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FDIC Federal Register Citations [Federal Register: July 11, 2007 (Volume 72, Number 132)] [Notices] [Page 37921-37959] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr11jy07-143] ----------------------------------------------------------------------- Part III Department of the Treasury ----------------------------------------------------------------------- Office of the Comptroller of the Currency ----------------------------------------------------------------------- Office of Thrift Supervision ----------------------------------------------------------------------- Federal Reserve System ----------------------------------------------------------------------- Federal Deposit Insurance Corporation ----------------------------------------------------------------------- Community Reinvestment Act; Interagency Questions and Answers Regarding Community Reinvestment; Notice ----------------------------------------------------------------------- DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency [Docket ID OCC-2007-0012] FEDERAL RESERVE SYSTEM [Docket No. OP-1290] FEDERAL DEPOSIT INSURANCE CORPORATION RIN 3064-AC97 DEPARTMENT OF THE TREASURY Office of Thrift Supervision [Docket ID OTS-2007-0030] 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 staffs of the OCC, the Board, the FDIC, and OTS (collectively, the ``agencies'') have combined three previously adopted publications of informal staff guidance answering questions regarding community reinvestment (Interagency Questions and Answers). The Interagency Questions and Answers address frequently asked questions about community reinvestment to assist agency personnel, financial institutions, and the public. The agencies are proposing nine new questions and answers, as well as substantive and technical revisions to the existing Interagency Questions and Answers. Among the proposed new questions and answers is one that addresses activities engaged in by a majority-owned financial institution with a minority-or women- owned financial institution or a low-income credit union. In addition, three revisions are intended to encourage institutions to work with homeowners who are unable to make mortgage payments by highlighting that they can receive CRA consideration for foreclosure prevention programs for low- and moderate-income homeowners, consistent with the interagency Statement on Working with Mortgage Borrowers issued April 17, 2007. Public comment is invited on the proposed new and revised questions and answers, as well as any other community reinvestment issues. DATES: Comments on the proposed questions and answers are requested by September 10, 2007. ADDRESSES: Comments should be directed to: OCC: You may submit comments by any of the following methods: Street, SW., Mail Stop 1-5, Washington, DC 20219. Information Room, Mail Stop 1-5, Washington, DC 20219. Instructions: You must include ``OCC'' as the agency name and ``Docket ID OCC-2007-0012'' 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, 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. You may review comments and other related materials by any of the following methods: 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. documents and project summaries using the methods described above. Board: You may submit comments, identified by Docket No. OP-1290, by any of the following methods: . Follow the instructions for submitting comments. number in the subject line of the message. 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: Follow instructions for submitting comments on the Agency Web Site. subject line of the message. Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. 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 ID OTS-2007-0030, by any of the following methods: OTS-2007-0030 in the subject line of the message and include your name and telephone number in the message. of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, Attention: ID OTS-2007-0030. 1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention: Regulation Comments, Chief Counsel's Office, Attention: ID OTS-2007- 0030. Instructions: All submissions received must include the agency name and [[Page 37923]] docket number for this notice. All comments received will be entered into the docket 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. 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: Margaret Hesse, Special Counsel, Community and Consumer Law Division, (202) 874-5750; or Karen Tucker, National Bank Examiner, Compliance Policy Division, (202) 874-4428, 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: Mira Marshall, Acting Chief, CRA & Fair Lending Section, (202) 898-3912; Faye Murphy, Fair Lending Specialist, Division of Supervision and Consumer Protection, (202) 898-6613; 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, Counsel, Regulations and Legislation Division, (202) 906-7409, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552. SUPPLEMENTARY INFORMATION: Background The OCC, the Board, the 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). Upon the effective date of OTS's March 2007 final rule, July 1, 2007, OTS's CRA regulation will be substantially the same as the CRA regulations of the OCC, Board, and FDIC. The agencies' regulations are interpreted primarily through ``Interagency Questions and Answers Regarding Community Reinvestment,'' which provide guidance for use by agency personnel, financial institutions, and the public, and which are supplemented periodically. Interagency Questions and Answers were first published under the auspices of the Federal Financial Institution Examination Council 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). Because of the desire to provide guidance about the 2005 joint final rule in a timely manner, the 2006 Questions and Answers addressed primarily matters related to the 2005 joint final rule, without updating the 2001 Questions and Answers. 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. The 2001 Questions and Answers remained effective along with the new 2006 Questions and Answers and OTS's September 2006 Questions and Answers. These Proposed Interagency Questions and Answers and Request for Comment The document published today combines the previously adopted 2001 Questions and Answers with the 2006 Questions and Answers and OTS's September 2006 Questions and Answers. In addition, the agencies are proposing for comment nine new questions and answers that will be added to the Interagency Questions and Answers. These nine new questions and answers are described below. OTS is also proposing four new and one revised questions and answers that are virtually identical to new and revised questions and answers the OCC, Board, and FDIC adopted in the 2006 Questions and Answers. The proposed questions and answers that are new for OTS are Q&As Sec. ----.12(u)(2)--1, Sec. ----.26(c)--1, Sec. ----.26(c)(3)--1, and Sec. ----.26(c)(4)--1; the proposed revised question and answer for OTS is Q&A Sec. ----.26--1. These Q&As primarily relate to intermediate small savings associations. The agencies are also proposing to revise many of the previously adopted questions and answers. Most of the revisions are not substantive, rather they clarify or update