities that are considered to “revitalize or stabilize” a low- or moderate-income geography. Based on these comments, the following example has been added to the answer: “For example, providing foreclosure prevention programs with the objective of providing affordable, sustainable, long-term loan restructurings or modifications to homeowners in low- and moderate-income geographies, consistent with safe and sound banking practices, may help to revitalize or stabilize those geographies.” OTS Request for Comments on Conforming Revisions OTS specifically requested comment on several Q&As that it proposed to conform OTS guidance to guidance previously adopted by the OCC, Board, and FDIC. Five commenters addressed OTS's conforming revisions. They unanimously supported the efforts of OTS to be consistent with the other agencies. OTS is adopting the Q&As as proposed. Revised and New Q&As Being Proposed for Comment Proposed New Q&A: Community Services Targeted to Low- or Moderate-income Individuals In response to suggestions made by commenters, the agencies are proposing a new Q&A that would provide examples of ways an institution, which provides community services, could determine that the community services are targeted to low- and moderate-income individuals when the institution does not know the actual income of the individuals. The text of the proposed Q&A follows: ▸§ __.12(g)(2)- 1: Community development includes community services targeted to low- or moderate-income individuals. What are examples of ways that an institution could determine that community services are offered to low- or moderate-income individuals? A1: Examples of ways in which an institution could determine that community services are targeted to low- or moderate-income persons include: • The community service is targeted to the clients of a nonprofit organization that has a defined mission of serving low- and moderate-income persons, or, because of government grants, for example, is limited to offering services only to low- or moderate-income persons. • The community service is offered by a nonprofit organization that is located in and serves a low- or moderate-income geography. • The community service is conducted in a low- or moderate-income area and targeted to the residents of the area. • The community service is offered at a workplace to workers who are low- and moderate-income, based on readily available data for the average wage for workers in that particular occupation or industry ( see, e.g. , http://www.bls.gov/bls/blswage.htm (Bureau of Labor Statistics)).◂ Proposed Revised Q&As: Primary Purpose of Community Development As discussed above, a number of commenters suggested that loans or investments that provide some affordable housing to low- or moderate-income individuals should be considered as “community development.” The regulations require community development activities to have a “primary purpose of community development.” See 12 CFR__.12(h), __.12(i), and .12(t). Q&A § __.12(h)-8 generally provides two methods of determining whether an activity has a primary purpose of community development: (1) If a majority of the dollars or beneficiaries of the activity are identifiable to one or more of the enumerated community development purposes, then an activity will be considered to possess the requisite primary purpose; and (2) If the express, bona fide intent of the activity, as stated, for example, in a prospectus, loan proposal, or community action plan, is primarily one or more of the enumerated community development purposes; the activity is specifically structured (given any relevant market or legal constraints or performance context factors) to achieve the expressed community development purpose; and the activity accomplishes, or is reasonably certain to accomplish, the community development purpose involved, then the requisite primary purpose may be found. The agencies have generally indicated that if an activity has a primary purpose of community development (determined by either method above), the entire investment, loan, or service would be considered in an institution's CRA evaluation. However, if an activity does not have a primary purpose of community development applying these standards, then it would not be considered as a qualified investment, community development loan, or community development service. The agencies are proposing to revise Q&A § __.12(h)-8 to allow consideration for an activity that provides some affordable housing targeted to low- or moderate-income individuals, but where it would not be deemed to have a primary purpose of community development measured by a majority of the entire activity's benefits or dollar value, or by relying on the express purpose of the activity. The Q&A would specifically allow activities related to the provision of mixed-income housing, such as in connection with a development that has a mixed-income housing component or an affordable housing set-aside required by federal, state, or local government, to be eligible for consideration as an activity that has a “primary purpose” of community development at the election of the institution. In those cases, an institution would receive pro rata consideration for the portion of the activity that helps to provide affordable housing to low- or moderate-income individuals. The text of the proposed revised Q&A follows: § __.12(h)—8: What is meant by the term “primary purpose” as that term is used to define what constitutes a community development loan, a qualified investment, or a community development service? A8. A loan, investment, or service has as its primary purpose community development when it is designed for the express purpose of revitalizing or stabilizing low- or moderate-income areas, designated disaster areas, or underserved or distressed nonmetropolitan middle-income areas, providing affordable housing for, or community services targeted to, low- or moderate-income persons, or promoting economic development by financing small businesses and farms that meet the requirements set forth in 12 CFR __.12(g). To determine whether an activity is designed for an express community development purpose, the agencies apply one of two approaches. First, if a majority of the dollars or beneficiaries of the activity are identifiable to one or more of the enumerated community development purposes, then the activity will be considered to possess the requisite primary purpose. Alternatively, where the measurable portion of any benefit bestowed or dollars applied to the community development purpose is less than a majority of the entire activity's benefits or dollar value, then the activity may still be considered to possess the requisite primary purpose▸, and the institution may receive CRA consideration for the entire activity,◂ if (1) The express, bona fide intent of the activity, as stated, for example, in a prospectus, loan proposal, or community action plan, is primarily one or more of the enumerated community development purposes; (2) the activity is specifically structured (given any relevant market or legal constraints or performance context factors) to achieve the expressed community development purpose; and (3) the activity accomplishes, or is reasonably certain to accomplish, the community development purpose involved. ▸Generally, a loan, investment, or service will be determined to have a “primary purpose” of community development only if it meets the criteria described above. However, an activity also may be deemed to have a “primary purpose” of community development in certain other limited circumstances in which these criteria have not been met. Specifically, activities related to the provision of mixed-income housing, such as in connection with a development that has a mixed-income housing component or an affordable housing set-aside required by federal, state, or local government, also would be eligible for consideration as an activity that has a “primary purpose” of community development at the election of the institution. In such cases, an institution may receive pro rata consideration for the portion of such activities that helps to provide affordable housing to low- or moderate-income individuals. For example, if an institution makes a $10 million loan to finance a mixed-income housing development in which ten percent of the units will be set aside as affordable housing for low- and moderate-income individuals and ten percent of the funds will be used for the cost of constructing those units, the institution may elect to treat $1 million of such loan as a community development loan.