Interagency Q&As Flashcards
What is a special purpose institution?
These institutions engage in specialized activities that do not involve granting credit to the public in the ordinary course of business. These types of banks are exempt from CRA coverage.
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.
To be a special purpose institution, must an institution limit its activities in its charter?
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.
Does the definition of “affiliate” include subsidiaries of an institution?
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.
Do the definitions of “branch,” “automated teller machine (ATM),” and “remote service facility (RSF)” include mobile branches, ATMs, and RSFs?
Yes. Staffed mobile offices that are authorized as branches are considered “branches,” and mobile ATMs and RSFs are considered “ATMs” and “RSFs.”
Are loan production offices (LPO) branches for purposes of the CRA?
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.
Are community development
activities limited to those that promote economic
development?
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, social services, or workforce
development or job training programs 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.
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?
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.
Does the regulation provide
flexibility in considering performance in high-cost areas?
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.
Can examples of community
development activities discussed in a particular Q&A also apply to other types of community development activities not
specifically discussed in that Q&A if they have a similar
community development purpose?
Yes. The Interagency Questions and Answers
Regarding Community Reinvestment (Questions and Answers) provide examples of particular activities that may receive consideration as community development activities.
Because a particular Q&A often describes a single type of community development activity, such as a community
development loan, the corresponding examples are of community development loans.
However, because community development loans, qualified investments, and community development services all must have a primary purpose of community development, a qualified investment or community
development service that supports a community development purpose similar to the activity described in the context of the community development loan would likely receive
consideration under the applicable test. The same would be true if the community development activity described in a
particular Q&A were a qualified investment or community development service.
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?
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.
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? (8)
• 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 a clearly defined program that benefits primarily low- or moderate-income persons, even if it is provided by an entity that offers other programs that serve
individuals of all income levels.
• 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
• The community service is provided to students or their
families from a school at which the majority of students qualify for free or reduced-price meals under the U.S. Department of Agriculture’s National School Lunch Program.
• The community service is targeted to individuals who
receive or are eligible to receive Medicaid.
• The community service is provided to recipients of government assistance programs that have income qualifications equivalent to, or stricter than, the definitions of low- and moderate- income as defined by the CRA Regulations. Examples
include U.S. Department of Housing and Urban Development’s section 8, 202, 515, and 811 programs or U.S. Department of Agriculture’s section 514, 516, and Supplemental
Nutrition Assistance programs.
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 the size eligibility standards considered to be community development?
No. The concept of ‘‘community development’’ under involves both a
‘‘size’’ test and a ‘‘purpose’’ test that clarify what economic development activities are considered under CRA. An institution’s loan, investment, or service meets the ‘‘size’’ test if it finances, either directly, or through an intermediary,
businesses or farms 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.
As part of the purpose test under economic development, CD activities must promote economic development. What types of activities are considered to promote economic development? (2)
If they support:
• permanent job creation, retention, and/or improvement:
o for low- or moderate-income persons;
o in low- or moderate-income geographies;
o in areas targeted for redevelopment by Federal, state, local, or tribal governments;
o by financing intermediaries that lend to, invest in, or provide technical assistance to start-ups or recently formed small businesses or small farms; or
o through technical assistance or supportive services for small businesses or farms, such as shared space, technology,
or administrative assistance; or
• Federal, state, local, or tribal economic development initiatives
that include provisions for creating or improving access
by low- or moderate-income persons to jobs or to job training or workforce development programs.
The agencies will presume that any loan or service to
or investment in a SBDC, SBIC, Rural Business Investment Company, New Markets Venture Capital Company, New Markets Tax Credit-eligible Community Development Entity, or Community Development Financial Institution that finances small businesses or small farms, promotes ______ ________.
economic development
Under the purpose test for economic development, does the CD activity need to support only LMI individuals?
No
Examiners will also consider the qualitative aspects of performance. For example, activities will be considered more responsive to
community needs if a majority of jobs created, retained, and/or improved benefit low- or moderate-income individuals.
Is the definition of “community development” applicable to all institutions?
The definition of “community development” is applicable to all institutions, regardless of a particular institution’s size or the performance criteria under which it is evaluated.
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 nonmetropolitan middle-income geography or
designated disaster areas?
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.
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 underserved nonmetropolitan middle-income geography?
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.
Can a bank’s housing related loan be evaluated as a community development loan if it has been reported or collected as a HMDA loan?
Not unless the bank is an ISB and the loan is a multifamily housing loan. They can be double counted.
What activities are considered to “revitalize or stabilize” a low- or moderate-income geography, and how are those activities considered?
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 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.
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
What CD purpose would this fall under?
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
Revitalization and Stabilization
What is a “designated disaster area” and how long does it last?
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), 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.
What activities are considered to “revitalize or stabilize” a designated disaster area, and how are those activities considered?
ex:? (3)
- Activities that help to attract new, or retain existing businesses or residents and is related to disaster recovery. AND
- Activity must be consistent with a bona fide govt revitalization and 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.
Ex:
-Financing to retain businesses that employ local residents and LMI individuals.
-Financing to attract a major new employer to create long term job opportunities for LMI 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
What criteria are used to
identify distressed or underserved nonmetropolitan, middle income geographies?
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.
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.