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Home > Regulation & Examinations > Laws & Regulations > FDIC Federal Register Citations




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]                        

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Part III

Department of the Treasury
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Office of the Comptroller of the Currency
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Office of Thrift Supervision
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Federal Reserve System
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Federal Deposit Insurance Corporation
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Community Reinvestment Act; Interagency Questions and Answers Regarding
Community Reinvestment; Notice

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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.

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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:
     E-mail: regs.comments@occ.treas.gov.
     Fax: (202) 874-4448.
     Mail: Office of the Comptroller of the Currency, 250 E
Street, SW., Mail Stop 1-5, Washington, DC 20219.
     Hand Delivery/Courier: 250 E Street, SW., Attn: Public
Information Room, Mail Stop 1-5, Washington, DC 20219.
    Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-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:
     Viewing Comments Personally: You may personally inspect
and photocopy comments at the OCC's Public Information Room, 250 E
Street, SW., Washington, DC. For security reasons, the OCC requires
that visitors make an appointment to inspect comments. You may do so by
calling (202) 874-5043. Upon arrival, visitors will be required to
present valid government-issued photo identification and submit to
security screening in order to inspect and photocopy comments.
     Docket: You may also view or request available background
documents and project summaries using the methods described above.
    Board: You may submit comments, identified by Docket No. OP-1290,
by any of the following methods:
     Agency Web Site: http://www.federalreserve.gov Follow the instructions for submitting comments at http://www.federalreserve.gov/.

.     Federal eRulemaking Portal: http://www.regulations.gov.

Follow the instructions for submitting comments.
     E-mail: regs.comments@federalreserve.gov. Include docket
number in the subject line of the message.
     Fax: 202/452-3819 or 202/452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.

All public comments are available from the Board's Web site at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm
 as submitted,

unless modified for technical reasons. Accordingly, your comments will
not be edited to remove any identifying or contact information. Public
comments may also be viewed electronically or in paper in Room MP-500
of the Board's Martin Building (20th and C Streets, NW.) between 9 a.m.
and 5 p.m. on weekdays.
    FDIC: You may submit comments, identified by RIN number 3064-AC97
by any of the following methods:
     Agency Web site: http://www.fdic.gov/regulations/laws/federal/propose.html.
 Follow instructions for submitting comments on

the Agency Web Site.
     E-mail: Comments@FDIC.gov. Include the RIN number in the
subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW.,
Washington, DC 20429.
     Hand Delivery/Courier: Guard station at the rear of the
550 17th Street Building (located on F Street) on business days between
7 a.m. and 5 p.m.
    Instructions: All submissions received must include the agency name
and RIN number. All comments received will be posted without change to
http://www.fdic.gov/regulations/laws/federal/propose.html including any

personal information provided.
    OTS: You may submit comments, identified by ID OTS-2007-0030, by
any of the following methods:
     E-mail: regs.comments@ots.treas.gov. Please include ID
OTS-2007-0030 in the subject line of the message and include your name
and telephone number in the message.
     Fax: (202) 906-6518.
     Mail: Regulation Comments, Chief Counsel's Office, Office
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552,
Attention: ID OTS-2007-0030.
     Hand Delivery/Courier: Guard's Desk, East Lobby Entrance,
1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention:
Regulation Comments, Chief Counsel's Office, Attention: 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.
     Viewing Comments On-Site: You may inspect comments at the
Public Reading Room, 1700 G Street, NW., by appointment. To make an
appointment for access, call (202) 906-5922, send an e-mail to
public.info@ots.treas.gov
, or send a facsimile transmission to (202)

906-6518. (Prior notice identifying the materials you will be
requesting will assist us in serving you.) We schedule appointments on
business days between 10 a.m. and 4 p.m. In most cases, appointments
will be available the next business day following the date we receive a
request.

FOR FURTHER INFORMATION CONTACT:
    OCC: 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:
     Borrowers for affordable housing rehabilitation and
construction, including construction and permanent financing of
multifamily rental property serving low- and moderate-income persons;
     Not-for-profit organizations serving primarily low- and
moderate-income housing or other community development needs;
     Borrowers to construct or rehabilitate community
facilities that are located in low- and moderate-income areas or that
serve primarily low- and moderate-income individuals;
     Financial intermediaries including Community Development
Financial Institutions (CDFIs), New Markets Tax Credit-eligible
Community Development Entities, Community Development
Corporations (CDCs), minority- and women-owned financial institutions,
community loan funds or pools, and low-income or community development
credit unions that primarily lend or facilitate lending to promote
community development[.] ;
     Local, state, and tribal governments for community
development activities; [and]
     Borrowers to finance environmental clean-up or
redevelopment of an industrial site as part of an effort to revitalize
the low- or moderate-income community in which the property is
located[.]; and
     Businesses, in an amount greater than $1 million, when
made as part of the Small Business Administration's 504 Certified
Development Company program.
    The rehabilitation and construction of affordable housing or
community facilities, referred to above, may include the abatement or
remediation of, or other actions to correct, environmental hazards,
such as lead-based paint, that are present in the housing, facilities,
or site.
    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 agencies, or intermediaries that help to meet the
credit needs of low- and moderate-income individuals or small
businesses and farms is also providing financial services. By contrast,
activities that do not take advantage of the employees' financial
expertise, such as neighborhood cleanups, do not involve the provision
of financial services.
    Sec.  [Sec.  ]----.12([j]i)[& 563e.12(i)]--2: Are
personal charitable activities provided by an institution's employees
or directors outside the ordinary course of their employment considered
community development services?
    A2. No. Services must be provided as a representative of the
institution. For example, if a financial institution's director, on her
own time and not as a representative of the institution, volunteers one
evening a week at a local community development corporation's financial
counseling program, the institution may not consider this activity a
community development service.
    Sec.  [Sec.  ]----.12[j]i)[ & 563e.12(i)]--3: What
are examples of community development services?
    A3. Examples of community development services include, but are not
limited to, the following:
     Providing financial services to low- and moderate-income
individuals through branches and other facilities located in low- and
moderate-income areas, unless the provision of such services has been
considered in the evaluation of [a bank's]an
institution's retail banking services under 12
CFR[Sec.  ]----.24(d);
     Increasing access to financial services by opening
or maintaining branches or other facilities that help to revitalize or
stabilize a low- or moderate-income geography, a designated disaster
area, or a distressed or underserved nonmetropolitan middle-income
geography, unless the opening or maintaining of such branches or other
facilities has been considered in the evaluation of the institution's
retail banking services under 12 CFR ----.24(d);
     Providing technical assistance on financial matters to
nonprofit, tribal or government organizations serving low- and
moderate-income housing or economic revitalization and development
needs;
     Providing technical assistance on financial matters to
small businesses or community development organizations, including
organizations and individuals who apply for loans or grants under the
Federal Home Loan Banks' Affordable Housing Program;
     Lending employees to provide financial services for
organizations facilitating affordable housing construction and
rehabilitation or development of affordable housing;
     Providing credit counseling, home-buyer and home-
maintenance counseling, financial planning or other financial services
education to promote community development and affordable housing,
including credit counseling to assist borrowers in avoiding foreclosure
on their homes;
     Establishing school savings programs [and
developing];
     Developing or teaching financial [education]
literacy curricula for low- or moderate-income
individuals;
     Providing electronic benefits transfer and point of sale
terminal systems to improve access to financial services, such as by
decreasing costs, for low- or moderate-income individuals;
     Providing international [remittances]
remittance services that increase access to financial
services by low- and moderate-income persons (for example, by offering
reasonably priced international [remittances] remittance
services in connection with a low-cost account); and
     Providing other financial services with the primary
purpose of community development, such as low-cost bank accounts,
including ``Electronic Transfer Accounts'' provided pursuant to the
Debt Collection Improvement Act of 1996, individual development
accounts (IDAs), or free government or payroll
check cashing that increases access to financial services for low- or
moderate-income individuals.
    Examples of technical assistance activities that might be provided
to community development organizations include:
     Serving on a loan review committee;
     Developing loan application and underwriting standards;
     Developing loan processing systems;
     Developing secondary market vehicles or programs;
     Assisting in marketing financial services, including
development of advertising and promotions, publications, workshops and
conferences;
     Furnishing financial services training for staff and
management;
     Contributing accounting/bookkeeping services; and
     Assisting in fund raising, including soliciting or
arranging investments.

Sec.  [Sec.  ]----.12([k]j )[& 563e.12(j)] Consumer loan.

    Sec.  [Sec.  ]----.12([k]j)[& 563e.12(j)]--1: Are
home equity loans considered ``consumer loans''?
    A1. Home equity loans made for purposes other than home purchase,
home improvement or refinancing home purchase or home improvement loans
are consumer loans if they are extended to one or more individuals for
household, family, or other personal expenditures.
    Sec.  [Sec.  ]----.12 ([k]j)[& 563e.12(j)]--2: May a
home equity line of credit be considered a ``consumer'' loan even if
part of the line is for home improvement purposes?
    A2. If the predominant purpose of the line is home improvement, the
line may only be reported under HMDA and may not be considered a
consumer loan. However, the full amount of the line may be considered a
``consumer loan'' if its predominant purpose is for household, family,
or other personal expenditures, and to a lesser extent home
improvement, and the full amount of the line has not been reported
under HMDA. This is the case even though there may be ``double
counting'' because part of the line may also have been reported under
HMDA.
    Sec.  [Sec.  ]----.12 ([k]j)[& 563e.12(j)]--3: How
should an institution collect or report information on loans the
proceeds of which will be used for multiple purposes?
    A3. If an institution makes a single loan or provides a line of
credit to a customer to be used for both consumer and small business
purposes, consistent with the Call Report and TFR instructions, the
institution should determine the major (predominant) component of the
loan or the credit line and collect or report the entire loan or credit
line in accordance with the regulation's specifications for that loan
type.

Sec.  [Sec.  ]----.12 ([m]l)[& 563e.12(l)] Home mortgage
loan.

    Sec.  [Sec.  ]----.12 ([m]l)[& 563e.12(l)]--1: Does
the term ``home mortgage loan'' include loans other than ``home
purchase loans''?
    A1. Yes. ``Home mortgage loan'' includes [a] ``home improvement
loan,'' [as well as a] ``home purchase loan,'' and
``refinancing,''  as defined in the HMDA regulation, Regulation
C, 12 CFR part 203. This definition also includes multifamily (five-or-
more families) dwelling loans[,] and loans for the
purchase of manufactured homes[, and refinancings of home improvement
and home purchase

[[Page 37936]]

loans]. See also Q&A Sec.  ----.22(a) (2)--7.
    Sec.  [Sec.  ]----.12 ([m]l)[& 563e.12(l)]--2: Some
financial institutions broker home mortgage loans. They typically take
the borrower's application and perform other settlement activities;
however, they do not make the credit decision. The broker institutions
may also initially fund these mortgage loans, then immediately assign
them to another lender. Because the broker institution does not make
the credit decision, under Regulation C (HMDA), they do not record the
loans on their HMDA-LARs, even if they fund the loans. May an
institution receive any consideration under CRA for its home mortgage
loan brokerage activities?
    A2. Yes. A financial institution that funds home mortgage loans but
immediately assigns the loans to the lender that made the credit
decisions may present information about these loans to examiners for
consideration under the lending test as ``other loan data.'' Under
Regulation C, the broker institution does not record the loans on its
HMDA-LAR because it does not make the credit decisions, even if it
funds the loans. An institution electing to have these home mortgage
loans considered must maintain information about all of the home
mortgage loans that it has funded in this way. Examiners will consider
[this] these other loan data using the same criteria by
which home mortgage loans originated or purchased by an institution are
evaluated.
    Institutions that do not provide funding but merely take
applications and provide settlement services for another lender that
makes the credit decisions will receive consideration for this service
as a retail banking service. Examiners will consider an institution's
mortgage brokerage services when evaluating the range of services
provided to low-, moderate-, middle- and upper-income geographies and
the degree to which the services are tailored to meet the needs of
those geographies. Alternatively, an institution's mortgage brokerage
service may be considered a community development service if the
primary purpose of the service is community development. An institution
wishing to have its mortgage brokerage service considered as a
community development service must provide sufficient information to
substantiate that its primary purpose is community development and to
establish the extent of the services provided.
    Sec.  [Sec.  ]----.12 ([n]m) [& 563e.12(m)] Income
level.
    Sec.  [Sec.  ]----.12 ([n]m)[& 563e.12(m)]--1: Where
do institutions find income level data for geographies and individuals?
    A1. The income levels for geographies, i.e., census tracts[ and
block numbering areas], are derived from Census Bureau information and
are updated approximately every ten years. [Institutions
may contact their regional Census Bureau office or the Census Bureau's
Income Statistics Office at (301) 763-8576 to obtain income levels for
geographies. See Appendix A of these Interagency Questions and Answers
for a list of the regional Census Bureau offices.] The income levels
for individuals are derived from information calculated by the
Department of Housing and Urban Development (HUD) and updated annually.
[Institutions may contact HUD at (800) 245-2691 to request a copy of
``FY [year number, e.g., 1996] Median Family Incomes for States and
their Metropolitan and Nonmetropolitan Portions.'']
    [Alternatively, institutions] Institutions may obtain
[a list of the 1990 Census Bureau-calculated] 2000 geography
income information and the annually updated HUD median family
incomes for metropolitan statistical areas (MSAs) and statewide
nonmetropolitan areas by [calling] accessing the Federal
Financial Institution Examination Council's (FFIEC's) [HMDA Help]
Web site at http://www.ffiec.gov/cra or by calling the FFIEC's

CRA Assistance Line at (202) [452-2016]872-7584.
[A free copy will be faxed to the caller through the ``fax-back''
system. Institutions may also call this number to have ``faxed-back''
an order form, from which they may order a list providing the median
family income level, as a percentage of the appropriate MSA or
nonmetropolitan median family income, of every census tract and block
numbering area (BNA). This list costs $50. Institutions may also obtain
the list of MSA and statewide nonmetropolitan area median family
incomes or an order form through the FFIEC's home page on the Internet
at < http://www.ffiec.gov.]


Sec.  [Sec.  ]----.12 ([o] n)[& 563e.12(n)] Limited
purpose institution

    Sec.  [Sec.  ]----.12 ([o]n)[& 563e.12(n)]--1: What
constitutes a ``narrow product line'' in the definition of ``limited
purpose institution''?
    A1. An institution offers a narrow product line by limiting its
lending activities to a product line other than a traditional retail
product line required to be evaluated under the lending test (i.e.,
home mortgage, small business, and small farm loans). Thus, an
institution engaged only in making credit card or motor vehicle loans
offers a narrow product line, while an institution limiting its lending
activities to home mortgages is not offering a narrow product line.
    Sec.  [Sec.  ]----.12 ([o]n)[& 563e.12(n)]--2: What
factors will the agencies consider to determine whether an institution
that, if limited purpose, makes loans outside a narrow product line,
or, if wholesale, engages in retail lending, will lose its limited
purpose or wholesale designation because of too much other lending?
    A2. Wholesale institutions may engage in some retail lending
without losing their designation if this activity is incidental and
done on an accommodation basis. Similarly, limited purpose institutions
continue to meet the narrow product line requirement if they provide
other types of loans on an infrequent basis. In reviewing other lending
activities by these institutions, the agencies will consider the
following factors:
     Is the [other] retail lending provided as an
incident to the institution's wholesale lending?
     Are the retail loans provided as an
accommodation to the institution's wholesale customers?
     Are the other types of loans made only
infrequently to the limited purpose institution's customers?
     Does only an insignificant portion of the institution's
total assets and income result from the other lending?
     How significant a role does the institution play in
providing that type(s) of loan(s) in the institution's assessment
area(s)?
     Does the institution hold itself out as offering that
type(s) of loan(s)?
     Does the lending test or the community development test
present a more accurate picture of the institution's CRA performance?
    Sec. [Sec.  ]----.12([o]n)[ & 563e.12(n)]--3: Do
``niche institutions'' qualify as limited purpose (or wholesale)
institutions?
    A3. Generally, no. Institutions that are in the business of lending
to the public, but specialize in certain types of retail loans (for
example, home mortgage or small business loans) to certain types of
borrowers (for example, to high-end income level customers or to
corporations or partnerships of licensed professional practitioners)
(``niche institutions'') generally would not qualify as limited purpose
(or wholesale) institutions.

Sec. [Sec.  ]----.12([s]t)[ & 563e.12(r)] Qualified
investment.