◂ The fact that an activity provides indirect or short-term benefits to low- or moderate-income persons does not make the activity community development, nor does the mere presence of such indirect or short-term benefits constitute a primary purpose of community development. Financial institutions that want examiners to consider certain activities (under either approach) should be prepared to demonstrate the activities' qualifications. Because this proposed revision would be a significant change to the agencies' general “all or nothing” CRA consideration policy for community development loans, qualified investments, and community development services, the agencies solicit public comment on the proposed revision. We specifically request comment on the following: • Will the proposed revision, allowing pro rata CRA consideration for low- and moderate-income housing set-asides, spur the construction and rehabilitation of housing for low- and moderate-income persons? Why or why not? • Should the special pro rata consideration be restricted only to instances where a governmental entity requires a set aside of a certain number or percentage of units as housing affordable for low- or moderate-income housing (as opposed to voluntary designation of low- and moderate-income units by a developer)? • How should the amount of the pro rata share be determined for reporting purposes—should institutions be required to report the actual funds attributable to the targeted units or should they report a proportional share, based on the percentage of set-aside units? For example, if an institution makes a $1 million loan for a development in which ten percent of the units are set aside as affordable housing for low- or moderate-income individuals, but only six percent of the loan proceeds are used to construct the units, should the intitution report ten percent of the total amount of the loan ($1 million) or six percent ($600,000)? • Should the pro rata treatment apply only to affordable housing or should institutions also be able to receive pro rata treatment for loans or investments with other community development purposes? • Would this change in policy lead to unjustifiable inflation of community development activities? If the proposed revision to Q&A § __.12(h)-8, above, is adopted, the agencies would also revise Q&A § __.42(b)(2)-3 to address data collection and reporting of the pro rata share of the mixed-income housing loans described in the Q&A. If an institution were to elect to have the portion of mixed-income housing loans set aside for low- or moderate-income housing considered as community development loans, in order to receive consideration for such loans, the institution would need to collect and report data on only the portions of the loans that provide housing for low- or moderate-income individuals. The proposed revision to Q&A § __.42(b)(2)-3 follows: § __.42(b)(2)-3: When the primary purpose of a loan is to finance an affordable housing project for low- or moderate-income individuals, but, for example, only 40 percent of the units in question will actually be occupied by individuals or families with low or moderate incomes, should the entire loan amount be reported as a community development loan? A3.▸It depends.◂ As long as the primary purpose of the loan is a community development purpose ▸as described in Q&A § __.12 (h)-8◂, the full amount of the institution's loan should be included in its reporting of aggregate amounts of community development lending. [However]▸Even though the entire amount of the loan is reported◂, as noted in Q&A § __.22(b)(4)-1, examiners may make qualitative distinctions among community development loans on the basis of the extent to which the loan advances the community development purpose. ▸In addition, if an institution that reports CRA data elects to request consideration for loans that provide mixed-income housing where only a portion of the loan has community development as its primary purpose, such as in connection with a development that has a mixed-income housing component or an affordable housing set-aside required by federal, state, or local government, the institution must report only the pro rata dollar amount of the portion of the loan that provides affordable housing to low- or moderate-income individuals. See Q&A § __.12(h)-8 for a discussion of “primary purpose” of community development describing the distinction between the types of loans that would be reported in full and those for which only the pro rata amount would be reported.◂ Finally, as previously discussed, if the proposed revision to Q&A § __.12(h)-8 is adopted as final, Q&A § __.22(a)(2)-4, which provides examples of “other loan data,” would be revised to delete “loans that do not have a primary purpose of community development, but where a certain amount or percentage of units is set aside for affordable housing.” Solicitation of Comments Regarding the Use of “Plain Language” Section 722 of the Gramm-Leach-Bliley Act of 1999, 12 U.S.C. 4809, requires the agencies to use “plain language” in all proposed and final rules published after January 1, 2000. Although this guidance is not a proposed or final rule, comments are nevertheless invited on whether the interagency questions and answers are stated clearly and effectively organized, and how the guidance might be revised to make it easier to read. The text of the final Interagency Questions and Answers follows: Interagency Questions and Answers Regarding Community Reinvestment § __.11—Authority, purposes, and scope § __.11(c) Scope §§ __.11(c)(3) & 563e.11(c)(2) Certain special purpose institutions §§ __.11(c)(3) & 563e.11(c)(2)-1: Is the list of special purpose institutions exclusive? A1. No, there may be other examples of special purpose institutions. These institutions engage in specialized activities that do not involve granting credit to the public in the ordinary course of business. Special purpose institutions typically serve as correspondent banks, trust companies, or clearing agents or engage only in specialized services, such as cash management controlled disbursement services. A financial institution, however, does not become a special purpose institution merely by ceasing to make loans and, instead, making investments and providing other retail banking services. §§ __.11(c)(3) & 563e.11(c)(2)-2: To be a special purpose institution, must an institution limit its activities in its charter? A2. No. A special purpose institution may, but is not required to, limit the scope of its activities in its charter, articles of association, or other corporate organizational documents. An institution that does not have legal limitations on its activities, but has voluntarily limited its activities, however, would no longer be exempt from Community Reinvestment Act (CRA) requirements if it subsequently engaged in activities that involve granting credit to the public in the ordinary course of business. An institution that believes it is exempt from CRA as a special purpose institution should seek confirmation of this status from its supervisory agency. § __.12—Definitions § __.12(a) Affiliate § __.12(a)-1: Does the definition of “affiliate” include subsidiaries of an institution? A1. Yes, “affiliate” includes any company that controls, is controlled by, or is under common control with another company. An institution's subsidiary is controlled by the institution and is, therefore, an affiliate. § __.12(f) Branch § __.12(f)-1: Do the definitions of “branch,” “automated teller machine (ATM),” and “remote service facility (RSF)” include mobile branches, ATMs, and RSFs? A1. Yes. Staffed mobile offices that are authorized as branches are considered “branches,” and mobile ATMs and RSFs are considered “ATMs” and “RSFs.” § __.12(f)-2: Are loan production offices (LPOs) branches for purposes of the CRA? A2. LPOs and other offices are not “branches” unless they are authorized as branches of the institution through the regulatory approval process of the institution's supervisory agency. § __.12(g) Community development § __.12(g)-1: Are community development activities limited to those that promote economic development? A1. No. Although the definition of “community development” includes activities that promote economic development by financing small businesses or farms, the rule does not limit community development loans and services and qualified investments to those activities. Community development also includes community-or tribal-based child care, educational, health, or social services targeted to low- or moderate-income persons, affordable housing for low- or moderate-income individuals, and activities that revitalize or stabilize low- or moderate-income areas, designated disaster areas, or underserved or distressed nonmetropolitan middle-income geographies. § __.12(g)-2: Must a community development activity occur inside a low- or moderate-income area, designated disaster area, or underserved or distressed nonmetropolitan middle-income area in order for an institution to receive CRA consideration for the activity? A2. No. Community development includes activities, regardless of their location, that provide affordable housing for, or community services targeted to, low- or moderate-income individuals and activities that promote economic