The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
JOHNSON
FINANCIAL GROUP
July 20, 2007
Jennifer J. Johnson
Secretary, Board of Governors
Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, D.C. 20551
Re: FRB Docket No. OP-1290
Dear Secretary Johnson:
Johnson Financial Group, Inc. is a $4.3 billion financial holding company headquartered in
Racine, Wisconsin. Johnson Financial Group delivers commercial, mortgage, and consumer
banking services as Johnson Bank located in 49 branch offices in Wisconsin and Arizona. In
addition, Johnson Community Development Corporation (JCDC) is a wholly-owned
subsidiary of Johnson Bank whose primary purpose is to function as a Qualified Community
Development Entity in order to participate in the New Market Tax Credit program. To date,
JCDC has been allocated $92 million in tax credits from the U.S. Treasury Department to
invest in low-income community businesses.
I am writing to submit comments for consideration on the proposed Interagency Questions
and Answers (Q&A) Regarding Community Reinvestment. The following comments are the
specific areas of concern that are most significant to us as a result of the proposed changes.
In addition, we are raising an additional issue that is relative to the existing provision for
favorable consideration of small unsecured consumer loans in light of the separate FDIC
"Affordable Small-Dollar Loan Guidelines" released on June 19, 2007 and public scrutiny of
the payday lending industry.
NEW Q&A III. Examples of "Other Loan Data"
The proposed Q&A has a provision that has examples of "other loan data" that are used to
illustrate activities that are types of loans that can be considered in the lending test that do
not have a requisite primary purpose of community development. One bullet specifically
states "Loans that do not have a primary purpose of community development, but where a
certain amount or percentage of units is set aside for affordable housing". We have a
concern that there is the potential for confusion when this is put side by side with the existing
requirements for a community development purpose where the measurable benefit is less
than a majority of the entire activity's benefits or dollar value.
JOHNSON FINANCIAL GROUP, INC.
555 MAIN STREET RACINE, WI 53403 PHONE: 262.619.2790
johnsonbank.com
Our real life example is in the case of a non-profit agency that is developing affordable multifamily rental housing. If the proposed funding involves the Low Income Housing Tax Credit
program or a Tax Exempt Bond issuance, the minimum affordable housing set-aside can be
accomplished if 20% of the units are reserved for low-income households whose incomes are
at or below 50% of median income. We must then make the CRA determination: can a 20%
set-aside be a requisite primary purpose of community development or does this represent
only a percentage set-aside for affordable housing? In addition to lending test consideration,
data reporting requirements hinge on the differentiation.
We believe in this case that the requisite primary purpose has been fulfilled in accordance
with the existing Q&A; namely, the express bona fide intent of the activity is to provide a
specified number of units of affordable housing, the activity is specifically structured to
achieve the purpose in accordance with the tax code, and the activity accomplishes the
community development purpose when the low-income set-aside units are put in place.
However, we believe that additional context in the guidance would assist us as well as
provide examination staff with definitive criteria to distinguish between "primary purpose" of
community development versus "other loan data". We would advocate that language be
added to confirm that fulfillment of IRS set-aside requirements for affordable housing units is
bona fide evidence of a community development purpose. We believe that this is particularly
necessary to distinguish voluntary IRS compliance from compulsory local "inclusionary
zoning" requirements, which we believe fall more appropriately under the "other loan data".
Revised Q&A I. Activities that promote economic development
The proposed Q&A adds the specific presumption for the community development "purpose
test" for any loan to or investment in a New Market Tax Credit (NMTC)-eligible Community
Development Entity. As Johnson Bank is an active participant in NMTC lending, we
appreciate the intent to formalize CRA recognition of community development activities
associated with the program. It is important to recognize that because of the unique
definition of a "low-income community" adopted by the U.S. Treasury in the NMTC program,
there are areas targeted for redevelopment outside of low- and moderate-income census
tracts. These additional areas have severely concentrated poverty (see IRC §§45D(1)).
This condition may lead to uncertainty whether each individual loan or investment in the
NMTC program is CRA qualified with the requisite community development purpose. We
believe that the revised provision would be strengthened with a specific reference that makes
clear that by virtue of meeting the NMTC program definition of a "low-income community" the
geography is targeted for redevelopment by the Federal government irrespective of the
median family income attribute.
Revised Q&A II. Examples of community development loans
We support the proposal to add the example of an SBA 504 loan greater than $1 million to a
business as a community development loan purpose. Our reading of the proposal leads us
to conclude that this in not contingent on the location of the business enterprise being in a
low- to moderate-income census tract. Accordingly in addition to the new bullet, we
recommend that language be added to emphasize that the property location of the business
is not a determining factor for a SBA 504 loan.
Existing provision under .22(a)—1 ... lending activities that help meet the credit needs of an
institution's assessment area(s) and that may warrant favorable consideration as activities
that are responsive to the needs of the institutions' assessment area(s)
We recognize that the promotion of an affordable small-dollar loan product is within the public
policy interest of the Community Reinvestment Act to encourage financial institutions to be
responsive to the credit needs of the community. However, we believe that in light of the
recently issued FDIC guidance and public scrutiny of the high-cost payday lending industry,
the Q&A must be expanded to adequately define the criteria under which a small loan
program would qualify for favorable CRA consideration.
Johnson Bank offers what we believe to be an affordable small-dollar loan and for the sake of
illustration, list the following features of our product: an open-end personal line of credit with a
$500.00 minimum amount, $20.00 annual fee, 18% fixed interest rate, no advance fees,
payment monthly of 5% of the unpaid principal balance with a $15.00 minimum. As a
condition for the loan, advances are made via an overdraft from a corresponding Johnson
Bank checking account and payments must be auto-drafted from a Johnson Bank deposit
account or established via ACH payments from another financial institution. We contend that
these attributes are consistent with the "Affordable Small-Dollar Loan Guidelines" previously
published by the FDIC.
Without similar appropriate guidance in the Q&A, however, there is no definitive means of
determining whether this product currently meets the size standard of "small" and whether the
pricing is "affordable". We also have concern that without these standards, examining
agencies may be inconsistent in evaluating these activities. Accordingly we recommend that
the proposed Interagency Guidelines be expanded to further define the product attributes of
size, cost, reasonable fees, type of loan structure, or target market limitations (similar to this
issued by the FDIC) that could be used in determining the qualification of a loan product for
favorable consideration under CRA. These basic requirements are needed for financial
institutions to give the appropriate consideration of product development opportunities and to
effectively make product changes to continue to offer them on a profitable basis.
Thank you for the opportunity to comment on this proposal.
Sincerely,
Robert A Reinders
Assistant Vice-President/Community Reinvestment Officer
cc:
Richard A. Hansen, President and CEO, Johnson Financial Group
Russell C. Weyers, President and COO, Johnson Bank
Kurt Bauer, Executive VP, Wisconsin Banker's Association
we make your dam "pictureperfect"
To:FRB
Re: Docket No. OP-1290
Comments on Proposed Q & A's
Dear Sirs,
GeoDatavVision is a consulting firm specializing in the Community Reinvestment Act
and the Home Mortgage Disclosure Act. We advise and provide services to hundreds of
community banks around the country and we frequently observe the confusion surrounding those
Acts. The proposed Questions & Answers help to clarify a number of nebulous areas under the
Community Reinvestment Act. However, they fail to address other areas of widespread
confusion and inconsistent practice and simultaneously create new questions. The following are
our comments on the proposed Q&A's.
Q&A § .12(h)-3 proposes to offer Intermediate-Small Banks (ISB's) the option to include
home mortgages and small business or small farm loans under the community development test
providing those mortgages and small business loans have the requisite community development
qualifications and those loans cannot also be included in the lending test portion of a CRA
performance evaluation.
Question - the language states "a retail institution that is not required to report . . . under
HMDA . . ." Does that mean an ISB that reports under HMDA does not have the elective?
Question - an ISB by definition is not required to report under CRA. What if the
institution voluntarily reports the data? Does the voluntary filing disqualify the bank from
having the option?
Q&A § .12(g)(4)(i)-l and (ii)-2 and (iii)-3 provide for the "presumption" that an activity will
revitalize or stabilize an area "if the activity is consistent with a bona fide government
revitahzation or stabilization plan." These sections explicitly include low and moderate-income
tracts as well as distressed tracts and disaster area tracts, but do not explicitly include
underserved tracts. Will such a presumption apply in the case of underserved tracts?
Q&A § .22(a)(2)-7 states in part, ". . . The origination of a small business or small farm loan
that is secured by a one-to-four family residence is not reportable under HMDA unless the
purpose of the loan is home purchase or home improvement." We suggest that it also is
reportable under HMDA if the situation involves a dwelling-secured loan (not taken as an
abundance of caution) that previously was secured by a dwelling property and the proceeds are
used to finance a business purpose.
There are several very confusing areas of CRA that should be clarified by the Agencies but
which are not addressed in the proposed Q&A's.
First, a large number of small business loans are made to corporations and the loans are
guaranteed by the principals. Frequently these guarantees are secured by second mortgages on
994 North Colony Rd., PEN 174 Wallingford, CT 06492
www.geodatavision.com
203-237-1332
dwellings. Under Reg C the Agencies have distinguished this as an indirect form of collateral
that would disqualify a refinancing from being reported as such, ceteris paribus. In these loan
situations, the financing (or refinancing of the line) shouldn't be reported under HMD A (because
it is not a HMDA "refinancing" due to the indirect nature of the security or because the proceeds
are not used to purchase a dwelling or for home improvement purposes). Does the CRA
distinguish collateral used to secure loan guarantees as opposed to directly securing the loan?
We have asked this question to field examiners and have received conflicting responses.
Moreover, if the goal of CRA is to measure how a bank is meeting the need for credit services in
its community, why would the Regulation disqualify a very large number of small business loans
from being reported? We urge the Agencies to clarify this ambiguous situation. Even the Call
Report Instructions say nothing about this.
Second, many small business lines of credit are secured by business assets. Many banks
structure those loans with notes callable on demand to avoid the necessity of refilling UCC
statements every year. This means that the annual renewal of those lines is not reportable
because the tenor of the note has not changed. At the same time, banks who do rewrite the note
do report such loans. Moreover, unsecured lines of credit are reported annually when they are
renewed. This results in a gross under representation of the volume of small business lending
extended by banks thereby giving an inaccurate picture of how banks are "meeting the need for
credit services" under CRA. It also effectively means that there are large inconsistencies in the
CRA data depending on how a bank technically renews its lines of credit to small business. If a
bank does not change the tenor of a note documenting a renewable line of credit but formally
notifies the borrower that it has extended the line for another year should it report the renewal of
the line? We urge the Agencies to reconsider this situation and to allow the reporting of lines of
credit renewed annually even if the tenor of the underlying note is not changed as long as the
bank has committed to an extension of the line of credit.
Respectfully submitted,
Leonard Suzio, President
GeoDataVision
994 North Colony Rd., PBN 174 Wallingford, CT 06492
www.geodatavision.com
203-237-1332
NATIONAL
COMMUNITY
REINVESTMENT
COALITION
A0^7
August 30, 2007
Office of the Comptroller of the Currency
Docket ID OCC-2007-0012
Federal Reserve System
Docket No. OP-1290
Federal Deposit Insurance Corporation
RIN 3064-AC97
Office of Thrift Supervision
Docket ID OTS-2007-0030
RE: Proposed CRA Q&As
To Whom it May Concern:
The National Community Reinvestment Coalition (NCRC), the nation's economic justice
trade association of 600 community organizations, believes strongly that vigorous
implementation of the Community Reinvestment Act (CRA) is critical towards ensuring
that banks and thrifts respond continually and affirmatively to community needs. Some
of your proposed Q&As will motivate banks to respond to continuing and new needs.
For example, the questions clarifying that banks will receive favorable CRA
consideration for foreclosure prevention activities will assist in alleviating the foreclosure
crisis our nation currently confronts. Also, the proposed Q&A stressing the importance
of branch building and maintenance by mid-size banks will help maintain access to
affordable banking services in low- and-moderate-income neighborhoods inundated by
abusive payday lending and high-cost fringe services.
The proposed Q&As, however, miss important opportunities to further strengthen CRA.
One glaring omission is refinements to assessment areas. The current procedures for
defining assessment areas works for banks with traditional branch networks but is
inadequate for capturing the lending activity of banks that mostly use brokers and other
non-branch networks. This unresolved issue will not go away and continues to
undermine CRA's rigor for non-traditional banks. Moreover, some of the questions
address purchasing activities but do not go far enough to prevent double-counting and
other tricks that inflate CRA ratings but do not legitimately address credit needs.
Our detailed responses follow:
Assessment Areas
While your proposed Q&As did not deal with assessment area issues, you indicate that
comments are appreciated on general issues. A significant number of banks make
National Community Reinvestment Coalition * 202-628-8866 * http://www.ncrc.org
1
NATIONAL
COMMUNITY
REINVESTMENT
COALITION
AO£7
considerable numbers of loans through brokers, loan offices, and other non-branch
mechanisms. Assessment areas, meanwhile, are usually confined to geographical areas in
which banks have branches and deposit-taking ATMs. The current assessment area
procedures therefore capture a small minority of the lending activity of non-traditional
banks and thrifts that predominantly lend through non-branch networks.
The federal agencies have adopted some initial procedures to assess the lending activities
of these non-traditional banks, but these procedures remain incomplete. Examiners with
the Office of Thrift Supervision, for example, will scrutinize lending outside of
assessment areas and then offer comments whether the lending performance outside of
the assessment areas was consistent with performance inside the assessment areas. But
no consequences follow if the lending performance outside the assessment areas is worse
in terms of reaching low- and moderate-income borrowers and communities than the
lending performance inside the assessment areas. NCRC's preference would be to assign
ratings to the performance outside the assessment areas. At the very least, the examiners
can indicate in writing their expectations for improved performance if the performance
outside the assessment areas is subpar. An examination that only presents findings of
consistent or inconsistent performance outside the assessment areas is not sufficient to
motivate banks in addressing any gaps in their performance. Such examinations do not
enforce CRA's mandate of ensuring that banks are meeting community needs.
Moreover, the exams must cover the great majority of a bank's loans. Although some
current exams consider lending activity outside the assessment areas, the exams do not
usually consider the majority of the bank's loans. Again, such exams are not enforcing
CRA's mandate of banks meeting community needs.
In our fair lending investigations, NCRC has found that banks with assessment areas
covering a narrow segment of their lending activity are likely to have discriminatory
policies such as no lending to row homes. These banks most likely calculate that they
can get away with such policies since their CRA exams cover a small fraction of their
lending activities. The regulatory agencies must address assessment areas issues more
aggressively in order to end these practices.
Foreclosure Prevention Activities
NCRC greatly appreciates the proposed Q&As that provide CRA points for foreclosure
prevention activities. As the agencies themselves recognize, the nation teeters on the
edge of a foreclosure crisis, caused in considerable part by predatory lending. Thus, the
tremendous resources of the banking industry must be marshaled to provide foreclosure
relief. The proposed Q&A .23(a)-2 on investing in foreclosure prevention funds and how
to allocate those funds to banks and their assessment areas is very helpful in this regard.
In addition, the proposed Q&A .12(i)-3 that explicitly lists foreclosure prevention
counseling as an example of community development services will assist in motivating
banks to provide this important service. Also, NCRC appreciates the proposed revision
National Community Reinvestment Coalition * 202-628-8866
* http://www.ncrc.org
2
NATIONAL
COMMUNITY
REINVESTMENT
COALITION
AO£7
to Q&A .22(a)-1 that would provide favorable CRA consideration for loan programs that
provide relief to low- and moderate-income homeowners facing foreclosure.
Another important aspect of the Q&As regarding foreclosure prevention activities is that
the banks involved in these activities witness first hand examples of predatory loans
leading to foreclosure. They then gain additional insights regarding the types of lending
practices and products to avoid. NCRC has operated a national-level Consumer Rescue
Fund (CRF) for several years. One of the important impacts of this fund is that the
financial institutions we work with gain a more complete understanding of the practices
to avoid.
Investments in Minority- or Women-Owned Institutions
The proposed Q&A .12(g)-4 states that examiners will favorably consider bank
investments in minority- and women-owned financial institutions and low-income credit
unions even if these institutions are located outside of the bank's assessment area. NCRC
agrees that the investments in these institutions are to be encouraged. However, we also
believe that banks must ensure that they are serving needs in their assessment areas. It
would be counterproductive if a bank decides not to try to find investment opportunities
in its assessment area and instead passes its investment test or community development
test by investing in a low-income credit union or a minority- or women-owned institution
outside of its assessment area. NCRC therefore encourages the agencies to modify their
proposed Q&A to state that investments in these institutions will receive positive CRA
consideration only if the bank or thrift has met needs in its assessment area first.
NCRC's proposed modification would also attain more consistency with other parts of
the Q&A whereas your proposal would create unnecessary inconsistencies in how
investments are treated.
Community Development Services and Branches
NCRC strongly supports an emphasis on building and maintaining branches as a
community development service for low- and moderate-income communities as the
proposed revision to Q&A . 12(i)-3 would do. This would apply to intermediate small
banks' community development test since the large banks' branching patterns are
examined under their service test. As the agencies implement this Q&A, we urge the
agencies to increase the rigor of the community development test for intermediate small
banks with assets between $250 million to $1 billion (adjusted annually for inflation).
We have noticed a number of CRA exams for intermediate small banks that barely
mention branch distributions and openings/closings; needless to say, these exams also do
not carefully examine the distribution of branches by income level of census tract. With
the tremendous growth of abusive payday lending and other high-cost fringe services, it
is imperative that CRA exams rigorously examine the extent to which banks are
providing alternatives to high-cost services by placing branches in low- and moderateincome neighborhoods.
National Community Reinvestment Coalition * 202-628-8866 * http://www.ncrc.org
3
NATIONAL
COMMUNITY
REINVESTMENT
COALITION
AO£7
Financing of RBIC, CDEs, and SBA 504 Program
NCRC supports the agencies proposal (. 12(g)(3)-l and . 12(h)-l) that investments and
loans to Rural Business Investment Companies (RBICs) and New Markets Tax Crediteligible Community Development Entities receive CRA credit. In addition, NCRC
supports the proposal that a loan in excess of $1 million in connection with the SBA 504
program be considered a community development loan for CRA purposes. Yet, NCRC
also expects CRA examiners to award more points for this type of financing when there
are more direct benefits for low- and moderate-income borrowers and communities. The
text in Q&A .12(g)(3)-l has a paragraph suggesting that examiners will provide more
CRA points for community development financing that provides more direct benefits to
low- and moderate-income individuals and communities. NCRC suggests that the
benefits for low- and moderate-income individuals and communities be emphasized in
the preamble and Q&As if these proposals are finalized.
Purchased loan participations
Proposed Q&A .22(a)(2)-6 would offer CRA consideration for loan participations as well
as purchases. NCRC has heard countless anecdotes from lenders that churning of
purchased loans occurs as a means of inflating CRA exam ratings. In other words, one
bank will purchase a large amount of loans made to low- and moderate-income borrowers
just before their CRA exam and then will sell these loans to another bank which is about
to have a CRA exam. Churning of purchased loans does not serve any purpose in
meeting credit needs, but instead serves the purpose of inflating CRA exams. If the
agencies wish to give the banks credit for loan participations as well as purchases, they
need to add to their proposed Q&As a few sentences that indicate very clearly that banks
will be penalized if there is evidence of churning.
Moreover, NCRC urges the regulatory agencies to consider loan purchases separately
from loan originations on CRA exams. NCRC has consistently maintained that banks
should receive more points on the lending test for originations as opposed to purchases
since loan originations are usually the more difficult activity and is most directly
responsive to local borrowers' credit needs. During the last round of regulatory changes
to CRA, the agencies had proposed that purchases be listed separately from originations
in CRA exam tables. This was a step in the direction of analyzing purchases separately
from originations. We urge the agencies to separately analyze purchases and originations
and to offer more CRA points for originations.
Only if the agencies adopt NCRC's proposals for separately analyzing purchases from
originations would it be appropriate for the agencies to provide CRA points for loan
participations. Moreover, the language describing the proposed Q&A states that banks
would receive the same consideration for loan participations as for purchases of the
whole loan amount. In other words, if a bank's loan participation was less than the
amount of the loan at origination, the bank would still receive the same consideration as
if it purchased the entire loan. NCRC opposes this procedure since it is a prescription for
National Community Reinvestment Coalition * 202-628-8866
* http://www.ncrc.org
4
NATIONAL
COMMUNITY
REINVESTMENT
COALITION
AO£7
inflating CRA ratings and is inconsistent with the treatment proposed regarding
purchases of community development loans (see below).
Purchases of Loans by Affiliates
NCRC opposes the proposed addition to Q&A .22(c)(2)(i) that allows a bank to count a
loan as purchased if the bank purchases a loan originated by its affiliate. This smacks as
double-counting loans and purchases, which will contribute to CRA grade inflation. The
bank holding company has not meaningfully leveraged two loans for low- and moderateincome communities in this example. Instead, one bank of the holding company
originated one loan and an affiliate then purchased the loan. The holding company is
essentially holding the loan in portfolio. It is almost like giving a bank two points for
making one loan if the bank holds the loan in portfolio. This is a strange scoring system
that does not accurately reflect a bank's effort at responding to credit needs.
The situation would be different if a bank purchased a loan made by a non-affiliated
institution. In this case, if no churning is involved (as discussed above), the bank may
have helped increase credit in low- and moderate-income neighborhoods. The bank may
have purchased a loan made by a smaller community bank that does not have good access
to the secondary market. CRA examiners need to make more discerning judgments about
whether purchases are really increasing lending to low- and moderate-income
communities. A purchase from a small bank that faces pricing disadvantages or other
barriers to the secondary market does more to serve credit needs than a purchase from
another large bank that has regular access to the secondary market.
This proposed revision is a step away from a thoughtful analysis of purchasing activity by
automatically giving credit for loan purchases by affiliates within a holding company.
Instead of proposing this revision, we urge the agencies to propose a Q&A that says that
purchasing of loans will be examined carefully to see if the purchasing activity
meaningfully increased access to credit to low- and moderate-income communities, for
example, by purchasing loans from smaller institutions without regular access to the
secondary markets.
Intermediate Small Banks - Treatment of Home and Small Business Loans
Proposed Q&A .12(h)-3 clarifies the treatment of home and small business loans in cases
when intermediate small banks do not publicly report these loans. The agencies are
correct in their proposed Q&A that these banks can claim home and small business loans
as either counting under their lending test or community development test. If
intermediate small banks were allowed to count these loans for both tests, doublecounting would occur and the CRA rating would be inflated.
National Community Reinvestment Coalition * 202-628-8866
* http://www.ncrc.org
5
NATIONAL
COMMUNITY
REINVESTMENT
COALITION
AO£7
Small Business Loans Secured by Residences
Proposed Q&A .22(a)(2)-7 strikes an appropriate balance concerning when to avoid
double-counting of loans in the home and small business lending parts of the lending test.
When a significant number of loans are made for the purpose of small business financing,
but are secured by a lien on a residence, they should be counted on the small business
lending part of the exam as the agencies proposed.
Community Development Loan Participations and Participations in Small Business
Loans
Proposed Q&A .42(b)(2)-4 is correct in that it instructs lending institutions to report only
the amount of their purchase of community development loans in cases involving loan
participations. If they report the larger loan origination amount, the total amount of their
purchases is inflated and could contribute to an inflated CRA rating. This would not
accurately reflect an institution's responsiveness to credit needs. Also, the agencies are
proposing an appropriate reporting procedure (in proposed Q&A .42(b)(2)-5) regarding
renewals and refinances of community development loans to be consistent with the
procedures for small business loans. Ultimately, however, NCRC recommends that the
reporting be made more consistent with HMDA data in which refinances are reported
separately from the other loan types.
Inconsistently, the agencies are proposing that a bank reports the amount of a small
business loan at origination although the bank's participation in a purchase may be
smaller than the loan origination amount (see proposed .42(a)(2)). It would be more
accurate for a bank to report the amount of its loan participation for the reasons the
agencies cite for community development loan participations. (If a loan at origination
was over $1 million and thus did not classify as a small business loan, the bank would not
report a participation of whatever amount, as a purchase of a small business loan).
NCRC asks for clarification of the small business loan and purchase reporting. The
agencies seem to be proposing that a bank reports the dollar amount of loan origination as
a purchase, but that the examiners will evaluate purchases and participations using the
dollar amount of the purchases and participations. Is it the case that the publicly
available data on loan purchases includes the amounts at origination (which can be higher
than purchases), but that the examiners are adjusting the data when the amount purchased
is less than the origination. NCRC believes that the data collection and examination
procedures should be the same; that is, that the amount actually purchased is the amount
reported in the publicly available small business data and the amount for the CRA exam.
"Lag Periods" and Intermediate Small Institutions
The agencies are correct in their proposed Q&A .26(a)(2)-1 stating that there will be no
lag period between being a small bank and an intermediate small bank. The intermediate
small bank exam has been streamlined and does not require any additional data reporting.
National Community Reinvestment Coalition * 202-628-8866
* http://www.ncrc.org
6
NATIONAL
COMMUNITY
REINVESTMENT
COALITION
AQ£7
Thus a small bank does not need extra time to prepare for an intermediate small bank
exam.
OTS Request for Comments
In response to the OTS request for comments, NCRC urges the agency to continue its
process of conforming its regulations and Q&As such as the Q&As regarding
intermediate small institutions with those of the other agencies. NCRC appreciates OTS'
efforts so far and encourages the agency to complete the process of conforming its
regulation and oversight to that of the other agencies.
Conclusion
NCRC appreciates that a number of the proposed Q&As enhance banks' attention to
important community needs and address the issues of double-counting. At the same time,
NCRC has suggested modifications to some of the proposed Q&As and also urges the
agencies to address long-standing issues regarding loan purchases and assessment areas.
NCRC thanks you for the opportunity to comment on this important matter. If you have
any questions, please contact me or Josh Silver, Vice President of Research and Policy,
on (202) 628-8866.
Sincerely,
yk-^ju
John Taylor
President and CEO
National Community Reinvestment Coalition * 202-628-8866 * http://www.ncrc.org
7
COMMUNITY
CAPITAL
MANAGEMENT
^
Revitalizing America
August 31, 2007
Re:
1.
Notice and Request for Comment
Community Reinvestment Act; Interagency Questions and Answers
OCC: Docket ID OCC-2007-0012
Board: Docket No. OP-1290
FDIC: RIN number 3064-AC97
OTS: ID OTS-2007-0030
Introduction
Community Capital Management ("CCM"), the registered investment advisor to The
CRA Qualified Investment Fund (the "CRA Fund"), welcomes this opportunity to comment
upon the proposed additions and revisions to the Interagency Questions and Answers Regarding
Community Reinvestment published in the Federal Register on July 11, 2007 by the Office of
the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance
Corporation, and the Office of Thrift Supervision (collectively the "Agencies").
This comment focuses upon two newly proposed questions and answers ("Qs&As"):
• § .12(g)—4, which states unequivocally that a majority-owned financial institution
may receive CRA consideration for activities it undertakes with a minority- or womenowned financial institution or a low-income credit union even if the latter institutions
are not located in, and their activities do not benefit, the majority-owned institution's
assessment area or a broader statewide or regional area that includes its assessment
area; and
• § .23(a)—2, which is intended "to clarify that an institution that makes a loan or
investment in a national or regional community development fund must be able to
demonstrate that the investment meets the geographic requirements of the CRA
regulation."1
CCM strongly supports the basic premises underlying each of these proposed Qs&As,
including the § .23(a)—2 prohibition against investment "double-counts." CCM has always
taken careful steps to ensure that earmarked investments are never "double-counted." In fact,
our proprietary software enables us to track the purchase and allocation history of every
shareholder. Allocations are made on a dollar-for-dollar basis, and the software prevents
overlapping or over-allocated investments.
However, we do have two specific recommendations regarding Q&A § .23(a)—2. The
first would clarify that a financial institution that purchases new shares in an established fund
may receive favorable CRA consideration for such shares based upon written documentation
provided by fund managers indicating that the fund will use its best efforts to invest in a
1830 Main Street, Suite 204 Weston, Florida 33326
phone 954.217.7999 fax 954.385.9299 toll-free 877.272.1977 ivww.cctnfixedincome.com
qualifying activity that meets the CRA's geographic requirements. The second recommendation
would eliminate a potential conflict between Q&A § .23(a)—2 and Q&A § .12(g)—4.
Specifically, as discussed in detail below, CCM recommends that:
(1) the word "new" be deleted from the third full sentence in the answer to Q&A
§ .23(a)—2, which describes how a financial institution can demonstrate
compliance with the CRA's geographic requirement by providing written
confirmation that the fund will use its best efforts to invest in qualifying activities
that meet the CRA's geographic requirements; and
(2) language be added to Q&A § .23(a)—2 that reiterates and reaffirms that the
CRA's general geographic requirement does not apply to investments in minorityor women-owned financial institutions or low-income credit unions that are made on
behalf of a financial institution by a national or regional community development
fund.
2.
About CCM and the CRA Fund
CCM is the registered investment advisor to the CRA Fund, a $740 million mutual fund
with investments that support community development activities. Since 1999, CCM's
geographically- and economically-targeted investments have directed $2 billion toward
community initiatives in all 50 states. As of August 15, 2007, our investments have financed
133,000 affordable rental housing units; 5,000 home mortgages for low- and moderate-income
families; $30 million in affordable healthcare facilities; $147 million in community development
activities including neighborhood revitalization and brownfield redevelopment; $97 million in
job training and creation programs; and $323 million in down payment assistance and statewide
home-ownership programs.
The CRA Fund has also used its assets to meet special challenges. CCM has invested
almost $20 million toward its $100 million Gulf Coast Initiative, which was implemented in
2005 to generate infrastructure, housing, economic, and community development-and
redevelopment - in coastal communities following that year's active hurricane season. To date,
investments that comprise the Gulf Coast Initiative include Small Business Administration loan
pools, taxable municipal bonds, and single and multifamily mortgage-backed securities. A
similar initiative launched last year has directed $31 million to investments that finance the startup and continuation of small businesses in low- to moderate-income, minority, and emerging
communities.
In addition to having undertaken these community development activities, the wide range
of financial institutions that invest in the CRA Fund makes CCM uniquely situated to comment
upon the newly proposed Qs&As. As the following charts indicate, CRA Fund investors are a
diverse lot whether diversity is measured by asset size, geographic location, or an institution's
primary federal regulator.
2
1830 Main Street, Suite 204 Weston, Florida 33326
phone 954.217.7999 fax 954.385.9299 toll-free 877.272.1977 www.ccmfixedmc0me.c07n
For example, over half of the CRA Fund's current shareholders are small or intermediate
small banks, according to CRA asset size thresholds, and CRA Fund shareholders include
financial institutions from throughout the United States.
CRA Fund Investors
by CRA Asset Size
CRA Fund Investors
by U.S. Geographic Region
M idwest
25% 1
Intermediate
Small Banks
51%
Northeast
\
West
r 17%
1
JM
V
V-^Jt^mt^
M
W\\_South
Banks
r
39%
There is also substantial diversity regarding the primary federal regulator of banks that
invest in the CRA Fund.
CRA Fund Investors
Prim ary Fedt ral Bank Regulator
FRB
17%
OTS
r 12%
LA.
occ
23%
f]^4m
48%
To date, CRA Fund shareholders have collectively completed more than 400 CRA
performance examinations following their purchases of shares. Of these, more than 100 were the
second or third examination following the purchases. In every instance, our shareholders have
earned positive considerations for their investments in the CRA Fund.
3.
Reassuring Financial Institutions that Documentation from an Existing Fund
Can Be Used to Demonstrate that an Investment Satisfies the CRA's
Geographic Requirements
1830 Main Street, Suite 204 Weston, Florida 33326
phone 954.217.7999 fax 954.385.9299 toll-free 877272.1977 www.ccmfnedincome.com
Proposed Q&A § .23(a)—2 reiterates the general principle that in order to receive CRA
credit for investment in a national or regional fund with a primary purpose of community
development, the financial institution "should be able to demonstrate"2 that any investment it
makes in the fund meets the geographic requirements of the CRA regulation. "If, however, a
fund does not become involved in a community development activity that meets both the purpose
and geographic requirements of the regulation for the institution, the institution's investment
generally would not be considered under the investment or community development tests."
Expanding upon this admonition, proposed Q&A § .23(a)—2 suggests three different
ways that a financial institution might demonstrate that its investment in a fund meets the
geographic requirement for CRA consideration:
1) "[I]f an institution invests in a new nationwide fund providing foreclosure
relief to low- and moderate-income homeowners, written documentation provided
by fund managers in connection with the institution's investment indicating that
the fund will use its best efforts to invest in a qualifying activity that meets the
geographic requirements may be used for these purposes" (emphasis supplied).
2) A "fund may explicitly earmark all projects or investments to its investors and
their specific assessment areas."5
3) For those funds that do not allow earmarking, "each investor institution may
claim its pro-rata share of each project that meets the geographic requirements of
that institution.'*1
CCM believes that the three methods proposed for meeting the geographic requirement
are viable and appropriate. Indeed, CCM has long earmarked CRA Fund investments so that the
money invested by an individual institution is used for community development in the
geographical area that the investor serves. However, the first example given in proposed Q&A
§ .23(a)—2, in particular the reference to an investment in a "new" fund, may have
unanticipated and unintended consequences.
Indeed, it is unclear why the Q&A makes the subject of the first example an investment
in a "new" fund. Does the choice of the word "new" mean that the documentation option is
available only when a financial institution invests in a new fund? Does the documentation
option not apply when a financial institution purchases shares in an established or "older" fund
that has not yet made an earmarked investment in the financial institution's assessment area but
will use its best efforts to do so?
Such a restrictive interpretation of the Q&A would make it difficult for an established
fund to raise new capital and to expand its community development efforts into geographic areas
that it may not previously have served or to make additional investments in areas it already
serves. As with "new" funds, having immediate access to capital enables established funds to
more effectively find and make timely investments in worthy community development projects.
However, whether an established fund (which, of course, all new funds hope to become) will
4
1830 Main Street, Suite 204 Weston, Florida 83326
phone 954,217.7999 fax 954.385.9299 toll-free 877.272.1977 « www.cctnfixedincome.com
:/;E;.-:
continue to have access to ready capital becomes more problematic if investors construe the first
example given in proposed Q&A § .23(a)—2 as meaning that they cannot rely on documents
from an established fund to satisfy the geographic requirement for favorable CRA consideration.
CCM doubts that the Agencies intended or anticipated that the reference in the first
example given in proposed Q&A § .23(a)—2 to a "new" fund might be construed in a manner
to discourage financial institutions from purchasing new shares in an "old" fund. Indeed, such a
restrictive construction would be completely inconsistent with (1) the way that the Agencies
have historically treated new investments made in such funds,7 and (2) the proposed Q&A's
declaration that regulators will take a flexible approach in determining whether investments in a
fund meet the geographic requirement for CRA consideration. Accordingly, CCM recommends
that the word "new" be eliminated from the first example given in the proposed guidance.
4.
Broader Geographic Criterion for Investments in a Minority- or Women-Owned
Financial Institution or Low-Income Credit Union by a National or Regional Fund
CCM strongly supports the adoption of proposed Q&A § . 12(g)—4, which states that
majority-owned financial institutions may receive favorable CRA consideration for activities in
support of a minority- or women-owned financial institution or a low-income credit union even if
the latter institutions are not located in, and their activities do not benefit, the majority-owned
institution's assessment area or a broader statewide or regional area.
The issuance of formal regulatory guidance on the CRA implications of a majorityowned institution's assistance to minority- and women-owned financial institutions and lowincome credit unions outside its assessment area is long over due. In 1992, Congress amended
section 804 of the CRA [codified at 12 U.S.C. §2903(b)] to explicitly state that majority-owned
institutions were to receive favorable CRA consideration for such assistance.8 However, this
authority has never been fully reflected in existing regulations or official guidance.9
Hurricane Katrina graphically demonstrated the need for explicit guidance regarding the
greater flexibility that 12 U.S.C. §2903(b) gives the Agencies. According to the Chief of Staff of
the Office of the Comptroller of the Currency, minority institutions told that regulator that it was
"unclear what CRA credit a majority institution might receive for participating a loan out to a
minority institution."10 The Agencies eventually issued a joint letter to dispel the uncertainty
regarding the extent to which majority-owned institutions from other parts of the United States
would receive CRA credit for assistance provided to minority- and women-owned financial
institutions and low-income credit unions in the region devastated by Katrina.11
To the extent that proposed Q& A § .12(g)—4 clarifies the principle that a majorityowned institution can receive favorable consideration for assistance provided to minority- or
women-owned institutions or low-income credit unions outside its assessment area or a broader
statewide or regional area, CCM supports this guidance. However, CCM is concerned that Q&A
§ .12(g)—4 may not have its intended effect, if it is read in conjunction with proposed new
Q&A § .23(a)—2. The latter Q&A can be construed as resurrecting—even in the context of
assistance to minority- and women-owned financial institutions and low-income credit unions—
5
1830 Main Street, Suite 204 Weston, Florida 33326
phone 954.217.7999 fax 954.385.9299 toll-free 877.272.1977 www.ccmfixedmcome.com
the general geographic requirement for CRA-eligible community development activities.
Indeed, the question portion of that Q&A ignores the "broader geographic criterion" cited in
Q&A § .12(g)—4 by asking whether "an institution [should] be able to demonstrate that an
investment in a national or regional fund. . .meets the geographic requirements of the CRA
regulation by benefiting one or more of the institution's assessment area(s) or a broader
statewide or regional area that includes the institution's assessment area(s)."
Accordingly, we believe that there is a substantial risk that financial institutions will
interpret proposed Q&A §_.23(a)—2 as a statement to the effect that they still cannot receive
favorable CRA consideration for assistance provided through regional or national community
development funds to minority- and women-owned financial institutions and low-income credit
unions, unless those institutions provide some benefit to the majority-owned institution's
assessment area or a broader statewide or regional area. We do not believe that the Agencies
intend for proposed Q&A § .23(a)—2 to be interpreted in this fashion. However, we see the
potential for erroneous interpretations.
A simple way to avoid confusion is to include a reminder in Q&A § .23(a)—2 that the
geographic requirement discussed in that guidance does not apply to regional or national
community development fund investments in minority- and women-owned financial institutions
or low-income credit unions as covered by Q&A § .12(g)—4.
5.
Conclusion
Subject to the revisions recommended in this comment, CCM supports the adoption of
proposed Qs&As § .12(g)—4 and § .23(a)—2. Guidance regarding assistance by majorityowned institutions to minority- and women-owned institutions and low-income credit unions is
long overdue, and Q&A § .12(g)—4 helps fill a critical need. It is important, moreover, that
Q&A § .23(a)—2 be drafted in terms that do not undercut the purpose and intent of
§ -12(g)—4. Finally, CCM strongly believes that Q&A §_.23(a)—2 should be written in
terms that permit a financial institution that purchases shares of an established fund to prove
compliance with CRA geographic requirements by providing written documentation from the
fund that it will use its best efforts meet those requirements. If community development funds
are to undertake new projects and expand their scope to serve new areas of the country,
investments in established funds should receive the same treatment as investments in a new fund.
Respectfully submitted,
Barbara R. VanScoy
\.—*
Managing Director & Senior Portfolio M^nagqr
Community Capital Management
6
1830 Main Street, Suite 204 Weston, Florida 33326
phone 954.217.7999 fax 954.385.9299 toll-free 877.272.1977 www.ccmftxedtncome.com
Endnotes
1
72 Fed. Reg. 37925 (July 11, 2007).
2
72 Fed. Reg. 37944 (July 11, 2007).
'Id.
"Id
7
Interpretive Letter 780 (1997); OCC, Interpretive Letter 800 (1997). See also, June 9, 2003 OCC
Performance Evaluation of Alliance Bank specifically discussing the CRA Fund:
The fund is a concept that allows the purchase of shares in a CRA-dedicated mutual fund.
The fund allows banks to specify underlying securities located in its assessment area.
Because the bank made its initial investment immediately prior to the commencement of
this evaluation and the funds have not yet been allocated to specific securities, the total
investment was distributed based on an analysis of the bank's deposit structure.
8
The statute states in relevant part:
In assessing and taking into account, under subsection (a), the record of a nonminorityowned and nonwomen-owned financial institution, the appropriate Federal financial
supervisory agency may consider as a factor capital investment, loan participation, and
other ventures undertaken by the institution in cooperation with minority- and womenowned financial institutions and low-income credit unions provided that these activities
help meet the credit needs of local communities in which such institutions and credit
unions are chartered.
9
Remarks By Donna Tanoue, Chairman Federal Deposit Insurance Corporation, Before The National
Bankers Association Chicago, Illinois October 4, 2000 available at http://www.fdic.
gov/news/news/speeches /archives/2000/sp04Oct00.html. Soon after 12 U.S.C. § 2903(b) was amended,
there were calls from the banking community for a regulation that would specifically address how the
Agencies would exercise the authority granted them by 12 U.S.C. 2903(b). See, e.g., Letter of American
Bankers Association ("ABA") and National Bankers Association to FDIC dated March 2, 2002 available
at http://www.aba.com/NR/rdonlyres/DC65CE12-BlC7-l 1D4-AB4A00508B95258D/20288/Resource9999999999999999999999999999994.pdf noting that on October 14,
1999, the ABA petitioned the Agencies to either advise the industry on how this authorization would be
implemented or else explain why the Agencies would not implement it).
10
Remarks by John G. Walsh, Chief of Staff, Before the Interagency Minority Depository Institutions
National Conference, Miami, Florida August 1, 2007, available at http://www.occ.gov/ftp/release/200780a.pdf.
11
Joint Letter of the Agencies to Hon. Julia Carson, United States House of Representatives, dated
January 11, 2006, available at http://www.ffiec.gov/cra/pdf/minorityownedinstitutions.pdf
7
1830 Main Street, Suite 204 Weston, Florida 33326
phone 954.217.7999 fax 954.385.9299
toll-free 877.272.1977 vcxic.ccmfixedtncome.com
1i...J..;(J.1®
WISCONSIN
BANKERS
ASSOCIATION
September 06, 2007
VIA EMAIL
Office of the Comptroller of the Currency
250 E Street, SW., Mail Stop 1-5
Washington, DC 20219
regs.comments@occ.treas.gov
Docket ID OCC-2007-0012
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal
Reserve System
20th Street and Constitution Ave, NW.,
Washington, DC 20551
regs.comments@federalreserve.gov
Docket No. OP-1290
Mr. Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW.,
Washington, DC 20429
Comments@FDIC.gov
RIN number 3064-AC97
RE:
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW.,
Washington, DC 20552
regs.comments@ots.treas.gov
ID OTS-2007-0030
Community Reinvestment Act; Interagency Questions and Answers Regarding
Community Reinvestment; Notice: OCC-2007-0012; OP-1290; RIN 3064-AC97;
and OTS-2007-0030.
Dear Sirs and Madams:
The Wisconsin Bankers Association tyVBA) is the largest financial trade association in
Wisconsin, representing approximately 300 state and nationally chartered banks, savings and
loans associations, and savinqs banks located in communities throughout the state. WBA
appreciates the opportunity to comment on the notice regarding the Community Reinvestment
Act; Interagency Questions and Answers.
The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal
Reserve System (FRB), Federai Deposit insurance Corporation (FDIC), and Office of Thrift
Supervision (OTS) (collectively, the Agencies) seek comment on new and revised questions
and answers regarding the Community Reinvestment Act (CRA) and how financial institutions
report community reinvestment activity.
4721
scorn BIL1'MORELANE
MADISON,WI 53718
P. O. Box 8880
MAmsoN, WI 53708-8880
The purpose of CRA, which became law in 1977, is to encourage financial institutions to help
meet the credit needs of the communities in which they are chartered, consistent with the safe
and sound operation of the institution. To evidence that they have conducted activity which
meets CRA requirements, institutions report their CRA activity in accordance with the
institutional classifications of: large; intermediate small; small; limited purpose; or wholesale.
To assist institutions in identifying qualified CRA activity and accurately reporting such data
608441-1200
FAX608-661-9381
www.wisbank.com
1
under the CRA regulations, the Agencies have issued several interpretations of the regulations
in the format of questions and answers.
The Interagency Questions and Answers were first published in 1996 and were revised in
2001. In 2005, OCC, FRB and FDIC jointly issued final amendments (2005 joint final rules) to
their CRA regulations and subsequently published new guidance in the form of questions and
answers in March 2006. However, OTS did not join these agencies in adopting the 2005 joint
final rules, and instead issued separate final rules. In September 2006, OTS published its own
new questions and answers guidance pertaining to the revised definition of "community
development" and certain other provisions of its CRA rule. Then, in March 2007, OTS issued a
final rule, effective July 2007, making its CRA regulation substantially the same as the CRA
regulations previously adopted by OCC, FRS and FDIC. Through all of this, the 2001 and
2006 questions and answers have remained effective along with OTS's September 2006
questions and answers guidance.
The Agencies now propose to combine these three questions and answers guidances. In
addition, the Agencies have proposed nine new questions and answers, and have made
substantive and technical revisions to existing questions and answers. Separately, OTS seeks
comment on whether it should adopt four new questions and answers and one revised
question and answer that are virtually identical to the questions and answers OCC, FRS and
FDIC adopted in 2006. WBA generally supports the Agencies' proposal.
The nine new questions and answers: (1) broaden statewide or regional assessment areas for
certain investments in minority- or woman-owned financial institutions and low-income credit
unions; (2) permit financial institutions evaluated under the intermediate small institution
performance standards to elect to have certain home mortgage, small business, or small farm
loans evaluated as community development loans or as retail loans under the retail lending
test; (3) permit financial institutions to provide information about loans for properties with a
certain amount or percentage of units set aside for affordable housing as "other loan data"
when such loans are in an amount greater than $1 million or do not have a primary purpose of
community development; (4) clarify that loan participations are to be treated as a purchase of
a loan, even though the institution has purchased only a part of a loan, and that institutions will
receive the same consideration for their loan participation as they would receive for a
purchased whole loan for the same type and amount; (5) clarify how "refinancing" of small
business loans and small farm loans, secured by a one-to-four family dwelling and that have
been reported under HMDA as a "refinancing" are evaluated and reported under CRA; (6)
clarify that an inslilution must be able to demonstrate that an investment in a national or
regional community development fund meets the geographic requirements of CRA to receive
CRA consideration; (7) clarify that there is no "lag period" between becoming an intermediate
small institution and being examined as an intermediate small institution; (8) clarify that
institutions that purchase community development loan participations should report only the
amount of their purchase; and (9) clarify that, generally, the same limitations that apply to the
reporting of refinancings and renewals of small business and small farm loans apply to
refinancings and renewals of community development loans.
The substantive and technical proposed revisions to existing CRA questions and answers
have been proposed in an effort to: (1) identify new types of loans or investments which qualify
for CRA consideration; (2) provide further examples of community development loans and
qualified investments; and (3) update the questions and answers to address the CRA
definition of "small institution" and HMDA definition of "refinancing" as it affects CRA reporting.
In particular, WBA is encouraged that the Agencies have specifically included as qualified
community development services, activities such as consumer counseling to assist borrowers
in avoiding home foreclosures, and increased access to financial services to low-or moderate-
2
income individuals through individual development accounts (IDAs) and free payroll check
cashing.
As noted earlier, WBA also supports the efforts of aT8 to adopt four new questions and
answers and one revised question and answer that are virtually identical to the questions and
answers quidance acc, FRB and FDIC adopted in 2006. WBA believes that consistency
among the federal banking regulatory agencies will promote equal treatment by all financial
institutions in their efforts to meet the credit needs of the communities in which they are
chartered, regardless of which regulatory agency examines the particular institution.
In conclusion, WBA believes that combining the three questions and answers guidances is
wise. In addition, WBA believes adoption of new questions and answers, as well as revisions
to existing questions and answers, helps provide financiai institutions with guidance to assist
in more accurate CRA reporting. Furthermore, WBA believes these changes will, under certain
circumstances, permit financial institutions to receive CRA consideration on a broader basis.
For these reasons, WBA generally supports the Agencies' full proposal. WBA would once
again like to thank the Agencies for the opportunity to comment on this issue.
3
1303 J Street, Suite 600, Sacramento, CA 95814-2939
T: 916/438-4400 F: 916/441-5756
September 7, 2007
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve
System
20th St and Constitution Ave., NW.
Washington,DC 20551
Docket No. OP-1290
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW.
Washington, DC 20429
RIN number 3064-AC97
Office of the Comptroller of the Currency
250 E Street, SW., Mail Stop 1-5
Washington, DC 20219
Docket ID OCC-2007-0012'
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW.
Washington, DC 20552
ID OTS-2007-0030
Re: Interagency Proposed CRA Questions and Answers
Dear Sir/Madam:
The California Bankers Association ("CBA") is pleased to provide these comments in
support of the federal banking agencies' ("Agencies") proposed questions and answers related to
the Community Reinvestment Act. CBA is a professional non-profit organization established in
1891 and represents most of the FDIC-insured depository institutions in the state of California.
CBA regularly contributes comment letters on behalf of California financial institutions on
proposals that significantly affect the business of banking.
The Agencies propose a number of changes and additions to the CRA Questions and
Answers that we support. Agency Q&As are important and helpful to financial institutions as
they provide guidance and clarity. Our specific comments follow.
Minority- and women-owned institutions. This Q& A states that an institution would receive
CRA consideration for an investment into a minority- and women-owned institution without
regard to the investing institution's assessment area. The minority- or women-owned institution
need not be located in, and the activities need not benefit, the assessment area(s) of the majorityowned institution or the broader statewide or regional area that includes its assessment area(s).
This clarification would go far to encourage such investments as opportunities are not equally
distributed in all areas. Therefore, CBA supports this clarification.
Federal Banking Agencies
September 7, 2007
Page 2
Intermediate small institution loans. This Q&A corrects a potential gap arising because of the
new CRA test applicable to intermediate small institutions. Intermediate small institutions are
not required under CRA to collect and report small business and small farm loan data, and some
may not be required to report home mortgage loans under HMD A. Such loans could have a
community development effect and should be eligible for CRA credit. This proposed Q&A
would permit the intermediate small institution to have such loans evaluated for CRA credit.
This clarification would give such institutions more flexibility, and would remove a potential
disparity between intermediate small institutions on the one hand, and small and large
institutions on the other. Therefore, we support this proposed Q&A.
"Other Loan Data." This proposed Q&A consolidates prior guidance and Q&As on what
information is provided as "other loan data." In addition, the revised Q&A includes a discussion
about when information about loans on properties that set aside a portion for affordable housing
may be provided to examiners as "other loan data." Currently, loans greater than $1 million are
not reported as small business loans, and loans that do not have a primary purpose of community
development are not reported as community development loans. Nevertheless, this Q&A
clarifies that the bank may have these loans considered for its CRA evaluation as "other loan
data." CBA supports this proposed Q&A.
Purchased loan participations. This Q&A states that a purchased loan participation will be
treated in the same manner for CRA purposes as a purchased loan. This answer makes intuitive
sense and responds to arguments that these loans differ qualitatively from a CRA perspective.
On the contrary, from the perspective of the affected community, there is no difference between
an institution's purchase of an entire loan or a portion of one. In both instances, additional
capital is invested into the community. CBA supports the proposed Q&A.
Small business/farm loans and the "refinancing" definition under HMDA. The proposal
states that a loan of $1 million or less with a business purpose that is secured by a residence is
considered a small business loan for CRA purposes only if the security interest in the residential
property was taken as an abundance of caution. If this same loan is refinanced and the new loan
is also secured by a residence but only through an abundance of caution, this loan will be
reported both as a refinancing under HMDA and as a small business/farm loan under CRA.
The Agencies' concern of "double counting" is unfounded as this scenario is unlikely to affect a
typical institution's CRA rating. Indeed, it is much more likely that an institution would forget
to "double count." We also add that it is by no means certain whether, in any instance, a lien on
a residence is taken because of an abundance of caution, as business loan underwriting is
typically more complex than, for example, mortgage lending. Nevertheless, CBA supports the
proposed Q&A because it adds clarity.