    Sec. [Sec.  ]----.12([s]t)[ & 563e.12(r)]1: Does the
CRA regulation provide

[[Page 37937]]

authority for institutions to make investments?
    A1. No. The CRA regulation does not provide authority for
institutions to make investments that are not otherwise allowed by
Federal law.
    Sec. [Sec.  ]----.12([s]t)[ & 563e.12(r)]--2: Are
mortgage-backed securities or municipal bonds ``qualified
investments''?
    A2. As a general rule, mortgage-backed securities and municipal
bonds are not qualified investments because they do not have as their
primary purpose community development, as defined in the CRA
regulations. Nonetheless, mortgage-backed securities or municipal bonds
designed primarily to finance community development generally are
qualified investments. Municipal bonds or other securities with a
primary purpose of community development need not be housing-related.
For example, a bond to fund a community facility or park or to provide
sewage services as part of a plan to redevelop a low-income
neighborhood is a qualified investment. Certain municipal bonds
in underserved nonmetropolitan middle-income geographies may also be
qualified investments. See Q&A Sec.  ----.12(g)(4)(iii)-- 4.
Housing-related bonds or securities must primarily address affordable
housing (including multifamily rental housing) needs of low- or
moderate-income individuals in order to qualify. See also
Q&A Sec.  ----.23(b)--2.
    Sec. [Sec.  ]----.12([s]t)[ & 563e.12(r)]--3: Are
Federal Home Loan Bank stocks or unpaid dividends and
membership reserves with the Federal Reserve Banks ``qualified
investments''?
    A3. No. Federal Home Loan Bank (FHLB) stocks or unpaid
dividends and membership reserves with the Federal Reserve Banks
do not have a sufficient connection to community development to be
qualified investments. However, FHLB member institutions may receive
CRA consideration as a community development service for
technical assistance they provide on behalf of applicants and
recipients of funding from the FHLB's Affordable Housing Program. See
Q&A Sec. [Sec.  ]----.12([j]i)[ &
563e.12(i)]--3.
    Sec. [Sec.  ]----.12([s]t)[ & 563e.12(r)]--4: What
are examples of qualified investments?
    A4. Examples of qualified investments include, but are not limited
to, investments, grants, deposits or shares in or to:
     Financial intermediaries (including Community Development
Financial Institutions (CDFIs),  New Markets Tax Credit-eligible
Community Development Entities, Community Development
Corporations (CDCs), minority- and women-owned financial institutions,
community loan funds, and low-income or community development credit
unions) that primarily lend or facilitate lending in low- and moderate-
income areas or to low- and moderate-income individuals in order to
promote community development, such as a CDFI that promotes economic
development on an Indian reservation;
     Organizations engaged in affordable housing rehabilitation
and construction, including multifamily rental housing;
     Organizations, including, for example, Small Business
Investment Companies (SBICs), specialized SBICs, and Rural Business
Investment Companies (RBICs) that promote economic development by
financing small businesses;
     Community development venture capital companies that
promote economic development by financing small businesses;
     Facilities that promote community development by
providing community services for low- and moderate-income
individuals, such as youth programs, homeless centers, soup kitchens,
health care facilities, battered women's centers, and alcohol and drug
recovery centers;
     Projects eligible for low-income housing tax credits;
     State and municipal obligations, such as revenue bonds,
that specifically support affordable housing or other community
development;
     Not-for-profit organizations serving low- and moderate-
income housing or other community development needs, such as counseling
for credit, home-ownership, home maintenance, and other financial
[services education] literacy programs; and
     Organizations supporting activities essential to the
capacity of low- and moderate-income individuals or geographies to
utilize credit or to sustain economic development, such as, for
example, day care operations and job training programs that enable
[people] low- or moderate-income individuals to work.
    See also Q&As Sec.  ----.12(g)(4)(ii)--2; Sec.  --
--.12(g)(4)(iii)--3; Sec.  ----.12(g)(4)(iii)--4.
    Sec. [Sec.  ]----.12([s]t)[ &563e.12(r)]--5: Will an
institution receive consideration for charitable contributions as
``qualified investments''?
    A5. Yes, provided they have as their primary purpose community
development as defined in the regulations. A charitable contribution,
whether in cash or an in-kind contribution of property, is included in
the term ``grant.'' A qualified investment is not disqualified because
an institution receives favorable treatment for it (for example, as a
tax deduction or credit) under the Internal Revenue Code.
    Sec. [Sec.  ]----.12([s]t)[ & 563e.12(r)]--6: An
institution makes or participates in a community development loan. The
institution provided the loan at below-market interest rates or
``bought down'' the interest rate to the borrower. Is the lost income
resulting from the lower interest rate or buy-down a qualified
investment?
    A6. No. The agencies will, however, consider the
responsiveness, innovativenessand
complexity of the community development loan within the bounds of safe
and sound banking practices.
    Sec. [Sec.  ]----.12([s]t)[ & 563e.12(r)]--7: Will
the agencies consider as a qualified investment the wages or other
compensation of an employee or director who provides assistance to a
community development organization on behalf of the institution?
    A7. No. However, the agencies will consider donated labor of
employees or directors of a financial institution [in the service test
if the activity is] as a community development service
if the activity meets the regulatory definition of ``community
development service.''
    Sec.  ----.12(t)--8: When evaluating a qualified
investment, what consideration will be given for prior-period
investments?
    A1. When evaluating [a bank's]an institution's
qualified investment record, examiners will consider investments that
were made prior to the current examination, but that are still
outstanding. Qualitative factors will affect the weighting given to
both current period and outstanding prior-period qualified investments.
For example, a prior-period outstanding investment with a multi-year
impact that addresses assessment area community development needs may
receive more consideration than a current period investment of a
comparable amount that is less responsive to area community development
needs.

Sec. [Sec.  ]----.12([t]u)[ & 563e.12(s)] Small
institution.

    [Sec. Sec.  ----.12(t) & 563e.12(s)--1: How are the ``total bank
and thrift assets'' of a holding company determined?
    A1. ``Total banking and thrift assets'' of a holding company are
determined by combining the total assets of all banks

[[Page 37938]]

and/or thrifts that are majority-owned by the holding company. An
institution is majority-owned if the holding company directly or
indirectly owns more than 50 percent of its outstanding voting stock.]
    Sec.  [Sec.  ]----.12([t]u)[& 563e.12(s)]--
[2]1: How are Federal and State branch assets of a
foreign bank calculated for purposes of the CRA?
    A[2]1. A Federal or State branch of a foreign bank is
considered a small institution if the Federal or State branch has
assets less than [$250 million in assets] the
asset threshold delineated in 12 CFR ----.12(u)(1) for small
institutions. [and the total assets of the foreign bank's or its
holding company's U.S. bank and thrift subsidiaries that are subject to
the CRA are less than $1 billion. This calculation includes not only
FDIC-insured bank and thrift subsidiaries, but also the assets of any
FDIC-insured branch of the foreign bank and the assets of any uninsured
Federal or State branch (other than a limited branch or a Federal
agency) of the foreign bank that results from an acquisition described
in section 5(a)(8) of the International Banking Act of 1978 (12 U.S.C.
Sec.  3103(a)(8)).]

Sec.  ----.12(u)(2) Small Institution Adjustment

    Sec.  ----.12(u)(2)--1: How often will the asset size thresholds
for small [banks] institutions and intermediate small
[banks] institutions be changed, and how will these
adjustments be communicated? \2\
---------------------------------------------------------------------------

    \2\ The inserts and deletions are shown as compared to the
current Q&A for the OCC, Board, and FDIC. There currently is no
comparable Q&A for OTS.
---------------------------------------------------------------------------

    A1. The asset size thresholds for ``small [banks]
institutions'' and ``intermediate small [banks]
institutions'' will be adjusted annually based on changes
to the Consumer Price Index. More specifically, the dollar thresholds
will be adjusted annually based on the year-to-year change in the
average of the Consumer Price Index for Urban Wage Earners and Clerical
Workers, not seasonally adjusted for each twelve-month period ending in
November, with rounding to the nearest million. Any changes in the
asset size thresholds will be published in the Federal Register.
Historical and current asset-size threshold information may be
found on the FFIEC's Web site at http://www.ffiec.gov/cra.


Sec.  [Sec.  ]----.12([u]v)[& 563e.12(t)] Small Business
Loan

    Sec.  [Sec.  ]----.12([u]v)[& 563e.12(t)]--1: Are
loans to nonprofit organizations considered small business loans or are
they considered community development loans?
    A1. To be considered a small business loan, a loan must meet the
definition of ``loan to small business'' in the instructions in the
``Consolidated Reports of Conditions and Income'' (Call Report) and
``Thrift Financial Report'' (TFR). In general, a loan to a nonprofit
organization, for business or farm purposes, where the loan is secured
by nonfarm nonresidential property and the original amount of the loan
is $1 million or less, if a business loan, or $500,000 or less, if a
farm loan, would be reported in the Call Report and TFR as a small
business or small farm loan. If a loan to a nonprofit organization is
reportable as a small business or small farm loan, it cannot also be
considered as a community development loan, except by a wholesale or
limited purpose institution. Loans to nonprofit organizations that are
not small business or small farm loans for Call Report and TFR purposes
may be considered as community development loans if they meet the
regulatory definition[.] of ``community development.''
    Sec.  [Sec.  ]----.12([u]v)[& 563e.12(t)]--2: Are
loans secured by commercial real estate considered small business
loans?
    A2. Yes, depending on their principal amount. Small business loans
include loans secured by ``nonfarm nonresidential properties,'' as
defined in the Call Report and TFR, in amounts [less than]
of $1 million or less.
    Sec.  [Sec.  ]----.12([u]v)[& 563e.12(t)]--3: Are
loans secured by nonfarm residential real estate to finance small
businesses ``small business loans''?
    A3. Applicable to banks filing Call Reports: Typically not. Loans
secured by nonfarm residential real estate that are used to finance
small businesses are not included as ``small business'' loans for Call
Report purposes unless the security interest in the nonfarm residential
real estate is taken only as an abundance of caution. (See Call Report
Glossary definition of ``Loan Secured by Real Estate.'') The agencies
recognize that many small businesses are financed by loans that would
not have been made or would have been made on less favorable terms had
they not been secured by residential real estate. If these loans
promote community development, as defined in the regulation, they may
be considered as community development loans. Otherwise, at an
institution's option, the institution may collect and maintain data
separately concerning these loans and request that the data be
considered in its CRA evaluation as ``Other Secured Lines/Loans for
Purposes of Small Business.'' See also Q&A Sec.  ----.22(a)(2)--
7.
    Applicable to institutions that file TFRs: Possibly, depending how
the loan is classified for TFR purposes. Loans secured by nonfarm
residential real estate to finance small businesses may be included as
small business loans only if they are reported on the TFR as
nonmortgage, commercial loans. (See TFR Q&A No. 62.) Otherwise, loans
that meet the definition of mortgage loans, for TFR reporting purposes,
may be classified as mortgage loans.
    Sec.  [Sec.  ]----.12([u]v)[& 563e.12(t)]--4: Are
credit cards issued to small businesses considered ``small business
loans''?
    A4. Credit cards issued to a small business or to individuals to be
used, with the institution's knowledge, as business accounts are small
business loans if they meet the definitional requirements in the Call
Report or TFR instructions.

Sec.  [Sec.  ]----.12([w]x)[& 563e.12(v)] Wholesale
Institution

    Sec.  [Sec.  ]----.12([w]x)[& 563e.12(v)]--1: What
factors will the agencies consider in determining whether an
institution is in the business of extending home mortgage, small
business, small farm, or consumer loans to retail customers?
    A1. The agencies will consider whether:
     The institution holds itself out to the retail public as
providing such loans; and
     The institution's revenues from extending such loans are
significant when compared to its overall operations, including
off-balance sheet activities.
    A wholesale institution may make some retail loans without losing
its wholesale designation as described above in Q&ASec. 
[Sec.  ]----.12([o]n) [ & 563e.12(n)]--2.

Sec.  ----.21 Performance tests, standards, and ratings, in general.

Sec.  ----.21(a) Performance tests and standards.

    Sec.  ----.21(a)--1: How will examiners apply the
performance criteria?
    A1. Examiners will apply the performance criteria reasonably and
fairly, in accord with the regulations, the examination procedures, and
this guidance. In doing so, examiners will disregard efforts by an
institution to manipulate business operations or present information in
an artificial light that does not accurately reflect an

[[Page 37939]]

institution's overall record of lending performance.
    Sec.  ----.21(a)--[1]2: Are all community development
activities weighted equally by examiners?
    A1. No. Examiners will consider the responsiveness to credit and
community development needs, as well as the innovativeness and
complexity, if applicable, of an institution's community development
lending, qualified investments, and community development services.
These criteria include consideration of the degree to which they serve
as a catalyst for other community development activities. The criteria
are designed to add a qualitative element to the evaluation of an
institution's performance. (``Innovativeness'' and
``complexity'' are not factors in the community development test
applicable to intermediate small institutions.)

Sec.  ----.21(b) Performance context.

    Sec.  ----.21(b)--1: [Is]What is the performance
context[ essentially the same as the former regulation's needs
assessment]?
    A1. [No.] The performance context is a broad range of economic,
demographic, and institution- and community-specific information that
an examiner reviews to understand the context in which an institution's
record of performance should be evaluated. The agencies will provide
examiners with [much]some of this information[ prior to
the examination]. The performance context is not a formal[ or written]
assessment of community credit needs.

Sec.  ----.21(b)(2) Information maintained by the institution or
obtained from community contacts.

    Sec.  ----.21(b)(2)--1: Will examiners consider performance context
information provided by institutions?
    A1. Yes. An institution may provide examiners with any information
it deems relevant, including information on the lending, investment,
and service opportunities in its assessment area(s). This information
may include data on the business opportunities addressed by lenders not
subject to the CRA. Institutions are not required, however, to prepare
a  formal needs assessment. If an institution provides
information to examiners, the agencies will not expect information
other than what the institution normally would develop to prepare a
business plan or to identify potential markets and customers, including
low- and moderate-income persons and geographies in its assessment
area(s). The agencies will not evaluate an institution's efforts to
ascertain community credit needs or rate an institution on the quality
of any information it provides.
    Sec.  ----.21(b)(2)--2: Will examiners conduct community contact
interviews as part of the examination process?
    A2. Yes. Examiners will consider information obtained from
interviews with local community, civic, and government leaders. These
interviews provide examiners with knowledge regarding the local
community, its economic base, and community development initiatives. To
ensure that information from local leaders is considered--particularly
in areas where the number of potential contacts may be limited--
examiners may use information obtained through an interview with a
single community contact for examinations of more than one institution
in a given market. In addition, the agencies [will]may
consider information obtained from interviews conducted by other agency
staff and by the other agencies. In order to augment contacts
previously used by the agencies and foster a wider array of contacts,
the agencies [will]may share community contact
information.

Sec.  ----.21(b)(4) Institutional capacity and constraints.

    Sec.  ----.21(b)(4)--1: Will examiners consider factors outside of
an institution's control that prevent it from engaging in certain
activities?
    A1. Yes. Examiners will take into account statutory and supervisory
limitations on an institution's ability to engage in any lending,
investment, and service activities. For example, a savings association
that has made few or no qualified investments due to its limited
investment authority may still receive a low satisfactory rating under
the investment test if it has a strong lending record.

Sec.  ----.21(b)(5) Institution's past performance and the performance
of similarly situated lenders

    Sec.  ----.21(b)(5)--1: Can an institution's assigned rating be
adversely affected by poor past performance?
    A1. Yes. The agencies will consider an institution's past
performance in its overall evaluation. For example, an institution that
received a rating of ``needs to improve'' in the past may receive a
rating of ``substantial noncompliance'' if its performance has not
improved.
    Sec.  ----.21(b)(5)--2: How will examiners consider the performance
of similarly situated lenders?
    A2. The performance context section of the regulation permits the
performance of similarly situated lenders to be considered, for
example, as one of a number of considerations in evaluating the
geographic distribution of an institution's loans to low-, moderate-,
middle-, and upper-income geographies. This analysis, as well as other
analyses, may be used, for example, where groups of contiguous
geographies within an institution's assessment area(s) exhibit
abnormally low penetration. In this regard, the performance of
similarly situated lenders may be analyzed if such an analysis would
provide accurate insight into the institution's lack of performance in
those areas. The regulation does not require the use of a specific type
of analysis under these circumstances. Moreover, no ratio developed
from any type of analysis is linked to any lending test rating.

Sec.  ----.22 Lending test.

Sec.  ----.22(a) Scope of test.

    Sec.  ----.22(a)--1: Are there any types of lending activities that
help meet the credit needs of an institution's assessment area(s) and
that may warrant favorable consideration as activities that are
responsive to the needs of the institution's assessment area(s)?
    A1. Credit needs vary from community to community. However, there
are some lending activities that are likely to be responsive in helping
to meet the credit needs of many communities. These activities include:
     Providing loan programs that include a financial education
component about how to avoid lending activities that may be abusive or
otherwise unsuitable;
     Establishing loan programs that provide small, unsecured
consumer loans in a safe and sound manner (i.e., based on the
borrower's ability to repay) and with reasonable terms;
     Offering lending programs, which feature reporting to
consumer reporting agencies, that transition borrowers from loans with
higher interest rates and fees (based on credit risk) to lower-cost
loans, consistent with safe and sound lending practices. Reporting to
consumer reporting agencies allows borrowers accessing these programs
the opportunity to improve their credit histories and thereby improve
their access to competitive credit products[.] ;
     Establishing loan programs that provide relief to low- and
moderate-income homeowners who are facing foreclosure on their
homes.

[[Page 37940]]

Examiners may consider favorably such lending activities, which have
features augmenting the success and effectiveness of the small,
intermediate small, or large institution's lending programs.

Sec.  ----.22(a)(1) Types of loans considered.

    Sec.  ----.22(a)(1)--1: If a large retail institution is not
required to collect and report home mortgage data under the HMDA, will
the agencies still evaluate the institution's home mortgage lending
performance?
    A1. Yes. The agencies will sample the institution's home mortgage
loan files in order to assess its performance under the lending test
criteria.
    Sec.  ----.22(a)(1)--2: When will examiners consider consumer loans
as part of an institution's CRA evaluation?
    A2. Consumer loans will be evaluated if the institution so elects
and has collected and maintained the data ; [and] an
institution that elects not to have its consumer loans evaluated will
not be viewed less favorably by examiners than one that does. However,
if consumer loans constitute a substantial majority of the
institution's business, the agencies will evaluate them even if the
institution does not so elect. The agencies interpret ``substantial
majority'' to be so significant a portion of the institution's lending
activity by number [or] and dollar volume of loans that
the lending test evaluation would not meaningfully reflect its lending
performance if consumer loans were excluded.

Sec.  ----.22(a)(2) Loan originations and purchases/other loan data.