development by financing small businesses and farms. Activities that stabilize or revitalize particular low- or moderate-income areas, designated disaster areas, or underserved or distressed nonmetropolitan middle-income areas (including by creating, retaining, or improving jobs for low- or moderate-income persons) also qualify as community development, even if the activities are not located in these areas. One example is financing a supermarket that serves as an anchor store in a small strip mall located at the edge of a middle-income area, if the mall stabilizes the adjacent low-income community by providing needed shopping services that are not otherwise available in the low-income community. § __.12(g)-3: Does the regulation provide flexibility in considering performance in high-cost areas? A3. Yes, the flexibility of the performance standards allows examiners to account in their evaluations for conditions in high-cost areas. Examiners consider lending and services to individuals and geographies of all income levels and businesses of all sizes and revenues. In addition, the flexibility in the requirement that community development loans, community development services, and qualified investments have as their “primary” purpose community development allows examiners to account for conditions in high-cost areas. For example, examiners could take into account the fact that activities address a credit shortage among middle-income people or areas caused by the disproportionately high cost of building, maintaining or acquiring a house when determining whether an institution's loan to or investment in an organization that funds affordable housing for middle-income people or areas, as well as low- and moderate-income people or areas, has as its primary purpose community development. See also Q&A § __.12(h)-8 for more information on “primary purpose.” § __.12(g)-4: The CRA provides that, in assessing the CRA performance of non-minority- and non-women-owned (majority-owned) financial institutions, examiners may consider as a factor capital investments, loan participations, and other ventures undertaken by the institutions in cooperation with minority- or women-owned financial institutions and low-income credit unions (MWLIs), provided that these activities help meet the credit needs of local communities in which the MWLIs are chartered. Must such activities also benefit the majority-owned financial institution's assessment area? A4. No. Although the regulations generally provide that an institution's CRA activities will be evaluated for the extent to which they benefit the institution's assessment area(s) or a broader statewide or regional area that includes the institution's assessment area(s), the agencies apply a broader geographic criterion when evaluating capital investments, loan participations, and other ventures undertaken by that institution in cooperation with MWLIs, as provided by the CRA. Thus, such activities will be favorably considered in the CRA performance evaluation of the institution (as loans, investments, or services, as appropriate), even if the MWLIs are not located in, or such activities do not benefit, the assessment area(s) of the majority-owned institution or the broader statewide or regional area that includes its assessment area(s). The activities must, however, help meet the credit needs of the local communities in which the MWLIs are chartered. The impact of a majority-owned institution's activities in cooperation with MWLIs on the majority-owned institution's CRA rating will be determined in conjunction with its overall performance in its assessment area(s). Examples of activities undertaken by a majority-owned financial institution in cooperation with MWLIs that would receive CRA consideration may include: • Making a deposit or capital investment; • Purchasing a participation in a loan; • Loaning an officer or providing other technical expertise to assist an MWLI in improving its lending policies and practices; • Providing financial support to enable an MWLI to partner with schools or universities to offer financial literacy education to members of its local community; or • Providing free or discounted data processing systems, or office facilities to aid an MWLI in serving its customers. § __.12(g)(1) Affordable Housing (Including Multifamily Rental Housing) for Low- or Moderate-income Individuals § __.12(g)(1)-1: When determining whether a project is “affordable housing for low- or moderate-income individuals,” thereby meeting the definition of “community development,” will it be sufficient to use a formula that relates the cost of ownership, rental, or borrowing to the income levels in the area as the only factor, regardless of whether the users, likely users, or beneficiaries of that affordable housing are low- or moderate-income individuals? A1. The concept of “affordable housing” for low- or moderate-income individuals does hinge on whether low- or moderate-income individuals benefit, or are likely to benefit, from the housing. It would be inappropriate to give consideration to a project that exclusively or predominately houses families that are not low- or moderate-income simply because the rents or housing prices are set according to a particular formula. For projects that do not yet have occupants, and for which the income of the potential occupants cannot be determined in advance, or in other projects where the income of occupants cannot be verified, examiners will review factors such as demographic, economic, and market data to determine the likelihood that the housing will “primarily” accommodate low- or moderate-income individuals. For example, examiners may look at median rents of the assessment area and the project; the median home value of either the assessment area, low- or moderate-income geographies or the project; the low- or moderate-income population in the area of the project; or the past performance record of the organization(s) undertaking the project. Further, such a project could receive consideration if its express, bona fide intent, as stated, for example, in a prospectus, loan proposal, or community action plan, is community development. § __.12(g)(3) Activities That Promote Economic Development by Financing Businesses or Farms That Meet Certain Size Eligibility Standards § __.12(g)(3)-1: “Community development” includes activities that promote economic development by financing businesses or farms that meet certain size eligibility standards. Are all activities that finance businesses and farms that meet these size eligibility standards considered to be community development? A1. No. The concept of “community development” under 12 CFR__.12(g)(3) involves both a “size” test and a “purpose” test. An institution's loan, investment, or service meets the “size” test if it finances, either directly or through an intermediary, entities that either meet the size eligibility standards of the Small Business Administration's Development Company (SBDC) or Small Business Investment Company (SBIC) programs, or have gross annual revenues of $1 million or less. To meet the “purpose test,” the institution's loan, investment, or service must promote economic development. These activities are considered to promote economic development if they support permanent job creation, retention, and/or improvement for persons who are currently low- or moderate-income, or support permanent job creation, retention, and/or improvement either in low- or moderate-income geographies or in areas targeted for redevelopment by Federal, state, local, or tribal governments. The agencies will presume that any loan to or investment in an SBDC, SBIC, Rural Business Investment Company, New Markets Venture Capital Company, or New Markets Tax Credit-eligible Community Development Entity promotes economic development. (But also refer to Q&As § __.42(b)(2)-2, § __.12(h)-2, and § __.12(h)-3 for more information about which loans may be considered community development loans.) In addition to their quantitative assessment of the amount of a financial institution's community development activities, examiners must make qualitative assessments of an institution's leadership in community development matters and the complexity, responsiveness, and impact of the community development activities of the institution. In reaching a conclusion about the impact of an institution's community development activities, examiners may, for example, determine that a loan to a small business in a low- or moderate-income geography that provides needed jobs and services in that area may have a greater impact and be more responsive to the community credit needs than does a loan to a small business in the same geography that does not directly provide additional jobs or services to the community. § __.12(g)(4) Activities That Revitalize or Stabilize Certain Geographies § __.12(g)(4)-1: Is the revised definition of community development, effective September 