The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Federal Reserve Bank of Dallas ROBERT D. McTEER, JR. DALLAS, TE XAS PR ES ID EN T 75265-5906 AND C H IE F E X EC U TIVE O FFICER October 24, 1997 Notice 97-98 TO: The Chief Executive Officer of each financial institution and others concerned in the Eleventh Federal Reserve District SUBJECT Interagency Questions and Answers Regarding Community Reinvestment; Request for Public Comment DETAILS The Consumer Compliance Task Force of the Federal Financial Institutions Exami nation Council (FFIEC) is supplementing, amending, and republishing its Interagency Questions and Answers Regarding Community Reinvestment. The publication answers questions most frequently asked about community reinvestment. In addition, public comment is requested on the proposed questions and answers concerning how to determine whether certain activities have a “primary purpose” of community development. Public comment is also requested on the new and revised questions and answers, particularly the guidance regarding home mortgage loans to middle- and upper-income individu als in low- or moderate-income areas. The FFIEC must receive comments by December 5, 1997. Please address comments to Joe M. Cleaver, Executive Secretary, Federal Financial Institutions Examination Council, 2100 Pennsylvania Avenue NW, Suite 200, Washington, DC 20037. ATTACHMENT A copy of the FFIEC’s notice as it appears on pages 52105-28, Vol. 62, No. 193 of the Federal Register dated October 6, 1997, is attached. For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) -2- MORE INFORMATION For more information, please contact Mary Clouthier at (214) 922-6307. For addi tional copies of this Bank’s notice, contact the Public Affairs Department at (214) 922-5254. Sincerely yours, Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Community Reinvestment Act; Interagency Questions and Answers Regarding Community Reinvestment Federal Financial Institutions Examination Council. ACTION: Notice and request for comment. AGENCY: The Consumer Compliance Task Force of the Federal Financial Institutions Exam ination Council (FFIEC) is supplem enting, amending, and republishing its Interagency Questions and Answers Regarding Community Reinvestment. The Interagency Questions and Answers have been prepared by staff of the Office SUMMARY: of the Comptroller of the Currency (OCC), the Federal Reserve Board (Board), the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS) (collectively, the “agencies”) to answ er m ost frequently asked questions about com m unity reinvestm ent. The Interagency Q uestions and Answers contain inform al staff guidance for agency personnel, financial institutions, and the public. Staff of the agencies seek com m ent on the proposed questions and answers concerning how to determ ine w hether particular activities have a “prim ary p u rpose” of com m unity development. In addition, staff also invite public com m ent on the new and revised questions and answers, particularly the guidance regarding hom e mortgage loans to m iddle- and upper-incom e individuals in low- or m oderate-incom e areas. DATES: Effective date of am ended Interagency Q uestions and Answers on Com m unity Reinvestment: October 6, 1997. The agencies request that comm ents on the proposed questions and answers be subm itted on or before December 5, 1997. ADDRESSES: Questions and comments may be sent to Joe M. Cleaver, Executive Secretary, Federal Financial Institutions Exam ination Council, 2100 52105 Pennsylvania A venue NW., Suite 200, W ashington, DC 20037, or by facsimile transm ission to (202) 634-6556. FOR FURTHER INFORMATION CONTACT: OCC: M alloy Harris, National Bank Examiner, Com munity and Consumer Policy Division, (202) 874^1446; or Margaret Hesse, Senior Attorney, Comm unity and Consumer Law Division, (202) 874-5750, Office of the Comptroller of the Currency, 250 E Street, SW., W ashington, DC 20219. Board: Glenn E. Loney, Associate Director, Division of Consumer and Comm unity Affairs, (202) 452-3585; or Robert deV. Frierson, A ssistant General Counsel, Legal Division, (202) 4523711, Board of Governors of the Federal Reserve System, 20th Street and C onstitution Avenue, NW., W ashington, DC 20551. FDIC: Bobbie Jean Norris, National Coordinator, Comm unity Affairs and Comm unity Reinvestment, Division of Compliance and Consumer Affairs, (202) 942-3090; or A nn H ume Loikow, Counsel, Legal Division, (202) 898— 3796, Federal Deposit Insurance Corporation, 550 17th Street, NW., W ashington, DC 20429. OTS: Theresa A. Stark, Project Manager, Compliance Policy, (202) 9067054; or Richard R. Riese, Project Manager, Compliance Policy, (202) 906- 52106 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices 6134, Office of Thrift Supervision, 1700 G Street, NW., W ashington, DC 20552. SUPPLEMENTARY INFORMATION: Background In 1995, the agencies revised their Com munity Reinvestm ent Act (CRA) regulations by issuing a joint final rule, w hich was published on May 4, 1995 (60 FR 22156). See 12 CFR parts 25, 228, 345 and 563e, im plem enting 12 U.S.C. 2901 et seq. The agencies published two notices of proposed rulem aking prior to publishing the joint final rule. See 58 FR 67466 (Dec. 21, 1993); 59 FR 51232 (Oct. 7,1994). The agencies p ublished related clarifying docum ents on December 20, 1995 (60 FR 66048) and May 10, 1996 (61 FR 21362). On October 21, 1996, the Consumer Compliance Task Force of the FFIEC published “Interagency Questions and Answers Regarding Community Reinvestm ent” (hereinafter, Interagency Questions and Answers) to provide informal staff guidance for use by agency personnel, financial institutions, and the public. See 61 FR 54647. In the supplem entary inform ation published w ith the Interagency Questions and Answers, the agencies’ staff requested comments and indicated that they intended to update the Interagency Questions and Answers on a periodic basis. 61 FR at 54648. This docum ent supplem ents, revises, and republishes that guidance based, in part, on questions and com ments received from examiners, financial institutions, and other interested parties. The agencies consider the Interagency Q uestions and Answers to be their prim ary vehicle for dissem inating guidance interpreting their CRA regulations. This docum ent includes new questions and answers that: (1) Clarify that not all activities that finance businesses meeting certain size eligibility standards necessarily promote economic developm ent under the CRA regulations; (2) make a technical correction to one of the questions and answers published in the original Interagency Q uestions and Answers; (3) explain how the Agencies’ examiners evaluate hom e mortgage loans to m iddle- and upper-incom e borrowers in low- and m oderate-incom e areas under the CRA regulations’ lending test; (4) explain how a financial institution should geocode a small business or small farm loan w here the borrower provides only a post office box or rural route and box number; and (5) caution that the A gencies’ quarterly publication of a list of financial institutions that will be exam ined for CRA com pliance is subject to change. Finally, this docum ent especially seeks comm ent on the proposed questions and answers concerning how to determ ine w hether particular activities have a “prim ary p u rpose” of com m unity development, and also invites public com m ent on the n ew and revised questions and answers. A discussion of the revised and new questions and answers follows. Q uestions and answers are grouped by the provision of the CRA regulations th at they discuss and are presented in the same order as the regulatory provisions. The Interagency Questions and Answers em ploy an abbreviated m ethod to cite to the regulations. Because the regulations of the four agencies are substantively identical, corresponding sections of the different regulations usually bear the same suffix. Therefore, the Interagency Questions and Answers typically cite only to the suffix. For example, the small bank perform ance standards for national banks appear at 12 CFR 25.26; for Federal Reserve member banks supervised by the Board, they appear at 12 CFR 228.26; for nonm em ber banks, at 12 CFR 345.26; and for thrifts, at 12 CFR 563e.26. Accordingly, the citation in this docum ent w ould be to § ------.26. In the few instances in w hich the suffix in one of the regulations is different, the specific citation for that regulation is provided. Do All Activities That Finance Businesses Meeting Certain Size Eligibility Standards Promote Economic Development? The CRA Regulations define the term “com m unity developm ent” to include “activities th at prom ote economic developm ent by financing businesses or farms that m eet the size eligibility standards of the Small Business A dm inistration’s Development Company or Small Business Investm ent Company programs (13 CFR 121.301) or have gross annual revenues of $1 m illion or less.” 12 CFR 25.12(h)(3), 228.12(h)(3), 345.12(h)(3) and 563e.12(g)(3). The October 1996 Interagency Q uestions and Answers included a question and answ er concerning w hether all activities that finance these businesses or farms prom ote economic developm ent. That question and answer (Q&A), Q&A1 addressing § § _.12(h)(3) and 563e.12(g)(3), is being revised in response to further questions and public comments. The revised question and answ er clarifies that to be considered as “com m unity developm ent” u nder § § _.12(h)(3) and 563e.12(g)(3), a loan, investm ent or service, w hether made directly or through an interm ediary, m ust m eet both a size test and a purpose test. An activity meets the size requirem ent if it finances entities that either m eet the size eligibility standards of the Small Business A dm inistration’s Development Company (SBDC) or Small Business Investm ent Company (SBIC) programs, or have gross annual revenues of $1 m illion or less. To meet the purpose test, the activity m ust promote economic development. An activity is considered to prom ote economic developm ent if it supports perm anent job creation, retention, and/or im provem ent for persons w ho are currently low- or moderate-income, or supports perm anent job creation, retention, an d / or im provem ent in lowor moderate-incom e geographies targeted for redevelopm ent by Federal, state, local or tribal governments. The agencies w ill presum e that any loan or investm ent in or to a SBDC or SBIC prom otes economic development. Funding provided in connection w ith other SBA programs may also promote economic development; however, examiners w ill make that determ ination based on business types, funding purposes, and other relevant information. Where Do Institutions Find Income Level Data In the October 1996 Interagency Questions and Answers, Q&Al addressing § § __.12(n) and 563e.l2(m) contained an incorrect address for the FFIEC’s internet home page. That question and answer has been revised to include the correct address: ‘h ttp:// www.ffiec.gov/’. Home Mortgage Loans to Middle- and Upper-Income Borrowers in Low- and Moderate-income Areas Several com m unity development organizations have notified the agencies of their belief that the CRA regulations do not sufficiently recognize the efforts of financial institutions that make home mortgage loans to middle- or upperincome borrowers in low- or moderateincome areas. These community organizations have suggested to agency staff that lower-income geographies should be developed into mixed-income geographies, inhabited w ith residents of all income categories. For example, one com munity organization described problems that its com m unity encountered in redeveloping an inner city area by providing single family housing affordable to low- and moderate-income borrowers and other necessary services. Although affordable housing was provided, the com m unity had difficulty attracting retail services. A commercial developer considered building a Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices shopping center near a new, affordable housing development, but determ ined that the center w ould not be profitable because of the lower level of disposable income of m any of the low- and moderate-income homeowners. Consequently, the community organization representative stressed how im portant it is for future developm ent that distressed areas being revitalized attract residents of all incom e levels. The Agencies previously considered the appropriate weight that should be accorded lending in low- and moderateincom e areas to higher-incom e borrowers. During the CRA reform rulem aking process, however, the agencies received public com m ent opposed to a proposal that w ould have evaluated an institution’s lending prim arily based on its lending activities in low- and moderate-incom e geographies. See, e.g., 58 FR 67,466, 67,480 (December 21, 1993). Those commenters opposed the proposal, stating that it w ould inappropriately have given institutions a greater incentive to make loans to high-income borrowers located in low-income geographies than to make loans to lowincome borrowers located in highincome geographies. In response to these comments, the final interagency CRA regulations de-em phasized the location of the loans under the lending test by also evaluating lending based on borrower characteristics, i.e., income. Because of the num erous inquiries the agencies have received since the final rules were issued, agency staff are adding new guidance addressing § __.22(b)(2) & (3), answering how home mortgage loans to borrowers of all incomes, but especially to m iddle- and upper-incom e borrowers, located in low- or m oderate-incom e areas w ill be evaluated u n d er the CRA regulations’ lending test. The new question and answ er explains that examiners consider all hom e mortgage loans u nder the performance criteria of the lending test. This m eans that examiners first evaluate the institu tio n ’s lending activity based on the num ber and am ount of home mortgage loans in the in stitu tio n ’s assessm ent area(s). Examiners next evaluate the geographic distribution of all of the institution’s hom e mortgage loans based on the loan location, including (1) the portion of the institu tio n ’s lending in the in stitution’s assessm ent area(s); (2) the dispersion of lending in the institution’s assessm ent area(s); and (3) the num ber and am ount of loans in low-, moderate-, middle-, and upper-incom e geographies in the institution’s assessm ent area(s). Finally, examiners evaluate these loans based on borrower characteristics, i.e., the num ber and am ount of hom e mortgage loans to low-, moderate-, m iddle-, and upper-incom e individuals. The regulation, however, allows examiners flexibility in judging the appropriate consideration of loans to m iddle- or upper-incom e individuals in low- or m oderate-incom e areas. The new question and answ er explains that all of the lending test criteria m ust be considered in light of an in stitution’s perform ance context. The performance context w ill determ ine the im portance of the borrower distribution criterion, particularly as it relates to the geographic distribution of the loans. If the performance context inform ation indicates, for example, that the loans are for homes located in an area for w hich the local, state, tribal, or Federal Government or a com m unity-based developm ent organization has developed a revitalization or stabilization plan (such as a Federal Enterprise Comm unity or Em powerm ent Zone) that includes attracting mixedincom e residents to establish a stabilized, econom ically diverse neighborhood, the exam iner has the flexibility to consider these loans as favorably as loans to low- or moderateincome borrowers in the low- or moderate-income geography. If, on the other hand, no such plan exists and there is no other evidence of governm ental support for a revitalization or stabilization project in the area and the loans to m iddle- or upper-incom e borrowers significantly disadvantage or prim arily have the effect of displacing low- or moderateincome residents, examiners may view these loans sim ply as hom e mortgage loans to m iddle- or upper-incom e borrowers w ho h appen to reside in a low- or m oderate-incom e geography and weigh them accordingly in their evaluation of the institution. Thus, the perform ance context m ay significantly influence how these loans affect an institution’s performance. Geocoding Addresses Consisting of Post Office Boxes or Rural Routes and Box Numbers Staff from the agencies previously provided guidance about how to geocode (i.e., assign a census tract or block num bering area for) small business or small farm loans for w hich the borrower provides an address consisting of either a post office box num ber or a rural route and box num ber. See Interagency Staff CRA Interpretive Letter, published as OCC Interpretive Letter No. 729, (1995-1996 Transfer Binder) Fed. Banking L. Rep. 52107 (CCH), H 81-046 (June 14, 1996). In this letter, staff indicated that, if an institution could not obtain from its small business or small farm borrower a street address in addition to a rural route and box num ber or post office box num ber, the institution could collect and report the location of the loan based on the tow n, state, and zip code provided by the borrower. The location of the borrow er’s post office w ould serve as a proxy for the location of the small business or farm. Staff have reconsidered this guidance and are now providing a question and answ er based on § _.42(a)(3) addressing this issue. The revised guidance states that, for purposes of 1997 data collection and reporting, financial institutions may rely on the guidance provided in the interpretive letter if a small business or sm all farm borrower provides only a rural route and box num ber or a post office box num ber as its address. Thus, for 1997, institutions may collect and report the location of small business or small farm loans for w hich the institution has been unable to ascertain a street address, using the location (i.e., the census tract or block num bering area) of the borrow er’s post office box as a proxy. Because financial institutions typically know w here their small business or small farm borrowers, or the collateral securing their loans, are located, staff have provided new instructions for 1998 data collection and reporting purposes. Beginning in 1998, financial institutions should request the street address of small business and small farm borrowers, even if the borrower initially provides only a post office box num ber or rural route and box num ber. If no street address exists, institutions should not use the post office box as a proxy, but instead geocode the census tract or block num bering area as “NA.” Is Publication of the List of Institutions to be Examined in the Upcoming Quarter Determinative of Whether an Institution Will, in Fact, be Examined in the Upcoming Quarter Agency staff have added a new question and answ er addressing § __.45 relating to the publication of the institutions to be examined in the upcoming quarter. The question and answer clarifies that w hether or not an institution is included on the published list w ill not always indicate that the institution w ill or w ill not be examined in the upcom ing quarter. Although the agencies will attem pt to ensure that the published lists are as accurate as possible, the agencies sometimes may need to alter their examination plans. 