CRA credit for investment in national/regional funds. CBA agrees that a bank should be given
the option to demonstrate that an investment in a national or regional fund with a primary
purpose of community development meets the geographic requirements of CRA. We would add
that the Agencies should be flexible in this regard and recognize that fund managers are limited
Federal Banking Agencies
September 7, 2007
Page 3
in their ability to produce documentation, and banks may have limited influence to obtain such
documentation.
Transition size of small and intermediate small institutions. Prior to the creation of the
intermediate small institution category, the Agencies allowed a one-year "lag period" between
when bank is no longer a small institution and when it reports CRA data under the large bank
tests. This Q&A clarifies that there is no need for a similar lag period during the transition from
a small bank and an intermediate small bank because there is no data collection and reporting
requirement for the intermediate small bank. The Agencies will refer to the FFIEC website for
the current information on the bank's size. CBA supports this clarification.
Community development loan participation. This proposed Q&A would result in different
treatment between the reporting of a purchased participation in community development loans
and small business/farm loans. Banks that purchase community development loan participations
should report only the amount of their purchase, while a purchased participation in a small
business/farm loan is reported in the amount of the origination. The latter is consistent with the
way loans are reported in the Call Reports and Thrift Financial Report, but the Agencies only
consider the amount actually purchased. Institutions have access to both sets of information
about purchased participations in community development loans. In concept, we would support
any consistent approach. The importance is to achieve clarity.
Responsive lending activities. CBA supports a Q&A to the effect that loan programs that
provide relief to low- and moderate-income homeowners who are facing foreclosure would
warrant favorable CRA consideration because such lending is responsive to the needs of the
institution's assessment areas.
CRA credit and affiliate lending. CBA supports a clarifying Q&A that addresses the counting
of originations and purchased loans by institutions and their affiliates.
CBA appreciates this opportunity to submit these comments. We commend the Agencies
for these revised and new questions and answers. They are very helpful because they provide
more clarity, and we encourage these kinds of regulatory efforts. If you have any questions,
please contact the undersigned.
Respectfully submitted,
Leland Chan
SVP/General Counsel
NATIONAL COMMUNITY INVESTMENT FUND
a certified CDFI and CDE reinvesting in community- and minority-owned
financial institutions with a community development focus
www.ncif.org | infoQncif.orQ | 312-881-5826 phone | 312-881-5801 fax
2230 S. Michigan Avenue | Chicago, IL 60616
September 10. 2007
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve
System
20th and Constitution Avenue, NW
Washington, DC 20551
E-mail: regs.comments@federalreserve.gov
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
E-mail:
Comments@FDIC.gov
Office of the Comptroller of the Currency
550 E Street, SW
Mail Stop 1-5
Washington. DC 20219
E-mail:
regs.comments@occ.treas.gov
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, Dc 20552
Attn: ID OTS-2007-0030
E-mail:
regs.comments@ots.treas.gov
RE: Community Reinvestment Act; Interagency Questions and Answers Regarding Community
Reinvestment (Docket OP-1290-Federal Reserve: RIN 3064-AC97(FDIC); Docket ID OCC-2007-0012
(OCC); Docket ID OTS-2007-0030 (OTS))
To Whom It May Concern:
National Community Investment Fund (NCIF) welcomes the opportunity to comment on the proposed
Interagency Questions and Answers (Q&A) regarding the Community Reinvestment Act (CRA).
NCIF is a non-profit private equity trust fund set up in 1995 and is focused on investing capital in and
sharing best practices among community development financial institutions nationally. NCIF is a
certified Community Development Financial Institution (CDFI) and a Community Development Entity
(CDE). Its current portfolio includes 27 financial institutions - 15 out of 18 banks and thrifts are either
minority-owned or minority-focused, all 8 credit unions are low-income credit unions and 21 out of the
total 27 institutions are certified CDFIs (there is an overlap in these numbers). Since its inception, it has
invested in, lent to or placed deposits worth $23 million in 37 financial institutions and has helped in
capitalizing 7 de novo banks and thrifts. NCIF also has an allocation of $38 million of New Markets Tax
Credits. Since 1996 NCIF investees have cumulatively lent over $3 billion in approximately 74,000 loans
in low to moderate income communities (NCIF collects this information annually from its investees and
geocodes them to low-to moderate income census tracts to arrive at this total). NCIF is advised by
ShoreBank Corporation, which is a $2.1 billion bank holding company and is the nation's first and
leading CDFI. During its more than 30-year history, ShoreBank has made over $2.3 billion in mission
investments in lower income communities in the urban Midwest, the Upper Peninsula of Michigan and
the Pacific Northwest.
NCIF targets scarce capital to these financial institutions so that the equity can be leveraged 10 to 20
times, resulting in commensurately leveraged developmental impact that helps bring underserved
communities into the financial mainstream and away from alternative and predatory financial service
providers.
NCIF supports the growth of financial institutions that have a primary mission of community and
economic development and meet the definitions of a "CDFI" as defined by the CDFI Fund While
some of these institutions are minority- or women-owned, some of them are not For social investors
like NCBF, it is important that those we invest in demonstrate their commitment to community and
economic development through (a) lending to or investing in low to moderate income communities: (b)
accountability to low to moderate income communities; (c) providing financial services to these areas;
and (d) creating partnerships with public, non profit and for profit organizations to generate holistic
development in the communities.
The Reigle Community Development and Regulatory Improvement Act of 1994, which post-dated the
1992 revisions to CRA that concern investments in minority- and women-owned financial institutions and
low-income credit unions, established the Community Development Financial Institutions Fund "to
promote economic revitalization and community development through investment in and assistance to
community development financial institutions." The certification as a CDFI looks at the lending and
financial service activities of financial institutions comprehensively and hence achieves the same kind of
impact as is referred to in the CRA. Majority- and minority-owned banks and thrifts alike have benefited
from certification as CDFIs. Between 1996 (when the CDFI Fund started certifications) and 2006, total
assets at CDFI banks and thrifts—of which over 60% are minority-owned—increased from $4.27 billion
to $12.7 billion.
While NCIF comments below are focused on minority-owned/focused banks, thrifts and low income
credit unions that are CDFIs or have a mission similar to a CDFI, non-bank CDFI loan funds, CDFI
Community Development Venture Capital Funds and CDFI Micro-enterprise Funds, are similarly subject
to the community-development requirements of the CDFI Fund.
NCIF will focus its comments on three proposed Q&As of particular importance to CDFIs and funds
investing in CDFIs and minority/women-owned banks, proposed sections
.12(g)-4,
.23(a)(3)-2 and
.12(g)(3)-1.
Investments in CDFIs Should Receive the Same Treatment as Investments in Minority- or WomenOwned Financial Institutions and Low-Income Credit Unions
New proposed section
.12(g)-4 would provide that "capital investments, loan participations, and other
ventures" engaged in by a majority-owned institution in cooperation with minority- or women-owned
financial institutions and low-income credit unions will be eligible for CRA credit as long as these
activities help meet the credit needs of the communities in which the investee institution is chartered,
regardless of the geographic focus of the investing majority institution. We applaud this recognition of
the important role of minority- and women-owned financial institutions and low-income credit unions in
serving the communities in which they are located. For the reasons discussed above, we believe identical
treatment should be extended to certified CDFIs.
Certified CDFIs are chartered to serve—and do serve—the very kinds of communities that minority- and
women-owned financial institutions and low-income credit unions serve. Investments in and
participations and other ventures with CDFIs should be granted the same treatment under CRA that
2
similar activities with minority- and women-owned financial institutions and low-income credit unions
are accorded.
An Investment in A National or Regional Fund that invests in minority, women-owned and CDFI banks,
thrifts and credit unions should also receive the same treatment as direct investments in these minority,
women-owned and CDFI banks, thrifts and credit unions.
This comment relating to Section
.23(a)- 2 should be read in two parts.
1. Investments in funds that in turn invest in or lend to minority and women-owned banks, thrifts
and low-income credit unions should be treated the same way as direct investments, etc., in such
institutions, as provided in Section
.12(g)-4. This is a logical extension of the proposed
Q&A.
Large investors look to seasoned funds like NCIF to invest their capital into smaller minority and
women-owned banks and low-income credit unions. These intermediary funds reduce the cost of
servicing the investments and are also able to help in moving the industry forward to generate
greater community and economic development. NCIF recommends that investments into funds
that invest into such institutions also give CRA credit to investors, irrespective of location of the
minority or women-owned banks or low-income credit unions. In case a fund is partially
invested in such financial institutions, a pro-rata CRA credit should be available to the investors.
2. Assuming that the regulation is extended to provide a similar treatment to CDFIs (based on the
reasons given above) then funds investing in CDFIs should also get the same treatment as in (1)
above.
An Investment in A Certified CDFI Should Be Regarded Presumptively As "Promoting Economic
Development"
Section
.12(g)(3) relates to the "purpose test" that is part of the definition of "community
development." We applaud the proposed additions to this section of loans to or investments in Rural
Business Investment Companies and New Markets Tax Credit-eligible Community Development Entities
as presumptively promoting economic development. We strongly urge the addition of loans to or
investments in certified Community Development Financial Institutions to the list of presumptive
economic development activities. As has been demonstrated by the CDFI Data Project (NCIF provides
data on banks and thrifts to this data collection collaborative) the actual performance of those who are
certified support the addition of CDFIs to the list.
We greatly appreciate this opportunity to comment on the proposed Interagency Questions and Answers
and look forward to discussing this, as needed. Please do feel free to call me on 312 881 5826 or
snarain@ncif.org. in case you have any clarifications.
With best regards,
I
Saurabh Narain
Chief Fund Advisor
National Community Investment Fund
Comerica Tower at Detroit Center
Corporate Legal Department
500 Woodward Avenue, MC 3391
Detroit, Michigan 48226
(313)222-7464
(313) 222-9480 Facsimile
Julius L. Loeser
Chief Regulatory and
Compliance Counsel
By E-mail to regs.comments(@federalreserve.gov
September 10, 2007
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551
Re: CRA Q & A Request for Comment
(Docket No. OP-1290)
Dear Ms. Johnson:
Comerica Bank, Detroit, Michigan, is writing to comment on the Community Reinvestment Act
(CRA) new and revised Interagency Questions and Answers. Comerica Bank is a full service bank with
total assets of $58.5 billion as of June 30; it provides banking services through branch offices in Michigan,
California, Texas, Florida, and Arizona.
PROPOSED NEW QUESTIONS & ANSWERS
VI.
Investments in a national or regional fund.
As the primary purpose of the CRA regulation is to ensure that financial institutions reinvest in the
communities from which they take deposits, Comerica supports the additional guidance via Q & A
§
.22(a)(2)—2. This guidance provides that a loan or investment in a national or regional
community development fund would not be considered if the activity did not meet the purpose and
geographic requirements of the CRA regulation. However, it should be noted that this guidance runs
counter to the premise of the new Q & A §
. 12(g)—4, which allows for investments in minorityowned, women-owned and low-income credit unions even if the investment benefits an area outside of
the majority-owned financial institution's CRA assessment area(s). Comerica recommends that
consistency in the development of these questions be applied relative to the geography benefited.
VII.
Reporting of a participation in a community development loan.
Regarding the proposed new Q & A §
.42 (b) (2) —4, the agencies have specifically requested
comment on whether having a different collection and reporting treatment for community development
loans is appropriate. Comerica supports the reporting of just the purchase amount of the loan
participation for community development reporting purposes. This approach eliminates the possibility
of double reporting loan activity by multiple financial institutions. Additionally, reporting the
purchase amount provides a more accurate accounting of the reinvestment taking place within a
geography.
Jennifer J. Johnson, Secretary
September 10, 2007
Page two
PROPOSED REVISIONS TO QUESTIONS & ANSWERS
In general, Comerica supports the proposed revisions to the CRA Questions & Answers.
However, regarding Q & A §
.42 (a) —5, an additional comment has been included stating, "However,
a demand loan that is merely reviewed annually is not reported as a renewal because the term of the loan
has not been extended." The distinction needs to be made relative to those loans that are reviewed annually
(or more frequently) and in which a credit decision has been made to continue the loans or make demand.
In those circumstances where the financials have been reviewed and a credit decision has been made to
continue the loans, the loans should be reported as renewals.
Thank you very much for this opportunity to express our views regarding these changes to the
CRA Questions & Answers.
Best wishes,
Julius L. Loeser
Bcc:
Kathryn Reid
Bonnie Cohn
Jon Bilstrom
G r e a T l v e Investment Research, Inc.
William Michael Cunningham
Social Investment Adviser
1411 K Street, Northwest
Suite 1400
Washington, DC 20005
Voicemail/Fax: 866-867-3795
http://www.minorityfinance.com
www.minoritybank.com
http://www.creativeinvest.com
Monday, September 10, 2007
Office of the Comptroller of the Currency
250 E Street, SW., Mail Stop 1-5
Washington, DC 20219
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW.
Washington, DC 20551
Mr. Robert E. Feldman, Executive Secretary,
Attention: Comments,
Federal Deposit Insurance Corporation,
550 17th Street, NW.,
Washington, DC 20429
Regulation Comments, Chief Counsel's Office,
Office of Thrift Supervision,
1700 G Street, NW.,
Washington, DC 20552
RE:
Docket ID OCC-2007-0012
Docket No. OP-1290
RIN number 3064-AC97
ID OTS-2007-0030
Ladies and Gentlemen:
We are writing to provide general comments on the proposed amendments.
We support the Agencies efforts to modernize "three previously adopted
publications of informal staff guidance answering questions regarding
Copyright, 2005, by William Michael Cunningham and Creative Investment Research, Inc.
All rights reserved.
G r e a T l v e Investment Research, Inc.
http://www.minorityfinance.com
www.minoritybank.com
http://www.creativeinvest.com
community reinvestment" and believe the "proposed nine new questions and
answers, as well as the substantive and technical revisions to the existing
Interagency Questions and Answers" are a proper first step.
It is our belief that banking and capital market practices, in general, are
deeply flawed. It is our hope that the Agencies will begin to review banking
and market practices from a systemic, global perspective, since defective
practices in one sector have been shown to be linked to faulty practices in
other capital market sectors:
•
In multiple cases, mortgage market participants used unfair
practices to maximize corporate revenue through the application
of fraudulent lending practices. These practices targeted
vulnerable (mainly minority) home buyers and owners:
according to recent studies, African Americans and Latinos pay
more for mortgages, even after controlling for credit
differentials.1 By reducing long term income and wealth, these
biased and unfair practices damage capital markets and the
economy as a whole, as is now becoming increasingly apparent.
•
Credit rating companies continue to issue defective ratings, thus
showing, in light of the studies cited above, that credit scoring
and analysis is biased and unfair.
Credit rating companies supposedly "base their ratings largely on
statistical calculations of a borrower's likelihood of default," but
one news report noted that:
"Kathleen Corbert, president of the credit rating company Standard
and Poor's, resigned after lawmakers and investors criticized the
company for failing to judge the risks of securities backed by subprime
mortgages."2
1
"The Untold Story Behind The Federal Reserve Mortgage Numbers: Broker Kickbacks Are Gouging Minority
Borrowers," Center for Responsible Lending, September 8, 2006. Online at:
http://www.responsiblelending.org/press/releases/page.isp?itemID=30189949. Also see "Unfair Lending: The Effect
of Race and Ethnicity on the Price of Subprime Mortgages." Center for Responsible Lending.
2
"Standard & Poor's President Replaced." Associated Press. Aug 30, 2007. NEW YORK.
Copyright, 2007, by William Michael Cunningham and Creative Investment Research, Inc.
All rights reserved.
2
G r e a T l v e Investment Research, Inc.
http://www.minorityfinance.com
www.minoritybank.com
http://www.creativeinvest.com
This comes after earlier news reports cited statements by
"dozens of current and former rating officials, financial advisers and
Wall Street traders and investors interviewed by The Washington Post
say the (NRSRO) rating system has proved vulnerable to subjective
judgment, manipulation and pressure from borrowers. They say the
big three are so dominant they can keep their rating processes secret,
force clients to pay higher fees and fend off complaints about their
mistakes."3
These practices threaten the integrity of banking and securities markets.
Individuals and market institutions with the power to safeguard the system,
including investment analysts and rating companies, have been
compromised. Few efficient, effective and just safeguards are in place.
Statistical models created by the firm show the probability of catastrophic
system-wide market failure has increased significantly over the past eight
years.
The public is at risk.
Background
William Michael Cunningham registered with the U.S. Securities and
Exchange Commission as an Investment Advisor on February 2, 1990. He
registered with the D.C. Public Service Commission as an Investment
Advisor on January 28, 1994. Mr. Cunningham manages an investment
advisory and research firm, Creative Investment Research, Inc.
Creative Investment Research, Incorporated, a Delaware corporation, was
founded in 1989 to expand the capacity of capital markets to provide capital,
credit and financial services in minority and underserved areas and markets.
We have done so by creating new financial instruments and by applying
existing financial market technology to underserved areas. The Community
3
"Borrowers Find System Open to Conflicts, Manipulation" by Alec Klein, The Washington
Post, Monday, November 22, 2004; Page Al.
Copyright, 2007, by William Michael Cunningham and Creative Investment Research, Inc.
All rights reserved.
3
G r e a T l v e Investment Research, Inc.
http://www.minorityfinance.com
www.minoritybank.com
http://www.creativeinvest.com
Development Financial Institution Fund of the US Department of the
Treasury certified the firm as a Community Development Entity on August
29, 2003. The Small Business Administration certified the firm as an 8(a)
program participant on October 19, 2005.
Mr. Cunningham's understanding of capital markets is based on first hand
knowledge obtained in a number of positions at a diverse set of major
financial institutions. He served as Senior Investment Analyst for an
insurance company. Mr. Cunningham was an Institutional Sales
Representative in the Fixed Income and Futures and Options Group for a
leading Wall Street firm.
In 1991, Mr. Cunningham created the first systematic bank analysis system
using social and financial data, the Fully Adjusted Return® methodology. In
1992, he developed the first CRA securitization, a Fannie Mae MBS security
backed by home mortgage loans originated by minority banks and thrifts. In
2001, he helped create the first predatory lending remediation/repair MBS
security. 4
Pool
Client
Originator
Social Characteristics
FN374870
Faith-based
Pension Fund
National
Mortgage
Broker
Mortgages originated by minority and womenowned financial institutions serving areas of
high social need.
FN296479
FN300249
GN440280
Utility Company
Pension Fund
FN374869
Minorityowned
financial
institutions
FN376162
FN254066
Faith-based
Pension Fund
Local bank
Predatory lending remediation
Copyright, 2007, by William Michael Cunningham and Creative Investment Research, Inc.
All rights reserved.
4
G r e a T l v e Investment Research, Inc.
http://www.minorityfinance.com
www.minoritybank.com
http://www.creativeinvest.com
Mr. Cunningham also served as Director of Investor Relations for a New York
Stock Exchange-traded firm. On November 16, 1995, his firm launched one
of the first investment advisor websites. He is a member of the CFA Institute
and of the Twin Cities Society of Security Analysts, Inc.
The firm and Mr. Cunningham have long been concerned with the integrity of
the banking and securities markets:
•
In September, 1998, Mr. Cunningham opposed the application,
approved by the Federal Reserve Board on September 23, 1998,
by Travelers Group Inc., New York, New York, to become a bank
holding company by acquiring Citicorp, New York, New York, and
to retain certain nonbanking subsidiaries and investments of
Travelers, including Salomon Smith Barney Inc., New York, New
York. Mr. Cunningham based his opposition on the fact that
Salomon Smith Barney Inc. had a history of attempting to
monopolize markets and defrauding investors. This single fact
rendered the merger potentially injurious to the public welfare.
Specifically, Mr. Cunningham felt the merger was not consistent
with 12 U.S.C. Section 1841 et. seq., the Bank Holding Company
Act of 1956. The Act states that:
"The (Federal Reserve) Board shall not approve (B) any other proposed acquisition or merger or consolidation under
this section whose effect in any section of the country may be
substantially to lessen competition, or to tend to create a monopoly, or
which in any other manner would be in restraint of trade.."
On April 28, 2003, Citigroup Global Markets Inc. and Salomon
Smith Barney Inc. (SSB) settled an S.E.C. enforcement action
involving conflicts of interest between research and investment
banking operations. Citigroup Global Markets Inc. and Salomon
Smith Barney Inc. paid fines totaling $400 million. The firms
were found, again, to be defrauding investors by operating
schemes in restraint of trade.
Copyright, 2007, by William Michael Cunningham and Creative Investment Research, Inc.
All rights reserved.
5
G r e a T l v e Investment Research, Inc.
http://www.minorityfinance.com
www.minoritybank.com
http://www.creativeinvest.com
•
In October 1998, in a petition to the United States Court of
Appeals, Mr. Cunningham cited evidence that growing financial
market malfeasance greatly exacerbated risks in financial
markets, reducing the safety and soundness of large financial
institutions. He went on to note that:
"The nature of financial market activities is such that significant
dislocations can and do occur quickly, with great force. These
dislocations strike across institutional lines. That is, they affect both
banks and securities firms. The financial institution regulatory
structure is not in place to effectively evaluate these risks, however.
Given this, public safety is at risk."
•
On March 1, 1999, Mr. Cunningham wrote to Senator Phil
Gramm, former Chairman of the Senate Banking Committee, to
suggest that a "Truth In CRA" Provision be added to financial
modernization legislation, then under conference consideration
by the Senate and the House, to require community groups and
others who may protest bank merger applications on CRA
grounds to fully disclose any payments they have received from
banks, and to disclose any payments or other assistance they
anticipate receiving from banks. This would include providing
detailed information concerning proposals currently "on the
table." In addition, we noted we would like to see these same
community groups be required to report performance data
showing bank funding and assistance received and actual loans
made or facilitated.
•
On Monday, April 11, 2005, Mr. Cunningham spoke on behalf of
investors at a fairness hearing regarding the $1.4 billion dollar
Global Research Analyst Settlement. The hearing was held in
Courtroom 11D of the Daniel Patrick Moynihan United States
Courthouse, 500 Pearl Street, New York, New York. No other
investment advisor testified at the hearing.
Copyright, 2007, by William Michael Cunningham and Creative Investment Research, Inc.
All rights reserved.
6
G r e a T l v e Investment Research, Inc.
http://www.minorityfinance.com
www.minoritybank.com
http://www.creativeinvest.com
Summary Comments
The Agencies
"have combined three previously adopted publications of informal staff guidance
answering questions regarding community reinvestment (Interagency Questions
and Answers). The Interagency Questions and Answers address frequently asked
questions about community reinvestment to assist agency personnel, financial
institutions, and the public. The agencies are proposing nine new questions and
answers, as well as substantive and technical revisions to the existing Interagency
Questions and Answers."
We appreciate this effort, but note the following:
Repeatedly, over the past twenty-five years, signal market participants have
abandoned ethical principles in the pursuit of material well being. This has
occurred in both bull and in bear markets and has taken place in the most
materially advantaged country ever. A culture of avarice, arrogance, greed
and malice has flourished in capital market institutions, propelling standards
of behavior downward. By 2007, marketplace ethics reached a new low. The
following are the simple facts:
•
On January 25, 2005, "the Securities and Exchange Commission
announced the filing in federal district court of separate settled civil
injunctive actions against Morgan Stanley & Co. Incorporated (Morgan
Stanley) and Goldman, Sachs & Co. (Goldman Sachs) relating to the
firms' allocations of stock to institutional customers in initial public
offerings (IPOs) underwritten by the firms during 1999 and 2000."
•
According to the Associated Press, on January 3 1 , 2005, "the nation's
largest insurance brokerage company, Marsh & McLennan Companies
Inc., based in New York, will pay $850 million to policyholders hurt by"
corporate practices that included "bid rigging, price fixing and the use
of hidden incentive fees." The company will issue a public apology
calling its conduct "unlawful" and "shameful," according to New York
State Attorney General Elliott Spitzer. In addition, "the company will
publicly promise to adopt reforms."
Copyright, 2007, by William Michael Cunningham and Creative Investment Research, Inc.
All rights reserved.
7
G r e a T l v e Investment Research, Inc.
http://www.minorityfinance.com
www.minoritybank.com
http://www.creativeinvest.com
•
On March 23, 2005, the Securities and Exchange Commission
(Commission) "announced that it instituted and simultaneously settled
an enforcement action against Citigroup Global Markets, Inc. (CGMI)
for failing to provide customers with important information relating to
their purchases of mutual fund shares."
•
On April 12, 2005, the Securities and Exchange Commission "instituted
and simultaneously settled an enforcement action against the New
York Stock Exchange, Inc., finding that the NYSE, over the course of
nearly four years, failed to police specialists, who engaged in
widespread and unlawful proprietary trading on the floor of the NYSE."
As part of the settlement, the "NYSE agreed to an undertaking of $20
million to fund regulatory audits of the NYSE's regulatory program
every two years through the year 2011." On that same date, the
Commission "instituted administrative and cease-and-desist
proceedings against 20 former New York Stock Exchange specialists
for fraudulent and other improper trading practices."
•
On April 19, 2005, the Securities and Exchange Commission
announced "that KPMG LLP has agreed to settle the SEC's charges
against it in connection with the audits of Xerox Corp. from 1997
through 2000. As part of the settlement, KPMG consented to the entry
of a final judgment in the SEC's civil litigation against it pending in the
U.S. District Court for the Southern District of New York. The final
judgment..orders KPMG to pay disgorgement of $9,800,000
(representing its audit fees for the 1997-2000 Xerox audits),
prejudgment interest thereon in the amount of $2,675,000, and a
$10,000,000 civil penalty, for a total payment of $22,475 million."
•
On May 3 1 , 2005, the Securities and Exchange Commission
"announced settled fraud charges against two subsidiaries of Citigroup,
Inc. relating to the creation and operation of an affiliated transfer
agent that has served the Smith Barney family of mutual funds since
1999. Under the settlement, the respondents are ordered to pay $208
million in disgorgement and penalties and to comply with substantial
remedial measures, including an undertaking to put out for
Copyright, 2007, by William Michael Cunningham and Creative Investment Research, Inc.
All rights reserved.
8
G r e a T l v e Investment Research, Inc.
http://www.minorityfinance.com
www.minoritybank.com
http://www.creativeinvest.com
competitive bidding certain contracts for transfer agency services for
the mutual funds."
•
On July 20, 2005, the Securities and Exchange Commission
"announced a settled administrative proceeding against Canadian
Imperial Bank of Commerce's (CIBC) broker-dealer and financing
subsidiaries for their role in facilitating deceptive market timing and
late trading of mutual funds by certain customers. The Commission
ordered the subsidiaries, CIBC World Markets Corp. (World Markets), a
New York based broker-dealer, and Canadian Imperial Holdings Inc.
(CIHI), to pay $125 million, consisting of $100 million in disgorgement
and $25 million in penalties."
•
On August 15, 2005, the Securities and Exchange Commission
"charged four brokers and a day trader with cheating investors
through a fraudulent scheme that used squawk boxes to eavesdrop on
the confidential order flow of major brokerages so they could 'trade
ahead' of large orders at better prices."
•
On November 28, 2005, the Securities and Exchange Commission
announced "that three affiliates of one of the country's largest mutual
fund managers have agreed to pay $72 million to settle charges they
harmed long-term mutual fund shareholders by allowing undisclosed
market timing and late trading by favored clients and an employee."
•
On December 1, 2005, the Securities and Exchange Commission
"announced settled enforcement proceedings against American
Express Financial Advisors Inc., now known as Ameriprise Financial
Services, Inc. (AEFA), a registered broker-dealer headquartered in
Minneapolis, Minn., related to allegations that AEFA failed to
adequately disclose millions of dollars in revenue sharing payments
that it received from a select group of mutual fund companies. As part
of its settlement with the Commission, AEFA will pay $30 million in
disgorgement and civil penalties, all of which will be placed in a Fair
Fund for distribution to certain of AEFA's customers."
•
On December 2 1 , 2005, the Securities and Exchange Commission
Copyright, 2007, by William Michael Cunningham and Creative Investment Research, Inc.
All rights reserved.
9
G r e a T l v e Investment Research, Inc.
http://www.minorityfinance.com
www.minoritybank.com
http://www.creativeinvest.com
"sued top executives of National Century Financial Enterprises, Inc.
(NCFE), alleging that they participated in a scheme to defraud
investors in securities issued by the subsidiaries of the failed Dublin,
Ohio company. NCFE, a private corporation, suddenly collapsed along
with its subsidiaries in October 2002 when investors discovered that
the companies had hidden massive cash and collateral shortfalls from
investors and auditors. The collapse caused investor losses exceeding
$2.6 billion and approximately 275 health-care providers were forced
to file for bankruptcy protection."
•
On January 3, 2006, the Securities and Exchange Commission
announced "that it filed charges against six former officers of Putnam
Fiduciary Trust Company (PFTC), a Boston-based registered transfer
agent, for engaging in a scheme beginning in January 2001 by which
the defendants defrauded a defined contribution plan client and group
of Putnam mutual funds of approximately $4 million."
•
On February 2, 2006, the Securities and Exchange Commission
"announced that it filed an enforcement action against five former
senior executives of General Re Corporation (Gen Re) and American
International Group, Inc. (AIG) for helping AIG mislead investors
through the use of fraudulent reinsurance transactions."
•
On February 9, 2006, the Commission announced "the filing and
settlement of charges that American International Group, Inc. (AIG)
committed securities fraud. The settlement is part of a global
resolution of federal and state actions under which AIG will pay in
excess of $1.6 billion to resolve claims related to improper accounting,
bid rigging and practices involving workers' compensation funds."
•
On March 16, 2006, the Securities and Exchange Commission
"announced a settled enforcement action against Bear, Stearns & Co.,
Inc. (BS&Co.) and Bear, Stearns Securities Corp. (BSSC) (collectively,
Bear Stearns), charging Bear Stearns with securities fraud for
facilitating unlawful late trading and deceptive market timing of mutual
funds by its customers and customers of its introducing brokers. The
Commission issued an Order finding that from 1999 through
Copyright, 2007, by William Michael Cunningham and Creative Investment Research, Inc.
All rights reserved.
10
G r e a T l v e Investment Research, Inc.
http://www.minorityfinance.com
www.minoritybank.com
http://www.creativeinvest.com
September 2003, Bear Stearns provided technology, advice and
deceptive devices that enabled its market timing customers and
introducing brokers to late trade and to evade detection by mutual
funds. Pursuant to the Order, Bear Stearns will pay $250 million,
consisting of $160 million in disgorgement and a $90 million penalty."
•
On April 11, 2006, the Securities and Exchange Commission
announced "charges against individuals involved in widespread and
brazen international schemes of serial insider trading that yielded at
least $6.7 million of illicit gains. The schemes were orchestrated by..a
research analyst in the Fixed Income division of Goldman Sachs, and a
former employee of Goldman Sachs."
Fully identifiable entities engaged in illegal activities. They have, for the
most part, evaded prosecution of any consequence. We note that the
aforementioned Goldman Sachs, fined $159.3 million by the Securities and
Exchange Commission for various efforts to defraud investors, subsequently
received $75 million in Federal Government tax credits.5
Without meaningful reform there is a small, but significant and growing, risk
that our economic system will simply cease functioning. 6
We also note that Alliance Capital Management, fined $250 million by the
Securities and Exchange Commission for defrauding mutual fund investors,
received a contract7 in August, 2004 from the U.S Department of the Interior
(DOI) Office of Special Trustee for American Indians, to manage $404 million
in Federal Government trust funds.8
The tax credits were awarded under the U.S. Department of the Treasury New Markets Tax
Credit (NMTC) Program. (See: http://www.cdfifund.gov/programs/nmtc/).
6
Models created by the firm and reflecting the probability of catastrophic system wide market
failure first spiked in September, 1998. The models spiked again in January and August, 2001.
They have continued, in general, to increase.
7
Contract number NBCTC040039.
8
The contract was awarded despite the fact that placing Alliance Capital Management in a
position of trust is, given the Commission's enforcement action, inconsistent with common sense, with the
interests of justice and efficiency and with the interests of Indian beneficiaries. Alliance is also in violation
of DOI Contractor Personnel Security & Suitability Requirements.
Copyright, 2007, by William Michael Cunningham and Creative Investment Research, Inc.
11
All rights reserved.
G r e a T l v e Investment Research, Inc.
http://www.minorityfinance.com
www.minoritybank.com
http://www.creativeinvest.com
Recently, we have observed several cases where corporate management
unfairly transferred value from outsider to insider shareholders.9 These
abuses have been linked to the abandonment of ethical principles noted
earlier. Faulty market practices mask a company's true value and
misallocate capital by moving investment dollars from deserving companies
to unworthy companies.
We cite the following:
"Falsification and fraud are highly destructive to free-market capitalism and, more
broadly, to the underpinnings of our society. Above all, we must bear in mind that
the critical issue should be how to strengthen the legal base of free market
capitalism: the property rights of shareholders and other owners of capital. Fraud
and deception are thefts of property. In my judgment, more generally, unless the
laws governing how markets and corporations function are perceived as fair, our
economic system cannot achieve its full potential. "
Testimony of Mr. Alan Greenspan, Former Chairman of the Federal Reserve Board, Federal
Reserve Board's semiannual monetary policy report to the Congress. Before the Committee on
Banking, Housing, and Urban Affairs, U.S. Senate. July 16, 2002.
We agree.
We understand that, given any proposed rule, crimes will continue to be
committed. 10 These facts lead some to suggest that regulatory authorities
9
Including, but not limited to, Adlephia Communications, the aforementioned Alliance Capital
Management, American Express Financial, American Funds, AXA Advisors, Bank of America's Nations
Funds, Bank One, Canadian Imperial Bank of Commerce, Canary Capital, Charles Schwab, Cresap, Inc.,
Empire Financial Holdings, Enron, Fannie Mae, Federated Investors, FleetBoston, Franklin Templeton,
Fred Alger Management, Freddie Mac, Freemont Investment Advisors, Gateway, Inc., Global Crossing,
H.D. Vest Investment Securities, Heartland Advisors, Homestore, Inc., ImClone, Interactive Data Corp.,
Invesco Funds Group Inc., Janus Capital Group Inc., Legg Mason, Limsco Private Ledger, Massachusetts
Financial Services Co., Millennium Partners, Mutuals.com, PBHG Funds, Pilgrim Baxter, PIMCO,
Prudential Securities, Putnam Investment Management LLC, Raymond James Financial, Samaritan Asset
Management, Security Trust Company, N. A., State Street Research, Strong Mutual Funds, Tyco, UBS AG,
Veras Investment Partners, Wachovia Corp., and WorldCom. Accounting firms, including Arthur Andersen
and Ernst & Young aided and abetted efforts to do so. We believe there are hundreds of other cases.
We assume that "employees are 'rational cheaters,' who anticipate the consequences of their
actions and (engage in illegal behavior) when the marginal benefits exceed costs." See Nagin, Daniel,
James Rebitzer, Seth Sanders and Lowell Taylor, "Monitoring, Motivation, and Management: The
Determinants of Opportunistic Behavior in a Field Experiment, The American Economic Review, vol. 92
(September, 2002), pp 850-873.
Copyright, 2007, by William Michael Cunningham and Creative Investment Research, Inc.
12
All rights reserved.
G r e a T l v e Investment Research, Inc.
http://www.minorityfinance.com
www.minoritybank.com
http://www.creativeinvest.com
may have been "captured" by the entities they regulate.11 We note that
under the "regulatory capture" market structure regime, the public interest
is not protected.
According to the Agencies,
"Among the proposed new questions and answers is one that
addresses activities engaged in by a majority-owned financial
institution with a minority-or women-owned financial institution or a
low-income credit union."
We appreciate this effort and note that a report issued by the U.S.
Department of the Treasury, Office of the Comptroller of the Currency,
stated:
"The growth of minority populations and projected increases in their
buying power provide significant opportunities for retail growth by
financial institutions."
Recent studies by Creative Investment confirm this statement. In the second
quarter of 2007, there were 226 minority owned financial institutions (banks
and thrifts) in the U.S., up from 190 at the end of 2005. The number of
institutions totaled 189 at the end of 2003. Minority banks continue to lead
the banking industry with respect to asset growth. By June, 2007,
annualized asset growth was 17.43% at minority institutions, compared to
an all industry growth rate of 6.38%. In 2006, minority institution asset
growth was 10.59% versus an all industry average of 9.03%. We believe
this trend reflects continued expansion at Hispanic banking institutions and
remarkable asset growth at Asian institutions.
Other reports spotlight the role minority-owned banks play in this area. On
October 7, 2005, Democrats on the House Financial Services Committee
requested that the Government Accountability Office (GAO) "examine the
federal banking agencies' current efforts to promote and preserve minoritySee George J. Stigler, "The Theory of Economic Regulation," in The BellJournal of Economics
and Management Science, vol. II (Spring 1971), pp. 3-21.
Copyright, 2007, by William Michael Cunningham and Creative Investment Research, Inc.
13
All rights reserved.
G r e a T l v e Investment Research, Inc.
http://www.minorityfinance.com
www.minoritybank.com
http://www.creativeinvest.com
owned financial institutions and the views of the minority financial services
community on the effectiveness of these efforts." This involves reviewing
federal banking agencies' implementation of section 308 of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).
We believe the proposed revision represents an opportunity to create new,
more relevant and more meaningful market based efforts to promote and
preserve minority-owned financial institutions.
Small, African American and women and minority owned banks cannot
access equity markets in any meaningful manner currently. We note that
there are one hundred and thirty five financial service sector mutual funds.
Not one of these funds makes investments in small, minority and women
owned banks and thrifts.
On February 15, 2007, Creative Investment Research spoke with a
representative of "one of the largest investment banking firms exclusively
serving banks, thrifts, insurance companies and REITs." This representative
indicated that his firm did not work with minority banks unless they had a
market capitalization exceeding $100 million (3% of the minority banking
industry.) Thus, a firm that "was founded..with a single mission - to help
financial institutions increase their franchise values through the execution of
sound financial strategies," eliminates 97% of minority banks from
investment consideration.
Recent studies have documented the chronic lack of capital in certain small
and minority owned banks and thrifts. This section of the revised Q&A
responds to that lack of capital by facilitating a clear set of linked mutually
supporting community development investments with a stable capital source
to help build the business service infrastructure needed to create sustainable
communities. Without these efforts at facilitating this strategy, the capital
shortage in the Minority banking sector will continue.
We feel that the proposed changes to the CRA Q&A are consistent with both
the spirit and the letter of CRA and FIRREA. The agencies effort in revising
the CRA Q&A to address this situation will counter the discriminatory
practices cited above and will allow others to provide much needed capital
Copyright, 2007, by William Michael Cunningham and Creative Investment Research, Inc.
All rights reserved.
14
G r e a T l v e Investment Research, Inc.
http://www.minorityfinance.com
www.minoritybank.com
http://www.creativeinvest.com
to an underutilized set of financial institutions. It is likely that the positive
impacts identified will not be achieved without the incentives provided by the
Agencies and that the same result could not be achieved at a lower cost
using other sources, including federal programs.
Further, we believe that a bank or bank holding company making an
investment in a minority bank, either directly or indirectly, should be eligible
for positive consideration under the Community Reinvestment Act or CRA.
According to GAO report cited above, "In Section 308 of FIRREA, Congress
outlined five broad goals that FDIC and OTS, in consultation with Treasury,
are to work toward to preserve and promote minority banks. These goals
are:
1. Preserving the present number of minority banks;
2. Preserving their minority character in cases involving
mergers or acquisitions of minority banks;
3. Providing technical assistance to prevent the insolvency
of institutions that are not currently insolvent;
4. Promoting and encouraging the creation of new minority
banks; and
5. Providing for training, technical assistance, and
educational programs."
We feel the proposal to grant a bank or bank holding company making an
investment in a minority bank, either directly or indirectly, positive
consideration under the Community Reinvestment Act is consistent with
goals 1., 2., 3., and 4. We note that these investments will only be eligible
for positive CRA consideration to the extent that they provide capital to low
and moderate income areas.
In summary, we favor efforts to increase fairness in our banking and capital
markets while opposing reform for reform's sake. We believe the proposed
revisions to the CRA Q&A guidelines move in this direction and look forward
to reviewing the Agencies continuing efforts.
Copyright, 2007, by William Michael Cunningham and Creative Investment Research, Inc.
All rights reserved.
15
G r e a T l v e Investment Research, Inc.
http://www.minorityfinance.com
www.minoritybank.com
http://www.creativeinvest.com
We appreciate the time and effort the Agencies have devoted to this task.
Thank you for your leadership.
Please contact me with any questions or comments.
Sincerely,
William Michael Cunningham
Social Investing Adviser
for William Michael Cunningham and Creative Investment Research, Inc.
Copyright, 2007, by William Michael Cunningham and Creative Investment Research, Inc.
All rights reserved.
16
CDFI
Coalition
703 294 6970 P 3240 Wilson Boulevard, Suite 220
703 294 6460 F Arlington, VA 22201
vrww.cdti.org
of Community Development
Financial Institutions
September 10, 2007
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve
System
20th and Constitution Avenue, NW
Washington, DC 20551
E - m a i l : regs.comments@federalreserve.gov
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
E-mail:
Comments@FDIC.gov
Office of the Comptroller of the Currency
550 E Street, SW
Mail Stop 1-5
Washington, DC 20219
E-mail:
regs.comments@occ.treas.gov
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, Dc 20552
Attn: ID OTS-2007-0030
E-mail:
regs.comments@ots.treas.gov
RE: Community Reinvestment Act; Interagency Questions and Answers Regarding
Community Reinvestment (Docket OP-1290-Federal Reserve; RIN 3064AC97(FDIC); Docket ID OCC-2007-0012 (OCC); Docket ID OTS-2007-0030 (OTS))
Dear Ms. Johnson:
The Community Development Financial Institutions Coalition (CDFI Coalition)
welcomes the opportunity to comment on the proposed Interagency Questions and
Answers (Q&A) regarding the Community Reinvestment Act (CRA). The CDFI
Coalition was founded in 1992 to advance the interests of the CDFI industry, to facilitate
information sharing and joint strategies among the different sectors of CDFIs and to
promote federal policies to help expand and strengthen CDFIs across the country.
The CDFI Coalition strongly supports the proposed revisions to the Interagency
Questions and Answers. We believe there are many useful additions and clarifications,
including in particular those relating to community development services, service to
underserved or distressed non-metropolitan middle-income geographies, Individual
Development Accounts, New Markets Tax Credit investments, and loans made under the
SBA 504 program. We focus our comments on three proposed Q&As of particular
importance to Community Development Financial Institutions, proposed sections
.12(g)-4,
.12(g)(3)-!, and
.12(h)-7.
Investments in CDFIs Should Receive the Same Treatment as Investments in Minority or Women-Owned Financial Institutions and Low-Income Credit Unions
New proposed section
.12(g)-4 would provide that "capital investments, loan
participations, and other ventures" engaged in by a majority-owned institution in
cooperation with minority- or women-owned financial institutions and low-income credit
unions will be eligible for CRA credit as long as these activities help meet the credit
needs of the communities in which the investee institution is chartered, regardless of the
geographic focus of the investing majority institution. We applaud this recognition of the
important role of minority- and women-owned financial institutions and low-income
credit unions in serving the communities in which they are located. For the reasons
discussed below, we believe identical treatment should be extended to certified
Community Development Financial Institutions.
The Reigle Community Development and Regulatory Improvement Act of 1994 (PL 103325), which post-dated the 1992 revisions to CRA that added the section concerning
minority- and women-owned financial institutions and low-income credit unions,
established the Community Development Financial Institutions Fund "to promote
economic revitalization and community development through investment in and
assistance to community development financial institutions." (12 USC 4701) The statute
goes on to define a "community development financial institution" as (among other
things) an entity that "has a primary mission of promoting community development," and
"serves an investment area or targeted population." An "investment area" is defined as a
geographic area that "meets objective criteria of economic distress . . . [and] has
significant unmet needs for loans and investments." A "targeted population" is defined
as individuals or a group of individuals that "are low-income persons; or otherwise lack
adequate access to loans or equity investments." (12 USC 4702 (5), (16), (20)) The
application for certification as a CDFI provides that to be certified, at least 60% of an
entity's activities must be directed to an "investment area" or "targeted population" as
defined in the statute. In other words, by statute a CDFI must serve the very kind of
"low- and moderate-income neighborhoods" referred to in the CRA statute.
The entities so certified do in fact provides these services. In fiscal year 2005, the federal
government provided CDFIs approximately $51 million. According to the CDFI Data
Project, during that year, the 496 CDFIs responding to the Data Project survey (out of
approximately 700 certified CDFIs) leveraged that money to make $4.3 billion in
investments, including financing and assisting over 9,000 businesses to create or maintain
more than 39,000 jobs; facilitated the construction or renovation of over 55,000 units of
affordable housing; built or renovated 613 community facilities in economically
disadvantaged communities; and provided over 6,000 alternatives to payday loans and
helped more than 15,000 consumers open their first bank account. Of CDFI customers in
2005, 52% were female, 58% minority, and 68% low-income.
In summary, certified CDFIs both are chartered to serve—and do serve—the very kinds
of communities that minority- and women-owned financial institutions and low-income
credit unions serve. Investments in and participations and other ventures with CDFIs
should be granted the same treatment under CRA that similar activities with minority and women-owned financial institutions and low-income credit unions are accorded.
2
An Investment in A Certified CDFI Should Be Regarded Presumptively As "Promoting
Economic Development"
Section
. 12(g)(3) relates to the "purpose test" that is part of the definition of
"community development." We applaud the proposed additions to this section of loans to
or investments in Rural Business Investment Companies and New Markets Tax Crediteligible Community Development Entities as presumptively promoting economic
development. We strongly urge the addition of loans to or investments in certified
Community Development Financial Institutions to the list of presumptive economic
development activities. As demonstrated above, both the statutory requirements to
become a CDFI and the actual performance of those who are certified support the
addition of CDFIs to the list.
National, As Well As Statewide or Regional Organizations Should be Eligible to Be
Considered as Addressing Assessment Area Needs
Section
.12(h)-7, in the context of defining "regional area," states that "Community
development loans and services and qualified investments to statewide or regional
organizations that have a bona fide purpose, mandate, or function that includes serving
the geographies or individuals within the institution's assessment area(s) will be
considered as addressing assessment area needs" (emphasis added). We urge that either
"national" be added after "regional," or that "statewide or regional" be deleted. Many
organizations, such as ShoreBank, operate in a limited number of specific geographies in
several regions of the country. Such organizations can be at least as effective in serving
an investing institution's assessment area that includes one of organization's geographic
concentrations as a statewide or regional organization whose activities are more diffuse
across a state or region. The Q&A provides that examiners will evaluate "actual or
potential benefit to the institution's assessment area" in deciding whether and how much
credit to grant. Given this fact-based assessment, there is no reason to exclude loans,
services and investments to national organizations from consideration. See
. 12(h)-6,
which is silent about the geographic scope of "community development organizations or
programs."
Once again, we sincerely appreciate this opportunity to comment on the proposed
Interagency Questions and Answers.
Sincerely,
V/f * sty
FredZeytoonjian
Executive Director
CDFI Coalition
CapitalOne
Capital One Financial Corporation
1680 Capital One Drive
McLean, VA 22102
September 10, 2007
Office of the Comptroller of the currency
250 E Street, S.W.
Mail Stop 1-5
Washington, DC 20219
Attention: Docket No. ID OCC-2007-0012
Regs.comments@occ.treas.gov
Ms. Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve
System
20th Street & Constitution Ave., N.W.
Washington, DC 20551
Attention: Docket No. OP-1290
Regs.comments@federalreserve.gov
Mr. Robert E. Feldman
Executive Secretary
Attention: Comments Federal Deposit
Insurance Corporation
550 17th Street, N.W.
Washington, DC 20429
RIN 3064-AC97
Comments@FDIC.gov
Regulations Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, N.W.
Washington, DC 20552
Attention: ID OTS-2007-0030
Regs.comments@ots.treas.gov
Re: Community Reinvestment Act; Interagency Questions and Answers Regarding
Community Reinvestment
Ladies and Gentlemen:
Capital One Financial Corporation ("Capital One") is pleased to submit comments on the
federal banking agencies' (the "Agencies") proposed new and revised Interagency Questions and
Answers regarding the Community Reinvestment Act ("CRA").1
1
72 Fed. Reg. 37922 (July 11, 2007).
Capital One Financial Corporation
Comment on CRA Questions and Answers
Page 2
Capital One Financial Corporation is a financial holding company whose principal
subsidiaries, Capital One, N.A., Capital One Bank, and Capital One Auto Finance, Inc., offer a
broad spectrum of financial products and services to consumers, small businesses, and
commercial clients. As of June 30, 2007, Capital One's subsidiaries collectively had $85.7
billion in deposits and $144 billion in managed loans outstanding, and operated more than 720
retail bank branches located in New York, New Jersey, Connecticut, Louisiana, and Texas.
Capital One is a Fortune 500 company and is included in the S&P 100 Index.
Capital One commends the Agencies for giving their attention to the Community
Reinvestment Act, an important statute and regulation, and for offering many thoughtful and
helpful clarifications and additions. Capital One takes seriously its responsibility to the
communities that it serves and in which it is located, including our responsibilities under the
Community Reinvestment Act, and we appreciate the additional guidance that the Agencies have
given.
1. A Few Adjustments to the Proposed Questions and Answers Would Be Desirable
A very small number of adjustments to the Agencies' proposed guidance would be
helpful in order to stimulate, or to remove unnecessary impediments to, banks' engaging in
worthwhile lending, investment, services, and community development activities, in furtherance
of the aims of the Community Reinvestment Act.
A. "Other Loan Data"
Proposed new Question III, along with clarification of a current question and answer,
enumerates a number of activities as "other loan data" that will be considered in an institution's
CRA evaluation.2 Those activities include, among others:
•
•
•
Letters of credit
Loans for mixed-income properties
Modification, extension, and consolidation agreements (MECAs)
Capital One recommends that these activities be assessed among the core activities of the
lending test rather than as "other loan data." Relegation of these activities to "other loan data"
may result in banks receiving less consideration for them than the activities merit.
Several considerations support the enhanced treatment we recommend:
•
2
Letters of credit are a critical component of affordable housing development. Though
they constitute credit enhancements and thus do not fund in the ordinary course of
business (but only when a project is troubled), they are fully underwritten contingent
liabilities and should receive full recognition.
Q&A § _.22(a)(2)-3, 4, 72 Fed. Reg. at 37925, 37940.
Capital One Financial Corporation
Comment on CRA Questions and Answers
Page 3
•
As the current question and answer recognize,3 MECAs achieve the same results as
purchases or refinancing. There is therefore no basis for distinguishing this type of loan
facility, and they should receive full recognition.
•
Many public policy initiatives recognize mixed-income housing as preferable to the
development of housing that is exclusively or heavily low- and moderate-income
("LMI"). Mixed-income housing contributes to the creation of economically integrated
communities, which are preferable to the creation of concentrated pockets of poverty.
And as a practical matter, mixed-income development provides cross-subsidization
opportunities that make affordable housing development more economically feasible. In
addition, while the proposed question and answer speaks of "a certain amount or
percentage of units ... set aside for affordable housing," banks do not normally
determine the portion of a development that is affordable to LMI households. Rather,
banks respond to local governments that set housing policy, typically in the form of
providing subsidies. Banks should be encouraged to provide financing that supports
those housing policies, by allowing full CRA consideration for those loans.
B. National or Regional Community Funds
In new Question IV,4 the Agencies would require that, to obtain CRA consideration for an
investment in a national or regional fund with a primary purpose of community development, an
institution must demonstrate that the investment meets the geographic requirements of the CRA
regulation. While Capital One endorses the historic and current regulatory focus on assessment
areas, we also believe there are special circumstances where exceptions should be made to that
approach. Such exceptions should be implemented on a limited basis to ensure that the
assessment area basis for evaluation is sustained, maintaining the integrity and long-term
viability of CRA.
Capital One recommends that investments in low-income-housing tax credit ("LIHTC")
funds be fully considered for CRA purposes without geographic limitations. And, if the
agencies adopt this approach, we respectfully request that the Q&A clearly show how such
investments will receive fully weighted credit. We note that many banks have been unwilling to
invest in disaster relief areas outside of their assessment areas because of a lack of clarity
regarding full credit.
Several considerations support our position for an exception for LIHTC investments as
described above:
•
An established market has developed for LIHTC investment vehicles on multi-state and
national bases, in order to promote efficiency and to diversify geographic risk. The
Agencies' guidance should align with this favorable market development.