the existing questions and answers, move existing questions and answers within the guidance (Q&As Sec. ----.21(a)--1 and Sec. ----.28(b)--1), or merely conform the numbering of the question to the correct regulatory provision. The agencies also propose to delete an appendix that listed contact information for Bureau of Census offices because institutions may now obtain information from the FFIEC's Web site. The agencies are explicitly requesting comment on specific questions and answers in which the revisions may be deemed to be of significance. These proposed revised questions and answers are also discussed below. The proposed new and revised questions and answers have been added to the combined Interagency Questions and Answers, which is being published in its entirety to enable commenters to review the proposed revisions in the context of the rest of the guidance. The text of the combined Interagency Questions and Answers is found at the end of this publication. Language that is proposed to be deleted as compared to the 2001 and 2006 Questions and Answers adopted by the OCC, Board, and FDIC is bracketed; language that is proposed to be added to these agencies' guidance is enclosed within arrows. Where these agencies' current questions and answers differ substantially from those of OTS, the differences are footnoted. After the agencies have considered any comments received in response to this proposal, the agencies will publish the final guidance in the Federal Register. 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 [[Page 37924]] 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 question is numbered using a system that consists of the regulatory citation (as described above) and a number, connected by a dash. For example, the first question addressing 12 CFR ----.26 would be identified as Sec. ----.26--1. Although a particular question and answer may be found under one regulatory provision, e.g., 12 CFR ----.22 relating to the lending test, 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. To assist readers in finding relevant guidance, the Interagency Questions and Answers will be indexed by topic when they are adopted as final guidance. Proposed New Questions and Answers The agencies specifically request comment on the nine proposed new questions and answers described below. I. Investments in minority- or women-owned financial institutions and low-income credit unions. The CRA statute provides that, when evaluating the CRA performance of a non-minority-owned and non-women-owned (majority-owned) financial institution, the agencies may consider as a factor capital investment, loan participation, and other ventures undertaken by the institution in cooperation with minority- and women-owned financial institutions and low-income credit unions provided that these activities help meet the credit needs of local communities in which such institutions are chartered. 12 U.S.C. 2903(b). The agencies' CRA regulations do not specifically address activities that a majority-owned financial institution may engage in with a minority- or women-owned financial institution or a low-income credit union. The Interagency Questions and Answers currently describe investments in minority- and women-owned financial institutions and low-income credit unions as an example of a qualified investment in Q&A Sec. ----.12(t)--4. The agencies have been asked whether a majority institution's activity in conjunction with a minority- or women-owned financial institution or low-income credit union must benefit the majority-owned institution's assessment area(s) or the broader statewide or regional area that includes the majority-owned institution's assessment area(s). The CRA statute specifies that the activities must help meet the credit needs of local communities in which the minority- or women-owned institutions or low-income credit unions are chartered. The agencies generally evaluate institutions' activities in the institution's assessment area(s) or a broader statewide or regional area that includes the assessment area(s). For example, a community development loan is defined, in part, as one benefiting the institution's assessment area(s) or a broader statewide or regional area that includes the institution's assessment area(s). 12 CFR -- --.12(h)(2)(ii). Similarly, 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 its assessment area(s). 12 CFR ----.23(a). In addition, the service test evaluates an institution's record of helping to meet the credit needs of its assessment area(s) through its provision of retail banking and community development services. 12 CFR ----.24(a). Finally, the community development test applicable to wholesale and limited purpose institutions states that community development activities that benefit the institution's assessment area(s) or the broader statewide or regional area that includes its assessment area(s) are considered in a CRA evaluation, and community development activities that benefit areas outside the institution's assessment area(s) will be considered if the institution has adequately addressed the needs of its assessment area(s). 12 CFR ----.25(e). The agencies propose a new question and answer, Sec. ----.12(g)--4, that would give full effect to section 2903(b)'s broader geographic language. The proposed question and answer would state that activities engaged in by a majority-owned financial institution with a minority- or women-owned financial institution or a low-income credit union that benefit the local communities where the minority- or women-owned financial institution or low-income credit union is located will be favorably considered in the CRA performance evaluation of the majority- owned institution. The minority- or women-owned institution or low- income credit union need not be located in, and the activities need not benefit, the assessment area(s) of the majority-owned institution or the broader statewide or regional area that includes its assessment area(s). II. Intermediate small institutions' affordable home mortgage loans and small business and small farm loans. Q&A Sec. ----.12(h)--2 states that mortgage loans made by a retail institution that is not required to report such loans under the Home Mortgage Disclosure Act (HMDA) will be evaluated as home mortgage loans, and that small business and small farm loans made by an institution that is not required to report small business and small farm loan data under the CRA regulations will, nonetheless, be evaluated as small business and small farm loans. Institutions do not have the option of having such loans considered as community development loans. The agencies are proposing a new question and answer, Sec. -- --.12(h)--3, which would clarify this guidance only as it affects intermediate small institutions. Intermediate small institutions are not required to collect and report small business and small farm loan data pursuant to the CRA regulations. Further, some intermediate small institutions may not be required to report home mortgage loans under the HMDA. Unlike large or small retail institutions, intermediate small institutions' lending is evaluated using two performance tests, which are rated separately--the retail lending test and the community development test. If the current guidance (Q&A