    Sec.  ----.22(a)(2)--1: How are lending commitments (such as
letters of credit) evaluated under the regulation?
    A1. The agencies consider lending commitments (such as letters of
credit) only at the option of the institution , regardless of
examination type . Commitments must be legally binding between
an institution and a borrower in order to be considered. Information
about lending commitments will be used by examiners to enhance their
understanding of an institution's performance , but will be
evaluated separately from the loans .
    Sec.  ----.22(a)(2)--2: Will examiners review application data as
part of the lending test?
    A2. Application activity is not a performance criterion of the
lending test. However, examiners may consider this information in the
performance context analysis because this information may give
examiners insight on, for example, the demand for loans.
    Sec.  ----.22(a)(2)--3: May a financial institution receive
consideration under CRA for home mortgage loan modification, extension,
and consolidation agreements (MECAs), in which it obtains home mortgage
loans from other institutions without actually purchasing or
refinancing the home mortgage loans, as those terms have been
interpreted under CRA and HMDA, as implemented by 12 CFR [pt.]
part 203?
    A3. Yes. In some states, MECAs, which are not considered loan
refinancings because the existing loan obligations are not satisfied
and replaced, are common. Although these transactions are not
considered to be purchases or refinancings, as those terms have been
interpreted under CRA, they do achieve the same results. [An] A
small, intermediate small, or large institution may present
information about its MECA activities with respect to home mortgages to
examiners for consideration under the lending test as ``other loan
data.''
    Sec.  ----.22(a)(2)--4: In addition to MECAs, what are other
examples of ``other loan data''?
    A4. Other loan data include, for example:
     Loans funded for sale to the secondary markets that an
institution has not reported under HMDA;
     Unfunded loan commitments and letters of credit;
     Commercial and consumer leases;
     Loans secured by nonfarm residential real estate, not
taken as an abundance of caution, that are used to finance small
businesses or small farms and that are not reported as small business/
small farm loans or reported under HMDA;
     Loans that do not have a primary purpose of community
development, but where a certain amount or percentage of units is set
aside for affordable housing; and
     An increase to a small business or small farm line of
credit if the increase would cause the total line of credit to exceed
$1 million, in the case of a small business line, or $500,000, in the
case of a small farm line.
    Sec.  ----.22(a)(2)--[4] 5 : Do institutions receive
consideration for originating or purchasing loans that are fully
guaranteed?
    A4. Yes. [The test evaluates] For all examination types,
examiners evaluate an institution's record of helping to meet
the credit needs of its assessment area(s) through the origination or
purchase of specified types of loans. [The test does] Examiners
do not take into account whether or not such loans are
guaranteed.
    Sec.  ----.22(a)(2)--6: Do institutions receive
consideration for purchasing loan participations?
    A5. Yes. Examiners will consider the amount of loan participations
purchased when evaluating an institution's record of helping to meet
the credit needs of its assessment area(s) through the origination or
purchase of specified types of loans, regardless of examination type.

     Sec.  ----.22(a)(2)--7: How are refinancings of small
business loans, which are secured by a one-to-four family residence and
that have been reported under HMDA as a refinancing, evaluated under
CRA?
    A6. For banks subject to the Call Report instructions: A loan of $1
million or less with a business purpose that is secured by a one-to-
four family residence is considered a small business loan for CRA
purposes only if the security interest in the residential property was
taken as an abundance of caution and where the terms have not been made
more favorable than they would have been in the absence of the lien.
(See Call Report Glossary definition of ``Loan Secured by Real
Estate.'') If this same loan is refinanced and the new loan is also
secured by a one-to-four family residence, but only through an
abundance of caution, this loan is reported not only as a refinancing
under HMDA, but also as a small business loan under CRA. (Note that
small farm loans are similarly treated.)
    It is not anticipated that ``double-reported'' loans will be so
numerous as to affect the typical institution's CRA rating. In the
event that an institution reports a significant number or amount of
loans as both home mortgage and small business loans, examiners will
consider that overlap in evaluating the institution's performance and
generally will consider the ``double-reported'' loans as small business
loans for CRA consideration.
    The origination of a small business or small farm loan that is
secured by a one-to-four family residence is not reportable under HMDA,
unless the purpose of the loan is home purchase or home improvement.
Nor is the loan reported as a small business or small farm loan if the
security interest is not taken merely as an abundance of caution. Any
such loan may be provided to examiners as ``other loan data'' (``Other
Secured Lines/Loans for Purposes of Small Business'') for consideration
during a CRA evaluation. See Q&A Sec.  ----.12(v)--3. The

[[Page 37941]]

refinancings of such loans would be reported under HMDA.
    For savings associations subject to the Thrift Financial Reporting
instructions: A loan of $1 million or less with a business purpose
secured by a one-to-four family residence is considered a small
business loan for CRA purposes if it is reported as a small business
loan for TFR purposes and was not reported on the TFR as a mortgage
loan (TFR Instructions for Commercial Loans: Secured). If this same
loan is refinanced and the new loan is also secured by a one-to-four
family residence, and was not reported for TFR purposes as a mortgage
loan, this loan is reported not only as a refinancing for HMDA, but is
also reported as a small business loan under the TFR and CRA. The
origination of a small business or small farm loan that is secured by a
one-to-four family residence is not reportable under HMDA, unless the
purpose of the loan is home purchase or home improvement. Nor is the
loan reported as small business or small farm if it was reported as a
mortgage on the TFR report.
    OTS does not anticipate that ``double-reported'' loans will be so
numerous as to affect the typical institution's CRA rating. In the
event that an institution reports a significant number or amount of
loans as both home mortgage and small business loans, examiners will
consider that overlap in evaluating the institution's performance and
generally will consider the ``double-reported'' loans as small business
loans for CRA consideration.
    The origination of a small business or small farm loan that is
secured by a one-to-four family residence should be reported in
accordance with Q&A Sec.  ----.12(v)--3. The refinancings of such loans
would be reported under HMDA.

Sec.  ----.22(b) Performance criteria.

    [Sec.  ----.22(b)--1: How will examiners apply the performance
criteria in the lending test? \3\
---------------------------------------------------------------------------

    \3\ Note that this Q&A would be slightly revised and moved to
become Q&A Sec.  ----.22(a)--1, not deleted.
---------------------------------------------------------------------------

    A1. Examiners will apply the performance criteria reasonably and
fairly, in accord with the regulations, the examination procedures, and
this Guidance. In doing so, examiners will disregard efforts by an
institution to manipulate business operations or present information in
an artificial light that does not accurately reflect an institution's
overall record of lending performance.]

Sec.  ----.22(b)(1) Lending activity.

    Sec.  ----.22(b)(1)--1: How will the agencies apply the lending
activity criterion to discourage an institution from originating loans
that are viewed favorably under CRA in the institution itself and
referring other loans, which are not viewed as favorably, for
origination by an affiliate?
    A1. Examiners will review closely institutions with (1) a small
number and amount of home mortgage loans with an unusually good
distribution among low- and moderate-income areas and low- and
moderate-income borrowers and (2) a policy of referring most, but not
all, of their home mortgage loans to affiliated institutions. If an
institution is making loans mostly to low- and moderate-income
individuals and areas and referring the rest of the loan applicants to
an affiliate for the purpose of receiving a favorable CRA rating,
examiners may conclude that the institution's lending activity is not
satisfactory because it has inappropriately attempted to influence the
rating. In evaluating an institution's lending, examiners will consider
legitimate business reasons for the allocation of the lending activity.

Sec.  ----.22(b)(2) & (3) Geographic distribution and borrower
characteristics.

    Sec.  ----.22(b)(2) & (3)--1: How do the geographic distribution of
loans and the distribution of lending by borrower characteristics
interact in the lending test applicable to either large or small
institutions?
    A1. Examiners generally will consider both the distribution of an
institution s loans among geographies of different income
levelsand among borrowers of different income levels
and businesses and farms of different sizes. The
importance of the borrower distribution criterion, particularly in
relation to the geographic distribution criterion, will depend on the
performance context. For example, distribution among borrowers with
different income levels may be more important in areas without
identifiable geographies of different income categories. On the other
hand, geographic distribution may be more important in areas with the
full range of geographies of different income categories.
    Sec.  ----.22(b)(2) & (3)--2: Must an institution lend to all
portions of its assessment area?
    A2. The term ``assessment area'' describes the geographic area
within which the agencies assess how well an institution,
regardless of examination type, has met the specific performance
tests and standards in the rule. The agencies do not expect that simply
because a census tract [or block numbering area] is within an
institution's assessment area(s), the institution must lend to that
census tract[or block numbering area]. Rather the agencies will be
concerned with conspicuous gaps in loan distribution that are not
explained by the performance context. Similarly, if an institution
delineated the entire county in which it is located as its assessment
area, but could have delineated its assessment area as only a portion
of the county, it will not be penalized for lending only in that
portion of the county, so long as that portion does not reflect illegal
discrimination or arbitrarily exclude low- or moderate-income
geographies. The capacity and constraints of an institution, its
business decisions about how it can best help to meet the needs of its
assessment area(s), including those of low- and moderate-income
neighborhoods, and other aspects of the performance context, are all
relevant to explain why the institution is serving or not serving
portions of its assessment area(s).
    Sec.  ----.22(b)(2) & (3)--3: Will examiners take into account
loans made by affiliates when evaluating the proportion of an
institution's lending in its assessment area(s)?
    A3. Examiners will not take into account loans made by affiliates
when determining the proportion of an institution's lending in its
assessment area(s), even if the institution elects to have its
affiliate lending considered in the remainder of the lending test
evaluation. However, examiners may consider an institution's business
strategy of conducting lending through an affiliate in order to
determine whether a low proportion of lending in the assessment area(s)
should adversely affect the institution's lending test rating.
    Sec.  ----.22(b)(2) & (3)--4: When will examiners consider loans
(other than community development loans) made outside an institution's
assessment area(s)?
    A4. Consideration will be given for loans to low- and moderate-
income persons and small business and farm loans outside of an
institution's assessment area(s), provided the institution has
adequately addressed the needs of borrowers within its assessment
area(s). The agencies will apply this consideration not only to loans
made by large retail institutions being evaluated under the lending
test, but also to loans made by smalland intermediate
small institutions being

[[Page 37942]]

evaluated under [the small institution]their respective
performance standards. Loans to low- and moderate-income persons and
small businesses and farms outside of an institution s assessment
area(s), however, will not compensate for poor lending performance
within the institution s assessment area(s).
    Sec.  ----.22(b)(2) & (3)--5: Under the lending
testapplicable to small, intermediate small, or large
institutions, how will examiners evaluate home mortgage loans to
middle- or upper-income individuals in a low- or moderate-income
geography?
    A5. Examiners will consider these home mortgage loans under the
performance criteria of the lending test, i.e., by number and amount of
home mortgage loans, whether they are inside or outside the financial
institution's assessment area(s), their geographic distribution, and
the income levels of the borrowers. Examiners will use information
regarding the financial institution's performance context to determine
how to evaluate the loans under these performance criteria. Depending
on the performance context, examiners could view home mortgage loans to
middle-income individuals in a low-income geography very differently.
For example, if the loans are for homes or multifamily housing located
in an area for which the local, state, tribal, or Federal government or
a community-based development organization has developed a
revitalization or stabilization plan (such as a Federal enterprise
community or empowerment zone) that includes attracting mixed-income
residents to establish a stabilized, economically diverse neighborhood,
examiners may give more consideration to such loans, which may be
viewed as serving the low- or moderate-income community's needs as well
as serving those of the middle- or upper-income borrowers. If, on the
other hand, no such plan exists and there is no other evidence of
governmental support for a revitalization or stabilization project in
the area and the loans to middle- or upper-income borrowers
significantly disadvantage or primarily have the effect of displacing
low- or moderate-income residents, examiners may view these loans
simply as home mortgage loans to middle- or upper-income borrowers who
happen to reside in a low- or moderate-income geography and weigh them
accordingly in their evaluation of the institution.

Sec.  ----.22(b)(4) Community development lending.

    Sec.  ----.22(b)(4)--1: When evaluating an institution's record of
community development lending  under the lending test applicable
to large institutions, may an examiner distinguish among
community development loans on the basis of the actual amount of the
loan that advances the community development purpose?
    A1. Yes. When evaluating the institution s record of community
development lending under 12 CFR [Sec.  ]----.22(b)(4),
it is appropriate to give greater weight to the amount of the loan that
is targeted to the intended community development purpose. For example,
consider two $10 million projects (with a total of 100 units each) that
have as their express primary purpose affordable housing and are
located in the same community. One of these projects sets aside 40
percent of its units for low-income residents and the other project
allocates 65 percent of its units for low-income residents. An
institution would report both loans as $10 million community
development loans under the 12 CFR [Sec.  ]----.42(b)(2)
aggregate reporting obligation. However, transaction complexity,
innovation and all other relevant considerations being equal, an
examiner should also take into account that the 65 percent project
provides more affordable housing for more people per dollar expended.
    Under 12 CFR [Sec.  ]----.22(b)(4), the extent of CRA
consideration an institution receives for its community development
loans should bear a direct relation to the benefits received by the
community and the innovation or complexity of the loans required to
accomplish the activity, not simply to the dollar amount expended on a
particular transaction. By applying all lending test performance
criteria, a community development loan of a lower dollar amount could
meet the credit needs of the institution's community to a greater
extent than a community development loan with a higher dollar amount,
but with less innovation, complexity, or impact on the community.

Sec.  ----.22(b)(5) Innovative or flexible lending practices.

    Sec.  .22(b)(5)--1: What is the range of practices that examiners
may consider in evaluating the innovativeness or flexibility of an
institution s lending under the lending test applicable to large
institutions?
    A1. In evaluating the innovativeness or flexibility of an
institution's lending practices (and the complexity and innovativeness
of its community development lending), examiners will not be limited to
reviewing the overall variety and specific terms and conditions of the
credit products themselves. In connection with the evaluation of an
institution's lending, examiners also may give consideration to related
innovations when they augment the success and effectiveness of the
institution's lending under its community development loan programs or,
more generally, its lending under its loan programs that address the
credit needs of low- and moderate-income geographies or individuals.
For example:
     In connection with a community development loan program,
[a bank] an institution may establish a technical
assistance program under which the [bank] institution,
directly or through third parties, provides affordable housing
developers and other loan recipients with financial consulting
services. Such a technical assistance program may, by itself,
constitute a community development service eligible for consideration
under the service test of the CRA regulations. In addition, the
technical assistance may be favorably considered as an innovation that
augments the success and effectiveness of the related community
development loan program.
     In connection with a small business lending program in a
low- or moderate-income area and consistent with safe and sound lending
practices, [a bank] an institution may implement a
program under which, in addition to providing financing, the [bank]
institution also contracts with the small business
borrowers. Such a contracting arrangement would not, standing alone,
qualify for CRA consideration. However, it may be favorably considered
as an innovation that augments the loan program's success and
effectiveness, and improves the program's ability to serve community
development purposes by helping to promote economic development through
support of small business activities and revitalization or
stabilization of low- or moderate-income geographies.

Sec.  ----.22(c) Affiliate lending.

Sec.  ----.22(c)(1) In general.

    Sec.  ----.22(c)(1)--1: If an institution, regardless of
examination type, elects to have loans by its affiliate(s)
considered, may it elect to have only certain categories of loans
considered?
    A1. Yes. An institution may elect to have only a particular
category of its affiliate's lending considered. The basic categories of
loans are home mortgage loans, small business loans, small farm loans,
community development loans, and the five categories of consumer

[[Page 37943]]

loans (motor vehicle loans, credit card loans, home equity loans, other
secured loans, and other unsecured loans).

Sec.  ----.22(c)(2) Constraints on affiliate lending.

Sec.  ----.22(c)(2)(i) No affiliate may claim a loan origination or
loan purchase if another institution claims the same loan origination
or purchase.

    Sec.  ----.22(c)(2)(i)--1: [How] Regardless of examination
type, how is this constraint on affiliate lending applied?
    A1. This constraint prohibits one affiliate from claiming a loan
origination or purchase claimed by another affiliate. However, an
institution can count as a purchase a loan originated by an affiliate
that the institution subsequently purchases, or count as an origination
a loan later sold to an affiliate, provided the same loans are not sold
several times to inflate their value for CRA purposes. For
example, assume that two institutions are affiliated. Bank A originates
a loan and claims it as a loan origination. Bank B later purchases the
loan. Bank B may count the loan as a purchased loan.
    The same institution may not count both the origination and
purchase. Thus, for example, if an institution claims loans made by an
affiliated mortgage company as loan originations, the institution may
not also count the loans as purchased loans if it later purchases the
loans from its affiliate.

Sec.  ----.22(c)(2)(ii) If an institution elects to have its
supervisory agency consider loans within a particular lending category
made by one or more of the institution s affiliates in a particular
assessment area, the institution shall elect to have the agency
consider all loans within that lending category in that particular
assessment area made by all of the institution's affiliates.