52108 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices Because of the potential for such adjustm ents, staff urge all interested members of the public to file comments regarding the CRA performance of an institution w hether or not the institution has been scheduled for a CRA examination. Request for Comment and Proposed Questions and Answers on Community Development Explaining the “Primary Purpose” for Community Development Activities The definitions of “com m unity developm ent loan,” “com m unity developm ent service,” and “qualified investm ent” all require a “prim ary purpose of com m unity developm ent.” See 12 CFR 25.12(i)(l), (j)(l), and (s); 228.12(i)(l), (j)(l), and (s); 345.12(i)(l), (j)(l), and (s); and 563e.12(h)(1), (i)(l), and (r). The agencies have received a num ber of inquiries about w hether certain activities have the necessary “prim ary p urpose” of com m unity developm ent to qualify as a com m unity developm ent loan, qualified investm ent or com m unity developm ent service. Some inquiries come from persons interested in creating new com m unity developm ent vehicles. These inquiries typically ask w hat m inim um characteristics should be designed into a targeted loan, investm ent or service to possess the necessary prim ary purpose. In answering these questions, the agencies have generally stated that a “prim ary purpose” of com m unity developm ent exists w hen the loan, investm ent or service is divisible and m easurable in terms of dollars, housing units built, or countable individuals benefited, and w hen an identifiable majority of the dollars expended, units built or individuals benefited is clearly attributable to one of the com m unity developm ent purposes enum erated in the regulation. However, this answ er does not address other inquiries concerning activities that are subject to certain legal or market restraints, such that they do not reach this threshold, yet often display laudable com m unity developm ent purposes and result in real, long-term com m unity developm ent benefits. In addition, m any of the projects occur w ithin a performance context that buttresses a conclusion that the activity was “ designed for the express purpose” of achieving a qualifying com m unity developm ent purpose, even though less than half the dollars involved in the entire project have been concentrated on that purpose. Federal tax-incentive affordable housing projects, w here less than half the units or half the dollars go into the portion of the project that represents affordable housing for low- or moderate-income persons, fall into this category. A num ber of other inquiries are characterized by a range of facts and contexts. Given this variety, the agencies recognize that many types of endeavors have been devised to address an array of com m unity developm ent pursuits. In addition, the agencies have observed that w ithin the broad range of qualifying activities, distinctions can and should be m ade among those activities. Accordingly, in publishing proposed guidance on “primary purpose,” the agencies are also providing additional comm entary that em phasizes the quantitative and qualitative distinctions that should be made w hen applying the performance criteria of the pertinent regulatory tests to evaluate eligible com m unity developm ent loans, qualified investm ents or com m unity developm ent services. Proposed Q&A7 addressing § § _.12(i) and 563e. 12(h) is based on the preamble to the final rule as set forth at 60 FR 22,156, 22,159 (May 4, 1995), w hich states that activities not designed for the express purpose of com m unity developm ent (as defined in the regulation) are not eligible for consideration as com m unity developm ent loans or services or qualified investm ents. The preamble further states that the provision of indirect or short-term benefits to low- or m oderate-incom e persons does not make an activity com m unity development. In addition to incorporating this pream ble language into the Interagency Questions and Answers, the answ er identifies the kind of inform ation that w ould be reviewed to determ ine w hether an activity was designed for the express purpose of com m unity development. The answer adopts a sim plified threshold rule and an alternative approach for finding sufficient bases to conclude that an activity possesses the requisite prim ary purpose. Agency staff are also proposing additional questions and answers that provide relevant guidance on the evaluation of activities w hose prim ary purpose is com m unity developm ent, as w ell as the reporting of com m unity developm ent loans. This additional guidance em phasizes that once a loan or investm ent is found to possess a prim ary purpose of com m unity developm ent, the evaluation of that com m unity developm ent loan or qualified investm ent u n d er the relevant performance criteria w ould allow for differentiation among those activities based not only on the differing dollar am ounts attributable to the underlying com m unity developm ent purpose, but also on the loan’s innovation or com plexity u nder § __.22(b)(4) or the investm ent’s innovation, complexity, responsiveness or non-routine characteristics u n der § __.23(e). In addition, proposed Q&A3 addressing § __.42(b)(2) discusses w hether a loan may be reported as a com m unity developm ent loan if its prim ary purpose is to finance an affordable housing project for low- or m oderate-incom e individuals, b u t only 40% of the units in question w ill actually be occupied by individuals or families w ith low- or m oderate-incomes. Staff request public com ment particularly addressing w hether the proposed prim ary purpose standard over-inclusively qualifies activities as having a com m unity developm ent purpose, and, if so, is this adequately balanced by the regulatory requirem ents that allow marginal activities to be w eighted less heavily than those activities that provide a greater benefit related to the com m unity developm ent purpose or dem onstrate other perform ance criteria, such as innovation, complexity, or responsiveness. Staff also invite comm ent about w hether the proposed guidance may result in excluding, as not having a prim ary purpose of com m unity developm ent, deserving endeavors. S ectio n s__,12(i) & 563e. 12(h) Proposed Q7 W hat is m eant by the term “prim ary p u rp o se” as that term is used to define what constitutes a co m m u nity developm ent loan, a qualified investm ent or a co m m unity developm ent service? Proposed A7 A loan, investm ent or service has as its prim ary purpose com m unity developm ent w hen it is designed for the express purpose of revitalizing or stabilizing low- or moderate-income areas, providing affordable housing for, or com m unity services targeted to, lowor m oderate-incom e persons, or prom oting economic developm ent by financing sm all businesses and farms that m eet the requirem ents set forth in § § _.12(h) or 563e. 12(g). To determ ine w hether an activity is designed for an express com m unity developm ent 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 enum erated com m unity developm ent purposes, then the activity w ill be considered to possess the requisite prim ary purpose. Alternatively, where Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices the m easurable portion of any benefit bestow ed or dollars applied to the com m unity developm ent 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 prim ary purpose if (1) the express, bona fide intent of the activity, as stated, for example, in a prospectus, loan proposal, or com m unity action plan, is prim arily one or more of the enum erated com m unity developm ent purposes; (2) the activity is specifically structured (given any relevant market or legal constraints or performance context factors) to achieve the expressed com m unity developm ent purpose; and (3) the activity accom plishes, or is reasonably certain to accom plish, the com m unity developm ent purpose involved. The fact that an activity provides indirect or short-term benefits to low-or m oderate-incom e persons does not make the activity com m unity developm ent, nor does the mere presence of such indirect or short-term benefits constitute a prim ary purpose of com m unity development. Financial institutions that w ant examiners to consider certain activities u n der either approach should be prepared to dem onstrate the activities’ qualifications. S e c tio n _.22(b)(4) Proposed Q l W hen evaluating an in stitu tio n ’s record o f co m m u nity developm ent lending, m a y an exam iner distinguish am ong com m un ity developm ent loans on the basis o f the actual a m ount o f the loan that advances the co m m un ity developm ent purpose? Proposed A l Yes. W hen evaluating the institution’s record of com m unity developm ent lending under § __.22(b)(4), it is appropriate to give greater w eight to the am ount of the loan that is targeted to the intended com m unity developm ent purpose. For example, consider two $10 m illion projects (with a total of 100 units each) that have as their express prim ary purpose affordable housing and Eire located in the same com m unity. One of these projects sets aside 40% of its units for low-income residents and the other project allocates 65% of its units for low-income residents. An institution w ould report both loans as $10 m illion com m unity developm ent loans under the § __.42(b)(2) aggregate reporting obligation. However, transaction complexity, innovation and all other relevant considerations being equal, the 65% project w ould receive greater positive consideration under the lending test than the 40% project. The 65% project provides more affordable housing for more people per dollar expended. Under § __.22(b)(4), the am ount of CRA consideration an institution receives for its com m unity developm ent loans should bear a direct relation to the benefits received by the com m unity and the innovation or complexity of the loans required to accom plish the activity, not sim ply to the dollar amount expended on a particular transaction. By applying all performance criteria, a com m unity developm ent loan of a lower dollar am ount could receive more favorable consideration u nder the lending test than a com munity developm ent loan w ith a higher dollar amount, but w ith less innovation, complexity, or im pact on the community. S e c tio n _.23(e) Proposed Q l When applying the perform ance criteria o f § __.23(e), m a y an exam iner distinguish am ong qualified investm ents based on h o w m uch o f the investm ent actually supports the underlying com m u nity developm ent purpose? Proposed A l Yes. Although § __.23(e)(1) speaks in terms of the dollar am ount of qualified investments, the criterion permits an examiner to weight certain investments differently or to make other appropriate distinctions w hen evaluating an institution’s record of making qualified investments. For instance, a targeted mortgage-backed security that qualifies as an affordable housing issue that has only 60% of its face value supported by loans to low-or m oderate-income borrowers generally w ould not be weighted as heavily under § _.23(e)(1) as a targeted mortgage-backed security w ith 100% of its face value supported by affordable housing loans to low-and m oderate-incom e borrowers. The exam iner should describe any differential w eighting (or other adjustment), and its basis in the Public Evaluation. However, no m atter how a qualified investm ent is handled for purposes of § __.23(e)(1), it w ill also be evaluated w ith respect to the performance criteria set forth in § _.23(e) (2), (3) and (4) . By applying all criteria, a qualified investm ent of a lower dollar am ount could receive more favorable consideration u nder the Investm ent Test than a qualified investm ent w ith a higher dollar amount, b ut w ith fewer qualitative enhancements. 52109 Section__.42(b)(2) Proposed Q3 When the prim ary purpose o f a loan is to finance an affordable housing project fo r low-or m oderate-income individuals, but only 40% o f the units in question will actually be occupied by individuals or fam ilies with low-or moderate-incomes, should the entire loan am ount be reported as a com m unity developm ent loan? Proposed A3 Yes. As long as the prim ary purpose of the loan is a com m unity developm ent purpose, the full am ount of the institution’s loan should be included in its reporting of aggregate amounts of com m unity developm ent lending. General Comments In addition to the specific request for comments on the proposed “primary p urpose” questions and answers, staff invite public comment on the new and revised questions and answers, particularly the guidance regarding home mortgage loans to m iddle-and upper-incom e individuals in low-or moderate-income areas. Staff also invite public comment on a continuing basis on any issues raised by the CRA and these Interagency Questions and Answers. Staff of the agencies intend to continue to update the Interagency Questions and Answers periodically. If, after reading the Interagency Questions and Answers, financial institutions, examiners, com m unity groups, or other interested parties have unansw ered questions or comments about the agencies’ com m unity reinvestm ent regulations, they should submit them to the agencies. Staff will consider including questions received from the public in future guidance. Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) The SBREFA requires an agency, for each rule for w hich it prepares a final regulatory flexibility analysis, to publish one or more compliance guides to help small entities understand how to comply w ith the rule. Pursuant to section 605(b) of the Regulatory Flexibility Act, the agencies certified that their proposed CRA rule w ould not have a significant economic impact on a substantial num ber of small entities and invited public comments on that determination. See 58 FR 67478 (Dec. 21, 1993); 59 FR 51250 (Oct. 7, 1994). In response to public comment, the agencies voluntarily prepared a final regulatory flexibility analysis for the joint final rule, although the analysis was not required because it supported 52110 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices the agencies’ earlier certification regarding the proposed rule. Because a regulatory flexibility analysis was not required, section 21 2 of the SBREFA does not apply to the final CRA rule. However, in their continuing efforts to provide clear, understandable regulations and to com ply w ith the spirit of the SBREFA, the agencies have com piled the Interagency Questions and Answers. The Interagency Questions and Answers serve the same purpose as the com pliance guide described in the SBREFA by providing guidance on a variety of issues of particular concern to small banks and thrifts. The text of the Interagency Q uestions and Answers follows: Text of the Interagency Questions and A nsw ers Interagency Questions and Answ ers Regarding C om m unity R einvestm ent Table of Contents The agencies are providing answers to questions pertaining to the following provisions and topics of the CRA regulations: §_.11 Authority, purposes, and scope §_.11(c) Scope §§ 25.11(c)(3), 228.11(c)(3) & 345.11(c)(3) Certain special purpose banks §_.12 Definitions § _.12 (a) Affiliate §§_.12(f) & 563e.12(e) Branch §§_.12(h) & 563e.l2(g) Community development §_.12(h)(3) & 563e.12(g)(3) Activities that promote economic development by financing businesses or farms that meet certain size eligibility standards §§_.12(i) & 563e.l2(h) Community development loan §§_.12(j) & 563e.l2(i) Community development service §§_.12(k) & 563e.l2(j) Consumer loan §§_.12(m) & 563e.l2(l) Home mortgage loan §§_.12(n) & 563e.l2(m) Income level §§_.12(o) & 563e.l2(n) Limited purpose institution §§_.12(s) & 563e.l2(r) Qualified investment .12(t) Small institution §_,12(u) Small business loan §_.12(w) Wholesale institution §_.21 Performance tests, standards, and ratings, in general §_.21 (a) Performance tests and standards § _.21(b) Performance context §_.21(b)(2) Information maintained by the institution or obtained from community contacts §_.21(b)(4) Institutional capacity and constraints § _.21(b)(5) Institution’s past performance and the performance of similarly situated lenders § .22 Lending test § .22(a) Scope oftest § .22(a)(1) Types of loans considered § .22(a)(2) Other loan data §_.22(b) Performance criteria §_.22(b)(1) Lending activity §_.22(b)(2) & (3) Geographic distribution and borrower characteristics §_.22(c) Affiliate lending §_.22(c)(1) In general §_.22(c)(2) Constraints on affiliate lending §_,22(c)(2)(i) No affiliate may claim a loan origination or loan purchase if another institution claims the same loan origination or purchase §_,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 §_.22(d) Lending by a consortium or a third party §_.23 Investment test §_.23(b) Exclusion §_.24 Service test §_.24(d) Performance criteria—retail banking services § _.24(d)(3) Availability and effectiveness of alternative systems for delivering retail banking services §_.25 Community development test for wholesale or limited purpose institutions §_.25(d) Indirect activities §_.25(f) Community development performance rating §_.26 Small institution performance standards §_.26(a) Performance criteria § _.26(a)(1) Loan-to-deposit ratio §_.26(a)(2) Percentage of lending within assessment area(s) §_.26(a)(3) and (4) Distribution of lending within assessment area(s) by borrower income and geographic location §_.26(b) Performance rating § .27—Strategic plan §_.27(c) Plans in general §_.27(f) Plan content §__.27(f)(1) Measurable goals § _.27(g) Plan approval §_.27(g)(2) Public participation § .28—Assigned ratings §_.28(a) Ratings in general § .29—Effect of CRA performance on applications §_.29(a) CRA performance §_.29(b) Interested parties § .41—Assessment area delineation §_.41(a) In general §_.41(c) Geographic area(s) for institutions other than wholesale or limited purpose institutions § .41(c)(1) Generally consist of one or more MSAs or one or more contiguous political subdivisions §_.41(d) Adjustments to geographic area(s) §_.41 (e) Limitations on delineation of an assessment area § .41(e)(3) May not arbitrarily exclude low- or moderate-income geographies §_.41(e)(4) May not extend substantially beyond a CMSA boundary or beyond a state boundary unless located in a multistate MSA § .42—Data collection, reporting, and disclosure § _.42(a) Loan information required to be collected and maintained §_.42(a)(2) Loan amount at origination §_.42(a)(3) The loan location §_.42(a)(4) Indicator of gross annual revenue §_.42(b) Loan information required to be reported §_.42(b)(1) Small business and small farm loan data §_.42 (b) (2) Community development loan data §_.42(b)(3) Home mortgage loans §_.42(c) Optional data collection and maintenance §_.42(c)(1) Consumer loans §_,42(c)(l)(iv) Income of borrower §_.42(c)(2) Other loan data §_.42(d) Data on affiliate lending § .43—Content and availability of public file §_.43(a) Information available to the public §_.43(a)(1) Public comments §_.43(b) Additional information available to the public §_.43(b)(1) Institutions other than small institutions §_.43(c) Location of public information § .44—Public notice by institutions § .45—Publication of planned examination schedule APPENDIX B to Part_CRA Notice The body of the Interagency Q uestions and Answers Regarding Com munity Reinvestm ent follows: S e c tio n .11—A uthority, purposes, and scope S ectio n __.11(c) Scope Section 25.11(c)(3), 228.11(c)(3) & 345.11(c)(3) Certain Special Purpose Banks Q l. Is the list o f special purpose banks exclusive? A l. No, there may be other examples of special purpose banks. These banks engage in specialized activities that do not involve granting credit to the public in the ordinary course of business. Special purpose banks typically serve as correspondent banks, trust companies, or clearing agents or engage only in specialized services, such as cash management controlled disbursem ent services. A financial institution, however, does not become a special purpose bank m erely by ceasing to make loans and, instead, making investments and providing other retail banking services. Q2. To be a special purpose bank, m u st a bank lim it its activities in its charter? A2. No. A special purpose bank may, b ut is not required to, lim it the scope of its activities in its charter, articles of association or other corporate organizational documents. A bank that Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices does not have legal lim itations on its activities, b u t has voluntarily lim ited its activities, however, w ould no longer be exem pt from Com munity Reinvestment Act (CRA) requirem ents if it subsequently engaged in activities that involve granting credit to the public in the ordinary course of business. A bank that believes it is exem pt from CRA as a special purpose bank should seek confirm ation of this status from its supervisory agency. A2. No. Community developm ent includes activities outside of low- and m oderate-income areas that provide affordable housing for, or community services targeted to, low- or moderateincome individuals and activities that promote economic developm ent by financing small businesses and farms. Activities that stabilize or revitalize particular low- or moderate-income areas (including by creating, retaining, or improving jobs for low- or moderateincome persons) also qualify as S e c tio n .12— D efinitions com m unity development, even if the S ectio n __.12(a) Affiliate activities are not located in these lowor m oderate-income areas. One example Q l. Does the definition o f “affiliate” is financing a superm arket that serves as include subsidiaries o f an institution? an anchor store in a small strip mall A l. Yes, “affiliate” includes any located at the edge of a m iddle-income com pany that controls, is controlled by, area, if the mall stabilizes the adjacent or is under common control w ith another company. An institution’s low-income com m unity by providing needed shopping services that are not subsidiary is controlled by the institution and is, therefore, an affiliate. otherwise available in the low-income community. S ectio n s__.12(f) & 563e.12(e) Branch Q3. Does the regulation provide Q l. Do the definitions o f “branch,” flexib ility in considering perform ance in “autom ated teller m achine (ATM ),” and high-cost areas? “remote service fa cility (RSF)” include A3. Yes, the flexibility of the m obile branches, ATM s, and RSFs? performance standards allows A l. Yes. Staffed mobile offices that examiners to account in their are authorized as branches are evaluations for conditions in high-cost considered “branches” and mobile areas. Examiners consider lending and ATMs and RSFs are considered “ATMs” services to individuals and geographies and “RSFs.” of all income levels and businesses of Q2. Are loan production offices all sizes and revenues. In addition, the (LPOs) branches fo r purposes o f the flexibility in the requirem ent that CRA? com m unity developm ent loans, A2. LPOs and other offices are not com m unity developm ent services, and “branches” unless they are authorized qualified investments have as their as branches of the institution through “prim ary” purpose com munity the regulatory approval process of the developm ent allows examiners to institution’s supervisory agency. account for conditions in high-cost S ectio n s__-12(h) & 563e.l2(g) areas. For example, examiners could Community Development take into account the fact that activities address a credit shortage among middleQ l. Are com m unity developm ent income people or areas caused by the activities lim ited to those that prom ote disproportionately high cost of building, econom ic development? maintaining or acquiring a house w hen A l. No. Although the definition of determ ining w hether an institution’s “ com m unity developm ent” includes loan to or investm ent in an organization activities that promote economic that funds affordable housing for developm ent by financing small m iddle-income people or areas, as well businesses or farms, the rule does not as low- and moderate-income people or lim it com m unity developm ent loans areas, has as its prim ary purpose and services and qualified investments com m unity development. to those activities. Community developm ent also includes communitySections _.12(h)(3) & 563e.l2(g)(3) or tribal-based child care, educational, Activities That Promote Economic health, or social services targeted to Development by Financing Businesses low- or m oderate-income persons, or Farms That Meet Certain Size affordable housing for low- or moderateEligibility Standards income individuals, and activities that Q l. “C om m unity developm ent” revitalize or stabilize low- or moderateincludes activities that prom ote income areas. Q2. M ust a com m unity developm ent econom ic developm ent by financing activity occur inside a low- or moderate- businesses or farm s that m eet certain incom e area in order fo r an institution size eligibility standards. Are all to receive CRA consideration fo r the activities that finance businesses and activity? farm s that m eet these size eligibility 52111 standards considered to be com m unity developm ent? A l. No. To be considered as “com m unity developm ent” under §§ ------.12(h)(3) and 563e,12(g)(3), a loan, investm ent or service, w hether m ade directly or through an interm ediary, m ust m eet both a size test and a purpose test. A n activity meets the size requirem ent if it finances entities that either m eet the size eligibility standards of the Small B usiness A dm inistration’s Development Company (SBDC) or Small Business Investm ent Company (SBIC) programs, or have gross annual revenues of $1 m illion or less. To m eet the purpose test, the activity m ust promote economic developm ent. An activity is considered to prom ote economic developm ent if it supports perm anent job creation, retention, and/or im provem ent for persons w ho are currently low- or moderate-income, or supports perm anent job creation, retention, and/or im provem ent in lowor m oderate-incom e geographies targeted for redevelopm ent by Federal, state, local or tribal governments. The agencies w ill presum e that any loan or investm ent in or to a SBDC or SBIC prom otes economic development. S ectio n s_.12(i) & 563e.12(h) Comm unity D evelopm ent Loan Q l. W hat are exam ples o f co m m u n ity developm ent loans? A l. Examples of com m unity developm ent loans include, but are not lim ited to, loans to: • Borrowers for affordable housing rehabilitation and construction, including construction and perm anent financing of m ultifam ily rental property serving low- and moderate-incom e persons; • Not-for-profit organizations serving prim arily low- and moderate-income housing or other com m unity developm ent needs; • Borrowers to construct or rehabilitate com m unity facilities that are located in low- and m oderateincome areas or that serve prim arily low- and moderate-incom e individuals; • Financial interm ediaries including Com m unity D evelopment Financial Institutions (CDFIs), Com munity Development Corporations (CDCs), m inority- and w om en-ow ned financial institutions, com m unity loan funds or pools, and low-income or com m unity developm ent credit unions that prim arily lend or facilitate lending to prom ote com m unity development. • Local, state, and tribal governments for com m unity developm ent activities; and 52112 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices • Borrowers to finance environm ental loans are not considered to have a clean-up or redevelopm ent of an com m unity developm ent purpose. For industrial site as part of an effort to example, a loan for upper-incom e revitalize the low- or moderate-income housing in a distressed area is not com m unity in w hich the property is considered to have a com m unity located. developm ent purpose sim ply because of Q2. I f a retail institution that is n ot the indirect benefit to low- or moderaterequired to report under the H ome income persons from construction jobs Mortgage Disclosure A c t (HMDA) m akes or the increase in the local tax base that affordable hom e mortgage loans that supports enhanced services to low- and w ould be HMDA-reportable hom e m oderate-income area residents. On the mortgage loans i f it were a reporting other hand, a loan for an anchor institution, or i f a sm all institution that business in a distressed area (or a is not required to collect and report loan nearby area), that employs or serves data under CRA m akes sm all business residents of the area, and thus stabilizes a nd sm all farm loans and consum er the area, may be considered to have a loans that w ould be collected and/or com m unity developm ent purpose. For reported i f the institution were a large example, in an underserved, distressed institution, m a y the institution have area, a loan for a pharm acy that these loans considered as com m unity employs, and provides supplies to, developm ent loans? residents of the area promotes A2. No. Although small institutions com m unity development. are not required to report or collect Q5. M ust there be som e im m ediate or inform ation on small business and small direct benefit to the institu tio n ’s farm loans and consum er loans, and assessm ent area(s) to satisfy the some institutions are not required to regulations’ requirem ent that qualified report inform ation about their hom e investm ents and co m m u n ity mortgage loans u nder HMDA, if these developm ent loans or services benefit an institutions are retail institutions, the in stitu tio n ’s assessm ent area(s) or a agencies w ill consider in their CRA broader statewide or regional area that evaluations the institutions’ originations includes the institu tio n ’s assessm ent and purchases of loans that w ould have area(s)? been collected or reported as small A5. No. The regulations, for example, business, small farm, consum er or home recognize that com m unity developm ent mortgage loans, h ad the institution been organizations and programs are a collecting and reporting institution frequently efficient and effective ways u nder the CRA or the HMDA. Therefore, for institutions to promote community these loans w ill not be considered as development. These organizations and programs often operate on a statewide or com m unity developm ent loans. M ultifamily dwelling loans, however, even multi-state basis. Therefore, an institution’s activity is considered a m ay be considered as com m unity com m unity developm ent loan or service developm ent loans as w ell as hom e or a qualified investm ent if it supports mortgage loans. See also Q&A2 an organization or activity that covers addressing § __.42(b)(2). an area that is larger than, but includes, Q3. Do secured credit cards or other credit card programs targeted to low- or the institution’s assessment area(s). The m oderate-incom e individuals qualify as institution’s assessm ent area need not receive an im m ediate or direct benefit com m u nity developm ent loans? A3. No. Credit cards issued to low- or from the institution’s specific m oderate-incom e individuals for participation in the broader organization household, family, or other personal or activity, provided the purpose, expenditures, w hether as part of a m andate, or function of the organization program targeted to such individuals or or activity includes serving geographies otherwise, do not qualify as com m unity or individuals located w ithin the developm ent loans because they do not institution’s assessment area. have as their prim ary purpose any of the Furthermore, the regulations perm it a activities included in the definition of wholesale or lim ited purpose institution to consider com m unity development “com m unity developm ent.” Q4. The regulation indicates that loans, com m unity developm ent co m m u nity developm ent includes services, and qualified investments “activities that revitalize or stabilize wherever they are located, as long as the low- or m oderate-incom e geographies.” institution has otherwise adequately Do all loans in a low- to moderateaddressed the credit needs w ithin its incom e geography have a stabilizing assessment area(s). effect? Q6. W hat is m ean t by a “regional A4. No. Some loans m ay provide only area” in the requirem ent that a indirect or short-term benefits to low- or com m u nity developm ent loan m u st m oderate-incom e individuals in a lowbenefit the in stitu tio n ’s assessm ent or m oderate-income geography. These area(s) or a broader statew ide or regional area that includes the in stitu tio n ’s assessm ent area(s)? A6. A “regional area” m ay be as small as a city or county or as large as a m ultistate area. For example, the “midA tlantic states” may comprise a regional area. W hen examiners evaluate com m unity developm ent loans that benefit a regional area that includes the institu tio n ’s assessment area, however, the examiners will consider the size of the regional area and the actual or potential benefit to the institution’s assessm ent area(s). In m ost cases, the larger the regional area, the m ore diffuse the benefit w ill be to the institu tio n ’s assessm ent area(s). Examiners may view loans w ith more direct benefits to an institu tio n ’s assessm ent area(s) as more responsive to the credit needs of the area(s) than loans for w hich the actual benefit to the assessm ent area(s) is uncertain or for w hich the benefit is diffused throughout a larger area that includes the assessm ent area(s). Sections__.12(j) & 563e.l2(i) Comm unity Development Service Q l. In addition to m eeting the definition o f “co m m u nity developm ent” in the regulation, co m m u nity developm ent services m u st also be related to the provision o f financial services. W hat is m eant by “provision o f financial services”? A l. Providing financial services means providing services of the type generally provided by the financial services industry. Providing financial services often involves informing com m unity members about how to get or use credit or otherwise providing credit services or inform ation to the community. For example, service on the board of directors of an organization that prom otes credit availability or finances affordable housing is related to the provision of financial services. Providing technical assistance about financial services to com munity-based groups, local or tribal government agencies, or interm ediaries that help to m eet the credit needs of low- and m oderate-incom e individuals or small businesses and farms is also providing financial services. By contrast, activities that do not take advantage of the em ployees’ financial expertise, such as neighborhood cleanups, do not involve the provision of financial services. Q2. A re personal charitable activities provided by an in stitu tio n ’s em ployees or directors outside the ordinary course o f their em ploym ent considered com m un ity developm ent services? A2. No. Services m ust be provided as a representative of the institution. For example, if a financial institution’s director, on her own tim e and not as a Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices representative of the institution, volunteers one evening a w eek at a local com m unity developm ent corporation’s financial counseling program, the institution m ay n o t consider this activity a com m unity developm ent service. Q3. W hat are exam ples o f com m un ity developm ent services? A3. Examples of com m unity developm ent services include, b u t are not lim ited to, the following: • Providing technical assistance on financial matters to nonprofit, tribal or governm ent organizations serving lowand m oderate-incom e housing or economic revitalization and developm ent needs; • Providing technical assistance on financial m atters to small businesses or com m unity developm ent organizations; • Lending em ployees to provide financial services for organizations facilitating affordable housing construction and rehabilitation or developm ent of affordable housing; • Providing credit counseling, home buyers and hom e m aintenance counseling, financial planning or other financial services education to promote com m unity developm ent and affordable housing; • Establishing school savings programs for low- or moderate-incom e individuals; • Providing electronic benefits transfer and point of sale term inal systems to improve access to financial services, such as by decreasing costs, for low- or m oderate-incom e individuals; and • Providing other financial services w ith the prim ary purpose of com m unity developm ent, such as low-cost bank accounts or free governm ent check cashing that increases access to financial services for low- or moderateincome individuals. Examples of technical assistance activities that m ight be provided to com m unity developm ent organizations include: • Serving on a loan review committee; • Developing loan application and underw riting standards; • Developing loan processing systems; • Developing secondary market vehicles or programs; • Assisting in marketing financial services, including developm ent of advertising and promotions, publications, workshops and conferences; • Furnishing financial services training for staff and management; • Contributing accounting/ bookkeeping services; and 52113 • Assisting in fund raising, including take the borrower’s application and perform other settlem ent activities; soliciting or arranging investments. however, they do n o t m a ke the credit Sections .12(k) & 563e.l2(j) decision. The broker institutions m ay Consum er Loan also initially fu n d these mortgage loans, Q l. Are hom e equity loans considered then im m ediately assign them to “consum er lo ans”? another lender. Because the broker A l. Home equity loans m ade for institution does n o t m ake the credit purposes other than hom e purchase, decision, under Regulation C (HMDA), hom e im provem ent or refinancing home they do n o t record the loans on their purchase or hom e im provem ent loans HM DA-LARs, even i f th ey fu n d the are consum er loans if they are extended loans. M ay an institution receive any to one or more individuals for consideration under CRA fo r its hom e household, family, or other personal mortgage loan brokerage activities? A2. Yes. A financial institution that expenditures. Q2. M ay a h om e equity line o f credit funds hom e mortgage loans but be considered a “consum er lo a n ” even im m ediately assigns the loans to the lender that m ade the credit decisions i f part o