Sec. ----.12(h)--2) were applied to an intermediate small institution, its overall CRA performance under the two tests may be adversely affected because home mortgage loans and small loans to businesses and farms that have a community development purpose could never be considered under the community development test. The proposed question and answer would permit institutions evaluated under the intermediate small institution performance standards to choose to have such loans evaluated as community development loans, provided the loans otherwise meet the regulatory definition of ``community development,'' or as retail home mortgages, small business loans, or small farm loans, as applicable. An institution that elects to have certain home mortgage, small business, or small farm loans considered as community [[Page 37925]] development loans should notify its examiners of that decision prior to the start of its CRA examination. Please note that the agencies are also proposing to revise Q&A Sec. ----.12(h)--2 to except intermediate small institutions from applicability of that guidance. III. Examples of ``other loan data.'' The agencies' CRA regulations, at 12 CFR ----.22(a)(2), state that originations and purchases of loans, as well as any other loan data the institution may choose to provide, including data on loans outstanding, commitments, and letters of credit will be considered in an institution's evaluation. Q&A Sec. ----.22(a)(2)--3 provides that information about home mortgage loan modification, extension, and consolidation agreements (MECAs) may be provided by an institution to examiners as ``other loan data.'' Other questions and answers found throughout the guidance describe various lending-related activities as ``other loan data.'' See, e.g., Q&As Sec. ----.12(l)--2 and Sec. -- --.42(c)(2)--3. The agencies are proposing a new question and answer, which will follow the question and answer discussing MECAs, listing in one place the other various activities mentioned throughout the interagency guidance that may be provided to examiners for consideration as ``other loan data.'' In addition, the proposed question and answer, Q&A Sec. -- --.22(a)(2)--4, includes a discussion about when information on loans for properties with a certain amount or percentage of units set aside for affordable housing may be provided to examiners as ``other loan data.'' If these loans are in an amount greater than $1 million, they would not be collected or reported as small business loans. If the loans do not have a primary purpose of community development, they would not be collected or reported as community development loans. Therefore, to ensure that institutions may have these loans considered during their CRA evaluations, the question and answer provides that institutions may, at their option, provide information about them to examiners as ``other loan data.'' IV. Purchased loan participations. The agencies' staffs have received a number of questions about whether institutions that purchase loan participations should collect and report them, as applicable, as purchases of loans, and whether they will receive lending consideration for such purchases. The proposed question and answer, Q&A Sec. ----.22(a)(2)--6, provides that loan participations are treated as the purchase of a loan, even though the institution has purchased only a part of a loan. Institutions receive the same consideration for their loan participations as they would receive for a purchased whole loan of the same type and amount. Although this proposed question and answer interprets the large institution lending test, 12 CFR ----.22(a)(2), the same guidance would also apply to the other examination types--small institution test, community development test applicable to wholesale and limited purpose institutions, and the strategic plan. (For guidance about reporting loan participations, see proposed new Q&A Sec. ----.42(b)(2)--4 and Q&A Sec. ----.42(a)(2)--1, as proposed to be revised.) V. Small business loans secured by a one-to-four family residence. In 2005, the agencies published technical revisions to their CRA regulations that reflected changes in the standards for defining metropolitan statistical areas made by the U.S. Office of Management and Budget (OMB) in December 2000; census tracts designated by the U.S. Census Bureau (Census); and changes to the Board's Regulation C (12 CFR part 203), which implements the HMDA. 70 FR 15570 (Mar. 28, 2005). In the supplementary information published with the agencies' technical revisions, the agencies discussed the effect that the Board's revisions to Regulation C regarding the treatment of refinancings of home mortgage loans would have on CRA evaluations. 70 FR at 15573. As explained in the supplementary information, revised Regulation C defined the term, ``refinancing,'' so that a loan is reportable as a refinancing if it satisfies and replaces an existing obligation, and both the new and the existing obligation are secured by a lien on a dwelling. 12 CFR 203.2(k). The agencies revised the definition of ``home mortgage loan'' in their CRA regulations to include refinancings, as well as home purchase loans and home improvement loans, as defined in the Board's regulations at 12 CFR 203.2. See 12 CFR ----.12(l). For banks subject to the Call Report instructions: Because of the change in the Regulation C definition, loans to refinance small business or small farm loans are reportable as home mortgage loans for HMDA purposes (and would ordinarily be considered as home mortgage loans for CRA purposes) if they are secured by a dwelling and the replaced loan also was secured by a dwelling. If a dwelling continues to serve as collateral solely through an abundance of caution and where the terms of the loan, as a consequence, have not been made more favorable than they would have been in the absence of the lien, then the refinancing is also reportable for Call Report and CRA purposes as a loan to a small business or a loan to a small farm. If a refinancing of a small business or small farm loan is reported both as a home mortgage loan under HMDA and as a loan to a small business or a loan to a small farm on the Call Report and on the CRA disclosure, there is the potential for ``double counting'' of these loans in CRA examinations. See 70 FR at 15573. For savings associations subject to the Thrift Financial Reporting instructions: Because of the change in the Regulation C definition, a savings association's loans to refinance small business or small farm loans are reportable as home mortgage loans if they are secured by a dwelling and the replaced loan also was secured by a dwelling. This is true even if the loans are reported as non-mortgage commercial loans on the Thrift Financial Report (TFR). This results in the potential for ``double counting'' of the loans in CRA examinations. See 70 FR at 15573. To clarify some of these issues, the agencies are proposing a new question and answer, Q&A Sec. ----.22(a)(2)--7, to provide guidance about small business and small farm loans where a dwelling serves as collateral. VI. Investments in a national or regional fund. The agencies are proposing additional guidance, Q&A Sec. -- --.23(a)--2, to clarify that an institution that makes a loan or investment in a national