3
Q & A § _.22(a)(2)-3.
4
Q & A § _.23 (a)-2, 72 Fed. Reg. at 37925, 37944.
Capital One Financial Corporation
Comment on CRA Questions and Answers
Page 4
•
If investments must be attributed to the investing banks' assessment areas, these
organizations will be less likely to undertake projects or investments in communities in
which there are no banks or a limited number of banks - yet those communities may
have the greatest need.
•
Imposition of geographic restrictions may decrease the ability of national or regional
funds to attract capital.
•
Restricting the utility of these funds as CRA investment vehicles may reduce the
availability of affordable funding for some housing developments that are higher risk,
but nevertheless important, such as special needs housing and single room occupancy
(SRO) projects.
If the Agencies continue to impose geographic restrictions on national and regional
community development funds, then, at a minimum, we recommend that the fund be given the
flexibility of using any combination of "earmarks" (or side letters), and pro rata allocations, to
achieve the necessary geographic assignment within a single syndication. The proposed question
and answer suggest that the fund must choose one or the other technique, but such an all-or-none
choice may be infeasible in many cases, and hence the Agencies' guidance would not have the
desired effect of attracting investment to these important vehicles.
2. Proposed Clarifications That Capital One Especially Supports
In proposed Question IX,5 the Agencies would clarify that the limitations that apply to
reporting refinancing and renewals of small business loans also apply to refinancing and
renewals of community loans. This is a helpful clarification, and we encourage the Agencies to
adopt it as proposed.
Also, we support the Agencies' proposal to add a presumption that investments in New
Markets Tax Credit-eligible Community Development Entities (CDEs) promote economic
development. This revised guidance will encourage banks to invest in those important vehicles.6
3. Request for Additional Clarification with Respect to High-Cost Areas
A current interagency question7 provides for flexibility in the performance standards to
allow examiners to account for conditions in high-cost areas. "For example," say the Agencies,
"examiners could take into account the fact that activities address a credit shortage among
middle-income people or areas caused by the disproportionately high cost of building,
maintaining, or acquiring a house when determining whether an institution's loan to or
5
Q & Q § _.42(b)(2)-5, 72 Fed. Reg. at 37926, 37957.
6
Q & A § _.12(g)(3)-l, 72 Fed. Reg. at 37926, 37930-31.
7
Q & A § _. 12(h) and 563e.l2(g)-3.
Capital One Financial Corporation
Comment on CRA Questions and Answers
Page 5
investment in an organization that funds affordable housing for middle-income people or areas,
as well as low- or moderate-income people or areas, has as its primary purpose community
development." Capital One is active in certain high-cost areas, and this Interagency Question
and Answer is useful. However, the actual consideration provided for such loans and
investments remains unclear. We recommend that the Agencies increase the utility of this
guidance by providing some concrete examples of projects and circumstances in which loans to
non-LMI individuals will be fully considered in light of the high-cost area in which they are
made.
*
*
*
Capital One appreciates this opportunity to comment on the Agencies' CRA Questions
and Answers. Should you have any questions, please call Dorothy Broadman, Managing Vice
President, Corporate Citizenship, at 703-720-2368, or me at 703-720-2255.
Sincerely,
Christopher T. Curtis
Associate General Counsel
Policy Affairs
NAHB
NATIONAL ASSOCIATION
OF HOME BUILDERS
REGULATORY & HOUSING POLICY
DAVID A. CROWE
Senior Staff Vice President
September 10, 2007
Office of the Comptroller of the Currency
OCC Docket ID:
OCC-2007-0012
Board of Governors of the Federal Reserve System
FRB Docket ID:
OP-1290
Federal Deposit Insurance Corporation
FDIC Docket ID:
RIN 3064-AC97
Office of Thrift Supervision
OTS Docket ID:
OTS-2007-0030
Re: Community Reinvestment Act; Interagency Questions and Answers
To Whom It May Concern:
On behalf of the 235,000 members of the National Association of Home Builders (NAHB), I am writing
to offer comments on the guidance provided by the revised Interagency Questions and Answers (Q&A)
regarding the Community Reinvestment Act (CRA). The CRA was established in 1977 as a means of
ensuring that deposit-taking financial institutions offer equal access to lending, investment and services.
NAHB supports efforts to ensure that CRA credit is provided for residential mortgages, housing
production and community development lending, as well as encouraging financial institutions to address
housing finance needs in rural and underserved areas.
The Interagency Questions and Answers address frequently asked questions about community
reinvestment to assist financial institutions and the public, and thus represent an important document for
determining the incentives for and the relative attractiveness of various investments by banks and
financial institutions for CRA purposes.
Among the nine new questions in the revised Q&A is Question .23(a)-2 on page 37944 of the
Notice, as published in the Federal Register. The question reads as follows:
Section
.23(a)-2: In order to receive consideration, should an institution be able to demonstrate
that an investment in a national or regional fund with a primary purpose of community development
meets the geographic requirements of the CRA regulation by benefiting one or more of the
institution's assessment area(s) or a broader statewide or regional area that include the institution's
assessment area(s)?
The answer to this question indicates that the regulatory agencies will employ flexibility in requiring
the institution to demonstrate that the investment satisfies the geographic requirements. For example,
1201 15th Street, NW • Washington, DC 20005-2800
(202) 266-8383 • (800) 368-5242 x8383 • Fax: (202) 266-8426
the proposed answer provides the example of a national fund that provides foreclosure relief to low- and
moderate-income homeowners, provided that the manager of that fund provides written documentation
that it will use best efforts to ensure such investments benefit individuals within the investing institution's
assessment area.
Furthermore, for situations for which an investment fund does not earmark its projects and investments to
particular investors (and their relevant assessment areas), the Q&A introduces a newly documented prorata mechanism for allocating the shares of each project for determining whether the investor meets the
assessment area test.
While we applaud the flexibility offered by the agencies in this respect, NAHB believes that this
particular discussion may bias investment away from the production of affordable housing. The nation's
most important production program for affordable housing is the Internal Revenue Code Section 42 LowIncome Housing Tax Credit (LIHTC). The program provides a critical incentive for the production of
affordable rental apartments by supplying a dollar-for-dollar reduction in tax liability to investors in
exchange for equity financing. Units supported by the LIHTC are restricted to households with income
below 60 percent of area median income. The LIHTC program is administered by state housing finance
agencies. These agencies allocate tax credits through a qualified allocation plan that outlines the state's
housing priorities and the process by which developers apply for and are allocated credits.
Since the program was established by Congress in 1986, the system by which credits and investment
capital are pooled together for the purpose of the production and maintenance of affordable housing has
evolved with considerable complexity. While the tax credits generate equity for the project, this equity is
typically not sufficient to finance the cost of construction and operation without the use of debt financing.
Therefore, the equity generated by the credits must be leveraged to obtain debt financing in the form of a
first mortgage and one or more soft second mortgages (i.e. loans with low or no interest payments and for
which no principal is owed for at least 15 years).
As a means of attracting additional investment into the project, most LIHTC developers allocate the
tax credits to members of a partnership or a limited liability corporation established for the purpose of
developing affordable housing. In the stylized case, the development partnership owns the tax credit
project and consists of a general partner (the developer) and a set of limited partners. The limited
partners provide additional investment and typically arrange themselves as a separate partnership, for
which a syndicator acts as a general partner and the corporate and individual investors act as limited
partners. The syndicator acts as an intermediary or broker of the tax credits to the investors in the
project. In total, this complex arrangement provides a vehicle for the tax benefits to be traded for
investment in rent-controlled affordable housing. Given the organizational complexity of such
arrangements, LIHTC funds tend to be large in scale and regional or national in scope.
Financial institutions subject to CRA regulations play a critical role in this process as both lenders and
investors. Ensuring that these institutions receive appropriate CRA credit for these activities is, therefore,
an important policy tool for promoting investment in the Section 42 program.
NAHB believes that the pro-rata mechanism as described does not properly reward such institutions
for participating in the LIHTC program. Because of the complexity and regional financing role of LIHTC
partnerships, the broader statewide or regional assessment area is appropriate for LIHTC investments for
CRA purposes. We believe this approach is consistent with the statute and agency regulations.
Unfortunately, the Q&A directs readers to the pro-rata method, which would penalize investments in
affordable housing. For example, suppose several Manhattan banks contract to become limited partners
in a LIHTC development partnership. Most LIHTC building demand in New York City is outside of
Manhattan. Should these investments not fully receive CRA credit despite investing in an otherwise
qualified community development project for the benefit of low-income residents within the same
metropolitan area? Under the pro-rata method, the banks would only receive CRA credit for those LIHTC
projects within Manhattan or some other geographically limited bank-assigned assessment areas.
NAHB requests that CRA institutions be allowed to use the regional (i.e. state/contiguous state)
assessment areas for such national congressionally sanctioned tax programs as the LIHTC and the New
Markets Tax Credit. In this regard, a financial institution that invests in a state-specific CRA fund (e.g. a
New York LIHTC fund) should receive 100% CRA credit for such an investment, provided that the state
fund demonstrates that its investments are otherwise CRA qualified and located within the state. This
approach would be consistent with the intent and practice of the CRA, in particular the concept and use of
a "broader statewide or regional area," and reflect the complex nature of the entities that have evolved to
participate in the tax credit programs. It would also ensure that institutions subject to CRA continue to
participate in the nation's leading affordable housing program.
Thank you for considering this recommendation to the Interagency Q&A. NAHB believes that
adoption of this recommendation will protect the priority of affordable housing production within the CRA
framework. If you have any questions concerning these comments, please contact Robert Dietz, NAHB's
Tax Issues Director (202-266-8285).
Sincerely,
yr*J U***David A. Crowe
Senior Staff Vice President
Regulatory and Housing Policy Area
1201 15th Street, NW • Washington, DC 20005-2800
(202) 266-8383 • (800) 368-5242 x8383 • Fax: (202) 266-8426
Community Development
ion
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve
System
20th and Constitution Avenue, NW
Washington, DC 20551
E-mail:
regs.comments@federalreserve.gov
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
E-mail:
Comments @ FDIC. gov
Office of the Comptroller of the Currency
550 E Street, SW
Mail Stop 1-5
Washington, DC 20219
E-mail:
regs.comments@occ.treas.gov
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, Dc 20552
Attn: ID OTS-2007-0030
E-mail:
regs.comments @ ots.treas. gov
RE: Community Reinvestment Act; Interagency Questions and Answers
Regarding Community Reinvestment (Docket OP-1290-Federal Reserve; RIN 3064AC97(FDIC); Docket ID OCC-2007-0012 (OCC); Docket ID OTS-2007-0030 (OTS))
Dear Ms. Johnson:
The Community Development Bankers Association (CDBA) welcomes this opportunity
to submit comments on the above referenced proposed Interagency Questions and
Answers Regarding Community Development. CDBA is the national trade association of
the Community Development Bank (CDB) sector. CDBs are Federal Deposit Insurance
Corporation-insured banks and thrifts that have a primary mission of promoting
community development. Currently, there are approximately 50 CDBs across the nation
that are certified by the U.S. Treasury Department's Community Development Financial
Institutions (CDFI) Fund.
Our members serve urban and rural communities that lack access to credit and are not
adequately served by the traditional banking industry. CDBA strongly supports the
proposed revisions to the Interagency Questions and Answers. We believe there are
many useful additions and clarifications. In particular, we commend you for
clarifications related to community development services, service to underserved or
distressed non-metropolitan middle-income geographies, Individual Development
Accounts, New Markets Tax Credit investments, and loans made under the SBA 504
program.
We focus our comments on four proposed Q&As of particular importance to Community
Development Financial Institutions, proposed sections
.12(g)-4,
.12(g)(3)-l,
.12(h)-7, and
.23(a).
Investments in CDFIs Should Receive the Same Treatment as Investments in Minorityor Women-Owned Financial Institutions and Low-Income Credit Unions
New proposed section
.12(g)-4 would provide that "capital investments, loan
participations, and other ventures" engaged in by a majority-owned institution in
cooperation with minority- or women-owned financial institutions and low-income credit
unions will be eligible for CRA credit as long as these activities help meet the credit
needs of the communities in which the investee institution is chartered, regardless of the
geographic focus of the investing majority institution. We applaud this recognition of the
important role of minority- and women-owned financial institutions and low-income
credit unions in serving the communities in which they are located. For the reasons
discussed below, we believe identical treatment should be extended to all certified
Community Development Financial Institutions (CDFIs).
The Riegle Community Development and Regulatory Improvement Act of 1994 (PL 103325), established the Community Development Financial Institutions Fund "to promote
economic revitalization and community development through investment in and
assistance to community development financial institutions" and established the
qualifications of a CDFI (12 USC 4701). This Act post-dated the 1992 revisions to CRA
which added the section concerning minority- and women-owned financial institutions
and low-income credit unions. The Riegle statute requires: (1) that a "community
development financial institution" must have "a primary mission of promoting
community development"; and (2) "serve an investment area or targeted population." An
"investment area" is defined as a geographic area that "meets objective criteria of
economic distress . . . [and] has significant unmet needs for loans and investments." A
"targeted population" is defined as individuals or a group of individuals that "are lowincome persons; or otherwise lack adequate access to loans or equity investments." (12
USC 4702 (5), (16), (20)) In carrying out the mandate of the Riegle Act, the U.S.
Department of Treasury requires that a certified CDFI demonstrate that at least 60% of its
activities (e.g. loans, investments, services) be directed to an "investment area" or
"targeted population" as defined in the statute. By statute, a CDFI must serve the same
"low- and moderate-income neighborhoods" referred to in the CRA statute.
U.S. Department of Treasury certified CDFIs must and do in fact provide these services
specified by the 1992 revisions to CRA. In fiscal year 2005, the federal government
provided CDFIs approximately $51 million. According to the CDFI Data Project, during
that year, the 496 CDFIs responding to the Data Project survey (out of approximately 700
2
certified CDFIs) leveraged that money to make $4.3 billion in investments, including
financing and assisting over 9,000 businesses to create or maintain more than 39,000
jobs; facilitated the construction or renovation of over 55,000 units of affordable housing;
built or renovated 613 community facilities in economically disadvantaged communities;
and provided over 6,000 alternatives to payday loans and helped more than 15,000
consumers open their first bank account.1 Of CDFI customers in 2005, 52% were female,
58% minority, and 68% low-income.2
In summary, certified CDFIs both are chartered to serve—and do serve—the types of
communities that minority- and women-owned financial institutions and low-income
credit unions serve. Investments in and participations and other ventures with CDFIs
should be granted the same treatment under CRA that similar activities with minorityand women-owned financial institutions and low-income credit unions are accorded.
Investment in a Fund that Invests in Minority- or Women-Owned Financial Institutions,
Low-Income Credit Unions or Certified CDFIs Should Explicitly Be Treated the Same as
Direct Investment in Such Entities
Proposed section
.23(a) provides that investment in a fund, the purpose of which is
community development, will receive consideration for CRA credit "provided the
investment benefits one or more of the institution's assessment area(s) or a broader
statewide or regional area(s) that includes one or more of the institution's assessment
area(s)." Because proposed section
.12(g)-4 removes the assessment area limitation
for investments in minority- or women-owned financial institutions and low-income
credit unions, logic compels that investment in a fund that invests in such entities be
extended CRA consideration without regard to the assessment areas of the investing
institution, so long as the entities in which the fund invests serve the credit needs of the
communities in which those entities are chartered. We urge the agencies to make this
clear in sections
.12(g)-4,
.23(a)-l and
.23(a)-2, and to also make such
treatment applicable to funds that invest in certified CDFIs.
An Investment in a Certified CDFI Should Be Regarded Presumptively As "Promoting
Economic Development"
Section
.12(g)(3) relates to the "purpose test" that is part of the definition of
"community development." We applaud the proposed additions to this section of loans to
or investments in Rural Business Investment Companies and New Markets Tax Crediteligible Community Development Entities as presumptively promoting economic
development. We strongly urge the addition of loans to or investments in certified
Community Development Financial Institutions to the list of presumptive economic
development activities. As demonstrated above, both the statutory requirements to
become a CDFI and the actual performance of those who are certified support the
addition of CDFIs to the list.
1
"Providing Capital, Building Communities, Creating Impact, The CDFI Data Project," FY 2005 Data,
Fifth Edition, www.opportunitvfinance.net/store/product.asp?pID=81&c=34715.
2
Ibid.
3
National, As Well As Statewide or Regional Organizations Should be Eligible to Be
Considered as Addressing Assessment Area Needs
Section
.12(h)-7, in the context of defining "regional area," states that "Community
development loans and services and qualified investments to statewide or regional
organizations that have a bona fide purpose, mandate, or function that includes serving
the geographies or individuals within the institution's assessment area(s) will be
considered as addressing assessment area needs." We urge that either "national" be
added after "regional," or that "statewide or regional" be deleted. Many organizations
operate in a limited number of specific geographies in several regions of the country.
Such organizations can be at least as effective in serving an investing institution's
assessment area that includes one of the organization's geographic concentrations as a
statewide or regional organization whose activities are more diffuse across a state or
region. The Q&A provides that examiners will evaluate "actual or potential benefit to the
institution's assessment area" in deciding whether and how much credit to grant. Given
this fact-based assessment, there is no reason to exclude loans, services and investments
to national organizations from consideration. See
.12(h)-6, which is silent about the
geographic scope of "community development organizations or programs."
Once again, CDBA sincerely appreciates the opportunity to comment on the proposed
Interagency Questions and Answers.
Sincerely,
Robert M. McGill
Board Chairman
4
JAMES P. GHJGLIEKI, JR
Chairman
CYNTHIA BLANKENSHIP
Chairman- Elect
R. MICHAEL MENZ1ES
Vice Chairman
KEN F. PARSONS, SR.
Treasurer
INDEPENDENT COMMUNITY
W I U I A M C ROSACKF.R
Secretary
TERRY.!. JORDE
Immediate Past Chairman
BANKERS O/AMERICA
CAMDEN R. FINE
President a n d CEO
September 10, 2007
Office of the Comptroller of the Currency
250 E Street, SW
Mail Stop 1-5
Washington, DC 20219
Attention: Docket ID OCC-2007-0012
Jennifer J. Johnson, Secretary
Board of Governors of the
Federal Reserve System
20 th Street and Constitution Avenue, NW
Washington, DC 20551
Attention Docket No. OP-1290
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Attention: RINnumber
3064-AC97
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Attention: ID OTS-2007-0030
Re: Community Reinvestment Act - Interagency Questions and Answers
Dear Sir or Madam:
The Independent Community Bankers of America (ICBA) 1 appreciates the
opportunity to comment on the interagency proposal to update the guidance used by
banks and others for complying with the rules that implement the Community
Reinvestment Act (CRA). The CRA rules are interpreted primarily through the
Interagency Questions and Answers Regarding Community Reinvestment which provides
guidance for use by agency personnel, financial institutions and the public.
1
The Independent Community Bankers of America represents 5,000 community banks of all sizes and
charter types throughout the United States and is dedicated exclusively to representing the interests of
the community banking industry and the communities and customers we serve. ICBA aggregates the
power of its members to provide a voice for community banking interests in Washington, resources to
enhance community bank education and marketability, and profitability options to help community
banks compete in an ever-changing marketplace.
With nearly 5,000 members, representing more than 18,000 locations nationwide and employing over
268,000 Americans, ICBA members hold more than $908 billion in assets, $726 billion in deposits, and
more than $619 billion in loans to consumers, small businesses and the agricultural community. For
more information, visit ICBA's website at www.icba.org.
INDEPENDENT C O M M U N I T Y
BANKERS
of A M E R I C A N Nation'sVoice for Community Bank
1615 L Street NW, Suite 900, Washington, DC 20036 • (800)422-8439 • FAX: (202)659-3604 • Email: info@icba.org • www.icba.org
2
The Office of the Comptroller of the Currency (OCC), the Board of Governors of
the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of
Thrift Supervision (OTS) ("the agencies") propose to update the existing interagency
CRA questions-and-answers. The proposed revisions would combine past guidance, add
new guidelines for "intermediate small savings associations" to reflect changes to OTS'
rules, make several technical changes, and add nine new Q&As. Overall, the changes,
some technical and some substantive, are designed to reflect changes to the rules since
updates were last published. For example, new guidelines would be issued on bank
investments in minority- or women-owned financial institutions, community
development activities and CRA credit for helping homeowners facing foreclosure.
Finally, to help readers, the agencies also plan to issue an index by topic when the
final rules are put into place. ICB A welcomes the addition of an index since it will help
community banks locate appropriate information and make the Q&A easier to navigate.
ICBA also suggests the agencies consider adding a table of contents.
Overview of ICB A Comments
Generally, ICBA supports the proposed changes. Overall, the changes will help
clarify the application of the rules and facilitate compliance. However, ICBA also
recommends several adjustments to the final guidance, as more fully detailed below. For
example, while we support the ability of community banks to support minority- and
women-owned institutions outside their investment areas, we encourage the agencies to
stress that priority should still be given to activities that benefit the bank's own
assessment area.
We support the expanded list of activities that benefit community development,
such as the Small Business Administration 504 program. ICBA encourages the agencies
to continually publish the existence of such programs to banks they supervise along with
the fact that favorable CRA credit is available and how banks can participate in these
programs. ICBA also encourages the agencies to continue to evaluate and publish
additional programs as they become available.
Since many community banks rely on participating with other financial
institutions in lending programs, ICBA welcomes opportunities for participations that
will grant CRA credit. However, we urge the agencies to take a consistent approach and
only count the amount outstanding actually on a bank's ledger when a bank purchases a
loan participation. While the origination amount may need to be considered for
classification purposes, only the actual balance should be considered for CRA evaluation.
ICBA supports the option that allows community banks to invest in pooled funds
of investments or loans and still receive CRA credit. However, we also encourage the
agencies to carefully evaluate how these funds are treated. Allowing some banks to
segregate portions of the pooled fund under "side letters" undermines the purpose and
goal for creating these funds in the first place.
Finally, ICBA strongly supports efforts to encourage banks to work with
borrowers facing foreclosure in the current real estate markets. While community banks
I N D E P E N D E N T C O M M U N ITY B A N K E R S Of ASA E RICA The Nation's Voice for Community Banks
1615 L Street NW, Suite 900, Washington, DC 20036 • (800)422-8439 * FAX: (202)659-3604 • Email: info@icba.org • www.icba.org
3
generally do not engage in the practices that have created the problems facing many
communities across the United States as foreclosure rates rise, the nation's community
banks are well-capitalized and ready to be part of the solution to the problem.
New Questions and Answers
1. Investment in Minority- or Women-Owned Financial Institutions and Low
income Credit Unions. The CRA statute allows the agencies to consider a capital
investment, loan participation, and other ventures of a bank or thrift that are carried out in
cooperation with a minority- or women-owned financial institution or low-income credit
union as long as the activity helps meet the credit needs of the local community where the
latter institution is chartered.
Generally, the CRA performance of a bank or thrift is evaluated based on its
activities in its own assessment area or a broader statewide or regional area that includes
its assessment area. The proposal would clarify that the institution making the
investment or purchasing the loan participation (the majority-owned institution) would
receive favorable CRA consideration even if the minority- or women-owned financial
institution or low-income credit union is not located in or the activities do not benefit the
majority-owned institution's assessment area. In other words, an activity or transaction
by a bank or thrift with a minority-owned financial institution, a women-owned financial
institution or a low-income credit union - no matter where the latter is located - will
receive favorable CRA consideration (provided, of course, that the activities help meet
the credit needs of the local community where the minority- or women-owned institution
or low-income credit union is chartered).
ICBA Position. ICBA supports the clarification since the proposed new Q&A
will be helpful. Banks in small communities will find this especially useful since
opportunities for investment or transactions with minority or women-owned financial
institutions may not be available within the bank's own assessment area. This type of
guidance would have been especially useful in the immediate aftermath of Hurricanes
Katrina and Rita, and ICBA believes that this guidance will definitely be beneficial going
forward. However, ICBA also recommends that the agencies provide examples in the
final guidance to help outline what is meant by "other transactions" and "ventures."
ICBA believes the final rule also should stress that any investments or
transactions with minority-owned or women-owned financial institutions outside the
bank's assessment area should only be conducted if they can be done in a safe-and-sound
manner and not to the detriment of activities in the bank's own assessment area,
especially where there are ample opportunities for community development activities
locally. In other words, while ICBA fully supports this guidance, there needs to be a
careful balancing so that a bank does not receive CRA credit for investing outside its
assessment area when opportunities for local investment are readily available.
ICBA also urges the agencies to continue evaluating other instances where it
might be appropriate to grant CRA credit for investments and other activities outside the
bank's own assessment area or larger region that includes that assessment area. With the
I N D E P E N D E N T C O M M U N ITY B A N K E R S Of ASA E RICA The Nation's Voice for Community Banks
1615 L Street NW, Suite 900, Washington, DC 20036 • (800)422-8439 * FAX: (202)659-3604 • Email: info@icba.org • www.icba.org
4
growing use of Internet and call center activities, and the expanding reach allowed by
new and evolving technologies, banks are finding it increasingly simple to reach markets
outside their immediate assessment areas. While an institution's primary focus is often
geographically aligned with its branch network, restricting CRA qualified activities to
those geographies may unduly limit community outreach opportunities. For example,
given the current situation in mortgage markets, some banks that have developed
appropriate solutions for disadvantaged borrowers might be encouraged to reach beyond
their immediate assessment area to expand that assistance. Given current restrictions
under CRA, that is less likely. While some limitations are appropriate, added flexibility
would be helpful.
Finally, to help community banks identify qualified minority- and women-owned
institutions, ICBA believes it would be helpful if the agencies, possibly on the FFIEC
website, identified institutions that qualify for this type of activity. That will avoid any
questions and will help community banks locate opportunities. Without such assistance,
it might be difficult for community banks - especially smaller institutions with limited
resources - to reach out to these institutions.
2. Intermediate small institutions' affordable home mortgage loans and small
business and small farm loans. Intermediate small institutions are not required to
collect data on small business or small farm loans. Moreover, some of these institutions
may not have to collect information under HMDA. The proposal would allow banks
evaluated under the intermediate small institution test to have such loans evaluated as
community development loans (as long as the loans meet the regulatory requirements for
"community development") OR as small business, small farm or residential mortgage
loans (as applicable). The bank would notify the examiner about its choice before the
beginning of a CRA exam.
ICBA Position. ICBA believes that this clarification is helpful since it offers
additional flexibility for intermediate small banks. ICBA also finds that allowing this
type of flexibility useful for CRA evaluations. However, ICBA recommends that the
final guidance clarify whether the classification of a loan is limited to the time the loan
originates or whether it can be changed during the life of the loan. ICBA also
recommends that the final guidance clarify whether a bank must adopt a single
classification for all loans within the bank's loan portfolio or whether it can categorize
individual loans within its portfolio differently. And finally, it would be helpful if the
final guidance specifies whether this classification has any impact on a bank's
commercial real estate (CRE) classification.
3. Examples of "other loan data." The CRA rules state that loan originations,
purchases and "other loan data" the bank may provide will be considered as part of the
CRA evaluation. The agencies are proposing a new Q&A that lists in one place the
various activities that may be provided to examiners as "other loan data." As proposed,
the list of "other loan data" would be:
•
•
loan consolidations
loans funded for sale to the secondary market not reported under HMDA
I N D E P E N D E N T C O M M U N ITY B A N K E R S Of ASA E RICA The Nation's Voice for Community Banks
1615 L Street NW, Suite 900, Washington, DC 20036 • (800)422-8439 * FAX: (202)659-3604 • Email: info@icba.org • www.icba.org
5
•
•
•
•
•
unfunded loan commitments and letters of credit
commercial and consumer leases
loans secured by non-farm residential real estate (not taken as an abundance of
caution) used to finance small business or small farm loans that are not
reported as small business or small farm loans or under HMDA
loans that are not primarily for community development but where a certain
amount is set aside for affordable housing
an increase to a line of credit that causes a small business or small farm loan
to exceed the threshold for reporting ($1,000,000 for a small business loan or
$500,000 for a small farm loan)
ICBA Position. ICBA finds it helpful to consolidate in one place all the various
activities that might be considered under "other loan data." Specific examples are
always helpful, and the list will both make it easier to understand what is meant and also
make it easier to locate the examples by consolidating them in one place. Generally,
ICBA finds the list of examples helpful.2 However, ICBA recommends that the final
guidance clearly articulate that the list is not exclusive but illustrative.
4. Purchased Loan Participations. The proposal would clarify that a loan
participation is treated as the purchase of a loan. The bank would only report the portion
of the loan that it purchases, unless the loan is a small business or small farm loan. If the
bank purchases a small business or small farm loan in whole or in part, then following the
instructions on the call report or the TFR (thrift financial institution report), the bank
reports the amount at origination (Question 42(a)(2)-l).
ICBA Position. ICBA believes that this guidance is helpful and that it is
appropriate that a bank would only report the amount of the loan actually purchased.
The proposal is reasonable, provides clarification and makes it simpler to understand.
The guidance will also ensure consistent treatment by both bankers and examiners.
However, ICBA is concerned that the exception for reporting loan participations
involving small business or small farm loans, where the bank would report the amount of
the loan originated, might cause confusion. Applying a different treatment through the
exception also increases the potential for error. While ICBA appreciates the different
classification for call report analysis, ICBA believes that it might be cleaner, less
confusing and easier for CRA compliance to treat all loans similarly.
While it is important to track the amount of the loan at origination for
classification purposes and to ascertain whether it meets the necessary thresholds to
actually be a small farm or small business loan, for CRA purposes the amount purchased
ICBA recognizes that the thresholds for small business and small farm loans are set to
coordinate with other rules. However, given the expenses associated with small farm loans,
including the price of land, equipment and so forth, the agencies consider taking whatever steps
are needed to increase the threshold from $500,000 to $1,000,000. A uniform threshold would
simplify compliance while increasing the threshold for small farm loans would better reflect
current realities.
I N D E P E N D E N T C O M M U N ITY B A N K E R S Of ASA E RICA The Nation's Voice for Community Banks
1615 L Street NW, Suite 900, Washington, DC 20036 • (800)422-8439 * FAX: (202)659-3604 • Email: info@icba.org • www.icba.org
6
should be all that counts. Therefore, the final rule should provide that for CRA analysis
where there is a loan participation the bank only reports the part that it purchases.
If the bank originates the loan, then additional credit should be granted for the
effort needed to put together the original loan package. On the other hand, if a bank only
purchases a portion of the original loan, the purchased amount should be the only amount
reported for CRA purposes.
5. Small Business Loan Secured by a One-to-Four Family Residence. There
are instances when a one-to-four family residence may be taken as collateral in
connection with a small business or small farm loan. If the collateral is taken in an
abundance of caution and the terms of the loan are not more favorable due to the lien, the
loan should be reported as a small business or small farm loan. However, as a result of
changes under the requirement for reporting refinancings under HMD A, that same loan
may also be reported under HMDA. While the agencies recognize this is one occasion
where reporting the loan as a small business or small farm loan and under HMDA may
lead to double counting of the same loan for CRA, they do not believe such double
counting will be significant, especially since the loan would be reported under HMDA
only if the purpose of the loan is home purchase or home improvement.
ICBA Position. ICBA does not believe that this interpretation will present a
problem and agrees that the number of loans affected is likely to be minimal. ICBA
does recommend, though, that the final guidance include a reminder that a refinance of a
business loan that includes the business owner's home should be reported on the bank's
HMDA-LAR and that, while it may be counted for both HMDA and CRA purposes, that
will not cause the bank to be non-compliant with either rule. ICBA also urges the
agencies to include this guidance in the guidance for HMDA reporting so that both rules
are consistent.
6. Investment in a National or Regional Fund. If a bank makes a loan or
investment in a national or regional community development fund, it should be able to
demonstrate that the investment meets the geographic requirements of CRA (that the
investment benefits the bank's assessment area or broader statewide or regional area that
includes the bank's assessment area). The proposal would clarify that banks have
flexibility to demonstrate the geographic requirement has been met. For example, written
documentation from the fund's managers indicating the fund will use its best efforts to
invest in a qualifying activity that meets the geographic requirements may be used.
Similarly, a fund might earmark all projects or investments to investors in specific
assessment areas (the same investment or project could not be assigned to more than one
bank). If the fund cannot earmark specific projects, it can use an allocation method to
recognize that each investor bank has an undivided interest in all projects in a fund.
ICBA Position. In an informal survey of community banks, few report using this
type of investment vehicle to satisfy their CRA requirements. However, ICBA believes
that it is fully appropriate to maintain this as an option. The community banks that do use
the option report that it facilitates investments where there may be a lack of appropriate
opportunities in the bank's immediate assessment area or that it helps the bank diversify
I N D E P E N D E N T C O M M U N ITY B A N K E R S Of ASA E RICA The Nation's Voice for Community Banks
1615 L Street NW, Suite 900, Washington, DC 20036 • (800)422-8439 * FAX: (202)659-3604 • Email: info@icba.org • www.icba.org
7
its investment portfolio. Keeping this option available and encouraging banks to consider
it offers additional avenues for banks to reach out to help local communities - the
hallmark of the nation's community banks.
ICBA agrees that the proposed approach provides sufficient flexibility.
However, ICBA does have concerns with allowing fund managers to allocate specific
investments to specific institutions. One of the main reasons to encourage pooled funds
is to address the problem that arises if a larger institution with ample resources can
identify and "cherry-pick" investments and activities, making it difficult for smaller
institutions with fewer resources to actually access community development
opportunities. This is especially true where the opportunities in a given assessment area
are limited. Creating a fund helps address this problem. However, if some banks can
segregate out certain elements of the fund, that segregation diminishes the appeal for
investing in the fund. By pulling investments out of the total fund by assigning them to
individual banks through "side letters," the rule would create an unintended consequence
and help defeat the purpose for the pool. In other words, this arrangement would further
the vicious cycle that places smaller institutions at a disadvantage when seeking
community development investments. If there is a pooled investment fund then
individual investments should not be segregated from the pool.
7. Examination as an Intermediate Small Institution. When a bank transitions
to a large institution, the agencies allow a one-year lag period before a bank is examined
under the large institution standards. The lag allows the bank to adjust to the data
collection and reporting requirements required under the large bank standards. The
proposal would clarify that there is no comparable lag period after a bank transitions from
small institution to intermediate small institution since the data collection and reporting
requirements do not come into play.
ICBA Position. ICBA agrees that it is not necessary to create the same lag for
transition from a small institution to an intermediate small institution as is needed
when a bank transitions into the large institution category. However, because there are
distinctions between a small institution and an intermediate small institution, ICBA
strongly encourages the agencies to contact individual banks as they approach the
transition threshold from small institution to intermediate small institution to help educate
them about the community development activities associated with intermediate institution
requirements.
8. Reporting a Participation in a Community Development Loan. The CRA
rules require a bank to report the aggregate number and aggregate amount of community
development loans originated or purchased. A new Q&A would clarify that banks that
purchase community development loan participations would only report the amount of
the purchase (and not the entire loan origination). Note that this is different from the
requirements that apply to small business and small farm loan participation purchases
(Question 42(b)(2)-4).
ICBA Position. As noted above, ICBA is concerned that different treatment
between community development loans and small business/smallfarm loans will be
I N D E P E N D E N T C O M M U N ITY B A N K E R S Of ASA E RICA The Nation's Voice for Community Banks
1615 L Street NW, Suite 900, Washington, DC 20036 • (800)422-8439 * FAX: (202)659-3604 • Email: info@icba.org • www.icba.org
8
confusing. While ICBA agrees that it is appropriate to have banks report only the
purchased portion of a loan, ICBA believes that for CRA purposes the treatment should
be consistent and that only the portion of the loan that a bank maintains on its books
should be counted. If the bank originates the loan, it should be given credit for the steps
needed to originate the loan when the examiners evaluate the overall loan. But for
aggregation purposes, ICBA recommends that only the portion purchased or retained be
counted. Consistent treatment is especially important for smaller institutions that may
not deal with these transactions on a daily basis - where exceptions and different
treatment can possibly lead to error. Moreover, ICBA finds that in this situation,
different treatment and the ensuing confusion can be a source of unnecessary regulatory
burden.
9. Refinanced or Renewed Community Development Loans. A final new
Q&A would clarify that the same limits for reporting refinancings and renewals of small
business and small farm loans would also apply to refinancings and renewals of
community development loans. Generally, a bank reports only one community
development loan origination for a loan during a single year, including a renewal or
refinancing of the loan if the loan is originated and renewed or refinanced in the same
year. However, if the loan amount increases when it is renewed or refinanced in the same
year the loan is originated, then the increase would also be reported.
ICBA Position. Generally, ICBA finds this proposed guidance useful. The
proposal is sensible and reflects the reality of the transaction. However, ICBA is
concerned about how the guidance will actually be applied. Since the goal is to avoid
duplicate reporting, ICBA believes a simpler approach might be possible. Instead of
considering whether a loan is refinanced in the same calendar year in which it was
originated, a simpler method would be to consider only the amount of time elapsed since
the loan originated. The proposal considers using the calendar year so ICBA
recommends a one-year timeframe. If a loan is refinanced within one year of origination,
then only the original transaction would be reported. If the loan is refinanced within one
year but the principal balance is increased, the increased amount would be reported
separately. That would avoid the needing to consider whether a refinance occurred
during the same calendar year.
Revised Questions and Answers
In addition to the preceding nine new Q&As, the agencies also propose to revise
several existing Q&As. In many instances, these changes merely clarify existing
guidance by conforming the guidance to revisions to the regulations, improving
readability, or adopting current terminology.
Activities that Promote Economic Development. The proposal would clarify
existing language and add loans or investments in Rural Business Investment Companies
(RBICs) and New Markets Tax Credit-eligible Community Development Entities (CDEs)
as types of loans or investments considered as promoting economic development.
I N D E P E N D E N T C O M M U N ITY B A N K E R S Of ASA E RICA The Nation's Voice for Community Banks
1615 L Street NW, Suite 900, Washington, DC 20036 • (800)422-8439 * FAX: (202)659-3604 • Email: info@icba.org • www.icba.org
9
ICBA Position. ICBA supports this guidance since we believe this is an
important option and that banks should be encouraged to participate in these activities.
ICBA encourages the agencies to publicize these transactions and the fact that they will
be positively considered for CRA purposes.
Examples of Community Development Loans. A loan to a New Markets Tax
Credit-eligible CDE would be added as an example of a community development loan.
Another new example would add loans over $1 million made through the Small Business
Administration's (SBA) 504 Certified Development Company program, based on the
agencies' understanding that loans to businesses through the 504 program have
community development as a primary purpose.
ICBA Position. ICBA supports this change and also encourages the agencies to
publicize both the existence of these programs and the fact that they will be positively
considered under CRA. Because the documentary requirements for some SB A programs
can be daunting for smaller institutions with limited resources, ICBA encourages the
agencies to offer simple guidelines that will facilitate banks' participating in the
programs.
ICBA also believes that there are other programs that the agencies should
consider including. For example, there are both Federal Home Loan Bank programs as
well as USDA guaranteed loan programs for rural housing that should be added.
Especially with the current mortgage markets, any affordable loan programs should be
given serious consideration. In addition, there are farm credit programs and Farmers
Home Administration business and industry guaranteed programs that should be
included. Since one of the goals of the recent revisions to the rules is to encourage banks
to reach out to encourage economic development in rural and underserved communities,
any federal loan programs that encourage such activities should also be added. It would
also be useful if the final rule makes it clear that any list that is developed is illustrative
and not exclusive.
Examples of Community Development Services. A new example would state
that opening or maintaining branches and other facilities that help revitalize or stabilize
low- or moderate-income geographies, designated disaster areas, or distressed or
underserved non-metropolitan middle-income geographies is an example of a community
development service - unless the opening or maintaining of the branch or other facilities
has been already considered as part of the evaluation of the bank's retail services.
ICBA Position. ICBA generally agrees with this approach. Opening and closing
branches, especially in low and moderate income areas, can have a significant impact on
the economic vitality of those areas. However, it is important to recognize that other
factors, including the safety and soundness of the operation of a particular branch as well
as the profitability of the branch and its fit within the overall market strategy of the bank
must also be given weight in the evaluation. If there are valid reasons, a bank should not
be penalized for closing a branch in a certain neighborhood simply because it is a low or
moderate-income neighborhood.
I N D E P E N D E N T C O M M U N ITY B A N K E R S Of ASA E RICA The Nation's Voice for Community Banks
1615 L Street NW, Suite 900, Washington, DC 20036 • (800)422-8439 * FAX: (202)659-3604 • Email: info@icba.org • www.icba.org
10
Federal Home Loan Bank (FHLB) Unpaid Dividends. Since the 1995
revisions to CRA, the agencies have agreed that FHLB stock does not have a sufficient
connection to community development to be considered as a qualified investment for
CRA purposes. The revisions would clarify that the required annual Affordable Housing
Program (AHP) contributions of the FHLBs also are not considered qualified investments
for FHLB shareholders since they are not investments by FHLB shareholders but
investments by the FHLB.
ICBA Position. ICBA agrees that simply belonging to a Federal Home Loan
Bank should not be given credit under CRA. However, it is important to distinguish
membership in an FHLB is different from participating in certain FHLB programs,
especially those that benefit affordable housing. Where the bank is directly
participating in an affordable housing program offered by the FHLB that should be given
credit under CRA. In fact, it should be encouraged under CRA, since such activities
actually further the underlying intent of CRA.
Responsive Lending Activities. The existing answer would be revised to
highlight that establishing loan programs that provide relief to low- and moderate-income
homeowners facing foreclosure is another type of lending that warrants favorable
consideration for responding to the needs of the bank's assessment area. And, the
example of community development services that describes various types of consumer
counseling would be revised to highlight credit counseling that can help borrowers avoid
foreclosure on their homes.
ICBA Position. ICBA supports this step. Generally, community banks originate
traditional 30- and 15-year mortgages and avoid the subprime market. Community banks
also traditionally provide solid credit advice and counseling to their customers and match
each customer's need for credit with the product that best fits that customer.
The nation's community banks are weathering the current credit storm because
they are well run, highly capitalized and among the most highly regulated financial
institutions in the country. While in recent years, some lenders have been more concerned
with which loan was best for them, community banks have always been concerned with
which loan is best for their customers. Community banks remain well-positioned to
make the loans that small businesses and consumers need and welcome a return to the
common-sense underwriting that they have always offered.
While community banks generally shun the types of products that have created
problems, community banks also stand ready to help customers avoid foreclosure. In
those instances when a community bank has a customer who has a problematic loan that
was originated by another lender, the community bank will offer counseling, refinancing
and financial education to help customers. Encouraging these types of activities through
favorable CRA credit is an added benefit, and ICBA supports this element of the
proposal.
Assessment Areas May Not Extend Substantially Beyond Metropolitan
Statistical Area (MSA) Boundaries. Proposed changes would reflect changes in the
I N D E P E N D E N T C O M M U N ITY B A N K E R S Of ASA E RICA The Nation's Voice for Community Banks
1615 L Street NW, Suite 900, Washington, DC 20036 • (800)422-8439 * FAX: (202)659-3604 • Email: info@icba.org • www.icba.org
11
standards the OMB uses to designate an MSA as well as the fact that the designation of
consolidated MSAs (CMSAs) has been eliminated. The agencies have not adopted the
terminology for a combined statistical area (CSA), although they indicate there may be
instances when a bank could elect to use the CSA to determine its assessment area.
ICBA Position. ICBA does not object to the proposed guidance. However, while
an informal survey of community banks did not find instances where banks had run into
problems with the definition of an MSA, ICBA believes it is important that examiners
recognize disparities in income levels can occur depending on how an MSA is defined.
For example, in 2007, median income in the Kansas City, Kansas, MSA is $67,500 but
the median income for rural Kansas is $47,900. This difference expands the moderate
income threshold for a lender originating a loan in what used to be outside the MSA that
is now in the MSA. Therefore, examiners need to be sensitive to the median income for
an area at the time the loan was originated and not at the time the examiner is evaluating
the bank.
Innovativeness and Complexity. The guidelines would clarify that
"innovativeness" and "complexity" are not factors in the community development test
applicable to intermediate small institutions. (Question 21(a)-2). Another change would
provide that "the performance criterion of innovativeness applies only under the lending,
investment, and service tests applicable to large institutions and the community
development test applicable to wholesale and limited purpose institutions" (Question 281). The answer reaffirms that lack of those qualities will not automatically produce a
"needs to improve" rating; rather, those qualities "may augment the consideration given
to an institutions' performance under the quantitative criteria of the regulations, resulting
in a higher performance rating."
ICBA Position. ICBA supports this guidance. It is important examiners clearly
understand that many loans which may not be innovative or complex can be significant
and important to providing appropriate resources for the local community - and that
over-emphasis on innovation and complexity may actually undermine the underlying
purpose of CRA. Similarly, it should be stressed to both examiners and bankers that
outstanding loans or investments made during a prior period that continue to provide a
benefit to the local community should not be discounted or ignored merely because they
pre-date the existing evaluation period.
Additional Factors for the Agencies to Consider. The agencies have also
requested whether there are additional items that should be considered going forward.
ICBA recommends that community investments in local projects that benefit the
entire community, such as investments or donations to local government or quasigovernmental organizations, schools, civic, philanthropic, and other worthwhile local
organizations receive CRA credit. While it might not always be possible to directly tie a
particular activity to low- and moderate-income segments of the community or
individuals, activities that benefit the entire community - where the community includes
low- and moderate-income individuals or areas - should be granted CRA credit. This is
especially important where local areas do not have separate and distinct low- or
I N D E P E N D E N T C O M M U N ITY B A N K E R S Of ASA E RICA The Nation's Voice for Community Banks
1615 L Street NW, Suite 900, Washington, DC 20036 • (800)422-8439 * FAX: (202)659-3604 • Email: info@icba.org • www.icba.org
12
moderate-income census tracts. Apparently, not all examiners support this concept and
ICBA recommends that this be clearly stated by the agencies.
Second, additional flexibility should be given to the assessment area. Given the
modern economy and strategies being pursued or considered by financial institutions, the
relevance of the assessment area is diminishing. While, an assessment area designation
certainly facilitates the review of CRA by a regulator as it establishes a finite base against
which the bank is judged, a CRA assessment area should not of itself serve as an
impediment to strategic decisions. A decision to make a loan or not make a loan should
not be based on whether the transaction is inside or outside the assessment area. As
technology, economic factors, competition and other influences evolve, this assessment
area issue will become a growing obstacle for some institutions. While the assessment
area should serve as a base in analyzing CRA performance, an institution should not be
limited to activities only in that assessment area or be discounted in grade if a particular
activity occurs outside but not inside an assessment area in a particular year. The
regulatory approach should be balanced.
Third, it is important to stress to both bankers and examiners that transactions or
activities - whether for CRA or otherwise - are always to be undertaken in a safe and
sound manner and that safety and soundness always comes first.
Finally, ICBA urges the agencies to ensure that the guidelines are simple and
easily applied. Most community banks are successful because they are integral parts of
their local communities. Their success depends on the success of the community.
Conclusion
Generally, ICBA supports the proposed changes as they will help clarify the
guidance and make it easier for community banks to understand what constitutes
compliance with the requirements. ICBA welcomes the agencies continued and ongoing
attention to CRA and welcomes the opportunity to continue working with the agencies on
streamlining the requirements and eliminating unnecessary burdens. ICBA urges the
agencies to continually focus on the fundamental premise of the statute: local deposits
should be used to benefit local communities.
Thank you for the opportunity to comment. If you have any questions or need
additional information, please contact the undersigned by telephone at 202-659-8111 or
by e-mail at robert.rowe(a>icba.org.
Sincerely,
Robert G. Rowe, III
Regulatory Counsel
I N D E P E N D E N T C O M M U N ITY B A N K E R S Of ASA E RICA The Nation's Voice for Community Banks
1615 L Street NW, Suite 900, Washington, DC 20036 • (800)422-8439 * FAX: (202)659-3604 • Email: info@icba.org • www.icba.org
?fto
1120 Connecticut Avenue, NW
Washington, D C 20036
1-800-BANKERS
www.aba.com
AMERICAN
BANKERS
ASSOCIATION
World-Class Solutions,
Leadership & Advocacy
Since 1875
Paul A. Smith
Senior Counsel
Phone: 202-663-5331
Fax: 202-828-4548
psmith@aba.com
September 10, 2007
Via Email
Jennifer J. Johnson, Secretary
Board of Governors of the Federal
Reserve System
20th St and Constitution Ave., NW.
Washmgton,DC 20551.
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW.
Washington, DC 20429
Office of the Comptroller of the
Currency
250 E Street, SW, Mail Stop 1-5
Washington, DC 20219
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW.
Washington, DC 20552
Re:
FDIC RIN No. 3064-AC97; FRB Docket No. OP-1290; OCC Docket
OCC-2007-0012; OTS OTS-2007-0030; Proposed Revisions to the CRA
Q&A; 72 Federal Register 37921; July 11, 2007
Ladies and Gentlemen:
The American Bankers Association (ABA) appreciates the opportunity to comment
on the revisions to the Community Reinvestment Act (CRA) Interagency Questions
and Answers proposed by the Office of the Comptroller of the Currency (OCC), the
Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC),
and the Office of Thrift Supervision (OTS) (collectively, the Agencies). We
appreciate the Agencies' efforts to provide additional guidance and clarity regarding
issues that have arisen since the Questions and Answers last were revised.2
The Agencies propose a number of changes and additions to the Questions and
Answers. Many of the changes are technical. However, the Agencies propose to add
a number of new questions and the OTS makes changes in questions about
Intermediate Small Savings Associations (resulting from conforming the OTS rules
with the rules of the other agencies). Finally, the Agencies propose to provide an
index to the questions, since some questions apply to multiple topics.
1
The ABA, on behalf of the more than two million men and women who work in the nation's banks,
brings together all categories of banking institutions to best represent the interests of this rapidly
changing industry. Its membership—which includes community, regional and money center banks
and holding companies, as well as savings associations, trust companies and savings banks—makes
ABA the largest banking trade association in the country.
2
The OCC, FRB, and FDIC issued revised Questions and Answers on July 12, 2001 (66 FR 36620)
which have not been updated since. The OTS last issued revised Questions and Answers on
September 5, 2006 (71 FR 52375).
General Comments
ABA supports all of the proposed changes, with only minor recommendations as noted below.
Specific Comments
1. Investments in minority- and women-owned institutions without regard to investing institution's
assessment area
The proposed Question and Answer would state that activities engaged in by a majority-owned
financial institution with a minority- or women-owned financial institution or a low-income credit
union that benefit the local communities where the minority- or women-owned financial institution
or low-income credit union is located will be favorably considered in the CRA performance
evaluation of the majority-owned institution. The minority- or women-owned institution or lowincome credit union need not be located in, and the activities need not benefit, the assessment
area(s) of the majority- owned institution or the broader statewide or regional area that includes its
assessment area(s).
This Question and Answer implements authority given to the Agencies by Congress more than a
decade ago. In fact, ABA requested that the Agencies issue just such an interpretation by letter
dated October 14, 1999. ABA supports the proposal.
ABA notes that the National Community Reinvestment Coalition, by letter dated August 30, 2007,
requests that the Agencies limit such majority-owned institutions' investments in minority- and
women-owned institutions to being counted only if the investing institution has already adequately
met the credit needs of its own community. ABA opposes this request. As ABA noted in its
original letter to the Agencies, the Congress in adding this special provision to the Community
Reinvestment Act did not limit its application geographically, precisely to provide the maximum
encouragement for assistance for minority- and women-owned institutions, wherever the majorityor minority- or women-owned institution might be located. Such an unnecessary requirement
would have a chilling effect on otherwise positive responses to the proposed change. ABA believes
that such a restriction would essentially mean that minority- or women-owned institutions would
rarely, if ever, benefit from this special provision added by Congress, added because the Congress
believed that supporting such institutions was a very important goal. ABA recommends that the
Agencies adopt the CRA Question and Answer as proposed, and in fact joins with the
National Bankers Association in urging the Agencies to codify the substance of this
Question and Answer into the text of the CRA regulations.
2. Intermediate Small Institution's (ISI) treatment of home loans and small business and small farm
loans for the Community Development (CD) test
The proposed Question and Answer would permit an intermediate small institution to choose to
have home loans and small farm and small business loans evaluated as community development
loans, if the loans otherwise meet the regulatory definition of "community development."