    Sec.  ----.22(c)(2)(ii)--1: [How] Regardless of examination
type, how is this constraint on affiliate lending applied?
    A1. This constraint prohibits ``cherry-picking'' affiliate loans
within any one category of loans. The constraint requires an
institution that elects to have a particular category of affiliate
lending in a particular assessment area considered to include all loans
of that type made by all of its affiliates in that particular
assessment area. For example, assume that an institution has [one or
more]several affiliates, [such as]including
a mortgage [bank]company that makes loans in the
institution's assessment area. If the institution elects to include the
mortgage [bank's]company's home mortgage loans, it must
include all of [mortgage bank's] its affiliates' home
mortgage loans made in its assessment area. [The]In addition,
the institution cannot elect to include only those low- and
moderate-income home mortgage loans made by [the mortgage bank
affiliate] its affiliates and not home mortgage loans to
middle- and upper-income individuals or areas.
    Sec.  ----.22(c)(2)(ii)-2: [How]Regardless of examination
type, how is this constraint applied if an institution's
affiliates are also insured depository institutions subject to the CRA?
    A2. Strict application of this constraint against ``cherry-
picking'' to loans of an affiliate that is also an insured depository
institution covered by the CRA would produce the anomalous result that
the other institution would, without its consent, not be able to count
its own loans. Because the agencies did not intend to deprive an
institution subject to the CRA of receiving consideration for its own
lending, the agencies read this constraint slightly differently in
cases involving a group of affiliated institutions, some of which are
subject to the CRA and share the same assessment area(s). In those
circumstances, an institution that elects to include all of its
mortgage affiliate's home mortgage loans in its assessment area would
not automatically be required to include all home mortgage loans in its
assessment area of another affiliate institution subject to the CRA.
However, all loans of a particular type made by any affiliate in the
institution's assessment area(s) must either be counted by the lending
institution or by another affiliate institution that is subject to the
CRA. This reading reflects the fact that a holding company may, for
business reasons, choose to transact different aspects of its business
in different subsidiary institutions. However, the method by which
loans are allocated among the institutions for CRA purposes must
reflect actual business decisions about the allocation of banking
activities among the institutions and should not be designed solely to
enhance their CRA evaluations.

Sec.  ----.22(d) Lending by a consortium or a third party.

    Sec.  ----.22(d)--1: Will equity and equity-type investments in a
third party receive consideration under the lending test?
    A1. If an institution has made an equity or equity-type investment
in a third party, community development loans made by the third party
may be considered under the lending test. On the other hand, asset-
backed and debt securities that do not represent an equity-type
interest in a third party will not be considered under the lending test
unless the securities are booked by the purchasing institution as a
loan. For example, if an institution purchases stock in a community
development corporation (``CDC'') that primarily lends in low- and
moderate-income areas or to low- and moderate-income individuals in
order to promote community development, the institution may claim a pro
rata share of the CDC's loans as community development loans. The
institution's pro rata share is based on its percentage of equity
ownership in the CDC. Q&A Sec.  ----.23(b)--1 provides
information concerning consideration of an equity or equity-type
investment under the investment test and both the lending and
investment tests. (Note that in connection with an intermediate
small institution's CRA performance evaluation, community development
loans, including pro rata shares of community development loans, are
considered only in the community development test.)
    Sec.  ----.22(d)-2: [How] Regardless of examination type,
how will examiners evaluate loans made by consortia or third
parties [under the lending test]?
    A2. Loans originated or purchased by consortia in which an
institution participates or by third parties in which an institution
invests will[ only] be consideredonly if they qualify as
community development loans and will[ only] be
consideredonly under the community development criterion[
of the lending test]. However, loans originated directly on the books
of an institution or purchased by the institution are considered to
have been made or purchased directly by the institution, even if the
institution originated or purchased the loans as a result of its
participation in a loan consortium. These loans would be considered
under[ all] the lending testor community development test
criteria appropriate to them depending on the type of loanand
type of examination.
    Sec.  ----.22(d)--3: In some circumstances, an institution may
invest in a third party, such as a community development bank, that is
also an insured depository institution and is thus subject to CRA
requirements. If the investing institution requests its supervisory
agency to consider its pro rata share of community development loans
made by the third party, as allowed under 12 CFR----.22(d), may

[[Page 37944]]

the third party also receive consideration for these loans?
    A3. Yes, regardless of examination type,as long as
the financial institution and the third party are not affiliates. The
regulations state, at 12 CFR----.22(c)(2)(i), that two affiliates may
not both claim the same loan origination or loan purchase. However, if
the financial institution and the third party are not affiliates, the
third party may receive consideration for the community development
loans it originates, and the financial institution that invested in the
third party may also receive consideration for its pro rata share of
the same community development loans under 12 CFR----.22(d).

Sec.  ----.23 Investment test.

Sec.  ----.23(a) Scope of test.

    Sec.  ----.23(a)--1: May an institution, regardless of
examination type, receive consideration under the CRA
regulations if it invests indirectly through a fund, the purpose of
which is community development, as that is defined in the CRA
regulations?
    A1: Yes, the direct or indirect nature of the qualified investment
does not affect whether an institution will receive consideration under
the CRA regulations because the regulations do not distinguish between
``direct'' and ``indirect'' investments. Thus, an institution's
investment in an equity fund that, in turn, invests in projects that,
for example, provide affordable housing to low- and moderate-income
individuals, would receive consideration as a qualified investment
under the CRA regulations, provided the investment benefits one or more
of the institution's assessment area(s) or a broader statewide or
regional area(s) that includes one or more of the institution's
assessment area(s). Similarly, an institution may receive consideration
for a direct qualified investment in a nonprofit organization that, for
example, supports affordable housing for low- and moderate-income
individuals in the institution's assessment area(s) or a broader
statewide or regional area(s) that includes the institution's
assessment area(s).
    Sec. ----.23(a)--2: In order to receive CRA consideration,
should an institution be able to demonstrate that an investment in a
national or regional fund with a primary purpose of community
development meets the geographic requirements of the CRA regulation by
benefiting one or more of the institution's assessment area(s) or a
broader statewide or regional area that includes the institution's
assessment area(s)?
    A2. Yes. A financial institution should be able to demonstrate that
the investment meets the geographic requirements of the CRA regulation,
although the agencies will employ appropriate flexibility in this
regard. There are several ways to demonstrate that the institution's
investment meets the geographic requirements. For example, if an
institution invests in a new nationwide fund providing foreclosure
relief to low- and moderate-income homeowners, written documentation
provided by fund managers in connection with the institution's
investment indicating that the fund will use its best efforts to invest
in a qualifying activity that meets the geographic requirements may be
used for these purposes. Similarly, a fund may explicitly earmark all
projects or investments to its investors and their specific assessment
areas. (Note, however, that a financial institution has not
demonstrated that the investment meets the geographic requirements of
the CRA regulation if the fund ``double-counts'' investments, by
earmarking the same dollars or the same portions of projects or
investments in a particular geography to more than one investor.) In
addition, if a fund does not earmark projects or investments to
individual institution investors, an allocation method may be used that
recognizes that each investor institution has an undivided interest in
all projects in a fund; thus, each investor institution may claim its
pro-rata share of each project that meets the geographic requirements
of that institution. If, however, 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. See Q&As Sec. ----.12(h)--6
and Sec. ----.12(h)--7 for additional information about the geographic
requirements for qualified investments (recognition of investments
benefiting an area outside an institution's assessment area(s)).

Sec. ----.23(b) Exclusion.

    Sec. ----.23(b)--1: Even though the regulations state that an
activity that is considered under the lending or service tests cannot
also be considered under the investment test, may parts of an activity
be considered under one test and other parts be considered under
another test?
    A1. Yes, in some instances the nature of an activity may make it
eligible for consideration under more than one of the performance
tests. For example, certain investments and related support provided by
a large retail institution to a CDC may be evaluated under the lending,
investment, and service tests. Under the service test, the institution
may receive consideration for any community development services that
it provides to the CDC, such as service by an executive of the
institution on the CDC's board of directors. If the institution makes
an investment in the CDC that the CDC uses to make community
development loans, the institution may receive consideration under the
lending test for its pro-rata share of community development loans made
by the CDC. Alternatively, the institution's investment may be
considered under the investment test, assuming it is a qualified
investment. In addition, an institution may elect to have a part of its
investment considered under the lending test and the remaining part
considered under the investment test. If the investing institution opts
to have a portion of its investment evaluated under the lending test by
claiming [a]its pro rata share of the CDC's community
development loans, the amount of investment considered under the
investment test will be offset by that portion. Thus, the institution[
only] would receive consideration under the investment test for
only the amount of its investment multiplied by the
percentage of the CDC's assets that meet the definition of a qualified
investment.
    Sec. ----.23(b)--2: If home mortgage loans to low- and moderate-
income borrowers have been considered under an institution's lending
test, may the institution that originated or purchased them also
receive consideration under the investment test if it subsequently
purchases mortgage-backed securities that are primarily or exclusively
backed by such loans?
    A2. No. Because the institution received lending test consideration
for the loans that underlie the securities, the institution may not
also receive consideration under the investment test for its purchase
of the securities. Of course, an institution may receive investment
test consideration for purchases of mortgage-backed securities that are
backed by loans to low- and moderate-income individuals as long as the
securities are not backed primarily or exclusively by loans that the
same institution originated or purchased.

Sec.  ----.23(e) Performance criteria

    Sec.  ----.23(e)-1: When applying the four
performance criteria of [Sec.  ] 12 CFR----.23(e), may an

[[Page 37945]]

examiner distinguish among qualified investments based on how much of
the investment actually supports the underlying community development
purpose?
    A1. Yes. [Although Sec.  ----.23(e)(1) speaks in terms of the
dollar amount of qualified investments, the criterion permits]
By applying all the criteria, a qualified investment of a lower
dollar amount may be weighed more heavily under the investment test
than a qualified investment with a higher dollar amount that has fewer
qualitative enhancements. The criteria permit an examiner to
qualitatively weight certain investments differently or
to make other appropriate distinctions when evaluating an institution's
record of making qualified investments. For instance, an examiner
should take into account that a targeted mortgage-backed security that
qualifies as an affordable housing issue that has only 60 percent of
its face value supported by loans to low-or moderate-income borrowers
would not provide as much affordable housing for low- and moderate-
income individuals as a targeted mortgage-backed security with 100
percent of its face value supported by affordable housing loans to low-
and moderate-income borrowers. The examiner should describe any
differential weighting (or other adjustment), and its basis in the
[Public] Performance Evaluation. See also Q&A
Sec.  ----.12(t)-8 for a discussion about the qualitative consideration
of prior period investments. [However, no matter how a qualified
investment is handled for purposes of Sec.  ----.23(e)(1), it will also
be evaluated with respect to the qualitative performance criteria set
forth in Sec.  ----.23(e)(2), (3), and (4). By applying all criteria, a
qualified investment of a lower dollar amount may be weighed more
heavily under the Investment Test than a qualified investment with a
higher dollar amount, but with fewer qualitative enhancements.]
    Sec.  ----.23(e)--2: How do examiners evaluate an institution's
qualified investment in a fund, the primary purpose of which is
community development, as [that is] defined in the CRA regulations?
    A2. When evaluating qualified investments that benefit an
institution's assessment area(s) or a broader statewide or regional
area that includes its assessment area(s) under the investment
test, examiners will look at the following four performance
criteria:
    (1) The dollar amount of qualified investments;
    (2) The innovativeness or complexity of qualified investments;
    (3) The responsiveness of qualified investments to credit and
community development needs; and
    (4) The degree to which the qualified investments are not routinely
provided by private investors.
    With respect to the first criterion, examiners will determine the
dollar amount of qualified investments by relying on the figures
recorded by the institution according to generally accepted accounting
principles (GAAP). Although institutions may exercise a range of
investment strategies, including short-term investments, long-term
investments, investments that are immediately funded, and investments
with a binding, up-front commitment that are funded over a period of
time, institutions making the same dollar amount of investments over
the same number of years, all other performance criteria and
performance context being equal, would receive the same level of
consideration. Examiners will include both new and outstanding
investments in this determination. [The dollar amount] In
addition, the review of qualified investments[ also] will
[include] consider the dollar amount of legally binding
commitments recorded by the institution according to GAAP.
    The extent to which qualified investments receive consideration,
however, depends on how examiners evaluate the investments under the
remaining three performance criteria--innovativeness and complexity,
responsiveness, and degree to which the investment is not routinely
provided by private investors. Examiners also will consider factors
relevant to the institution's CRA performance context, such as the
effect of outstanding long-term qualified investments, the pay-in
schedule, and the amount of any cash call, on the capacity of the
institution to make new investments.

Sec.  ----.24 Service test.

Sec.  ----.24(d) Performance criteria--retail banking services.

    Sec.  ----.24(d)--1: How do examiners evaluate the availability and
effectiveness of an institution's systems for delivering retail banking
services?
    A1. Convenient access to full service branches within a community
is an important factor in determining the availability of credit and
non-credit services. Therefore, the service test performance standards
place primary emphasis on full service branches while still considering
alternative systems, such as automated teller machines (``ATMs''). The
principal focus is on an institution's current distribution of
branches[; therefore] and its record of opening and closing
branches, particularly branches located in low-or moderate-income
geographies or primarily serving low-or moderate-income individuals.
However, an institution is not required to expand its branch
network or operate unprofitable branches. Under the service test,
alternative systems for delivering retail banking services, such as
ATMs, are considered only to the extent that they are effective
alternatives in providing needed services to low- and moderate-income
areas and individuals. Sec.  ----.24(d)--2: How do examiners evaluate
an institution's activities in connection with Individual Development
Accounts (IDAs)?
    A2. Although there is no standard IDA program, IDAs typically are
deposit accounts targeted to low- and moderate-income families that are
designed to help them accumulate savings for education or job-training,
down-payment and closing costs on a new home, or start-up capital for a
small business. Once participants have successfully funded an IDA,
their personal IDA savings are matched by a public or private entity.
Financial institution participation in IDA programs comes in a variety
of forms, including providing retail banking services to IDA account
holders, providing matching dollars or operating funds to an IDA
program, designing or implementing IDA programs, providing consumer
financial education to IDA account holders or prospective account
holders, or other means. The extent of financial institutions'
involvement in IDAs and the products and services they offer in
connection with the accounts will vary. Thus, subject to 12 CFR --
--.23(b), examiners evaluate the actual services and products provided
by an institution in connection with IDA programs as one or more of the
following: community development services, retail banking services,
qualified investments, home mortgage loans, small business loans,
consumer loans, or community development loans. See, e.g., Q&A
Sec.  ----.12(i) 3.
    Note that all types of institutions may participate in IDA
programs. Their IDA activities are evaluated under the performance
criteria of the type of examination applicable to the particular
institution.

Sec.  ----.24(d)(3) Availability and effectiveness of alternative
systems for delivering retail banking services.

    Sec.  ----.24(d)(3)--1: How will examiners evaluate alternative
systems for delivering retail banking services?

[[Page 37946]]

    A1. The regulation recognizes the multitude of ways in which an
institution can provide services, for example, ATMs, banking by
telephone or computer, and bank-by-mail programs. Delivery systems
other than branches will be considered under the regulation to the
extent that they are effective alternatives to branches in providing
needed services to low- and moderate-income areas and individuals. The
list of systems in the regulation is not intended to be [inclusive]
comprehensive.
    Sec.  ----.24(d)(3)--2: Are debit cards considered under the
service test as an alternative delivery system?
    A2. By themselves, no. However, if debit cards are a part of a
larger combination of products, such as a comprehensive electronic
banking service, that allows an institution to deliver needed services
to low- and moderate-income areas and individuals in its community, the
overall delivery system that includes the debit card feature would be
considered an alternative delivery system.

Sec.  ----.24(e) Performance criteria--community development services.

    Sec.  ----.24(e)--1: Under what conditions may an institution
receive consideration for community development services offered by
affiliates or third parties?
    A1. At an institution's option, the agencies will consider services
performed by an affiliate or by a third party on the institution's
behalf under the service test if the services provided enable the
institution to help meet the credit needs of its community. Indirect
services that enhance an institution's ability to deliver credit
products or deposit services within its community and that can be
quantified may be considered under the service test, if those services
have not been considered already under the lending or investment test
(see Q&A Sec.  ----.23(b)--1). For example, an
institution that contracts with a community organization to provide
home ownership counseling to low- and moderate-income home buyers as
part of the institution's mortgage program may receive consideration
for that indirect service under the service test. In contrast,
donations to a community organization that offers financial services to
low- or moderate-income individuals may be considered under the
investment test, but would not also be eligible for consideration under
the service test. Services performed by an affiliate will be treated
the same as affiliate loans and investments made in the institution's
assessment area and may be considered if the service is not claimed by
any other institution. See 12 CFR [Sec. Sec.  ]----.22(c)
and ----.23(c).

Sec.  ----.25 Community development test for wholesale or limited
purpose institutions.

Sec.  ----.25(a) Scope of test.

    Sec.  ----.25(a)--1: How can certain credit card banks help to meet
the credit needs of their communities without losing their exemption
from the definition of ``bank'' in the Bank Holding Company Act (the
BHCA), as amended by the Competitive Equality Banking Act of 1987
(CEBA)?
    A1. Although the BHCA restricts institutions known as CEBA credit
card banks to credit card operations, a CEBA credit card bank can
engage in community development activities without losing its exemption
under the BHCA. A CEBA credit card bank could provide community
development services and investments without engaging in operations
other than credit card operations. For example, the bank could provide
credit card counseling, or the financial expertise of its executives,
free of charge, to community development organizations. In addition, a
CEBA credit card bank could make qualified investments, as long as the
investments meet the guidelines for passive and noncontrolling
investments provided in the BHC Act and the Board's Regulation Y.
Finally, although a CEBA credit card bank cannot make any loans other
than credit card loans, under [Sec.  ] 12 CFR --
--.25(d)(2) (community development test-indirect activities), the bank
could elect to have part of its qualified passive and noncontrolling
investments in a third-party lending consortium considered as community
development lending, provided that the consortium's loans otherwise
meet the requirements for community development lending. When assessing
a CEBA credit card bank's CRA performance under the community
development test, examiners will take into account the bank's
performance context. In particular, examiners will consider the legal
constraints imposed by the BHCA on the bank's activities, as part of
the bank's performance context in [Sec.  ] 12 CFR --
--.21(b)(4).

Sec.  ----.25(d) Indirect activities.

    Sec.  ----.25(d)--1: How are investments in third party community
development organizations considered under the community development
test?
    A1. Similar to the lending test for retail institutions,
investments in third party community development organizations may be
considered as qualified investments or as community development loans
or both (provided there is no double counting), at the institution's
option, as described above in the discussion regarding Sec. Sec.  --
--.22(d) and ----.23(b).

