Community Development Lending and CRA

2008 NC Affordable Housing ConferenceOctober 16, 2008

Bonita IrvingDistrict Community Affairs Officer

Office of the Comptroller of the Currency

Comptroller of the CurrencyAdministrator of National Banks

2

Topics to be Covered

• 2005 Changes to the CRA Regulation

• 2007 Proposed Changes to Interagency Questions and Answers

• Emerging Issues

Comptroller of the CurrencyAdministrator of National Banks

3

• Changed small bank size to < $1 billion

• Established new category of banks – “intermediate

small banks”

• Expanded the definition of community development

• Addition of illegal credit practices language

Changes to the Regulation - 2005

Comptroller of the CurrencyAdministrator of National Banks

4

CD Definition – Effective September 1, 2005

• Affordable housing for low- or moderate-income individuals

• Community services for low- or moderate-income individuals

• Activities that promote economic development by financing small businesses/farms

• Activities that revitalize or stabilize –

– LMI geographies

– Designated disaster areas

– Distressed or underserved nonmetropolitan middle-income geographies designated by the agencies

Comptroller of the CurrencyAdministrator of National Banks

5

• List of Distressed and Underserved Geographies available

on FFIEC Website (www.ffiec.gov/cra)

– Reviewed and updated by the agencies annually and posted

to the website

– FFIEC geocoder identifies if address is in

distressed/underserved geography

• One-year lag period in effect for the calendar year following

the date of removal from the list

Comptroller of the CurrencyAdministrator of National Banks

6

“Distressed” Geographies

Distressed Nonmetropolitan Middle-Income Geographies:

• Meet one or more of triggers for:

− Unemployment rate

− Poverty rate

− OR

− Population loss or net migration loss

Comptroller of the CurrencyAdministrator of National Banks

7

What Qualifies as Community Development?

Activities that revitalize and stabilize distressed

nonmetropolitan middle-income geographies by:

– Helping to attract new, or retain existing, residents and

businesses (including by providing jobs) or is part of bona

fide plan to revitalize or stabilize the geography

– Providing long-term direct benefit to entire community,

including low- and moderate-income individuals and

neighborhoods

Comptroller of the CurrencyAdministrator of National Banks

8

“Underserved” Geographies

Underserved Nonmetropolitan Middle-Income Geographies:

• Based on population size, density, and dispersion

• Population so small, thin and distant

from a population center that is has difficulty

financing essential community needs

Comptroller of the CurrencyAdministrator of National Banks

9

What Qualifies as Community Development?

Activities that revitalize and stabilize underserved

nonmetropolitan middle-income geographies by:

– Meeting essential community needs, including the needs of

LMI individuals

– Facilitating 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

• The infrastructure or facility must serve LMI individuals and must provide a long-term direct benefit to entire community, including LMI individuals and neighborhoods.

Comptroller of the CurrencyAdministrator of National Banks

10

What are Designated Disaster Areas?

• Major disaster area designated by federal government

• List of FEMA-declared disaster areas available on FEMA’s

website (www.fema.gov)

Comptroller of the CurrencyAdministrator of National Banks

11

What Qualifies as Community Development?

• Activities that revitalize and stabilize designated disaster

areas by:

– Helping to attract new, or retain existing, residents and

businesses (including by providing jobs) and is related to

disaster recovery - or be part of bona fide plan to revitalize or

stabilize the geography

• Must provide a long-term direct benefit to the area

• Greater weight to those activities that benefit LMI

individuals and areas

• Must be provided within 36 months following the date of

designation – however, this may be extended

Comptroller of the CurrencyAdministrator of National Banks

12

• Issued for comment on July 11, 2007

• Proposed nine new Qs & As

• Substantive and technical revisions to some existing Qs & As

• Comment period closed on September 10, 2007

• Interagency group continues to work to finalize

Proposed Interagency CRA Q&As

Comptroller of the CurrencyAdministrator of National Banks

13

Minority- or Women-Owned Institutions Q&A

• Proposed New Q&A § __.12(g) – 4

• Addresses activities of a majority-owned institution with a minority- or women-owned institution or low-income credit union (“MWLI”)

– Participating institution will receive positive CRA consideration even if minority- or women-owned bank is not in its assessment area

– Consider capital investments, loan participations, and other ventures

– Must help meet credit needs of the communities in which minority- or women-owned institutions or low-income credit union are located

Comptroller of the CurrencyAdministrator of National Banks

14

Minority- or Women-Owned Institutions Q&A

Examples:

– Making a deposit or capital investment

– Purchasing a participation in a loan

– Loaning an officer or providing other technical expertise to assist an “MWI” in improving its lending policies and practices

– Providing financial support to enable an “MWI” to partner with schools or universities to offer financial literacy education to members of its local community

– Providing free or discounted data processing systems, or office facilities to aid an “MWI” in servings its customers