Otherwise, the existing Questions and Answers would require that these loans be treated as home,
business or farm loans, with no recognition of their CD value. ABA supports the proposed
change, as it allows institutions that have done an excellent job in community lending to
apportion loans that also qualify as CD loans to the CD test.
3. Examples of "other loan data" that institutions might provide for CRA consideration
2
This Question and Answer will consolidate all information in the Questions and Answers on
additional data that institutions might supply to examiners, including data on loans over $1 million
that are not small loans or CD loans but which the institution believes have a significant community
value that should be considered as part of the CRA evaluation. ABA has long urged recognition by
the Agencies that the CRA is about serving the credit needs of the entire community, not just the
LMI areas. Accordingly, ABA supports this proposal but recommends that the Agencies
provide additional clarification as to the weight of this other loan data.
Our bankers tell us that loans or loan equivalent transactions reported in "other loan data,"
including home mortgage loan modification, extension, and consolidation agreements ("MECAs"),
lines of credit ("LOCs"), and mixed-use loans with an affordable housing component of less than
50%, are treated as the functional equivalent of loans under safety and soundness and accounting
regulations, but they do not receive the same treatment under CRA as do home, small business, and
small farm loans. This examiner bias against loans reported in "other loan data" needs to be
eliminated by clarifying that loans considered at the option of the bank in "other loan data" deserve
equal weight with other reported loans. ABA notes that the Agencies state in Question and Answer
§ .22(a)(2)—3 that MECAs are the equivalent of refinancings in some states, and that therefore
examiners will consider MECAs, if provided other loan data on them. While this appears to tell
examiners that MECAs are to be treated the same as loan refinancings, bankers tell us that they
often are not.
These bankers believe that consideration of these types of credit as "other loan data" may result in
being less valued than other loans. As one example, while letters of credit are generally issued as
credit enhancements rather than funding in the ordinary course of business, such credit
enhancements are generally necessary in order for the deal to be done. Since the Question and
Answer § .22(a)(2)—1 states that LOCs should be considered separately from loans, this suggests
that examiners should consider them as less valuable than loans when often they are just as essential.
Another example is the project with less than 50% affordable housing. Local governments set their
own housing policy, and typically use specific project subsidies. As a result, these subsidies may not
be targeted to projects with more than 50% affordable housing, because many local governments
favor mixed-income housing over exclusively low-income housing. They have concluded that
mixed-income developments provide opportunities that make affordable housing development
more economically feasible, and mixed-income housing better serves the creation of economically
integrated communities. Thus, affordable housing projects offered to banks often will not meet the
more than 50% test. We do not believe that these loans should be treated as less valuable under
CRA when they clearly are addressing the credit needs of the community and the local government.
ABA recommends that the Agencies add language to the "other loan data" Question and
Answer that clarifies for examiners and bankers that these other loans are weighted equally
with "the loans" reported under the CRA and HMDA regulations and that LOCs should not
be considered separately from the loans.
4. Purchased loan participations
Community groups have argued that purchased loan participations are not as CRA-worthy as
originated loans. The Agencies disagree, no doubt influenced by the actual wording of the
Community Reinvestment Act, which refers to helping to meet the credit needs of the entire
community. Since a loan participation provides the same amount of credit to the community as
does the originated loan, ABA sees no justification for treating the two differently. ABA hopes that
this proposed Question and Answer settles this clearly and finally. Although the question will be
3
part of the large bank test questions, the answer applies to ^//banks and all CRA exams.
Accordingly, ABA supports the proposal.
5. The treatment of small business and small farm loans subject to the "refinancing" definition
under HMDA
Because refinancing a business or farm loan secured by a dwelling results in a reportable refinancing
pursuant to the Home Mortgage Disclosure Act (HMDA), even though the original loan was not
HMDA-reported, confusion reigns over whether loans are being misclassified for CRA purposes
and whether there is any "double-counting." The Agencies propose to state that a loan of $1 million
or less with a business purpose that is secured by a one-to-four family residence is considered a
small business loan for CRA purposes only if the security interest in the residential property was
taken as an abundance of caution and where the terms have not been made more favorable than
they would have been in the absence of the lien. If this same loan is refinanced and the new loan is
also secured by a one-to-four family residence but only through an abundance of caution, this loan
will be reported not only as a refinancing under HMDA but also as a small business loan under
CRA. (Small farm loans are similarly treated.)
It is not anticipated that "double-reported" loans will be so numerous as to affect the typical
institution's CRA rating. In the event that an institution reports a significant number or amount of
loans as both home mortgage and small business loans, examiners will consider that overlap in
evaluating the institution's performance and generally will consider the "double-reported" loans as
small business loans for CRA consideration." The OTS answer is the same. ABA supports the
proposed Question and Answer, because it makes some sense of a troubling "classification"
issue.
6. Small institution asset size adjustment.
The Agencies will reference the FFIEC website for the current information on the "size" of small
financial institutions and intermediate small financial institutions. ABA supports the proposal as
the best way to keep these thresholds updated.
7. Responsive lending activities.
Previous Questions and Answers discuss types of lending activities that help meet the credit needs
of an institution's assessment areas and that may warrant favorable consideration as activities that
are responsive to the needs of the institution's assessment areas. The Agencies propose to revise the
answer to highlight that establishing loan programs that provide relief to low- and moderate-income
homeowners who are facing foreclosure is another type of lending activity that would warrant
favorable consideration as being responsive to the needs of an institution's assessment areas. ABA
knows that a number of our institutions are trying to help refinance the large number of
subprime borrowers who are facing delinquency and potential default due to resetting loan
interest rates. ABA supports the proposed Question and Answer.
8. Investments in a national or regional fund.
The Agencies are proposing additional guidance in Question and Answer § .23(a)—2, that an
institution that makes a loan or investment in a national or regional community development fund
should be able to demonstrate that the investment meets the geographic requirements of the CRA
regulation. Community development bankers note that the established market for affordable
housing investment vehicles has developed on a multi-state basis for projects in order to promote
efficiency and to better mitigate geographic risk. Thus there are inherent difficulties in
demonstrating that the geographic requirements of CRA are met on a community basis when these
projects are often spanning regions or even most of the nation.
4
Without an easy way for national and/or regional funds to provide the necessary geographic
connection for donors, donors subject to CRA will likely decrease their contributions. This would
adversely affect national community development funds and may reduce funding of higher risk (but
important) regional community development projects such as Special Needs Housing and rural
developments. ABA recommends that the Agencies allow managers of such regional or
national funds to use any combination of side letters and/or pro rata allocations within a
single syndication with the investing financial institutions so as to direct an institution's
funds towards parts of the project that meet the CRA geographical requirements. The
Agencies should make clear that such mangers' side letters and/or pro rata allocations are
sufficient to demonstrate the geographical focus of that part of the project funded by the
financial institution.
9. Additional Comments Outside of the Proposed Changes
Question and Answer § .12(h) indicates that the flexibility of the performance standards allows
examiners to account in their evaluations for conditions in high-cost areas. It states that examiners
are to consider lending and services to individuals and geographies of all income levels, and further
identifies certain factors that may be considered, including a credit shortage among middle-income
people or areas caused by the disproportionately high cost of building, maintaining or acquiring a
house, when the examiner is determining whether an activity has as its primary purpose community
development. However, some bankers tell ABA that actual CRA consideration of such lending to
middle and upper income individuals that is part of a publicly subsidized economic or community
development program is generally rare. ABA recommends that the Agencies provide some
specific examples of projects and circumstances in which loans to non-LMI individuals that
would be given CRA credit, given the high cost of the particular market.
Conclusion
ABA appreciates the opportunity to comment on these revisions to the CRA Questions and
Answers. In general ABA supports all of the proposed changes, and we particularly (a) support the
proposed comparable treatment of loan originations and participations and (b) the implementation
of the Congressional authority for CRA credit for investments in minority- and women-owned
financial institutions. ABA hopes that the Agencies will also adopt the few suggested changes that
ABA recommends. If you have any questions about these comments, please call the undersigned.
Sincerely,
Paul Smith
Senior Counsel
5
SHOREBANK
Let's change the world."*
September 10, 2007
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th and Constitution Avenue, NW
Washington, DC 20551
Via E-mail: regs.comments@federalreserve.gov
RE:
Community Reinvestment Act; Interagency Questions and Answers Regarding
Community Reinvestment (Docket OP-1290-Federal Reserve; RIN 3064-AC97(FDIC);
Docket ID OCC-2007-0012 (OCC); Docket ID OTS-2007-0030 (OTS))
Dear Ms. Johnson:
ShoreBank Corporation welcomes this opportunity to submit comments on the proposed
Interagency Questions and Answers Regarding Community Development, referenced above.
With assets of $2.1 billion, ShoreBank Corporation is the nation's first and leading community
development bank holding company. During its more than 30-year history, ShoreBank has made
over $2.3 billion in mission investments in lower income communities in the urban Midwest, the
Upper Peninsula of Michigan and the Pacific Northwest. In 2006 alone, we loaned $365 million
for community development purposes, primarily in lower income neighborhoods in Chicago,
Detroit and Cleveland.
The holding company, the lead bank (ShoreBank, based in Chicago, with branches in Detroit and
Cleveland), and its non-profit affiliates in the Upper Peninsula (Northern Initiatives) and Pacific
Northwest (ShoreBank Enterprise Cascadia) are also certified Community Development
Financial Institutions (CDFIs). This comment is submitted on behalf of those four organizations
(collectively "ShoreBank"). ShoreBank Corporation also serves as the Fund Advisor for the
National Community Investment Fund (NCIF), a $21 million fund that makes equity and debt
investments in community development banking institutions. Of NCIF's 27 current portfolio
companies, 15 are minority-owned or minority-focused banks or thrifts and 8 are low-income
credit unions. 21 of the 27 portfolio companies are certified CDFIs. NCIF is itself a certified
CDFI.
ShoreBank Corporation
7054 South Jeffery Boulevard, Chicago, IL 60649
T: 773 288 1000 www.shorebankcorp.com
Ms. Jennifer J. Johnson
September 10, 2007
Page 2
ShoreBank strongly supports the proposed revisions to the Interagency Questions and Answers.
We believe there are many useful additions and clarifications, including in particular those
relating to community development services, service to underserved or distressed nonmetropolitan middle-income geographies, Individual Development Accounts, New Markets Tax
Credit investments, and loans made under the SBA 504 program. We focus our comments on
four proposed Q&As of particular importance to Community Development Financial
Institutions, proposed sections
.12(g)-4,
.12(g)(3)-l,
.12(h)-7, and
.23(a).
Investments in CDFIs Should Receive the Same Treatment as Investments in Minority- or
Women-Owned Financial Institutions and Low-Income Credit Unions
New proposed section
.12(g)-4 would provide that "capital investments, loan participations,
and other ventures" engaged in by a majority-owned institution in cooperation with minority- or
women-owned financial institutions and low-income credit unions will be eligible for CRA
credit as long as these activities help meet the credit needs of the communities in which the
investee institution is chartered, regardless of the geographic focus of the investing majority
institution. We applaud this recognition of the important role of minority- and women-owned
financial institutions and low-income credit unions in serving the communities in which they are
located. For the reasons discussed below, we believe identical treatment should be extended to
certified Community Development Financial Institutions.
The Reigle Community Development and Regulatory Improvement Act of 1994 (PL 103-325),
which post-dated the 1992 revisions to CRA that added the section concerning minority- and
women-owned financial institutions and low-income credit unions, established the Community
Development Financial Institutions Fund "to promote economic revitalization and community
development through investment in and assistance to community development financial
institutions." (12 USC 4701) The statute goes on to define a "community development financial
institution" as (among other things) an entity that "has a primary mission of promoting
community development," and "serves an investment area or targeted population." An
"investment area" is defined as a geographic area that "meets objective criteria of economic
distress . . . [and] has significant unmet needs for loans and investments." A "targeted
population" is defined as individuals or a group of individuals that "are low-income persons; or
otherwise lack adequate access to loans or equity investments." (12 USC 4702 (5), (16), (20))
The application for certification as a CDFI provides that to be certified, at least 60% of an
entity's activities must be directed to an "investment area" or "targeted population" as defined in
the statute. In other words, by statute a CDFI must serve the very kind of "low- and moderateincome neighborhoods" referred to in the CRA statute.
The entities so certified do in fact provide these services. In fiscal year 2005, the federal
government provided CDFIs approximately $51 million. According to the CDFI Data Project,
during that year, the 496 CDFIs responding to the Data Project survey (out of approximately 700
certified CDFIs) leveraged that money to make $4.3 billion in investments, including financing
and assisting over 9,000 businesses to create or maintain more than 39,000 jobs; facilitated the
Ms. Jennifer J. Johnson
September 10, 2007
Page 3
construction or renovation of over 55,000 units of affordable housing; built or renovated 613
community facilities in economically disadvantaged communities; and provided over 6,000
alternatives to payday loans and helped more than 15,000 consumers open their first bank
account.1 Of CDFI customers in 2005, 52% were female, 58% minority, and 68% low-income.2
In 2006, ShoreBank (including banks and affiliates) made $161 million in residential real estate
loans, $129 million in small business loans and $71 million in loans to faith-based and non-profit
institutions—almost entirely within the lower income communities we target in Chicago,
Cleveland and Detroit, and in low-income communities in the Upper Peninsula and Pacific
Northwest.
In summary, certified CDFIs both are chartered to serve—and do serve—the very kinds of
communities that minority- and women-owned financial institutions and low-income credit
unions serve. Investments in and participations and other ventures with CDFIs should be granted
the same treatment under CRA that similar activities with minority- and women-owned financial
institutions and low-income credit unions are accorded.
Investment in a Fund that Invests in Minority- or Women-Owned Financial Institutions, LowIncome Credit Unions or Certified CDFIs Should Explicitly Be Treated the Same as Direct
Investment in Such Entities
Proposed section
.23(a) provides that investment in a fund, the purpose of which is
community development, will receive consideration for CRA credit "provided the investment
benefits one or more of the institution's assessment area(s) or a broader statewide or regional
area(s) that includes one or more of the institution's assessment area(s)." Because proposed
section
. 12(g)-4 removes the assessment area limitation for investments in minority- or
women-owned financial institutions and low-income credit unions, logic compels that
investment in a fund that invests in such entities be considered for credit without regard to the
assessment areas of the investing institution, so long as the entities in which the fund invests
serve the credit needs of the communities in which those entities are chartered. We urge the
agencies to make this clear in sections
. 12(g)-4,
.23(a)-l and
.23(a)-2, and to also
make such treatment applicable to funds that invest in certified CDFIs.
An Investment in A Certified CDFI Should Be Regarded Presumptively As "Promoting
Economic Development"
Section
. 12(g)(3) relates to the "purpose test" that is part of the definition of "community
development." We applaud the proposed additions to this section of loans to or investments in
Rural Business Investment Companies and New Markets Tax Credit-eligible Community
Development Entities as presumptively promoting economic development. We strongly urge the
1
"Providing Capital, Building Communities, Creating Impact, The CDFI Data Project," FY 2005 Data, Fifth
Edition, www.opportunityfinance.net/store/product.asp?pID=81&c=34715.
2
Ibid.
Ms. Jennifer J. Johnson
September 10, 2007
Page 4
addition of loans to or investments in certified Community Development Financial Institutions to
the list of presumptive economic development activities. As demonstrated above, both the
statutory requirements to become a CDFI and the actual performance of those who are certified
support the addition of CDFIs to the list.
National, As Well As Statewide or Regional Organizations Should be Eligible to Be Considered
as Addressing Assessment Area Needs
Section
.12(h)-7, in the context of defining "regional area," states that "Community
development loans and services and qualified investments to statewide or regional organizations
that have a bona fide purpose, mandate, or function that includes serving the geographies or
individuals within the institution's assessment area(s) will be considered as addressing
assessment area needs" (emphasis added). We urge that either "national" be added after
"regional," or that "statewide or regional" be deleted. Many organizations, such as ShoreBank,
operate in a limited number of specific geographies in several regions of the country. Such
organizations can be at least as effective in serving an investing institution's assessment area that
includes one of organization's geographic concentrations as a statewide or regional organization
whose activities are more diffuse across a state or region. The Q&A provides that examiners
will evaluate "actual or potential benefit to the institution's assessment area" in deciding whether
and how much credit to grant. Given this fact-based assessment, there is no reason to exclude
loans, services and investments to national organizations from consideration. See
.12(h)-6,
which is silent about the geographic scope of "community development organizations or
programs."
Once again, we sincerely appreciate this opportunity to comment on the proposed Interagency
Questions and Answers.
Sincerely,
Ronald Grzywinski
Chairman
WNC &
ASSOCIATES, INC.
Office of the Comptroller of the Currency
Federal Reserve System
Federal Deposit Insurance Corporation
Office of Thrift Supervision
SENT VIA EMAIL
Re: Community Reinvestment Act; Interagency Questions and Answers Regarding
Community Investment; Notice
OCC Docket ID:
FRB Docket No.:
FDIC RIN:
OTS Docket ID:
OCC-2007-0012
OP-1290
RIN 3064-AC97
OTS-2007-0030
To Whom It May Concern:
On behalf of WNC & Associates, Inc. (WNC), we thank you for the opportunity to share
our views. This public comment letter responds to the notice and request for comments
on new and revised Interagency Questions and Answers about community investment as
published in the Federal Register of July 11, 2007.
WNC & Associates. Inc. has been actively involved in the provision of affordable
housing since 1971, and has been a vanguard in the development of the Community
Reinvestment Act (CRA) and the Low Income Housing Tax Credit (LIHTC). WNC has
been the industry leader in the use of the Low Income Housing Tax Credit for affordable
housing development since before the program's official creation in 1986. Further, WNC
was among the first entities to apply for and receive an allocation of New Markets Tax
Credits in 2002.
WNC currently has a portfolio of 900 properties in 42 States and the District of Columbia
and has a client base of more than 19,000 institutional and individual investors. WNC
offers LIHTC equity funds that qualify under CRA's "investment" test. Our funds have
never experienced a foreclosure and have met or exceeded investment returns on average.
We believe this is a direct result of WNC's knowledge, which is backed by 37 years of
experience in this very complicated and specialized investment class.
The Community Reinvestment Act was enacted in 1977 to encourage banks and thrifts to
help meet the credit and banking needs of their entire communities, including low- and
moderate-income neighborhoods. The CRA applies to federally insured depository
institutions, national banks, thrifts, and state-chartered commercial and savings banks.
17782 Sky Park Circle • Irvine, CA 92614-6404 • Phone 714/662-5565 • FAX 714/662-4412 • www.wncinc.com
The CRA and its implementing regulations require federal financial institution regulators
to assess the record of each bank and thrift's fulfillment of its obligations to the
community. Due to the impetus of CRA, banks and thrifts have made substantial
financial commitments to the underserved segments of our local economies and
populations. We commend the financial institution regulators for their steadfast
dedication to the goals of the CRA and the Americans it is intended to serve.
In order to achieve its full potential, CRA should be applied in a manner that encourages
banks to lend and invest in low income communities. However, it has been our
experience that recent actions by CRA examiners are in fact discouraging banks from
making qualified CRA investments in affordable housing.
Specifically, we would like to respond to Question .23(a)-2 in the revised Interagency
Questions and Answers document. The Notice addresses the question of an institution's
meeting the geographic requirements of the CRA by benefiting one or more of the
institution's assessment areas or through investment in a broader statewide or regional
fund that includes the institution's assessment areas.
CRA was established to require banks and thrifts to invest and lend capital to
disadvantaged areas in their service areas. CRA permits banks and thrifts to invest in
statewide or regional funds that invest or lend to CRA-qualified properties even if such
properties do not fall directly within the bank's service area, as long as the funds are
restricted to investing or lending in the state or region that includes the bank's service
area.
If banks are given less than full CRA. credit for their investments in statewide or regional
funds, they will have a disincentive to invest. The unintended consequence of a
restrictive interpretation of the CRA's geographic investment requirement will be to
deprive many areas of the benefits of needed affordable housing that is provided through
the Low Income Housing Tax Credit (LIHTC). It would clearly be inconsistent with the
goals of CRA. It would have a chilling effect on the usage of our nation's number one
affordable housing production program, and further disadvantage our rural areas, which
are already underserved by the LIHTC.
WNC has acquired approximately $1 billion of qualified CRA properties through state
funds in California and New York. Investors in these funds include small and midsize
national banks seeking to make qualified and sound CRA investments. Many of these
banks operate in service areas where affordable housing development either is not
feasible due to high costs, or where there exists resistance from community residents.
These banks often are not staffed with trained professionals to originate, underwrite and
manage these highly complex LIHTC investments; hence they participate in statewide or
regional funds. Our state funds typically have 5 to 15 properties throughout the state in
order to diversify risk and to reach as many communities as possible.
Banks investing in our state funds, which have an assessment area in the same state,
should receive 100 percent CRA credit under the investment test, regardless of where the
2
properties acquired by the fund are located, as long as the properties are located within
the state. However, CRA examiners have been asking for banks to provide an
"allocation" letter indicating their investment is targeted only to those properties in the
state fund that fall in the bank's assessment area. While this is common practice in a
national investment pool with properties in multiple states, it is not feasible or practical
for state and regional funds because such funds are already targeted to specific states.
Requiring allocation letters in statewide or regional funds seems contrary to the spirit of
the rule that allows such targeted funds. The rule was designed to encourage, not
discourage, banks to invest in their state or region.
We provide respectfully the following two specific examples in which financial
institution regulators have discouraged investments in statewide or regional CRA funds:
One bank recently made a $5 million investment in a WNC sponsored state fund. This
fund acquired CRA-qualified properties in that bank's state. The bank regulator
unexpectedly informed the investor that it will receive CRA credit for only $1 million—
20 percent of its overall investment—because the state fund invested in properties
throughout the bank's state, including areas outside the bank's footprint.
A similar example affected a large national bank that was seeking to make a large
investment in another of our state funds. The bank withdrew its investment in our state
fund due to a similar interpretation by its regulator, and is now actively considering
significantly reducing or even not making future investments in affordable housing
because of this discouraging experience. This institution has long provided investments in
statewide funds in affordable housing.
The guidance contained in the Notice indicates that the regulatory agencies will exercise
flexibility in determining whether an institution's investment meets the geographic
requirement. We commend such flexibility. However, we are concerned that the Notice
introduces a pro-rata method for allocating the shares of each project for determining
whether the institutional investor meets the geographic requirements. Such a method
would have the unintended consequence of penalizing, and thereby discouraging, LIHTC
investment.
Not giving 100 percent CRA credit for investments in state funds discourages banks from
investing in affordable housing. This is because, first, regional and state banks often lack
the sophistication to make these investments directly, and, second, in most instances there
are few, if any, opportunities to invest in local properties directly or through national
funds.
We urge the regulatory agencies to reinforce the longstanding recognition of the
community reinvestment value of statewide/regional LIHTC fund investments by
financial institutions. Such recognition is consistent with current federal statute and
regulation. To do otherwise and to fail to give full credit for statewide or regional
investments would ultimately deny many deserving communities the needed benefits of
affordable housing that is generated through LIHTC investment by financial institutions.
3
A strict and arbitrary interpretation of CRA's geographic requirements will only serve to
dry up a critical source of funding for much needed affordable housing and community
investment. We look forward to continuing to work with you as we seek the national goal
of providing decent, safe and affordable housing to all Americans.
Sincerely,
Wilfred N.Cooper, Jr.
President
WNC & Associates
4
INTERAGENCY QUESTIONS AND ANSWERS REGARDING
COMMUNITY REINVESTMENT
COMMENTS OF
POVERTY & RACE RESEARCH ACTION COUNCIL
AND
INCLUSIVE COMMUNITIES PROJECT, INC.
OCC Docket ID OCC-2007-0012
Federal Reserve Board Docket No. OP-1290
FDIC RIN 3064-AC97
ID OTS-2007-0030
I. Introduction.
Thank you for the opportunity to comment on the Interagency Questions and Answers
Regarding Community Reinvestment, 72 Fed. Reg. 37921 (July 11, 2007) (the Q&A). The
comments that follow are submitted on behalf of two organizations that work to expand housing
choices for low income families outside of high poverty, segregated neighborhoods. The
Poverty & Race Research Action Council (PRRAC) is a civil rights policy organization
located at 1015 15th Street NW, Suite 400, Washington, DC 20005 and may be contacted at
(202) 906-8023, attention Philip Tegeler, President and Executive Director. PRRACs primary
mission consists of connecting social scientists with advocates working on race and poverty
issues, and to promote a research-based advocacy strategy on issues of structural racial
inequality. The Inclusive Communities Project, Inc. is a not-for-profit organization that works
for the creation and maintenance of thriving racially and economically inclusive communities,
expansion of fair and affordable housing opportunities for low income families, and redress for
policies and practices that perpetuate the harmful effects of discrimination and segregation. ICP
is located at 3301 Elm Street, Dallas, TX 75226, and may be reached by contacting Elizabeth K.
Julian, President and Executive Director, at (214) 939-9239.
PRRAC and ICP write jointly to suggest amendments to the proposed Q&A, to
encourage greater fair housing monitoring by the federal banking agencies, and greater fair
housing compliance by regulated banking institutions. Our comments encompass four areas of
concern: (1) Community Reinvestment Act (CRA) activities that address, or fail to address,
issues of racial isolation and concentration of poverty; (2) CRA treatment of mixed-income
affordable housing; (3) CRA geography and racial segregation; and (4) discrimination, CRA
examination procedures, reporting and data.
II. The Responsibility of the Oversight Agencies to Dismantle Segregation.
A. The Role of the Federal Government and Banking in Constructing Residential Segregation.
Racial isolation remains a persistent and pernicious feature of residential living patterns
in virtually every metropolitan area in the United States. According to the 2000 Census, despite
modest declines in some indices, Blacks and African Americans remain the most segregated
racial group, followed by Hispanics or Latinos, Asians and Pacific Islanders, and American
CRA Questions and Answers
Comments ofPRRAC and ICP
Page 2
Indians and Alaska Natives.1 Segregation is not the result of individual choice. Instead, there is
a well documented history of policy-making in Federal housing, community development,
highway construction, and banking oversight activities carried out for the deliberate purpose of
enforcing racial separation, especially racial isolation of Blacks. Redlining; that is, the practice
of denying credit to inhabitants of racially identified areas, was an invention of Federal housing
agencies providing home mortgage insurance. The same agencies also promoted racial
separation in home mortgage lending, assuring that federally insured loans would not be made to
people of color desiring to move to more integrated and suburban locations.
Federal policies were embraced by private lenders. Discrimination and segregation thus
became explicit features of the banking and credit industry. The resulting racial isolation is
insidious. Segregation causes concentrations of poverty among people of color.2 Despite four
decades of civil rights legislation, race discrimination in the credit industry, and in home
mortgage lending persists, along with the consequent conditions of isolation, neighborhood
deterioration, and poor living conditions.
B. The Affirmative Obligation of Banking Oversight Agencies to Dismantle Segregation.
The Community Reinvestment Act, the Fair Housing Act, and the Equal Credit
Opportunity Act are among the laws enacted to end private and public acts of discrimination in
the credit industry. Civil rights laws impose an additional obligation on agencies of the Federal
government; the obligation not just to prevent discrimination, but to further fair housing. More
specifically, 42 U.S.C. Section 3608(d), places the duty to affirmatively further fair housing on
all "executive departments and agencies [in] their programs and activities relating to housing and
urban development."
This provision expressly applies to the federal banking agencies that oversee CRA
compliance, including the Office of the Comptroller of the Currency, the Federal Reserve Board,
the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision (collectively, the
Agencies). The duties imposed on the Agencies by the Fair Housing Act were extended in 1994,
in Executive Order 12892, which reiterates the obligation of all federal agencies, and the
institutions they oversee, to affirmatively further fair housing in all programs affecting housing
and community development. The Executive Order is explicit about the obligations of the
federal banking oversight agencies to incorporate fair housing into their regulatory oversight
responsibilities:
Section 808(d) of the [Fair Housing] Act, as amended, provides that all
executive departments and agencies shall administer their programs and
activities relating to housing and urban development (including any
Federal agency having regulatory or supervisory authority over financial
institutions) in a manner affirmatively to further the purposes of the Act
and shall cooperate with the Secretary of Housing and Urban
1
See generally, Racial and Ethnic Residential Segregation in the United States: 1980-2000 (Census Special
Reports, U.S. Census Bureau, August 2002).
2
There is an extensive literature documenting the dual roles of Federal leadership and private lending in the
construction of segregation and the consequent concentration of poverty. One source is American Apartheid:
Segregation and the Making of the Underclass by Douglas S. Massey and Nancy A. Denton (Harvard University
Press, 1993).
CRA Questions and Answers
Comments ofPRRAC and ICP
Page 3
Development to further such purposes... As used in this order, the phrase
"programs and activities" shall include programs and activities operated,
administered, or undertaken by the Federal Government; grants; loans;
contracts; insurance; guarantees; and Federal supervision or exercise of
regulatory responsibility (including regulatory or supervisory authority
over financial institutions).
It bears emphasizing that the duty to affirmatively further fair housing is more than the
obligation to prevent individual acts of discrimination. Rather, by enacting 42 US.C. §3608(d),
Congress intended that the Agencies use their oversight authority, including their bank
examination procedures, and the power to deny applications for deposit facilities to assist in
ending discrimination and segregation.3
III. CRA Questions and Answers.
The proposed Q&A seeks comment on a number of specific matters, including new and
revised Q&A on twelve separate matters outlined in the July 11 notice. The notice also seeks
general comments about the Agencies CRA regulations. 72 Fed. Reg. 37929. PRRAC and ICP
answer this solicitation with the comments set forth below.
A. CRA Activities that Address Racial Isolation and Concentration of Poverty.
CRA credit is extended principally to activities that serve Low and Moderate Income
geographies. The revised Q&A says that participation in Low-Income Housing Tax Credit
(LIHTC) housing development, and New Market Tax Credit (NMTC) economic development
are examples of the kind of community development activities that receive favorable CRA
ratings. Both of these programs target Low Income geographies. The bias of the CRA in favor
of low-income areas is somewhat balanced by 1995 changes to Agency regulations saying that
community development activities may include activities that serve Low and Moderate Income
households outside of Low and Moderate Income geographies.
Segregation establishes concentrations of poverty, and promoting credit activities and the
provision of financial services solely in low-income areas reinforces segregation. On the other
hand, research shows that a focus on financial services to Low and Moderate Income households
outside of Low and Moderate Income geographies reduces segregation.4 PRRAC and ICP
support Q&A that favorably credit activities that serve Low and Moderate Income households
outside of Low and Moderate Income geographies. We urge the Agencies to further revise the
Q&A and the CRA regulations to explicitly support activities that reduce racial isolation and
concentrations of poverty. For example, the defined term "community development" could be
revised to include activities that reduce racial isolation and concentrations of poverty. Similar
language could be added to the Q&A guidance that explains performance measures for lending,
3
The legislative history of 42 U.S.C. §3608(d) is summarized in NAACP, Boston Chapter v. Secretary of Housing
and Urban Development, 817 F.2d 149, 155 (1 Cir. 1987). For a case in which a court concluded that Federal
banking regulators were subject to the duty, see, Jones v. Comptroller of Currency, 983 F. Supp. 197 (D.D.C.
1997).
4
Friedman, Samantha and Squires, Gregory D., Does the Community Reinvestment Act Help Minorities Access
Traditionally Inaccessible Neighborhoods? Social Problems, Vol. 52, Issue 2, pp. 209-231 (Society for the Study of
Social Problems, Inc. 2005).
CRA Questions and Answers
Comments ofPRRAC and ICP
Page 4
investment, and service activity, and to the guidance that places greater qualitative weight on
innovative and complex participations.
B. Mixed-Income Housing.
A number of revised Q&A assure that banks receive credit for participation in mixedincome affordable housing properties. On the one hand, the Q&A tends to place greater weight
on a larger mix of affordable units serving lower income families. On the other hand, the
guidance does permit examiners some flexibility in evaluating mixed-income housing based on
the complexity or innovativeness of the activity. The Q&A also notes that housing built for
Upper-income households in a Low- or Moderate-income geography will receive lesser weight
or no credit where the housing does not serve Low- or Moderate-income people.
Until well into the 1970s, Federal policies for public and assisted housing promoted
racially identified developments serving only extremely low-income households as a means of
creating and reinforcing patterns of racial segregation. CRA policy must actively dismantle
these conditions. It is therefore essential that the Q&A promote mixed-income housing that
creates a wide range of housing opportunity for low income households of color in higher
income communities with jobs and good schools. PRRAC and ICP support those Q&A that
favor mixed-income housing. We urge the Agencies to strengthen the guidance in order to create
incentives for participation in mixed-income affordable housing, both in Low or Moderate
Income geographies andm Upper Income geographies. We also urge the Agencies to deny CRA
credit for participation in affordable housing development that reinforces segregation and
concentration of poverty by serving only Low Income households in Low and Moderate Income
geographies, or that displaces Low Income households to other segregated, high poverty areas.
C. CRA Geography.
Agency policy prohibits banks from taking race and ethnicity into account for purposes
of delineating an assessment area. PRRAC and ICP assume that this prohibition on raceconscious activity is a reaction to the long history of overt discrimination in the lending industry,
the persistence of significant racial disparities in loan approvals evidenced in HMDA data, the
way the sub-prime mortgage market disproportionately harms borrowers of color, and the
continuing evidence of racial disparities in interest rates and other loan terms in the credit
industry. Nevertheless, a complete disregard of race coupled with an emphasis on Low and
Moderate Income geographies does nothing to address patterns of segregation and poverty.
Activities that increase housing opportunity for racially isolated people of color in higher
income areas should receive weight in a CRA examination. Lesser weight should be attributed
to activities that stabilize Low or Moderate Income geographies when those activities tend to
increase segregation and concentration of poverty. A bank should receive lower ratings when
CRA activities are located solely or predominantly in Low or Moderate Income geographies
instead of balanced with activities that serve Low or Moderate Income people in Upper Income
geographies.
D. Discrimination, Examination Procedures, Reporting and Data.
CRA examination procedures tell examiners to look for individual but not systemic
violations of laws like the Fair Housing Act, the Equal Credit Opportunity Act, the Truth in
Lending Act, and similar laws. Individual civil rights violations are not assigned a quantitative
CRA Questions and Answers
Comments ofPRRAC and ICP
Page 5
weight in an examination. Instead, a CRA rating is affected by an examiner's qualitative
evaluation of the nature and extent of the civil rights violations, the bank's procedures intended
to prevent acts of discrimination, and bank practices for self-assessment and self-correction.
While an examiner will look at a bank's Home Mortgage Disclosure Act (HMDA) data, there is
no focus on segregative or integrative effect of an institution's lending, investment, or CRA
activities.
CRA ratings affect the decision of an Agency to approve a public privilege; a deposit
facility. That privilege should not be available to an institution where an examination uncovers
unresolved findings of individual or systemic discrimination. The Agencies could adopt a
number of alternative approaches to findings of discrimination. For example, the U.S.
Department of Housing and Urban Development (HUD) will deny an application for competitive
housing funds where there are unresolved judicial or administrative findings of discrimination,
and an Agency could deny an application for a deposit facility on the same basis. Another
approach would be for the Agency to automatically reduce a rating by one level (e.g., from
"outstanding" to "satisfactory") in the event of an unresolved finding. Even more lenient would
be the approach used by the Internal Revenue Service in the LIHTC program: unresolved
findings result in a warning letter, which if unheeded would result in a rating adjustment or
rejection of an application for a deposit facility.
PRRAC and ICP also urge the Agencies to collect and review data, depicted by race,
ethnicity, and location, for all CRA activity. Under current practice, only HMDA data for single
family lending depicts credit activities at this level of detail. CRA examinations should measure
whether an institution discriminates in all dimensions of its credit activities and banking services.
It is only in this way that the racial impact of a bank's lending activities be adequately analyzed.
IV. Conclusion.
PRRAC and ICP appreciate this opportunity to provide comments on the CRA Questions
and Answers. Thank you in advance for your consideration.
nterprise
September 10,2007
Docket ID OCC-2007-0012
Office of the Comptroller of the Currency
250 E Street, SW
Mail Stop 1-5
Washington, DC 20219
Jennifer J. Johnson, Secretary
Attention: Docket No. OP-1290
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Robert E. Feldman, Executive Secretary
Attention: Comments RIN number 3064-AC97
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Regulation Comments
Attention: ID OTS-2007-0030
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
To Whom It May Concern:
Enterprise appreciates the opportunity to comment on the interagency proposed
Questions and Answers (Q&As) regarding the Community Reinvestment Act (CRA). We
would like to specifically address CRA regulations pertaining to investment in energyefficient affordable housing developments, as well as to investment in foreclosure
prevention and related community revitalization.
Enterprise is a leading provider of the development capital and expertise it takes to create
decent, affordable homes and rebuild communities. For 25 years, Enterprise has
pioneered neighborhood solutions through public-private partnerships with financial
institutions, governments, community organizations and others that share our vision.
Enterprise has raised and invested $7 billion in equity, grants and loans and is currently
investing in communities at a rate of a $1 billion a year. Investments generated by the
CRA have directly contributed to Uie more than 215,000 affordable homes we have
produced.
In 2004, Enterprise and a number of partners launched Green Communities, which aims
to build 8,500 healthy, energy-efficient and environmentally sustainable homes that are
affordable to low-income families. This is the nation's largest, most ambitious initiative
focused on leveraging private capital investments to significantly increase the production
of green affordable housing across the country. To date, just three years into the $555
million, five-year initiative, Green Communities has helped to finance more than more
than 9,000 highly sustainable homes in 217 developments in 23 states.
Enterprise's development experience coupled with research and widespread practice in
the industry demonstrate the health, economic and environmental benefits of sustainable
development for low-income people and communities. When determining whether a
project is "affordable housing (including mullifamily rental housing) for low- or
moderate-income individuals", we urge the regulators to provide additional credit for
housing that is energy efficient. Increasing energy efficiency in affordable housing
delivers several important benefits. These include lower utility costs for low-income
residents; more stable operating reserves for building or homeownership maintenance;
and reduced carbon emissions. Further, energy efficient buildings are more durable,
better performing and longer lasting, which to investors means more valuable properties
to own and sell.
Suggested Q&A is as follows:
Q. When determining whether a project is '"affordable housing' for lower- or
moderate-income individuals," thereby meeting the definition of "community
development," will examiners take into account the extent to which an affordable housing
project incorporates energy efficient features that lower the housing costs for residents
and/or enhances the long-term viability of the project as affordable housing, such as
through stronger reserves for maintenance and improvements?
A. In reaching a conclusion about the impact of an institution's community
development activities, examiners may, for example, determine that a project that
demonstrably lowers costs for residents and/or operates more viably as affordable
housing a result of cost saving energy efficiency features may have a greater impact and
may be more responsive to community credit needs than projects that do not have such
features, and therefore provide additional credit for these investments.
Secondly, Enterprise commends the proposed Q&As that provide CRA credit for
foreclosure prevention activities. The foreclosure crisis facing our nation is a threat not
only to the thousands of consumers faced with losing their homes but also to entire lowand moderate-income communities that will likely become or continue to be plagued with
concentrations of foreclosed properties in upcoming years. We applaud the agencies'
efforts to provide favorable CRA consideration for loan programs and provide relief to
low- and moderate-income homeowners facing foreclosure. Wc also encourage the
regulators to expand proposed Q&A .22(a)-1 and Q&A .23(a)-2 to include favorable
consideration for lending and investment in activities that support the rehabilitation and
resale of foreclosed properties in low and moderate-income communities.
The CRA is the most critical federal policy in ensuring that low-income families and
communities across America are able to obtain and maintain affordable homes and
apartments. We strongly urge the regulators to provide incentive for financial institutions
to invest in energy efficient buildings and to help mitigate the foreclosure crisis by
providing additional incentive for investing in foreclosed properties.
Please contact us with any questions or for further discussion.
Sincerely,
Stockton S. Williams
Senior Vice President
Enterprise Community Partners, Inc.
CB\
CONSUMER
BANKERS
ASSOCIATION
September 10, 2007
Office of the Comptroller of the Currency
250 E Street, SW
Mail Stop 1-5
Washington, DC 20219
Docket ID OCC-2007-0012
Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th and Constitution Ave., NW
Washington, DC 20551
Docket No. OP-1290
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
RIN Number 3064-AC97
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Attention: ID OTS-2007-0030
Dear sir or madam:
The Consumer Bankers Association ("CBA") appreciates the opportunity to comment on
the interagency proposal to revise the CRA Q&A (the "Proposal"), as issued by the
federal bank and thrift regulatory agencies (the "Agencies").
CBA is the recognized voice on retail banking issues in the nation's capital. Member
institutions are the leaders in consumer, auto, home equity and education finance,
electronic retail delivery systems, privacy, fair lending, bank sales of investment
products, small business services and community development. The CB A was founded in
1919 to provide a progressive voice in the retail banking industry. The CBA represents
over 750 federally insured financial institutions that collectively hold more than 70% of
all consumer credit held by federally-insured depository institutions in the United States.
Our comments are divided into two sections: First, a comment regarding the treatment of
investments in multi-investor, multi-project funds, an issue of particular concern to CBA
members; and second, a number of other important comments we wish to make in
response to the Proposal.
Investment Test—Scope of Test: National and Regional Funds
Proposed §
. 23(a)-2
This proposed Q&A addresses investments in multi-investor, multi-project funds that
operate across multiple geographies. We support the Agencies' efforts to offer uniform
guidelines for the treatment of investments in such funds under CRA. Examiners have not
been consistent in their treatment of this issue, either between Agencies or within
Agencies, and a uniform approach is needed. In this comment, we offer several
alternative approaches that we believe would enhance the long term viability of CRA and
the future of community development.
Funds that are composed of multiple investors and that invest in projects in multiple
states constitute a significant part of many institutions' community development
investments and have grown into a critical part of the government's efforts to provide
affordable housing to low- and moderate-income communities. For example, of the $75
billion invested in Low-Income Housing Tax Credits ("LIHTC") since the inception of
the program in 1986, these funds are responsible for 70%-80%. It is vital that we
continue to support and encourage these funds.
From a community development, financial institution, and fund perspective, there is
benefit to geographical diversity:
•
•
•
•
•
It permits the fund to mitigate financial risk by:
having a diverse geographic portfolio of properties/projects nationwide,
thereby reducing risk if one geographic area experiences a downturn;
allowing for diversity in types of projects;
It helps the fund achieve economies of scale;
It allows the fund to be responsive and flexible in terms of allocating the
proceeds from investors to geographies and properties/projects where they are
most needed, including smaller and/or rural markets, including markets where
no local bank has the expertise to do the complex transaction; and
It increases the likelihood that the fund will be able to find viable investments
and/or loans within its mission.
It helps smaller localities and underserved areas attract investment dollars.
Since most of the investors in these funds are banks seeking CRA consideration, a
uniform, rational CRA treatment is important to their continued viability. While banks
have the alternative of putting more of their money in proprietary funds and direct
investments, the benefits of the multi-investor, multi-geography funds will be lost.
Some critical markets will struggle to attract capital, such as those geographies with
limited presence of CRA-motivated banks and certain important property types, such as
those that provide special needs housing. They either will not be able to attract the capital
needed to build affordable housing or will have to pay higher than others to attract the
capital, making affordability less achievable. The investments will be less efficient as we
lose the benefit of economies of scale found it the large multi-state, multi-investor funds.
Proprietary funds and direct investments, as compared with multi-investor, multi-project
funds, have an increased safety and soundness risk due to the lack of geographic diversity
and the loss of the shared risk. They are also less efficient, since they lack the economy
of scale. Direct investments have an added negative, as the bank now has the added
responsibility of monitoring LIHTC compliance, which would otherwise be handled by
the fund manager. Because this is highly inefficient without a large number of direct
investments in the bank's portfolio, the level of compliance oversight may be weak,
further increasing the safety and soundness risk.
As we have said, the majority of investors in these national and regional funds are banks,
which have CRA responsibility and which are hoping to obtain CRA consideration under
the Investment Test. But ironically, the geographic diversity and range that make these
funds so valuable also create a CRA problem for those institutions, since there is a
mismatch between the way in which the Investment Test is usually measured and the
reality of community development investments in these funds. Banks are given CRA
consideration for investments in their assessment area, or a broader statewide or regional
area, but the projects in which the fund invests are not all located in those confines. This
raises a fundamental question for the banks and the examiners: How much of the bank's
investment should get CRA consideration? At present, there appears to be no clear
answer, and the Agencies (and examiners) have had to respond on a case-by-case basis.
Recommendation
Because of the unique and critical role these funds play in community development and
in furtherance of government programs, the CRA regulation should do everything
possible to encourage them. Unfortunately, it is evident that usual ways of assessing CRA
consideration work at cross purposes with these funds. Therefore, we wish to propose
several alternatives that we believe will most cleanly cut the Gordian knot.
We believe the paramount goal of any approach to this issue should be to ensure that
institutions receive maximum credit for their investments, and that the CRA consideration
should be fairly distributed. The most practical way to do this is to eliminate the artificial
distinction that is driven by the assessment area. Therefore, we recommend that an
institution receive full CRA credit for the entire amount of its investment in a multi project, multi-geography fund regardless of the location of the fund's projects, provided
that at least one of the fund's projects is located in the bank's assessment area(s) or the
broader statewide or regional area that includes the bank's assessment area(s). This is a
unique approach, but we believe it is warranted by the unique problems encountered by
the mismatch between CRA and bank investments in multi-investor, multi-project funds.
However, if the Agencies do not choose to adopt this approach, we would recommend the
following alternative: If an institution has adequately addressed the needs of the
assessment area to which it would like to allocate a part or whole of that investment
credit, then the institution should receive full CRA credit and full weight for the fund's
investments in all projects, regardless of their location.
This alternative approach is modeled on Q&A § .25(e)-1, addressing how examiners
evaluate a wholesale or limited purpose institution's qualified investments in a fund that
invests in projects nationwide. As in that answer, the examiner in this case would
consider a broader statewide or regional area that includes the institution's assessment
area(s) when determining whether the institution has adequately met the needs of the
assessment area(s). This is in keeping with the existing guidance addressing the
regulation's requirement that qualified investments and community development loans or
services must benefit an institution's assessment area(s) or a broader statewide or
regional area that includes the institution's assessment area(s). l
Precedent also exists for using this approach as a means of encouraging investment by
large retail banks. This is similar to an approach the Agencies recently adopted to address
the unique situation created by Hurricanes Katrina and Rita in the Gulf Coast. In that
case, in order to encourage investment, banks located outside the designated disaster
areas were informed that they can receive positive CRA consideration for activities that
revitalize or stabilize the designated disaster areas, provided that the banks have
otherwise adequately met the CRA-related needs of their local communities.2
We believe this solution is perfectly in keeping with the goals of CRA and the Agencies'
regulations: To encourage depository institutions to help meet the credit needs of the
1
When referring to CDOs and programs that often operate on a statewide or even multistate basis in Q&A
§ .12(h)-6, the Q&A says: " The institution's assessment area(s) need not receive an immediate or direct
benefit from the institution's specific participation in the broader organization or activity, provided that the
purpose, mandate, or function of the organization or activity includes serving geographies or individuals
located within the institution's assessment area(s)." That is also true of a national or regional fund that is
making an investment in the bank's assessment area; therefore, the same principal should apply, and the
geographic area for which the financial institution can get CRA consideration should be the broader statewide or regional area that includes the assessment area. This is implicit in the phrasing of the question
posed in § .23(a)-2 (". ..[SJhould an institution be able to demonstrate that an investment... meets the
geographic requirements of the CRA regulation by benefiting one or more of the institution's assessment
area(s) or a broader statewide or regional area that includes the institution's assessment area(s) ? ").
2
See e.g. OCC Bulletin 2006-6.
communities in which they operate, including low- and moderate-income neighborhoods,
consistent with safe and sound banking operations. No institution would be able to get
CRA consideration for investments outside of its geography until the needs of its local
market have been met. It is also important to stress that—with either alternative we are
recommending—there would be no double-counting of investments. Every institution
would only get CRA consideration for its own investments. More importantly, CRA
would not become an artificial obstacle to the development of beneficial regional funds
by pulling consideration from institutions on terms that are nothing more than a
regulatory construct.
Additional Comments
1. Primary Purpose in Mixed-Income Projects
§
§
.12 Definitions
-12(h) Community Development Loan
The Proposal makes some small alterations in the Q&A (formerly § .12(i)) dealing with
the definition of "primary purpose" for community development. The Proposal, with the
only substantive change underlined, reads as follows:
§ . 12 (h) - 8: What is meant by the term "primary purpose " as that term is used to
define what constitutes a community development loan, a qualified investment or a
community development service?
A8. A loan, investment or service has as its primary purpose community development
when it is designed for the express purpose of revitalizing or stabilizing low- or
moderate-income areas, designated disaster areas, or underserved or distressed
nonmetropolitan middle-income areas, providing affordable housing for, or community
services targeted to, low- or moderate-income persons, or promoting economic
development by financing small businesses and farms that meet the requirements set forth
in 12 CFR . 12(g). To determine whether an activity is designed for an express
community development purpose, the Agencies apply one of two approaches. First, if a
majority of the dollars or beneficiaries of the activity are identifiable to one or more of
the enumerated community development purposes, then the activity will be considered to
possess the requisite primary purpose. Alternatively, where the measurable portion of
any benefit bestowed or dollars applied to the community development purpose is less
than a majority of the entire activity's benefits or dollar value, then the activity may still
be considered to possess the requisite primary purpose if (1) the express, bona fide intent
of the activity, as stated, for example, in a prospectus, loan proposal, or community
action plan, is primarily one or more of the enumerated community development
purposes; (2) the activity is specifically structured (given any relevant market or legal
constraints or performance context factors) to achieve the expressed community
development purpose; and (3) the activity accomplishes, or is reasonably certain to
accomplish, the community development purpose involved. The fact that an activity
provides indirect or short-term benefits to low- or moderate-income persons does not
make the activity community development, nor does the mere presence of such indirect
or short-term benefits constitute a primary purpose of community development.
Financial institutions that want examiners to consider certain activities under either
approach should be prepared to demonstrate the activities' qualifications.
CBA Comment:
The focus of our comment is the impact on mixed-income affordable housing projects.
These have become a significant part of community development efforts in recent years;
yet CRA has become a stumbling block rather than a supporter of these projects.
At the very heart of the Community Reinvestment Act is the charge for financial
institutions to provide products and services to low- and moderate-income families and
individuals and to provide lending and other assistance in distressed low and moderateincome geographies. The industry's significant response to this challenge has been to
provide both financing and equity products that support affordable housing opportunities
in all income segments of communities.
The ability to respond, and obtain corresponding examination credit, to protect or create
affordable housing in middle- and upper-income neighborhoods is actively discouraged
by the current examination rules, which require the "primary purpose" of a project to be
community development. Because this has been interpreted to mean the majority of the
units must be reserved for low- and moderate-income individuals, it is virtually
impossible for an institution to receive favorable consideration for mixed-income housing
(for example, where a project has 80% of the units at market rate and 20% of the units
reserved for low- and moderate-income individuals) in middle- and upper-income census
tracts. This practice is at odds with current development practices of many local and state
governments.
Many of the financing agencies, such as Municipal Housing Departments and State
Housing Finance Authorities, now favor mixed-income developments. It is not merely
that municipal rules sometimes require the inclusion of a percentage of affordable units,
but that these localities and financing agencies may prefer development where a minority
of the project's units is designated for low- and moderate-income households. The
government favors mixed-income projects and may also favor developments in middleand upper-income geographies because it perceives that these types of projects in a
variety of census tracts will build more sustainable communities than if they were all
relegated to low- and moderate-income geographies. Many experts in community
development also agree that mixed-income projects in a variety of census tracts are a key
ingredient of community development.
When municipalities require developments to provide for a minimum number of
affordable units, in some instances, these units may only represent 10 to 20 per cent of
the total so that the public subsidy is reduced. The required number of affordable units
may reflect a government decision based the number of affordable units that the overall
project could reasonably support with available public dollars. The number of affordable
units in these situations would never be a majority nor reasonably be considered the
primary purpose of the development.