or regional community development fund should be able to demonstrate that the investment meets the geographic requirements of the CRA regulation. If a fund does not become involved in a community development activity that meets both the purpose and geographic requirements of the regulation for the institution, the institution's investment generally would not be considered under the investment or community development tests. The agencies are also proposing to highlight in the Q&A an example of a fund providing foreclosure relief to low- and moderate-income homeowners. VII. Examination as an intermediate small institution. The agencies allow a one-year ``lag period'' between when an institution is no longer a small institution (i.e., it had assets meeting or exceeding the small institution asset threshold amount delineated in 12 CFR ----.12(u)(1) as of December 31 of both of the prior two calendar years) and when it reports CRA data to be used in its evaluation under the lending, investment, and service tests. See 12 CFR ----.42(b). The lag [[Page 37926]] period allows the institution to collect loan data for one year before being evaluated under the lending, investment, and service tests. The agencies' staffs have been asked whether an institution that was a small institution, but not an intermediate small institution, will also be allowed a one-year lag period before it is evaluated as an intermediate small institution once it becomes an intermediate small institution. The proposed question and answer, Q&A Sec. ----.26(a)(2)-- 1, clarifies that there is no lag period between becoming an intermediate small institution and being examined as an intermediate small institution because there is no data collection and reporting requirement for intermediate small institutions. VIII. Reporting of a participation in a community development loan. Under the CRA regulations, an institution is required to report the aggregate number and aggregate amount of community development loans originated or purchased. 12 CFR ----.42(b)(2). The agencies' staffs have been asked what loan purchase amount institutions that purchase participations in community development loans should report--the principal balance of the loan at origination or the amount of the participation purchased. The agencies are proposing a new question and answer, Q&A Sec. -- --.42(b)(2)--4, to clarify that institutions that purchase community development loan participations should report only the amount of their purchase. The proposed data collection and reporting of purchases of community development loan participations is different from the collection and reporting of purchases of small business and small farm loan participations. An institution reports the amount at the origination of the loan when it purchases a participation in a small business or small farm loan. See Q&A Sec. ----.42(a)(2)--1. As explained in that question and answer, reporting the amount of the loan at origination is consistent with the Call Report's or Thrift Financial Report's use of the ``original amount of the loan'' to determine whether a loan should be reported as a ``loan to a small business'' or a ``loan to a small farm'' and in which loan size category a loan should be reported. However, when assessing the volume of small business and small farm loan purchases for purposes of evaluating lending test performance under the CRA, examiners evaluate an institution's small business and small farm lending based on the amount of the participation that is purchased. See id. The CRA regulations require that, when reporting small business and small farm loans originated or purchased, institutions report, among other things, the amount of the loans at origination. 12 CFR -- --.42(a)(2). However, when reporting community development loan data, an institution reports only the aggregate number and aggregate amount of community development loans originated or purchased. 12 CFR -- --.42(b)(2). Because the regulation does not specify whether the amount of purchased community development loans must be the amount of the loan at origination or the amount of the loan at purchase, the agencies propose that institutions should report the amount of the loan participations purchased. Reporting only the amount of the loan participation that was purchased will provide a more accurate picture of institutions' community development loan activities. The agencies specifically request comment on whether having a different collection and reporting treatment for community development loans is appropriate. IX. Refinanced or renewed community development loans. The agencies are proposing a question and answer, Q&A Sec. -- --.42(b)(2)--5, to clarify that, generally, the same limitations that apply to the reporting of refinancings and renewals of small business and small farm loans apply to refinancings and renewals of community development loans. See Q&A Sec. ----.42(a)--5. Generally, an institution may report only one community development loan origination (including a renewal or refinancing of that loan that is treated as an origination) per loan per year. If the loan amount is increased upon renewal or refinancing, the institution may report only the increase if the origination of the loan was also reported during the same year. Revised Questions and Answers The agencies are proposing revisions to a number of previously adopted questions and answers. Many of the proposed revisions update the guidance to reflect the 2005 technical revisions that conformed the agencies' regulations to OMB, Census, and Board regulatory revisions, and to the changes made in the 2005 joint final rule and OTS's March 2007 final rule. In many instances, the proposed revisions merely clarify existing guidance by conforming the guidance to the revised regulations, improving readability, or adopting current terminology. Although most of the proposed revisions are deemed to be insignificant clarifications, the agencies specifically request comment on the following revised questions and answers: I. Activities that promote economic development. Q&A Sec. ----.12(g)(3)--1 describes the types of activities that promote economic development by financing small businesses and small farms. The agencies are proposing to revise Q&A Sec. ----.12(g)(3)--1 to clarify the language in the current answer and to add 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. After notice and comment, the agencies added an investment in a RBIC as an example of a qualified investment in Q&A Sec. ----.12(t)--4. 