Comptroller of the CurrencyAdministrator of National Banks

15

Retail Loans as CD Loans at ISBs Q & A

• Proposed New Q & A §__.12(h) – 3

• Addresses the treatment of retail loans that meet a community

development purpose in ISBs

• Such loans can be considered as either:

-Retail (home, business, or farm) ----- Lending Test

-Community Development (meet CD definition) ----- CD Test

Comptroller of the CurrencyAdministrator of National Banks

16

• Proposed New Q&A § __.22(a)(2) – 4

• Provides examples of other loan data

– Loans funded for sale to secondary markets not reported under HMDA

– Unfunded loan commitments

– Letters of credit

– Commercial and consumer loans

– Set-aside loans that don’t meet the primary CD purpose

– Business/farm loans secured by residential real estate

– LOC increases over the CRA loan limit

Examples of Other Loan Data Q & A

Comptroller of the CurrencyAdministrator of National Banks

17

• Proposed New Q&A § __.22(a)(2) – 6– Consider and report amount of participation purchased

• Proposed New Q&A § __.42(b)(2) – 4

– Use entire amount of lead loan to determine if participation purchased is a small loan to a business or a CD loan (over $1MM cutoff for large banks

• Proposed New Q&A § __.42(b)(2) – 5

– Report CD loan renewals and refinances

• Proposed New Q&A § __.22(a)(2) – 7– How to report small business/small farm loan

refinances when residential real estate is taken as an abundance of caution

Participations, Renewals, and Refi Qs & As

Comptroller of the CurrencyAdministrator of National Banks

18

New Examples of Economic Development

• Proposed Revision Q&A § __.12(g)(3) -1

• Adds the following examples of entities in which investments in or loans to will be presumed to promote economic development:

– Rural Business Investment Company (RBIC)

– New Markets Tax Credit-Eligible Community Development

Entity (CDE)

Comptroller of the CurrencyAdministrator of National Banks

19

New Examples of CD Loans

• Proposed Revision Q&A § __.12(h) -1

• Adds the following examples of loans to:

– Financial intermediaries including New Markets Tax Credit-eligible CD Entities (CDEs)

– Businesses, in an amount > $1 million, when made as part of the SBA’s 504 Certified Development Company program

Comptroller of the CurrencyAdministrator of National Banks

20

New Examples of Qualified Investments

• Proposed Revision Q&A § __.12(t)

• Adds the following examples of investments, grants,

deposits or shares in or to:

– Financial intermediaries (including New Markets Tax Credit-eligible CD Entities)

– CD venture capital companies that promote economic development by financing small businesses

Comptroller of the CurrencyAdministrator of National Banks

21

New Examples of CD Services

• Proposed Revision Q&A § __.12(i) – 3

• Adds the following example of:

– Increasing access to financial services by opening or maintaining branches or other facilities that help to revitalize or stabilize a LMI geography, designated disaster area, or a distressed or underserved nonmetropolitan middle-income geography

• unless has been considered in the evaluation of the institution’s retail banking services under the Service Test

Comptroller of the CurrencyAdministrator of National Banks

22

National or Regional CD Fund Q&A

• Proposed New Q&A § __.23(a) – 2

• If make a loan or investment in national or regional CD

fund:

– Should demonstrate that the investment meets the geographic requirements of the CRA reg by:

• Benefiting one or more of the institution’s AA(s) or a broader statewide or regional area that includes the institution’s AA(s)

Comptroller of the CurrencyAdministrator of National Banks

23

Emerging Issues – Foreclosures and CRA

• Examples of CD Services added to existing Q&A ___.12(i) – 3: “What are examples of community development services?”

• Credit counseling to low- or moderate-income borrowers in avoiding foreclosure on their homes

• Providing foreclosure prevention programs, including loan modifications and restructurings, to low- or moderate-income borrowers who are facing foreclosure

Comptroller of the CurrencyAdministrator of National Banks

24

Emerging Issues – Foreclosures and CRA

Example of lending programs added to existing Q&A ___ .22(a) – 1: “Are there types of lending activities that help meet the credit needs of an institution’s assessment area(s) and that may warrant favorable consideration as activities that are responsive to the needs of the institution’s assessment areas?”

• Establishing loan programs that provide relief, for example, through loan refinancings, restructures, or modifications, to homeowners who are facing foreclosure on their primary residences

Comptroller of the CurrencyAdministrator of National Banks

25

Proposed Amendment to the CRA Regulation

• CRA consideration for community development activities that revitalize and stabilize middle-income geographies that are significantly impacted by the foreclosure crisis

Emerging Issues - Foreclosures and CRA Reg

Comptroller of the CurrencyAdministrator of National Banks

26

Emerging Issues – Demographic & Economic Trends

• Unemployment

• Neighborhood Stabilization Initiatives

• Preservation of Affordable Rental Housing

Comptroller of the CurrencyAdministrator of National Banks

27

QUESTIONS?????????????