As an effective means for sustaining levels of affordable housing within these markets,
most financial institutions provide loans, equity and, perhaps even grants, to support
these projects simply because they directly benefit low- and moderate-income individuals
and families. Exam credit is not given for these projects because the majority of the units
are not reserved for low- and moderate-income individuals. Therefore, to align the CRA
regulation with current government policies and practices regarding affordable housing,
"primary purpose" should also include lending and investment activities conducted
pursuant to a local, state, federal or tribal government development policy, plan or
program.
We recommend amending Answer A8, and adding additional Q&As, as follows
(new language underlined):
A8. A loan, investment or service has as its primary purpose community development
when it is designed for the express purpose of revitalizing or stabilizing low- or
moderate-income areas, designated disaster areas, or underserved or distressed
nonmetropolitan middle-income areas, providing affordable housing for, or community
services targeted to, low- or moderate-income persons, or promoting economic
development by financing small businesses and farms that meet the requirements set forth
in 12 CFR . 12 (g). To determine whether an activity is designed for an express
community development purpose, the agencies apply one of two approaches. First, if a
majority of the dollars or beneficiaries of the activity are identifiable to one or more of
the enumerated community development purposes, then the activity will be considered to
possess the requisite primary purpose. Alternatively, where the measurable portion of
any benefit bestowed or dollars applied to the community development purpose is less
than a majority of the entire activity's benefits or dollar value, then the activity may still
be considered to possess the requisite primary purpose if (1) the activity is conducted
pursuant to a local, state, federal or tribal government development policy, plan or
program; (2) the express, bona fide intent of the activity, as stated, for example, in a
prospectus, loan proposal, or community action plan, is primarily one or more of the
enumerated community development purposes; [(2)] (3) the activity is specifically
structured (given any relevant market or legal constraints or performance context factors)
to achieve the expressed community development purpose; and [(3)]_(4) the activity
accomplishes, or is reasonably certain to accomplish, the community development
purpose involved. The fact that an activity provides indirect or short-term benefits to
low- or moderate-income persons does not make the activity community development,
nor does the mere presence of such indirect or short-term benefits constitute a primary
purpose of community development. Financial institutions that want examiners to
consider certain activities under either approach should be prepared to demonstrate the
activities' qualifications.
Recommended New Questions and Answers:
,ft . 12(h)-9: How will a financial institution receive favorable consideration for lending
and investment dollars in mixed-income projects which create or preserve affordable
housing units in low-, moderate-, middle- and upper-income geographies where less than
the majority of the units are reserved for low- and moderate-income individuals?
A9. Loans and investments in a mixed income project in a low- and moderate-income
geography where less than the majority of the units are reserved for low- and moderateincome individuals will receive CRA consideration for the entire dollar amount lent to or
invested in the project if the project meets the purpose test in Question 8 above; such
loans and investments in middle and upper-income neighborhoods will receive CRA
consideration for the entire dollar amount lent to or invested in the project if the project is
part of a local, state, federal or tribal government development policy, plan or program,
or, if the project is not part of a local, state, federal or tribal government development
policy, plan or program, then such loans and investments will receive pro-rata credit for
the percentage of dollars lent to or invested in the project that is affordable to low- and
moderate-income individuals.
Recommended New Question:
,ft . 12(h) - 10: What is a local, state, federal or tribal government development policy,
plan or program?
A10. A local, state, federal or tribal development policy, plan or program is a
government-sanctioned policy, plan or program that supports economic revitalization,
economic development, or small business creation, or provides an incentive to develop
housing, at least 10 percent of which is affordable to low- and moderate-income
individuals. Such a government-sanctioned policy, plan or program may be evidenced by
either the use of public funds, such as subsidies, tax credits or tax abatements, or by the
provision of benefits, such as a higher floor-to-area ratio than would otherwise be
permitted.
2. Community Development Services
The Board has proposed modifying the answer to §
community development services as follows:
§
.12(i) regarding the definition of
. 12 (i)-3: What are examples of community development services?
A3. Examples of community development services include, but are not limited
to, the following:
•
•
Establishing school savings programs [and developing]
Developing or teaching financial [education] literacy curricula for low- or
moderate-income individuals.
***
•
Providing other financial services with the primary purpose of community
development, such as.. .free government or payroll check cashing that
increases access to financial services for low-or moderate income
individuals.
***
CBA Comments:
a) Throughout the Proposal, the term "financial education" is being replaced with the
term "financial literacy." We are not sure why, but we believe it is actually a change for
the worse and runs counter to trends in usage. Financial education is a clearer phrase and
is more precise. Financial literacy is a metaphor. We have also heard it suggested that
the latter term is pejorative; and we do not see any reason to offend unnecessarily.
b) The reference to "free" check cashing needs to be changed to "affordable" or perhaps
"low-cost." If the service is effectively increasing access to financial services for lowand moderate-income individuals, whether or not it is free should be immaterial. The
expectation that the check cashing service must be free improperly suggests a view of
CRA as a form of charity, rather than a sustainable part of the business of banking.
c) The Supplementary Information accompanying the Proposal states on 37972, "The
agencies also propose to revise the example of community development services
describing various types of consumer counseling services to highlight credit counseling
that can assist borrowers in avoiding foreclosure on their homes." It is not clear what this
is referring to, since the section on foreclosure avoidance has no proposed changes.
d) We are concerned about the practicality of proving that financial education seminars
benefit LMI individuals when they are not held in conjunction with a not-for-profit
partner. We are therefore recommending the inclusion of a Q&A in §. .24 to address
this issue (see below).
3. Grants to Arts and Culture Organizations
§
.12(s) Qualified investment
§
. 12(t) - 4: What are examples of qualified investments?
The Board has proposed the following answer, in relevant part, which is changed only as
noted by the underlined portion:
A4. Examples of qualified investments include, but are not limited to, investments,
grants, deposits or shares in or to:
***
•
Facilities that promote community development by providing community services
for low- and moderate-income individuals, such as youth programs, homeless
centers, soup kitchens, health care facilities, battered women's centers, and
alcohol and drug recovery centers;
CBA Comment:
We recommend the inclusion of grants to arts and culture organizations as examples of
community services that are qualified investments.
Arts and culture organizations are critical to the development and strength of
communities. These organizations nurture and facilitate community development
through education and programming. Arts and culture organizations inspire children and
youth to serve as agents of change while simultaneously cultivating their leadership skills
and fostering a commitment to community service. Moreover, these organizations serve
as an essential educational resource to the local communities. Through their involvement
with these organizations, children can learn basic literacy skills, as well as enhance their
critical and analytical abilities. Many of these organizations are located in underserved
communities, or at least are focused on serving the individuals in these areas.
Furthermore, arts and culture organizations serve to revitalize and stabilize the
communities where they are located. Given these attributes and benefits of many arts and
culture organizations, grants to these organizations should be considered CRA qualified
investments.
Recommended revisions to Answer to §
-12(t) — 4 (new language underlined):
A4. Examples of qualified investments include, but are not limited to, investments,
grants, deposits or shares in or to:
***
•
Facilities that promote community development by providing community services
for low- and moderate-income individuals, such as youth programs, homeless
centers, soup kitchens, health care facilities, battered women's centers, arts and
culture organizations, and alcohol and drug recovery centers;
***
4. Letters of Credit
§
.22—Lending Test
§
.22 (a) (2)-l: How are lending commitments (such as letters of credit) evaluated
under the regulation?
CBA Comment:
As proposed (and substantially unchanged), the Agencies will consider lending
commitments (such as letters of credit) only at the option of the institution.
Commitments must be "legally binding" between an institution and a borrower in order
to be considered. They will be used by examiners only to "enhance their understanding of
an institution's performance."
Currently, letters of credit are not included in the lending tables at the end of performance
evaluations but are mentioned only in the text of the lending performance discussion, thus
receiving lesser 'weight' than a loan. Additionally, the dollar value of letters of credit is
not included in the comparison to Tier 1 Capital that is referenced in the community
development lending summary discussion. In practice, this results in a significant
undervaluation of letters of credit as a community development vehicle and does not do
justice to the importance of the bank's commitment.
Letters of credit are legally binding guarantees by the institution of a debt or other legal
obligation of the account party. As such, the credit risk is identical to a conventional
loan. When the proceeds of a bond issue enhanced by the institution's letter of credit are
used for the construction of real estate improvements, standard construction loan
procedures govern the disbursement of the bond funds. The bond trustee may only
disburse bond proceeds upon written authorization from the letter of credit provider. As
with a loan, such authorization is normally preceded by satisfaction of construction loan
draw procedures and documentation. In the event of a default and subsequent drawing on
the letter of credit, the institution assumes ownership of the mortgage-secured bonds in
order to preserve and protect its collateral position.
Moreover, the institution's assumption of the bondholder's risk of loss produces a net
positive impact on the cost of funds for project development, even after factoring in letter
of credit fees paid to the institution. The interest rate discount available via issuance of
tax-exempt bonds is a cost efficient means to finance the creation and sustainability of
affordable housing. Bonds that are enhanced with a letter of credit issued by a rated
institution bear an interest rate reflective of the credit of the institution rather than the real
estate.
In addition to the interest rate advantage, the use of tax-exempt bonds enables utilization
of the "as of right" 4% Low Income Housing Tax Credit. Equity generated from the sale
of tax credits does not require a cash return from the real estate. The combination of low
interest rates and return-free equity produces the economic feasibility of affordable rents,
even in an environment of escalating housing costs. Letters of credit are a critical
component of this financing structure.
Thus, letters of credit should be given full consideration with respect to the evaluation of
community development lending under the CRA lending test. This alternative financing
option should be given equal consideration to other types of community development
loans and included in the performance evaluation lending tables. These types of
transactions truly embody an institution's use of its full resources to address the needs of
its local communities.
Recommended New Answer to §
.22 (a) (2)-l:
Al. Letters of credit can be a critical component in the production of affordable housing.
For example, through their issuance, lower cost tax-exempt bond financing is facilitated
and eligibility for 4% Low Income Housing Tax Credits is triggered. During the term of
the letter of credit, risk of loss is transferred from the bondholders to the institution. The
bond rating will reflect the credit rating of the issuer of the letter of credit thereby
lowering the borrowing cost to the project. Should a default occur in the underlying debt
structure, the letter of credit would be drawn and the institution would assume the
position of mortgage secured bondholder. Credit risk to the institution is not materially
different when compared to a conventional mortgage loan, yet letters of credit can
provide efficiencies in the production of affordable housing. Therefore, letters of credit
will be considered and given the same weight as loans, with regard to an institution's
performance in community development lending, provided that a clear community
development benefit is shown. Examples include, but are not limited to:
•
•
•
Letters of credit that enhance tax-exempt bonds issued for the construction of
affordable housing;
Letters of credit in favor of municipalities to guarantee payment & completion
of proiect site work, utility connections, and other project-related
requirements; or
Letters of credit used to purchase forward fixed interest rate locks for
permanent financing on affordable housing projects.
5. Financial Education Programs
§
.24 Service Test
CBA Comment:
In the definitions, new
. 12(i) provides that developing or teaching financial education
curricula for low- or moderate-income individuals is an example of a community
development service. We wish to raise a practical problem that stems from this
treatment, and suggest a solution.
For the most part, it is infeasible and problematic to require income information from
participants in financial education seminars that are not held in conjunction with a notfor-profit partner with community development as its mission. This is particularly true
with seminars held at bank branches and at workplace sites. For an institution bringing to
bear its full resources to address the needs of or local communities, this presents a
particularly vexing conundrum.
Alternative methodologies can be used to show the benefit to an LMI community. For
example, for a financial education seminar held at a large retail store, information can be
obtained from an outside, governmental source, like the Department of Labor, that
indicates the average hourly wage for workers in this particular industry. That hourly
wage can be translated into an annual income that can then be compared to the HUD
updated area median family income. As another example, the location of the branch in
an LMI community in which financial education seminars are conducted can be used to
establish an LMI constituency.
Recommended New Question and Answer:
.£
.24 (e)-2: How can an institution alternatively prove that financial education
seminars benefit an LMI constituency?
A2. The agencies will presume that any financial education seminars provided in
conjunction with organizations with a community development mission serve an LMI
population. With respect to financial education seminars conducted not in conjunction
with organizations with a community development mission, alternate methodologies may
be used to establish the benefit to an LMI population. The methodologies may include,
but are not limited to, the following:
•
•
The annualized average hourly wage for workers in a particular
industry for financial seminars conducted at a workplace within
that industry,
Financial education seminars conducted in conjunction with a
program of a community organization with a community
development purpose, and
•
Financial education seminars conducted in an LMI community.
* * *
Thank you once again for the opportunity to present our comments. If you have any
questions, feel free to contact me.
Sincerely,
/s/
Steven I. Zeisel
Senior Counsel
szeisel@cbanet.org
DPPDRTUNITYFINANCE |
N ETWD RK I
September 10, 2007
Federal Reserve Board
E-mail: regs.comments@federalreserve.gov
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve
System
20th Street and Constitution Avenue, NW
Washington DC 20551
RE: Docket No. OP-1290
Office of the Comptroller of the Currency
E-mail: regs.comments@occ.treas.gov
250 E St. SW, Mail Stop 1-5
Washington 20219
RE: Docket ID OCC-2007-0012
Office of Thrift Supervision
E-mail: regs.comments@ots.treas.gov
Regulation Comments
Chief Counsel's Office
1700 G Street, NW
Washington, DC 20552
RE: ID OTS-2007-0030
Federal Deposit Insurance Corporation
E-mail: Comments@FDIC.gov
Robert E. Feldman
Executive Secretary
Attention: Comments
550 17th St. NW 20429
RE: RIN 3064-AC97
Re: Notice & Request for Comments: Interagency Questions and Answers for Community Reinvestment.
To Whom It May Concern:
Opportunity Finance Network1 appreciates the chance to comment on the proposed Interagency
Questions and Answers (Q&A) regarding the Community Reinvestment Act (CRA). The CRA rule, effective
September 1, 2005, made significant changes to the regulations, and a clear Q&A is critical to guiding
banks and their partners.
Opportunity Finance Network commends the Agencies for including New Markets Tax Credit-eligible
Community Development Entities and New Market Venture Capital Companies as appropriate financial
intermediaries in several of the Q&As. We also strongly support that banks will receive favorable CRA
consideration for foreclosure prevention activities. This will assist in the battle against this nation's
foreclosure crisis. In addition, clarification on the importance of branch building and maintenance will
help provide access to affordable banking services in low- and moderate-income neighborhoods that are
reaching crisis levels due to abusive payday lending and other high-cost services.
Specifically, Opportunity Finance Network offers comments that indicate ways the Agencies could clarify
the CRA's intent to benefit low- and moderate-income people and communities. Our comments are in the
order of the specific proposed Q&As they reference.
1
Opportunity Finance Network, the national network of more than 160 financial institutions creates growth that is
good for communities, investors, individuals, and the economy. Its members include Community Development
Financial Institutions (CDFIs) and other opportunity finance institutions that work just outside the margins of
conventional finance to bring those markets into the economic mainstream and to help the economic mainstream
flow into those markets. CDFI financing has resulted in significant numbers of new jobs, jobs preserved, quality,
affordable housing units, and new commercial and community facility space in all 50 states. Over the past 30 years,
the Opportunity Finance industry has provided more than $23 billion in financing that would not otherwise have
happened in markets that conventional finance would not otherwise reach.
Public Ledger Building I 620 Chestnut Street, Suite 572
P215.923.4754
I F 215.923.4755
I Philadelphia, PA 19106-3413
I www.opportunityfinance.net
.11
Sec.
.12(g)(4), Sec.
. 12(g)(3)-1, and Sec.
.12(h)-7
Sec.
.12(g)(4): Opportunity Finance Network agrees with the Agencies in applying a "broader
geographic criterion when evaluating capital investments, loan participations, and other ventures
undertaken by that institution in cooperation with minority- or women-owned institutions or lowincome credit unions..." if the Agencies apply the criterion to community development financial
institutions (CDFIs) in addition to the other groups included. We urge the Agencies to include CDFIs
since many CDFIs, especially National CDFIs, meet the credit needs of local communities on a state
or regional basis. CDFIs are a recognized financial intermediary in the CRA and they are specifically
highlighted in Sec.
.12(h)-l as an example of community development loans.
In 2005, CDFI customers were 52 percent female, 58 percent minority, and 68 percent low income.2
By statute,3 CDFIs must serve the low- and moderate-income communities referred to in the CRA.
Both the statutory requirements and the actual performance4 of Treasury certified CDFIs support the
addition of CDFIs to this Q&A.
CDFI certification is a designation conferred by the Department of the Treasury's CDFI Fund.5 As a
certified CDFI, a financial institution must demonstrate that it has a primary mission of promoting
community development; that it provides financial products and development services to designated
distressed or underserved target markets; and that it maintains accountability to these markets.
CDFIs serve the same market interests as minority-owned financial institutions, women-owned
financial institutions, and low-income credit unions. CDFIs should be accorded the same treatment
under the CRA as these groups. This should be a minor inclusion, but will help solidify the unique
value of CDFIs in helping low- and moderate-income people and communities with their credit needs.
This is, after all, the purpose of both CDFIs and the CRA.
Sec.
. 1 2 ( g ) ( 3 ) - l . For the same reasons suggested in the above Q&A, we suggest that you
add CDFIs to, "The agencies will presume that any loan to or investment in a CDFI, SBDC, SBIC,
Rural Business Investment Company, New Markets Venture Capital Company, or New Markets Tax
Credit-eligible Community Development Entity promotes economic development."
Sec.
.12(h)-7. For the same reasons suggested above, we urge the Agencies to include CDFIs
in this Q&A, "Community development loans and services and qualified investments to statewide or
regional organizations, SUCH AS A NATIONAL CDFI, which have a bona fide purpose, mandate, or
function that includes serving the geographies or individuals within the institution's assessment
area(s) will be considered as addressing assessment area needs."
2
The CDFI Data Project. (2007). "Community Development Financial Institutions (CDFIs): Providing Capital, Building
Communities, Creating Impact, Fiscal Year 2005." www.opportunityfinance.net/store/product.asp?pID=81&c=34715.
3
The CDFI Fund was established by bipartisan legislation, the Reigle Community Development and Regulatory
Improvement Act of 1994, P.L. 103-325. See specifically, 12 USC 4701, "to promote economic revitalization and
community development through investment in and assistance to community development financial institutions."
4
Supra at 1.
5
The CDFI Fund was established by bipartisan legislation, the Reigle Community Development and Regulatory
Improvement Act of 1994, P.L. 103-325. Title I, Section 103 Definitions, (5) Community Development Financial
Institution. CDFI certification isfocusedon measuring the institution's target market for evidence of poverty and its
community development mission. Applicants for CDFI certification must submit extensive documentation for
consideration by the agency before certification is granted.
CRA Q&A Comments
2
.11
Sec.
.12(g)(4)-2: Opportunity Finance Network is concerned that the Q&A offers CRA credit for
housing projects that do not include a low- and moderate-income component. Instead of, "will give
greater weight to those activities that are most responsive to community needs, including needs of lowor moderate-income individuals or neighborhoods," the regulators should use the language found in Sec.
.12(h)-5, "may qualify...if the activities also provide housing for low- or moderate-income
individuals."
Sec.
.12(g)(4)(ii)-2. We suggest that the Agencies change this Answer to read, "The Agencies
generally will consider all activities relating to disaster recovery that revitalize or stabilize a designated
disaster area, but will give greater weight to those activities that are most responsive to community
needs, PARTICULARLY those of low- or moderate-income individuals or neighborhoods." This small but
significant change would keep CRA activities focused on those the law intends to benefit.
Sec.
.12(h)-3. This Q&A clarifies the treatment of home and small business loans in cases when
intermediate small banks do not publicly report these loans. Opportunity Finance Network agrees with the
Agencies that these banks can claim home and small business loans as either counting under their
lending test or community development test. If intermediate small banks were allowed to count these
loans for both tests, double counting would occur and the CRA rating would not accurately reflect service.
Sec.
.12(i)-3. We commend the Agencies for including individual development accounts (IDAs)
with the examples of community development services. This powerful asset-building tool is often the first
step in financial literacy of the unbanked and should be included in the CRA examination consideration.
Sec.
.22(a)(2)-6. If the Agencies will consider purchasing loan participations as well as
originations for the CRA examination, the examiners should separately analyze the two areas, giving
greater weight to originations than purchases. Loan originations are usually more difficult and most
directly responsive to borrowers' credit needs.
Sec.
.22(a)(2)-7. Opportunity Finance Network agrees with the Agencies that a loan of $1 million
or less secured by a one-to-four family residence is considered a small business loan for CRA purposes
and the risk of double counting is minimal.
Sec.
.22(c)(l)-l. The new example provided for this question allows an institution to count loan
origination and if it sells to an affiliate, the affiliate of the institution may then count the loan purchase for
its CRA exam. The institution has not leveraged two loans, instead the affiliate is essentially "holding" the
loan in its portfolio. This appears to give double credit for one loan since the purchasing institution is an
affiliate of the originator. This does not accurately reflect an institution's ability to respond to credit
needs, and we urge the Agencies to change this example so that only the loan origination may count for
CRA whether the institution holds the loan or sells it to an affiliate.
Sec.
.23(a)-2. Opportunity Finance Network urges the Agencies to add specifically CDFIs and
apply the same procedure to investments in national or regional funds as we suggested for Sec.
.12(g)-4 for minority- or women-owned financial institutions when it suggests using "broader
geographic criterion when evaluating capital investments, loan participations, and other venture
undertaken by that institution."
Sec.
.24(d)-l. We commend the Agencies for clarifying that all institutions may participate in
individual development accounts (IDAs) programs. This powerful asset-building tool is often the first step
in bringing people into the financial mainstream.
Sec.
.26(a)-2. Opportunity Finance Network agrees with the Agencies that there should be no lag
CRA Q&A Comments
3
.11
period when a small bank becomes an intermediate small bank. The small bank does not need extra time
to prepare for the intermediate small bank exam since the exam does not require any additional
reporting.
Sec.
. 4 2 ( a ) ( 2 ) - l and Sec.
.42(b)(2)-4. The Agencies should revise Sec.
.42(a)(2)-l
to be consistent with the guidance found in the new Q&A in Sec.
.42(b)(2)-4. Sec.
.42(a)(2)-l
states, "When collecting and reporting information on purchased small business and small farm loans,
including loan participations, an institution collects and reports the amount of the loan at origination, not
at the time of purchase." In contrast, Sec.
.42(b)(2)-4 states, "The institution reports only the
amount of the participation purchased as a community development loan." Opportunity Finance Network
agrees with the Agencies in Sec.
.42(b)(2)-5 that says, "Community development loan refinancing
and renewals are subject to the reporting limitations that apply to refinancing and renewals for small
business and small farm loans." We urge the Agencies to take this approach with all community
development loans and instruct institutions to report only the amount of purchase in cases involving loan
participations as it does in Sec.
.42(b)(2)-4. It is more accurate for a bank to report the amount of
its loan participation for the reasons cited for community development loans.
OTS Conforming Comments
Opportunity Finance Network is pleased that the Office of Thrift Supervision is conforming its regulations
and Q&As with those of the other Agencies. We encourage the Agency to conform all its regulation and
oversight to that of the other Agencies.
Additional Areas Not Addressed in the Proposed Q&A
The request for comment accompanying this Q&A invites public comment "on issues raised by the CRA
and the Interagency Questions and Answers." Opportunity Finance Network has long advocated the
following two improvements to the CRA, particularly since the 1999 Gramm-Leach-Bliley Act
"modernized" the financial services industry without commensurate reform to community reinvestment
requirements.
Expand CRA coverage to all financial service institutions that receive direct or indirect taxpayer support or
subsidy. After passage of the Gramm-Leach-Bliley Act, banks became nearly indistinguishable from
finance companies, insurance and securities firms, and other "parallel banks." For example, banks and
thrifts with insurance company affiliates have trained insurance brokers to make loans. Securities
affiliates of banks offer mutual funds with checking accounts. Mortgage finance company affiliates of
banks often issue more than half of a bank's loans—especially in the subprime markets.
However, CRA covers only banks, and therefore only a fraction of a financial institution's lending. To keep
CRA in step with financial reform, all financial services companies that receive direct or indirect taxpayer
support or subsidy should comply with the CRA exam process.
In the paper, "The Parallel Banking System and Community Reinvestment," Opportunity Finance Network
uncovered a web of taxpayer-backed subsidies essential to the entire financial services industry. For
example, federal guarantees and Treasury lines of credit have acted as a safety net against some
nonbank insolvencies.
Opportunity Finance Network strongly urges regulatory agencies to mandate that all lending and banking
activities of non-depository affiliates be included on CRA exams, including all banks that are part of large
holding companies. This change would accurately assess the CRA performance of banks that are
expanding their lending activity to all parts of their company, including mortgage brokers, insurance
CRA Q&A Comments
4
.11
agents, and other non-traditional loan officers.
A bank's assessment area should be determined by how a bank defines its market. U nder CRA, ba n ks a re
required to provide non-discriminatory access to financial services in their market and assessed according
to where they take deposits. In 1977, taking deposits was a bank's primary function. In 2007, banks no
longer just accept deposits, they market investments, sell insurance, issue securities, and are rapidly
expanding their more profitable lines of business. In addition, the advent and explosion of Internet and
electronic banking has blurred the geographic lines by which assessment areas are typically defined.
Presently, CRA exams scrutinize a bank's performance in geographical areas where a bank has branches
and deposit-taking ATMs. Defining CRA assessment areas based on deposits is at odds with the way
financial institutions now operate. Moreover, it disregards the spirit of the CRA statute, which sought to
expand access to credit by ensuring that banks lent to their entire markets.
Opportunity Finance Network recommends simplifying the definition of CRA assessment area according to
a financial institution's customer base. For instance, if a Philadelphia bank has credit card customers in
Oregon, it also has CRA obligations there. The obligations ought to be commensurate with the level of
business in any market.
Thank you for the opportunity to comment. If you have questions or would like additional information on
this comment letter, please do not hesitate to contact me at 215.320.4304 or
mpinsky@opportunityfinance.net.
Sincerely,
^ ^
Mark Pinsky
President and CEO
CRA Q&A Comments
v
5
M *A*/TVENT IN PEOPl£
NsTlONN.
BKN<ER/
hf/CCINlON
January 3,2008
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve
System
20 and Constitution Avenue, NW
Washington, DC 20551
E-mail:
regs.comments(g),federalreserve.gov
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
E-mail:
Comments@FDIC. gov
Office of the Comptroller of the Currency
550 E Street, SW
Mail Stop 1-5
Washington, DC 20219
E-mail:
regs.comments(a),occ.treas.gov
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Attn: ID OTS-2007-0030
E-mail:
regs.comments@ots.treas.gov
RE: Community Reinvestment Act; Interagency Questions and Answers
Regarding Community Reinvestment (Docket OP-1290-Federal Reserve; RIN 3064AC97(FDIC); Docket ID OCC-2007-0012 (OCC); Docket ID OTS-2007-0030 (OTS))
Dear Ms. Johnson:
We would appreciate the opportunity to clarify remarks contained in a previous
comment letter dated September 10,2007. In connection with that letter, we would
clarify Page 3 Section c) to read as follows:
c)
Also as to the substance, we would ask that you revise Section I of the
"Proposed New Questions and Answers", which states:
1513 P Street, NW., Washington, D.C. 20005
(202) 588-5432 Fax (202) 588-5443
The agencies propose a new question and answer, §11.12(g)—4,
that would give full effect to section 2903(b) 's broader geographic
language. The proposed question and answer would state that
activities engaged in by a majority-ownedfinancial institution with
a minority- or women-ownedfinancial institution or a low-income
credit union that benefit the local communities where the minorityor women-ownedfinancial institution or low-income credit union
is located will be favorably considered in the CRA
performance evaluation of the majorityowned institution. The
minority- or women-owned institution or lowincome credit union
need not be located in, and the activities need not benefit, the
assessment area(s) of the majorityowned institution or the broader
statewide or regional area that includes its assessment area(s).
We would recommend that the qualifying language that reads "...that benefit the local
communities where the minority- or women-owned financial institution or low-income
credit union is located'' be stricken, as it appears to require that majority banks obtain
some type of proof (presumably a certificate or similar document) that their involvement
with the minority bank ultimately can be directly linked to a specific CRA-related
activity of the minority bank. This creates exactly the type of uncertainty in the
application of these rules that will dissuade a majority bank from engaging in the desired
activity at all. Stated differently, if a majority bank has the choice of a certain CRA
beneficial activity such as the purchase of a loan pool in its assessment area, or a less
certain (given the above referenced qualifying language) benefit from investing in a
minority institution, in our experience they will almost always choose the more certain
approach.
We hope that this letter effectively clarifies our remarks with respect to this section of the
Interagency Questions and Answers. We appreciate your consideration and attention to
this matter.
Sincerely,
a Alexander Hart
^ormaAfexahi
President
•NMOTMNTMKCAE
NTOf\N_
Bf\N<ER/
rSr/OQRlON
September 10, 2007
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve
System
20th and Constitution Avenue, NW
Washington, DC 20551
E-mail:
regs.comments@federalreserve.gov
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
E-mail:
Comments@FDIC. gov
Office of the Comptroller of the Currency
550 E Street, SW
Mail Stop 1-5
Washington, DC 20219
E-mail:
regs.comments@occ.treas.gov
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, Dc 20552
Attn: ID OTS-2007-0030
E-mail:
regs.comments@ots.treas.gov
RE: Community Reinvestment Act; Interagency Questions and Answers
Regarding Community Reinvestment (Docket OP-1290-Federal Reserve; RIN 3064AC97(FDIC); Docket ID OCC-2007-0012 (OCC); Docket ID OTS-2007-0030 (OTS))
Dear Ms. Johnson:
Thank you for the opportunity to comment on proposed questions and answers
regarding community reinvestment.
Founded in 1927, the National Bankers Association represents the interests of
minority and women-owned and managed financial institutions throughout the United
States. Our member banks are located in 29 states and 2 territories, serving mainly
distressed communities plagued by severe social and economic problems. Our members
are deeply committed to providing employment opportunities, entrepreneurial capital and
economic revitalization in neighborhoods that often have little or no access to alternative
financial services.
For our member banks, service to their communities, which typically consist of
low and moderate-income neighborhoods, is the essential reason that they exist. The
Community Reinvestment Act serves a noble goal, for it encourages banks and savings
institutions that do not have the same commitment that our members have to serve the
credit needs of low and moderate-income neighborhoods to make that commitment.
One way in which majority-owned financial institutions can reach depressed inner
city and other neighborhoods dominated by deprived minority groups and individuals is
to establish branch offices in those communities. But many such institutions choose not
to do so. For those who live and work in those communities, having full access to many
majority-owned financial institutions that operate in nearby communities is unattainable.
Alternatively, majority-owned financial institutions can support those minorityowned financial institutions with offices and relationships in those depressed markets
through capital infusions, deposits, and other investments that would support the
revitalization of the communities.
Despite the fact that the Community Reinvestment Act became law more than
thirty years ago, many of our members continue to lack the support of majority-owned
financial institutions that have the resources to assist our members in serving the banking
needs of these economically depressed communities. Minority banks often have
difficulty attracting sufficient capital from members of their communities to support
growth and profitability because of lack of financial resources of those members, and
therefore need to go outside their communities to attract the capital they need to succeed.
The federal banking agencies have recognized the importance of the role of
majority-owned financial institutions in making investments in minority-owned financial
institutions in the questions and answers relating to CRA compliance. The CRA question
and answer regulations adopted in 2001 ask, "What are examples of qualified
investments?" The answer provided is "Examples of qualified investments include, but
are not limited to, investments, grants, deposits or shares in or to financial intermediaries
(including.. .minority.. .owned financial institutions...) that primarily lend or facilitate
lending in low- and moderate-income areas or to low- and moderate-income individuals
in order to promote community development.
The current proposal also address activities engaged in by a majority-owned
financial institution with a minority or women-owned financial institution by making it
clear that activities engaged in by a majority-owned financial institution that benefit the
local communities where the minority or women-owned financial institution is located
will be favorably considered in the CRA performance evaluation of the majority-owned
institution even if the minority or women-owned financial institution is not located in, or
the activities do not benefit, the assessment area of the majority-owned institution or the
broader statewide or regional area that includes its assessment area.
While these actions and proposals are helpful, NBA believes that more needs to
be done to address the acute need of many of this nation's inner city neighborhoods and
the minority institutions that serve those neighborhoods to attract capital and other
investments from majority-owned financial institutions.
We believe that the federal banking agencies can use the Community
Reinvestment Act and its regulations to more strongly encourage majority-owned
financial institutions to invest in minority and women-owned financial institutions.
In this regard:
a)
Although we appreciate the regulator's efforts, we nonetheless continue to
believe that, given the importance of the matter to minority banks, and our
experience in dealing with majority banks, that an express declaration in
regulations regarding this issue is important. Majority banks generally
devote very little time to these issues, and the certainty of a statement in
the text of the CRA regulations, as opposed to a supplemental Q&A,
cannot be overstated.
b)
As to the substance of the Q&A (and ultimately the regulation), we would
like to add "deposits" into minority institutions as a type of activity that
generates CRA credit. The low-cost funding provided by deposits are as
critical to the success of a minority bank as any of the other activities
listed in the Q&A.
c)
Also as to the substance, we would ask that you remove the last sentence
of the regulation. That sentence appears to require that majority banks
obtain some type of proof (presumably a certificate or similar document)
that their involvement with the minority bank ultimately can be directly
linked to a specific CRA-related activity of the minority bank. This
creates exactly the type of uncertainty of application of these rules that
will dissuade a majority bank from engaging in the desired activity at all.
Stated differently, if a majority bank has the choice of a certain CRA
beneficial activity such as the purchase of a loan pool in its assessment
area, or a less certain (given the last sentence) benefit from investing in a
minority institution, in our experience they will almost always choose the
more certain approach.
The last sentence of the proposed Q&A also, however, highlights a much more
fundamental issue. In the CRA area we really are seeking two regulatory changes: (1) a
clear regulatory pronouncement that majority bank involvement in minority banks can
yield CRA benefits to the majority bank (as discussed above); and (2) a clear regulatory
pronouncement that minority banks should be viewed differently from majority banks for
CRA purposes.
As to the CRA credit minority banks receive for their activities, the CRA
currently focuses very heavily on lending into low-and-moderate income neighborhoods,
and provides very little relative credit for actually operating a physical branch presence in
urban and minority neighborhoods. Absurdly, from a CRA perspective, a minority bank
would be much better off deploying its capital to lend into an urban community rather
than to maintain a branch presence there to serve as a beacon of hope to inner city
residents.
Given the mission of minority banks, the current CRA approach obviously is
inappropriate. We thus are asking the banking agencies to develop a different standard
for minority banks. Nothing can more truly support the spirit of CRA than to maintain
operations in these neighborhoods and we want to be certain that the CRA rating for
those activities is no less than for a lending program. Stated simply, we strongly believe
that the regulations should be amended to make clear that, because of its CRA-centric
mission, a bank that qualifies as a "minority bank" cannot have less than a satisfactory
CRA rating.
Finally, another important consideration is the implementation of the CRA
regulations and the CRA question and answer regulations. This entails the field
examiners who conduct CRA examinations of financial institutions. It is essential that
they be trained and informed as to the crucial role that majority-owned financial
institutions can play in depressed communities in which those institutions do not have
branch offices through investments in minority- and women-owned financial institutions.
The examination manuals of each of the federal banking agencies should be reviewed to
determine whether the guidance provided to the examiners is sufficient for them to be
able to encourage majority-owned financial institutions to invest in the communities in
which minority and women-owned financial institutions serve by making investments in
those institutions.
Sincerely,
Norma Alexander Hart
President
I I Enterprise
use
September 10, 2007
Docket ID OCC-2007-0012
Office of the Comptroller of the Currency
250 E Street, SW
Mail Stop 1-5
Washington, DC 20219
Jennifer J. Johnson, Secretary
Attention: Docket No. OP-1290
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Robert E. Feldman, Executive Secretary
Attention: Comments RIN number 3064-AC97
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Regulation Comments
Attention: ID OTS-2007-0030
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
To Whom It May Concern:
Local Initiatives Support Corporation (LISC) and Enterprise appreciate the opportunity to
comment on the interagency proposed Questions and Answers (Q&As) regarding the
Community Reinvestment Act (CRA). Specifically, we are deeply concerned that
requiring banks to show how an investment in a national or regional community
development fund meets the geographic requirements of the CRA regulations would hurt
the many rural areas, smaller cities and entire states that are underserved by large,
sophisticated banks, and impede important activities perceived as risky, such as housing
for the homeless and other vulnerable populations. More broadly, it would interfere with
efficient capital mobility, one of the most important benefits of the U.S. financial
markets.
Enterprise and LISC are the nation's two largest nonprofit providers of capital for lowincome community development. We have provided a combined total of $16 billion
since 1980, and currently invest $2 billion annually, mostly in the form of equity
investments based on Low-Income Housing Tax Credits (Housing Credits) and New
Markets Tax Credits. National and regional funds with multiple bank investors comprise
a majority of that investment. We typically organize these funds by attracting the
investors and placing and managing equity capital in activities that revitalize low-income
communities and help low-income families live independently and productively. We
particularly focus on the hardest-to-serve people and places.
We would like to make four points: (1) national and regional community development
funds serve important purposes; (2) the agencies' proposal will be unworkable for such
funds where banks are the primary investors or lenders; (3) if implemented, the proposal
would hurt underserved communities and people with special needs; and (4) the agencies
should adopt a simpler, more flexible approach consistent with other CRA policies.
1. National and regional community development funds serve important purposes.
Indeed, the current Q&A sec. .12(i) & 563.e.l2(h)-5 provides strong support
for such funds: "The regulations recognize that community development
organizations and programs are efficient and effective ways for institutions to
promote community development. These organizations and programs often
operate on a statewide or even multi-state basis."
a. They spread risk among multiple investors or lenders and diversify risks
over a broad geographical area. This is a common technique for fostering
efficient investment markets and attracting new investors to support
community development activities. It is critical that low-income
communities and families be able to benefit from these established
business practices.
b. They bring capital to communities underserved by major, sophisticated
banks. For example, fewer than 20 corporations - mostly large,
sophisticated banks - provide the preponderance of investments based on
Housing Credits. This investment market is highly efficient and
competitive, resulting in very low after-tax investment yields slightly
above 5%, very low foreclosure rates of 0.02% annually, and maximizing
the capital actually available for housing. Moreover, these funds have
been able to reach communities, including rural areas, smaller cities, and
even some states that these banks do not specifically target.
c. They facilitate financing of activities perceived to be of higher risk, such
as supportive housing for the homeless and other vulnerable populations.
About 25% of our combined Housing Credit investments are used for this
supportive housing, with great success.
2
d. They are cost-efficient. Pooling a critical mass of capital allows spreading
transaction costs over a large volume of activity. More of each investment
dollar goes into communities rather than to third parties transaction costs.
2. The proposed Q&A requiring banks to show how their participation in national
and regional community development funds meet geographical targeting tests is
unworkable. The Q&A suggests three alternatives:
a. A bank could claim pro-rata credit for all of the activities financed by the
fund that are located in its geographic area. For example, if 20% of the
fund's activity is within a bank's geographic target area, then the bank
would get credit for only 20% its investment in the fund - even if the bank
contributes a smaller share of the fund's capital. Only a bank whose
territory closely coincides with the fund's activities would find this
approach acceptable.
b. Alternatively, a fund manger could assign credit for its various activities to
each of its bank participants, provided that no fund activity is attributed to
more than one bank. The problem here is that most bank investors will be
interested only in certain target areas, and often the same target areas. For
Housing Credits, there are fewer than 20 major corporate investors
nationwide, and a national or regional fund might include five to ten of
them. We are already seeing banks insist on receiving credit for specific
locations, and even for specific properties. Simply put, it will be difficult
or impossible for fund managers to reconcile all of these competing
demands. Many banks would decline to participate unless they can be sure
of getting credit for their specific priority deal and location. Meanwhile,
many projects that are highly responsive to local community needs will be
located where no major bank investor has a priority interest, and these
projects will be much harder if not impossible to finance.
c. The proposed Q&A also offers the example that a bank could get credit
for participating in a new nationwide fund providing foreclosure relief if
the fund manager uses its best efforts to meet the bank's geographic
targeting requirements. While we appreciate this flexibility, it presents two
problems. First, it appears to apply only to new or innovative activities, so
it would be of little use for Low Income Housing Tax Credits, for
example. Second, since examiners would presumably have broad
discretion about how much credit a bank would receive for participating in
such a fund, banks could not be certain at the point when investment
decisions are made how much credit a future examiner might grant. In our
extensive experience, such uncertainty clearly discourages bank
participation.
3. If implemented, the proposed policy would undermine national and regional
community development funds, hurt underserved communities, make homeless
3
and supportive housing and other challenging activities harder to finance, and
drive away banks unable to make very large investments.
a. The first effect of the proposed policy would be to undermine national and
regional funds that include multiple bank participants. Some banks already
prefer to make Low Income Housing Tax Credit investments through
proprietary funds in which they are the sole investors. This route is likely
to become more popular, especially for the few major banks able to make
very large financing commitments, as the only sure way to receive full
CRA credit for their entire investment. As the largest banks withdraw
from multi-investor funds, those funds will lose viability. Ironically, it is
these multiple investor funds that offer the best opportunities for banks
that cannot make very large financing commitments, and have been an
excellent way for banks to gain experience in community development
financing. Many such banks have taken great comfort from participating
in funds in which larger, more experienced banks are also participating.
Such avenues will become less available.
b. As single-investor, proprietary funds become more prominent, it will be
harder to attract financing for activities in areas outside those banks'
priority geographies. Many rural areas, smaller cities, and even entire
states served by only one or two, if any, of the largest banks. Some
financing in underserved areas may still be available, but probably on less
competitive terms. For example, investments based on Housing Credits
would require higher rates of return, so a fixed amount of tax credits
would generally less capital for the housing, in turn creating a financing
gap that public subsidies would have to fill. We have already observed
that rural Housing Credit properties attract less capital because few banks
target them.
c. Similarly, activities perceived as risky, such as homeless housing, would
be harder to finance. Although we have been very successful in managing
these investments, it is much easier to attract capital if a homeless housing
project is a small part of a large fund rather than a large part of a small
fund.
4. The agencies should adopt a simpler, more flexible policy consistent with CRA
precedents. Specifically, a bank that invests in a national or regional community
development fund should get full credit for its investment, provided that it is
adequately addressing the reinvestment needs of its assessment area(s). In
determining the adequacy of the bank's assessment area performance, the fund's
entire activity with such area(s) should be considered.
The agencies have already established or proposed several policies under CRA
that are consistent with this approach:
4
a. First, the current Q&A noted earlier (sec. . 12(i) & 563.e. 12(h)-5),
provides that: "an institution's activity is considered a community
development loan or service or a qualified investment if it supports an
organization or activity that covers an area that is larger than, but includes,
the institution's assessment area(s). The institution's assessment area(s)
need not receive an immediate or direct benefit from the institution's
specific participation in the broader organization or activity, provided that
the purpose, mandate, or function of the organization or activity includes
serving geographies or individuals located within the institution's
assessment area(s).
"In addition, a retail institution that, considering its performance context,
has adequately addressed the community development needs of its
assessment area(s) will receive consideration for certain other community
development activities. These community development activities must
benefit geographies or individuals located somewhere within a broader
statewide or regional area that includes the institution's assessment
area(s). Examiners will consider these activities even if they will not
benefit the institution's assessment area(s)."
b. A wholesale and limited purpose bank gets credit for community
development activities nationwide, provided that it is adequately
addressing the needs of its assessment area(s).
c. Banks located outside the designated disaster areas may receive positive
CRA consideration for activities that revitalize or stabilize the designated
disaster areas related to hurricanes Katrina and Rita, provided that the
banks have otherwise adequately met the CRA-related needs of their local
communities.
d. Under a newly proposed Q&A, a majority-owned bank would receive
CRA credit for supporting minority- and women-owned banks and lowincome credit unions even if they and their activities are not within the
majority-owned bank's assessment area(s) or the broader state or region.
The statutory authority for this policy makes no special provision for the
location of the majority-owned bank.
To avoid conflict with other policies that generally focus on bank activities
within assessment areas, we suggest that our proposal apply only to national
and regional funds engaged in community development activities, and would
therefore exclude home mortgage, small business and farm, and consumer
lending, all of which are otherwise reported under CRA.
We believe that consistency requires that a bank receive full recognition for
participation in national or regional community development funds only if it is
adequately addressing the reinvestment needs of its assessment area(s). The
5
principle is that a bank should remain responsible for addressing the needs of
its assessment area(s) and that a bank meeting this responsibility should also
receive full recognition for participating in national and regional funds, even if
they do not directly serve the bank's assessment area(s). In establishing
whether a bank is adequately addressing its assessment areas' needs, a bank
participating in a national or regional fund should receive favorable
consideration for the fund's entire activity within the bank's assessment
area(s). Otherwise the policy will not be fully effective.
Finally, the typical bank is unlikely to participate in a national or regional
community development fund unless it can be confident of receiving full
credit regardless of the location of the fund's activities (assuming the bank is
adequately addressing its assessment areas' needs). Many banks are now
finding that examiners are denying some or all credit even for activities that
benefit the bank's region or state but not its assessment area. We strongly urge
the agencies to remove the following portion of the current Q&A sec. .12(i)
and 63e.l2(h)-6: "When examiners evaluate community development loans
and services and qualified investments that benefit regional areas that include
the institution's assessment area(s), they will consider the institution's
performance context as well as the size of the regional area and the actual or
potential benefit to the institution's assessment area(s). With larger regional
areas, benefit to the institution's assessment area(s) may be diffused and, thus
less responsive to assessment area needs." If a bank is adequately addressing
the needs of its assessment area(s), the current policy is both unnecessary and
counterproductive.
This concludes our comment. We would be happy to discuss the matter further with the
agencies.
Sincerely,
Benson F. Roberts
Senior Vice President
Local Initiatives Support Corporation
Alazne M. Solis
Vice President
Enterprise Community Partners
September 10, 2007
Jennifer J. Johnson
Secretary
Board of Governors of the
Federal Reserve System
20th St. and Constitution Ave., NW
Washington, DC 20551
Docket No. OP-1290
Office of the Comptroller of the Currency
250 E Street, SW
Attn: Public Information Rm. Mail Stop 1-5
Washington, DC 20219
Docket ID OCC-2007-0012
Robert E. Feldman
Executive Secretary
Attn: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
RINNo. 3064-AC97
Re:
Community Reinvestment Act; Interagency Questions and Answers Regarding
Community Reinvestment
Ladies and Gentlemen:
Wells Fargo & Company ("Wells Fargo") is pleased to comment on the joint interagency notice
of Interagency Questions and Answers Regarding Community Reinvestment ("Interagency
Q&As"). Wells Fargo is a diversified financial services company with $540 billion in assets and
158,000 team members across our 80+ businesses, providing banking, insurance, wealth
management and estate planning, investments, mortgage and consumer finance from nearly
6,000 stores, the Internet and other distribution channels across North America and
internationally.
We commend the agencies for their continuing efforts to provide staff guidance for CRA
compliance and welcome the opportunity to comment on the proposed Interagency Q&As. Our
comments stem from a goal to promote increased sustainability for CRA programs in a volatile
economy and within a dynamic regulatory and business environment. We believe this goal can
best be furthered through greater flexibility in how the CRA exam procedures are applied,
particularly where an institution may demonstrate that its investment in a national or regional
multi-investor fund meets the geographic requirements of the CRA regulation.
1
Investments in National or Regional Funds for Community Development Purposes
Our comments relate to the proposed Q&A §
Page 37944), which reads as follows:
.23(a)-2 (Federal Register, Vol. 72, No. 132,
§
.23(a)-2: In order to receive CRA consideration, should an institution be able to
demonstrate that an investment in a national or regional fund with a primary purpose of
community development meets the geographic requirements of the CRA regulation by
benefiting one or more of the institution's assessment area(s) or a broader statewide or
regional area that includes the institution's assessment area(s)?
A.2. Yes. A financial institution should be able to demonstrate that the investment
meets the geographic requirements of the CRA regulation, although the agencies will employ
appropriate flexibility in this regard. There are several ways to demonstrate that the
institution's investment meets the geographic requirements.
For example, if an institution invests in a new nationwide fund providing foreclosure relief to
low-and moderate-income homeowners, written documentation provided by fund managers
in connection with the institution's investment indicating that the fund will use its best
efforts to invest in a qualifying activity that meets the geographic requirements may be used
for these purposes, ("first allocation method")
Similarly, a fund may explicitly earmark all projects or investments to its investors and their
specific assessment areas. (Note, however, that a financial institution has not demonstrated
that the investment meets the geographic requirements of the CRA regulation if the fund
"double-counts" investments, by earmarking the same dollars or the same portions of
projects or investments in a particular geography to more than one investor.) ("second
allocation method")
In addition, if a fund does not earmark projects or investments to individual
investors, an allocation method may be used that recognizes that each investor
has an undivided interest in all projects in a fund; thus each investor institution
its pro rata share of each project that meets the geographic requirements of that
("third allocation method")
institution
institution
may claim
institution.
If, however, a fund does not become involved in a community development activity that
meets both the purpose and the geographic requirements of the regulation for the
institution, the institution's investment generally would not be considered under the
investment or community development tests.
Currently, multi-investor national or regional funds are an efficient and prudent way to move
capital into distressed and underserved markets, and they are the investment vehicle through
which a significant majority of community development capital is funded. Wells Fargo believes
that due to the unique circumstances inherent in equity investments in multi-investor national or
regional funds, a more flexible rule for garnering CRA credit is not only appropriate, but
necessary to encourage continued investment in these funds. Such unique circumstances include
institutions investing in the fund before all of the underlying projects have been identified and/or
acquired, institutions investing at different times (staged closings), and institutions with
overlapping assessment areas investing in the same fund.
2
Although Q&A §
.23(a)-2 offers three alternative methods for allocating CRA credit in
multi-investor national or regional funds, Wells Fargo advocates strongly for the agencies'
adoption of just the first allocation method as it provides the most flexibility to obtain CRA
credit for financial institutions which will encourage these institutions to provide more capital for
CRA-qualified investments as well as ensure that these funds are directed to the more distressed
and underserved markets, including rural and non-metropolitan markets. It should be sufficient
for a fund manager to provide written documentation that it will use its best efforts to invest
within an institution's specified assessment area(s). Otherwise there will be a strong disincentive
for institutions to invest in funds whose underlying projects are not fully specified at closing
because if the institution cannot be assured that its investment in the fund will receive total or
almost total CRA credit or weight, it will either (i) not invest in that fund, potentially resulting in
the fund having fewer dollars to invest in community development, or (ii) postpone investment
in that fund until the fund has identified enough investments within the institution's assessment
area(s) to generate enough CRA credit to cover the investments of that institution.
Wells Fargo also objects to the second allocation method which allows the fund "to earmark all
projects or investments to its investors and their respective assessment areas," oftentimes in the
form of side letters. Under this scenario, a situation may result where the fund allocates CRA
credit on a first-come-first-served basis which would be a significant disincentive for subsequent
investors to invest in the fund if they have assessment areas that overlap with those of the prior
investors. Similarly, if a fund allocates CRA credit to its largest investors, there will be a
significant disincentive for medium and small investors to invest in the fund if they have
assessment areas that overlap with those of the larger investors. In either case, if several
investors do not invest in a fund for this reason, the fund may not be able to raise enough capital
to achieve optimal economies of scale.
In addition, most large investors are the top financial institutions in the country which have
primary assessment areas in the larger metropolitan markets. As such, there is likely to be more
demand/competition for projects in the larger metropolitan markets and little or no demand for
projects in smaller and/or rural underserved markets. A fund whose focus is on allocating CRA
credits to its investors could lose its mission focus and be more likely to pass on a viable
investment that is not within any of its investors' assessment areas. As a result, a project that
meets an urgent community development need but is not located within any of the fund
investors' assessment areas (particularly likely to be the smaller and/or rural underserved
markets) may never be capitalized. Further, this practice will reduce the fund's geographic
diversity, thereby making the fund more vulnerable to a financial downturn in one of its
geographic areas and less likely to find enough viable investments to fulfill its mission.