f the line is fo r hom e m ay p resent inform ation about these im provem ent purposes? A2. If the predom inant purpose of the loans to examiners for consideration line is hom e improvem ent, the line may u nder the lending test as “ other loan only be reported u nder HMDA and may data.” U nder Regulation C, the broker not be considered a consum er loan. institution does not record the loans on However, the full am ount of the line its HMDA-LAR because it does not m ay be considered a “consum er loan” if make the credit decisions, even if it funds the loans. An institution electing its predom inant purpose is for to have these hom e mortgage loans household, family, or other personal considered m ust m aintain inform ation expenditures, and to a lesser extent hom e im provem ent, and the full am ount about all of the hom e mortgage loans that it has funded in this way. of the line has not been reported under Examiners w ill consider this other loan HMDA. This is the case even though there may be “ double counting” because data using the same criteria by w hich hom e mortgage loans originated or part of the line m ay also have been purchased by an institution are reported u n d er HMDA. Q3. H ow should an institution collect evaluated. Institutions that do not provide or report inform ation on loans the funding b ut m erely take applications proceeds o f which will be used for and provide settlem ent services for m u ltip le purposes? another lender that makes the credit A3. If an institution makes a single decisions w ill receive consideration for loan or provides a line of credit to a this service as a retail banking service. customer to be used for both consum er and small business purposes, consistent Examiners w ill consider an institu tio n ’s mortgage brokerage services w hen w ith the Call Report and TFR evaluating the range of services instructions, the institution should provided to low-, moderate-, m iddledeterm ine the major (predominant) and upper-incom e geographies and the com ponent of the loan or the credit line degree to w hich the services are tailored and collect or report the entire loan or to m eet the needs of those geographies. credit line in accordance w ith the A lternatively, an institu tio n ’s mortgage regulation’s specifications for that loan brokerage service may be considered a type. com m unity developm ent service if the Sections_.12(m) & 563e.l2(l) Home prim ary purpose of the service is Mortgage Loan com m unity developm ent. An institution Q l. Does the term “hom e mortgage w ishing to have its mortgage brokerage lo a n ” include loans other than “hom e service considered as a com m unity purchase lo a n s”? developm ent service m ust provide A l. Yes. “Home mortgage loan” sufficient inform ation to substantiate includes a “hom e im provem ent loan” as that its prim ary purpose is com m unity w ell as a “hom e purchase loan,” as both developm ent and to establish the extent term s are defined in the HMDA of the services provided. regulation, Regulation C, 12 CFR part S ectio n s__.12(n) & 563e.l2(m) Income 203. This definition also includes Level m ultifam ily (five-or-more families) Q l. Where do institutions fin d incom e dwelling loans, loans for the purchase of level data fo r geographies and m anufactured homes, and refinancings individuals? of home im provem ent and home A l. The income levels for purchase loans. Q2. Som e financial institutions broker geographies, i.e., census tracts and block num bering areas, are derived from h om e mortgage loans. T hey typically 52114 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices Census Bureau inform ation and are updated every ten years. Institutions may contact their regional Census Bureau office or the Census Bureau’s Income Statistics Office at (301) 7638576 to obtain incom e levels for geographies. See A ppendix A of these Interagency Q uestions and A nsw ers for a list of the regional Census Bureau offices. The incom e levels for individuals are derived from inform ation calculated by the Departm ent of Housing and Urban Development (HUD) and updated annually. Institutions may contact HUD at (800) 245-2691 to request a copy of “FY [year num ber, e.g., 1996] M edian Fam ily Incomes for States and their M etropolitan and N onm etropolitan Portions.” Alternatively, institutions may obtain a list of the 1990 Census Bureaucalculated and the annually updated HUD m edian family incom es for m etropolitan statistical areas (MSAs) and statew ide nonm etropolitan areas by calling the Federal Financial Institution Exam ination C ouncil’s (FFIEC’s) HMDA Help Line at (202) 452-2016. A free copy will be faxed to the caller through the “fax-back” system. Institutions may also call this num ber to have “faxedback” an order form, from w hich they m ay order a list providing the m edian family incom e level, as a percentage of the appropriate MSA or nonm etropolitan m edian family income, of every census tract and block num bering area (BNA). This list costs $50. Institutions m ay also obtain the list of MSA and statew ide nonm etropolitan area m edian family incomes or an order form through the FFIEC’s hom e page on the Internet at “http://w w w .ffiec.gov/’. Sections_,12(o) & 563e.l2(n) Limited Purpose Institution Q l. W hat constitutes a “narrow product lin e ” in the definition o f “lim ited purpose in stitu tio n ”? A l. 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 u n d er the lending test (i.e., hom e mortgage, small business, and sm all farm loans). Thus, an institution engaged only in making credit card or m otor vehicle loans offers a narrow product line, w hile an institution lim iting its lending activities to hom e mortgages is not offering a narrow product line. Q2. W hat factors will the agencies consider to determ ine w hether an institution that, i f lim ited purpose, m akes loans outside a narrow product line, or, i f wholesale, engages in retail lending, will lose its lim ited purpose or wholesale designation because o f too m uch other lending? A2. W holesale institutions may engage in some retail lending w ithout losing their designation if this activity is incidental and done on an accom m odation basis. Similarly, lim ited purpose institutions continue to meet the narrow product line requirem ent if they provide other types of loans on an infrequent basis. In reviewing other lending activities by these institutions, the agencies w ill consider the following factors: • Is the other lending provided as an incident to the institu tio n ’s w holesale lending? • Are the loans provided as an accom m odation to the institution’s w holesale customers? • Are the loans made only infrequently to the lim ited 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 com m unity developm ent test present a m ore accurate picture of the institution’s CRA performance? Q3. Do “niche in stitu tio n s” qualify as lim ited 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 sm all business loans) to certain types of borrowers (for example, to high-end income level custom ers or to corporations or partnerships of licensed professional practitioners) (“niche institutions”) generally w ould not qualify as lim ited purpose (or wholesale) institutions. Sections__.12(s) & 563e,12(r) Qualified Investment Q l. Does the CRA regulation provide authority fo r institutions to m ake investm ents? A l. No. The CRA regulation does not provide authority for institutions to make investments that are not otherwise allowed by Federal law. Q2. Are mortgage-backed securities or m unicipal bonds “qualified investm ents”? A2. As a general rule, mortgagebacked securities and m unicipal bonds are not qualified investments because they do not have as their primary purpose com m unity development, as defined in the CRA regulations. Nonetheless, mortgage-backed securities or m unicipal bonds designed prim arily to finance com munity developm ent generally are qualified investments. M unicipal bonds or other securities w ith a prim ary purpose of com munity developm ent need not be housingrelated. For example, a bond to fund a com m unity facility or park or to provide sewage services as part of a plan to redevelop a low-income neighborhood is a qualified investment. Housingrelated bonds or securities must prim arily address affordable housing (including m ultifamily rental housing) needs in order to qualify. Q3. Are Federal Hom e Loan Bank stocks and m em bership reserves with the Federal Reserve Banks “qualified investm ents”? A3. No. Federal Home Loan Bank stock and m em bership reserves w ith the Federal Reserve Banks do not have a sufficient connection to com m unity developm ent to be qualified investments. Q4. W hat are exam ples o f qualified investm ents? A4. Examples of qualified investments include, but are not lim ited to, investments, grants, deposits or shares in or to: • Financial interm ediaries (including, Community Development Financial Institutions (CDFIs), Community Development Corporations (CDCs), minority- and wom en-owned financial institutions, com m unity loan funds, and low-income or com m unity development credit unions) that prim arily lend or facilitate lending in low- and moderateincome areas or to low- and moderateincome individuals in order to promote com m unity development, such as a CDFI that promotes economic developm ent on an Indian reservation; • Organizations engaged in affordable housing rehabilitation and construction, including m ultifamily rental housing; • Organizations, including, for example, Small Business Investment Companies (SBICs) and specialized SBICs, that promote economic developm ent by financing small businesses; • Facilities that promote com munity developm ent in low- and moderateincome areas for low- and moderateincome individuals, such as youth programs, homeless centers, soup kitchens, health care facilities, battered w om en’s centers, and alcohol and drug recovery centers; • Projects eligible for low-income housing tax credits; • State and m unicipal obligations, such as revenue bonds, that specifically Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices support affordable housing or other com m unity development; • Not-for-profit organizations serving low- and m oderate-incom e housing or other com m unity developm ent needs, such as counseling for credit, homeow nership, hom e m aintenance, and other financial services education; and • Organizations supporting activities essential to the capacity of low- and m oderate-incom e individuals or geographies to utilize credit or to sustain economic developm ent, such as, for example, day care operations and job training programs that enable people to work. Q5. Will an institution receive consideration fo r charitable contributions as "qualified in vestm en ts”? A5. Yes, provided they have as their prim ary purpose com m unity developm ent as defined in the regulations. A charitable contribution, w hether in cash or an in-kind contribution of property, is included in the term “grant.” A qualified investm ent is not disqualified because an institution receives favorable treatm ent for it (for example, as a tax deduction or credit) u nder the Internal Revenue Code. Q6. A n institution m akes or participates in a co m m u nity developm ent loan. The institution provided the loan at below-m arket interest rates or “bought d o w n ” the interest rate to the borrower. Is the lost incom e resulting from the lower interest rate or buy-down a qualified investm ent? A6. No. The agencies w ill, however, consider the innovativeness and com plexity of the com m unity developm ent loan w ithin the bounds of safe and sound banking practices. Q7. Will the agencies consider as a qualified investm ent the wages or other com pensation o f an em ployee or director who provides assistance to a com m u nity developm ent organization on beh a lf o f the institution? A7. No. However, the agencies will consider donated labor of em ployees or directors of a financial institution in the service test if the activity is a com m unity developm ent service. Section_. 12(t) Small institution Q l. H ow are the “total bank and thrift assets” o f a holding com pany determined? A l. “Total banking and thrift assets” of a holding com pany are determ ined by combining the total assets of all banks and/or thrifts th at are majority-owned by the holding company. An institution is m ajority-owned if the holding com pany directly or indirectly owns more than 50 percent of its outstanding voting stock. Q2. H ow are Federal and State branch assets o f a foreign bank calculated fo r purposes o f the CRA? A2. A Federal or State branch of a foreign bank is considered a small institution if the Federal or State branch has less than $250 m illion in assets and the total assets of the foreign b ank’s or its holding com pany’s U.S. bank and thrift subsidiaries that are subject to the CRA are less than $1 billion. This calculation includes not only FDICinsured 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 lim ited 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. § 3103(a)(8)). Section__.12(u) Small business loan Q l. A re loans to nonprofit organizations considered sm all business loans or are they considered co m m u nity developm ent loans? A l. To be considered a small business loan, a loan m ust m eet the definition of “loan to small b usiness” in the instructions in the “Consolidated Reports of Conditions and Incom e” (Call Report) and “Thrift Financial Reports” (TFR). In general, a loan to a nonprofit organization, for business or farm purposes, w here the loan is secured by nonfarm nonresidential property and the original am ount of the loan is $1 m illion or less, if a business loan, or $500,000 or less, if a farm loan, w ould 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 com m unity developm ent loan, except by a w holesale or lim ited purpose institution. Loans to nonprofit organizations that are not small business or sm all farm loans for Call Report and TFR purposes may be considered as com m unity developm ent loans if they m eet the regulatory definition. Q2. A re loans secured by comm ercial real estate considered sm all 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 am ounts less than $1 million. Q3. A re loans secured by nonfarm residential real estate to fina n ce sm all businesses “sm all business lo a n s”? 52115 A3. No. Loans secured by nonfarm residential real estate that are used to finance small businesses are not included as “small b usiness” loans for Call Report and TFR purposes. The agencies recognize that m any small businesses are financed by loans secured by residential real estate. If these loans prom ote com m unity developm ent, as defined in the regulation, they may be considered as com m unity developm ent loans. Otherwise, at an institution’s option, the institution may collect and m aintain 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 B usiness.” Q4. A re credit cards issued to sm all businesses considered “sm all business loa ns”? A4. Credit cards issued to a small business or to individuals to be used, w ith the institu tio n ’s knowledge, as business accounts are sm all business loans if they m eet the definitional requirem ents in the Call Report or TFR instructions. Section__.12 (w) W holesale Institution Q l. W hat factors will the agencies consider in determ ining whether an institution is in the business o f extending h om e mortgage, sm all business, sm all farm , or consum er loans to retail customers? A l. The agencies w ill consider whether: • The institution holds itself out to the retail public as providing such loans; and • The institutio n ’s revenues from extending such loans are significant w hen com pared to its overall operations. A wholesale institution may make some retail loans w ithout losing its wholesale designation as described above in Q&A2 addressing § § _,12(o) and 563e.l2(n). Section__.21— Performance tests, Standards, and Ratings, in General Section_.21(a) Performance Tests and Standards Q l. A re all com m un ity developm ent activities weighted equally by examiners? A l. No. Examiners w ill consider the responsiveness to credit and com m unity developm ent needs, as well as the innovativeness and complexity of an institution’s com m unity developm ent lending, qualified investm ents, and com m unity developm ent services. These criteria include consideration of the degree to w hich they serve as a 52116 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices catalyst for other com m unity developm ent activities. The criteria are designed to add a qualitative elem ent to the evaluation of an institution’s performance. Section__.21(b) Performance Context Q l. Is the perform ance context essentially the sam e as the form er regulation’s needs assessm ent? A l. No. The performance context is a broad range of economic, demographic, and institution-and community-specific inform ation that an exam iner reviews to u nderstand the context in w hich an institution’s record of performance should be evaluated. The agencies will provide examiners w ith m uch of this information prior to the examination. The performance context is not a formal or w ritten assessm ent of com m unity credit needs. Section_.21(b)(2) Information M aintained by the Institution or Obtained From Com munity Contacts Q l. Will exam iners consider perform ance context inform ation provided by institutions? A l. Yes. An institution may provide examiners w ith any inform ation it deems relevant, including inform ation on the lending, investm ent, and service opportunities in its assessm ent area(s). This inform ation m ay include data on the business opportunities addressed by lenders not subject to the CRA. Institutions are not required, however, to prepare a needs assessment. If an institution provides inform ation to examiners, the agencies w ill not expect inform ation other than w hat the institution norm ally w ould develop to prepare a business plan or to identify potential markets and customers, including low -and moderate-income persons and geographies in its assessm ent area(s). The agencies will not evaluate an institution’s efforts to ascertain com m unity credit needs or rate an institution on the quality of any inform ation it provides. Q2. Will exam iners conduct com m u nity contact interviews as part o f the exam ination process? A2. Yes. Examiners w ill consider information obtained from interviews w ith local com m unity, civic, and governm ent leaders. These interviews provide examiners w ith knowledge regarding the local com m unity, its economic base, and com m unity developm ent initiatives. To ensure that inform ation from local leaders is considered—particularly in areas where the num ber of potential contacts may be lim ited—examiners may use inform ation obtained through an interview w ith a single com m unity contact for exam inations of more than one institution in a given market. In addition, the agencies w ill consider inform ation 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 w ider array of contacts, the agencies w ill share com m unity contact information. Section__.21(b)(4) Institutional Capacity and Constraints Q l. Will exam iners consider factors outside o f an in stitu tio n ’s control that prevent it from engaging in certain activities? A l. Yes. Examiners w ill take into account statutory and supervisory