Sec.  ----.25(e) Benefit to assessment area(s).

    Sec.  ----.25(e)--1: How do examiners evaluate a wholesale or
limited purpose institution's qualified investment in a fund that
invests in projects nationwide and which has a primary purpose of
community development, as that is defined in the regulations?
    A1. If examiners find that a wholesale or limited purpose
institution has adequately addressed the needs of its assessment
area(s), they will give consideration to qualified investments, as well
as community development loans and community development services, by
that institution nationwide. In determining whether an institution has
adequately addressed the needs of its assessment area(s), examiners
will consider qualified investments that benefit a broader statewide or
regional area that includes the institution's assessment area(s).

Sec. ----.25(f) Community development performance rating.

    Sec. ----.25(f)--1: Must a wholesale or limited purpose institution
engage in all three categories of community development activities
(lending, investment, and service) to perform well under the community
development test?
    A1. No, a wholesale or limited purpose institution may perform well
under the community development test by engaging in one or more of
these activities.

Sec. ----.26 Small institution performance standards.

    Sec. ----.26--1: When evaluating a small or intermediate small
[bank's] institution's performance, will examiners
consider, at the institution's request, retail and community
development loans originated or purchased by affiliates, qualified
investments made by affiliates, or community development services
provided by affiliates? \4\
---------------------------------------------------------------------------

    \4\ The inserts and deletions are shown as compared to the
current Q&A for the OCC, Board, and FDIC. The comparable Q&A for OTS
does not currently refer to the intermediate small institution test.
See 71 FR at 52379.
---------------------------------------------------------------------------

    A1: Yes. However, a small institution that elects to have examiners
consider affiliate activities must maintain sufficient information that
the examiners may evaluate these activities under the appropriate
performance

[[Page 37947]]

criteria and ensure that the activities are not claimed by another
institution. The constraints applicable to affiliate activities claimed
by large institutions also apply to small and intermediate small
institutions. See [Q&A] Q&As addressing Sec. --
--.22(c)(2) and related guidance provided to large institutions
regarding affiliate activities. Examiners will not include affiliate
lending in calculating the percentage of loans and, as appropriate,
other lending-related activities located in [a bank's] an
institution's assessment area.

Sec. ----.26(a) Performance criteria.

Sec. ----.26(a)(2) Intermediate small institutions.

    Sec. ----.26(a)(2)--1: When is an institution examined as an
intermediate small institution?
    A1. When a small institution has met the intermediate small
institution asset threshold delineated in Sec. ----.12(u)(1) for two
consecutive calendar year-ends, the institution may be examined under
the intermediate small institution examination procedures. The
regulation does not specify an additional lag period between becoming
an intermediate small institution and being examined as an intermediate
small institution, as it does for large institutions, because an
intermediate small institution is not subject to CRA data collection
and reporting requirements. Institutions should contact their primary
regulator for information on examination schedules.

Sec. ----.26[(a) Performance criteria] (b) Lending test.

    Sec. ----.26([a]b)--1: May examiners consider, under
one or more of the performance criteria of the small institution
performance standards, lending-related activities, such as community
development loans and lending-related qualified investments, when
evaluating a small institution?
    A1. Yes. Examiners can consider ``lending-related activities,''
including community development loans and lending-related qualified
investments, when evaluating the first four performance criteria of the
small institution performance test. Although lending-related activities
are specifically mentioned in the regulation in connection with only
the first three criteria (i.e., loan-to-deposit ratio, percentage of
loans in the institution's assessment area, and lending to borrowers of
different incomes and businesses of different sizes), examiners can
also consider these activities when they evaluate the fourth criteria--
geographic distribution of the institution's loans.
    Although lending-related community development activities
are evaluated under the community development test applicable to
intermediate small institutions, these activities may also augment the
loan-to-deposit ratio analysis (12 CFR ----.26(b)(1)) and the
percentage of loans in the intermediate small institution's assessment
area analysis (12 CFR ----.26(b)(2)), if appropriate.
    Sec. ----.26([a]--b)--2: What is meant by ``as
appropriate'' when referring to the fact that lending-related
activities will be considered, ``as appropriate,'' under the various
small institution performance criteria?
    A2. ``As appropriate'' means that lending-related activities will
be considered when it is necessary to determine whether an institution
meets or exceeds the standards for a satisfactory rating. Examiners
will also consider other lending-related activities at an institution's
request , provided they have not also been considered under the
community development test applicable to intermediate small
institutions.
    Sec. ----.26([a]b )--3: When evaluating a small
institution's lending performance, will examiners consider, at the
institution's request, community development loans originated or
purchased by a consortium in which the institution participates or by a
third party in which the institution has invested?
    A3. Yes. However, a small institution that elects to have examiners
consider community development loans originated or purchased by a
consortium or third party must maintain sufficient information on its
share of the community development loans so that the examiners may
evaluate these loans under the small institution performance criteria.
    Sec. ----.26([a]b)--4: Under the small institution
lending test performance standards, will examiners
consider both loan originations and purchases?
    A4. Yes, consistent with the other assessment methods in the
regulation, examiners will consider both loans originated and purchased
by the institution. Likewise, examiners may consider any other loan
data the small institution chooses to provide, including data on loans
outstanding, commitments, and letters of credit.
    Sec.  ----.26([a]b)--5: Under the small institution
lending test performance standards, how will qualified
investments be considered for purposes of determining whether a small
institution receives a satisfactory CRA rating?
    A5. The small institution lending test performance standards focus
on lending and other lending-related activities. Therefore, examiners
will consider only lending-related qualified investments for the
[purposes] purpose of determining whether [the]
a small institution  that is not an intermediate
small institution receives a satisfactory CRA rating.

Sec.  ----.26([a] b)(1) Loan-to-deposit ratio.

    Sec.  ----.26([a]b)(1)--1: How is the loan-to-deposit
ratio calculated?
    A1. A small institution's loan-to-deposit ratio is calculated in
the same manner that the Uniform Bank Performance Report/Uniform Thrift
Performance Report (UBPR/UTPR) determines the ratio. It is calculated
by dividing the institution's net loans and leases by its total
deposits. The ratio is found in the Liquidity and Investment Portfolio
section of the UBPR and UTPR. Examiners will use this ratio to
calculate an average since the last examination by adding the quarterly
loan-to-deposit ratios and dividing the total by the number of
quarters.
    Sec.  ----.26([a]b)(1)--2: How is the
``reasonableness'' of a loan-to-deposit ratio evaluated?
    A2. No specific ratio is reasonable in every circumstance, and each
small institution's ratio is evaluated in light of information from the
performance context, including the institution's capacity to lend,
demographic and economic factors present in the assessment area, and
the lending opportunities available in the assessment area(s). If a
small institution's loan-to-deposit ratio appears unreasonable after
considering this information, lending performance may still be
satisfactory under this criterion taking into consideration the number
and the dollar volume of loans sold to the secondary market or the
number and amount and innovativeness or complexity of community
development loans and lending-related qualified investments.
    Sec.  ----.26([a]b)(1)--3: If an institution makes a
large number of loans off-shore, will examiners segregate the domestic
loan-to-deposit ratio from the foreign loan-to-deposit ratio?
    A3. No. Examiners will look at the institution's net loan-to-
deposit ratio for the whole institution, without any adjustments.

[[Page 37948]]

Sec.  ----.26([a]b)(2) Percentage of lending within
assessment area(s).

    Sec.  ----.26([a]b)(2)--1: Must a small institution
have a majority of its lending in its assessment area(s) to receive a
satisfactory performance rating?
    A1. No. The percentage of loans and, as appropriate, other lending-
related activities located in the [bank's] institution's
assessment area(s) is but one of the performance criteria upon which
small institutions are evaluated. If the percentage of loans and other
lending related activities in an institution's assessment area(s) is
less than a majority, then the institution does not meet the standards
for satisfactory performance only under this criterion. The effect on
the overall performance rating of the institution, however, is
considered in light of the performance context, including information
regarding economic conditions[,]; loan
demand[,]; the institution's size, financial condition
[and] business strategies, and branching network
; and other aspects of the institution's lending record.

Sec.  ----.26([a] b)(3) & (4) Distribution of lending
within assessment area(s) by borrower income and geographic location.

    Sec.  ----.26([a] b)(3) & (4)--1: How will a small
institution's performance be assessed under these lending distribution
criteria?
    A1. Distribution of loans, like other small institution performance
criteria, is considered in light of the performance context. For
example, a small institution is not required to lend evenly throughout
its assessment area(s) or in any particular geography. However, in
order to meet the standards for satisfactory performance under this
criterion, conspicuous gaps in a small institution's loan distribution
must be adequately explained by performance context factors such as
lending opportunities in the institution's assessment area(s), the
institution's product offerings and business strategy, and
institutional capacity and constraints. In addition, it may be
impracticable to review the geographic distribution of the lending of
an institution with very few demographically distinct
geographies within an assessment area. If sufficient information on the
income levels of individual borrowers or the revenues or sizes of
business borrowers is not available, examiners may use[ proxies such
as] loan size as a proxy for estimating borrower
characteristics, where appropriate.

Sec.  ----.26(c) Intermediate small institution community
development test.

    Sec.  ----.26(c)--1: How will the community development test be
applied flexibly for intermediate small [banks]
institutions ? \5\
---------------------------------------------------------------------------

    \5\ The inserts and deletions are shown as compared to the
current Q&A for the OCC, Board, and FDIC. There currently is no
comparable Q&A for OTS.
---------------------------------------------------------------------------

    A1: Generally, intermediate small [banks]
institutions engage in a combination of community
development loans, qualified investments, and community development
services. [A bank] An institution may not simply ignore
one or more of these categories of community development, nor do the
regulations prescribe a required threshold for community development
loans, qualified investments, and community development services.
Instead, based on the [bank's] institution's assessment
of community development needs in its assessment area(s), it may engage
in different categories of community development activities that are
responsive to those needs and consistent with the [bank's]
institution's capacity.
    An intermediate small [bank] institution has the
flexibility to allocate its resources among community development
loans, qualified investments, and community development services in
amounts that it reasonably determines are most responsive to community
development needs and opportunities. Appropriate levels of each of
these activities would depend on the capacity and business strategy of
the [bank] institution , community needs, and number and
types of opportunities for community development.

Sec. ----.26(c)(3) Community development services.

    Sec. ----.26(c)(3)--1: What will examiners consider when evaluating
the provision of community development services by an intermediate
small [bank]institution? \6\
---------------------------------------------------------------------------

    \6\ The inserts and deletions are shown as compared to the
current Q&A for the OCC, Board, and FDIC. There currently is no
comparable Q&A for OTS.
---------------------------------------------------------------------------

    A1: Examiners will consider not only the types of services provided
to benefit low- and moderate-income individuals, such as low-cost
[bank] checking accounts and low-cost remittance services, but also the
provision and availability of services to low- and moderate-income
individuals, including through branches and other facilities located in
low- and moderate-income areas. Generally, the presence of branches
located in low- and moderate-income geographies will help to
demonstrate the availability of banking services to low- and moderate-
income individuals.

Sec. ----.26(c)(4) Responsiveness to community development
needs

    Sec. ----.26(c)(4)-1: When evaluating an intermediate small
[bank's]institution'scommunity development record, what
will examiners consider when reviewing the responsiveness of community
development lending, qualified investments, and community development
services to the community development needs of the area? \7\
---------------------------------------------------------------------------

    \7\ The inserts and deletions are shown as compared to the
current Q&A for the OCC, Board, and FDIC. There currently is no
comparable Q&A for OTS.
---------------------------------------------------------------------------

    A1: When evaluating an intermediate small
[bank's]institution'scommunity development record,
examiners will consider not only quantitative measures of performance,
such as the number and amount of community development loans, qualified
investments, and community development services, but also qualitative
aspects of performance. In particular, examiners will evaluate the
responsiveness of the [bank's]institution's community
development activities in light of the
[bank's]institution's capacity, business strategy, the
needs of the community, and the number and types of opportunities for
each type of community development activity (its performance context).
Examiners also will consider the results of any assessment by the
institution of community development needs, and how the
[bank's]institution's activities respond to those needs.
    An evaluation of the degree of responsiveness considers the
following factors: the volume, mix, and qualitative aspects of
community development loans, qualified investments, and community
development services. Consideration of the qualitative aspects of
performance recognizes that community development activities sometimes
require special expertise or effort on the part of the institution or
provide a benefit to the community that would not otherwise be made
available. (However, ``innovativeness'' and ``complexity,'' factors
examiners consider when evaluating a large

[[Page 37949]]

[bank]institution under the lending, investment, and
service tests, are not criteria in the intermediate small
[banks']institutions' community development test.) In
some cases, a smaller loan may have more qualitative benefit to a
community than a larger loan. Activities are considered particularly
responsive to community development needs if they benefit low- and
moderate-income individuals in low- or moderate-income geographies,
designated disaster areas, or distressed or underserved nonmetropolitan
middle-income geographies. Activities are also considered particularly
responsive to community development needs if they benefit low- or
moderate-income geographies.

Sec. ----.26([b]d) Performance rating.

    Sec. ----.26([b]d)--1: How can a small
institutionthat is not an intermediate small
institutionachieve an outstanding performance rating?
    A1. A small institutionthat is not an intermediate small
institutionthat meets each of the standards in the lending test
for a ``satisfactory'' rating and exceeds some or all of those
standards may warrant an ``outstanding'' performance rating. In
assessing performance at the ``outstanding'' level, the agencies
consider the extent to which the institution exceeds each of the
performance standards and, at the institution's option, its performance
in making qualified investments and providing services that enhance
credit availability in its assessment area(s). In some cases, a small
institution may qualify for an ``outstanding'' performance rating
solely on the basis of its lending activities, but only if its
performance materially exceeds the standards for a ``satisfactory''
rating, particularly with respect to the penetration of borrowers at
all income levels and the dispersion of loans throughout the
geographies in its assessment area(s) that display income variation. An
institution with a high loan-to-deposit ratio and a high percentage of
loans in its assessment area(s), but with only a reasonable penetration
of borrowers at all income levels or a reasonable dispersion of loans
throughout geographies of differing income levels in its assessment
area(s), generally will not be rated ``outstanding'' based only on its
lending performance. However, the institution's performance in making
qualified investments and its performance in providing branches and
other services and delivery systems that enhance credit availability in
its assessment area(s) may augment the institution's satisfactory
rating to the extent that it may be rated outstanding.
    Sec. ----.26([b]d)--2: Will a small institution's
qualified investments, community development loans, and community
development services be considered if they do not directly benefit its
assessment area(s)?
    A2. Yes. These activities are eligible for consideration if they
benefit a broader statewide or regional area that includes a small
institution s assessment area(s), as discussed more fully
inQ&As Sec. [Sec.  ]----.12([i]h)[&
563e.12(h)]--6and Sec. ----.12(h)--7.

Sec. ----.27 Strategic plan.

Sec. ----.27(c) Plans in general.

    Sec. ----.27(c)--1: To what extent will the agencies provide
guidance to an institution during the development of its strategic
plan?
    A1. An institution will have an opportunity to consult with and
provide information to the agencies on a proposed strategic plan.
Through this process, an institution is provided guidance on procedures
and on the information necessary to ensure a complete submission. For
example, the agencies will provide guidance on whether the level of
detail as set out in the proposed plan would be sufficient to permit
agency evaluation of the plan. However, the agencies' guidance during
plan development and, particularly, prior to the public comment period,
will not include commenting on the merits of a proposed strategic plan
or on the adequacy of measurable goals.
    Sec. ----.27(c)-2: How will a joint strategic plan be reviewed if
the affiliates have different primary Federal supervisors?
    A2. The agencies will coordinate review of and action on the joint
plan. Each agency will evaluate the measurable goals for those
affiliates for which it is the primary regulator.

Sec. ----.27(f) Plan content.

Sec. ----.27(f)(1) Measurable goals.

    Sec. ----.27(f)(1)--1: How should
annual[``]measurable goals[''] be specified in a
strategic plan?
    A1. [Measurable]Annual measurablegoals (e.g., number
of loans, dollar amount, geographic location of activity, and benefit
to low- and moderate-income areas or individuals) must be stated with
sufficient specificity to permit the public and the agencies to
quantify what performance will be expected. However, institutions are
provided flexibility in specifying goals. For example, an institution
may provide ranges of lending amounts in different categories of loans.
Measurable goals may also be linked to funding requirements of certain
public programs or indexed to other external factors as long as these
mechanisms provide a quantifiable standard.

Sec.  ----.27(g) Plan approval.

Sec.  ----.27(g)(2) Public participation.

    Sec.  ----.27(g)(2)--1: How will the public receive notice of a
proposed strategic plan?
    A1. An institution submitting a strategic plan for approval by the
agencies is required to solicit public comment on the plan for a period
of thirty (30) days after publishing notice of the plan at least once
in a newspaper of general circulation. The notice should be
sufficiently prominent to attract public attention and should make
clear that public comment is desired. An institution may, in addition,
provide notice to the public in any other manner it chooses.

Sec.  ----.28 Assigned ratings.