71 FR at 12433; 71 FR at 52379 (OTS). The purpose of the Rural Business Investment Program, which is a joint initiative between the U.S. Small Business Administration and the U.S. Department of Agriculture, is intended to promote economic development by financing small businesses located primarily in rural areas. Thus, the agencies propose to revise Q&A Sec. ----.12(g)(3)--1 to provide that there is a presumption that an investment in a RBIC will promote economic development. Likewise, the agencies are proposing that loans to or investments in CDEs will be presumed to promote economic development. Loans to or investments in CDEs pursuant to the New Markets Tax Credit program generally have a primary purpose of community development, as that term is defined in the CRA regulations. To the extent that a CDE lends to or invests in small businesses or farms, a loan to or investment in the CDE promotes economic development by financing small businesses or farms. Also, because the primary mission of the CDE is to service ``low-income communities,'' loans and investments made by the CDE generally would help to revitalize or stabilize low- or moderate-income geographies. Thus, the agencies propose to revise Q&A Sec. -- --.12(g)(3)--1 to provide that there is also a presumption that an investment in a CDE will promote economic development. II. Examples of community development loans. Q&A Sec. ----.12(h)--1 provides examples of community development loans. For the same reasons as addressed above in connection with the proposed revision to Q&A Sec. ----.12(g)(3)--1, the agencies propose to revise the fourth bullet in the answer [[Page 37927]] to Q&A Sec. ----.12(h)--1 to add a loan to a New Markets Tax Credit- eligible CDE as an example of a community development loan. The agencies also propose to add a new bullet to the same question and answer stating 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 (SBA's) 504 Certified Development Company program. (Such loans in amounts of $1 million or less would be small business loans for CRA purposes.) The SBA's 504 loan program is a long-term financing tool for economic development within a community. (See 13 CFR 120.800 et seq. for additional information about SBA's 504 program.) The 504 program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. A Certified Development Company is a nonprofit corporation that works with the SBA and private- sector lenders to provide financing to local small businesses. Loans to businesses under the 504 program must meet job creation criteria or a community development goal, or have a public policy goal. Generally, to meet the job creation criteria, a business must create or retain one job for every $50,000 provided by the SBA, except for ``Small Manufacturers,'' which have a $100,000 job creation or retention goal. Examples of the 504 program's public policy goals include business district revitalization, rural development, and expansion of minority business development. Based on the economic development and community revitalization purposes and goals of the 504 program, the agencies believe that loans to businesses made in connection with the program would have a primary purpose of community development, as defined in the CRA regulations. III. Examples of community development services. Q&A Sec. ----.12(i)--3 provides examples of community development services. The agencies propose to add a new example of a community development service to this question and answer. The agencies believe that increasing access to financial services by opening or maintaining branches or other facilities that help to revitalize or stabilize a low- or moderate-income area, designated disaster area, or a distressed or underserved nonmetropolitan middle-income area would have a primary purpose of community development under the fourth prong of the definition of ``community development.'' Thus, the agencies propose to add a new bullet in the answer to state that opening or maintaining branches and other facilities that help to revitalize or stabilize low- or moderate-income geographies, designated disaster areas, or distressed or underserved nonmetropolitan middle-income geographies is an example of a community development service and would be considered as a community development service unless the opening or maintaining of the branches or other facilities has been considered in the evaluation of the institution's retail banking services under 12 CFR ----.24(d). See Q&As Sec. ----.12(g)(4)(ii)--2, Sec. ----.12(g)(4)(iii)--3, and Sec. ----.12(g)(4)(iii)--4 for additional guidance about activities that revitalize or stabilize designated disaster areas and distressed or underserved nonmetropolitan middle-income geographies, respectively. (With regard to an institution that is evaluated under the service test, branch openings are already considered as part of the availability and effectiveness of the institution's systems for delivering retail banking services. See 12 CFR ----.24(d)(2). Similarly, whether an institution maintains branches is also considered under the service test when examiners evaluate the distribution of the institution's branches based on geography income and the institution's record of opening and closing branches. See 12 CFR----.24(d)(1) & (2). The agencies also propose to revise the example of community development services describing various types of consumer counseling services to highlight credit counseling that can assist borrowers in avoiding foreclosure on their homes. Finally, the agencies propose to add to the examples of financial services with the primary purpose of community development that increase access to financial services for low- or moderate-income individuals individual development accounts (IDAs) and free payroll check cashing. (A cross-reference to this revised Q&A would be added to Q&A Sec. ----.24(d)--2, which provides guidance about how examiners evaluate an institution's activities in connection with IDAs.) IV. Federal Home Loan Bank unpaid dividends. Since the 1995 revision of the CRA regulations, the agencies have agreed that Federal Home Loan Bank (FHLB) stock does not have a sufficient connection to community development to be considered a qualified investment. See Joint Final Rule, 60 FR 22156, 22161 (May 4, 1995). The agencies' staffs have received questions from financial institutions about whether funds retained by the FHLBs to support the Affordable Housing Program (AHP), in lieu of being paid out in dividends to investing institutions, would receive consideration as qualified investments. The agencies propose to clarify that the required annual AHP contributions of the FHLBs are not qualified investments because they are not investments by the investing financial institution members, but rather a use of its own funds by the FHLB. The agencies propose to revise Q&A Sec. ----.12(t)--3 to state that FHLB unpaid dividends are not qualified investments. V. Examples of qualified investments. Q&A Sec. ----.12(t)--4 provides examples of qualified investments. For the same reasons as addressed above in connection with the proposed revision to Q&A Sec. ----.12(g)(3)--1, the agencies propose to revise the first bullet in the answer to Q&A Sec. ----.12(t)--4 to add an investment in a New Markets Tax Credit-eligible CDE as an example of a qualified investment. The agencies also propose to add a new fourth bullet that clarifies that an investment in a community development venture capital company that promotes economic development by financing small businesses would also be an example of a qualified investment. Although private community development venture capital companies are not statutorily authorized and government insured or guaranteed like the examples in the current third bullet of the Q&A (e.g., small business investment companies), community development venture capital companies may provide financing for small businesses that supports permanent job creation, retention, and/or improvement for persons who are currently low- or