Finally, Wells Fargo objects to the adoption of the third allocation method where each institution
is allocated its pro rata share of CRA credit for each project in the fund. Under this allocation
method, if the fund invests in project(s) that are completely outside of an investing institution's
assessment area(s) or broader regional or statewide area, that institution will be allocated CRA
credit that it cannot use. This will dissuade CRA-motivated institutions from investing in any
fund that invests in projects outside of its assessment area(s) or broader regional or statewide
area, resulting in smaller funds which lack geographic diversity, funds that are not capitalized
3
enough to achieve optimal economies of scale, and fewer dollars being invested in community
development.
In conclusion, given the critical role that CRA-qualified equity investments in multi-investor
national or regional funds play in meeting the credit needs of communities, Wells Fargo
advocates as flexible a rule as possible for complying with the geographic requirements of the
CRA and garnering CRA credit for financial institutions.
Wells Fargo appreciates the opportunity to outline our concerns regarding the proposed Q&A
§
.23(a)-2 as stated above. We believe that the agencies should adopt just the first allocation
method for meeting the geographic requirements of the CRA. For the reasons stated above,
Wells Fargo does not believe that the second or third allocation methods are viable alternatives,
nor do we believe that the decision on how CRA credit will be allocated should be left to a fund
manager's discretion.
Changes to Current Definition of Community Development Lending
We think that the agencies should give full consideration for letters of credit or other credit
enhancements that have a community development purpose as they are legally binding financial
commitments that can support a bank's CRA program. Currently these may be provided to
examiners as examples of "other community development lending." However, it is difficult for
banks to be certain of how much consideration they will receive for this activity since such
community development-purpose letters of credit are prohibited from being reported in the
annual filing of community development loans. Such transactions are also excluded from
Performance Evaluation tables that outline the community development loans considered during
the exam period for a given financial institution. We think this does not give appropriate weight
to these transactions, which may benefit communities as much as conventional loans in some
cases, nor recognizes the legal and financial impact of letters of credit.
We also recommend that full lending and/or investment CRA credit be given for activities that
enable community development, such as mixed-income projects that have an affordable housing
component.
Conclusion
Once again, we commend the agencies for their continuing efforts to provide staff guidance for
CRA compliance and concur with several of the revisions to the interagency questions and
answers regarding community reinvestment, including CRA consideration for SB A 504 loans
over $1 million and investments in community development venture capital companies that
finance small businesses. Wells Fargo appreciates the opportunity to outline our reservations
concerning the proposed questions and answers regarding CRA consideration for investment in a
national or regional multi-investor fund as stated above as well as provide additional
recommendations to enhance the CRA regulation. We believe that these recommendations could
be implemented within the scope of the current CRA Exam Procedures with minimal burden but
4
maximum benefit for financial institutions and community organizations to continue to develop
and participate in sustainable CRA programs for years to come.
Sincerely,
Robert M. Manuel
Senior Vice President
Wells Fargo Bank, N.A.
5
Community Development Venture Capital Alliance
J
September 10, 2007
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve
System
20th Street and Constitution Avenue, NW
Washington, DC 20551
RE: Docket No. OP-1290
E-mail: regs.comments@federalreserve.gov
Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
RE: RIN 3064-AC97
E-mail: Comments@FDIC.gov
Office of the Comptroller of the Currency
250 E Street, SW
Mail Stop 1-5
Washington, DC 20219
RE: Docket ID OCC-2007-0012
E-mail: regs.comments@occ.treas.gov
Office of Thrift Supervision
Regulation Comments
Chief Counsel's Office
1700 G Street, NW
Washington, DC 20552
Attn: ID OTS-2007-0030
E-mail:regs. comments@ots.treas.gov
RE: Community Reinvestment Act; Interagency Questions and Answers Regarding Community
Reinvestment (Docket OP-1290-Federal Reserve; RIN 3064-AC97 (FDIC); Docket ID OCC-2007-0012
(OCC); Docket ID OTS-2007-0030 (OTS))
To Whom It May Concern:
Thank you for providing the Community Development Venture Capital Alliance ("CDVCA") the
opportunity to comment on the Community Reinvestment Act ("CRA"); Interagency Questions and
Answers Regarding Community Reinvestment (Federal Register, Vol. 72. No. 132 pp. 37922+).
The Community Development Venture Capital Alliance ("CDVCA") is the national trade association of
community development venture capital ("CDVC") funds. CDVC funds provide equity capital and
accompanying technical assistance to businesses that create jobs and promote economic development in
low- and moderate-income areas of the nation and that benefit low-income people by creating good
employment opportunities. They invest in communities and in types of businesses that typically do not
have access to venture capital from traditional sources. CDVC funds are a type of community
development financial institution ("CDFI") and many, but not all, seek and receive certification from the
CDFI Fund of the Department of Treasury. The largest group of investors in CDVC funds is banks,
followed by foundations, government and other socially-motivated institutions and individuals. Banks
that invest in CDVC funds are motivated to do so in large part by the CRA. More than half of the capital
invested in community development venture capital funds comes from banks, so banks constitute a vital
component of investors in the industry.
P r o m o t i n g C o m m u n i t y D e v e l o p m e n t w i t h the T o o l s of V e n t u r e C a p i t a l
424 West 33rd St., Suite 320; New York, NY 10001 • Phone: 212-594-6747 • Fax: 212-594-6717 • www.cdvca.org
CDVCA will focus its comments on three sections,
. 12(t)—4,
. 12(g)(3)—1 and
of particular importance to the industry of community development venture capital.
. 12(g)-4,
CDVCA supports the revisions made to the Interagency Question and Answer (Q&A) under the CRA (§
. 12(t)—4: What are examples of qualified investments?). In particular, we strongly support the
addition of a fourth bullet that clarifies that an investment in a community development venture
capital (CDVC) fund is a qualified investment under the CRA.
CDVCA also supports the revision made to CRA §
.12(g)(3)—1 that allows the presumption
than an investment in a Rural Business Investments Companies (RBIC) will promote economic
development.
However, we would also like to propose that New Markets Venture Capital (NMVC) funds be
added to the third bullet point under the CRA (§
-12(t)—4: What are examples of qualified
investments?). Although NMVCs are included under CRA §
.12(g)(3)—1 as presumed to
promote economic development, as are SBICs and RBICs, they are not included as qualified
investments, as those programs are. We believe that this inconsistency could cause confusion and
create an unnecessary obstacle for NMVC funds when banks are considering CRA investments.
Although it is implied that NMVC funds are qualified, resolving the discrepancy created by including
some programs in both sections but including NMVC in only one, would clarify this issue.
CDVCA also endorses treating CDVCs, NMVCs, and RBICs in the same manner as investments
in minority- or women-owned financial institutions and low-income credit unions under the
proposed section
.12(g)-4. It is important that the CRA recognize the role of minority- and
women-owned financial institutions and low-income credit unions in serving the communities in
which they are located. However, these minority- and women-owned financial institutions and lowincome credit unions are not the only organizations that fulfill this function. In order to best perform
their daily work, CDVCs, NMVCs, and RBICs are located directly within and near the communities
which they serve. As described above, the stated mission of these funds is to provide community
development finance to low- and moderate-income communities or underinvested rural communities,
including the communities in which they are located. Given that CDVCs, NMVCs, and RBICs are
committed to serving these markets but are not always minority- or women-owned, we believe that
investments in these entities should be granted the same treatment under CRA that these similar
activities are accorded. Furthermore, using the same rationale, we believe certified CDFIs should
also be treated in the same manner under the proposed section
.12(g)-4.
Background for our support and recommendations are as follows:
Community Development Venture Capital Funds
"Community Development Venture Capital Fund" is the generic name for a venture capital fund that has
community development purposes consistent with CRA. Banks motivated by CRA are the major
investors in CDVC funds. However, CDVC funds in the past have not been specifically named in the
Q&A under "examples of qualified investments. " This has made it more difficult and time consuming for
CDVC funds to obtain CRA-motivated bank financing and may, in some cases, have actually led to the
P r o m o t i n g C o m m u n i t y D e v e l o p m e n t w i t h the T o o l s of V e n t u r e C a p i t a l
424 33rd St., Suite 320; New York, NY 10001 • Phone: 212-594-6747 • Fax: 212-594-6717 • www.cdvca.org
denial of investments by banks that were looking for investments that they could easily and safely assume
would automatically qualify under CRA pursuant to the Q&A.
This is particularly troublesome, because Small Business Investment Companies (SBICs), which compete
for capital with CDVC funds, are specifically named in the Q&A. SBICs do not have community
development missions, as CDVC funds do. They are limited by SBA regulations to investing in smaller
businesses1, but do not have any specific requirements to invest in low- or moderate-income communities
or to benefit low-income populations. Our members find it ironic that in some ways it would be easier for
them to raise capital from CRA-motivated banks if they would simply adopt the SBIC form without a
community development mission, rather than the CDVC form, which is dedicated to community
development.
The specific naming in the Q&A of CDFIs and RBICs does not substitute for naming CDVCs as well.
While it is true that many CDVC funds become certified CDFIs or RBICs, many do not. The RBIC
program is competitive, and only one fund has been licensed by the SBA and USDA. The CDFI
certification process is more open, but many of our members chose not to apply for CDFI certification,
finding the registration process cumbersome and time-consuming. Furthermore, the CDFI Fund is often
backlogged in its work, and a number of our funds have found it difficult to receive certification from the
Fund in a timely manner.
The fact that there is not a definition of a CDVC fund elsewhere in the law is not an impediment to listing
CDVC funds as qualified investments in the Q&A. Community development loan funds and community
development credit unions also are not federally defined entities, but they are named in the current Q&A.
CDVC funds are analogously a generic type of CDFI that provides community development financing.
No venture capital fund would self-identify as a CDVC fund unless it were serious about its community
development mission. Many market investors shy away from investing in funds that say they have
community development missions because of a perception among some that a community development
mission may increase risk and lower returns.
In summary, CDVC funds are important providers of community development finance in low- and
moderate-income communities, with missions very much in accord with the purposes of the CRA.
While banks motivated by CRA are vital sources of capital for the CDVC industry, many CDVC
funds have found it difficult to convince certain banks to make investments because, ironically, it is
actually more certain that a bank will receive CRA credit for an investment in an SBIC than in a
CDVC fund, because SBICs are specifically named in the Q&A. This must be corrected to provide at
least a level playing field for CDVC funds. Like community development loan funds and community
development credit unions, CDVC funds should be named specifically in the Q&A. We therefore
strongly support the proposed changes in the Q&A to that effect.
New Markets Venture Capital Companies
Congress established the New Markets Venture Capital program, at the urging of CDVCA, to bring
much-needed equity financing and accompanying technical assistance to businesses in low- and
While SBICs are limited to investing in smaller businesses by SBA regulations, their average investment size is actually
much larger than that of CDVCs. For example, the average investment size of a bank-owned SBIC was $3.6 million in 1999
(the most recent year for which we have statistics), while the average investment size for a CDVC fund was just over $250,000
in 2004.
P r o m o t i n g C o m m u n i t y D e v e l o p m e n t w i t h the T o o l s of V e n t u r e C a p i t a l
424 33rd St., Suite 320; New York, NY 10001 • Phone: 212-594-6747 • Fax: 212-594-6717 • www.cdvca.org
moderate-income communities. The law creating the program describes the purpose of the program as
follows:
SEC. 352. PURPOSES.
The purposes of the New Markets Venture Capital Program established under this part are—
(1) to promote economic development and the creation of wealth and job opportunities in lowor moderate-income geographic areas and among individuals living in such areas by
encouraging developmental venture capital investments in smaller enterprises primarily
located in such areas.
NMVC funds clearly provide investment capital consistent with the purposes of the CRA and should
be included as qualified investment in the Q & A.
Currently there are six active NMVC funds, several of which are leaders in the CDVC field, to which
this definition would apply. In addition, legislation has been introduced in both houses of Congress to
re-authorize the program. The Senate Small Business Committee has unanimously passed the bill, cosponsored by Chairman John Kerry and Ranking Member Olympia Snowe. A virtually identical bill
was considered last week in a House hearing. We have every reason to expect that the New Markets
Venture Capital Program will be reauthorized and that additional NMVC companies will soon be
seeking investments from banks.
If you would like further information or clarification, please do not hesitate to contact me at (212)
594-6747 xl8 or ktesdell@cdvca.org.
Sincerely,
^
m
Kerwin Tesdell
President
P r o m o t i n g C o m m u n i t y D e v e l o p m e n t w i t h the T o o l s of V e n t u r e C a p i t a l
424 33™ St., Suite 320; New York, NY 10001 • Phone: 212-594-6747 • Fax: 212-594-6717 • www.cdvca.org
'"MP Morgan Chase
JPMorgan Chase Bank, N.A.
JPMorgan Chase Community Development Group
One Chase Manhattan Plaza, 6th Floor
New York, New York 10081
Telephone: 212-552-1798
Fax: 212-552-5545
Mark A. Willis
Executive Vice President
September 7, 2007
Office of the Comptroller of the Currency
250 E Street, S.W.
Mail Stop 1-5
Washington, D.C. 20019
By e-mail: Regs.comments@occ.treas.gov
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20051
By e-mail: Regs.comments@federalreserve.gov
Robert E. Feldman, Executive Secretary
Attn: Comments
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
By e-mail: comments@fdic.gov
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, N.W.
Washington, D.C. 20552
By e-mail: regs.comments@ots.treas.gov
Re:
Proposed Revisions to the Community Reinvestment Act Interagency Questions
and Answers Regarding Community Reinvestment
OCC: Docket No. ID OCC-2007-0012
FRB: Docket No. OP-1290
FDIC: R1N3064-AC97
OTS: ID-OTS-2007-0030 (Mark Willis, 212-552-1798)
Dear Sir or Madam:
JPMorgan Chase Bank, N. A. and its bank affiliates (collectively, "JPMorgan Chase")
appreciate the opportunity to comment upon the Proposed Revisions to the Community
Reinvestment Act Interagency Questions and Answers Regarding Community Reinvestment (the
"Proposal") of the above-named agencies (the "Agencies"). JPMorgan Chase supports the
Agencies' effort to update the Community Reinvestment Act Questions and Answers (the "Qs
and As"). Most significantly, however, JPMorgan Chase takes strong exception to proposed new
Q and A §
.23(a)—2, which addresses the Community Reinvestment Act ("CRA") allocation
of an institution's investment in a national or regional fund. This is discussed in more detail
below. JPMorgan Chase also believes that, in addition to the revisions contained in the Proposal,
further revisions the Qs and As are necessary.
A.
Section 23(a)~2 Regarding the Allocation of CRA Investment Credit for Fund
Investments Could Lead to the Demise of Multi-Investor, Multi-Geography Funds
1.
National and Regional Funds Play a Critical Role in Producing the Nation's
Affordable Housing and Other Community Development Activities and the
Agencies Should Encourage Investments in Them
JPMorgan Chase believes that national and regional funds with a primary purpose of
community development play a critical role in providing affordable housing to low- and
moderate-income ("LMI") individuals and families across the United States. Probably the
biggest single program responsible for creating affordable housing across the United States is the
low-income housing tax credit ("LIHTC") program, and this introduction will highlight some of
the enormous contributions national LIHTC funds have made since the program's inception.
Since the Tax Reform Act of 1986 which created the LIHTC program, $75 billion has
been in invested in LIHTCs alone, of which multi-investor funds account, conservatively, for
70%-80% of this capital. JPMorgan Chase, including its heritage institutions, has invested over
$2 billion in 188 multi-investor LIHTC funds since 1988. In these 188 funds alone, over $13.5
billion in capital was raised, resulting in the creation of 250,000 units of affordable housing,
benefiting the communities in which the LIHTC projects are located.
Multi-investor, multi-geography LIHTC funds possess a number of unique benefits over
other forms of LIHTC investments, which include:
2
•
A means for smaller localities to attract investment dollars and for such dollars to go
where they are needed. Public policy should encourage developers in smaller towns
and rural areas to participate in the LIHTC program and receive competitive pricing,
which can be accomplished most efficiently by national funds; and
•
The ability to spread investments across broader geographical areas. This diversifies
risk by protecting the fund (and the investor) against regional downturns in the
economy, a phenomenon all too apparent today in the distribution of foreclosures
across the county. It also is a mechanism for distributing LIHTC investments in
projects in various communities across the nation.
The importance of multi-investor, multi-geography funds is underscored by the fact that
these are major products of the top fund syndicators and all of the top ten LIHTC syndicators are
national, not regional, syndicators. The five largest national LIHTC fund syndicators over the
past three years are: National Equity Fund ("NEF"), Enterprise Community Investment Inc.
("Enterprise"), The Richman Group Affordable Housing Corporation ("Richman Group"), MMA
Financial ("MMA Financial") and Centerline Capital Group ("Centerline"). In 2006, these firms
raised $4,494 billion out of a total $7.74 billion equity raised by the top ten LIHTC firms. In
2005 the same top five raised $4,633 billion out of $7.79 billion raised by the top ten LIHTC
firms. Below is a brief description of each of these fund syndicators.
NEF. Headquartered in Chicago, NEF has facilitated the development of more than 80,000
homes affordable to LMI individuals and families over the past 20 years. From an initial 1987
NEF fund of $14.25 million, NEF invested nearly $666 million in 2006, underpinning the
development of nearly 12,000 units of supportive housing, assisted living, public housing and
preservation/historic projects, in addition to various family and senior developments across the
country. That comprises 139 projects in 2006, or about 1,500 in NEF's first 20 years. NEF has
invested more than $5.5 billion with 550 development partners to help drive the development of
affordable housing in 43 states and the District of Columbia.
Enterprise. Headquartered in Columbia, Maryland, Enterprise's mission is to see that all lowincome people in the United States have the opportunity for affordable housing and to move up
and out of poverty into the mainstream of American life. Enterprise:
•
•
•
•
Helped write the legislation that created the LIHTC program in 1986 and is a leading
syndicatior of LIHTC equity;
Since 1986, has raised over $6.5 billion in LIHTC equity through more than 95
investment funds, and invested in over 1,400 LIHTC properties totaling more than
85,000 affordable housing units;
In 2006, invested in 8,771 housing units that will ultimately result in an additional
23,000 adults, children and seniors having an opportunity for an affordable home; and
In 2006, closed or committed $173 million in LIHTC equity for 1,338 units of
sustainable "green" affordable housing in 19 cities.
3
Richman Group. Headquartered in Greenwich, Connecticut, the Richman Group and its
predecessors have been involved in the affordable housing industry since 1979 as a developer,
program sponsor, property manager, and asset manager, investing in conventional housing and
historic rehabilitations. In total, the Richman Group has raised almost $5 billion in equity capital
to support tax credit properties in 52 states and territories, in rural, suburban and urban locations.
As of December, 2006, the Richman Group has developed or has under development, either
alone or through joint ventures with other developers, 939 properties totaling over 69,000 units
of affordable housing.
MMA Financial. Headquartered in Baltimore, MMA Financial is a leader in the tax credit equity
market based on its track record, reputation for service, and size. MMA Financial raises equity
for and invests in approximately 150 affordable multifamily new construction or rehabilitation
projects per year. MMA Financial has built long-term relationships with over 250 affordable
housing developers—all with a demonstrated record of accomplishment and expertise for
building, rehabilitating and managing affordable housing communities that are safe, attractive,
financially feasible and of high quality. MMA Financial:
•
•
•
Since 1987, has raised $6.3 billion in equity capital from over 100 corporate investors
(this includes its activities through predecessor organizations, Boston Financial, Lend
Lease and Midland Capital);
In 2004, was one of only two tax credit syndicators to raise in excess of $1 billion in
tax credit equity during the calendar year; and
As of 2006, is also providing tax credit-based investments in projects that generate
renewable energy.
Centerline. Headquartered in New York City, Centerline is one of the nation's leading real estate
finance and investment companies. Since 1986, Centerline and its affiliates have raised in excess
of $8 billion in capital investing in excess of 1,300 projects located in 47 states, the District of
Columbia and Puerto Rico. In 2006, Centerline raised $1,184 billion in equity for affordable
housing projects.
Because of the unique nature of national and regional funds and the critical role they
play, the CRA regulation simply must do everything possible to encourage these investments. In
so doing, care should be taken to ensure first, that CRA credit for investments in the funds is
fairly distributed among investors and second, that investors are able to receive full CRA credit
and full weight for the entire amount of their investment. Anything less than this will deter
institutions from investing in these funds and will ultimately lead to their demise. The Agencies
must take the steps necessary to ensure that these funds survive and flourish.
It is in this context that JPMorgan Chase is so troubled by Q and A §
.23(a)—2, which
proposes to turn over to fund managers the responsibility of determining the amount and the
location of CRA credit that an institution would receive for a fund investment. JPMorgan Chase
4
believes that this subdelegation procedure is inequitable, unworkable and of questionable
legality.
2.
The Proposal's Delegation of CRA Investment Credit Allocation to Fund
Managers is Inequitable and Unworkable
a.
Fund Managers Will be Placed in the Untenable Position of Having to
Decide the CRA Allocation of Competing Investors
The Proposal's earmarking process is unsupportable in many respects. Because fund
managers must respond to the competing demands of their investors, the process will
unavoidably lead to inequitable results. Many large institutions have similar assessment areas
and compete for projects in the same geographic area. Fund managers simply will not be able to
allocate to investors the projects they want and inevitably will be forced to choose one investor
over another. For example:
•
Bank A and Bank B each have an assessment area in New York City. Bank A is the
first bank to propose to invest $5 million and Bank B later proposes to invest $10
million in a fund which will include New York City in its geographic scope. How
does the fund manager decide which bank "gets" New York City projects for its
allocation?
This example assumes only two competing investors. In major markets, there can be more
investors competing for the same allocation. Although in JPMorgan Chase's experience, fund
managers have tried to be fair in allocating projects among competing investors, the issue
remains as to how fund managers are to decide which investor receives CRA credit for a given
project.
The Proposal places an untenable and unfair burden on fund managers. Their interest is
in building affordable housing and obtaining the dollars necessary to achieve that purpose.
Indeed, JPMorgan Chase has heard from several fund managers that they do not want this
responsibility. The Proposal has taken a process which should be above-board and
straightforward and turned it into a bartering process behind closed doors. In addition, there is
no regulatory authority in place to oversee or review the fund manager's allocation of side letters.
b.
Earmarking will Deter Institutions from Investing in Funds unless
they are among the First Investors in the Fund
Because most of the larger investors in multi-investor, multi-geography funds are the top
financial institutions in the country and have primary assessment areas in the larger metropolitan
5
markets, there will be more demand for such projects in these markets and less demand in
smaller ones. Consequently, the use of side letters will be a significant deterrent for institutions
to invest in funds if they are not one of the first to claim CRA credit for projects in markets that
are located in the institution's assessment area. If they do not invest, the fund will not be able to
create as many affordable housing units as it otherwise would have and communities with
insufficient demand become the ultimate "loser."
c.
Earmarking will Deter Funds from Building Affordable Housing
Outside of Localities Where Institutions Can Obtain CRA Credit
Because institutions compete for projects in the larger metropolitan markets, earmarking
will deter fund managers from seeking projects outside these assessment areas. Fund managers
will be much less likely to include projects in smaller cities and rural areas if there is no demand
for them from the institutions investing in the funds.
d.
The Priority the Proposal Gives to Side Letters Will Also Lead to
Inequitable Results; Some Institutions Risk Losing CRA Credit for
Hundreds of Millions of Dollars in Outstanding Investments in MultiInvestor, Multi-Geography Funds for which They did not Receive
Side Letters
Not only does the Proposal institutionalize the side letter practice, but it gives priority to
it. JPMorgan Chase notes initially that the language regarding prioritizing earmarked
investments is unclear as to whether all projects in a fund must be earmarked for earmarking to
attain priority. Funds that earmark CRA investment credit do not necessarily have ah their
projects earmarked because some projects may be in geographical areas where investors do not
have assessment areas. This linguistic ambiguity will inevitably lead to inconsistent CRA
evaluations because different examination teams will interpret it differently.
Although the Proposal states that the Agencies will employ appropriate "flexibility" in
assessing the institution's investments, the actual language in the Proposal belies that statement.
With respect to projects, the Proposal states:
[A] fund may explicitly earmark ah projects or investments to its investors and their
specific assessment areas. (Note, however, that a financial institution has not
demonstrated that the investment meets the geographic requirements of the CRA
regulation if the fund "double-counts" investments, by earmarking the same dollars or the
same portions of projects or investments in a particular geography to more than one
investor.) In addition, if a fund does not earmark projects or investments to individual
institution investors, an allocation method may be used that recognizes that each investor
6
institution has an undivided interest in all projects in a fund; thus, each investor
institution may claim its pro-rata share of each project that meets the geographic
requirements of that institution. (Emphasis added.)
The Proposal appears to give priority to a fund's earmarking of fund investments over other
methods of allocating CRA credit for these investments. If and only if the fund manager does
not earmark the investments may another method be utilized. For institutions that have not
obtained side letters from fund managers allocating prior fund investments, the Proposal appears
to jeopardize how these prior investments will be treated. For example:
•
Bank A and Bank B each have an assessment area in New York City. Bank A and
Bank B each have invested $10 million in a fund which will include New York City
in its geographic scope. Bank A asked for and received from the fund manager a side
letter assigning New York City projects for the CRA allocation, because its examiner
has previously used this method in calculating CRA credit for fund investments.
Bank B did not ask the fund manager for CRA credit for New York City projects
because its examiner did not utilize this method for calculating CRA credit for fund
investments. Under the proposed Q and A, Bank B receives no CRA credit for its
$10 million investment because that "credit" has already been allocated to another
institution. Since the fund's projects continue for years—e.g., 15 years for LIHTCs—
this inequitable distribution of CRA credit will continue through several CRA exams.
Indeed, from the perspective of garnering CRA credit for this investment, the
investment was valueless and if as a result Bank B had not made it, fewer
communities would have benefited from the additional affordable housing.
This scenario may occur either because different Agencies utilize different
methodologies for calculating fund investment dollars, or even because different
examiners within the same Agency utilize different methodologies for these
investments.1
A complicating factor is that currently, there is no consistent methodology to the way in
which examiners award CRA credit for investments in multi-investor, multi-geography funds.
Even within the same Agency, different examination teams measure fund investments
differently. Some examiners allocate projects in an institution's assessment area based on the
institution's pro-rata share in the fund. Other examiners accept side letters from the funds that
earmark specific projects in specific locations to that institution for CRA credit and award the
entire amount of the investment to these projects. Under the first method, an investor may
receive only limited CRA credit for fund investments that are outside its assessment area. Under
the second method, the investor will receive CRA for the full amount of the investment, provided
that it can obtain a letter from the fund for the specific projects it wants, potentially to the
detriment of other investors who may want those same projects. This widely divergent
methodology results in inconsistent performance evaluations under the Investment Test and may
result in "double-counting" of the same investment by different examination teams. Since the
Investment Test counts for 25% of an institution's CRA rating, it is imperative that the Agencies
resolve this issue in a manner that is equitable to all fund investors.
7
This scenario is the exact the situation in which some large institutions find themselves.
Several major investors, including JPMorgan Chase, have not used side letters and, under the
Proposal, are at risk of losing hundreds of millions of dollars in the aggregate in CRA credit for
outstanding investments in multi-investor, multi-geography funds. This inequity would continue
for many years until these investments have no book value. This result would be unfair to these
institutions.
Lastly, as a practical matter, assuming that multi-investor, multi-geography funds will
continue to exist, earmarking will be the only method utilized because those investors who have
utilized side letters will continue to do so and those that have not will be forced to ask for them
or risk losing CRA credit for their investment.
3.
In Any Event, JPMorgan Chase Suggests that the Agencies Review Their
Authority to Subdelegate to Unaccountable Third Parties their Statutory
Duty to Examine an Institution's CRA Performance
JPMorgan Chase does not understand why the Agencies would relinquish their statutory
responsibility to measure and evaluate an institution's CRA performance by subdelegating to
private third parties responsibility for deciding whether and how much CRA credit an institution
will receive for its investment in a fund. JPMorgan Chase suggests that the Agencies review
their legal authority to subdelegate this responsibility.
In enacting the CRA, Congress required the Agencies to "assess the institution's record of
meeting the credit needs of its entire community, including low- and moderate-income
neighborhoods." The task of evaluating the value and amount of an institution's CRA-eligible
investments belongs, by law, to the Agencies, not to private third parties. By permitting fund
managers to earmark projects in various geographical areas to fund investors, the managers are,
in effect, determining the amount and location of CRA credit that an investor receives under the
Investment Test.
A general delegation of decision-making authority to a federal administrative agency
does not ordinarily include the power to subdelegate that authority beyond federal subordinates.
Under the doctrine of subdelegation, a federal agency may not subdelegate the power delegated
to it by Congress to outside entities—private or sovereign—absent affirmative evidence of
authority to do so. United States Telecom Ass'n v. Fed. Communications Comm'n., 393 F.3rd
554, 565-566 (D.C. Cir. 2004). cert, denied. 543 U.S. 925, 125 S.Ct. 313, 160 L.Ed.2d 223
8
(2004)(in holding that the FCC lacked authority to subdelegate to state utility commissions its
statutory duty to determine which telephone network elements incumbent local exchange carriers
were required to unbundle and make available to competitors, the Court opined that there is no
presumption covering subdelegation to outside parties, and rather, case law suggests the
opposite—that subdelegation to outside parties is presumed to be improper absent an explicit
showing of congressional intent, reasoning that this was necessary to maintain the agency's
accountability and to make sure that the agency maintains its national vision, which an outside
entity might not share). See also. High Country Citizens' Alliance v. Norton, 448 F. Supp.2d
1235, 1247 (D. Colo. 2006)(the delegation to the State of Colorado of certain federal water rights
was prohibited because the National Park Service did not have the authority to subdelegate to
outside entities, whether those entities were private or sovereign (emphasis added); Assiniboine
and Sioux Tribes v. Board of Oil and Gas Conservation, 792 F.2d 782, 796 (9th Cir.
1986)(regarding Secretary of Interior's delegation of authority to Montana Board for determining
placement of oil and gas wells on Indian lands, "we are reluctant to read broad authority to
subdelegate into these statutes, absent clear proof of legislative intent to relieve the Secretary of a
portion of his duties and proof that such delegation would be in the Tribe's best interests").
It is not readily apparent that Congress gave the Agencies the power to subdelegate to
third parties the determination of which institution will receive CRA credit in a given locality for
fund investments. Fund managers do not share the Agencies' expertise and "national vision" in
the CRA and are accountable to no one for their allocations.
Because of the questionable legal authority for subdelegating the Agencies' statutory
responsibility to determine CRA performance to unaccountable third parties and because of the
multiple Agencies involved, JPMorgan Chase suggests that the Agencies consult an outside
source, such as the Department of Justice, for a legal opinion on this matter. JPMorgan Chase
notes that the Comptroller of the Currency consulted the Department of Justice in 1994 after the
Agencies proposed to use their general enforcement authority against institutions rated in
substantial noncompliance with the CRA.
9
4.
The Only Equitable Method of Distributing CRA Credit for Fund
Investments is to Use the Location of a Fund's Projects, but Only if the
Institution Can Receive Full CRA Credit and Full Weight for the Entire
Amount of its Investment
JPMorgan Chase believes that the only appropriate method of allocating CRA credit for
national and regional fund investments, which is fair to all investors, is to assign pro-rata credit
for each project in which the fund invests based on the pro-rata share of the institution's
investment in the fund. This recommendation, however, is conditioned upon the ability of the
investor to receive full CRA credit and full weight for all its investments in the fund, regardless
of the location of the fund's projects.
The pro-rata share method makes sense for the several reasons. First, legally, investors
own a pro-rata share of each investment the fund makes in a project, so the allocation of CRA
credit in the proposed manner aligns with the legal ownership of the investor (unlike side letters,
which have no legal relationship to the investor's interest). Second, it prevents one institution
from "claiming" CRA credit for a particular project or area, to the exclusion of other investors
who may also want credit for that project or area. Third, it eliminates any possible "doublecounting" of investments for the same project by different institutions.
JPMorgan Chase has two alternative suggestions for addressing how investments in
national and regional funds should be counted, both using the pro-rata share approach.
Underscoring each suggestion is the public policy mandate that the Agencies must find a way to
count investments in fund projects located outside an institution's assessment area or broader
statewide or regional area that includes its assessment area. The first suggestion provides that, as
long as the fund has at least one project in the institution's assessment area, the institution
receives full CRA credit and full weight for these "outside" projects. The alternative suggestion
is that if an institution has adequately addressed the community development needs of its
assessment area, it receives CRA full credit and full weight for these "outside" projects. These
two alternatives are discussed in more detail below.
10
a.
As a Matter of Public Policy, an Institution Should Receive Full CRA
Credit and Full Weight for All Dollars Invested in National and
Regional Funds, Regardless of the Location of the Fund's Projects,
Provided that the Fund Has at Least One Project in the Institution's
Assessment Area(s) or Broader Statewide or Regional Area that
Includes the Institution's Assessment Area(s)
JPMorgan Chase believes that institutions should receive full CRA credit and full weight
for all dollars invested in national and regional funds provided that the fund has at least one
project in the institution's assessment area or broader statewide or regional area that includes the
institution's assessment area. The primary issue arising from the "pro-rata share" method is
when the fund develops a project outside an institution's assessment area or broader statewide or
regional area that includes the institution's assessment area. Institutional investors have different
assessment areas and the fund's investments in projects do not necessarily align fully with an
institution's assessment area. Under the current CRA regulation for retail institutions, an
institution would not receive CRA credit for that portion of the investment in projects outside its
assessment area or broader statewide or regional area that includes its assessment area. This is
particularly problematic for institutions with assessment areas smaller than the area that the fund
targets for projects.
If the institution cannot be assured that its investment in the fund will receive full CRA
credit and full weight, it will have the unenviable choice of (i) not investing in the fund,
potentially resulting in the fund having fewer dollars to invest in community development and
the institution not having a potentially substantial CRA investment necessary for the Investment
Test, or (ii) investing in the fund, but potentially receiving much less CRA credit and less weight
than the amount of its investment if the fund cannot deliver projects in the institution's
assessment area or broader statewide or regional area that include its assessment area. A simple
solution exists to this dilemma.
Because of the unique circumstances inherent in equity investments in national and
regional funds and to encourage investment in these funds, a more flexible rule for garnering
CRA credit than that applicable to an institution's direct investments is not only appropriate, but
necessary. Section
.23 of the CRA Regulation provides that an institution receives CRA
credit for fund investments that benefit (i) its assessment area or (ii) a broader statewide or
11
regional area that includes the institution's assessment area. The missing piece is fund
investments that fall outside (i) or (ii).
JPMorgan Chase believes that, as a matter of public policy, an institution should receive
full CRA credit and full weight for the entire dollar amount of its investment in a national or
regional fund regardless of the location of the fund's projects, provided that the fund has at least
one project located in the institution's assessment area or broader statewide or regional area that
includes the institution's assessment area.2
Agencies' Proposed New Question:
§§
.23 and .23(a)—Investment Test
Scope of Test
§§_.23(a)-2
In order to receive CRA consideration, should an institution be able to demonstrate that
an investment in a national or regionalfund with a primary purpose of community
development meets the geographic requirements of the CRA regulation by benefiting one
or more of the institution's assessment area(s) or a broader statewide or regional area
that includes the institution's assessment area(s)?
Proposed New Answer for the Alternative Discussed in this Part:
A.2. An institution that invests in a national or regional fund will receive pro-rata credit
for each project in which the fund invests based on the pro-rata share of the institution's
investment in the fund, subject to the following qualification. If an institution invests in a
fund in which some of the fund's projects are inside its assessment area(s) or broader
For LIHTC funds in particular, this treatment aligns the CRA treatment of these funds
with the creation by government of the LIHTC program as part of its plan to create
housing affordable for LMI individuals. As noted above, these national LIHTC funds are
responsible for developing the vast majority of affordable housing units under the LIHTC
program in the United States. Although proprietary LIHTC funds have only a single
investor and therefore do not encounter the issues multi-investor funds have in allocating
investment dollars among themselves, they nevertheless are part of a government plan
and warrant similar treatment for their projects located outside an institution's assessment
area or broader statewide or regional area that includes an institution's assessment area.
In addition to LIHTCs, investments in national New Markets Tax Credit and CDFI funds
also fulfill a government plan and warrant similar treatment. Although the focus of
JPMorgan Chase's comments is on LIHTC funds, JPMorgan Chase believes that
institutions should receive full CRA credit and full weight for their investments in all
national and regional funds regardless of the location of their projects as long as the fund
has a project located in the institution's assessment area or broader statewide or regional
area that includes its assessment area.
12
statewide or regional area that includes its assessment area(s) and other projects are
outside its assessment area(s) or broader statewide or regional area that includes its
assessment area(s), then the institution may allocate all or part of the pro-rata share of its
investment in projects that are outside its assessment area(s) or broader statewide or
regional area that includes its assessment area(s) to one or more of its assessment area(s),
provided that the fund has at least one project in an institution's assessment area or
broader statewide or regional area that includes its assessment area, in which case the
institution receives full CRA credit and full weight for the pro-rata share of its investment
in projects located outside the institution's assessment area(s) or broader statewide or
regional area that includes its assessment area(s). The value of the allocated investments
will be reflected in the core tables for each assessment area.
b.
An Alternative Treatment is to Award Full CRA Credit and Full
Weight for the Entire Dollar Amount of an Institution's Investment in
a National or Regional Fund Regardless of the Location of the Fund's
Projects if the Institution Has Adequately Addressed the Community
Development Needs of its Assessment Area
As an alternative to the proposal discussed in part A.4.a., JPMorgan Chase suggests that
institutions receive full CRA credit and full weight for all dollars invested in national and
regional funds provided that the institution has adequately addressed the community
development needs of the assessment to which it would like to allocate the dollar value of
projects outside the institution's assessment area or broader statewide or regional area that
includes its assessment area (see corresponding discussion in Part B.2. below) A pro-rata share
approach should be used for all projects, regardless of their location, to determine the dollar
amount of CRA credit. Conversely, if the institution has not adequately met the community
development needs of the assessment area to which it would like to allocate a part or whole of
such investment credit, then it must choose an assessment area where it has adequately met those
needs and, failing that, receive no credit for these investments. This proposal derives from the
CRA regulation's community development test for wholesale and limited purpose institutions
and will ensure that an institution is able to receive full CRA credit and full weight for the entire
amount of its investment even if some projects are located outside its investment area or broader
statewide or regional area that includes its assessment area.3
JPMorgan Chase notes that, for large retail institutions, "adequate" is equivalent to a "low
satisfactory" rating under the Investment Test.
13
In determining if the institution is adequately meeting the community development needs
of the assessment area to which it would like to allocate the pro-rata share of the dollar value of
projects located outside an its assessment area or broader statewide or regional area that includes
its assessment area, JPMorgan Chase suggests the following: if a national or regional fund
serves a geographic area that includes an institution's assessment area or broader statewide or
regional area that includes its assessment area, and the dollar amount of the fund's projects in that
assessment area or broader statewide or regional area that includes its assessment area would
allow the institution to meet the test of adequately meeting the community development needs of
that assessment area if applied to the institution's investments in that area,4 then the institution
should receive full CRA credit and full weight for its pro-rata share of the dollar value of all fund
projects outside its assessment area or broader statewide or regional area that includes its
assessment area.
For example, a $100 million fund has projects valued at $10 million located in New
Orleans and $90 million in California. An institution with a New Orleans assessment area
invests $10 million in the fund. If the institution would adequately meet the community
development needs of its assessment area by counting the fund's $10 million worth of projects in
New Orleans, then it may receive CRA credit and full weight for its pro-rata share of the
remaining $90 million in projects that are outside its assessment area or broader statewide or
regional area in addition to its pro-rata share of the $10 million invested in projects in its New
Orleans assessment area.
The Agencies have adopted a similar treatment for large retail institutions because of
public policy concerns with respect to Hurricanes Katrina and Rita. In response to the
widespread damage caused by these hurricanes, the Agencies announced that institutions located
outside the disaster areas will receive consideration for activities that revitalize or stabilize the
areas, provided that the institutions have otherwise adequately met the CRA-related needs of
their assessment areas:
Of course, if the institution adequately meets the community development needs of that
assessment area by means other than the fund's projects in that area, then it would also
receive CRA credit for the funds projects outside the assessment area or broader
statewide or regional area that includes its assessment area. It should also be made clear
that an institution may meet the "adequate" test solely by investments in national funds.
14
[D]ue to the unprecedented impact from hurricanes Katrina and Rita, examiners have
been given additional flexibility when evaluating the geographic aspect of CRA-related
activities in these designated disaster areas. Therefore, national institutions located
outside the designated disaster areas may receive positive CRA consideration for
activities that revitalize or stabilize the designated disaster areas related to hurricanes
Katrina and Rita, provided that the institutions have otherwise adequately met the CRArelated needs of their local communities. OCC Bulletin 2006-6 dated February 9, 2006.
See also. Board of Governors of the Federal Reserve System, Division of Consumer and
Community Affairs, CA-06-5, February 24, 2006)., which provides similar guidance to
state member institutions.
JPMorgan Chase believes that, at minimum, as a matter of public policy, the need to
preserve and promote the viability of national funds warrants adopting the same treatment
regarding activities outside an institution's assessment area as the Agencies adopted for
Hurricanes Katrina and Rita.
Agencies' Proposed New Question:
§§
.23 and .23(a)—Investment Test
Scope of Test
§§_.23(a)-2
In order to receive CRA consideration, should an institution be able to demonstrate that
an investment in a national or regionalfund with a primary purpose of community
development meets the geographic requirements of the CRA regulation by benefiting one
or more of the institution's assessment area(s) or a broader statewide or regional area
that includes the institution's assessment area(s)?
Proposed New Answer for the Alternative Discussed in this Part:
A.2. An institution that invests in a national or regional fund will receive pro-rata credit
for each project in which the fund invests based on the pro-rata share of the institution's
investment in the fund, subject to the following qualification. If an institution invests in a
fund in which some of the fund's projects are inside its assessment area(s) or broader
statewide or regional area that includes its assessment area(s) and other projects are
outside its assessment area(s) and broader statewide or regional area that includes its
assessment area(s), then the institution may allocate all or part of the pro-rata share of its
investment in projects that are outside its assessment area(s) or broader statewide or
regional area that includes its assessment area(s) to one or more of its assessment area(s),
provided that the institution has adequately addressed the community development needs
of the assessment area(s) to which it seeks to allocate a part or whole of that pro-rata
share of its investment in such projects, in which case the institution receives full CRA
credit and full weight for the pro-rata share of its investment in projects located outside
the institution's assessment area(s) or broader statewide or regional area that includes its
15
assessment area(s). The value of the allocated investments will be reflected in the core
tables for each assessment area.
c.
The FFIEC Interpretive Letter dated September 11,1997 Needs Updating
The FFIEC Interpretive Letter dated September 11, 1997 (the "Letter") needs to be
updated in order to address the special case of investments in national and regional funds. The
Letter, in relevant part, responds to an inquiry as to whether the CRA regulations treat an
institution's investment differently according to whether the institution invests directly in a
project or indirectly, such as through a national fund. The Letter states that the CRA regulations
do not differentiate between direct and indirect qualified investments and that investments in
pooled national funds would be treated in the same manner as direct investments. Although the
Letter does not expressly discuss a large retail bank's investments in national funds where fund
projects are inside the bank's assessment area, in a broader statewide or regional area, or outside
the bank's assessment area, the implication of stating that there is no difference between indirect
(fund) investments and direct investments leads to the conclusion that the assessment area
distinction applies to indirect investments. JPMorgan Chase suggests that the Letter be updated
to reflect the proposed treatment of national and regional funds.
d.
The Agencies Should Adopt Uniform Core Tables Identifying CRA Activity
Currently, the tables the Agencies utilize to identify an institution's investment activities
vary by Agency and even within the same Agency. In the interest of putting all institutions on a
level playing field, JPMorgan Chase suggests that the Agencies publish for comment and adopt
uniform tables that accommodate the mix of investment activity that institutions undertake,
including: (i) activities within an institution's assessment area (e.g., a single assessment area);
(ii) statewide activities; (iii) activities in the broader regional area (covering multiple assessment
areas within a state and multi-state geographies inside or outside of an insitutiton's assessment
area; and (iv) activities outside all of the above.5
B.
Further Revisions to the Qs and As Should be Considered
JPMorgan Chase believes that further revisions to the Qs and As in addition to those
contained in the Proposal warrant consideration. Most of these proposed revisions cover subjects
JPMorgan Chase also recommends that the tables for lending and service activities be
made consistent across the Agencies to the extent that they are not.
16
about which the industry has been vocal and have been the source of conversations between the
industry and the Agencies for years. They include: (i) revising the meaning of primary purpose
to align CRA with governmental policies and community development best practices; (ii)
granting CRA credit outside a institution's assessment area if it has adequately addressed the
community development needs within its assessment area in order to align CRA with the market
and to help address issues raised in Part A.4. above; (iii) re-evaluating how letters of credit
should be treated to align CRA with the move in the market to using tax-exempt bonds as well as
to reflect the fact that letters of credit represent the same credit risk as loans; (iv) providing a
simpler method for proving that financial education seminars reach LMI individuals; and (v)
providing CRA credit for grants to arts and culture organizations in LMI communities, consistent
with the latest thinking on comprehensive community development. These will be discussed
below.
1.
The Meaning of Primary Purpose in Mixed-Income Projects in Low-,
Moderate-, Middle- and Upper-Income Geographies Should be Changed to
Reflect Current Governmental Policies Regarding Affordable Housing
At the very heart of CRA is the charge for financial institutions to provide products and
services to LMI families and individuals and to provide lending and other assistance in distressed
LMI geographies. The industry's significant response to this challenge has been to provide both
financing and equity products that support affordable housing opportunities in all income
segments of communities.
The ability to protect or create affordable housing in middle- and upper-income
neighborhoods and to obtain corresponding examination credit, is actively discouraged by the
current examination rules which require that the "primary purpose" of a project to be community
development. Because this has been interpreted to mean the majority of the units must be
reserved for LMI individuals, it is virtually impossible for an institution to receive favorable
consideration for mixed-income housing (for example, where a project has 80% of the units at
market rate and 20% of the units reserved for LMI individuals) in middle- and upper-income
census tracts. This practice is at odds with current development practices of many local and state
governments.
Many of the financing agencies, such as Municipal Housing Departments and State
Housing Finance Authorities, now favor mixed-income developments. It is not merely that
17
municipal rules sometimes require the inclusion of a percentage of affordable units, but that
these localities and financing agencies may prefer development where less than a majority of the
project's units is designated for LMI households. The government may favor mixed-income
projects and may also favor developments in middle- and upper-income geographies because it
perceives that these types of projects in a variety of census tracts will build more sustainable
communities than if they were all relegated to LMI geographies. Many experts in community
development also agree that mixed-income projects in a variety of census tracts are a key
ingredient of community development.
When municipalities require developments to provide for a minimum number of
affordable units, in some instances these units may only represent 10 to 20 percent of the total so
that the public subsidy is reduced. Additionally, the subsidy portion may be less per unit than
what was historically available. Often, this still requires the developer to make up for those
additional costs elsewhere within the project. Therefore, the required number of affordable units
may reflect a government decision based the number of affordable units that the overall project
could reasonably support with available public dollars. The number of affordable units in these
situations may not be a majority even if serving LMI individuals and families is the primary
purpose of the development.
As an effective means for sustaining levels of affordable housing within these markets,
most financial institutions provide loans, equity and, perhaps even grants, to support these
projects simply because it directly benefits LMI individuals and families. Exam credit is not
given for these projects if they are not located in an LMI census tract because the majority of the
units are not reserved for LMI individuals. To better align the CRA regulation with current
government policies and practices regarding affordable housing, "primary purpose" should also
include lending and investment activities conducted in non-LMI census tracts pursuant to a local,
state, federal or tribal government development plan or program. Accordingly, three proposed
Qs and As are recommended in this regard.
Agencies' Current Question:
§
. 12(T) and 563e. 12(h) Community Development Loan
Meaning of Primary Purpose
§§ . 12(i) & 563e. 12(h) - 7: What is meant by the term "primary purpose " as that term
is used to define what constitutes a community development loan, a qualified investment
or a community development service?
18
Proposed New Answer (underlined language is new):
A7. A loan, investment or service has as its primary purpose community development
when it is designed for the express purpose of revitalizing or stabilizing low- or
moderate-income areas, providing affordable housing for, or community services targeted
to, low- or moderate-income persons, or promoting economic development by financing
small businesses and farms that meet the requirements set forth in §§ . 12(h) or
563e. 12(g). To determine whether an activity is designed for an express community
development purpose, the agencies apply one of two approaches. First, if a majority of
the dollars or beneficiaries of the activity are identifiable to one or more of the
enumerated community development purposes, then the activity will be considered to
possess the requisite primary purpose. Alternatively, where the measurable portion of
any benefit bestowed or dollars applied to the community development purpose is less
than a majority of the entire activity's benefits or dollar value, then the activity may still
be considered to possess the requisite primary purpose if (1) the activity is conducted
pursuant to a local state, federal or tribal government development plan or program; or
(2) the express, bona fide intent of the activity, as stated, for example, in a prospectus,
loan proposal, or community action plan, is primarily one or more of the enumerated
community development purposes; the activity is specifically structured (given any
relevant market or legal constraints or performance context factors) to achieve the
expressed community development purpose; and the activity accomplishes, or is
reasonably certain to accomplish, the community development purpose involved. The
fact that an activity provides indirect or short-term benefits to low- or moderate-income
persons does not make the activity community development, nor does the mere presence
of such indirect or short-term benefits constitute a primary purpose of community
development. Financial institutions that want examiners to consider certain activities
under either approach should be prepared to demonstrate the activities' qualifications.
JPMorgan Chase's Proposed New Question:
Consideration for Lending and Investments in Mixed-Income Affordable Housing
Projects by Geography
§§ . 12(i) & 563e. 12(h) - 8: How will a financial institution receive favorable
consideration for lending and investment dollars in mixed-income projects which create
or preserve affordable housing units in low-, moderate-, middle- and upper-income
geographies where less than the majority of the units are reservedfor low- and
moderate-income individuals ?
Proposed New Answer:
A.8 Loans and investments in a mixed income project in a low- and moderate-income
geography where less than the majority of the units are reserved for low- and moderateincome individuals will receive CRA consideration for the entire dollar amount lent to or
invested in the project if the project meets the purpose test in Question 7 above; such
loans and investments in middle and upper-income neighborhoods will receive CRA
19
consideration for the entire dollar amount lent to or invested in the project if the project is
part of a local, state, federal or tribal government development plan or program, or, if the
project is not part of a local, state, federal or tribal government development plan or
program, then such loans and investments will receive pro-rata credit for the percentage
of dollars lent to or invested in the project that is affordable to low- and moderate-income
individuals.
JPMorgan Chase's Proposed New Question:
Meaning of Local State, Federal or Tribal Government Development Plan or Program
§§ . 12(i) & 563e. 12(h) - 9: What is a local, state, federal or tribal government
development plan or program?
Proposed New Answer:
A.9 A local, state, federal or tribal development plan or program is a governmentsanctioned plan or program that provides an incentive to develop housing, at least 10
percent of which is affordable to low- and moderate-income individuals, and may be
evidenced by the use of public funds, such as subsidies, tax credits or tax abatements, or
other benefits, such as a higher floor-to-area ratio than would otherwise be permitted.
2.
An Institution Should Receive CRA Credit for CRA Eligible Activities
Outside its Assessment Area(s) or Broader Statewide or Regional Area that
Includes its Assessment Area(s) Provided that the Institution has Adequately
Addressed the Needs of its Assessment Area
The 1995 revisions to the CRA regulation provide that, for wholesale and limited purpose
institutions, examiners will consider all activities that benefit the institution's assessment area(s)
or a broader statewide or regional area that includes its assessment area(s). The revisions also
provide that other activities receive full consideration as long as the institution has adequately
addressed the needs of its assessment area. The rationale for giving full consideration as long as
the institution has adequately addressed the needs of its assessment area is that limitations placed
on considering out-of-assessment area activities "were too restrictive and did not account for the
broader business strategies and operations of wholesale and limited purpose institutions, which
often serve communities on a nationwide basis." 60 Fed. Reg. 22156, 22167 (May 4, 1995).