    Sec.  ----.28--1: Are innovative lending practices, innovative or
complex qualified investments, and innovative community development
services required for a ``satisfactory'' or ``outstanding'' CRA rating?
    A1. No. The performance criterion of innovativeness applies
only under the lending, investment, and service tests applicable to
large institutions and the community development test applicable to
wholesale and limited purpose institutions. Moreover,
even under these tests, the lack of innovative lending
practices, innovative or complex qualified investments, or innovative
community development services alone will not result in a ``needs to
improve'' CRA rating. However, under these tests, the use
of innovative lending practices, innovative or complex qualified
investments, and innovative community development services may augment
the consideration given to an institution's performance under the
quantitative criteria of the regulations, resulting in a higher level
of performance rating. See also Q&A Sec.  ----.26(c)(4)--1 for a
discussion about responsiveness to community development needs under
the community development test applicable to intermediate small
institutions.
    [Sec.  ----.28--2: How is performance under the quantitative and
qualitative

[[Page 37950]]

performance criteria weighed when examiners assign a CRA rating? \8\
---------------------------------------------------------------------------

    \8\ Note that this Q&A would be moved to become Q&A Sec.  --
--.28(b)--1, not deleted.
---------------------------------------------------------------------------

    A2. The lending, investment, and service tests each contain a
number of performance criteria designed to measure whether an
institution is effectively helping to meet the credit needs of its
entire community, including low- and moderate-income neighborhoods, in
a safe and sound manner. Some of these performance criteria are
quantitative, such as number and amount, and others, such as the use of
innovative or flexible lending practices, the innovativeness or
complexity of qualified investments, and the innovativeness and
responsiveness of community development services, are qualitative. The
performance criteria that deal with these qualitative aspects of
performance recognize that these loans, qualified investments, and
community development services sometimes require special expertise and
effort on the part of the institution and provide a benefit to the
community that would not otherwise be possible. As such, the agencies
consider the qualitative aspects of an institution's activities when
measuring the benefits received by a community. An institution's
performance under these qualitative criteria may augment the
consideration given to an institution's performance under the
quantitative criteria of the regulations, resulting in a higher level
of performance and rating.]

Sec.  ----.28(a) Ratings in general.

    Sec.  ----.28(a)--1: How are institutions with domestic branches in
more than one state assigned a rating?
    A1. The evaluation of an institution that maintains domestic
branches in more than one state (``multistate institution'') will
include a written evaluation and rating of its CRA record of
performance as a whole and in each state in which it has a domestic
branch. The written evaluation will contain a separate presentation on
a multistate institution's performance for each metropolitan
statistical area and the nonmetropolitan area within each state, if it
maintains one or more domestic branch offices in these areas. This
separate presentation will contain conclusions, supported by facts and
data, on performance under the performance tests and standards in the
regulation. The evaluation of a multistate institution that maintains a
domestic branch in two or more states in a multistate metropolitan area
will include a written evaluation (containing the same information
described above) and rating of its CRA record of performance in the
multistate metropolitan area. In such cases, the statewide evaluation
and rating will be adjusted to reflect performance in the portion of
the state not within the multistate metropolitan statistical area.
    Sec.  ----.28(a)--2: How are institutions that operate within only
a single state assigned a rating?
    A2. An institution that operates within only a single state
(``single-state institution'') will be assigned a rating of its CRA
record based on its performance within that state. In assigning this
rating, the agencies will separately present a single-state
institution's performance for each metropolitan area in which the
institution maintains one or more domestic branch offices. This
separate presentation will contain conclusions, supported by facts and
data, on the single-state institution's performance under the
performance tests and standards in the regulation.
    Sec.  ----.28(a)--3: How do the agencies weight performance under
the lending, investment, and service [test] tests for
large retail institutions?
    A3. A rating of ``outstanding,'' ``high satisfactory,'' ``low
satisfactory,'' ``needs to improve,'' or ``substantial noncompliance,''
based on a judgment supported by facts and data, will be assigned under
each performance test. Points will then be assigned to each rating as
described in the first matrix set forth below. A large retail
institution's overall rating under the lending, investment and service
tests will then be calculated in accordance with the second matrix set
forth below, which incorporates the rating principles in the
regulation.
 

Points Assigned for Performance Under Lending, Investment and Service Tests

  Lending Service Investment
Outstanding 12 6 6
High Satisfactory 9 4 4
Low Satisfactory 6 3 3
Needs to Improve 3 1 1
Substantial Noncompliance 0 0 0

 

COMPOSITE RATING POINT REQUIREMENTS
(Add points from three tests)

  Rating   Total Points
Outstanding  20 or over.
High Satisfactory  11 through 19.
Low Satisfactory  5 through 10.
Needs to Improve  0 through 4.

        
    Note: There is one exception to the Composite Rating matrix. An
institution may not receive a rating of ``satisfactory'' unless it
receives at least ``low satisfactory'' on the lending test.
Therefore, the total points are capped at three times the lending
test score.

Sec.  ----.28(b) Lending, investment, and service test
ratings

    Sec.  ----.28(b)--1: How is performance under the
quantitative and qualitative performance criteria weighed when
examiners assign a CRA rating?
    A2. The lending, investment, and service tests each contain a
number of performance criteria designed to measure whether an
institution is effectively helping to meet the credit needs of its
entire community, including low- and moderate-income neighborhoods, in
a safe and sound manner. Some of these performance criteria are
quantitative, such as number and amount, and others, such as the use of
innovative or flexible lending practices, the innovativeness or
complexity of qualified investments, and the innovativeness and
responsiveness of community development services, are qualitative. The
performance criteria that deal with these qualitative aspects of
performance recognize that these loans, qualified investments, and
community development services sometimes require special expertise and
effort on the part of the institution and provide a benefit to the
community that would not otherwise be possible. As such, the agencies
consider the qualitative aspects of an institution's activities when

[[Page 37951]]

measuring the benefits received by a community. An institution's
performance under these qualitative criteria may augment the
consideration given to an institution's performance under the
quantitative criteria of the regulations, resulting in a higher level
of performance and rating.

Sec.  ----.28(c) Effect of evidence of discriminatory or other illegal
credit practices

    Sec.  ----.28(c)--1: What is meant by ``discriminatory or other
illegal credit practices''?
    A1. An institution engages in discriminatory credit practices if it
discourages or discriminates against credit applicants or borrowers on
a prohibited basis, in violation, for example, of the Fair Housing Act
or the Equal Credit Opportunity Act (as implemented by Regulation B).
Examples of other illegal credit practices inconsistent with helping to
meet community credit needs include violations of:
     The Truth in Lending Act regarding rescission of certain
mortgage transactions and regarding disclosures and certain loan term
restrictions in connection with credit transactions that are subject to
the Home Ownership and Equity Protection Act;
     The Real Estate Settlement Procedures Act regarding the
giving and accepting of referral fees, unearned fees or kickbacks in
connection with certain mortgage transactions; and
     The Federal Trade Commission Act regarding unfair or
deceptive acts or practices. Examiners will determine the effect of
evidence of illegal credit practices as set forth in examination
procedures and Sec.  ----.28(c) of the regulation.
    Violations of other provisions of the consumer protection laws
generally will not adversely affect an institution's CRA rating, but
may warrant the inclusion of comments in an institution's performance
evaluation. These comments may address the institution's policies,
procedures, training programs, and internal assessment efforts.

Sec.  ----.29 Effect of CRA performance on applications.

Sec.  ----.29(a) CRA performance.

    Sec.  ----.29(a)--1: What weight is given to an institution's CRA
performance examination in reviewing an application?
    A1. In [cases]reviewing applications in which CRA
performance is a relevant factor, information from a CRA[ performance]
examination of the institution is a particularly important
consideration[ in the application process because it
represents]. The examination is a detailed evaluation of
the institution's CRA performance by its Federal supervisory agency. In
this light, an examination is an important, and often controlling,
factor in the consideration of an institution's record. In some cases,
however, the examination may not be recentor a specific
issue raised in the application process, such as progress in addressing
weaknesses noted by examiners, progress in implementing commitments
previously made to the reviewing agency, or a supported allegation from
a commenter, is relevant to CRA performance under the regulation and
was not addressed in the examination. In these circumstances, the
applicant should present sufficient information to supplement its
record of performance and to respond to the substantive issues raised
in the application proceeding.
    Sec.  ----.29(a)--2: What consideration is given to an
institution's commitments for future action in reviewing an application
by those agencies that consider such commitments?
    A2. Commitments for future action are not viewed as part of the CRA
record of performance. In general, institutions cannot use commitments
made in the applications process to overcome a seriously deficient
record of CRA performance. However, commitments for improvements in an
institution's performance may be appropriate to address specific
weaknesses in an otherwise satisfactory record or to address CRA
performance when a financially troubled institution is being acquired.

Sec.  ----.29(b) Interested parties.

    Sec.  ----.29(b)--1: What consideration is given to comments from
interested parties in reviewing an application?
    A1. Materials relating to CRA performance received during the
[applications]application process can provide valuable
information. Written comments, which may express either support for or
opposition to the application, are made a part of the record in
accordance with the agencies' procedures, and are carefully considered
in making the agencies' [decision]decisions. Comments
should be supported by facts about the applicant's performance and
should be as specific as possible in explaining the basis for
supporting or opposing the application. These comments must be
submitted within the time limits provided under the agencies'
procedures.
    Sec.  ----.29(b)--2: Is an institution required to enter into
agreements with private parties?
    A2. No. Although communications between an institution and members
of its community may provide a valuable method for the institution to
assess how best to address the credit needs of the community, the CRA
does not require an institution to enter into agreements with private
parties. [These agreements are not monitored or enforced by the
agencies.]The agencies do not monitor compliance with nor
enforce these agreements.

Sec.  ----.41 Assessment area delineation.

Sec.  ----.41(a) In general.

    Sec.  ----.41(a)--1: How do the agencies evaluate ``assessment
areas'' under the [revised] CRA regulations[ compared to how they
evaluated ``local communities'' that institutions delineated under the
original CRA regulations]?
    A1. The[ revised] rule focuses on the distribution and level of an
institution's lending, investments, and services rather than on how and
why an institution delineated its[ ``local community'' or] assessment
area(s) in a particular manner. Therefore, the agencies will not
evaluate an institution's delineation of its assessment area(s) as a
separate performance criterion[as they did under the original
regulation]. Rather, the agencies will only review whether the
assessment area delineated by the institution complies with the
limitations set forth in the regulations at Sec.  ----.41(e).
    Sec.  ----.41(a)--2: If an institution elects to have the agencies
consider affiliate lending, will this decision affect the institution's
assessment area(s)?
    A2. If an institution elects to have the lending activities of its
affiliates considered in the evaluation of the institution's lending,
the geographies in which the affiliate lends do not affect the
institution's delineation of assessment area(s).
    Sec.  ----.41(a)--3: Can a financial institution identify a
specific  racial or ethnic group rather than a geographic
area as its assessment area?
    A3. No, assessment areas must be based on geography. The
only exception to the requirement to delineate an assessment area based
on geography is that an institution, the business of which
predominantly consists of serving the needs of military personnel or
their dependents who are not located within a defined geographic area,
may delineate its entire deposit customer base as its assessment
area.

[[Page 37952]]

Sec.  ----.41(c) Geographic area(s) for institutions other than
wholesale or limited purpose institutions.

Sec.  ----.41(c)(1) Generally consist of one or more MSAs or
metropolitan divisions or one or more contiguous political
subdivisions.

    Sec.  ----.41(c)(1)--1: Besides cities, towns, and counties, what
other units of local government are political subdivisions for CRA
purposes?
    A1. Townships and Indian reservations are political subdivisions
for CRA purposes. Institutions should be aware that the boundaries of
townships and Indian reservations may not be consistent with the
boundaries of the census tracts [or block numbering areas ]
(``geographies'') in the area. In these cases, institutions must ensure
that their assessment area(s) consists only of whole geographies by
adding any portions of the geographies that lie outside the political
subdivision to the delineated assessment area(s).
    Sec.  ----.41(c)(1)--2: Are wards, school districts, voting
districts, and water districts political subdivisions for CRA purposes?
    A2. No. However, an institution that determines that it
predominantly serves an area that is smaller than a city,
townor other political subdivision may delineate as its
assessment area the larger political subdivision and then, in
accordance with 12 CFR [Sec.  ] ----.41(d), adjust the
boundaries of the assessment area to include only the portion of the
political subdivision that it reasonably can be expected to serve. The
smaller area that the institution delineates must consist of entire
geographies, may not reflect illegal discrimination, and may not
arbitrarily exclude low- or moderate-income geographies.

Sec.  ----.41(d) Adjustments to geographic area(s).

    Sec.  ----.41(d)--1: When may an institution adjust the boundaries
of an assessment area to include only a portion of a political
subdivision?
    A1. Institutions must include whole geographies (i.e., census
tracts[ or block numbering areas]) in their assessment areas and
generally should include entire political subdivisions. Because census
tracts [and block numbering areas] are the common geographic areas used
consistently nationwide for data collection, the agencies require that
assessment areas be made up of whole geographies. If including an
entire political subdivision would create an area that is larger than
the area the institution can reasonably be expected to serve, an
institution may, but is not required to, adjust the boundaries of its
assessment area to include only portions of the political subdivision.
For example, this adjustment is appropriate if the assessment area
would otherwise be extremely large, of unusual configuration, or
divided by significant geographic barriers (such as a river, mountain,
or major highway system). When adjusting the boundaries of their
assessment areas, institutions must not arbitrarily exclude low- or
moderate-income geographies or set boundaries that reflect illegal
discrimination.

Sec.  ----.41(e) Limitations on delineation of an assessment area.

Sec.  ----.41(e)(3) May not arbitrarily exclude low- or moderate-income
geographies.

    Sec.  ----.41(e)(3)--1: How will examiners determine whether an
institution has arbitrarily excluded low- or moderate-income
geographies?
    A1. Examiners will make this determination on a case-by-case basis
after considering the facts relevant to the institution's assessment
area delineation. Information that examiners will consider may include:
     Income levels in the institution's assessment area(s) and
surrounding geographies;
     Locations of branches and deposit-taking ATMs;
     Loan distribution in the institution's assessment area(s)
and surrounding geographies;
     The institution's size;
     The institution's financial condition; and
     The business strategy, corporate structure and product
offerings of the institution.

Sec.  ----.41(e)(4) May not extend substantially beyond [a
CMSA]an MSA boundary or beyond a state boundary unless
located in a multistate MSA.

    Sec.  ----.41(e)(4)--1: What are the maximum limits on the size of
an assessment area?
    A1. An institution [shall]may not delineate an
assessment area extending substantially across the boundaries of [a
consolidated metropolitan statistical area (CMSA) or the boundaries of
an MSA, if the MSA is not located in a CMSA.]an MSA unless the
MSA is in a combined statistical area (CSA)). Although more than one
MSA in a CSA may be delineated as a single assessment area, an
institution's CRA performance in individual MSAs in those assessment
areas will be evaluated using separate median family incomes and other
relevant information at the MSA level rather than at the CSA
level.
    [Similarly, an]An assessment area also
may not extend substantially across state boundaries unless the
assessment area is located in a multistate MSA. An institution may not
delineate a whole state as its assessment area unless the entire state
is contained within [a CMSA]an MSA  . These limitations
apply to wholesale and limited purpose institutions as well as other
institutions.
    An institution [shall]must delineate separate
assessment areas for the areas inside and outside [a CMSA (or MSA if
the MSA is not located in a CMSA)]an MSA if the area
served by the institution's branches outside the [CMSA (or
MSA)]MSA extends substantially beyond the [CMSA (or
MSA)]MSA boundary. Similarly, the institution
[shall]must delineate separate assessment areas for the
areas inside and outside of a state if the institution's branches
extend substantially beyond the boundary of one state (unless the
assessment area is located in a multistate MSA). In addition, the
institution'should also delineate separate assessment areas if it has
branches in areas within the same state that are widely separate and
not at all contiguous. For example, an institution that has its main
office in New York City and a branch in Buffalo, New York, and each
office serves only the immediate areas around it, should delineate two
separate assessment areas.
    Sec.  ----.41(e)(4)--2: [Can]May an institution
delineate one assessment area that consists of an MSA and two large
counties that abut the MSA but are not adjacent to each other?
    A2. As a general rule, an institution's assessment area should not
extend substantially beyond the boundary of an MSA [if the MSA is not
located in a CMSA]. Therefore, the MSA would be a separate assessment
area, and because the two abutting counties are not adjacent to each
other and, in this example, extend substantially beyond the boundary of
the MSA, the institution would delineate each county as a separate
assessment area[ (, so], assuming branches or deposit-taking
ATMs are located in each county and the MSA. So , in this
example, there would be three assessment areas[)]. [However, if the MSA
and the two counties were in the same CMSA, then the institution could
delineate only one assessment area including them all.]However,
if the MSA and the two counties were in the same CSA, then the
institution could delineate only one assessment area including them
all. But, the institution's CRA performance in the

[[Page 37953]]

MSAs and the non-MSA counties in that assessment area would be
evaluated using separate median family incomes and other relevant
information at the MSA and state, non-MSA level, rather than at the CSA
level.

Sec.  ----.42 Data collection, reporting, and disclosure.

    Sec.  ----.42--1: When must an institution collect and report data
under the CRA regulations?
    A1. All institutions except small institutions are subject to data
collection and reporting requirements. (``Small institution'' is
defined in the agencies' CRA regulations at Sec.  ----.12(u).) Examples
describing the data collection requirements of institutions, in
particular those that have just surpassed the asset-size threshold of a
small institution, may be found on the FFIEC Web site at http://www.ffiec.gov/cra.
[A small institution is an institution that,

as of December 31 of either of the prior two calendar years, had total
assets of less than $1 billion (as adjusted).
    For example (assuming no adjustment to the $1 billion small bank
asset level):
 

 Date

 Institution's asset size
(in dollars)
Data collection required
for following calendar year?
12/31/05 990 million No.
12/31/06  1.1. billion No.
12/31/07 980 million No.
12/31/08  1.1 billion No.
12/31/09  1.2 billion Yes, beginning 1/01/10.