moderate-income, or supports 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. VI. Small institution adjustment. Q&A Sec. ----.12(u)(2)--1, which was adopted by the OCC, Board, and FDIC in the 2006 Questions and Answers, provides information about the annual adjustments to the asset-size thresholds for small institutions and intermediate small institutions. (OTS does not currently have a comparable Q&A but is proposing to add one through this notice.) The agencies are proposing that this Q&A also refer the reader to the FFIEC's Web site for historical and current asset-size threshold information. [[Page 37928]] VII. Responsive lending activities. Q&A Sec. ----.22(a)--1 discusses types of lending activities that help meet the credit needs of an institution's assessment areas and that may warrant favorable consideration as activities that are responsive to the needs of the institution's assessment areas. The agencies propose to revise the answer to highlight that establishing loan programs that provide relief to low- and moderate-income homeowners who are facing foreclosure is another type of lending activity that would warrant favorable consideration as being responsive to the needs of an institution's assessment areas. The agencies encourage institutions to develop and participate in such programs, consistent with safe and sound lending practices. VIII. Constraints on affiliate lending. Q&A Sec. ----.22(c)(2)(i)--1 explains the constraint that no affiliate may claim a loan origination or loan purchase if another institution claims the same loan origination or loan purchase. The agencies propose to revise the answer by adding illustrative examples to help explain this provision. The answer states that a bona fide sale of a loan originated by one affiliate to another affiliate would be considered a loan origination by the first institution and a loan purchase by the other affiliate; however, the same institution may not claim both the origination and the purchase of the same loan. The question would also be revised to indicate that this guidance is relevant to all institutions, regardless of their examination type. IX. Retail banking services delivery systems. Q&A Sec. ----.24(d)--1 explains how examiners evaluate the availability and effectiveness of an institution's systems for delivering retail banking services. The agencies propose to revise Q&A Sec. ----.24(d)--1 to correspond more closely to the service test performance criteria. The regulation provides that examiners will evaluate the current distribution of an institution's branches and, in the context of its current distribution of the institution's branches, the institution's record of opening and closing branches, particularly branches located in low- or moderate-income geographies or primarily serving low- or moderate-income individuals. The text of the answer would be modified to conform more closely to the regulatory language. X. Assessment areas may not extend substantially beyond metropolitan statistical area (MSA) boundaries. Q&As Sec. ----.41(e)(4)--1 and Sec. ----.41(e)(4)--2 address the maximum size of an assessment area and whether one assessment area may consist of both an MSA and two counties that both abut the MSA. The agencies propose to revise these two questions and answers to reflect the changes in the Standards for Defining Metropolitan and Micropolitan Statistical Areas by the OMB. Although the OMB continues to designate MSAs, the OMB no longer designates Consolidated MSAs (CMSAs), which consisted of Primary MSAs. The OMB has also adopted a new area designation: Metropolitan division. As previously noted, in the 2005 technical revisions, the agencies aligned their CRA regulations with the OMB's new nomenclature. See 70 FR 15570. The proposed revisions to Q&As Sec. ----.41(e)(4)--1 and Sec. -- --.41(e)(4)--2 adopt the revised nomenclature and also memorialize guidance that the agencies provided in the supplementary information that was published with the 2005 technical revisions. The agencies had noted in the supplementary information that one commenter suggested that the agencies, in their 2005 technical revisions, replace ``CMSA'' with ``CSA'' (combined statistical area), another new area standard that OMB adopted in 2000. The agencies declined to do so, but advised in the supplementary information that it may be appropriate for some institutions to delineate an assessment area based on a CSA. However, because CSAs can vary greatly in area and population, the agencies indicated that whether an assessment area should consist of a CSA is a determination to be made by each institution, considering its size, business strategy, capacity, and constraints, and subject to review by the appropriate agency. The agencies further noted that, if an institution designates an assessment area comprised of a CSA that, for example, consists of an MSA and a micropolitan statistical area (a new area standard adopted by OMB that is less populated than an MSA and considered a nonmetropolitan area for CRA purposes), examiners will separately evaluate performance in the MSA and the micropolitan statistical area within the assessment area because each of these areas has a distinct median income. Proposed revised Q&As Sec. -- --.41(e)(4)--1 and Sec. ----.41(e)(4)--2 incorporate this information. XI. Reporting data under the CRA regulations. Q&A Sec. ----.42--1 addresses when an institution must collect and report data. It focuses on a growing institution: One that was a small institution but that, over time, has outgrown that classification. The agencies propose to revise this question and answer for two reasons. First, because the definition of ``small institution'' has been revised and the asset-size threshold for small institutions is adjusted annually, the text and example in the guidance require updating. The proposed revision refers to the definition of a ``small institution'' in the agencies' CRA regulations so that the asset-size threshold does not become out-of-date as a result of annual adjustments. It also directs readers to the FFIEC's Web site for examples, over time, based on the revised and adjusted asset-size thresholds for small institutions. Second, the mailing address to which an institution reports CRA data has been changed, and the proposed new guidance reflects the revised address. XII. Reporting home equity lines of credit for both home improvement and business purposes. Q&A Sec. ----.42(a)--7 addresses the reporting of a home equity line of credit, part of which is for home improvement purposes and part of which is for small business purposes. Because of changes in the treatment of refinancings of loans secured by dwellings in the Board's Regulation C (12 CFR part 203), which implements the HMDA (described above), the agencies are proposing to revise this question and answer to make it consistent with the revised Regulation C requirements. XIII. Participations in small business or small farm loans. Q&A Sec. ----.42(a)(2)--1 provides guidance regarding the reporting of the amount of a small business or small farm loan that an institution purchases. The agencies propose to revise this question and answer to clarify that the guidance also applies to purchases of small business or small farm loan participations. The CRA regulations explicitly require institutions to collect and maintain ``the loan amount at origination'' when collecting data about small business and small farm loans. 