lim itations on an institu tio n ’s ability to engage in any lending, investment, and service activities. For example, a savings association that has m ade few or no qualified investm ents due to its lim ited investm ent authority may still receive a low satisfactory rating under the investm ent test if it has a strong lending record. § __.21(b)(5) Institution’s Past Performance and the Performance of Similarly Situated Lenders Q l. Can an in stitu tio n ’s assigned rating be adversely affected by poor pa st perform ance? A l. Yes. The agencies w ill consider an institution’s past performance in its overall evaluation. For example, an institu tio n ’s past perform ance may support a rating of “substantial noncom pliance” if the institution has not im proved perform ance rated as “needs to im prove.” Q2. H ow will exam iners consider the perform ance o f sim ilarly situated lenders? A2. The perform ance context section of the regulation perm its the performance of sim ilarly situated lenders to be considered, for example, as one of a num ber of considerations in evaluating the geographic distribution of an institu tio n ’s loans to low-, moderatem iddle-, and upper-incom e geographies. This analysis, as well as other analyses, m ay be used, for example, w here groups of contiguous geographies w ithin an institution’s assessment area(s) exhibit abnorm ally low penetration. In this regard, the perform ance of sim ilarly situated lenders may be analyzed if such an analysis w ould provide accurate insight into the institutio n ’s lack of perform ance in those areas. The regulation does not require the use of a specific type of analysis u nder these circumstances. Moreover, no ratio developed from any type of analysis is linked to any lending test rating. § .22— Len ding Test § __.22(a) Scope of test § .22(a)(1) Considered Types of Loans Q l. I f a large retail institution is not required to collect and report hom e mortgage data under the HMDA, will the agencies still evaluate the in stitu tio n ’s h om e mortgage lending performance? A l. Yes. The agencies w ill sam ple the institu tio n ’s hom e mortgage loan files in order to assess its performance under the lending test criteria. Q2. When will exam iners consider consum er loans as part o f an in stitu tio n ’s CRA evaluation? A2. Consum er loans w ill be evaluated if the institution so elects; and an institution that elects not to have its consum er loans evaluated w ill not be view ed less favorably by examiners than one that does. However, if consumer loans constitute a substantial majority of the institution’s business, the agencies w ill evaluate them even if the institution does not so elect. The agencies interpret “substantial m ajority” to be so significant a portion of the institution’s lending activity by num ber or dollar volum e of loans that the lending test evaluation w ould not m eaningfully reflect its lending performance if consum er loans were excluded. § _.22(a)(2) Other Loan Data Q l. H ow are lending com m itm ents (such as letters o f credit) evaluated under the regulation? A l. The agencies consider lending com mitments (such as letters of credit) only at the option of the institution. Commitments m ust be legally binding betw een an institution and a borrower in order to be considered. Inform ation about lending com m itm ents w ill be used by examiners to enhance their understanding of an institution’s performance. Q2. Will exam iners review application data as part o f the lending test? A2. A pplication activity is not a performance criterion of the lending test. However, examiners may consider this inform ation in the performance context analysis because this inform ation may give examiners insight on, for example, the dem and for loans. Q3. M ay a financial institution receive consideration under CRA fo r m odification, extension, and consolidation agreements (MECAs), in which it obtains loans from other institutions w ithout actually purchasing Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices or refinancing the loans, as those terms have been interpreted under CRA? A3. Yes. In some states, MECAs, w hich 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 term s have been interpreted u nder CRA, they do achieve the same results. An institution m ay present information about its MECA activities to examiners for consideration under the lending test as “other loan data.” S ectio n __.22(b) Performance Criteria Q l. H ow will exam iners apply the perform ance criteria in the lending test? A l. Examiners will apply the performance criteria reasonably and fairly, in accord w ith the regulations, the exam ination procedures, and this Guidance. In doing so, examiners will disregard efforts by an institution to m anipulate business operations or present information in an artificial light that does not accurately reflect an institution’s overall record of lending performance. S ectio n __.22(b)(1) Lending Activity Q l. H ow will the agencies apply the lending activity criterion to discourage an institution from originating loans that are view ed favorably under CRA in the institution itse lf and referring other loans, which are n o t viewed as favorably, fo r origination b y an affiliate? A l. Examiners will review closely institutions w ith (1) a sm all num ber and am ount of hom e mortgage loans w ith an u nusually good distribution among lowand m oderate-incom e areas and lowand m oderate-incom e borrowers and (2) a policy of referring most, but not all, of their hom e mortgage loans to affiliated institutions. If an institution is making loans mostly to low-and moderateincome individuals and areas and referring the rest of the loan applicants to an affiliate for the purpose of receiving a favorable CRA rating, examiners m ay conclude that the in stitu tio n ’s lending activity is not satisfactory because it has inappropriately attem pted to influence the rating. In evaluating an in stitutio n ’s lending, examiners w ill consider legitimate business reasons for the allocation of the lending activity. S e c tio n __.22(b)(2) & (3) Geographic D istribution and Borrower Characteristics Q l. H ow do the geographic distribution o f loans and the distribution o f lending by borrower characteristics interact in the lending test? A l. Examiners generally w ill consider both the distribution of an in stitu tio n ’s loans among geographies of different income levels and among borrowers of different incom e levels and businesses of different sizes. The im portance of the borrower distribution criterion, particularly in relation to the geographic distribution criterion, w ill depend on the perform ance context. For example, distribution among borrowers w ith different incom e levels may be more im portant in areas w ithout identifiable geographies of different income categories. On the other hand, geographic distribution m ay be more im portant in areas w ith the full range of geographies of different income categories. Q2. M ust an institution len d to all portions o f its assessm ent area? A2. The term “assessm ent area” describes the geographic area w ithin w hich the agencies assess how well an institution has m et the specific perform ance tests and standards in the rule. The agencies do not expect that sim ply because a census tract or block num bering area is w ith in an institution’s assessm ent area(s) the institution m ust lend to that census tract or block num bering area. Rather the agencies w ill be concerned w ith conspicuous gaps in loan distribution that are not explained by the performance context. Similarly, if an institution delineated the entire county in w hich it is located as its assessm ent area, but could have delineated its assessm ent area as only a portion of the county, it w ill not be penalized for lending only in that portion of the county, so long as that portion does not reflect illegal discrim ination or arbitrarily exclude low- or moderateincom e geographies. The capacity and constraints of an institution, its business decisions about how it can best help to meet the needs of its assessm ent area(s), including those of low- and moderateincome neighborhoods, and other aspects of the perform ance context, are all relevant to explain w hy the institution is serving or n ot serving portions of its assessm ent area(s). Q3. W ill exam iners take into account loans m ade by affiliates when evaluating the proportion o f an in stitu tio n ’s lending in its assessm ent area(s)? A3. Examiners w ill not take into account loans m ade by affiliates w hen determ ining 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 rem ainder of the lending test 52117 evaluation. However, examiners may consider an institution’s business strategy of conducting lending through an affiliate in order to determ ine w hether a low proportion of lending in the assessm ent area(s) should adversely affect the institu tio n’s lending test rating. Q4. W hen will exam iners consider loans (other than co m m u n ity developm ent loans) m ade outside an in stitu tio n ’s assessm ent area(s)? A4. Favorable consideration w ill be given for loans to low- and moderateincom e persons and small business and farm loans outside of an in stitution’s assessm ent area(s), provided the institution has adequately addressed the needs of borrowers w ithin its assessm ent area(s). The agencies w ill apply this consideration not only to loans m ade by large retail institutions being evaluated u n der the lending test, but also to loans made by small institutions being evaluated u nder the small institution perform ance standards. Loans to low -and m oderate-incom e persons and small businesses and farms outside of an institu tio n ’s assessm ent area(s), however, w ill not com pensate for poor lending performance w ithin the institution’s assessm ent area(s). Q5. Under the lending test, h o w will exam iners evaluate hom e mortgage loans to m iddle- or upper-incom e individuals in a low- or moderateincom e geography? A5. Examiners w ill consider these hom e mortgage loans u nder the performance criteria of the lending test, i.e., by num ber and am ount of home mortgage loans, w hether they are inside or outside the financial institution’s assessm ent area(s), their geographic distribution, and the incom e levels of the borrowers. Examiners w ill use inform ation regarding the financial institution’s perform ance context to determ ine how to evaluate the loans u nder these performance criteria. D epending on the performance context, examiners could view hom e mortgage loans to m iddle-incom e individuals in a low-income geography very differently. For example, if the loans are for homes located in an area for w hich the local, state, tribal, or Federal governm ent or a com m unity-based developm ent organization has developed a revitalization or stabilization plan (such as a Federal enterprise com m unity or em pow erm ent zone) that includes attracting m ixed-incom e residents to establish a stabilized, econom ically diverse neighborhood, examiners may give more consideration to such loans, w hich may be view ed as serving the low- or m oderate-incom e com m unity’s needs as well as serving those of the 52118 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices m iddle-or upper-incom e 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 m iddle- or upper-incom e borrowers significantly disadvantage or prim arily have the effect of displacing low- or moderateincom e residents, examiners may view these loans sim ply as hom e mortgage loans to m iddle- or upper-incom e borrowers w ho happen to reside in a low- or moderate-incom e geography and weigh them accordingly in their evaluation of the institution. Section__.22(c) Affiliate Lending Section__.22(c)(1) In General Q l. I f an institution elects to have loans by its affiliate(s) considered, m ay it elect to have only certain categories o f loans considered? A l. 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 developm ent loans, and the five categories of consumer loans (motor vehicle loans, credit card loans, home equity loans, other secured loans, and other unsecured loans). Section__.22(c)(2) Affiliate Lending Constraints on Section__,22(c)(2)(i) No Affiliate may Claim a Loan Origination or Loan Purchase if Another Institution Claims the Same Loan Origination or Purchase Q l. H ow is this constraint on affiliate lending applied? A l. 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. Section__,22(c)(2)(ii) If an Institution Elects To Have its Supervisory Agency Consider Loans W ithin 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 W ithin That Lending Category in That Particular Assessment Area Made by all of the Institution’s Affiliates Q l . H ow is this constraint on affiliate lending applied? A l. This constraint prohibits “ cherrypicking” affiliate loans w ithin 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 m ade by all of its affiliates in that particular assessment area. For example, assume that an institution has one or more affiliates, such as a mortgage bank that makes loans in the institution’s assessment area. If the institution elects to include the mortgage bank’s home mortgage loans, it m ust include all of mortgage bank’s home mortgage loans m ade in its assessment area. The institution cannot elect to include only those low- and moderate-income home mortgage loans made by the mortgage bank affiliate and not home mortgage loans to m iddle- and upper-incom e individuals or areas. Q2. H ow is this constraint applied if an institu tio n ’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 w ould produce the anomalous result that the other institution w ould, w ithout 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 w hich 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 hom e mortgage loans in its assessment area w ould 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 m ade 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 com pany may, for business reasons, choose to transact different aspects of its business in different subsidiary institutions. However, the m ethod by w hich loans are allocated among the institutions for CRA purposes m ust reflect actual business decisions about the allocation of banking activities among the institutions and should not be designed solely to enhance their CRA evaluations. Section_.22(d) Lending by a Consortium or a Third Party Q l. Will equity a nd equity-type investm ents in a third p arty receive positive consideration under the lending test? A l. If an institution has m ade an equity or equity-type investm ent in a third party, loans m ade by the third party may be considered u nder the lending test. On the other hand, assetbacked and debt securities that do not represent an equity-type interest in a third party w ill 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 com m unity developm ent corporation (“ CDC”) that prim arily lends in low- and moderateincom e areas or to low-and moderateincom e individuals in order to promote com m unity developm ent, the institution m ay claim a pro rata share of the CDC’s loans as com m unity developm ent loans. The institu tio n’s pro rata share is based on its percentage of equity ow nership in the CDC. Q&A1 addressing § _.23(b) provides inform ation concerning consideration of an equity or equity-type investm ent u n d er the investm ent test and both the lending and investm ent tests. Q2. H ow will exam iners evaluate loans m ade by consortia or third parties under the lending test? A2. Loans originated or purchased by consortia in w hich an institution participates or by third parties in w hich an institution invests w ill only be considered if they qualify as com m unity developm ent loans and w ill only be considered u nder the com m unity developm ent 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 m ade 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 w ould be considered under all the lending test criteria appropriate to them depending on the type of loan. Q3. In som e circum stances, an institution m a y invest in a third party, such as a com m un ity developm ent bank, that is also an insured depository institution a nd is thus subject to CRA requirem ents. I f the investing institution requests its supervisory agency to consider its pro rata share o f com m unity developm ent loans m ade by the third party, as allowed under 12 CFR § __.22(d), m a y the third party also receive consideration fo r these loans? Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices A3. Yes, as long as the financial institution an d the th ird party are not affiliates. The regulations state, at 12 CFR § __,22(c)(2)(i), that two affiliates m ay 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 m ay receive consideration for the com m unity developm ent loans it originates, and the financial institution that invested in the th ird party m ay also receive consideration for its pro rata share of the same com m unity developm ent loans u n d er 12 CFR § __.22(d). Section .23— Investm ent Test Section__.23(b) Exclusion Q l. Even though the regulations state that an activity that is considered under the lending or service tests cannot also be considered under the investm ent test, m a y parts o f an activity be considered under one test a nd other parts be considered under another test? A l. Yes, in some instances the nature of an activity may make it eligible for consideration u nder m ore than one of the performance tests. For example, certain investm ents and related support provided by a large retail institution to a CDC m ay be evaluated u n d er the lending, investm ent, an d service tests. U nder the service test, the institution m ay receive consideration for any com m unity developm ent 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 investm ent in the CDC that the CDC uses to make com m unity developm ent loans, the institution m ay receive consideration u nder the lending test for its pro-rata share of com m unity developm ent loans m ade by the CDC. A lternatively, the in stitu tion ’s investm ent m ay be considered u n d er the investm ent test, assum ing it is a qualified investment. In addition, an institution may elect to have a part of its investm ent considered u nder the lending test and the rem aining part considered u nder the investm ent test. If the investing institution opts to have a portion of its investm ent evaluated u n d er the lending test by claiming a share of the CDC’s com m unity developm ent loans, the am ount of investm ent considered u nder the investm ent test w ill be offset by that portion. Thus, the institution w ould only receive consideration u nder the investm ent test for the am ount of its investm ent m ultiplied by the percentage of the CDC’s assets that m eet the definition of a qualified investment. Section__.24— Service test Section .24(d) Performance Criteria— Retail Banking Services Section__.25 C om m unity Developm ent Test fo r Wholesale or Lim ited Purpose Institutions Section__.25(d) Q l. H ow do exam iners evaluate the availability and effectiveness o f an in stitu tio n ’s system s fo r delivering retail banking services? A l. Convenient access to full service branches w ithin a com m unity is an im portant 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 autom ated teller machines (“ATMs”). The principal focus is on an institution’s current distribution of branches; therefore, 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 lowand moderate-income areas and individuals. Section__.24(d)(3) Availability and Effectiveness of Alternative Systems for Delivering Retail Banking Services Q l. H ow will exam iners evaluate alternative system s fo r delivering retail banking services? A l. The regulation recognizes the m ultitude of ways in w hich 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 positively 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. Q2. 