    All institutions that are subject to the data collection and
reporting requirements must report the data for a calendar year by
March 1 of the subsequent year. [In the example, above, the institution
would report the data collected for calendar year 2010 by March 1,
2011.]
    The Board of Governors of the Federal Reserve System [is handling
the processing of]  processes  the reports for all of the
primary regulators. [The reports should be submitted in a prescribed
electronic format on a timely basis. The mailing address for submitting
these reports is: Attention: CRA Processing, Board of Governors of the
Federal Reserve System, 1709 New York Avenue, NW., 5th Floor,
Washington, DC 20006].
     Data may be submitted on diskette, CD-ROM, or via Internet
e-mail. CRA respondents are encouraged to send their data via the
Internet. E-mail a properly encrypted CRA file (using the FFIEC
software only Internet e-mail export feature) to the following e-mail
address: crasub@frb.gov. Please mail diskette or CD-ROM submissions to:
Board of Governors of the Federal Reserve System, Attention: CRA
Processing, 20th & Constitution Avenue, NW., MS N502, Washington, DC
20551-0001.
    Sec.  ----.42--2: Should an institution develop its own program for
data collection, or will the regulators require a certain format?
    A2. An institution may use the free software that is provided by
the FFIEC to reporting institutions for data collection and reporting
or develop its own program. Those institutions that develop their own
programs [must follow the precise format for the new CRA data
collection and reporting rules. This format may be obtained by
contacting the CRA Assistance Line at (202) 872-7584.]  may
create a data submission using the File Specifications and Edit
Validation Rules that have been set forth to assist with electronic
data submissions. For information about specific electronic formatting
procedures, contact the CRA Assistance Line at (202) 872-7584 or click
on ``How to File'' at http://www.ffiec.gov/cra.

    Sec.  ----.42--3: How should an institution report data on lines of
credit?
    A3. Institutions must collect and report data on lines of credit in
the same way that they provide data on loan originations. Lines of
credit are considered originated at the time the line is approved or
increased; and an increase is considered a new origination. Generally,
the full amount of the credit line is the amount that is considered
originated. In the case of an increase to an existing line, the amount
of the increase is the amount that is considered originated and that
amount should be reported. However, consistent with the Call Report and
TFR instructions, institutions would not report an increase to a small
business or small farm line of credit if the increase would cause the
total line of credit to exceed $1 million, in the case of a small
business line, or $500,000, in the case of a small farm line. Of
course, institutions may provide information about such line increases
to examiners as other loan data.
    Sec.  ----.42--4: Should renewals of lines of credit be collected
and/or reported?
    A4. Renewals of lines of credit for small business, small farm[ or]
 ,  consumer , or community development 
purposes should be collected and reported, if applicable, in the same
manner as renewals of small business or small farm loans. See 
Q&A  Sec.  ----.42(a)--5. Institutions that are HMDA reporters
continue to collect and report home equity lines of credit at their
option in accordance with the requirements of 12 CFR part 203.
    Sec.  ----.42--5: When should merging institutions collect data?
    A5. Three scenarios of data collection responsibilities for the
calendar year of a merger and subsequent data reporting
responsibilities are described below.
     Two institutions are exempt from CRA collection and
reporting requirements because of asset size. The institutions merge.
No data collection is required for the year in which the merger takes
place, regardless of the resulting asset size. Data collection would
begin after two consecutive years in which the combined institution had
year-end assets [of at least $250 million or was part of a holding
company that had year-end banking and thrift assets of at least $1
billion]  at least equal to the small institution asset-size
threshold amount described in 12 CFR ----.12(u)(1).
     Institution A, an institution required to collect and
report the data, and Institution B, an exempt institution, merge.
Institution A is the surviving institution. For the year of the merger,
data collection is required for Institution A's transactions. Data
collection is optional for the transactions of the previously exempt
institution. For the following year, all transactions of the surviving
institution must be collected and reported.
     Two institutions that each are required to collect and
report the data merge. Data collection is required for the entire year
of the merger and for subsequent years so long as the surviving
institution is not exempt. The

[[Page 37954]]

surviving institution may file either a consolidated submission or
separate submissions for the year of the merger but must file a
consolidated report for subsequent years.
    Sec.  ----.42--6: Can small institutions get a copy of the data
collection software even though they are not required to collect or
report data?
    A6. Yes. Any institution that is interested in receiving a copy of
the software [may send a written request to: Attn.: CRA Processing,
Board of Governors of the Federal Reserve System, 1709 New York Ave,
NW., 5th Floor, Washington, DC 20006. They]  may download it
from the FFIEC Web site at http://www.ffiec.gov/cra. For assistance,

institutions  may [also] call the CRA Assistance Line at (202)
872-7584 or send [Internet]  an  e-mail to
CRAHELP@FRB.GOV
.

    Sec.  ----.42--7: If a small institution is designated a wholesale
or limited purpose institution, must it collect data that it would not
otherwise be required to collect because it is a small institution?
    A7. No. However, small institutions  that are designated as
wholesale or limited purpose institutions  must be prepared to
identify those loans, investments, and services to be evaluated under
the community development test.

Sec.  ----.42(a) Loan information required to be collected and
maintained.

    Sec.  ----.42(a)--1: Must institutions collect and report data on
all commercial loans [under]  of  $1 million  or
less  at origination?
    A1. No. Institutions that are not exempt from data collection and
reporting are required to collect and report only those commercial
loans that they capture in the Call Report, Schedule RC-C, Part II, and
in the TFR, Schedule SB. Small business loans are defined as those
whose original amounts are $1 million or less and that were reported as
either ``Loans secured by nonfarm or nonresidential real estate'' or
``Commercial and Industrial loans'' in Part I of the Call Report or
TFR.
    Sec.  ----.42(a)-- 2: For loans defined as small business loans,
what information should be collected and maintained?
    A2. Institutions that are not exempt from data collection and
reporting are required to collect and maintain  ,  in a
standardized, machine  --  readable format, information
on each small business loan originated or purchased for each calendar
year:
     A unique number or alpha-numeric symbol that can be used
to identify the relevant loan file;
     The loan amount at origination;
     The loan location; and
     An indicator whether the loan was to a business with gross
annual revenues of $1 million or less.
    The location of the loan must be maintained by census tract [ or
block numbering area]. In addition, supplemental information contained
in the file specifications includes a date associated with the
origination or purchase and whether a loan was originated or purchased
by an affiliate. The same requirements apply to small farm loans.
    Sec.  ----.42(a)--3: Will farm loans need to be segregated from
business loans?
    A3. Yes.
    Sec.  ----.42(a)--4: Should institutions collect and report data on
all agricultural loans [under] of $500,000 or
less at origination?
    A4. Institutions are to report those farm loans that they capture
in the Call Report, Schedule RC-C, Part II and Schedule SB of the TFR.
Small farm loans are defined as those whose original amounts are
$500,000 or less and were reported as either ``Loans to finance
agricultural production and other loans to farmers'' or ``Loans secured
by farmland'' in Part I of the Call Report [and] or TFR.
    Sec.  ----.42(a)-5: Should institutions collect and report data
about small business and small farm loans that are refinanced or
renewed?
    A5. An institution should collect information about small business
and small farm loans that it refinances or renews as loan originations.
(A refinancing generally occurs when the existing loan obligation or
note is satisfied and a new note is written, while a renewal refers to
an extension of the term of a loan. However, for purposes of small
business and small farm CRA data collection and reporting, it is [no
longer] not necessary to distinguish between the two.)
When reporting small business and small farm data, however, an
institution may only report one origination (including a renewal or
refinancing treated as an origination) per loan per year, unless an
increase in the loan amount is granted. However, a demand loan
that is merely reviewed annually is not reported as a renewal because
the term of the loan has not been extended.
    If an institution increases the amount of a small business or small
farm loan when it extends the term of the loan, it should always report
the amount of the increase as a small business or small farm loan
origination. The institution should report only the amount of the
increase if the original or remaining amount of the loan has already
been reported one time that year. For example, a financial institution
makes a term loan for $25,000; principal payments have resulted in a
present outstanding balance of $15,000. In the next year, the customer
requests an additional $5,000, which is approved, and a new note is
written for $20,000. In this example, the institution should report
both the $5,000 increase and the renewal or refinancing of the $15,000
as originations for that year. These two originations may be reported
together as a single origination of $20,000.
    Sec.  ----.42(a)--6: Does a loan to the ``fishing industry'' come
under the definition of a small farm loan?
    A6. Yes. Instructions for Part I of the Call Report and Schedule SB
of the TFR include loans ``made for the purpose of financing fisheries
and forestries, including loans to commercial fishermen'' as a
component of the definition for ``Loans to finance agricultural
production and other loans to farmers.'' Part II of Schedule RC-C of
the Call Report and Schedule SB of the TFR, which serve as the basis of
the definition for small business and small farm loans in the [revised]
regulation, capture both ``Loans to finance agricultural production and
other loans to farmers'' and ``Loans secured by farmland.''
    Sec.  ----.42(a)--7: How should an institution report a home equity
line of credit, part of which is for home improvement purposes[, but
the predominant] and part of which is for small business
purposes?
    A7. [The] When an institution originates a home equity line
of credit that is for both home improvement and small business
purposes, the institution has the option of reporting the
portion of the home equity line that is for home improvement
purposes as a home improvement loan under HMDA.
[That] Examiners would consider that portion of the
[loan] line [would be considered ]when [examiners]
they evaluate the institution's home mortgage
lending.  When an institution refinances a home equity line of
credit into another home equity line of credit, HMDA reporting
continues to be optional. If the institution opts to report the
refinanced line, the entire amount of the line would be reported as a
refinancing and examiners will consider the entire refinanced line when
they evaluate the institution's home mortgage lending.
    [If] If an institution that has originated a home equity
line of credit for both home improvement and small business purposes
(or if an institution that has refinanced such a line into another
line) chooses not to report a

[[Page 37955]]

home improvement loan (or a refinancing) under HMDA, and if the
line meets the regulatory definition of a ``community development
loan,'' the institution should collect and report information on the
entire line as a community development loan. If the line does not
qualify as a community development loan, the institution has the option
of collecting and maintaining (but not reporting) the entire line of
credit as ``Other Secured Lines/Loans for Purposes of Small Business.''
    Sec.  ----.42(a)--8: When collecting small business and small farm
data for CRA purposes, may an institution collect and report
information about loans to small businesses and small farms located
outside the United States?
    A8. At an institution's option, it may collect data about small
business and small farm loans located outside the United States;
however, it cannot report this data because the CRA data collection
software will not accept data concerning loan locations outside the
United States.
    Sec.  ----.42(a)--9: Is an institution that has no small farm or
small business loans required to report under CRA?
    A9. Each institution subject to data reporting requirements must,
at a minimum, submit a transmittal sheet, definition of its assessment
area(s), and a record of its community development loans. If the
institution does not have community development loans to report, the
record should be sent with ``0'' in the community development loan
composite data fields. An institution that has not purchased or
originated any small business or small farm loans during the reporting
period would not submit the composite loan records for small business
or small farm loans.
    Sec.  ----.42(a)--10: How should an institution collect and report
the location of a loan made to a small business or farm if the borrower
provides an address that consists of a post office box number or a
rural route and box number?
    A10. Prudent banking practices and Bank Secrecy Act
regulations dictate that [an
institution]institutions know the location of
[its]their customers and loan collateral. Further,
Bank Secrecy Act regulations specifically state that a post office box
is not an acceptable address. Therefore, institutions typically
will know the actual location of their borrowers or loan collateral
beyond an address consisting only of a post office box.
    Many borrowers have street addresses in addition to[ post office
box numbers or] rural route and box numbers. Institutions should ask
their borrowers to provide the street address of the main business
facility or farm or the location where the loan proceeds otherwise will
be applied. Moreover, in many cases in which the borrower s address
consists only of a rural route number[ or post office box], the
institution knows the location (i.e., the census tract[ or block
numbering area]) of the borrower or loan collateral. Once the
institution has this information available, it should assign
[a]the census tract[ or block numbering area] to that
location (geocode) and report that information as required under the
regulation.
    [For loans originated or purchased in 1998 or
later]However , if [the]an institution
cannot determine [the]a rural borrower's street address,
and does not know the census tract[ or block numbering area], the
institution should report the borrower's state, county, MSA or
metropolitan division , if applicable, and ``NA,'' for ``not
available,'' in lieu of a census tract[ or block numbering area] code.

Sec.  ----.42(a)(2) Loan amount at origination.

    Sec.  ----.42(a)(2)--1: When an institution purchases a small
business or small farm loan, in whole or in part, which
amount should the institution collect and report--the original amount
of the loan or the amount at purchase?
    A1. When collecting and reporting information on purchased small
business and small farm loans, including loan participations, an
institution collects and reports the amount of the loan at origination,
not at the time of purchase. This is consistent with the Call Report s
and TFR'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. When assessing the volume of small business and
small farm loan purchases for purposes of evaluating lending test
performance under CRA, however, examiners will evaluate an institution
s activity based on the amounts at purchase.
    Sec.  ----.42(a)(2)--2: How should an institution collect data
about multiple loan originations to the same business?
    A2. If an institution makes multiple originations to the same
business, the loans should be collected and reported as separate
originations rather than combined and reported as they are on the Call
Report or TFR, which reflect loans outstanding, rather than
originations. However, if institutions make multiple originations to
the same business solely to inflate artificially the number or volume
of loans evaluated for CRA lending performance, the agencies may
combine these loans for purposes of evaluation under the CRA.
    Sec.  ----.42(a)(2)--3: How should an institution collect data
pertaining to credit cards issued to small businesses?
    A3. If an institution agrees to issue credit cards to a
[business'] business's employees, all of the credit card
lines opened on a particular date for that single business should be
reported as one small business loan origination rather than reporting
each individual credit card line, assuming the criteria in the ``small
business loan'' definition in the regulation are met. The credit card
program's ``amount at origination'' is the sum of all of the employee/
business credit cards' credit limits opened on a particular date. If
subsequently issued credit cards increase the small business credit
line, the added amount is reported as a new origination.

Sec.  ----.42(a)(3) The loan location.

    Sec.  ----.42(a)(3)--1: Which location should an institution record
if a small business loan's proceeds are used in a variety of locations?
    A1. The institution should record the loan location by either the
location of the small business borrower's
headquarters or the location where the greatest portion of the proceeds
are applied, as indicated by the borrower.

Sec.  ----.42(a)(4) Indicator of gross annual revenue.

    Sec.  ----.42(a)(4)--1: When indicating whether a small business
borrower had gross annual revenues of $1 million or less, upon what
revenues should an institution rely?
    A1. Generally, an institution should rely on the revenues that it
considered in making its credit decision. For example, in the case of
affiliated businesses, such as a parent corporation and its subsidiary,
if the institution considered the revenues of the entity's parent or a
subsidiary corporation of the parent as well, then the institution
would aggregate the revenues of both corporations to determine whether
the revenues are $1 million or less. Alternatively, if the institution
considered the revenues of only the entity to which the loan is
actually extended, the institution should rely solely upon whether
gross annual revenues are above or below $1 million for that entity.
However, if the institution considered and relied on revenues or income
of a cosigner or guarantor that is not an affiliate of the

[[Page 37956]]

borrower, such as a sole proprietor, the institution should not adjust
the borrower s revenues for reporting purposes.
    Sec.  ----.42(a)(4)--2: If an institution that is not exempt from
data collection and reporting does not request or consider revenue
information to make the credit decision regarding a small business or
small farm loan, must the institution collect revenue information in
connection with that loan?
    A2. No. In those instances, the institution should enter the code
indicating ``revenues not known'' on the individual loan portion of the
data collection software or on an internally developed system. Loans
for which the institution did not collect revenue information may not
be included in the loans to businesses and farms with gross annual
revenues of $1 million or less when reporting this data.
    Sec.  ----.42(a)(4)--3: What gross revenue should an institution
use in determining the gross annual revenue of a start-up business?
    A3. The institution should use the actual gross annual revenue to
date (including $0 if the new business has had no revenue to date).
Although a start-up business will provide the institution with pro
forma projected revenue figures, these figures may not accurately
reflect actual gross revenue and, therefore, should not be
used.
    Sec.  ----.42(a)(4)--4: When [collecting and reporting]
indicating the gross annual revenue of small business or small
farm borrowers, do institutions [collect and report] rely
on the gross annual revenue or the adjusted gross annual revenue
of [its] their borrowers?
    A4. Institutions [collect and report] rely on the
gross annual revenue, rather than the adjusted gross annual revenue, of
their small business or small farm borrowers when
indicating the revenue of small business or small farm
borrowers. The purpose of this data collection is to enable
examiners and the public to judge whether the institution is lending to
small businesses and small farms or whether it is only
making small loans to larger businesses and farms.
    The regulation does not require institutions to request or consider
revenue information when making a loan; however, if institutions do
gather this information from their borrowers, the agencies expect them
to collect and [report] rely upon the borrowers' gross
annual revenue for purposes of CRA. The CRA regulations similarly do
not require institutions to verify revenue amounts; thus, institutions
may rely on the gross annual revenue amount provided by borrowers in
the ordinary course of business. If an institution does not collect
gross annual revenue information for its small business and small farm
borrowers, the institution [would not indicate on the CRA data
collection software that the gross annual revenues of the borrower are
$1 million or less] should enter the code ``revenues not
known''. (See Q&A Sec.  ----.42(a)(4)--2.)

Sec.  ----.42(b) Loan information required to be reported.

Sec.  ----.42(b)(1) Small business and small farm loan data.

    Sec.  ----.42(b)(1)--1: For small business and small farm loan
information that is collected and maintained, what data should be
reported?
    A1. Each institution that is not exempt from data collection and
reporting is required to report in machine-readable form annually by
March 1 the following information, aggregated for each census tract[ or
block numbering area] in which the institution originated or purchased
at least one small business or small farm loan during the prior year:
     The number and amount of loans originated or purchased
with original amounts of $100,000 or less;
     The number and amount of loans originated or purchased
with original amounts of more than $100,000 but less than or equal to
$250,000;
     The number and amount of loans originated or purchased
with original amounts of more than $250,000 but not more than $1
million, as to small business loans, or $500,000, as to small farm
loans; and
     To the extent that information is available, the number
and amount of loans to businesses and farms with gross annual revenues
of $1 million or less (using the revenues the institution considered in
making its credit decision).