12 CFR----.42(a)(2). The agencies are proposing to revise the question and answer to clarify that this data collection requirement applies to participations, as well as to the purchase of whole loans. OTS Request for Comments OTS specifically solicits comment on whether it should adopt the four new and one revised questions and answers that are virtually identical to guidance the OCC, Board, and FDIC adopted in the 2006 Questions and Answers. Those new questions and answers for OTS are Q&As Sec. ----.12(u)(2)--1, Sec. ----26(c)--1, Sec. ----.26(c)(3)--1, and Sec. ----.26(c)(4)-- [[Page 37929]] 1; the proposed revised question and answer for OTS is Q&A Sec. -- --.26--1. General Comments In addition to the specific requests for comments on the proposed new and revised questions and answers, public comment is invited on issues raised by the CRA and the Interagency Questions and Answers. If, after reading the Interagency Questions and Answers, financial institutions, examiners, community organizations, or other interested parties have unanswered questions or comments about the agencies' community reinvestment regulations, they should submit them to the agencies. Such questions may be addressed in future revisions to the Interagency Questions and Answers. 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 proposed guidance is not a proposed rule, comments are nevertheless invited on whether the proposed interagency questions and answers are stated clearly and effectively organized, and how the guidance might be revised to make it easier to read. Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) The SBREFA requires an agency, for each rule for which it prepares a final regulatory flexibility analysis, to publish one or more compliance guides to help small entities understand how to comply with the rule. Pursuant to section 605(b) of the Regulatory Flexibility Act, the OCC and the FDIC certified that the 2005 joint final rule would not have a significant economic impact on a substantial number of small entities. 70 FR at 44264. Pursuant to section 605(b) of the Regulatory Flexibility Act, OTS certified that its March 22, 2007, April 12, 2006, March 2, 2005, and August 18, 2004 final rules would not have a significant economic impact on a substantial number of small entities. 72 FR 13429, 13434 (March 22, 2007); 71 FR 18614, 18617 (April 12, 2006); 70 FR 10023, 10030 (March 2, 2005); 69 FR 51155, 51161 (August 18, 2004). The Board prepared a final regulatory flexibility analysis in connection with the 2005 joint final rule and found that the final rule minimized the economic impact on small entities by making the twelve small member banks that were not eligible for the streamlined CRA process prior to adoption of the joint final rule, eligible for the streamlined CRA process. Further, the joint final rule was intended by all three agencies to reduce unnecessary burden while maintaining or improving the CRA regulations' effectiveness in evaluating performance. In the agencies' continuing efforts to provide clear, understandable regulations and to comply with the letter and the spirit of the SBREFA, the agencies have compiled the Interagency Questions and Answers. The Interagency Questions and Answers serve the same purpose as the compliance guide described in the SBREFA by providing guidance on a variety of issues of particular concern to small institutions. The text of the combined Interagency Questions and Answers Regarding Community Reinvestment follows. Language that is proposed to be deleted as compared to the current OCC, Board, and FDIC questions and answers is bracketed; language that is proposed to be added to these agencies' questions and answers is enclosed within arrows. Where these agencies' current questions and answers differ substantially from those of OTS, the differences are footnoted. Interagency Questions and Answers Regarding Community Reinvestment Sec. ----.11 Authority, purposes, and scope. Sec. ----.11(c) Scope. Sec. Sec. ----.11(c)(3) & 563e.11(c)(2) Certain special purpose institutions. Sec. Sec. ----.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. Sec. Sec. ----.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. Sec. ----.12 Definitions. Sec. ----.12(a) Affiliate. Sec. ----.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. Sec. [ Sec. ]----.12(f) [ & 563e.12(e)] Branch. Sec. [ Sec. ]----.12(f) [ & 563e.12(e)]--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.'' Sec. [ Sec. ]----.12(f)[ & 563e.12(e)]--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. Sec. [ Sec. ]----.12([h])[ & 563.12(g)] Community development. Sec. [ Sec. ]----.12([h])[ & 563.12(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 [[Page 37930]] revitalize or stabilize low- or moderate-income areas, designated disaster areas, or underserved or distressed nonmetropolitan middle-income geographies. Sec. [Sec. ]----.12([h])[ & 563e.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 [outside of low- and moderate-income areas], 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 [low- or moderate-income] 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. Sec. [Sec. ]----.12([h])[ & 563e.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. Sec. ----.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, provided that these activities help meet the credit needs of local communities in which the minority- or women-owned institutions or low-income credit unions 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 minority- or women- owned institutions or low-income credit unions, 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 minority- or women-owned institution or low-income credit union is 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 minority- or women-owned institutions or low-income credit unions are chartered. Sec. [Sec. ]----.12([h])(1)[ & 563e.12(g)] Affordable housing (including multifamily rental housing) for low- or moderate-income individuals Sec. [Sec. ]----.12([h])(1)[ & 563e.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, economicand 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 proposalor community action plan, is community development. Sec. [Sec. ]----.12([h] )(3)[ & 563e.12(g)(3)] Activities that promote economic development by financing businesses or farms that meet certain size eligibility standards. Sec. [Sec. ]----.12([h])(3)[ & 563.12(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. [To be considered as] The concept of ``community development'' under [Sec. Sec. ] 12 CFR-- --.12([h])(3)[and 563e.12(g)(3)] involves both a ``size'' test and a ``purpose'' test. An institution's[, a] loan, investment, or service[, whether made]meets the ``size'' test if it finances, either directly or through an intermediary, [must meet both a size test and a purpose test. An activity meets the size [[Page 37931]] requirement if it finances entities that] 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 [activity] institution's loan, investment, or service must promote economic development. [An activity is] These activities are considered to promote economic development if [it supports] they support permanent job creation, retention, and/or improvement for persons who are currently low- or moderate- income, or supports permanent job creation, retention, and/or improvement either in low- or moderate-income geographies or in areas targeted for redevelopment by Federal, state, localor tribal governments. The agencies will presume that any loan to or investment in a SBDC, SBIC, [or] 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 Sec. -- --.42(b)(2)-- 2, Sec. ----.12(h)--2, and Sec. ----.