Current CRA Q and A §§
12(i) and 563.12(h) applies the same principle to retail
institutions but requires further clarification to ensure that qualified community development
activities receive full CRA consideration. An institution should receive full CRA credit and full
weight for qualified community development activities outside its assessment area(s) or broader
statewide or regional area that includes its assessment area(s) provided that the institution
20
adequately addresses the community development needs of its assessment area. For institutions
with multiple assessment areas, activities outside an assessment area should only be considered
for an assessment area whose needs are adequately being met by the institution and should not be
considered for an assessment area whose needs are not adequately being met by the institution.
Agencies' Current Question:
§§
12(i) and 563.12(h) Community Development Loan
§§
12(i) and 563.12(h)—5 Community Development Loan
Must there be some immediate or direct benefit to the institution's assessment area(s) to
satisfy the regulations' requirement that qualified investments and community
development loans or services benefit an institution's assessment area(s) or broader
statewide or regional area that includes the institution's assessment area(s) ?
Proposed New Answer (new language is underlined and repeats language from the
wholesale bank Q and A:
A.5. No. The regulations recognize that community development organizations and
programs are efficient and effective ways for institutions to promote community
development. These organizations and programs often operate on a statewide or even
multistate basis. Therefore, an institution's activity is considered a community
development loan or service or a qualified investment if it supports an organization or
activity that covers an area that is larger than, but includes, the institution's assessment
areas(s). The institution's assessment area(s) need not receive an immediate or direct
benefit from the institution's specific participation in the broader organization or activity,
provided that the purpose, mandate, or function of the organization or activity includes
serving geographies or individuals located within the institution's assessment area(s).
In addition, a retail institution that, considering its performance context, has adequately
addressed the community development needs of its assessment area(s) will receive
consideration for qualified investments, as well as community development loans and
community development services, by that institution nationwide. In determining whether
an institution has adequately addressed the community development needs of its
assessment area(s), examiners will consider qualified investments that benefit a broader
statewide or regional area that includes the institution's assessment area(s). For
institutions with multiple assessment areas, activities outside an assessment area or
broader statewide or regional area that includes the institution's assessment area can only
be considered for an assessment area whose needs are adequately being met by the
institution and cannot be considered for an assessment area whose needs are not
adequately begin met by the institution. Examiners will consider these activities even if
they will not benefit the institution's assessment area(s).
21
3.
Letters of Credit Should Receive the Same Treatment as Loans Under the
Lending Test
Letters of credit are becoming an increasingly important part of community development
financing since the use of bond financing automatically allows the use of 4% LIHTCs. Letters of
credit, however, currently are not included in the lending tables at the end of performance
evaluations but are mentioned only in the text of the lending performance discussion, thus
receiving lesser 'weight' than a loan. Additionally, the dollar value of letters of credit is not
included in the comparison to Tier 1 capital that is referenced in the community development
lending summary discussion by at least one Agency.
Yet, the credit risk of a letter of credit is identical to a conventional loan. Letters of credit
are legally binding guarantees by the institution of a debt or other legal obligation of the account
party. When the proceeds of a bond issue enhanced by the institution's letter of credit are used
for the construction of real estate improvements, standard construction loan procedures govern
the disbursement of the bond funds. The bond trustee may only disburse bond proceeds upon
written authorization from the letter of credit provider. As with a loan, such authorization is
normally preceded by satisfaction of construction loan draw procedures and documentation. In
the event of a default and subsequent drawing on the letter of credit, the institution assumes
ownership of the mortgage-secured bonds in order to preserve and protect its collateral position.
Moreover, the institution's assumption of the bondholder's risk of loss produces a net
positive impact on the cost of funds for project development, even after factoring in letter of
credit fees paid to the institution. The interest rate discount available via issuance of tax-exempt
bonds is a cost efficient means to finance the creation and sustainability of affordable housing.
Bonds that are enhanced with a letter of credit issued by a rated institution bear an interest rate
reflective of the credit of the institution rather than the real estate.
In addition to the interest rate advantage, the use of tax-exempt bonds enables utilization
of the "as of right" 4% LIHTC. Equity generated from the sale of tax credits does not require a
cash return from the real estate. The combination of low interest rates and return-free equity
produces the economic feasibility of affordable rents, even in an environment of escalating
housing costs. Letters of credit are a critical component of this financing structure.
Thus, letters of credit should be given full consideration with respect to the evaluation of
community development lending under the CRA lending test. This alternative financing option
22
should be given equal consideration to other types of community development loans and
included in the performance evaluation lending tables. These types of transactions truly embody
an institution's use of its full resources to address the needs of its local communities. JPMorgan
Chase suggests that a separate table be created for letters of credit and that examiners receive
guidance that CRA-eligible letters of credit are to receive the same CRA credit as other types of
CRA-eligible loans.
Agencies' Current Question:
§
.22—Lending Test
§
.22 (a) (2)-l: How are lending commitments (such as letters of credit) evaluated
under the regulation?
Proposed New Answer:
Al. Letters of credit can be a critical component in the production of affordable housing.
For example, through their issuance, lower cost tax-exempt bond financing is facilitated
and eligibility for 4% Low Income Housing Tax Credits is triggered. Credit risk to the
institution is not materially different when compared to a conventional mortgage loan, yet
letters of credit can provide efficiencies in the production of affordable housing.
Therefore, letters of credit will be considered and given the same weight as loans, with
regard to an institution's performance in community development lending, provided that
a clear community development benefit is shown. Examples include, but are not limited
to:
•
•
•
4.
Letters of credit that enhance tax-exempt bonds issued for the construction of
affordable housing;
Letters of credit in favor of municipalities to guarantee payment and completion of
project site work, utility connections, and other project-related requirements; and
Letters of credit used to purchase forward fixed interest rate locks for permanent
financing on affordable housing projects.
Alternative Methods of Proving that Financial Education Seminars Benefit
Low- and Moderate Income Individuals Should be Recognized
As a practical matter, it is infeasible and problematic to require income information from
participants in financial education seminars that are not held in conjunction with a not-for-profit
partner with community development as its mission. This is particularly true with seminars held
at bank branches and at workplace sites. For an institution bringing to bear its full resources to
address the needs of or local communities, this presents a particularly vexing conundrum.
23
Alternative methodologies can be used to show the benefit to a LMI community. For
example, for a financial education seminar held at a large retail store, information can be
obtained from an outside, governmental source, like the Department of Labor, that indicates the
average hourly wage for workers in this particular industry. That hourly wage can be translated
into an annual income that can then be compared to the HUD updated area median family
income. As another example, the location of the branch in a LMI community in which financial
education seminars are conducted can be used to establish a LMI constituency. Current CRA Q
and A §§
.12 (j) & 563e.l2 (i)-3 provides that a community development service includes
establishing school savings programs and developing or teaching financial education curricula
for low- or moderate-income individuals. JPMorgan Chase suggests the following supplement:
JPMorgan Chase's Proposed New Question:
§
.24—Service Test
§
.24 (e)-2: How can an institution alternatively prove that financial education
seminars benefit a low- and moderate-income constituency?
Proposed New Answer:
A2. The agencies will presume that any financial education seminar provided in
conjunction with organizations with a community development mission serve a low- and
moderate-income population. With respect to financial education seminars that are not
conducted in conjunction with organizations with a community development mission,
alternate methodologies may be used to establish the benefit to a low- and moderateincome population. The methodologies may include, but are not limited to, the
following:
•
•
•
5.
The annualized average hourly wage for workers in a particular industry for financial
seminars conducted at a workplace within that industry;
Financial education seminars conducted in conjunction with a program of a
community organization with a community development purpose; and
Financial education seminars conducted in a branch located in a low- and moderateincome community.
Arts and Culture Grants to Organizations Serving LMI Areas Should
Receive CRA Credit
According to the Agencies, grants to arts and culture organizations are not currently
considered CRA qualified investments. Arts and culture organizations are critical to the
development and strength of communities. These organizations nurture and facilitate community
24
development through education and programming. Arts and culture organizations inspire
children and youth to serve as agents of change while simultaneously cultivating their leadership
skills and fostering a commitment to community service. Moreover, these organizations serve as
an essential educational resource to the local communities. Through their involvement with
these organizations, children can learn basic literacy skills, as well as enhance their critical and
analytical abilities. Many of these organizations are located in underserved communities, or at
least are focused on serving the individuals in these areas. Furthermore, arts and culture
organizations serve to revitalize and stabilize the communities where they are located. Given
these attributes and benefits of many arts and culture organizations, grants to these organizations
should be considered CRA qualified investments.
Agencies' Current Question:
§§ _.12(s) & 563e.l2(r) Qualified investment
§§
. 12(s) & 563e. 12(r) - 4: What are examples of qualified investments?
Proposed New Answer:
A4. Examples of qualified investments include, but are not limited to, investments,
grants, deposits or shares in or to:
•
Facilities that promote community development in low- and moderate-income areas
for low- and moderate-income individuals, such as youth programs, homeless centers,
soup kitchens, health care facilities, battered women's centers, arts and culture
organizations, and alcohol and drug recovery centers.
JPMorgan Chase is pleased to have had the opportunity to submit these comments. We
would be happy to discuss them further with you.
Sincerely yours,
25
N
A
A
H L
NATIONAL ASSOCIATION OF AFFORDABLE HOUSING LENDERS
Celebrating 30 years of Successful Community Investment
NAAHL PLATINUM MEMBERS
Bank of America
Wells Fargo & Company
September 7, 2007
NAAHL GOLD MEMBERS
Century Housing
Countrywide Home Loans
Harris Bank
JPMorganChase
Massachusetts Housing
Investment Corporation
Wachovia
Washington Mutual Bank
Office of the Comptroller of the Currency
250 E Street, SW, Mail Stop 1-5
Washington, DC 20219
regs.comments@occ.treas.gov
Docket ID OCC-2007-0012
NAAHL SILVER MEMBERS
Bank of New York
Capital One
CITIGROUP
HSBC Bank USA
LaSalle Bank Corporation
Merrill Lynch Community
Development Company
National City Bank
NeighborWorks America
The Northern Trust Company
NAAHL BRONZE MEMBERS
Bank of the West
California Community
Reinvestment Corporation
Community Investment Corporation
Enterprise
FHLBanks
Local Initiatives Support Corporation/
National Equity Fund
Neighborhood Lending Partners
Ohio Capital Corporation for Housing
ShoreBank
President & CEO
Judith A. Kennedy
Mr. Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Comments@FDIC.gov
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Regs.comments@federalreserve.gov
Docket No. OP-1290
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Regs .comments@ots .treas .gov
ID OTS-2007-0030
RE: Community Reinvestment Act; Interagency Questions and Answers
Regarding Community Reinvestment; Notice: OCC-2007; OP-1290; RTN 3064AC97; and OTS-2007-0030.
Dear Sirs and Madams:
The National Association of Affordable Housing Lenders appreciates the
opportunity to comment once again on the framework for implementing the
Community Reinvestment Act (CRA). As 200 organizations in the vanguard of
banks and blue chip - non-profits that are lending and investing in low and
moderate income areas, our practitioners' experience with past success and
remaining challenges forms the basis for NAAHL comments. We commend the
Office of Thrift Supervision for its recent revisions to its CRA regulations so that
they are, once again, "substantially the same as.. .the other 3 agencies." As we
celebrate the 30 th anniversary of CRA this year, it is very helpful to have all of the
regulators on the same page.
At the agencies' recent conference on minority-owned institutions, agency staff
encouraged interested parties to comment on the proposed questions and answers
(Q & A's), and also address any additional concerns. Enclosed are
recommendations NAAHL submitted previously about the importance of
offering banks the option to be evaluated under a community development
(CD) test, and the need to eliminate artificial distinctions between CD
investments and loans. Such distinctions discourage banks from making CD
loans for affordable rental housing.
Several of the proposed Q & A's are very useful clarifications that will facilitate
banks' ability to respond to their communities' credit needs. We much appreciate
the interagency effort to clarify the application of rules, facilitate compliance, and
in doing so encourage rather than restrict the flow of private capital. We strongly
support the focus on assessment areas, and the effort not to dictate how an
institution can demonstrate that an investment in a national or regional fund meets
the geographic requirements of the CRA regulation.
THE CHALLENGES
NAAHL's primary concern with the proposed Q & A's is the potential for
unintended, adverse consequences for bringing private capital through pooled
funds to underserved areas and people with acute needs. If implemented, the
proposed policy would undermine national, regional and even statewide
community development funds, hurt underserved communities, make
homeless and supportive housing and other challenging activities harder to
finance, and drive away banks unable to make very large investments.
Unfortunately, the proposals on examiner discretion and alternative fund
documentation are already chilling investments in pooled funds. This reaction is
no doubt exacerbated by some examiners' recent: 1) challenges to favorable
consideration for investments in pooled funds, reflecting an inconsistent
methodology in evaluating a bank's investment in national and regional funds,
leading to uncertainty as to how these investments will be counted; and 2)
discounting significant investments in even statewide and regional, as well as
national, community development funds.
NAAHL believes that multi-investor, multi-geography funds play a critical role in
providing affordable housing to low- and moderate-income ("LMI") families
across the United States. For more than 30 years, banks have pooled their money
in multi-bank consortia in order to meet the mortgage credit needs of their LMI
communities. These pools afford banks real economies of scale, and the
opportunity to invest in experts in originating, underwriting and servicing loans on
homes affordable to LMI, as well as the benefits of geographic and product
diversification. Since the Tax Reform Act of 1986 which created the low-income
housing tax credit program, $75 billion in private capital has been invested in
LIHTCs, of which multi-investor, multi-geography funds account, conservatively,
for 70%-80%. Multi-investor, multi-geography funds help smaller localities and
underserved areas attract investment dollars.
Our mutual goal is to ensure that all geographic areas receive the loans and
investments they need. Because of the unique nature of funds and the critical role
they play, the CRA regulation should do everything possible to encourage these
investments. In so doing, care should be taken to ensure: first, that CRA credit for
investments in the funds is fairly distributed among investors; and second, that
investors are able to receive CRA credit for the full amount of their investment.
National, multi-state, multi-investor funds for loans and tax credit investments
have been able to address acute needs like supportive housing for homeless, and
veterans, by pooling their development costs with those of mixed income housing
developments. Regional and statewide funds are, for the first time, bringing
affordable, privately owned housing that families are proud to call home to places
like Alabama, Hawaii, and we hope soon to Louisiana.
So we were surprised that the proposed Q&A on geographic documentation
appears to be a real departure from, and at odds with, the excellent approach of
prior guidance, which recognized the importance of funding broader programs that
benefit from diversification of projects and geographies, and economies of scale:
"The institution's assessment area(s) need not receive an immediate or direct
benefit form the institution's specific participation in the broader organization or
activity, provided that the purpose, mandate or function of the organization or
activity includes serving geographies or individuals located within the institution's
assessment area(s)."
That Q&A specifically recognizes that community development organizations and
programs are efficient and effective ways for institutions to promote community
development; that these organizations and programs often operate on a statewide
or multistate basis; and therefore, an institution's activity is considered a
community development loan or investment if it supports an organization or
activity that covers an area that is larger than, but includes, the institution's
assessment area.
We believe strongly in the principle that a bank should receive full CRA credit for
all dollars invested in national community development funds, regardless of the
location of the fund's projects, provided that the fund has at least one project in the
bank's assessment area(s) or broader statewide or regional area that includes the
bank's assessment area(s).
Because of the unique circumstances inherent in equity investments in multiinvestor, multi-geography, community development funds, and to encourage
investment in these funds, a more flexible rule for garnering CRA credit than that
applicable to a bank's direct investments is not only appropriate, but necessary.
Section
.23 of the CRA Regulation provides that a bank receives CRA credit
for fund investments that benefit (i) its assessment area or (ii) a broader statewide
or regional area that includes the bank's assessment area. The missing piece is
fund investments that fall outside (i) or (ii).
RECOMMENDATIONS
As a result, NAAHL recommends strongly that a bank should continue to receive
full CRA credit for the entire dollar amount of its investment in national as well as
statewide and regional funds that make community development loans or
investments, generally as defined under the CRA rules, regardless of the location
of the fund's projects, provided that some of the fund's projects are located in the
bank's assessment area(s) or broader statewide or regional area that includes the
bank's assessment area(s).
As embedded in your regulations, "community development" means affordable
housing (including multifamily housing) for low- or moderate-income (LMI)
individuals; community services targeted to LMI individuals; activities that
promote economic development by financing small businesses and farms;
activities that revitalize or stabilize LMI areas, designated disaster areas, or
distressed or underserved middle-income nonmetropolitan areas. A "community
development loan" excludes loans considered under CRA as a home mortgage,
small business, small farm, or consumer loan, except for multifamily loans. For
this purpose, the additional requirement that a community development loan must
benefit the bank's assessment area or its broader statewide or regional area would
not apply.
OTHER ISSUES
On the issue of mixed-income housing, we strongly recommend that banks and
thrifts should be encouraged to support the affordable housing policies and plans
of local governments by receiving full credit for their investment in such
developments. Depository institutions don't make public policy regarding the
allocation priorities for LIHTCs and/or the desired mix of income levels in
housing, like state and local governments do. We also support the proposal to add
clarifications: 1) giving examples of qualified investments; and 2) of investments
where there is a presumption that it promotes economic development.
Over the past few years, NAAHL has increasingly been concerned with how the
guidance and regulations are being applied, by different regulators and in different
regions. We know that informed, experienced examiners are critical to
encouraging more innovation in community investment, so we would appreciate
the opportunity to work with all 4 agencies on examiner training on CD activities.
We look forward to working with you to ensure simpler, more flexible policies to
sustain the effective use of markets and market institutions in community
investment.
Sincerely,
Judith Kennedy
®
NAAHL OFFICE
1300 Connecticut Ave., NW, Washington, D.C. 20036 / Tel (202) 293-9850 Fax (202) 293-9852
http://www.naahl.org
September 9, 2007
Office of the Comptroller of the Currency
Docket ID OCC-2007-0012
Federal Reserve System
Docket No. OP-1290
Federal Deposit Insurance Corporation
RIN 3064-AC97
Office of Thrift Supervision
Docket ID OTS-2007-0030
RE: Proposed CRA Q&As
To Whom it May Concern:
This letter is a response to the Community Reinvestment Act: Interagency Questions and
Answers Regarding Community Reinvestment posted in the Federal Register on July 11.
The California Reinvestment Coalition (CRC) and its 250 members have found the
Community Reinvestment Act (CRA) to be a positive tool in expanding access by
financial institutions for low-income neighborhoods and neighborhoods of color. CRC
sees a number of positive elements among the issues raised but has concerns as well.
•
Foreclosure Prevention: It is positive that the regulators will give favorable CRA
consideration for foreclosure prevention activities. CRC is concerned that the
regulators carefully assess these activities in order to be certain that lenders are
responsive and flexible in a manner that will avert the worst of the mortgage crisis
impact on homeowners, neighborhoods and the economy. The regulators should
also realize that this is a major safety and soundness issue which requires an
increased level of scrutiny needed.
•
Branches: CRC members and extensive research have shown the positive impact
of branch locations on under-served neighborhoods. This is critical for all banks
and should be scrutinized carefully by the regulators.
•
Community Development: CRC members see financial institutions focusing on
HMD A and other easily quantified CRA measures instead of the needed, strong
focus on community development. In California, home mortgages are not
affordable for most LMI households and therefore community development is
extremely important to understand in measuring the impact of financial
institutions on low-income neighborhoods and neighborhoods of color.
•
Assessment Areas: CRC believes that CRA must be brought up to date for
financial access and community development to move beyond branch assessment
areas to include all areas where the financial institution lends and gains significant
revenue. Without this review of financial institutions such as Schwab and
Countrywide Banks, the regulators are not getting a full view of the activities and
impact of the financial institution.
•
Double Counting Loans: CRC opposes the proposed addition that would allow a
bank to count a loan as purchased if originated by its affiliate. CRC members are
extremely concerned about the double counting of loans including the purchases
of loans from affiliates or other lenders in order to increase the count of LMI
loans in time for regulatory examinations.
CRC appreciates the opportunity to comment on these issues. Please contact us with any
questions.
Sincerely,
Alan Fisher
Executive Director
THE COMMUNITY PRESERVATION CORPORATION
28 East 28* Street, 9* Floor
New York, New York 10016-7943
Tel: (212) 869-5300
Fax:(212)683-0694
www.communityp.com
9*1
Office of the Comptroller of the Currency
250 E Street, SW, Mail Stop 1-5
Washington, DC 20219
regs.comments@occ.treas.gov
Docket ID OCC-2007-0012
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Regs.comments@federalreserve.gov
Docket No. OP-1290
September 7, 2007
Mr. Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Comments@FDIC. gov
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Regs .comments@ots .treas. gov
ID OTS-2007-0030
RE: Community Reinvestment Act; Interagency Questions and Answers Regarding
Community Reinvestment; Notice: OCC-2007; OP-1290; RIN 3064-AC97; and
OTS-2007-0030.
Ladies and Gentlemen:
The Community Preservation Corporation (CPC), a nonprofit lending consortium serving
New York, New Jersey and Connecticut, is pleased to submit comments on the above-referenced
Q&A. CPC has been financing affordable housing since 1974 with the support of our member
financial institutions who supply us with lines of credit for our operations. In that 33 years of
activity CPC has financed the development or preservation of over 120,000 housing units,
representing public and private investments of over $5.5 billion.
CPC's primary concern with the proposed Q&A is that it leaves open the possibility of
examiners' discounting investments in national, regional and statewide lending consortia and
other community development funds. Multi-investor, multi-geography funds play a critical role
in providing affordable housing to low- and moderate-income ("LMI") families across the United
States. For more than 30 years (beginning with CPC's formation in 1974), banks have pooled
September 7, 2007
Page 2
their money in multi-bank consortia in order to meet the mortgage credit needs of their LMI
communities. These pools afford banks real economies of scale, and the opportunity to invest in
experts in originating, underwriting and servicing loans on homes affordable to LMI, as well as
the benefits of geographic and product diversification.
We strongly support the existing CRA guidance on investments in broad geographic
lending funds, which states that
"The institution's assessment area(s) need not receive an immediate or direct benefit from
the institution's specific participation in the broader organization or activity, provided
that the purpose, mandate or function of the organization or activity includes serving
geographies or individuals located within the institution's assessment area(s)."
That Q&A specifically recognizes that community development organizations and
programs are efficient and effective ways for institutions to promote community development;
that these organizations and programs often operate on a statewide or multi-state basis; and
therefore, an institution's activity is considered a community development loan or investment if
it supports an organization or activity that covers an area that is larger than, but includes, the
institution's assessment area.
RECOMMENDATION
CPC recommends strongly that a bank should continue to receive full CRA credit for the
entire dollar amount of its investment in national, statewide and regional funds that make
community development loans or investments, generally as defined under the CRA rules,
regardless of the location of the fund's projects, provided that some of the fund's projects are
located in the bank's assessment area(s) or broader statewide or regional area that includes the
bank's assessment area(s).
Please contact me with any questions concerning the foregoing, thank you.
SincerQy yours.
M~~~
V Richard A. Kumro
Vice President and
General Counsel
cc: Ms. Judith Kennedy, NAAHL
RAKxag
H:\Legal Dcpt Shared FilesXWord Processing Files\CRA\Comment Letter 2007.doc
09/10/07
MON 11:24 FAX 1 312 427 4007
WOODSTOCK INS.
W
11002
Woodstock Institute
W W W W W
Board of Directors
Chair
Adn-Skylci., Ph.l)..JJ>.
Chfipin Hall C/enter fur Children
AX the Univcrnily of Chicago
Ifiunediulu Pant Chair
Churlce M. Hill. Sr.
Churlcn M. Hill tc AMHICUIIIH. Inc.
Hearelary
KdwurcJ Jucub
North Sid< Cof»muniL>
Ftdcnil Credit Union
Treasurer
Pnmclu Daniuln-Hulisi
LviSnlle Bunk. N.A-
September 10,2007
Ms. Jennifer J. Johnson
Secretary
Federal Reserve System
20* Street & Constitution Ave., NW
Washington, DC 20551
Members
Mfllcnlm Bush, rh-U.
Wnnditlnuk luvtilW*
Cheryl DuVull
JoumolisL
Thomiui FilStgihhon
MK Financial
ChurliaHill,.Ir.
Mcrcur Cvtmly Offiue uf
licnnomiv Opportunity
ChnriesM, Hill, fir.
Chnr|e>i M> Hill & AxKoaiuuai, Inc.
Reginald Lc»vin
Office nrihu City AUminlKlrutor
Cily of Iviul OntniSc
Lisa l.nwc
Oliiu S«vin|i» Bunk
Michael MitchuJI
Milvlitfll Devolopiiicnt
Consultant*, Inu.
Mury INulwin, PhJX
Bethel New IMc. l a c
F. Lcmy I'uehuco
The Lonn Fund
Stephen Perkins, J'h.13.
Center Cor Neighborhood
TuuhrtKlnftGuil Schcchlur
Inlsrfailh Hnusin|: Cvnicr of
The Northern Suburlw
Snndru J>. Kcheinl'eld. Pll.U.
I'Ycelunce Dnewnenlur
Re: Docket No. OP-1290
Dear Ms. Johnson:
L
I am writing from Woodstock Institute to comment on the proposed interagency
questions and answers regarding community reinvestment. Woodstock Institute is a 34year old, Chicago-based research and policy organization that focuses on promoting
economic development in lower-income and minority communities. Woodstock Institute
has worked extensively with the Community Reinvestment Act (CRA) since its passage.
Woodstock Institute also convenes the Chicago CRA Coalition, a regional coalition of
community development organizations interested in improving bank lending,
investments, and services in underserved markets. The Coalition regularly meets with
regional community affairs staff of the federal regulatory agencies to discuss the
implementation of CRA.
We have specific comments on several of the questions and answers and general
comments on broader CRA issues.
We welcome the additional clarification of specific activities for which banks and thrifts
will get CRA credit. These include the clarifications that:
•
(>re|!ory Sooilta, l J h.D.
(iv»r|(e Washington Univi-rnily
Founder
Sj Iviu R, Sehuinluld
l<H)3-1990
MulisclW Hush. Ph.D.
Prisridcnl
Murvii Williams. Ph.».
Senior Vice Fri-Mik-m
rVlriciu Woodf-Hciiiiiu;
AdtnmiKtrutivc Direclor
H07 South Dearborn Ave.
Sidle 550
Chiciifjo. IllinoiB 60603-1158
Phone 312/437-8(170
Fax 312/4374007
vondoUKskewDodnnakuuLuri!
www.woudatocknuii.ur]!
•
•
•
Establishing a loan program to provide relief for low- and moderate-income
homeowners facing foreclosure is an example of a type of program that is responsive
to community credit needs (Q&A .22(a)-l)
Assisting in foreclosure prevention counseling will be considered under community
development services (Q&A .12(i)-3)
Investing in a community development venture capital fund is an example of a
qualified community development investment (Q&A .12(g)(3)-l)
Participating in a SBA 504 loan over SI million, a loan that would not be considered
a "small business loan" under the lending test, will be considered as a community
development loan (Q&A .26(a)(2)-l)
Such clarifications should reduce any uncertainty that banks might have regarding the
CRA eligibility of these critical activities.
j Woodamck ciiiiv«ni:>i the Ghiirago <3HA Cimliliim mid it. u iin.-rnhLToflliu IMnlinniu Community kuinvunlinuni Coulhiuii and Ihe I Jmitimmily Development Kinsinviiil
° 9 _ ^ _ ° ^ JKN_ll:JS_EAX 1_312_427 4007
WOODSTOCK INS.
Ms. Jennifer J. Johnson
Federal Reserve System
September 10,200"?
Page 2
We disagree with the question and answer regarding purchases of loan participations (Q&A -22(a)(2)-6).
In previous comments, we have been opposed to giving equal credit to loans that are directly originated
by banks and loans originated by third parties and purchased by banks. While we understand there is
value to loan purchases, we feel that this value is not equal to that of directly originating a loan. Pools of
purchased loans are often passed from bank to bank in order to give the purchasing institution a better
result on the CRA lending test. There is no consideration of the terms of the loans being purchased, and
loans can be purchased multiple times by different institutions. After the initial purchase from the
originating institutions, these purchased loans offer little value to low- - and moderate-income
communities. In the current mortgage market where low- and moderate-income and minority
communities are starved for bank originated, prime loans, we believe that expanding the definition of
"purchase loans" to include transactions where banks purchase only parts of loans will only further serve
to reduce the importance of directly originated loans and could serve as a disincentive for banks to
directly lend to these underserved communities. ,
We also disagree with the question and answer regarding the consideration of loans purchased from
affiliates (Q&A .22(c)(2)(i)). This Q & A would allow banks to purchase loans originated by affiliates as
long as the same institution does not claim the origination and the purchase of the same loan. As
mentioned in the previous discussion of the value of purchasing loan participations, we feel that giving
loan purchases equal credit to loan originations already reduces the importance of direct originations of
mortgages to underserved markets. Direct originations will once again be downgraded if bank holding
companies are allowed to swap loans amongst affiliates in order to boost performance on the CRA
lending test.
We also wish to take this opportunity to comment on a few other broader CRA issues not included in the
questions and answers.
There needs to be significant changes to the designation of CRA assessment areas. For some banks, an
assessment area may not be a relevant concept. Currently, CRA assessment areas are designated by the
financial institutions and are meant to represent the areas where banks and thrifts have branches. Initially,
this designation was meant to reflect the area from which a bank was taking deposits. In the modern
financial services industry, however, banks are no longer tied to traditional branch networks for deposits
and banks frequently do business such as mortgage lending well beyond the areas from which they take
deposits. Internet banks and insurance banks, for example, have no traditional bank branch presence and
take deposits from all over the country, yet these institutions are able to designate geographically limited
assessment areas that often do not reflect their true area of business.
Additionally, banks have the ability to lend within and outside of their assessment areas, yet only loans
originated within the assessment area are fully considered under CRA. Federal Reserve research has
shown that CRA-regulated banks arc more likely to originate higher cost loans outside of their assessment
areas than within.1 This indicates that CRA coverage is effective at encouraging banks to originate lower
cost mortgages. We believe that in, the case of the lending test, all loans originated by an institution
should be considered though within and without assessment area loans should be considered separately.
'Sec Avery, Robert B., Kenneth P. Brevoon, and Glenn B. Conner. September 2006. "Higher Priced Home Lending and the
2005 HMDA Data."' Federal Reserve Bulletin. Washington, D.C.
1003
0 8 / 1 0 / 0 7 _MON l l i _ 2 5 FAX 1 3 1 2 427 4007
WOODSTOCK INS.
Ms. Jennifer J. Johnson
Federal Reserve System
September 10,2007
Page 3
Similarly, we feel that lending by all affiliates within a bank holding company should be considered on an
institution's lending test A research report examining the home purchase lending of eight large bank
holding companies that have entities making both prime and subprime loans shows these holding
companies have larger higher cost lending disparities to minority borrowers than the regional averages in
the metropolitan areas examined.2 We have substantial concerns around the enforcement of fair lending
laws for bank holding companies that have such a range of products. Given the increasingly complex
nature of the banking industry, we do not feel that banks within large holding companies should be given
credit for their prime loans while another affiliate, not covered by CRA, is making subprime loans with
potentially abusive and deceptive terms and underwriting.
We also would like to comment on the state of the large bank CRA service test. A report released by the
Woodstock Institute examined the service test performance evaluation of a number of Chicago area large
banks.3 It found substantial inconsistencies in the analysis of bank branch data and limited descriptions
and inconsistent data on retail accounts and community development services. Among a number of
recommendations, the reports stated that regulatory agencies must collect standardized data on new and
existing retail checking and savings accounts. These data should include information on account holder
census tract, year opened, and average annual balance. The agencies must develop more performancebased measurements of the provision of banking services and retail deposit accounts of lower-income
households. Also, branch distribution should be measured in a consistent manner against the percent of
households living in low-and moderate income neighborhoods in the bank's assessment area.
We thank you for your consideration of our comments.
Sincerely,
Geoffrey Smith
Research Director
GS/bab
2
See California Reinvestment Coalition, Community Reinvestment Association of North Carolina, Et. Al- March 2007.
Paying More for the American Dr&un: A Multi-State Analysis of Higher Cost Home Purchase Lending. Woodstock Institute;
Chicago, IL.
3
See Smith, Geoff. May 2007. Reinvestment Alert 31: Measuring the Provision of Banking Services to the Underbanked:
Recommendationsfor a More Effective Community Reinvestment Act Service Test. Woodstock Institute: Chicago, IL.
September 13, 2007
Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th and Constitution Avenue, NW
Washington, DC 20551
E-mail:
regs.comments@federalreserve.gov
Dear Ms. Johnson,
This letter is a comment on proposed questions and answers regarding community
reinvestment.
You are in receipt of a letter from Norma A. Hart, President of the National Bankers
Association. Her comments accurately reflected not only the thoughts of a trade
organization President, but also the minority banks throughout the country that she
represents. Unity National Bank of Houston is one of those banks. We are indeed in need
of clarity within CRA if we are to ever receive the assistance to continue working in the
battlefields of Houston's under-served communities. Without assistance it is unsure how
long we can continue to be affective in these areas. Majority banks have not responded as
expected to previous attempts for partnerships with our banks. Our inner-cities will
continue to die if steps at every level are not pursued.
Please use the authority given to you to help us effect change and progress throughout
this nation.
Respectfully submitted,
Tommy Brooks
Executive Vice President & Chief Financial Officer
Unity National Bank
1330 Post Oak Blvd. Suite 2250
Houston, Texas 77056
(713) 940-6305
(713) 621-5040 fax
tbrooks@unitybanktexas. com
BARNEY FRANK, MA; CHAIRMAN
PAUL E, KANJORSKI, PA
MAXINE WATERS. CA
CAROLYN 3. MAIONEY. MY
LUIS v. GUTIERREZ. IL
NYDIA M. VELAZQUEZ. NY
MELVIN L. WATT. NC
GARY L. ACKERMAN,.NV*
JOLIA CARSON, IN
BRAD SHERMAN. CA
GREGORY W. Mf.EKS. MY
DENNIS MOORE, KS
MICHAEL .=. CAPUANO, MA
RUtSEN HIMOJOSA, TX
WM LACY CLAY, MO
CAROLYN MCCARTHY. NY
JOE BACA, CA
STEPHEN f. LYNCH. MA
BP.AC MILLER. NC
DAVID SCOTT, GA
AL BHEEN. TX
EMANUEL CLEA'.'ER MO
MELISSA L. SEAN. IL
GVVEN MOORE, Wl
LINCOLN BAVSS, TN
ALB10 SIRES, NJ
PAUL W. MODES, NH
KEITH ELLISON. V1N
RON KLE5N. FL
TIM MAHONEY. FL
CHARLES WiLSO-V, OH
EO PEHLMunER, CO
CHRISTOPHER S. MURPHY, i
JOE DONNELLY, IN
ROBERT WEXLEP, R
JIM MARSHALL, GA
DA.N BOREN, QK
ffl.§s>.ffiatiStof &epvt&tntati)ii$
Committee oit^Financial &erbtce£
2129 jRaytmrn j&ouste #«ice SBtiitStng
MaSfjiiigtoi., 51C 20.515
SPENCER 8.ACHUS, AL, RANKING MEMBER
RICHARD I I . BAKER. LA
DEBORAH PRYCE, OH
MICHAEL N. CASTLE. S)E
PETER i. KING, NY
EDWARD H. ROYCE. CA
FRANK D.LUCAS. OK
RON PAUL. TX
PAUL E. GHJJWOR. OK
STEVEN C. L A T O U R E T T E . OH
DONAL5 A. MANZULLO, IL
WALTER 3. JONES, JR., NC
JUDY BIGGERT. IL
••raoavS.CI
JES HENSARUNG. TX
SCOTT GARRETT. N J
CIINNV SROWN-WAITE. FL
J. SRESHAM BARRETT, SC
JIM CERIACH. PA
S f EVAN PEARCE. MM
•RANDV NEUAEBALIER, TX
TOM PRICE, GA
GEOFF GAVE, KY
PATRICK T. MCHENRY, NC
JOHN CAMPBELL. CA
ADAM PUTNAM, FL
MICHELE BACHMANN. M N
• — , ^ A e k A M . ;L
September 11,2007
JEANNE M. ROSLANOWICK.
SI.M:; ; DtnccroH A M >
CKSE* COUMSSL
The Honorable Ben S. Bernanke
Chairman
Board of Governors of the Federal Reserve
20th and. Constitution Avenue, NW
Washington, DC 20551
The Honorable John C. Dugan
Comptroller
Office of the Comptroller of the Currency
250 E Street, SW
Washington, DC 20219
The Honorable Sheila Bair
Chairman
Federal Deposit Insurance Corporation
The Honorable John Reich
Director
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
550 17th Street, NW
Washington, DC 20429
Dear Chairman Bernanke, Comptroller Dugan, Chainitan Bair, and Director Reich:
We are pleased with the direction thai the Office of the Comptroller of the Currency
(OCC), Board of Governors of the Federal Reserve (Federal Reserve), Federal Deposit Insurance
Corporation (FDIC),, and Office of Thrift Supervision (QTS) is taking in the proposed
Interagency Questions: and Answers (Q&A) regardihgthe Community Reinvestment Act: (CRA)
addressing activities engaged in by majonty-owned financial institutions with minority- or
women-owned financial institutions or low-income credit unions;
As you note in the proposal, Section 804 of the CRA provides that when evaluating the
CRA performance of a non-minority-owned and non-women-owned (majority-owned) financial
institution the agencies may consider as a factor capital investment loan participation and other
ventures undertaken by the institution in cooperation with minority-and women-owned financial
institutions and low-income credit unions provided that these activities help meet the credit
needs of local communities in which such institutions are chartered, Uhforranately, there has
been some confusion under Section 804 about whether; a majority-owned financial institution's
activity in conjunction with a minority-owned or Women-ownM.financialinstitution or lowincome credit union had to benefit the majority-owned financial institution's CRA assessment
area for the majority-owned financial institution to receive favorable CRA consideration.
In the Government Accountability Office's (GAO) report entitled "MINORITY BANKS:
Regulators Need to Better Assess Effectiveness of Support Efforts" which was issued in October
2006 at the request of several Financial Services Committee Democratic members, only about 18
percent of minority banks surveyed felt that the CRA had encouraged other institutions to invest
in or form partnerships with their institutions, For this reason, some minority bank officials
The Honorable John Dugan
The Honorable Ben S. Bernanke
The Honorable Sheila Bair
The Honorable John Reich
September 11,2007
called upon the agencies to clarify that majority-ownedfinancialinstitutions would receive
favorable CRA consideration for investments in minority-ownedfinancialinstitutions that
operate in other parts of the country from the majority-owned financial institution. We are glad
that the proposed Q&A for the CRA now attempts to give Ml effect to Section 804 by clarifying
this.
We also encourage the agencies to view the scope of the "other ventures" allowed under
Section 804 broadly by including a wide range of activities, such as assistance provided by a
majority-ownedfinancialinstitution to help fund partnerships between minority-owned financial
institutions and historically black colleges and universities to promote workforce diversity in the
financial services industry and to enhancefinancialliteracy education. However, we encourage
the agencies to include the following additional language to insure that such majority-owned
institutions do not neglect their assessment areas: "Activities engaged in by majority-owned
financial institutions with a minority- or women-ownedfinancialinstitution or low-income credit
union that benefit areas outside the majority-owned institution's assessment area(s) will be
considered only if the institution has adequately addressed the needs of its assessment area(s)."
We hope the clarification included in the proposed Q&A for the CRA will be sufficient to
achieve the Ml intent of the Section 804. We will continue to monitor this matter to assess
whether this issue needs to be specifically addressed in the agencies' CRA regulations, and not
only in the Q&A, in order to achieve the Ml effect intended under the provision and we hope the
agencies will also do so.
Sincerely^
• •£. USE*
BARNEY FRANK
Chairman
LUIS V. qfUTIERREZ
'Member of Congress
•W. MEBKS
Member of Congress
MELVIN L. WATT
Chairman
Subcommittee on Oversight and
Investigations
jX/yyflCARSON
Me\n$er of Congress
2OA
ML-
*
—•
OL)
HtflLLU
aLLIAM LACY^LAY
Member of Congress
JS
The Hdnorable John Dugan
The Honorable Ben S. Bemanke
The Honorable Sheila Bair
The Honorable John Reich
September 11, 2007
CAROLYN McCARTH
Member of Con
ANUEL CLEAVER
ember of Congress
^L^c^O^-o
^
mMUMember of Congress
ALBIO SIRES
Member of Congress
Carl Howard
General Counsel
Bank Regulatory
September 13, 2007
Citigroup Inc.
425 Park Avenue
2nd Floor/Zone 2
New York, NY 10022
Tel 212.559.2938
Fax 212.793.4403
howardc@citigroup.com
Office of the Comptroller of the Currency
250 E. Street, SW
Mail Stop 1-5
Washington, DC 20219
Docket ID OCC-2007-0012
Jennifer J. Johnson
Secretary
Board of Governors of the Federal Reserve System
20th and Constitution Ave., NW
Washington, DC 20551
Docket No. OP-1290
Robert E. Feldman
Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
RIN Number 3064-AC97
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Attention: ID OTS-2007-0030
Re: Interagency Proposal to revise the CRA Q&A. 72 Fed. Reg. 37921 (2007).
Dear Sir or Madam:
Citigroup Inc. ("Citigroup") appreciates this opportunity to comment on the subject interagency
proposal to revise the CRA Q&A issued by the bank and thrift federal regulatory agencies (the
"Agencies"). Our comments concern only the proposed CRA Question and Answer for section
23(a)-2 (hereinafter, the "Proposed Q&A"). Citigroup supports the Agencies' proposal to accept
side letters as evidence of a multi-investor fund's allocation of CRA treatment among its bank
investors. As discussed below, we believe that it is important that CRA-related side letters be
accepted in a uniform manner by all of the Agencies to provide equal CRA treatment for all bank
and thrift investors and to encourage fund investment.
Citigroup is a financial services holding company with several FDIC-insured subsidiaries that are
subject to the CRA, including three national banks, one federal savings bank, and a Californiachartered state non-member bank. Our lead retail bank, Citibank, N.A. ("Citibank, N.A."), is a
major investor in community development limited partnership funds, particularly national and
regional low-income housing tax credit ("LIHTC") funds which provide substantial support to
the low and moderate income communities in which we operate our businesses. Investment in
such funds is an important means for FDIC-insured institutions to support community
development in their assessment areas.
National and regional funds compete for both LIHTC projects and investors. To attract bank
investors, fund managers need to allocate CRA credit in a manner that creates an incentive for
those investors to participate in their funds. Side letters, which are the product of negotiations
with their bank investors, give managers a way to allocate CRA credit in an equitable manner.
Regardless of which investors provide the most capital or commit to the fund first, side letters
give fund managers a way to retain the flexibility to offer adequate CRA credit to each
prospective investor. The use of side letters results in an allocation of CRA credit that
encourages investors to invest in funds that invest in LIHTC projects in their assessment areas
and, if the community development needs of an investor bank's assessment areas are met,
adjoining areas as well.
Citigroup supports the Proposed Q&A because it would standardize the Agencies' acceptance of
side letters for the purpose of allocating CRA credit among investors in LIHTC funds. The
Agencies' consistent acceptance of these letters will stimulate continued investment in LIHTC
funds and create certainty as to the CRA treatment of each bank's fund investments. Through
the use of such side letters, each investor bank will know for which projects it will receive CRA
credit, and how much credit, at the time it commits capital to make a fund investment and can
invest its other funds accordingly.
Thank you for the opportunity to comment on this proposal. If you have any questions, please
contact Jeffrey Watiker at 212-559-1864 or Richard Sider at 212-783-6043.
Sincerely,
Carl V. Howard
General Counsel - Bank Regulatory
cc:
Jeffrey Watiker
Richard Sider
Viola Spain
2
From:
Cindy Tiede <Cindy@ncbankers.org> on 09/14/2007 11:55:13 AM
Subject:
Interagency guidance on CRA
RE: Community Reinvestment Act; Interagency Questions and Answers Regarding Community
Reinvestment; Notice: OCC-2007; OP-1290; RIN 3064-AC97; and OTS-2007-0030.
Dear Sirs and Madams:
The Community Investment Corporation of the Carolinas (CICCAR) appreciates the opportunity
to comment on the framework for implementing the Community Reinvestment Act (CRA).
CICCAR is a member of The National Association of Affordable Housing Lenders (NAAHL)
and share their deep concern for unintended, adverse consequences for brining private capital
through pooled funds to underserved areas and people with acute needs. If implemented, the
proposed policy would undermine national, regional and even statewide community
development funds, hurt underserved communities, make homeless and supportive housing and
other challenging activities harder to finance, and drive away banks unable to make very large
investments.
My company, CICCAR, is a multi-state lending consortium that has provided permanent
financing on 187 low-moderate LIHTC apartment communities in North and South Carolina
providing over 8,800 units of affordable housing to 30,000 folks. We are lucky enough to have
115 NC and SC banks that fund our pool. The proposals on examiner discretion and alternative
fund documentation are already chilling investments in pooled funds. This reaction has been
exacerbated by some examiners’ recent: 1) challenges to favorable consideration for investments
in pooled funds, reflecting an inconsistent methodology in evaluating a bank’s investment in
national and regional funds leading to uncertainty as to how these investment will be counted;
and 2) discounting significant investments in even statewide and regional, as well as national,
community development funds.
All of the above mentioned groups play a critical role in providing affordable housing to lowand moderate-income (“LMI”) families across the United States. For more than 30 years banks
have pooled their money in multi-bank consortia in order to meet the mortgage credit needs of
their LMI communities. These pools afford banks real economies of scale, and the opportunity
to invest in experts in originating, underwriting and servicing loans on homes affordable to LMI,
as well as the benefits of geographic and product diversification.
CICCAR has been able to address acute needs like supportive housing for the homeless,
physically and mentally disabled and veterans by pooling our development costs with those of
mixed income and mixed use housing developments. These special needs communities are much
needed and scarce.
CICCAR is extremely surprised that the proposed Q&A on geographic documentation appears to
be a real departure from, and at odds with, the excellent approach of prior guidance, which
recognized the importance of funding broader programs that benefit from diversification of
projects and geographies, and economies of scale. CICCAR strongly believes in the principle
that a bank should receive full CRA credit for all dollars invested in national community
development funds, regardless of the location of the fund’s projects, provided that the fund has at
least one project in the bank’s assessment area(s) or broader statewide or regional area that
includes the bank’s assessment area(s).
CICCAR is hopeful that banks will continue to receive full CRA credit for the entire dollar
amount of its investment in national, as well as statewide and regional funds that make
community development loans or investments, generally as defined under the CRA rules,
regardless of the location of the fund’s projects, provided that some of the fund’s projects are
located in the bank’s assessment area(s) or broader statewide or regional areas that includes the
bank’s assessment area(s).
Sincerely,
Cindy Wiggins-Tiede
Executive Vice President
Community Investment Corporation of the Carolinas
(CICCAR)
3601 Haworth Drive
Raleigh, NC 27609
800-662-7044
cindy@ncbankers.org
From:
"Joseph L. Flatley" <flatley@mhic.com> on 09/14/2007 02:05:07 PM
Subject:
Interagency guidance on CRA
70 Federal Street
Boston, MA 02110
(617) 850-1028
Guilliaem Aertsen
Chairman
Joseph L. Flatley
President and CEO
September 14, 2007
Office of the Comptroller of the Currency
250 E Street, SW, Mail Stop 1-5
Washington, DC 20219
regs.comments@occ.treas.gov
Docket ID OCC-2007-0012
Mr. Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
th
550 17 Street, NW
Washington, DC 20429
Comments@FDIC.gov
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
th
20 Street and Constitution Avenue, NW
Washington, DC 20551
Regs.comments@federalreserve.gov
Docket No. OP-1290
Regulation Comments
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Regs.comments@ots.treas.gov
ID OTS-2007-0030
Dear Sirs and Madams:
The Massachusetts Housing Investment Corporation (MHIC), a nonprofit
community development financial institution serving Massachusetts, appreciates the
opportunity to submit comments on the above referenced Q&A. MHIC was founded in
1990 for the expressed purpose of raising capital from a variety of sources to finance
affordable housing and community development throughout Massachusetts. Over the
last 17 years, MHIC has raised over $1 billion to finance over 12,000 units of affordable
housing. We have been able to accomplish that financing through pooled Funds,
raising capital from a broad base of financial institutions, with loans and investments in
diverse affordable housing and community development projects. In fact, one of our
founding principles is that pooled risk can be more effectively managed, and pooled
funds can therefore better serve the wide spectrum of housing needs throughout the
State.
Our primary concern with the proposed Q&A is that it leaves open the possibility
of examiners’ discounting investments in statewide housing and community
development funds. Multi-investor, multi-geography funds play a critical role in
providing affordable housing to low- and moderate-income (“LMI”) families in
Massachusetts. These pools afford banks real economies of scale, as well as the
opportunity to invest in experts who can originate, underwrite and service loans on
homes affordable to LMI, all with the benefits of geographic and product diversification.
We strongly support the existing CRA guidance on investments in broad
geographic lending funds, which states that
“The institution’s assessment area(s) need not receive an immediate or
direct benefit from the institution’s specific participation in the broader
organization or activity, provided that the purpose, mandate or function of the
organization or activity includes serving geographies or individuals located within
the institution’s assessment area(s).”
That Q&A specifically recognizes that community development organizations
and programs are efficient and effective ways for institutions to promote community
development; that these organizations and programs often operate on a statewide or
multi-state basis; and therefore, an institution’s activity is considered a community
development loan or investment if it supports an organization or activity that covers an
area that is larger than, but includes, the institution’s assessment area.
RECOMMENDATION
MHIC strongly recommends that a bank should continue to receive full CRA
credit for the entire dollar amount of its investment in national, statewide and regional
funds that make community development loans or investments, generally as defined
under the CRA rules, regardless of the location of the fund’s projects, provided that
those projects located in the bank’s assessment area(s) are fully eligible for financing
from said funds.
Please contact me if you have any questions concerning these comments.
Sincerely,
Joseph L. Flatley
President and CEO
Massachusetts Housing Investment Corporation (MHIC)
www.mhic.com
(617) 850-1028
California Community
Reinvestment Corporation
September 17, 2007
Office of the Comptroller of the Currency
250 E Street, SW, Mail Stop 1 -5
Washington, DC 20219
regs.comments@occ.treas.gov
Docket ID OCC-2007-0012
Mr. Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Comments@FDIC. gov
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Regs.comments@federalreserve.gov
Docket No. OP-1290
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Regs.comments@ots.treas.gov
ID OTS-2007-0030
Re:
Community Reinvestment Act
Dear Sirs and Madams:
The California Community Reinvestment Corporation (CCRC) is a pooled-risk mortgage
lender specializing in multifamily acquisition, rehabilitation, construction and permanent
lending in lower-income neighborhoods throughout the state of California. Our markets
include both urban as well as rural areas, where many mainstream lenders are not
comfortable going. We appreciate the opportunity to comment on the proposed
interagency questions and answers (Q & A's) regarding community investment. CCRC
was created in 1989 by the Federal Reserve Bank of San Francisco and bankers
throughout the state to provide financing gaps that commercial banks could not provide.
225 mest broadway, suite 120. glendale, California 01204. tel: 518550.9500 • fax: 515.550.9506 • yuujui.e-ccrc.org
Over the past 18 years, CCRC has extended loans in excess of $880 million, some 28,000
units of affordable housing throughout California.
Our primary concern with the proposed Q & A's is the potential for unintended, adverse
consequences for bringing private capital through pooled funds to underserved areas and
people with acute needs. If implemented, the proposed policy would undermine national,
regional and even statewide community development funds, hurt underserved
communities, make homeless and supportive housing and other challenging activities
harder to finance, and drive away banks unable to make very large investments.
RECOMMENDATIONS
CCRC strongly recommends that a bank should continue to receive full CRA credit for
the entire dollar amount of its investment in national, statewide and regional funds that
make community development loans or investments. I am concerned that without this
CRA credit, many of our 46 member banks, some very small and unable to do this type
of lending on their own, will not be involved in the important work that we do given the
power of this pooled network of some $380 million that we administer on their behalf.