1, 2005 (under the OCC, Board, and FDIC rules) and effective April 12, 2006 (under OTS's rule), applicable to all institutions or only to intermediate small institutions? A1. The revised definition of community development is applicable to all institutions. Examiners will not use the revised definition to qualify activities that were funded or provided prior to September 1, 2005 (under the OCC, Board, and FDIC rules) or prior to April 12, 2006 (under OTS's rule). § __.12(g)(4)-2: Will activities that provide housing for middle-income and upper-income persons qualify for favorable consideration as community development activities when they help to revitalize or stabilize a distressed or underserved nonmetropolitan middle-income geography or designated disaster areas? A2. An activity that provides housing for middle- or upper-income individuals qualifies as an activity that revitalizes or stabilizes a distressed nonmetropolitan middle-income geography or a designated disaster area if the housing directly helps to revitalize or stabilize the community by attracting new, or retaining existing, businesses or residents and, in the case of a designated disaster area, is related to disaster recovery. The Agencies generally will consider all activities that revitalize or stabilize a distressed nonmetropolitan middle-income geography or designated disaster area, but will give greater weight to those activities that are most responsive to community needs, including needs of low- or moderate-income individuals or neighborhoods. Thus, for example, a loan solely to develop middle- or upper-income housing in a community in need of low- and moderate-income housing would be given very little weight if there is only a short-term benefit to low- and moderate-income individuals in the community through the creation of temporary construction jobs. (Except in connection with intermediate small institutions, a housing-related loan is not evaluated as a “community development loan” if it has been reported or collected by the institution or its affiliate as a home mortgage loan, unless it is a multifamily dwelling loan. See 12 CFR__.12(h)(2)(i) and Q&As § __.12(h)-2 and § __.12(h)-3.) An activity will be presumed to revitalize or stabilize such a geography or area if the activity is consistent with a bona fide government revitalization or stabilization plan or disaster recovery plan. See Q&As § __.12(g)(4)(i)-1 and § __.12(h)-5. In underserved nonmetropolitan middle-income geographies, activities that provide housing for middle- and upper-income individuals may qualify as activities that revitalize or stabilize such underserved areas if the activities also provide housing for low- or moderate-income individuals. For example, a loan to build a mixed-income housing development that provides housing for middle- and upper-income individuals in an underserved nonmetropolitan middle-income geography would receive positive consideration if it also provides housing for low- or moderate-income individuals. § __.12(g)(4)(i) Activities That Revitalize or Stabilize Low- or Moderate-income Geographies § __.12(g)(4)(i)-1: What activities are considered to “revitalize or stabilize” a low- or moderate-income geography, and how are those activities considered? A1. Activities that revitalize or stabilize a low- or moderate-income geography are activities that help to attract new, or retain existing, businesses or residents. Examiners will presume that an activity revitalizes or stabilizes a low- or moderate-income geography if the activity has been approved by the governing board of an Enterprise Community or Empowerment Zone (designated pursuant to 26 U.S.C. 1391) and is consistent with the board's strategic plan. They will make the same presumption if the activity has received similar official designation as consistent with a federal, state, local, or tribal government plan for the revitalization or stabilization of the low- or moderate-income geography. For example, foreclosure prevention programs with the objective of providing affordable, sustainable, long-term loan restructurings or modifications to homeowners in low- or moderate-income geographies, consistent with safe and sound banking practices, may help to revitalize or stabilize those geographies. To determine whether other activities revitalize or stabilize a low- or moderate-income geography, examiners will evaluate the activity's actual impact on the geography, if information about this is available. If not, examiners will determine whether the activity is consistent with the community's formal or informal plans for the revitalization and stabilization of the low- or moderate-income geography. For more information on what activities revitalize or stabilize a low- or moderate-income geography, see Q&As § __.12(g)-2 and § __.12(h)-5. § __.12(g)(4)(ii) Activities That Revitalize or Stabilize Designated Disaster Areas § __.12(g)(4)(ii)-1: What is a “designated disaster area” and how long does it last? A1. A “designated disaster area” is a major disaster area designated by the federal government. Such disaster designations include, in particular, Major Disaster Declarations administered by the Federal Emergency Management Agency (FEMA) ( http://www.fema.gov ), but excludes counties designated to receive only FEMA Public Assistance Emergency Work Category A (Debris Removal) and/or Category B (Emergency Protective Measures). Examiners will consider institution activities related to disaster recovery that revitalize or stabilize a designated disaster area for 36 months following the date of designation. Where there is a demonstrable community need to extend the period for recognizing revitalization or stabilization activities in a particular disaster area to assist in long-term recovery efforts, this time period may be extended. § __.12(g)(4)(ii)-2: What activities are considered to “revitalize or stabilize” a designated disaster area, and how are those activities considered? A2. The Agencies generally will consider an activity to revitalize or stabilize a designated disaster area if it helps to attract new, or retain existing, businesses or residents and is related to disaster recovery. An activity will be presumed to revitalize or stabilize the area if the activity is consistent with a bona fide government revitalization or stabilization plan or disaster recovery plan. The Agencies generally will consider all activities relating to disaster recovery that revitalize or stabilize a designated disaster area, but will give greater weight to those activities that are most responsive to community needs, including the needs of low- or moderate-income individuals or neighborhoods. Qualifying activities may include, for example, providing financing to help retain businesses in the area that employ local residents, including low- and moderate-income individuals; providing financing to attract a major new employer that will create long-term job opportunities, including for low- and moderate-income individuals; providing financing or other assistance for essential community-wide infrastructure, community services, and rebuilding needs; and activities that provide housing, financial assistance, and services to individuals in designated disaster areas and to individuals who have been displaced from those areas, including low- and moderate-income individuals ( see, e.g. , Q&As § __.12(i)-3; § __.12(t)-4; § __.22(b)(2) & (3)-4; § __.22(b)(2) & (3)-5; and § __.24(d)(3)-1). § __.12(g)(4)(iii) Activities That Revitalize or Stabilize Distressed or Underserved Nonmetropolitan Middle-income Geographies § __.12(g)(4)(iii)-1: What criteria are used to identify distressed or underserved nonmetropolitan, middle-income geographies? A1. Eligible nonmetropolitan middle-income geographies are those designated by the Agencies as being in distress or that could have difficulty meeting essential community needs (underserved). A particular geography could be designated as both distressed and underserved. As defined in 12 CFR __.12(k), a geography is a census tract delineated by the United States Bureau of the Census. A nonmetropolitan middle-income geography will be designated as distressed if it is in a county that meets one or more of the following triggers: (1) An unemployment rate of at least 1.5 times the national average, (2) a poverty rate of 20 percent or more, or (3) a population loss of 10 percent or more between the previous and most recent decennial census or a net migration loss of five percent or more over the five-year period preceding the most recent census. A nonmetropolitan middle-income geography will be designated as underserved if it meets criteria for population size, density, and dispersion that indicate the area's population is sufficiently small, thin, and distant from a population center that the tract is likely to have difficulty financing the fixed costs of meeting essential community needs. The Agencies will use as