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. Sec. [Sec. ]----.12([h])(4)[ & 563e.12(g)(4)] Activities that revitalize or stabilize [low- or moderate- income] certain geographies. Sec. ----.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 [banks] institutions or only to intermediate small [banks] institutions? \1\ --------------------------------------------------------------------------- \1\ The inserts and deletions are shown as compared to the current Q&A for the OCC, Board, and FDIC. The current Q&A for OTS reads: ``Is the same definition of community development applicable to all savings associations? Yes, one definition of community development is applicable to all savings associations.'' 71 FR at 52377. --------------------------------------------------------------------------- A1. The revised definition of community development is applicable to all [banks] 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). Sec. ----.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. ([A] 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 [Sec. ]----.12([i]h)(2)(i) and Q&As Sec. [Sec. ]----.12([i]h) [& 563e.12(h)]--2 and Sec. --.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 Sec. [Sec. ]-- --.12([h])(4)(i)[& 563.12(g)(4)]--1 and Sec. [Sec. ]-- --.12([i]h) [& 563e.12(h)]--[4]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. Sec. [Sec. ]----.12([h])(4)(i)[& 563e.12(g)(4)] Activities that revitalize or stabilize low- or moderate-income geographies. Sec. [Sec. ]----.12([h])(4)(i)[& 563e.12(g)(4)]--1: What [are] activities [that]are consideredto ``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[and] retain existing, businesses [and]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. Sec. 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, localor 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. For more information on what activities revitalize [[Page 37932]] or stabilize a low- or moderate-income geography, see Q&As Sec. [Sec. ]----.12([h])[& 563e.12(g)]--2 and Sec. [Sec. ]----.12 ([i]h)[& 563.12(h)]--4. Sec. ----.12(g)(4)(ii) Activities that revitalize or stabilize designated disaster areas. Sec. ----.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 [bank]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. Sec. ----.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 Sec. ----.12([j]i)[& 563e.12(i)]-3; Sec. ----.12([s]t)[& 563e.12(r)]--4; Sec. ----.22(b)(2) & (3)-4; Sec. ----.22(b)(2) & (3)--5; and Sec. -- --.24(d)(3)-1). Sec. ----.12(g)(4)(iii) Activities that revitalize or stabilize distressed or underserved nonmetropolitan middle-income geographies. Sec. ----.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[Sec. ]----.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 [will] 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). Sec. ----.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 [as needed]. The list [will be] 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. Sec. ----.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 Sec. [Sec. ]-- --.12([h]()(4)[& 563e.12(g)(4)(i)]--1 and Sec. [Sec. ]----.12([i] h )[& 563e.12(h)]--[4] 5 . Sec. ----.12(g)(4)(iii)--4: What activities are considered to ``revitalize or stabilize'' an underserved nonmetropolitan middle- income [[Page 37933]] 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 Sec. ----.12(g)(4)(ii)--2 and Sec. -- --.12(g)(4)(iii)--3. Sec. [Sec. ] ----.12([i] h )[& 563e.12(h)] Community development loan. Sec. [Sec. ] ----.12([i] h )[& 563e.12(h)]-1: What are examples of community development loans? A1. Examples of community development loans include, but are not limited to, loans to: construction, including construction and permanent financing of multifamily rental property serving low- and moderate-income persons; moderate-income housing or other community development needs; facilities that are located in low- and moderate-income areas or that serve primarily low- and moderate-income individuals; 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[.] ; development activities; [and] 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 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. Sec. [Sec. ]----.12([i]h)[ & 563e.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 Sec. ----.12(h)--3). Multifamily dwelling loans, however, may be considered as community development loans as well as home mortgage loans. See also Q&A Sec. ----.42(b)(2)--2. Sec. ----.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. These loans may be considered, at the institution's option, as community development loans provided they meet the regulatory definition of ``community development.'' However, these loans may not be considered under both the lending test and the community development test for intermediate small institutions. Thus, if an institution elects that these loans be considered under the community development test, the loans may not also be considered under the lending test, and would be excluded from the lending test analysis. Sec. [Sec. ]----.12([ i ]h)[ & 563e.12(h) ] --[3] 4: Do secured credit cards or other credit card programs targeted to low- or moderate-income individuals qualify as community development loans? A3. 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.'' Sec. [Sec. ]----.12([i] h)[ & 563e.12(h)]-- [4]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? [[Page 37934]] A4. 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 [distressed] 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 [distressed] low- or moderate-income area (or a nearby area)[, which] that employs or serves residents of the area[,] and thusstabilizes the area, may be considered to have a community development purpose. For example, in [an underserved, distressed] a low-income area, a loan for a pharmacy that employs and [provides supplies to]serves residents of the area promotes community development. Sec. [Sec. ]----.12([i]h)[ & 563e.12(h)]-- [5]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)? A5. 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). Sec. [Sec. ]----.12([i]h)[ & 563e.12(h)]-- [6]7: What is meant by the term ``regional area''? A6. A ``regional area'' may be [as small as a city or county or] 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). Sec. [Sec. ]----.12([i]h)[ & 563e.12(h)]-- [7]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? A7. 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 [Sec. Sec. ]----.12([h])[ or 563e.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. Sec. [Sec. ]----.12([j]i )[& 563e.12(i)] Community development service. Sec. [Sec. ]----.12([j]i)[& 563e.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 [[Page 37935]] 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 | |