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 com bination of products, such as a com prehensive 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 w ould be considered an alternative delivery system. 52119 Indirect Activities Q l. H ow are investm ents in third party com m unity developm ent organizations considered under the com m unity developm ent test? A l. Similar to the lending test for retail institutions, investments in third party com m unity developm ent organizations m ay be considered as qualified investments or as com munity developm ent loans or both (provided there is no double counting), at the institution’s option, as described above in the discussion regarding §§__.22(d) a n d __.23(b). S ectio n __.25(f) Community Development Performance Rating Q l. M ust a wholesale or lim ited purpose institution engage in all three categories o f com m unity developm ent activities (lending, investm ent and service) to perform well under the com m unity developm ent test? A l. No, a wholesale or limited purpose institution may perform well under the com m unity developm ent test by engaging in one or more of these activities. S ectio n .26—Small Institution Performance Standards S ectio n _.26(a) Performance Criteria Q l. M ay exam iners consider, under one or m ore o f the perform ance criteria o f the sm all institution perform ance standards, lending-related activities, such as com m un ity developm ent loans and lending-related qualified investm ents, when evaluating a sm all institution? A l. Yes. Examiners can consider “lending-related activities,” including com m unity developm ent loans and lending-related qualified investm ents, w hen evaluating the first four perform ance criteria of the small institution performance test. Although lending-related activities are specifically m entioned in the regulation in connection w ith only the first three criteria (i.e., loan-to-deposit ratio, percentage of loans in the institution’s assessm ent area, and lending to borrowers of different incom es and businesses of different sizes), examiners can also consider these activities w hen they evaluate the fourth criteria— geographic distribution of the institution’s loans. Q2. W hat is m eant by “as appropriate” when referring to the fa ct that lending-related activities will be considered, “as appropriate, ” under the 52120 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices various sm all institution perform ance criteria? A2. “As appropriate” m eans that lending-related activities w ill be considered w hen it is necessary to determ ine w hether an institution meets or exceeds the standards for a satisfactory rating. Examiners w ill also consider other lending-related activities at an institu tio n ’s request. Q3. W hen evaluating a sm all in stitu tio n ’s lending performance, will exam iners consider, at the in stitu tio n ’s request, com m un ity developm ent 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 com m unity developm ent loans originated or purchased by a consortium or third party m ust m aintain sufficient inform ation on its share of the com m unity developm ent loans so that the examiners may evaluate these loans u nder the small institution performance criteria. Q4. Under the sm all institution perform ance standards, will exam iners consider both loan originations and purchases? A4. Yes, consistent w ith the other assessm ent m ethods in the regulation, examiners w ill 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, comm itm ents and letters of credit. Q5. Under the sm all institution perform ance standards, h o w will qualified investm ents be considered fo r purposes o f determ ining w hether a sm all institution receives a satisfactory CRA rating? A5. The small institution performance standards focus on lending and other lending-related activities. Therefore, examiners w ill consider only lendingrelated qualified investm ents for the purposes of determ ining w hether the small institution receives a satisfactory CRA rating. S e c tio n _.26(a)(1) Loan-to-Deposit Ratio Q l. H ow is the loan-to-deposit ratio calculated? A l. A small institution’s loan-todeposit ratio is calculated in the same m anner that the Uniform Bank Performance Report/Uniform Thrift Performance Report (UBPR/UTPR) determ ines 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 exam ination by adding the quarterly loan-to-deposit ratios and dividing the total by the num ber of quarters. Q2. H ow is the “reasonableness” o f a loan-to-deposit ratio evaluated? A2. No specific ratio is reasonable in every circumstance, and each small institu tio n ’s ratio is evaluated in light of inform ation from the performance context, including the in stitution’s capacity to lend, demographic and economic factors present in the assessm ent area, and the lending opportunities available in the assessm ent area(s). If a small in stitu tio n ’s loan-to-deposit ratio appears unreasonable after considering this information, lending performance m ay still be satisfactory u nder this criterion taking into consideration the num ber and the dollar volum e of loans sold to the secondary market or the num ber and am ount and innovativeness or complexity of com m unity developm ent loans and lending-related qualified investments. Q3. I f an institution m akes a large num ber o f loans off-shore, will exam iners segregate the dom estic loanto-deposit ratio from the foreign loan-todeposit ratio? A3. No. Examiners w ill look at the institution’s net loan-to-deposit ratio for the w hole institution, w ithout any adjustm ents. S ectio n __.26(a)(2) Percentage of Lending W ithin A ssessm ent Area(s) Q l. M ust a sm all institution have a m ajority o f its lending in its assessm ent area(s) to receive a satisfactory perform ance rating? A l. No. The percentage of loans and, as appropriate, other lending-related activities located in the bank’s assessm ent area(s) is but one of the perform ance criteria upon w hich 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 m eet the standards for satisfactory perform ance only u nder this criterion. The effect on the overall performance rating of the institution, however, is considered in light of the performance context, including inform ation regarding economic conditions, loan dem and, the institution’s size, financial condition and business strategies, and branching netw ork and other aspects of the institution’s lending record. S e c tio n __.26(a) (3) & (4) Distribution of Lending W ithin Assessm ent Area(s) by Borrower Income and Geographic Location Q l. H ow will a sm all in stitu tio n ’s perform ance be assessed under these lending distribution criteria? A l. D istribution of loans, like other sm all institution performance criteria, is considered in light of the performance context. For example, a sm all institution is not required to lend evenly throughout its assessm ent area(s) or in any particular geography. However, in order to meet the standards for satisfactory performance u nder this criterion, conspicuous gaps in a small institution’s loan distribution m ust be adequately explained by performance context factors such as lending opportunities in the institution’s assessm ent area(s), the institution’s product offerings and business strategy, and institutional capacity and constraints. In addition, it m ay be impracticable to review the geographic distribution of the lending of an institution w ith few dem ographically distinct geographies w ithin an assessment area. If sufficient inform ation on the income levels of individual borrowers or the revenues or sizes of business borrowers is not available, examiners m ay use proxies such as loan size for estimating borrow er characteristics, w here appropriate. S ectio n __.26(b) Performance Rating Q l. H ow can a sm all institution achieve an “outstanding” performance rating? A l. A small institution that meets each of the standards for a “satisfactory” rating and exceeds some or all of those standards may w arrant an “ outstanding” performance rating. In assessing performance at the “outstanding” level, the agencies consider the extent to w hich 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, b u t only if its performance m aterially exceeds the standards for a “satisfactory” rating, particularly w ith 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 w ith a high 52121 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices loan-to-deposit ratio and a high percentage of loans in its assessm ent area(s), but w ith only a reasonable penetration of borrowers at all income levels or a reasonable dispersion of loans throughout geographies of differing incom e levels in its assessm ent area(s), generally w ill not be rated “outstanding” based only on its lending performance. However, the institution’s performance in making qualified investm ents and its perform ance in providing branches and other services and delivery systems that enhance credit availability in its assessm ent area(s) m ay augm ent the institution’s satisfactory rating to the extent that it m ay be rated “outstanding.” Q2. Will a sm all in stitu tio n ’s qualified investm ents, co m m u nity developm ent loans, and co m m u nity developm ent services be considered i f th ey do not directly benefit its assessm ent area(s)? A2. Yes. These activities are eligible for consideration if they benefit a broader statew ide or regional area that includes a small in stitu tio n ’s assessment area(s), as discussed more fully in Q&A6 addressing § § __.12(i) and 563e.12(h). S e c tio n S ectio n __.27(f) Plan Content S ectio n __.27(f)(1) M easurable Goals H ow sh ould “m easurable goals” be specified in a strategic plan? A l. M easurable goals (e.g., num ber of loans, dollar am ount, geographic location of activity, and benefit to lowand m oderate-incom e areas or individuals) m ust be stated w ith sufficient specificity to perm it the public and the agencies to quantify w hat perform ance w ill be expected. However, institutions are provided flexibility in specifying goals. For example, an institution may provide ranges of lending am ounts in different categories of loans. M easurable goals may also be linked to funding requirem ents of certain public programs or indexed to other external factors as long as these m echanism s provide a quantifiable standard. Q l. S ectio n .2 7 (g) Plan Approval S e c tio n _.27(g)(2) Public Participation H ow will the public receive notice o f a proposed strategic plan? A l. An institution subm itting a strategic plan for approval by the agencies is required to solicit public com m ent on the plan for a period of thirty (30) days after publishing notice of the plan at least once in a new spaper of general circulation. The notice should be sufficiently prom inent to attract public attention and should make clear that public com m ent is desired. An institution may, in addition, provide notice to the public in any other m anner it chooses. Q l. .27— Strategic plan S ectio n__.27(c) Plans in General Q l. To w hat extent will the agencies provide guidance to an institution during the developm ent o f its strategic plan? A l. An institution w ill have an opportunity to consult w ith and provide inform ation to the agencies on a proposed strategic plan. Through this process, an institution is provided guidance on procedures and on the inform ation necessary to ensure a com plete submission. For example, the agencies w ill provide guidance on w hether the level of detail as set out in the proposed plan w ould be sufficient to perm it agency evaluation of the plan. However, the agencies’ guidance during plan developm ent and, particularly, prior to the public com m ent period, w ill not include com m enting on the merits of a proposed strategic plan or on the adequacy of m easurable goals. Q2. H ow will a jo in t strategic plan be review ed i f the affiliates have different prim ary Federal supervisors? A2. The agencies w ill coordinate review of and action on the joint plan. P o in t s A s s ig n e d Each agency w ill evaluate the m easurable goals for those affiliates for w hich it is the prim ary regulator. fo r S e c tio n .28— A ssigned Ratings S ectio n __.28(a) Ratings in General H ow are institutions with dom estic branches in more than one state assigned a rating? A l. The evaluation of an institution that m aintains domestic branches in more than one state (“m ultistate institution”) w ill include a w ritten evaluation and rating of its CRA record of perform ance as a w hole and in each state in w hich it has a dom estic branch. The w ritten evaluation w ill contain a separate presentation on a m ultistate Q l. in stitution’s perform ance for each m etropolitan statistical area and the nonm etropolitan area w ithin each state, if it m aintains one or more domestic branch offices in these areas. This separate presentation will contain conclusions, supported by facts and data, on performance u n d er the perform ance tests and standards in the regulation. The evaluation of a m ultistate institution that m aintains a domestic branch in two or more states in a m ultistate m etropolitan area will include a w ritten evaluation (containing the same inform ation described above) and rating of its CRA record of performance in the m ultistate m etropolitan area. In such cases, the statew ide evaluation and rating w ill be adjusted to reflect performance in the portion of the state not w ithin the m ultistate m etropolitan statistical area. Q2. H ow are institutions that operate within o nly a single state assigned a rating? A2. An institution that operates w ithin only a single state (“single-state institution”) w ill be assigned a rating of its CRA record based on its performance w ithin that state. In assigning this rating, the agencies w ill separately present a single-state institution’s perform ance for each m etropolitan area in w hich the institution m aintains one or more domestic branch offices. This separate presentation w ill contain conclusions, supported by facts and data, on the single-state institution’s performance u nder the performance tests and standards in the regulation. Q3. H ow do the agencies weight perform ance under the lending, investm ent a nd service test fo r large retail institutions? A3. A rating of “ outstanding,” “high satisfactory,” “low satisfactory,” “needs to im prove,” or “ substantial noncom pliance,” based on a judgm ent supported by facts and data, w ill be assigned u nder each performance test. Points w ill then be assigned to each rating as described in the first m atrix set forth below. A large retail institution’s overall rating u n d er the lending, investm ent and service tests w ill then be calculated in accordance w ith the second m atrix set forth below, w hich incorporates the rating principles in the regulation. P e r f o r m a n c e U n d e r L e n d in g , I n v e s t m e n t , and S e r v ic e T e s t s Lending Outstanding ............................................................................. High Satisfactory ................................................................................................................................................ Low Satisfactory .................................................................................................................................................. .......................................... Needs to Im p ro ve ......................................................................... .. Investment Service 12 9 6 3 6 6 4 4 3 1 3 1 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices 52122 P o in ts A s s ig n e d for P e r fo r m a n c e U n d er L e n d in g , In v e s t m e n t , and S e r vic e T e sts — C ontinued Substantial N oncom pliance............................................................................................................................... C o m p o s it e R a t in g P o in t R e q u ir e m e n t s [Add points from three tests] Rating Total points O utstanding............... Satisfactory ............... Needs to Improve .... Substantial Noncompliance. 20 or over. 11 through 19. 5 through 10. 