Sec.  ----.42(b)(2) Community development loan data.

    Sec.  ----.42(b)(2)--1: What information about community
development loans must institutions report?
    A1. Institutions subject to data reporting requirements must report
the aggregate number and amount of community development loans
originated and purchased during the prior calendar year.
    Sec.  ----.42(b)(2)--2: If a loan meets the definition of a home
mortgage, small business, or small farm loan AND qualifies as a
community development loan, where should it be reported? Can FHA, VA
and SBA loans be reported as community development loans?
    A2. Except for multifamily affordable housing loans, which may be
reported by retail institutions both under HMDA as home mortgage loans
and as community development loans, in order to avoid double counting,
retail institutions must report loans that meet the [definitions]
definition of [home mortgage,] ``home mortgage
loan,'' [small business,] ``small business loan,''
or ``small farm [loans] loan'' only in
those respective categories even if they also meet the definition of
``community development [loans.] loan.'' As
a practical matter, this is not a disadvantage for [retail]
institutions evaluated under the lending, investment, and
service tests because any affordable housing mortgage, small
business, small farm, or consumer loan that would otherwise meet the
definition of [a] ``community development
loan'' will be considered elsewhere in the lending test.
Any of these types of loans that occur outside the institution's
assessment area can receive consideration under the borrower
characteristic criteria of the lending test. See Q&A
Sec.  ----.22(b)(2) & (3)--4.
    Limited purpose and wholesale institutions that meet the
size threshold for reporting purposes also must report loans
that meet the definitions of home mortgage, small business, or small
farm loans in those respective categories[; however, they].
However, these institutions must also report any loans from
those categories that meet the regulatory definition of ``community
development [loans] loan'' as community development
loans. There is no double counting because wholesale and limited
purpose institutions are not subject to the lending test and,
therefore, are not evaluated on their level and distribution of home
mortgage, small business, small farm and consumer
loans.
    Sec.  ----.42(b)(2)--3: When the primary purpose of a loan is to
finance an affordable housing project for low- or moderate-income
individuals, but, for example, only 40 percent of the units in question
will actually be occupied by individuals or families with low or
moderate incomes, should the entire loan amount be reported as a
community development loan?
    A3. Yes. As long as the primary purpose of the loan is a community
development purpose, the full amount of the institution's loan should
be included in its reporting of aggregate amounts of community
development lending. However, as noted in Q&A Sec.  --
--.22(b)(4)--1, examiners may make qualitative distinctions among

[[Page 37957]]

community development loans on the basis of the extent to which the
loan advances the community development purpose.
    Sec.  ----.42(b)(2)--4: When an institution purchases a
participation in a community development loan, which amount should the
institution report--the entire amount of the credit originated by the
lead lender or the amount of the participation purchased?
    A4. The institution reports only the amount of the participation
purchased as a community development loan. However, the institution
uses the entire amount of the credit originated by the lead lender to
determine whether the original credit meets the definition of a ``loan
to a small business,'' ``loan to a small farm,'' or ``community
development loan.'' For example, if an institution purchases a $400,000
participation in a business credit that has a community development
purpose, and the entire amount of the credit originated by the lead
lender is over $1 million, the institution would report $400,000 as a
community development loan.
    Sec.  ----.42(b)(2)--5: Should institutions collect and
report data about community development loans that are refinanced or
renewed?
    A5. Yes. Institutions should collect information about community
development loans that they refinance or renew as loan originations.
Community development loan refinancings and renewals are subject to the
reporting limitations that apply to refinancings and renewals of small
business and small farm loans. See Q&A Sec.  ----.42(a)--5.

Sec.  ----.42(b)(3) Home mortgage loans.

    Sec.  ----.42(b)(3)--1: Must institutions that are not required to
collect home mortgage loan data by the HMDA collect home mortgage loan
data for purposes of the CRA?
    A1. No. If an institution is not required to collect home mortgage
loan data by the HMDA, the institution need not collect home mortgage
loan data under the CRA. Examiners will sample these loans to evaluate
the institution's home mortgage lending. If an institution wants to
ensure that examiners consider all of its home mortgage loans, the
institution may collect and maintain data on these loans.

Sec.  ----.42(c) Optional data collection and maintenance.

Sec.  ----.42(c)(1) Consumer loans.

    Sec.  ----.42(c)(1)--1: What are the data requirements regarding
consumer loans?
    A1. There are no data reporting requirements for consumer loans.
Institutions may, however, opt to collect and maintain data on consumer
loans. If an institution chooses to collect information on consumer
loans, it may collect data for one or more of the following categories
of consumer loans: motor vehicle, credit card, home equity, other
secured, and other unsecured. If an institution collects data for loans
in a certain category, it must collect data for all loans originated or
purchased within that category. The institution must maintain these
data separately for each category for which it chooses to collect data.
The data collected and maintained should include for each loan:
     A unique number or alpha-numeric symbol that can be used
to identify the relevant loan file;
     The loan amount at origination or purchase;
     The loan location; and
     The gross annual income of the borrower that the
institution considered in making its credit decision.
    Generally, guidance given with respect to data collection of small
business and small farm loans, including, for example, guidance
regarding collecting loan location data, and whether to collect data in
connection with refinanced or renewed loans, will also apply to
consumer loans.

Sec.  ----.42(c)(1)(iv) Income of borrower.

    Sec.  ----.42(c)(1)(iv)--1: If an institution does not consider
income when making an underwriting decision in connection with a
consumer loan, must it collect income information?
    A1. No. Further, if the institution routinely collects, but does
not verify, a borrower's income when making a credit decision, it need
not verify the income for purposes of data maintenance.
    Sec.  ----.42(c)(1)(iv)--2: May an institution list ``0'' in the
income field on consumer loans made to employees when collecting data
for CRA purposes as the institution would be permitted to do under
HMDA?
    A2. Yes.
    Sec.  ----.42(c)(1)(iv)--3: When collecting the gross annual income
of consumer borrowers, do institutions collect the gross annual income
or the adjusted gross annual income of the borrowers?
    A3. Institutions collect the gross annual income, rather than the
adjusted gross annual income, of consumer borrowers. The purpose of
income data collection in connection with consumer loans is to enable
examiners to determine the distribution, particularly in the
institution's assessment area(s), of the institution's consumer loans,
based on borrower characteristics, including the number and amount of
consumer loans to low-, moderate-, middle-, and upper-income borrowers,
as determined on the basis of gross annual income.
    The regulation does not require institutions to request or consider
income information when making a loan; however, if institutions do
gather this information from their borrowers, the agencies expect them
to collect the borrowers gross annual income for purposes of CRA. The
CRA regulations similarly do not require institutions to verify income
amounts; thus, institutions may rely on the gross annual income amount
provided by borrowers in the ordinary course of business.
    [Sec.  ]Sec. ----.42(c)(1)(iv)-4: Whose income does an institution
collect when a consumer loan is made to more than one borrower?
    A4. An institution that chooses to collect and maintain information
on consumer loans collects the gross annual income of all primary
obligors for consumer loans, to the extent that the institution
considered the income of the obligors when making the decision to
extend credit. Primary obligors include co-applicants and co-borrowers,
including co-signers. An institution does not, however, collect the
income of guarantors on consumer loans, because guarantors are only
secondarily liable for the debt.

Sec. ----.42(c)(2) Other loan data.

    Sec. ----.42(c)(2)-1: Schedule RC-C, Part II of the Call Report
does not allow banks to report loans for commercial and industrial
purposes that are secured by residential real estate, unless the
security interest in the nonfarm residential real estate is taken only
as an abundance of caution. (See Q&A [Sec.  ]Sec. --
--.12([u] v) [& 563e.12(t)]-3.) Loans extended to small
businesses with gross annual revenues of $1 million or less may,
however, be secured by residential real estate. May a bank collect this
information to supplement its small business lending data at the time
of examination?
    A1. Yes. If these loans promote community development, as defined
in the regulation, the bank should collect and report information about
the loans as community development loans. Otherwise, at the bank's
option, it may collect and maintain data concerning loans, purchases,
and lines of credit extended to small businesses and secured by nonfarm
residential real estate for consideration in the CRA

[[Page 37958]]

evaluation of its small business lending. A bank may collect this
information as ``Other Secured Lines/Loans for Purposes of Small
Business'' in the individual loan data. This information should be
maintained at the bank but should not be submitted for central
reporting purposes.
    Sec. ----.42(c)(2)-2: Must an institution collect data on loan
commitments and letters of credit?
    A2. No. Institutions are not required to collect data on loan
commitments and letters of credit. Institutions may, however, provide
for examiner consideration information on letters of credit and
commitments.
    Sec. ----.42(c)(2)-3: Are commercial and consumer leases considered
loans for purposes of CRA data collection?
    A3. Commercial and consumer leases are not considered small
business or small farm loans or consumer loans for purposes of the data
collection requirements in 12 CFR [Sec.  ]----.42(a) & (c)(1). However,
if an institution wishes to collect and maintain data about leases, the
institution may provide this data to examiners as ``other loan data''
under 12 CFR [Sec.  ]----.42(c)(2) for consideration under the lending
test.

Sec. ----.42(d) Data on affiliate lending.

    Sec. ----.42(d)-1: If an institution elects to have an affiliate's
home mortgage lending considered in its CRA evaluation, what data must
the institution make available to examiners?
    A1. If the affiliate is a HMDA reporter, the institution must
identify those loans reported by its affiliate under 12 CFR part 203
(Regulation C, implementing HMDA). At its option, the institution may
[either] provide examiners with either the affiliate's
entire HMDA Disclosure Statement or just those portions covering the
loans in its assessment area(s) that it is electing to consider. If the
affiliate is not required by HMDA to report home mortgage loans, the
institution must provide sufficient data concerning the affiliate's
home mortgage loans for the examiners to apply the performance tests.

Sec. ----.43 Content and availability of public file.

Sec. ----.43(a) Information available to the public.

Sec. ----.43(a)(1) Public comments related to [a bank's] an
institution's CRA performance.

    Sec. ----.43(a)(1)-1: What happens to comments received by the
agencies?
    A1. Comments received by a Federal financial supervisory agency
will be on file at the agency for use by examiners. Those comments are
also available to the public unless they are exempt from disclosure
under the Freedom of Information Act.
    Sec. ----.43(a)(1)--2: Is an institution required to respond to
public comments?
    A2. No. All institutions should review comments and complaints
carefully to determine whether any response or other action is
warranted. A small institution subject to the small institution
performance standards is specifically evaluated on its record of taking
action, if warranted, in response to written complaints about its
performance in helping to meet the credit needs in its assessment
area(s) (12 CFR [Sec.  ] ----.26([a]b)(5)).
For all institutions, responding to comments may help to foster a
dialogue with members of the community or to present relevant
information to an institution's Federal financial supervisory agency.
If an institution responds in writing to a letter in the public file,
the response must also be placed in that file, unless the response
reflects adversely on any person or placing it in the public file
violates a law.

Sec. ----.43(a)(2) CRA performance evaluation.

    Sec. ----.43(a)([1]2)--[3]1: May an
institution include a response to its CRA [Performance Evaluation]
performance evaluation in its public file?
    A[3]1. Yes. However, the format and content of the
evaluation, as transmitted by the supervisory agency, may not be
altered or abridged in any manner. In addition, an institution that
received a less than satisfactory rating during its most recent
examination must include in its public file a description of its
current efforts to improve its performance in helping to meet the
credit needs of its entire community. See 12 CFR--
--.43(b)(5). The institution must update the description on a
quarterly basis.

Sec. ----.43(b) Additional information available to the public.

Sec. ----.43(b)(1) Institutions other than small institutions.

    Sec. ----.43(b)(1)--1: Must an institution that elects to have
affiliate lending considered include data on this lending in its public
file?
    A1. Yes. The lending data to be contained in an institution's
public file covers the lending of the institution's affiliates, as well
as of the institution itself, considered in the assessment of the
institution's CRA performance. An institution that has elected to have
mortgage loans of an affiliate considered must include either the
affiliate's HMDA Disclosure Statements for the two prior years or the
parts of the Disclosure Statements that relate to the institution's
assessment area(s), at the institution's option.
    Sec. ----.43(b)(1)--2: May an institution retain [the compact disc
provided by the Federal Financial Institution Examination Council that
contains] its CRA [Disclosure Statement] disclosure statement in
electronic format in its public file, rather than printing a
hard copy of the CRA [Disclosure Statement] disclosure
statement for retention in its public file?
    A2. Yes, if the institution can readily print out [from the compact
disc (or a duplicate of the compact disc)] its CRA [Disclosure
Statement for]disclosure statement from an electronic medium
(e.g., CD, DVD, or Internet website) when a consumer [when the
public file is requested] requests the public file. If
the request is at a branch other than the main office or the one
designated branch in each state that holds the complete public file,
the [bank] institution should provide the CRA [Disclosure
Statement] disclosure statement in a paper copy, or in
another format acceptable to the requestor, within 5 calendar days, as
required by 12 CFR [Sec. ]----.43(c)(2)(ii).

Sec. ----.43(c) Location of public information.

    Sec. ----.43(c)--1: What is an institution's ``main office''?
    A1. An institution's main office is the main, home, or principal
office as designated in its charter.
    Sec. ----.43(c)-- 2: May an institution maintain a copy of its
public file on an intranet or the Internet?
    A2. Yes, an institution may keep all or part of its public file on
an intranet or the Internet, provided that the institution maintains
all of the information, either in paper or electronic form, that is
required in Sec. ----.43 of the regulations. An institution that opts
to keep part or all of its public file on an intranet or the Internet
must follow the rules in 12 CFR[Sec.  ]----.43(c)(1) and
(2) as to what information is required to be kept at a main office and
at a branch. The institution also must ensure that the information
required to be maintained at a main office and branch, if kept
electronically, can be readily downloaded and printed for any member of
the public who requests a hard copy of the information.

[[Page 37959]]

Sec. ----.44 Public notice by institutions.

    Sec. ----.44-1: Are there any placement or size requirements for an
institution's public notice?
    A1. The notice must be placed in the institution's public lobby,
but the size and placement may vary. The notice should be placed in a
location and be of a sufficient size that customers can easily see and
read it.

Sec. ----.45--Publication of planned examination schedule.

    Sec. ----.45-1: Where will the agencies publish the planned
examination schedule for the upcoming calendar quarter?
    A1. The agencies may use the Federal Register, a press release, the
Internet, or other existing agency publications for disseminating the
list of the institutions scheduled [to] for CRA examinations during the
upcoming calendar quarter. Interested parties should contact the
appropriate Federal financial supervisory agency for information on how
the agency is publishing the planned examination schedule.
    Sec. ----.45-2: Is inclusion on the list of institutions that are
scheduled to undergo CRA examinations in the next calendar quarter
determinative of whether an institution will be examined in that
quarter?
    A2. No. The agencies attempt to determine as accurately as possible
which institutions will be examined during the upcoming calendar
quarter. However, whether an institution's name appears on the
published list does not conclusively determine whether the institution
will be examined during that quarter. The agencies may need to defer a
planned examination or conduct an unforeseen examination because of
scheduling difficulties or other circumstances.

Appendix A to Part------Ratings

    APPENDIX A to Part------1: Must an institution's performance fit
each aspect of a particular rating profile in order to receive that
rating?
    A1. No. Exceptionally strong performance in some aspects of a
particular rating profile may compensate for weak performance in
others. For example, a retail institution other than an
intermediate small institution that uses non-branch delivery
systems to obtain deposits and to deliver loans may have almost all
of its loans outside the institution's assessment area. Assume that
an examiner, after consideration of performance context and other
applicable regulatory criteria, concludes that the institution has
weak performance under the lending [test] criteria applicable to
lending activity, geographic distribution, and borrower
characteristics within the assessment area. The institution may
compensate for such weak performance by exceptionally strong
performance in community development lending in its assessment area
or a broader statewide or regional area that includes its assessment
area.

Appendix B to Part------CRA Notice

    APPENDIX B to Part------1: What agency information should be
added to the CRA notice form?
    A1. The following information should be added to the form:
    OCC-supervised institutions only: [The] For community
banks, the address of the deputy comptroller of the district
in which the institution is located should be inserted in the
appropriate blank. These addresses can be found at [12 CFR 4.5(a).]
http://www.occ.gov. For banks supervised under the large bank

program, insert ``Large Bank Supervision, 250 E Street, SW.,
Washington, DC 20219-0001.'' For banks supervised under the mid-
size/credit card bank program, insert ``Mid-Size and Credit Card
Bank Supervision, 250 E Street, SW., Washington, DC 20219-
0001.''
    OCC-, FDIC-, and Board-supervised institutions: Officer in
Charge of Supervision is the title of the responsible official at
the appropriate Federal Reserve Bank.
    [Appendix A--Regional Offices of the Bureau of the Census] is
deleted in its entirety.
    End of text of the Interagency Questions and Answers

    Dated: June 26, 2007.
John C. Dugan,
Comptroller of the Currency.


    Dated: June 26, 2007.

    By order of the Board of Governors of the Federal Reserve
System.
Jennifer J. Johnson,
Secretary of the Board.


    Dated at Washington, DC, this 26th day of June, 2007.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.


    Dated: June 26, 2007.

    By the Office of Thrift Supervision.

John M. Reich,
Director.

[FR Doc. 07-3223 Filed 7-10-07; 8:45 am]



    

Last Updated 07/03/2007 Regs@fdic.gov