the basis for these designations the “urban influence codes,” numbered “7,” “10,” “11,” and “12,” maintained by the Economic Research Service of the United States Department of Agriculture. The Agencies publish data source information along with the list of eligible nonmetropolitan census tracts on the Federal Financial Institutions Examination Council Web site ( http://www.ffiec.gov ). § __.12(g)(4)(iii)-2: How often will the Agencies update the list of designated distressed and underserved nonmetropolitan middle-income geographies? A2. The Agencies will review and update the list annually. The list is published on the Federal Financial Institutions Examination Council Web site ( http://www.ffiec.gov ). To the extent that changes to the designated census tracts occur, the Agencies have determined to adopt a one-year “lag period.” This lag period will be in effect for the twelve months immediately following the date when a census tract that was designated as distressed or underserved is removed from the designated list. Revitalization or stabilization activities undertaken during the lag period will receive consideration as community development activities if they would have been considered to have a primary purpose of community development if the census tract in which they were located were still designated as distressed or underserved. § __.12(g)(4)(iii)-3: What activities are considered to “revitalize or stabilize” a distressed nonmetropolitan middle-income geography, and how are those activities evaluated? A3. An activity revitalizes or stabilizes a distressed nonmetropolitan middle-income geography if it helps to attract new, or retain existing, businesses or residents. An activity will be presumed to revitalize or stabilize the area if the activity is consistent with a bona fide government revitalization or stabilization plan. The Agencies generally will consider all activities that revitalize or stabilize a distressed nonmetropolitan middle-income geography, but will give greater weight to those activities that are most responsive to community needs, including needs of low- or moderate-income individuals or neighborhoods. Qualifying activities may include, for example, providing financing to attract a major new employer that will create long-term job opportunities, including for low- and moderate-income individuals, and activities that provide financing or other assistance for essential infrastructure or facilities necessary to attract or retain businesses or residents. See Q&As § __.12(g)(4)(i)-1 and § __.12(h)-5. § __.12(g)(4)(iii)-4: What activities are considered to “revitalize or stabilize” an underserved nonmetropolitan middle-income geography, and how are those activities evaluated? A4. The regulation provides that activities revitalize or stabilize an underserved nonmetropolitan middle-income geography if they help to meet essential community needs, including needs of low- or moderate-income individuals. Activities such as financing for the construction, expansion, improvement, maintenance, or operation of essential infrastructure or facilities for health services, education, public safety, public services, industrial parks, or affordable housing, will be evaluated under these criteria to determine if they qualify for revitalization or stabilization consideration. Examples of the types of projects that qualify as meeting essential community needs, including needs of low- or moderate-income individuals, would be a new or expanded hospital that serves the entire county, including low- and moderate-income residents; an industrial park for businesses whose employees include low- or moderate-income individuals; a new or rehabilitated sewer line that serves community residents, including low- or moderate-income residents; a mixed-income housing development that includes affordable housing for low- and moderate-income families; or a renovated elementary school that serves children from the community, including children from low- and moderate-income families. Other activities in the area, such as financing a project to build a sewer line spur that connects services to a middle-or upper-income housing development while bypassing a low- or moderate-income development that also needs the sewer services, generally would not qualify for revitalization or stabilization consideration in geographies designated as underserved. However, if an underserved geography is also designated as distressed or a disaster area, additional activities may be considered to revitalize or stabilize the geography, as explained in Q&As § __.12(g)(4)(ii)-2 and § __.12(g)(4)(iii)-3. § __.12(h) Community Development Loan § __.12(h)-1: What are examples of community development loans? A1. Examples of community development loans include, but are not limited to, loans to: • Borrowers for affordable housing rehabilitation and construction, including construction and permanent financing of multifamily rental property serving low- and moderate-income persons; • Not-for-profit organizations serving primarily low- and moderate-income housing or other community development needs; • Borrowers to construct or rehabilitate community facilities that are located in low- and moderate-income areas or that serve primarily low- and moderate-income individuals; • Financial intermediaries including Community Development Financial Institutions (CDFIs), New Markets Tax Credit-eligible Community Development Entities, Community Development Corporations (CDCs), minority- and women-owned financial institutions, community loan funds or pools, and low-income or community development credit unions that primarily lend or facilitate lending to promote community development; • Local, state, and tribal governments for community development activities; • Borrowers to finance environmental clean-up or redevelopment of an industrial site as part of an effort to revitalize the low- or moderate-income community in which the property is located; and • Businesses, in an amount greater than $1 million, when made as part of the Small Business Administration's 504 Certified Development Company program. The rehabilitation and construction of affordable housing or community facilities, referred to above, may include the abatement or remediation of, or other actions to correct, environmental hazards, such as lead-based paint, that are present in the housing, facilities, or site. § __.12(h)-2: If a retail institution that is not required to report under the Home Mortgage Disclosure Act (HMDA) makes affordable home mortgage loans that would be HMDA-reportable home mortgage loans if it were a reporting institution, or if a small institution that is not required to collect and report loan data under the CRA makes small business and small farm loans and consumer loans that would be collected and/or reported if the institution were a large institution, may the institution have these loans considered as community development loans? A2. No. Although small institutions are not required to report or collect information on small business and small farm loans and consumer loans, and some institutions are not required to report information about their home mortgage loans under HMDA, if these institutions are retail institutions, the agencies will consider in their CRA evaluations the institutions' originations and purchases of loans that would have been collected or reported as small business, small farm, consumer or home mortgage loans, had the institution been a collecting and reporting institution under the CRA or the HMDA. Therefore, these loans will not be considered as community development loans, unless the small institution is an intermediate small institution ( see § __.12(h)-3). Multifamily dwelling loans, however, may be considered as community development loans as well as home mortgage loans. See also Q&A § __.42(b)(2)-2. § __.12(h)-3: May an intermediate small institution that is not subject to HMDA reporting have home mortgage loans considered as community development loans? Similarly, may an intermediate small institution have small business and small farm loans and consumer loans considered as community development loans? A3. Yes. In instances where intermediate small institutions are not required to report HMDA or small business or small farm loans, these loans may be considered, at the institution's option, as community development loans, provided they meet the regulatory definition of “community development.” If small business or small farm loan data have been reported to the agencies to preserve the option to be evaluated as a large institution, but the institution ultimately chooses to be evaluated under the intermediate small institution examination standards, then the institution would continue to have the option to have such loans considered as community development loans. However, if the institution opts to be evaluated under the lending, investment, and service tests applicable to large