0 through 4. applications process to overcome a seriously deficient record of CRA performance. However, comm itm ents for im provem ents in an institu tio n ’s perform ance may be appropriate to address specific w eaknesses in an otherwise satisfactory record or to address CRA performance w hen a financially troubled institution is being acquired. S ectio n __.29(b) 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. S e c tio n .29— Effect o f CRA Performance on A pplications S ectio n__.29(a) CRA Performance Q l. W hat weight is given to an in stitu tio n ’s CRA perform ance exam ination in reviewing an application? A l. In cases in w hich CRA perform ance is a relevant factor, inform ation from a CRA performance exam ination of the institution is a particularly im portant consideration in the applications process because it represents a detailed evaluation of the in stitu tion ’s CRA perform ance by its Federal supervisory agency. In this light, an exam ination is an im portant, and often controlling factor in the consideration of an institution’s record. In some cases, however, the exam ination may not be recent or a specific issue raised in the application process, such as progress in addressing w eaknesses noted by examiners, progress in im plem enting comm itm ents previously m ade to the reviewing agency, or a supported allegation from a commenter, is relevant to CRA perform ance u n d er the regulation and was not addressed in the examination. In these circumstances, the applicant should present sufficient inform ation to supplem ent its record of performance and to respond to the substantive issues raised in the application proceeding. Q2. W hat consideration is given to an in stitu tio n ’s com m itm ents fo r future action in reviewing an application by those agencies that consider such com m itm ents? A2. Commitments for future action are not view ed as part of the CRA record of performance. In general, institutions cannot use com m itm ents m ade in the Interested Parties Q l. W hat consideration is given to com m ents from interested parties in reviewing an application? A l. Materials relating to CRA performance received during the applications process can provide valuable information. W ritten comments, w hich m ay express either support for or opposition to the application, are m ade a part of the record in accordance w ith the agencies’ procedures, and are carefully considered in making the agencies’ decision. Comments should be supported by facts about the ap plicant’s performance and should be as specific as possible in explaining the basis for supporting or opposing the application. These com ments m ust be subm itted w ithin the tim e limits provided under the agencies’ procedures. Q2. Is an institution required to enter into agreements with private parties? A2. No. A lthough com m unications betw een an institution and members of its com m unity may provide a valuable m ethod for the institution to assess how best to address the credit needs of the com m unity, the CRA does not require an institution to enter into agreements w ith private parties. These agreements are not m onitored or enforced by the agencies. S e c tio n .41—A ssessm ent Area Delineation S e c tio n _____ -41(a) In General Q l. H ow do the agencies evaluate “assessm ent areas” under the revised CRA regulations com pared to h ow they evaluated “local co m m unities” that institutions delineated under the original CRA regulations? A l. The revised rule focuses on the distribution and level of an institu tion ’s lending, investments, and services rather th an on how and w hy an institution delineated its “local com m unity” or assessment area(s) in a particular m anner. Therefore, the Investment Service Lending 0 0 0 agencies will not evaluate an institution’s delineation of its assessment area(s) as a separate perform ance criterion as they did under the original regulation. Rather, the agencies w ill only review w hether the assessm ent area delineated by the institution complies w ith the lim itations set forth in the regulations at § __.41(e). Q2. I f an institution elects to have the agencies consider affiliate lending, will this decision affect the in stitu tio n ’s assessm ent area(s)? A2. If an institution elects to have the lending activities of its affiliates considered in the evaluation of the institu tio n ’s lending, the geographies in w hich the affiliate lends do not affect the in stitution’s delineation of assessm ent area(s). Q3. Can a financial institution id en tify a specific ethnic group rather than a geographic area as its assessm ent area? A3. No, assessm ent areas m ust be based on geography. S ectio n __.41(c) Geographic Area(s) for Institutions Other Than Wholesale or Limited Purpose Institutions S ectio n _.41(c)(1) Generally Consist of one or More MSAs or one or More Contiguous Political Subdivisions Q l. Besides cities, towns, and counties, what other units o f local governm ent are political subdivisions fo r CRA purposes? A l. Tow nships and Indian reservations are political subdivisions for CRA purposes. Institutions should be aware that the boundaries of tow nships and Indian reservations may not be consistent w ith the boundaries of the census tracts or block num bering areas (“geographies”) in the area. In these cases, institutions m ust ensure that their assessm ent area(s) consists only of w hole geographies by adding any portions of the geographies that lie outside the political subdivision to the delineated assessm ent area(s). Q2. Are wards, school districts, voting districts, and water districts political subdivisions fo r CRA purposes? A2. No. However, an institution that determ ines that it predom inantly serves an area that is sm aller than a city, town or other political subdivision may delineate as its assessm ent area the larger political subdivision and then, in accordance w ith § _.41(d), adjust the boundaries of the assessm ent area to 52123 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices include only the portion of the political subdivision that it reasonably can be expected to serve. The sm aller area that the institution delineates m ust consist of entire geographies, m ay n ot reflect illegal discrim ination, and may not arbitrarily exclude low-or moderateincom e geographies. S e c tio n _.41(d) A djustm ents to Geographic Area(s) Q l. W hen m a y an institution adjust the boundaries o f an assessm ent area to include only a portion o f a political subdivision? A l. Institutions m ust include whole geographies (i.e., census tracts or block num bering areas) in their assessment areas and generally should include entire political subdivisions. Because census tracts and block num bering areas are the com m on geographic areas used consistently nationw ide for data collection, the agencies require that assessm ent areas be m ade up of w hole geographies. If including an entire political subdivision w ould create an area that is larger than the area the institution can reasonably be expected to serve, an institution may, b u t is not required to, adjust the boundaries of its assessm ent area to include only portions of the political subdivision. For example, this adjustm ent is appropriate if the assessm ent area w ould otherwise be extremely large, of unusual configuration, or divided by significant geographic barriers (such as a river, m ountain, or major highw ay system). W hen adjusting the boundaries of their assessm ent areas, institutions m ust not arbitrarily exclude low- or moderateincome geographies or set boundaries that reflect illegal discrim ination. Section__.41(e) Limitations on Delineation of an Assessment Area Section_.41(e)(3) May not Arbitrarily Exclude Low- or M oderate-income Geographies Q l. H ow will exam iners determ ine whether an institution has arbitrarily excluded low- or m oderate-incom e geographies? A l. Examiners w ill make this determ ination on a case-by-case basis after considering the facts relevant to the institu tio n ’s assessm ent area delineation. Inform ation that examiners w ill consider m ay include: • Income levels in the institu tio n ’s assessm ent area(s) and surrounding geographies; • Locations of branches and deposittaking ATMs; • Loan distribution in the institu tio n ’s assessm ent 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. Section__.41(e)(4) May not Extend Substantially Beyond a CMSA Boundary or Beyond a State Boundary Unless Located in a Multistate MSA Q l. W hat are the m axim um lim its on the size o f an assessm ent area? A l. An institution shall not delineate an assessment area extending substantially across the boundaries of a consolidated m etropolitan statistical area (CMSA) or the boundaries of an MSA, if the MSA is not located in a CMSA. Similarly, an assessment area may not extend substantially across state boundaries unless the assessment area is located in a m ultistate MSA. An institution may not delineate a whole state as its assessm ent area unless the entire state is contained w ithin a CMSA. These lim itations apply to wholesale and lim ited purpose institutions as well as other institutions. An institution shall delineate separate assessment areas for the areas inside and outside a CMSA (or MSA if the MSA is not located in a CMSA) if the area served by the institution’s branches outside the CMSA (or MSA) extends substantially beyond the CMSA (or MSA) boundary. Similarly, the institution shall 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 w ithin the same state that are w idely separate and not at all contiguous. For example, an institution that has its m ain office in New York City and a branch in Buffalo, New York, and each office serves only the im m ediate areas around it, should delineate two separate assessment areas. Q2. Can an institution delineate one assessm ent area that consists o f an M SA and two large counties that abut the M SA 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 w ould 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 w ould delineate each county as a separate assessment area (so, in this example, there w ould 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. Section__.42—Data Collection, Reporting, and Disclosure Q l. When m u st an institution collect and report data under the CRA regulations? A l. All institutions except small institutions are subject to data collection and reporting requirements. A small institution is a bank or thrift that, as of December 31 of either o f the prior two calendar years, had total assets of less than $250 m illion and was independent or an affiliate of a holding company that, as of December 31 of either of the prior two calendar years, had total banking and thrift assets of less than $1 billion. For example: Date 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 ............ ............ ............ ............ ............ Institution’s asset size (millions) $240 $260 $230 $280 $260 Data collec tion re quired for following calendar year? No. No. No. No. Yes, beginning 1/ 01/99. All institutions that are subject to the data collection and reporting requirem ents m ust report the data for a calendar year by M arch 1 of the subsequent year. In the example, above, the institution w ould report the data collected for calendar year 1999 by M arch 1, 2000. The Board of Governors of the Federal Reserve System is handling the processing of the reports for all of the prim ary regulators. The reports should be subm itted in a prescribed electronic format on a tim ely basis. The mailing address for subm itting these reports is: Attention: CRA Processing, Board of Governors of the Federal Reserve System, 1709 New York Avenue, N.W., 5th Floor, W ashington, DC 20006. Q2. S hould an institution develop its own program fo r data collection, or will the regulators require a certain form at? A2. An institution m ay 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 52124 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices CRA data collection and reporting rules. This format may be obtained by contacting the CRA Assistance Line at (202) 872-7584. Q3. H ow should an institution report data on lines o f credit? A3. Institutions m ust 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 tim e the line is approved or increased; and an increase is considered a new origination. Generally, the full am ount of the credit line is the am ount that is considered originated. In the case of an increase to an existing line, the am ount of the increase is the am ount that is considered originated and that am ount should be reported. Q4. S hould renewals o f lines o f credit be reported? A4. No. Sim ilar to loan renewals, renew als of lines of credit are not considered loan originations and should not be reported. Q5. W hen should merging institutions collect data? A5. Three scenarios of data collection responsibilities for the calendar year of a m erger and subsequent data reporting responsibilities are described below. • Two institutions are exem pt from CRA collection and reporting requirem ents because of asset size. The institutions merge. No data collection is required for the year in w hich the merger takes place, regardless of the resulting asset size. Data collection w ould begin after two consecutive years in w hich the com bined institution had year-end assets of at least $250 m illion or was part of a holding com pany that h ad year-end banking and thrift assets of at least $1 billion. • Institution A, an institution required to collect and report the data, and Institution B, an exem pt 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 exem pt institution. For the following year, all transactions of the surviving institution m ust 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 surviving institution m ay file either a consolidated subm ission or separate subm issions for the year of the merger b u t m ust file a consolidated report for subsequent years. Q6. Can sm all institutions get a copy o f 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 w ritten request to: Attn.: CRA Processing, Board of Governors of the Federal Reserve System, 1709 New York Ave, N.W., 5th Floor, W ashington, DC 20006. They may also call the CRA Assistance Line at (202) 872-7584 or send Internet e-mail to CRAHELP@FRB.GOV. Q7. I f a sm all institution is designated a wholesale or lim ited purpose institution, m u st it collect data that it w ould not otherwise be required to collect because it is a sm all institution? A 7. No. However, small institutions m ust be prepared to identify those loans, investm ents and services to be evaluated u n d er the com m unity developm ent test. Section_.42(a) Loan Information Required to be Collected and M aintained Q l. M ust institutions collect and report data on all com m ercial loans under $1 m illion at origination? A l. No. Institutions that are not exem pt 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 w hose original am ounts are $1 m illion 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. Q2. For loans defined as sm all business loans, w hat inform ation should be collected and m aintained? A2. Institutions that are not exempt from data collection and reporting are required to collect and m aintain in a standardized, m achine readable format inform ation on each small business loan originated or purchased for each calendar year: • A u nique num ber or alpha-num eric symbol th at can be used to identify the relevant loan file; • The loan am ount at origination; • The loan location; and • An indicator w hether the loan was to a business w ith gross annual revenues of $1 m illion or less. The location of the loan m ust be m aintained by census tract or block num bering area. In addition, supplem ental inform ation contained in the file specifications includes a date associated w ith the origination or purchase and w hether a loan was originated or purchased by an affiliate. The same requirem ents apply to small farm loans. Q3. Will farm loans need to be segregated from business loans? A3. Yes. Q4. Should institutions collect and report data on all agricultural loans under $500,000 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 am ounts are $500,000 or less and were reported as either “Loans to finance agricultural production and other loans to farmers” or “Loans secured by farm land” in Part I of the Call Report and TFR. Q5. Should institutions collect and report data about sm all business and sm all farm loans that are refinanced or renewed? A5. An institution collects and reports inform ation about refinancings but does not collect and report inform ation about renewals. A refinancing typically involves the satisfaction of an existing obligation that is replaced by a new obligation undertaken by the same borrower. W hen an institution refinances a loan, it is considered a new origination and loan data should be collected and reported if otherwise required. Consistent w ith HMDA, however, if under the original loan agreement, the institution is unconditionally obligated to refinance the loan, or is obligated to refinance the loan subject to conditions w ithin the borrow er’s control, the institution w ould not report these events as originations. For purposes of the CRA data collection and reporting requirem ents, an extension of the m aturity of an existing loan is a renewal, and is not considered a loan origination. Therefore, institutions should not collect and report data on loan renewals. Q6. Does a loan to the “ fish in g ind ustry” com e under the definition o f a sm all 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 fisherm en” as a com ponent of the definition for “Loans to finance agricultural production and other loans to farmers.” Part II of Schedule RC-C o “ the Call Report and Schedule SB of *’ TFR, w hich serve as the basis of thb Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices 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 farm land.” Q7. H ow should an institution report a h om e equity line o f credit, part o f which is fo r hom e im provem ent purposes, but the predom inant part o f which is fo r sm all business purposes? A 7. The institution has the option of reporting the portion of the hom e equity line that is for home im provem ent purposes u n der HMDA. That portion of the loan w ould then be considered w hen examiners evaluate home mortgage lending. If the line meets the regulatory definition of a “com m unity developm ent loan,” the institution should collect and report information on the entire line as a com m unity developm ent loan. If the line does not qualify as a com m unity developm ent loan, the institution has the option of collecting and m aintaining (but not reporting) the entire line of credit as “Other Secured Lines/Loans for Purposes of Small Business.” Q8. When collecting sm all business a nd sm all farm data fo r CRA purposes, m a y an institution collect and report inform ation about loans to sm all businesses and sm all farm s 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 U nited States; however, it cannot report this data because the CRA data collection software w ill not accept data concerning loan locations outside the United States. Q9. Is an institution that has no sm all farm or sm all business loans required to report under CRA? A9. Each institution subject to data reporting requirem ents m ust, at a m inim um , subm it a transm ittal sheet, definition of its assessm ent area(s), and a record of its com m unity developm ent loans. If the institution does not have com m unity developm ent loans to report, the record should be sent w ith “ 0” in the com m unity developm ent loan com posite data fields. An institution that has not purchased or originated any small business or small farm loans during the reporting period w ould not subm it the com posite loan records for small business or small farm loans. Q10. H ow sh ould an institution collect and report the location o f a loan m ade to a sm all business or farm i f the borrower provides an address that consists o f a po st office box num ber or a rural route and box num ber? A10. Prudent banking practices dictate that an institution know the location of its custom ers or loan collateral. Therefore, institutions typically w ill know the actual location of their borrowers or loan collateral beyond an address consisting only of a post office box. M any borrowers have street addresses in addition to post office box num bers or rural route and box numbers. Institutions should ask their borrowers to provide the street address of the m ain business facility or farm or the location w here the loan proceeds otherw ise w ill be applied. Once the institution receives this inform ation from the borrower, it should assign a census tract or block num bering area to that location (geocode) and report that inform ation as required u nder the regulation. There may be cases in w hich a borrower cannot provide a street address because of the rural nature of the com m unity. If a borrow er can provide only a rural route and box number, or in those rare instances in w hich a borrow er reports a post office box and the institution cannot determ ine the location of the business, the following guidance w ill apply, depending on the date the loan is originated or purchased: • For loans originated or purchased in 1997, if an institution cannot determ ine the borrow er’s street address, the institution should geocode the location of the loan using the town, state, and zip code of the location of the post office as a proxy for the location of the borrower. In cases w here the assigned location of the zip code for the rural route and box num ber or post office box encom passes more than one census tract or block num bering area, the institution should be able to provide a specific rationale for the census tract or block num bering area selected for geocoding purposes. • For loans originated or purchased in 1998 or later, if the institution cannot determ ine the borrow er’s street address, the institution should report the borrow er’s state, county, MSA, if applicable, and “NA,” for “not available,” in lieu of a census tract or block num bering area code. S ectio n __.42(a)(2) Loan A m ount at Origination Q l. When an institution purchases a sm all business or sm all farm loan, which am ount should the institution collect and report— the original am ount o f the loan or the am ount at purchase? A l. W hen collecting and reporting information on purchased small business and small farm loans, an institution collects and reports the 52125 am ount of the loan at origination, not at the time of purchase. This is consistent w ith the Call Report’s and TFR’s use of the “original am ount of the loan” to determ ine w hether a loan should be reported as a “loan to a small business” or a “loan to a small farm” and in w hich loan size category a loan should be reported. W hen 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. Q2. How should an institution collect data about m ultiple loan originations to the sam e business? A2. If an institution makes m ultiple originations to the same business, the loans should be collected and reported as separate originations rather than com bined and reported as they are on the Call Report or TFR, w hich reflect loans outstanding, rather than originations. However, if institutions make m ultiple originations to the same business solely to inflate artificially the num ber or volume of loans evaluated for CRA lending performance, the agencies may combine these loans for purposes of evaluation under the CRA. Q3. H ow should an institution collect data pertaining to credit cards issued to sm all businesses? A3. If an institution agrees to issue credit cards to a business’ 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 “am ount at origination” is the sum of all of the em ployee/business credit cards” credit limits opened on a particular date. If subsequently issued credit cards increase the small business credit line, the added am ount is reported as a new origination. Section__.42(a)(3) The Loan Location Q l. Which location should an institution record i f a sm all business lo a n ’s proceeds are used in a variety o f locations? A l. The institution should record the loan location by either the location of the business headquarters or the location where the greatest portion of the proceeds are applied, as indicated by the borrower. Section__.42(a)(4) Indicator of Gross A nnual Revenue Q l. When indicating whether a small business borrower h a d gross annual 52126 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices revenues o f $1 m illion or less, upon what revenues should an institution rely? A l. 