institutions, it may not choose to have home mortgage, small business, small farm, or consumer loans considered as community development loans. Loans other than multifamily dwelling loans may not be considered under both the lending test and the community development test for intermediate small institutions. Thus, if an institution elects to have certain loans considered under the community development test, those loans may not also be considered under the lending test, and would be excluded from the lending test analysis. Intermediate small institutions may choose individual loans within their portfolio for community development consideration. Examiners will evaluate an intermediate small institution's community development activities within the context of the responsiveness of the activity to the community development needs of the institution's assessment area. § __.12(h)-4: Do secured credit cards or other credit card programs targeted to low- or moderate-income individuals qualify as community development loans? A4. No. Credit cards issued to low- or moderate-income individuals for household, family, or other personal expenditures, whether as part of a program targeted to such individuals or otherwise, do not qualify as community development loans because they do not have as their primary purpose any of the activities included in the definition of “community development.” § __.12(h)-5: The regulation indicates that community development includes “activities that revitalize or stabilize low- or moderate-income geographies.” Do all loans in a low- to moderate-income geography have a stabilizing effect? A5. No. Some loans may provide only indirect or short-term benefits to low- or moderate-income individuals in a low- or moderate-income geography. These loans are not considered to have a community development purpose. For example, a loan for upper-income housing in a low- or moderate-income area is not considered to have a community development purpose simply because of the indirect benefit to low- or moderate-income persons from construction jobs or the increase in the local tax base that supports enhanced services to low- and moderate-income area residents. On the other hand, a loan for an anchor business in a low- or moderate-income area (or a nearby area) that employs or serves residents of the area and, thus, stabilizes the area, may be considered to have a community development purpose. For example, in a low-income area, a loan for a pharmacy that employs and serves residents of the area promotes community development. § __.12(h)-6: Must there be some immediate or direct benefit to the institution's assessment area(s) to satisfy the regulations' requirement that qualified investments and community development loans or services benefit an institution's assessment area(s) or a broader statewide or regional area that includes the institution's assessment area(s)? A6. No. The regulations recognize that community development organizations and programs are efficient and effective ways for institutions to promote community development. These organizations and programs often operate on a statewide or even multistate basis. Therefore, an institution's activity is considered a community development loan or service or a qualified investment if it supports an organization or activity that covers an area that is larger than, but includes, the institution's assessment area(s). The institution's assessment area(s) need not receive an immediate or direct benefit from the institution's specific participation in the broader organization or activity, provided that the purpose, mandate, or function of the organization or activity includes serving geographies or individuals located within the institution's assessment area(s). In addition, a retail institution that, considering its performance context, has adequately addressed the community development needs of its assessment area(s) will receive consideration for certain other community development activities. These community development activities must benefit geographies or individuals located somewhere within a broader statewide or regional area that includes the institution's assessment area(s). Examiners will consider these activities even if they will not benefit the institution's assessment area(s). § __.12(h)-7: What is meant by the term “regional area”? A7. A “regional area” may be as large as a multistate area. For example, the “mid-Atlantic states” may comprise a regional area. Community development loans and services and qualified investments to statewide or regional organizations that have a bona fide purpose, mandate, or function that includes serving the geographies or individuals within the institution's assessment area(s) will be considered as addressing assessment area needs. When examiners evaluate community development loans and services and qualified investments that benefit a regional area that includes the institution's assessment area(s), they will consider the institution's performance context as well as the size of the regional area and the actual or potential benefit to the institution's assessment area(s). With larger regional areas, benefit to the institution's assessment area(s) may be diffused and, thus, less responsive to assessment area needs. In addition, as long as an institution has adequately addressed the community development needs of its assessment area(s), it will also receive consideration for community development activities that benefit geographies or individuals located somewhere within the broader statewide or regional area that includes the institution's assessment area(s), even if those activities do not benefit its assessment area(s). § __.12(h)-8: What is meant by the term “primary purpose” as that term is used to define what constitutes a community development loan, a qualified investment or a community development service? A8. A loan, investment or service has as its primary purpose community development when it is designed for the express purpose of revitalizing or stabilizing low- or moderate-income areas, designated disaster areas, or underserved or distressed nonmetropolitan middle-income areas, providing affordable housing for, or community services targeted to, low- or moderate-income persons, or promoting economic development by financing small businesses and farms that meet the requirements set forth in 12 CFR __.12(g). To determine whether an activity is designed for an express community development purpose, the agencies apply one of two approaches. First, if a majority of the dollars or beneficiaries of the activity are identifiable to one or more of the enumerated community development purposes, then the activity will be considered to possess the requisite primary purpose. Alternatively, where the measurable portion of any benefit bestowed or dollars applied to the community development purpose is less than a majority of the entire activity's benefits or dollar value, then the activity may still be considered to possess the requisite primary purpose if (1) The express, bona fide intent of the activity, as stated, for example, in a prospectus, loan proposal, or community action plan, is primarily one or more of the enumerated community development purposes; (2) the activity is specifically structured (given any relevant market or legal constraints or performance context factors) to achieve the expressed community development purpose; and (3) the activity accomplishes, or is reasonably certain to accomplish, the community development purpose involved. The fact that an activity provides indirect or short-term benefits to low- or moderate-income persons does not make the activity community development, nor does the mere presence of such indirect or short-term benefits constitute a primary purpose of community development. Financial institutions that want examiners to consider certain activities under either approach should be prepared to demonstrate the activities' qualifications. § __.12(i) Community Development Service § __.12(i)-1: In addition to meeting the definition of “community development” in the regulation, community development services must also be related to the provision of financial services. What is meant by “provision of financial services”? A1. Providing financial services means providing services of the type generally provided by the financial services industry. Providing financial services often involves informing community members about how to get or use credit or otherwise providing credit services or information to the community. For example, service on the board of directors of an organization that promotes credit availability or finances affordable housing is related to the provision of financial services. Providing technical assistance about financial services to community-based groups, local or tribal government agencies, or intermediaries that help to meet the credit needs of low- and moderate-income individuals