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 w ould aggregate the revenues of both corporations to determ ine w hether the revenues are $1 m illion or less. Alternatively, if the institution considered the revenues of only the entity to w hich the loan is actually extended, the institution should rely solely upon w hether gross annual revenues are above or below $1 m illion for that entity. However, if the institution considered and relied on revenues or incom e of a cosigner or guarantor that is not an affiliate of the borrower, the institution should not adjust the borrow er’s revenues for reporting purposes. Q2. I f an institution that is n ot exem pt from data collection and reporting does n o t request or consider revenue inform ation to m a ke the credit decision regarding a sm all business or sm all farm loan, m u st the institution collect revenue inform ation in connection with that loan? A2. No. In those instances, the institution should enter the code indicating “revenues not know n” on the individual loan portion of the data collection software or on an internally developed system. Loans for w hich the institution did not collect revenue inform ation may n ot be included in the loans to businesses and farms w ith gross annual revenues of $1 m illion or less w hen reporting this data. Q3. W hat gross revenue should an institution use in determ ining the gross annual revenue o f 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). A lthough a start-up business w ill provide the institution w ith pro forma projected revenue figures, these figures may not accurately reflect actual gross revenue. Section__.42(b) Loan Information Required To Be Reported Section__.42(b)(1) Small Business and Small Farm Loan Data Q l. For sm all business and sm all farm loan inform ation that is collected and m aintained, what data should be reported? A l. Each institution that is not exem pt 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 num bering area in w hich the institution originated or purchased at least one small business or small farm loan during the prior year: • The num ber and am ount of loans originated or purchased w ith original am ounts of $100,000 or less; • The num ber and am ount of loans originated or purchased w ith original amounts of more than $100,000 but less than or equal to $250,000; • The num ber and am ount of loans originated or purchased w ith original amounts of more than $250,000 but not more than $1 million; and • To the extent that information is available, the num ber and am ount of loans to businesses and farms w ith gross annual revenues of $1 m illion or less (using the revenues the institution considered in making its credit decision). S ectio n _.42(b)(2) Com munity Development Loan Data Q l. W hat inform ation about com m u n ity developm ent loans m u st institutions report? A l. Institutions subject to data reporting requirem ents m ust report the aggregate num ber and am ount of com m unity developm ent loans originated and purchased during the prior calendar year. Q2. I f a loan m eets the definition o f a h om e mortgage, sm all business, or sm all farm loan AN D qualifies as a com m un ity developm ent loan, where should it be reported? Can FHA, VA and SBA loans be reported as com m un ity developm ent loans? A2. Except for m ultifam ily affordable housing loans, w hich may be reported by retail institutions both u nder HMDA as hom e mortgage loans and as com m unity developm ent loans, in order to avoid double counting, retail institutions m ust report loans that m eet the definitions of hom e mortgage, small business, or small farm loans only in those respective categories even if they also m eet the definition of com m unity developm ent loans. As a practical matter, this is not a disadvantage for retail institutions because any affordable housing mortgage, small business, small farm or consum er loan that w ould otherwise m eet the definition of a com m unity developm ent loan w ill be considered elsewhere in the lending test. Any of these types of loans that occur outside the institution’s assessment area can receive favorable consideration u nder the borrower characteristic criteria of the lending test. See Q&A4 u n d er § __.22(b) (2) & (3). Limited purpose and w holesale institutions also m ust report loans that m eet the definitions of hom e mortgage, small business, or small farm loans in those respective categories; however, they m ust also report any loans from those categories that m eet the regulatory definition of “com m unity developm ent loans” as com m unity developm ent loans. There is no double counting because w holesale and lim ited 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 consum er loans. S e c tio n __.42(b)(3) Loans Home Mortgage Q l. M ust institutions that are not required to collect hom e mortgage loan data by the HMDA collect hom e mortgage loan data fo r purposes o f the CRA? A l. No. If an institution is not required to collect hom e mortgage loan data by the HMDA, the institution need not collect hom e mortgage loan data u nder the CRA. Examiners w ill sample these loans to evaluate the institutio n ’s hom e mortgage lending. If an institution wants to ensure that examiners consider all of its hom e mortgage loans, the institution may collect and m aintain data on these loans. S ectio n __.42(c) Optional data collection and m aintenance S ectio n __.42(c)(1) Consumer loans Q l. W hat are the data requirem ents regarding consum er loans? A l. There are no data reporting requirem ents for consum er loans. Institutions may, however, opt to collect and m aintain data on consum er loans. If an institution chooses to collect inform ation on consum er loans, it may collect data for one or more of the following categories of consum er loans: m otor vehicle, credit card, hom e equity, other secured, and other unsecured. If an institution collects data for loans in a certain category, it m ust collect data for all loans originated or purchased w ithin that category. The institution m ust m aintain these data separately for each category for w hich it chooses to collect data. The data collected and m aintained should include for each loan: • A unique num ber or alpha-num eric symbol that can be used to identify the relevant loan file; • The loan am ount at origination or purchase; • The loan location; and Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices • The gross annual income of the borrow er that the institution considered in making its credit decision. S e c tio n __.42(c)(l)(iv) Income of borrower Q l. I f an institution does n ot consider incom e when m aking an underwriting decision in connection with a consum er loan, m u st it collect incom e inform ation? A l. No. Further, if the institution routinely collects, but does not verify, a borrow er’s incom e w hen making a credit decision, it need not verify the income for purposes of data m aintenance. Q2. M a ya n institution list “0 ” in the incom e fie ld on consum er loans m ade to em ployees when collecting data fo r CRA purposes as the institution would be perm itted to do under HMDA? A2. Yes. S e c tio n _.42(c)(2) O ther Loan Data Q l. Schedule RC-C, Part II o f the Call Report and schedule SB o f the TFR do not allow fina ncial institutions to report loans fo r com m ercial and industrial purposes that are secured by residential real estate. Loans extended to sm all businesses with gross annual revenues o f $1 m illion or less m ay, however, be secured b y residential real estate. Is there a w ay to collect this inform ation on the software to su pp lem en t an in stitu tio n ’s sm all business lending data at the tim e o f exam ination? A l. Yes. If these loans prom ote com m unity developm ent, as defined in the regulation, the institution should collect and report inform ation about these loans as com m unity developm ent loans. Otherwise, at an in stitu tio n ’s option, it may collect and m aintain data concerning loans, purchases, and lines of credit extended to small businesses and secured by residential real estate for consideration in the CRA evaluation of its small business lending. To facilitate this optional data collection, the software distributed free-of-charge by the FFIEC provides that an institution may collect this inform ation to supplem ent its small business lending data by choosing loan type, “Other Secured Lines/Loans for Purposes of Small Business,” in the individual loan data. (The title of the loan type, “Other Secured Lines of Credit for Purposes of Small Business,” w hich was found in the instructions accompanying the 1996 data collection software, is being changed to “Other Secured Lines/Loans for Purposes of Small Business” in order to accurately reflect that lines of credit and loans m ay be reported u nder this loan type.) This inform ation should be m aintained at the institution but should n o t be subm itted for central reporting purposes. Q2. M ust an institution collect data on loan com m itm ents and letters o f credit? A2. No. Institutions are not required to collect data on loan com mitments and letters of credit. Institutions may, however, provide for exam iner consideration inform ation on letters of credit and commitments. Q3. A re com m ercial and consum er leases considered loans fo r purposes o f CRA data collection? A3. Commercial and consum er leases are not considered small business or small farm loans or consum er loans for purposes of the data collection requirem ents in 12 CFR § __.42(a) & (c)(1)- However, if an institution wishes to collect and m aintain data about leases, the institution may provide this data to examiners as “other loan data” under 12 CFR § _.42(c)(2) for consideration u nder the lending test. S e c tio n _.42(d) Lending Data on Affiliate Q l. I f an institution elects to have an affiliate’s h om e mortgage lending considered in its CRA evaluation, what data m u st the institution m ake available to examiners? A l. If the affiliate is a HMDA reporter, the institution m ust identify those loans reported by its affiliate u n d er 12 CFR part 203 (Regulation C, im plem enting HMDA). At its option, the institution m ay either provide examiners w ith the affiliate’s entire HMDA Disclosure Statem ent or just those portions covering the loans in its assessm ent area(s) that it is electing to consider. If the affiliate is not required by HMDA to report hom e mortgage loans, the institution m ust provide sufficient data concerning the affiliate’s hom e mortgage loans for the examiners to apply the perform ance tests. S ectio n .43—Content and Availability of Public File S ectio n .43(a) to the Public Inform ation Available S e c tio n .43(a)(1) Public Comments Q l. W hat ha ppens to com m ents received b y the agencies? A l. Comments received by a Federal financial supervisory agency w ill be on file at the agency for use by examiners. Those com m ents are also available to the public unless they are exem pt from disclosure u nder the Freedom of Information Act. Q2. Is an institution required to respond to public com m ents? A2. No. All institutions should review com ments and com plaints carefully to 52127 determ ine w hether any response or other action is w arranted. A small institution subject to the small institution performance standards is specifically evaluated on its record of taking action, if w arranted, in response to w ritten com plaints about its perform ance in helping to meet the credit needs in its assessm ent area(s) (§_.26(a)(5)). For all institutions, responding to com ments m ay help to foster a dialogue w ith members of the com m unity or to present relevant inform ation to an institutio n ’s Federal financial supervisory agency. If an institution responds in writing to a letter in the public file, the response m ust also be placed in that file, unless the response reflects adversely on any person or placing it in the public file violates a law. Q3. M ay an institution include a response to its CRA Performance Evaluation in its public file? A3. Yes. However, the format and content of the evaluation, as transm itted by the supervisory agency, may not be altered or abridged in any m anner. In addition, an institution that received a less than satisfactory rating during it m ost recent exam ination m ust include in its public file a description of its current efforts to im prove its perform ance in helping to meet the credit needs of its entire community. The institution m ust update the description on a quarterly basis. S e c tio n __.43(b) Additional Information Available to the Public S ectio n __.43(b)(1) Institutions Other Than Small Institutions Q l. M ust an institution that elects to have affiliate lending considered include data on this lending in its public file? A l. 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 m ust 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. Section_.43(c) Information Location of Public Q l. W hat is an in stitu tio n ’s “m ain office”? A l. An institu tio n ’s m ain office is the m ain, home, or principal office as designated in its charter. 52128 Federal Register / Vol. 62, No. 193 / Monday, October 6, 1997 / Notices Section .44— Public Notice by Institutions Q l. A re there a n y pla cem ent or size requirem ents fo r an in stitu tio n ’s public notice? A l. The notice m ust be placed in the institu tio n ’s public lobby, but the size and placem ent m ay vary. The notice should be placed in a location and be of a sufficient size that custom ers can easily see and read it. Appendix A Regional Offices o f the Bureau o f the Census To obtain m edian family income levels of census tracts, MS As, block num bering areas and statewide nonm etropolitan areas, contact the appropriate regional office of the Bureau of the Census as indicated below. The list shows the states covered by each regional office. Section .45—Publication o f Planned Exam ination Schedule Atlanta, (404) 730-3833 Q l. Where will the agencies publish the pla nned exam ination schedule fo r the upcom ing calendar quarter? A l. The agencies may use the Federal Register, a press release, the Internet, or other existing agency publications for dissem inating the list of the institutions scheduled to for CRA exam inations during the upcom ing calendar quarter. Interested parties should contact the appropriate Federal financial supervisory agency for inform ation on how the agency is publishing the planned exam ination schedule. Q2. Is inclusion on the list o f institutions that are scheduled to undergo CRA exam inations in the n ext calendar quarter determ inative o f w hether an institution will be exam ined in that quarter? A2. No. The agencies attem pt to determ ine as accurately as possible w hich institutions w ill be exam ined during the upcom ing calendar quarter. However, w hether an in stitu tio n ’s name appears on the published list does not conclusively determ ine w hether the institution w ill be exam ined during that quarter. The agencies may need to defer a planned exam ination or conduct an unforeseen exam ination because of scheduling difficulties or other circum stances. Boston, (617) 424-0510 A p p e n d ix B to Part_CRA Notice N ew York, Puerto Rico Q l. What agency inform ation should be added to the CRA notice form ? A l. The following inform ation should be added to the form: OCC-supervised institutions only: The address of the deputy com ptroller of the district in w hich the institution is located should be inserted in the appropriate blank. These addresses can be found at 12 CFR § 4.5(a). OCC-, FDIC-, and Board-supervised institutions: “Officer in Charge of S upervision” is the title of the responsible official at the appropriate Federal Reserve Bank. Alabam a, Florida, Georgia Connecticut, M aine, M assachusetts, N ew Hampshire, R hode Island, Vermont Charlotte, (704) 344-6144 District o f Columbia, Kentucky, North Carolina, South Carolina, Tennessee, Virginia Chicago, (708) 562-1740 Illinois, Indiana, W isconsin Dallas, (214) 640-4470 or (800) 8359752 Louisiana, M ississippi, Texas Denver, (303) 969-7750 Arizona, Colorado, Nebraska, N ew Mexico, North Dakota, South Dakota, Utah, W yoming Detroit, (313) 259-1875 M ichigan, Ohio, West Virginia Kansas City, (913) 551-6711 A rkansas, Iowa, Kansas, M innesota, Missouri, O klahoma Los Angeles, (818) 904-6339 California N ew York, (212) 264-4730 Philadelphia, (215) 597-8313 or (215) 597-8312 Delaware, Maryland, N ew Jersey, Pennsylvania Seattle, (206) 728-5314 A laska, Hawaii, Idaho, M ontana, Nevada, Oregon, Washington Dated: September 29,1997. Joe M. Cleaver, Executive Secretary, Federal Financial Institutions Examination Council. [FR Doc. 97-26206 Filed 10-3-97; 8:45 am] BILLING CODE 4810-33-P; 6714-01-P; 6210-01-P 672001-P