or small businesses and farms is also providing financial services. By contrast, activities that do not take advantage of the employees' financial expertise, such as neighborhood cleanups, do not involve the provision of financial services. § __.12(i)-2: Are personal charitable activities provided by an institution's employees or directors outside the ordinary course of their employment considered community development services? A2. No. Services must be provided as a representative of the institution. For example, if a financial institution's director, on her own time and not as a representative of the institution, volunteers one evening a week at a local community development corporation's financial counseling program, the institution may not consider this activity a community development service. § __.12(i)-3: What are examples of community development services? A3. Examples of community development services include, but are not limited to, the following: • Providing financial services to low- and moderate-income individuals through branches and other facilities located in low- and moderate-income areas, unless the provision of such services has been considered in the evaluation of an institution's retail banking services under 12 CFR __.24(d); • Increasing access to financial services by opening or maintaining branches or other facilities that help to revitalize or stabilize a low- or moderate-income geography, a designated disaster area, or a distressed or underserved nonmetropolitan middle-income geography, unless the opening or maintaining of such branches or other facilities has been considered in the evaluation of the institution's retail banking services under 12 CFR __.24(d); • Providing technical assistance on financial matters to nonprofit, tribal, or government organizations serving low- and moderate-income housing or economic revitalization and development needs; • Providing technical assistance on financial matters to small businesses or community development organizations, including organizations and individuals who apply for loans or grants under the Federal Home Loan Banks' Affordable Housing Program; • Lending employees to provide financial services for organizations facilitating affordable housing construction and rehabilitation or development of affordable housing; • Providing credit counseling, home-buyer and home-maintenance counseling, financial planning or other financial services education to promote community development and affordable housing, including credit counseling to assist low- or moderate-income borrowers in avoiding foreclosure on their homes; • Establishing school savings programs or developing or teaching financial education or literacy curricula for low- or moderate-income individuals; • Providing electronic benefits transfer and point of sale terminal systems to improve access to financial services, such as by decreasing costs, for low- or moderate-income individuals; • Providing international remittance services that increase access to financial services by low- and moderate-income persons (for example, by offering reasonably priced international remittance services in connection with a low-cost account); • Providing other financial services with the primary purpose of community development, such as low-cost savings or checking accounts, including “Electronic Transfer Accounts” provided pursuant to the Debt Collection Improvement Act of 1996, individual development accounts (IDAs), or free or low-cost government, payroll, or other check cashing services, that increase access to financial services for low- or moderate-income individuals; and • Providing foreclosure prevention programs to low- or moderate-income homeowners who are facing foreclosure on their primary residence with the objective of providing affordable, sustainable, long-term loan modifications and restructurings. Examples of technical assistance activities that might be provided to community development organizations include: • Serving on a loan review committee; • Developing loan application and underwriting standards; • Developing loan processing systems; • Developing secondary market vehicles or programs; • Assisting in marketing financial services, including development of advertising and promotions, publications, workshops and conferences; • Furnishing financial services training for staff and management; • Contributing accounting/bookkeeping services; and • Assisting in fund raising, including soliciting or arranging investments. § __.12(j) Consumer Loan § __.12(j)-1: Are home equity loans considered “consumer loans”? A1. Home equity loans made for purposes other than home purchase, home improvement or refinancing home purchase or home improvement loans are consumer loans if they are extended to one or more individuals for household, family, or other personal expenditures. § __.12(j)-2: May a home equity line of credit be considered a “consumer loan” even if part of the line is for home improvement purposes? A2. If the predominant purpose of the line is home improvement, the line may only be reported under HMDA and may not be considered a consumer loan. However, the full amount of the line may be considered a “consumer loan” if its predominant purpose is for household, family, or other personal expenditures, and to a lesser extent home improvement, and the full amount of the line has not been reported under HMDA. This is the case even though there may be “double counting” because part of the line may also have been reported under HMDA. § __.12(j)-3: How should an institution collect or report information on loans the proceeds of which will be used for multiple purposes? A3. If an institution makes a single loan or provides a line of credit to a customer to be used for both consumer and small business purposes, consistent with the Call Report and TFR instructions, the institution should determine the major (predominant) component of the loan or the credit line and collect or report the entire loan or credit line in accordance with the regulation's specifications for that loan type. § __.12(l) Home Mortgage Loan § __.12(l)-1: Does the term “home mortgage loan” include loans other than “home purchase loans”? A1. Yes. “Home mortgage loan” includes “home improvement loan,” “home purchase loan,” and “refinancing,” as defined in the HMDA regulation, Regulation C, 12 CFR part 203. This definition also includes multifamily (five-or-more families) dwelling loans, and loans for the purchase of manufactured homes. See also Q&A § __.22(a)(2)-7. § __.12(l)-2: Some financial institutions broker home mortgage loans. They typically take the borrower's application and perform other settlement activities; however, they do not make the credit decision. The broker institutions may also initially fund these mortgage loans, then immediately assign them to another lender. Because the broker institution does not make the credit decision, under Regulation C (HMDA), they do not record the loans on their HMDA-LARs, even if they fund the loans. May an institution receive any consideration under CRA for its home mortgage loan brokerage activities? A2. Yes. A financial institution that funds home mortgage loans but immediately assigns the loans to the lender that made the credit decisions may present information about these loans to examiners for consideration under the lending test as “other loan data.” Under Regulation C, the broker institution does not record the loans on its HMDA-LAR because it does not make the credit decisions, even if it funds the loans. An institution electing to have these home mortgage loans considered must maintain information about all of the home mortgage loans that it has funded in this way. Examiners will consider these other loan data using the same criteria by which home mortgage loans originated or purchased by an institution are evaluated. Institutions that do not provide funding but merely take applications and provide settlement services for another lender that makes the credit decisions will receive consideration for this service as a retail banking service. Examiners will consider an institution's mortgage brokerage services when evaluating the range of services provided to low-, moderate-, middle- and upper-income geographies and the degree to which the services are tailored to meet the needs of those geographies. Alternatively, an institution's mortgage brokerage service may be considered a community development service if the primary purpose of the service is community development. An institution wishing to have its mortgage brokerage service considered as a community development service must provide sufficient information to substantiate that its primary purpose is community development and to establish the extent of the services provided. § __.12(m) Income Level § __.12(m)-1: Where do institutions find income level data for geographies and individuals? A1. The income levels for geographies , i.e., census tracts, are derived from Census Bureau information and are updated approximately every ten years. The income levels for individuals are derived from information calculated by the Department of Housing and Urban Development (HUD) and updated annually. Institutions may obtain 2000 geography income information and the annually updated HUD median family incomes for metropolitan statistical areas (MSAs) and statewide nonmetropolitan areas by accessing the Federal Financial Institution Examination Council's (FFIEC's) Web site at http://www.ffiec.gov/cra or by calling the FFIEC's CRA Assistance Line at (202) 872-7584. § __.12(n) Limited Purpose Institution § __.12(n)-1: What constitutes a “narrow product line” in the definition of “limited purpose institution”? A1. An institution offers a narrow product line by limiting its lending activities to a product line other than a traditional retail product line required to be evaluated under the lending test (i.e., home mortgage, small business, and small farm loans). Thus, an institution engaged only in making credit card or motor vehicle loans offers a narrow product line, while an institution limiting its lending activities to home mortgages is not offering a narrow product line. § __.12(n)-2: What factors will the agencies consider to determine whether an institution that, if limited purpose, makes loans outside a narrow product line, or, if wholesale, engages in retail lending, will lose its limited purpose or wholesale designation because of too much other lending? A2. Wholesale institutions may engage in some retail lending without losing their designation if this activity is incidental and done on an accommodation basis. Similarly, limited purpose institutions continue to meet the narrow product line requirement if they provide other types of loans on an infrequent basis. In reviewing other lending activities by these institutions, the agencies will consider the following factors: • Is the retail lending provided as an incident to the institution's wholesale lending? • Are the retail loans provided as an accommodation to the institution's wholesale customers? • Are the other types of loans made only infrequently to the limited purpose institution's customers? • Does only an insignificant portion of the institution's total assets and income result from the other lending? • How significant a role does the institution play in providing that type(s) of loan(s) in the institution's assessment area(s)? • Does the institution hold itself out as offering that type(s) of loan(s)? • Does the lending test or the community development test present a more accurate picture of the institution's CRA performance? § __.12(n)-3: Do “niche institutions” qualify as limited purpose (or wholesale) institutions? A3. Generally, no. Institutions that are in the business of lending to the public, but specialize in certain types of retail loans (for example, home mortgage or small business loans) to certain types of borrowers (for example, to high-end income level customers or to corporations or partnerships of licensed professional practitioners) (“niche institutions”) generally would not qualify as limited purpose (or wholesale) institutions. § __.12(t) Qualified Investment § __.12(t)-1: Does the CRA regulation provide authority for institutions to make investments? A1. No. The CRA regulation does not provide authority for institutions to make investments that are not otherwise allowed by Federal law. § __.12(t)-2: Are mortgage-backed securities or municipal bonds “qualified investments”? A2. As a general rule, mortgage-backed securities and municipal bonds are not qualified investments because they do not have as their primary purpose community development, as defined in the CRA regulations. Nonetheless, mortgage-backed securities or municipal bonds designed primarily to finance community development generally are qualified investments. Municipal bonds or other securities with a primary purpose of community development need not be housing-related. For example, a bond to fund a community facility or park or to provide sewage services as part of a plan to redevelop a low-income neighborhood is a qualified investment. Certain municipal bonds in underserved nonmetropolitan middle-income geographies may also be qualified investments. See Q&A § __.12(g)(4)(iii)-4. Housing-related bonds or securities must primarily address affordable housing (including multifamily rental housing) needs of low- or moderate-income individuals in order to qualify. See also Q&A § __.23(b)-2. § __.12(t)-3: Are Federal Home Loan Bank stocks or unpaid dividends and membership reserves with the Federal Reserve Banks “qualified investments”? A3. No. Federal Home Loan Bank (FHLB) stocks or unpaid dividends, and membership reserves with the Federal Reserve Banks do not have a sufficient connection to community development to be qualified investments. However, FHLB member institutions may receive CRA consideration as a community development service for technical assistance they provide on behalf of applicants and recipients of funding from the FHLB's Affordable Housing Program. See Q&A § __.12(i)-3. § __.12(t)-4: What are examples of qualified investments? A4. Examples of qualified investments include, but are not limited to, investments, grants, deposits, or shares in or to: • Financial intermediaries (including Community Development Financial Institutions (CDFIs), New Markets Tax Credit-eligible Community Development Entities, Community Development Corporations (CDCs), minority- and women-owned financial institutions, community loan funds, and low-income or community development credit unions) that primarily lend or facilitate lending in low- and moderate-income areas or to low- and moderate-income individuals in order to promote community development, such as a CDFI that promotes economic development on an Indian reservation; • Organizations engaged in affordable housing rehabilitation and construction, including multifamily rental housing; • Organizations, including, for example, Small Business Investment Companies (SBICs), specialized SBICs, and Rural Business Investment Companies (RBICs) that promote economic development by financing small businesses; • Community development venture capital companies that promote economic development by financing small businesses; • Facilities that promote community development by providing community services for low- and moderate-income individuals, such as youth programs, homeless centers, soup kitchens, health care facilities, battered women's centers, and alcohol and drug recovery centers; • Projects eligible for low-income housing tax credits; • State and municipal obligations, such as revenue bonds, that specifically support affordable housing or other community development; • Not-for-profit organizations serving low- and moderate-income housing or other community development needs, such as counseling for credit, home-ownership, home maintenance, and other financial literacy programs; and • Organizations supporting activities essential to the capacity of low- and moderate-income individuals or geographies to utilize credit or to sustain economic development, such as, for example, day care operations and job training programs that enable low- or moderate-income individuals to work. See also Q&As § __.12(g)(4)(ii)-2; § __.12(g)(4)(iii)-3; § __.12(g)(4)(iii)-4. § __.12(t)-5: Will an institution receive consideration for charitable contributions as “qualified investments”? A5. Yes, provided they have as their primary purpose community development as defined in the regulations. A charitable contribution, whether in cash or an in-kind contribution of property, is included in the term “grant.” A qualified investment is not disqualified because an institution receives favorable treatment for it (for example, as a tax deduction or credit) under the Internal Revenue Code. § __.12(t)-6: An institution makes or participates in a community development loan. The institution provided the loan at below-market interest rates or “bought down” the interest rate to the borrower. Is the lost income resulting from the lower interest rate or buy-down a qualified investment? A6. No. The agencies will, however, consider the responsiveness, innovativeness, and complexity of the community development loan within the bounds of safe and sound banking practices. § __.12(t)-7: Will the agencies consider as a qualified investment the wages or other compensation of an employee or director who provides assistance to a community development organization on behalf of the institution? A7. No. However, the agencies will consider donated labor of employees or directors of a financial institution as a community development service if the activity meets the regulatory definition of “community development service.” § __.12(t)-8: When eval [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3AE8-31116. Public record. Not legal advice.