Multi-investor, multi-geography funds play a critical role in providing affordable housing
to low-and moderate-income ("LMI") families across our market and many others.
Thank you for your consideration.
Sincerely,
/
\
DELAWARE
COMMUNITY INVESTMENT CORPORATION
Two Mill Road • Suite 102 • Wilmington, DE 19806 • (302) 655-1420 • Fax (302) 655-1419
September 14, 2007
Office of the Comptroller of the Currency
250 E Street, SW, Mail Stop 1-5
Washington, DC 20219
Docket ID OCC-2007-0012
Mr. Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Docket No. OP-1290
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
ID OTS-2007-0030
RE:
Community Reinvestment Act; Interagency Questions and Answers Regarding Community Reinvestment;
Notice: OCC-2007; OP-1290; RIN 3064-AC97; and OTS-2007-0030.
Ladies and Gentlemen:
The Delaware Community Investment Corporation (DCIC) is a nonprofit multibank community development
corporation which has a membership consisting of 40 commercial banks and thrifts. The Corporation serves the
entire state of Delaware by offering financing for multi-family affordable housing and for community development
projects such as daycare centers, medical centers, group homes, nursing home facilities, charter schools, and
other such facilities. Since inception in 1994, DCIC has provided over $343 million in debt and investment for
the development or preservation of affordable housing units and community development activities.
Our member banks commit funds to our lending and investment programs and the funds are used to provide
financing for developments throughout the state. The existence of DCIC, through the support of our member
banks, has made a decided difference for low to moderate income people and areas in Delaware.
The discounting of CRA credit for broader participation in a lending consortia will negatively impact consortia
across the nation. The critical role consortia play in providing affordable housing would be threatened due to
lack of capital from participating members.
We are highly supportive of the current CRA guidelines on investments in broad geographic lending and
investment funds, which basically states that an institution participating in such funds will receive CRA
consideration for a loan and/or investment if the organization covers an area that is larger than, but includes the
institution's assessment area.
DCIC therefore strongly recommends that an institution should continue to receive full CRA Credit for its
investment in statewide and regional funds that are formed and exist for the purpose of community development
and which meet the credit needs of low to moderate persons and areas.
Please feel free to contact me with any questions.
Sincerely,
Doris R. Schnider
Delaware Community Investment Corporation
President
Clinton Walker
Barclay's Bank
DCIC Board Chairman
222 S. Riverside Plaza, Suite 2200
Chicago, IL 60606-6109
312.258.0070 Fax 312.258.8888
GlMB
Community Investment Corporation
www.cicchicago.com
Chicagoland's Leading Neighborhood Revitalization Lender
September 14, 2007
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20c Street and Constitution Avenue, NW
Washington, DC 20551
Docket No. OP4290
Dear Sirs / Madams:
Community Investment Corporation (CIC) is a pooled-risk mortgage lender specializing in
multifamily rehabilitation in lower-income neighborhoods in the Chicago area. We appreciate
the opportunity to comment on the proposed interagency questions and answers (Q&As)
regarding community investment. Over the past 30 years, CIC has made 1,352 multifamily loans
totaling $777 million (with total project costs exceeding $1 billion) to rehabilitate 39,000 rental
units providing affordable housing for more than 110,000 Chicago area residents.
Our primary concern with the proposed Q&As is the potential for unintended, adverse
consequences for bringing private capital through pooled funds to underserved areas and people
with acute needs. If implemented, the proposed policy would undermine national, regional and
even statewide community development funds, hurt underserved communities, make homeless
and supportive housing and other challenging activities harder to finance, and drive away banks
unable to make very large investments.
RECOMMENDATION
CIC strongly recommends that a bank should continue to receive full CRA credit for the entire
dollar amount of its investment in national, statewide and regional funds that make community
development loans or investments.
Sincerely,
^y
MICHAEL BIELAWA
Vice President
neighborhood Lending
Partners, Inc.
September 18, 2007
Office of the ComptoUer of the Currency
250 E Street, SW, Mail Stop 1-5
Washington, DC 20219
Regs.commentsffiocc.treas.gov
Docket ID OCC-2007-0012
Mr. Robert E. Feldman, Executive Secretary
Attention Comments
Federal Deposit Insurance Corporation
550 17lh Street, NW
Washington, DC 20429
Comments@FDIC. gov
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Regs.commentsfq)federalreserve.gov
Docket No. OP-120-90
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Regs.commentsffiots. treas.gov
ID OTS-2007-0030
Re: Community Reinvestment Act; Interagency Questions and Answers
Regarding Community Reinvestment; Notice: OCC-2007; OP-1290: RIN 3064AC97; and OTS-2007-0030
Ladies and Gentlemen:
Neighborhood Lending Partners (NLP) is a nonprofit lending consortium serving the
State of Florida. NLP is pleased to submit comments on the above referenced Q&A.
NLP has been financing affordable housing and economic development in underserved
neighborhoods since 1993 with the support of our member financial institutions who
supply us with loan pool commitments to provide for our lending products. In the past 15
years, NLP has financed over 10,000 units of affordable housing, and closed loans in
excess of $300,000,000.
NLP's primary concern with the proposed Q&A is that it leaves open the possibility of
examiners' discounting investments in national, regional and statewide lending consortia
and other community development funds. Multi-investor, multi-geography funds play a
critical role in providing affordable housing to low- and moderate-income families across
the State of Florida. Since the formation of NLP, banks have pooled their money in this
consortium in order to meet the affordable housing needs of their communities. These
3615 West Spruce Street • Tampa. FL 33607
813.879.4525 • Fax: 813.873.9767 • www.nlp-tnc.com
pools afford banks real economies of scale, and the opportunity to utilize experts in
originating, underwriting and servicing of affordable housing loans, as well as gain the
benefits of geographic and product diversification.
We strongly support the existing CRA guidance on investments in broad geographic
lending funds, which states that:
"The institution's assessment area(s) need not receive an immediate or direct
benefit from the institution's specific participation in the broader organization or
activity, provided that the purpose, mandate or function of the organization or
activity includes serving geographies or individuals located within the
institution's assessment area(s)."
That Q&A specifically recognizes that community development organizations and
programs are efficient and effective ways for institutions to promote community
development; that these organizations and programs often operate on a statewide or
multi-state basis; and therefore, an institution's activity is considered a community
development loan or investment if it supports an organization or activity that covers an
area that is larger than, but includes, the institution's assessment area.
RECOMMENDATION
NLP recommends strongly that a bank should continue to receive full CRA credit for the
entire dollar amount of its investment in national, statewide and regional funds that make
community development loans or investments, generally as defined under the CRA rules,
regardless of the location of the fund's projects, provided that some of the fund's projects
are located in the bank's assessment area(s) or broader statewide or regional area that
includes the bank's assessment area(s).
Please contact me with any questions concerning the foregoing.
Debra S. Reyes
President & CEO
cc: Ms. Judith Kennedy, NAAHL
Bankof America.
September 10, 2007
Public Information Room
Office of the Comptroller of the Currency
250 E Street; S. W. Mail Stop 1-5
Attention: Docket ID OCC-2007-0012
Washington, DC 20219
Via e-mail: Regs.comments@occ.treas.gov
RE:
Response to Notice and Request for Comment on Interagency Questions
and Answers Regarding Community Investment.
Docket ID: OCC-2007-0012
To Whom It May Concern:
Bank of America Corporation ("Bank of America") appreciates the opportunity to
comment on Docket No. OCC-2007-0012 jointly issued by the Office of the Comptroller
of the Currency ("the OCC"), Board of Governors of the Federal Reserve System
("Board"), Federal Deposit Insurance Corporation ("FDIC") and the Office of Thrift
Supervision ("OTS") (collectively, "Agencies") regarding the proposed revisions to the
Interagency Questions and Answers Regarding Community Reinvestment.
Bank of America is committed to creating opportunities for customers and clients to help
them realize their dreams of homeownership, starting or growing a small business or
achieving financial security. Through innovative technologies and the commitment of its
associates, Bank of America provides individuals, small businesses and commercial,
corporate and institutional clients across the United States and around the world new and
better ways to manage their financial lives. The company provides customers
unparalleled convenience in banking and investing whenever, wherever and however they
choose through the nation's largest financial services network, including approximately
5,700 domestic offices and more than 17,000 ATMs, as well as 35 international offices
serving clients in more than 150 countries, and the nation's leading online banking and
bill-pay services. The company's Web site is <http://www.bankofamerica.com/>.
Bank of America supports the efforts of the agencies to update and improve the clarity of
the existing CRA Interagency Q & As. We would also encourage further steps to
modernize the regulation, keeping pace with changes in the community development
industry and bringing focus on sustainable strategies and business models that foster
greater flexibility and impact in meeting the credit needs of the communities in which we
operate. To that end, we will respond to the specific updates identified by the Agencies
in their Notice and Request for Comment. Additionally, we will take this opportunity to
Page 2 of20
Response to Docket No. OCC-2007-0012
September 10, 2007
provide a number of other suggestions on how the CRA Interagency Q&As and/or the
CRA regulations themselves may be altered to better align the CRA examination process
with the financial industry's efforts to serve all communities.
L
Response to Proposed New Q&As.
The Agencies proposed nine new Q&As. Bank of America provides the following
comments to the newly proposed Q&As.
A.
New Q&A for section _12(g)-4.
The Agencies have proposed the following new Q&A:
§ . 12(g)—4: The CRA provides that, in assessing the CRA performance
of non-minority- and non-women-owned (majority-owned) financial
institutions, examiners may consider as a factor capital investments, loan
participations, and other ventures undertaken by the institutions in
cooperation with minority- or women-ownedfinancial institutions and
low-income credit unions, provided that these activities help meet the
credit needs of local communities in which the minority- or womenowned institutions or low-income credit unions are chartered. Must such
activities also benefit the majority-ownedfinancial institution's
assessment area?
A4. No. Although the regulations generally provide that an institution's
CRA activities will be evaluated for the extent to which they benefit the
institution's assessment area(s) or a broader statewide or regional area
that includes the institution's assessment area(s), the agencies apply a
broader geographic criterion when evaluating capital investments, loan
participations, and other ventures undertaken by that institution in
cooperation with minority- or women-owned institutions or low-income
credit unions, as provided by the CRA. Thus, such activities will be
favorably considered in the CRA performance evaluation of the institution
(as loans, investments, or services, as appropriate), even if the minorityor women-owned institution or low-income credit union is not located in,
or such activities do not benefit, the assessment area(s) of the majorityowned institution or the broader statewide or regional area that includes
its assessment area(s). The activities must, however, help meet the credit
needs of the local communities in which the minority- or women-owned
institutions or low-income credit unions are chartered.
Bank of America is generally supportive of this new Q&A . 12(g)—4, and believes that
the new Q&A correctly recognizes that restricting Agency consideration of the benefits of
Qualified Investments to the limited Assessment Area of the investing institution is not
consistent with the overarching goal of the CRA. Bank of America encourages the
Agencies to review other areas of their regulations and guidance for areas where a similar
expansion of consideration might be appropriate.
Page 3 of20
Response to Docket No. OCC-2007-0012
September 10, 2007
B.
New Q&A for section _12fli)-3.
The Agencies have proposed the following new Q&A:
§ . 12(h)—3: May an intermediate small institution that is not subject to
HMDA reporting have home mortgage loans considered as community
development loans? Similarly, may an intermediate small institution have
small business and small farm loans and consumer loans
considered as community development loans?
A3. Yes. These loans may be considered, at the institution's option, as
community development loans provided they meet the regulatory
definition of "community development." However, these loans may not
be considered under both the lending test and the community
development test for intermediate small institutions. Thus, if an institution
elects that these loans be considered under the community development
test, the loans may not also be considered under the lending test, and
would be excluded from the lending test analysis.
Bank of America expresses no opinion about proposed new Q&A
C.
. 12(h)~3.
New Q&A for Section_.22(a)(2) - 4.
The Agencies have proposed the following new Q&A:
§ .22(a)(2)—4: In addition toMECAs, what are other examples of
' 'other loan data''?
A4. Other loan data include, for example:
• Loans funded for sale to the secondary markets that an
institution has not reported under HMDA;
• Unfunded loan commitments and letters of credit;
• Commercial and consumer leases;
• Loans secured by nonfarm residential real estate, not taken as an
abundance of caution, that are used to finance small businesses or
small farms and that are not reported as small business/small farm
loans or reported under HMDA;
• Loans that do not have a primary purpose of community
development, but where a certain amount or percentage of units is
set aside for affordable housing; and
• An increase to a small business or small farm line of credit if the
increase would cause the total line of credit to exceed $1 million,
in the case of a small business line, or $500,000, in the case of a
small farm line.
Page 4 of20
Response to Docket No. OCC-2007-0012
September 10, 2007
Bank of America appreciates the Agencies efforts to provide a more comprehensive list
of activity that they will consider as "other loan data" under the Lending Test. Bank of
America is wholly supportive of this effort at providing additional transparency and
guidance.
However, Bank of America respectfully takes the position that many of the items
designated as "other loan data" in this proposed Q&A, in fact, should be considered as
primary lending activity, and not merely as "other loan data." By relegating categories of
lending activity that provide significant benefit to low- and moderate-income
communities and/or to small business or small farms to the status of "other loan data", the
Agencies undervalue the CRA benefit of these valuable financing tools.
Bank of America believes that a case could be made that each of the categories of "other
loan data" described in the new Q&A actually should be considered as primary lending
activity rather than as merely supplemental "other loan data." But we will limit our
discussion to two categories at this time. (1) Unfunded loan commitments and letters of
credit; and (2) Loans that do not have a primary purpose of community development, but
where a certain amount or percentage of units is set aside for affordable housing
As we will discuss in greater detail below, it is Bank of America's position that unfunded
loan commitments and letters of credit, as legally binding obligations of the lending
institution, provide substantial value to the recipient and present identical credit risk to
the lending institution as a traditional loan or line of credit. As such, Bank of America
believes that it is inappropriate to minimize the community development value of such
commitments by merely considering them to be "other loan data."
Similarly, we will also discuss projects where less than a majority of units are set aside
for affordable housing in greater detail below. But, to provide a brief description of our
view here, we strongly believe that anything less than full consideration of the amount
lent to or otherwise invested in "mixed-use" projects undermines the most practical and
useful efforts by municipal and state governments', and by their financial institution
partners', to address the affordable housing crisis facing this country. Allowing full
consideration only for projects that preserve a majority of units for affordable housing is
an approach inconsistent with current approaches to urban and suburban efforts to serve
LMI individuals and communities.
D.
New Q&A for Section_.22(a)(2) - 6.
The Agencies have proposed the following new Q&A:
§ .22(a)(2)—6: Do institutions receive consideration for purchasing
loan participations?
A5. Yes. Examiners will consider the amount of loan participations
purchased when evaluating an institution's record of helping to meet the
credit needs of its assessment area(s) through the origination or purchase
of specified types of loans, regardless of examination type.
Page 5 of20
Response to Docket No. OCC-2007-0012
September 10, 2007
Bank of America is supportive of the new Q&A
E.
.22(a)(2)—6.
New Q&A for Section_.22(a)(2) - 7.
The Agencies have proposed the following new Q&A, in relevant part:
§ .22(a)(2)—7: How are refinancings of small business loans, which
are secured by a one-to-four family residence and that have been
reported under HMDA as a refinancing, evaluated under CRA ?
A6. For banks subject to the Call Report instructions: A loan of $1
million or less with a business purpose that is secured by a one-to-four
family residence is considered a small business loan for CRA purposes
only if the security interest in the residential property was taken as an
abundance of caution and where the terms have not been made more
favorable than they would have been in the absence of the lien. (See Call
Report Glossary definition of' 'Loan Secured by Real Estate."). If this
same loan is refinanced and the new loan is also secured by a one-to-four
family residence, but only through an abundance of caution, this loan is
reported not only as a refinancing under HMDA, but also as a small
business loan under CRA. (Note that small farm loans are similarly
treated.). It is not anticipated that "double-reported" loans will be so
numerous as to affect the typical institution's CRA rating. In the event
that an institution reports a significant number or amount of loans as both
home mortgage and small business loans, examiners will consider that
overlap in evaluating the institution's performance and generally will
consider the "double-reported" loans as small business loans for CRA
consideration. The origination of a small business or small farm loan that
is secured by a one-to- four family residence is not reportable under
HMDA, unless the purpose of the loan is home purchase or home
improvement. Nor is the loan reported as a small business or small farm
loan if the security interest is not taken merely as an abundance of
caution. Any such loan may be provided to examiners as "other loan
data" ("Other Secured Lines/Loans for Purposes of Small Business")
for consideration during a CRA evaluation. [Note: footnote and Thriftrelated language has been deleted by Bank of America]
Bank of America does not object to the new Q&A
F.
.22(a)(2)—7.
New Q&A for Section_.23(a)(2) - 2.
The Agencies have proposed the following new Q&A:
§ .23(a)—2: In order to receive CRA consideration, should an
institution be able to demonstrate that an investment in a national or
regional fund with a primary purpose of community development meets
Page 6 of20
Response to Docket No. OCC-2007-0012
September 10, 2007
the geographic requirements of the CRA regulation by benefiting one or
more of the institution's assessment area(s) or a broader statewide or
regional area that includes the institution's assessment area(s) ?
A2. Yes. A financial institution should be able to demonstrate that the
investment meets the geographic requirements of the CRA regulation,
although the agencies will employ appropriate flexibility in this regard.
There are several ways to demonstrate that the institution's investment
meets the geographic requirements. For example, if an institution invests
in a new nationwide fund providing foreclosure relief to low- and
moderate-income homeowners, written documentation provided by fund
managers in connection with the institution's investment indicating that
the fund will use its best efforts to invest in a qualifying activity that
meets the geographic requirements may be used for these purposes.
Similarly, a fund may explicitly earmark all projects or investments to its
investors and their specific assessment areas. (Note, however, that a
financial institution has not demonstrated that the investment meets the
geographic requirements of the CRA regulation if the fund "double
counts" investments, by earmarking the same dollars or the same portions
of projects or investments in a particular geography to more than one
investor.). In addition, if a fund does not earmark projects or investments
to individual institution investors, an allocation method may be used that
recognizes that each investor institution has an undivided interest in all
projects in a fund; thus, each investor institution may claim its pro-rata
share of each project that meets the geographic requirements of that
institution. If, however, a fund does not become involved in a
community development activity that meets both the purpose and
geographic requirements of the regulation for the institution, the
institution's investment generally would not be considered under the
investment or community development tests. See Q&As §11.12(h)—6 and
§11.12(h)— 7 for additional information about the geographic
requirements for qualified investments (recognition of investments
benefiting an area outside an institution's assessment area(s)).
Bank of America is generally supportive of the flexibility described in the new Q&A and
is particularly supportive of the Agencies proposed use of side letters. However, Bank of
America strongly urges the regulators to take the additional step of clarifying that
examiners should consider investments in funds (and investments in general) based upon
the Bank's knowledge and intent at the time of the investment, rather than the precise
outcome of the investments after the investment dollars have left the Bank's control.
Bank of America invests in national and regional funds based on economic opportunities
present in the assessments. It is not unusual for market forces beyond the control of the
fund sponsor or the investor to shift away from the institution's assessment areas.
The ability for the fund to find investment products in certain assessment areas within a
specified time frame can actually limit the availability of capital for national or regional
funds. Bank of America proposes that the Agencies establish a rule of allocation of
Page 7 of20
Response to Docket No. OCC-2007-0012
September 10, 2007
funds at the point an investment is made into the funds directing the funds to certain
assessment areas. The intent is that the fund be bound to make its best efforts to
accommodate the bank's request. However, if the fund is unable to find investment
products in the specific assessment areas, no retro-active adjustments are required.
Applying this standard at the outset would greatly reduce the regulatory burden of "afterthe-fact" fund allocation of loans and investments for institutions that have reached a
certain size.
In addition, BAC makes every effort to allocate investment funds deployed through
intermediaries to the geographies they will benefit at the time the transaction is made.
However, as projects progress, opportunities and needs often dictate that funds earmarked
for specific geographies will be more impactful if deployed elsewhere. Current exam
practices obligate institutions to scrub allocations to ensure that funds originally targeted
for one area at origination remained allocated to those geographies at the time of
examination. Based on exam cycles, this often translates to a three year or longer
retrospective scrub and multiple reviews by both the financial institution and the
intermediary to verify original and final allocation targets. Scrub processes like these
impose a huge regulatory burden, especially for institutions the size of BAC.
It is suggested that the Agencies reconsider the requirement that allocations be accurate at
the time of examination, rather than origination of the investment, as this does not seem
to promote either the foundation and spirit of CRA or the efficient operation of a bank.
For these reasons and to reiterate our support for the Agencies proposed treatment of side
letters, we respectfully ask consideration of the following for incorporation into the Q&A
(and make appropriate adjustments to the Examiner guidelines):
§ .23(a)—2: (a) In order to receive CRA consideration, should an
institution be able to demonstrate that an investment in a national or
regional fund with a primary purpose of community development meets
the geographic requirements of the CRA regulation by benefiting one or
more of the institution's assessment area(s) or a broader statewide or
regional area that includes the institution's assessment area(s) ? (b) If so,
may the institution rely upon the representations made by the national
or regional fund regarding the geographic allocations at the time of the
investment?
A2. fa)Yes. A financial institution should be able to demonstrate that the
investment meets the geographic requirements of the CRA regulation,
although the agencies will employ appropriate flexibility in this regard.
There are several ways to demonstrate that the institution's investment
meets the geographic requirements. For example, if an institution invests
in a new nationwide fund providing foreclosure relief to low- and
moderate-income homeowners, written documentation provided by fund
managers in connection with the institution's investment indicating that
the fund will use its best efforts to invest in a qualifying activity that
meets the geographic requirements may be used for these purposes.
Similarly, a fund may explicitly earmark all projects or investments to its
Page 8 of20
Response to Docket No. OCC-2007-0012
September 10, 2007
investors and their specific assessment areas. (Note, however, that a
financial institution has not demonstrated that the investment meets the
geographic requirements of the CRA regulation if the fund "double
counts" investments, by earmarking the same dollars or the same portions
of projects or investments in a particular geography to more than one
investor.). In addition, if a fund does not earmark projects or investments
to individual institution investors, an allocation method may be used that
recognizes that each investor institution has an undivided interest in all
projects in a fund; thus, each investor institution may claim its pro-rata
share of each project that meets the geographic requirements of that
institution. If, however, a fund does not become involved in a
community development activity that meets both the purpose and
geographic requirements of the regulation for the institution, the
institution's investment generally would not be considered under the
investment or community development tests. See Q&As §11.12(h)—6 and
§11.12(h)— 7 for additional information about the geographic
requirements for qualified investments (recognition of investments
benefiting an area outside an institution's assessment area(s)).
(b) Yes. If an institution makes an investment in a national or
regional fund that (I) establishes a written and binding description of
geographic and/or assessment area allocation; (2) provides a
representation that at the time of the institution's investment in the
fund, there are adequate opportunities in each of the geographies to
support the description of geographic allocation; and (3) commits to
making commercially reasonable efforts to make investments
consistent with the description of geographic allocation, then the
institution may rely upon the representations made by the fund with
regard to geographic distribution. This means that, at the time of the
examination, the institution need not retroactively scrub or justify
the actual geographic distribution of investments by the fund, and
the examiner may rely upon the documentation provided to the
institution by the fund at the time of the investment.
G.
New Q&A for Section_.26(a)(2) - 1.
The Agencies have proposed the following new Q&A:
§11.26(a)(2)—1: When is an institution examined as an intermediate
small institution?
Al. When a small institution has met the intermediate small institution
asset threshold delineated in §11.12(u)(l) for two consecutive calendar
year-ends, the institution may be examined under the intermediate small
institution examination procedures. The regulation does not specify an
additional lag period between becoming an intermediate small institution
and being examined as an intermediate small institution, as it does for
Page 9 of20
Response to Docket No. OCC-2007-0012
September 10, 2007
large institutions, because an intermediate small institution is not subject
to CRA data collection and reporting requirements. Institutions should
contact their primary regulator for information on examination schedules
Bank of America does not oppose the new proposed Q&A.
H.
New Q&A for Section_.42(b)(2) - 4.
The Agencies have proposed the following new Q&A:
§ .42(b)(2)—4: When an institution purchases a participation in a
community development loan, which amount should the institution
report— the entire amount of the credit originated by the lead lender or
the amount of the participation purchased?
A4. The institution reports only the amount of the participation purchased
as a community development loan. However, the institution uses the
entire amount of the credit originated by the lead lender to determine
whether the original credit meets the definition of a "loan to a small
business," "loan to a small farm," or "community development loan."
For example, if an institution purchases a $400,000 participation in a
business credit that has a community development purpose, and the entire
amount of the credit originated by the lead lender is over $1 million, the
institution would report $400,000 as a community development loan.
Bank of America does not oppose the new proposed Q&A.
I.
New Q&A for Section_.42(b)(2) - 5
The Agencies have proposed the following new Q&A:
§ .42(b)(2)—5: Should institutions collect and report data about
community development loans that are refinanced or renewed?
A5. Yes. Institutions should collect information about community
development loans that they refinance or renew as loan originations.
Community development loan refinancings and renewals are subject to
the reporting limitations that apply to refinancings and renewals of small
business and small farm loans. See Q&A § .42(a)—5.
Bank of America agrees that institutions should get credit for refinancings and renewals
of community development loans.
II.
Response to Proposed Revisions to Existing Q&As.
Page 10 of 20
Response to Docket No. OCC-2007-0012
September 10, 2007
In addition to the nine new Q&As, the Agencies have proposed a number of revisions to
existing Q&As. The Agencies have specifically asked for comment on twelve of those
revisions.
A.
Revisions to Q&A _ 12(g)(3)-!
The Agencies have proposed a revision of Q&A . 12(g)(3)-l to clarify that investments
in Rural Business Investment Companies and New Market Tax Credit-eligible ("NMTCeligible") Community Development Entities ("CDEs") will be presumed to promote
economic development.
Bank of America does not oppose this clarification.
B.
Revision to Q&A _ . 12(h)-!
The Agencies have proposed a revision of Q&A . 12(h)-l to clarify that: (i) loans to
NMTC-eligible CDEs will qualify as a Community Development Loan; and (ii) loans
greater than $1MM made pursuant to SBA 504 will qualify as a community development
loan.
Bank of America does not oppose this clarification.
C.
Revision to Q&A _ . 12(i)-3
The Agencies have proposed a revision of Q&A . 12(i)(3) to clarify that: (i) the opening
of branches that are not otherwise considered under the Services test may be considered
as a community development service in certain circumstances; (ii) providing credit
counseling to help borrowers avoid foreclosure may be considered a community
development service; and (iii) providing individual development accounts or free checkcashing services may be considered community development services.
Bank of America is very supportive of the clarifications provided in the revisions to Q&A
. 12(i)-3. However, Bank of America believes that the clarification still overly limits
the definition of Community Development Services and should be broadened.
Bank of America is proud to provide products and services that demonstrate investment
in our customers and communities. We support increasing access to financial services by
opening facilities that revitalize and stabilize low to moderate (LMI), disaster, or
distressed and underserved areas, as well as propose the agencies extend additional credit
for programs that serve the un-banked or under-banked communities in an effort to move
them toward mainstream financial accounts and services. Participation in collaborative or
proprietary programs that promote low cost or otherwise affordable banking services can
spur the un-banked and under-banked to open starter accounts, become more fiscally
responsible, and more fully join in the financial mainstream. Providing products with fee
waiver provisions, no minimum balance requirements, bundled services, and other
features designed specifically to attract un-banked and under-banked LMI individuals
warrants additional special service test recognition. This would serve as an incentive for
Page 11 of 20
Response to Docket No. OCC-2007-0012
September 10, 2007
innovation among financial institutions by providing a tangible value for offering less
profitable products and services.
To this end, Bank of America encourages the Agencies to consider a full range of deposit
and credit related activities that are likely to bring LMI consumers into the financial
mainstream, including: (i) informal financial education, such as Bank of America's
educational campaign that includes easy-to-understand brochures, revised deposit account
agreement and fee schedules, and a financial education micro site on the internet; (ii)
efforts made by financial institutions in conjunction with state and local governments to
promote participation in the banking mainstream, such as the Bank on San Francisco
program sponsored by Mayor Gavin Newsome and the Federal Reserve; (iii) innovative
efforts to promote saving and investing opportunities for consumers, such as Bank of
America's Keep the Change® program in which Bank of America rounds up every debit
card transaction to the nearest dollar and transfers the funds from the consumer's
checking account to the consumer's savings account (and matches a portion of the
transfer, up to $250 per year); and (iv) efforts to promote responsible use of a deposit
account, such as actively promoting programs that provide overdraft transfers from the
customer's savings or credit accounts.
D.
Revision to Q&A _ . 12(t)-3
The Agencies have proposed a revision of Q&A
. 12(i)(3) to clarify that Federal Home
Loan Bank unpaid dividends are not qualified investments.
Bank of America has no comment on the proposed revision to Q&A
. 12(t)-3.
E.
Revision to Q&A _ . 12(t)-4
The Agencies have proposed a revision of Q&A . 12(i)(3) to clarify that investments in
NMTC-eligible CDEs and in private community development venture capital companies
are examples of qualified investments.
Bank of America has no comment on the proposed revision to Q&A
F.
. 12(t)-4.
Revision to Q&A _ . 12(u)(2)- 1
The Agencies have proposed a revision of Q&A . 12(u)(2)-l to clarify that interested
persons can view information on the FFIEC website related to asset-size thresholds for
small institutions and intermediate small institutions.
Bank of America has no comment on the proposed revision to Q&A
G.
. 12(u)(2)-l.
Revision to Q&A _.22(a)-l
The Agencies have proposed a revision of Q&A .22(a)-1 to clarify that loan programs
that provide relief to LMI borrowers facing foreclosure warrant favorable consideration
under CRA.
Page 12 of 20
Response to Docket No. OCC-2007-0012
September 10, 2007
Bank of America agrees with the clarification proposed by the Agencies.
H.
Revision to Q&A _.22(c)(2)(i)-l
The Agencies have proposed a revision of Q&A .22(c)(2)(i)-l to clarify that an
institution may not double-count loans originated by an affiliate and purchased by the
institution.
Bank of America takes no position as to the proposed revision of Q&A
I.
.22(c)(2)(i)-l.
Revision to Q&A _.24(d)-l
The Agencies have proposed a revision of Q&A
.24(d)-1 so that it more closely
matches the regulatory language.
Bank of America takes no position as to the proposed revision of Q&A
J.
.24(d)-1.
Revision to Q&A _ 41(e)(4)-! and -2
The Agencies have proposed a revision of Q&A .41 (e)(4)-1 and -2 so as to better
match the description of Assessment Area with the definitions of the OMB.
Bank of America takes no position as to the proposed revision of Q&A A\ (e)(4)-1 and
-2.
K.
Revision to Q&A _ . 4 2 - l
The Agencies have proposed a revision of Q&A
42-1 to better describe treatment of a
small institution as it grows.
Bank of America takes no position as to the proposed revision to Q&A
L.
.42-1.
Revision to Q&A _.42(a)-7
The Agencies have proposed a revision of Q&A
42(a)-7 to align the Q&A with
Regulation C.
Bank of America takes no position as to the proposed revision to Q&A
.42(a)-7.
M.
Revision to Q&A _.42(a)(2)-!
The Agencies have proposed a revision of Q&A .42(a)(2)-1 to clarify that the purchase
of participations in small business or small farm loans should be treated the same as the
purchase of whole loans.
Bank of America takes no position as to the proposed revision to Q&A .42(a)(2)-!.
Page 13 of 20
Response to Docket No. OCC-2007-0012
September 10, 2007
III
Additional Issues Related to CRA
In addition to the proposed Q&A changes which we have commented on, we would
respectfully encourage the Agencies to take further steps to ensure that the regulation and
guidelines keep pace with changes in the community development industry. The changes
which we present for consideration will ensure that the spirit of CRA flourishes in a way
that recognizes changing industry trends and enables financial institutions to be fiscally
responsible and innovative in meeting community needs.
A.
CRA Modernization #1: Mixed-Income Projects
Decades of urban planning and projects built on concentration of poverty have proven to
be counterproductive to creating strong, vibrant and healthy communities. Current theory
on and the reality of urban planning is proving that de-concentration of poverty is in the
best interests of LMI families, LMI areas and the community as a whole.
Over the past 10 years, affordable housing projects have become much more successful
by avoiding majority LMI residency. Mixed income residency projects have become the
norm, with many targeting no more than 20% LMI residences. These Mixed-Income
projects, known as 80/20 or 90/10 projects are supported not only by developers, but also
by many municipal and state governments, many local and state financing agencies, and
most urban and suburban planning experts.
In fact, municipal rules often require the inclusion of a percentage of affordable units in
projects that are not specifically targeted for affordable housing. These localities and the
associated financing agencies may prefer development where a minority of the project's
units is designated for low- and moderate-income households, instead of creating projects
where LMI borrowers are more concentrated. The government favors mixed-income
projects and may also favor developments in middle- and upper-income geographies
because it perceives that these types of projects in a variety of census tracts will build
more sustainable communities than if they were all relegated to low- and moderateincome geographies. Many experts in community development also agree that mixedincome projects in a variety of census tracts are a key ingredient of community
development.
When municipalities require developments to provide for a minimum number of
affordable units, in some instances, these units may only represent 10 to 20 per cent of the
total so that the public subsidy is reduced. Additionally, the subsidy portion may be less
per unit than what was historically available. Often this still requires the developer to
make up for those additional costs elsewhere within the project. Therefore, the required
number of affordable units may reflect a government decision based the number of
affordable units that the overall project could reasonably support with available public
dollars. The number of affordable units in these situations would never be a majority nor
reasonably be considered the primary purpose of the development. However, under this
type of Mixed-Income approach, there is clearly a benefit to the LMI population,
demonstration of responsiveness to community need, and evidence of making
communities stronger.
Page 14 of 20
Response to Docket No. OCC-2007-0012
September 10, 2007
Mixed-income developments, however, often do not fit easily into the Agencies'
requirement that the "primary purpose" of a development be community development.
Under the Agencies' current definition of "primary purpose," it is extremely difficult to
get credit if the majority of the funds/project does not benefit low- or moderate-income
individuals.
As such, Bank of America proposes that institutions should receive full credit for making
mixed-income projects possible through financing and investments. At the very
minimum, an institution should receive full CRA credit for investments in mixed-income
developments when local or state government or financing agencies have expressed a
preference for mixed-income development.
Bank of America can understand that the Agencies may be reluctant to give an
unqualified promise of full CRA credit for any project that contains a single affordable
unit, and could support a reasonable minimum in order to qualify. Given current theory
around the sustainability of communities with affordable housing, Bank of America
would encourage the Agencies to consider 10% of the units to be the appropriate
minimum to qualify for full CRA credit.
Alternatively, if the Agencies were concerned about abuse, the Bank would recommend,
at a minimum, a proportional credit approach where an institution would receive
proportional credit, possibly as a multiple of the percentage of affordable units. For
example, a multiplier of 3 would allow an institution investor to get credit for 60% of
their investment in an 80/20 mixed use product. Bank of America understands that the
regulators would give no credit above 100%.
B.
CRA Modernization #2: Performance Context
Context matters. And context matters in the community development world as much or
more than in other aspects of business. San Antonio does not face the same community
development challenges as St. Louis. Market variety and economic conditions often
require different approaches for effective community development.
Importantly, the Agencies have explicitly recognized that Performance Context matters in
evaluating a bank's CRA performance (see, e.g., OCC Examination Procedures). This
recognition is not only appropriate, but it is essential to effectively measuring a bank's
performance because different markets and economic conditions often require very
different approaches to meet the community development needs. For example, as the
recent trend in foreclosure rates has demonstrated, lenders do not benefit low-income
borrowers when they put the borrowers in home mortgages that the borrower cannot
afford. However, in markets with particularly high housing costs, if the CRA
examination does not take into account the local housing conditions, the examination may
conclude that the lender is not meeting its CRA obligations when, in fact, the lender is
acting very responsibly by not encouraging nor enabling borrowers to over-extended
themselves.
Page 15 of 20
Response to Docket No. OCC-2007-0012
September 10, 2007
The Agencies do a good job of recognizing this dynamic in the large market assessment
areas that are subject to a full scope examination. However, in its Examiner Guidance,
the OCC1 has advised its examiners that Performance Context only applies to AAs that
are subject to full scope examination.2 To the Bank's view, it is insufficient to limit the
Performance Context only to full scope AAs. The same dynamic that affects the Bank's
performance in large markets also affects the bank in minor markets. The Bank
advocates for application of Performance Context across all AAs to support consistent,
comprehensive and equitable analysis and conclusions.
This problem is perhaps most stark in the context of the Investment Test. In talking about
the Investment Test, the Examiner Guidance provides some guidance that is difficult to
reconcile. On the one hand, the Guidance explicitly and effectively recognizes that "The
most important aspect of evaluating a bank's investment performance is understanding
the context in which the bank operates. Specifically, an examiner should understand the
opportunities available to the bank to invest within a community and the capacity of the
bank to make or develop opportunities to invest within that community." On the other
hand, the Guidance goes on to say, "Performance context should only be developed for
full-scope AAs."
The Bank agrees with the first statement - that context is the most important aspect of
evaluating a bank's investment performance. When a bank like Bank of America has
investment goals set based on Tier 1 capital and not adjusted for the context of the
specific market in which it is being evaluated, the bank cannot realistically meet the goals
for all markets. There are some AAs for Bank of America that simply do not offer
meaningful investment opportunities, or, at least not opportunities that are proportionate
to the Bank's Tier 1 capital goals.
Moreover, the approach of only considering Performance Context in the full-scope AAs
creates an uneven playing field among different banks. A truly national bank like Bank
of America will face many AAs that are not subject to full scope review, and hence, are
subject to an examination in a vacuum without context. In contrast, a smaller bank that
only serves one or two AA's will be wholly examined with appropriate consideration to
the context in which the bank operates.
We are asking the Agencies to require Performance Context to be considered in all
aspects of the examination, not just the AA's that are subject to full scope review.
1
2
I single out the OCC here because it is Bank of America, N.A.'s primary regulator.
The Examiner Guidance provides in relevant part, "For full-scope reviews, the data used
to evaluate performance under each test are analyzed considering complete performance
context information, quantitative factors (e.g., lending volume, geographic and borrower
distribution, level of investments, distribution of branches) and qualitative factors (e.g.,
innovation, complexity). ... For areas that receive limited-scope reviews, the data are
analyzed considering primarily quantitative factors with performance context data limited
to the comparable demographics in the standardized tables."
Page 16 of 20
Response to Docket No. OCC-2007-0012
September 10, 2007
Clarification also is needed on how Performance Context should be used to implement
specific goals. For example, the OCC Examination Procedures provide: "The examiner
will review demographic and economic data about the institution's assessment area(s) and
information about local economic conditions, ..." But the Procedures are not clear on
exactly how an examiner should adjust its expectations or assessment in light of the data.
Lack of clarity may lead to inconsistency in the application of Performance Context
between banks. Vagueness on this point makes it very difficult to accurately set goals
and gauge progress throughout an exam cycle.
The Bank, therefore, requests that the OCC clarify what types of data should be
considered in all AAs, full and limited scope, and provide examples of how the data can
translate into examination results. For example, the Bank requests that the Agencies
explicitly instruct examiners to consider:
(a)
(b)
(c)
(d)
C.
adjusting demographics to account for families below poverty in all
geographies;
allowing for flexibility in lending, investment and service test
performance in high-cost housing markets (using Fannie Mae's
guidelines) in all geographies;
providing full credit for adjacent banking centers serving the LMI
population located within one mile of an LMI census tract; and
adjusting small business borrower statistics to exclude transactions with
unknown revenues from the calculations to be consistent with HMDA
borrower statistics.
CRA Modernization #3: Branch Location and Other Means to Serve LMI
Geographies
The Bank endorses the aspect of the CRA Services Test that rewards banks for locating
branches in LMI communities. However, the Bank does not agree with the Agencies'
interpretation that a branch must be located in an LMI census tract to effectively serve an
LMI community. The Bank believes that branches located within one a mile of an LMI
census tract can and do effectively serve the residents of that LMI census tract.
Moreover, the Bank submits that each decade, with the census realignment, there are
changes in the specific designation of a census tract that may not reflect a fundamental
change in the community that a branch serves, but reflects a modest change in the specific
census tract in which the branch sits. While a major change in a community, such as a
significant gentrification of multiple census tracts, may warrant a reclassification of a
branch as no longer serving an LMI community, the Bank does not believe that the
change in the makeup of the census tract in which a branch is located in and of itself
warrants a change in its status as serving an LMI community.
In addition, BAC respectfully suggests the realities of new technologies that bring greater
access and convenience to banking be factored into Service Test evaluations. Institutions
should receive full credit for serving LMI customers beyond branch/census tract
framework. Many LMI communities and customers enjoy the convenience of our
Page 17 of 20
Response to Docket No. OCC-2007-0012
September 10, 2007
expansive network of banking centers, in addition to our PC banking, telephone banking,
and our mobile banking channel. Neither today's additive credit, nor minimal credit
considerations take into account the full impact of these types of services when
examining the branch distribution network.
D.
CRA Modernization #4: CD Loans/Letters of Credit/Affordable Housing Units
and Tier 1
The lending test performance criterion considers the number and volume of Community
Development ("CD") loans for assessment areas receiving full scope reviews.
Determining the percentage of Tier 1 capital that CD loans represent prior to exam
consideration can often eliminate otherwise worthy community development lending
volume from receiving (additive) credit at all. An unintended consequence of evaluating
CD lending as "additive" is the disincentive in generating CD loans. BAC proposes that
full credit be extended for community development lending volume and units in all
assessment areas, regardless of Tier 1 capital ratios, so that an institution receives full
credit and recognition for all of its community development activities.
By way of example, it is very possible that one qualified $1MM CD loan for a multifamily affordable housing can yield 50 affordable rental housing units. Given Bank of
America's tier I capital considerations, it is unlikely that a $1MM CD loan will make a
difference in any full-scope market. However, 50 affordable housing units can make a
noticeable difference in virtually every market. By only considering CD loans in
relationship to tier I capital, the Agencies are not fully recognizing the potential value of
these loan.
E.
CRA Modernization #5: Reissuance of Credit as Qualified Investments
We believe that the Agencies would recognize that a primary purpose of CRA is to ensure
that credit and equity flow appropriately to all income segments in a bank's assessment
areas. We believe that the Agencies would also agree that sometimes, local third parties
can better allocate credit and equity than a bank can. We believe that it is for that reason
that the Agencies provides CRA credit for investments that a bank makes to a financial
intermediary.
There is no dispute that if a bank recoups an investment - for example, is repaid the
principle of a loan or receives a return of an equity investment, — and the bank chooses
to reinvest that recoupment in a new CRA-focused investment, the bank should get CRA
credit for that new investment.
Based on this set of understandings, it would make sense that if a bank has made a loan or
equity investment in a third party, and if the bank has the right to recoup that investment
at certain times, if the bank foregoes that right, and, as the result of the bank foregoing
that right, the third party makes a new CRA-eligible investment, the bank should receive
CRA credit for that new investment. However, that is not the way the current CRA
policies work.
Page 18 of 20
Response to Docket No. OCC-2007-0012
September 10, 2007
Under current policies, if an institution makes an investment in a third-party, and that
third-party utilizes and re-utilizes those funds, generating multiple LMI opportunities, the
institution only receives credit for the initial investment. The Bank could maximize its
CRA credit by simply withdrawing its original investment or calling its original loan
periodically and reinvesting those proceeds into new equivalent investments. The
paperwork and disruption to the third party of such bank activity are inefficient
transactions costs that add no value to anyone and certainly do not further the substantive
goal of CRA, but it is exactly these inefficient transaction costs that the current policies
promote. In contrast, allowing a bank to obtain CRA credit for the subsequent investment
decisions of the third party would increase the certainty and stability of the funding for
the third party, which, in turn, would allow the third party to make more efficient
investments.
Therefore, Bank of America requests that the Agencies allow an institution to receive
CRA credit for each distinct re-use of capital that a third-party conducts with that capital.
F.
CRA Modernization #6 : Duplication of Requirements for Affiliates in the Same
Market
Highly competitive assessment areas that house a large number of financial institutions
create unique CRA challenges. Specifically, in a small number of MS As, there are too
many banking dollars chasing too few community development projects. This
concentration of CRA-focused activity can distort the local marketplace, and ultimately,
is not an efficient or effective way to meet the community development needs of the
whole nation. Large institutions that have chosen a multi-bank corporate structure face
unique challenges when more than one of their affiliated banks serve the same assessment
area. These large institutions find themselves not only competing against other
institutions for community development opportunities, but actually have subsidiaries
within their corporate structure competing against themselves.
Bank of America realizes that, from the Agencies' perspective, this would be a relatively
good problem to have - having too much support for community development initiatives
- if the net result is that select Assessment areas receive a disproportionate share of
community development support while other Assessment Areas receive little or no
community development support, the problem does not look so attractive.
Bank of America proposes that one way to better allocate community development
dollars is to require corporate families that have multiple entities serving a single AA, to
designate one member of the corporate family to have CRA responsibility within that AA
and if that member performs at a Satisfactory level within the AA, then allow all other
members of that corporate family to fulfill the CRA obligation for that AA through loans,
services and investments anywhere else in the country. This would allow the corporate
family to look for opportunities where they are most needed while still providing a strong
base level of support within each AA that it does business.
G.
CRA Modernization #7: Investments should be considered based on the
information at the time that they were made.
Page 19 of 20
Response to Docket No. OCC-2007-0012
September 10, 2007
I have discussed this issue above in responding to the Q&A § .23(a)—2, but Bank of
America believes that the issue is broader than what we addressed above and I'd like to
take this opportunity to emphasize that point. Under current Agency guidelines, an
examiner makes a determination as to whether to count an investment toward an
institution's CRA goals at the time of the examination based on the information available
to it at the time of the examination. For a percentage of the institution's investments, the
investment's performance may have changed somewhat from the proposal on which the
institution decided to invest. For example, an institution may invest $1MM into a fund
that commits to look for opportunities in Dallas and Los Angeles, and commits to invest
the money within a year. However, as a truly national fund that is conscientiously trying
to utilize its money to place the money where it can do the most good, the fund
determines that the money is better invested in an effort to revitalize New Orleans. Had
the fund followed through on the commitment at the time of the investment, then the
institution would have received credit in its Dallas and Los Angeles markets. But,
through no wrongdoing on its own part, the institution will receive no credit for its Dallas
or Los Angeles markets, and, depending on its monitoring efficiency, may even be
reprimanded for data integrity issues if it did not properly track where the dollars actually
went.
The result is that the Bank does not receive CRA credit for investments that, at the time
they were made, would have qualified for CRA credit in specific geographies and, on
which, the Bank was relying to meet its investment goals.
Interestingly, the OCC Examiner Guidance appears to suggest that an examiner should
consider investments made during the exam cycle from the perspective of the time the
investment was made, rather than at the time of the examination. For example, the
Guidance states, "Current-period investments are considered at their original investment
amount, even if that amount is greater than the current book value of the investment."
Moreover, by defining a qualified investment by its "purpose," the Regulation itself
appears to demand that investments be considered from the perspective of the time that
they were made rather than the effect of the investment at the time of the examination.
This approach of considering an investment based on the information at the time of the
investment makes sense to the Bank.
However, despite these indications that investments should be viewed from the
perspective of the institution at the time it made the investment, the Bank is aware that, at
least as it relates to geographic allocations, the examiners do not always apply this
principle. Therefore, the Bank respectfully requests that the Agencies address this issue
as appropriate.
Finally, while not directly covered by CRA and Regulation BB, the recently published
regulations Part 24 (12 CFR Part 24) promulgated under the Financial Services
Regulatory Relief Act (FSRRA) under 12 U.S.C 24 (Eleventh) which amended the
definition contained therein (Section 24.2(g)) of "Benefiting Primarily Low- and
Moderate-Income Areas or Individuals" does have an effect on a national bank's CRA
performance. The statutory amendments and the new implementing regulations have
Page 20 of 20
Response to Docket No. OCC-2007-0012
September 10, 2007
narrowed the grant of authority to national banks in Section 24 (Eleventh) and
dramatically restricted the ability of national banks to make investments designed to
primarily promote the public welfare including investments that would:
• Revitalize or stabilize designated disaster areas, including areas devastated by
hurricanes.
• Revitalize or stabilize underserved or distressed middle-income rural communities.
• Finance mixed-income affordable housing in government targeted areas for
revitalization.
Reverting to the pre-October 2006 definitions and standards would have the effect of
restoring the categories of investments that qualify under the statute for public welfare
investments in areas determined by federal, state and local governments to be in need of
such investments.
Communities will be the ultimate beneficiaries of corrective action that restores the
previously existing definition of "Benefiting Primarily Low-and Moderate-Income Areas
and Individuals" as well as the previously existing categories of qualified investments,
because banks will be able to work with their community partners on projects to help
build affordable housing and make other direct investments that they are currently
prohibited from making.
Bank of America would encourage the Agencies to consider as broad a regulatory
definition of public welfare as is allowable under the new statutory amendments.
Thank you for the opportunity to provide comment on the proposed changes to the
Interagency Questions and Answers Regarding Community Reinvestment, as well as our
CRA modernization topics. If you have any questions or would like to discuss any of
these matters further, please contact me.
Sincerely,
^<?4&i^—
Elizabeth J. (Liz) Ferrer
National Programs Executive
Global Community Impact
904-791-5394
cc: Jeff Bowling/Charles Bowman/Gavin Dowell/Kevin McMillan/Andrew Plepler/Pam
Sak/Tish Secrest/Phil Wertz
534 ADAMS AVENUE
MONTGOMERY. AL 36104-4334
PHONE 334.265.7156
FAX 334.265.7165
September 17, 2007
RE: Community Reinvestment Act; Interagency Questions and
Answers Regarding Community Reinvestment; Notice: OCC2007; OP-1290; RIN 3064-AC97; and OTS-2007-0030.
Dear Sirs and Madams:
The Alabama Multifamily Loan Consortium, Inc. (AMLC) appreciates the opportunity to
comment on the framework for implementing the Community Reinvestment Act (CRA).
AMLC is a member of The National Association of Affordable Housing Lenders
(NAAHL) and share their deep concern for unintended, adverse consequences for
bringing private capital through pooled funds to underserved areas and people with acute
needs. If implemented, the proposed policy would undermine national, regional and even
statewide community development funds, hurt underserved communities, make homeless
and supportive housing and other challenging activities harder to finance, and drive away
banks unable to make very large investments.
Our little organization, AMLC, is a statewide lending consortium that has provided
permanent financing on 41 low-moderate income apartment communities in Alabama
providing some 2,500 units of affordable housing to about 8,500 of our working poor
citizens who need it most. We have 55 member banks that actively support our mission
largely due to regulatory encouragement to do so. The proposals on examiner discretion
and alternative fund documentation have already generated banker questions as to the
wisdom in their investment in pooled funds, putting in jeopardy the entire concept of
pooling federal funding with private capital to create good community.
Spanning more than 30 years, banks have pooled their money in multi-bank consortia in
order to meet the mortgage credit needs of their LMI communities and in Alabama we
have only just begun to make inroads with such programs. These pools afford banks real
economies of scale, and the opportunity to rely on experts in originating, underwriting
and servicing loans on homes affordable to LMI citizens, as well as the benefits of
geographic and product diversification. Many of our member banks have neither the
expertise nor the access to quality CRA-type investments other than through AMLC and
would otherwise not be able to participate in meaningful community investment.
AMLC has been able to address acute needs like supportive housing for the elderly,
physically and mentally disabled and veterans and these special needs communities have
September 17,2007
• Page2
many more needs, but funding is more and more scarce every year. We need to be able to
count on bank capital to partner with federal subsidy programs to make decent and safe
housing a reality, not merely a wish.
We are surprised and disappointed that the proposed Q&A on geographic documentation
appears to be a real departure from, and at odds with, the excellent approach of prior
guidance, which recognizes the importance of funding broader programs that benefit from
diversification of projects and geographies, and economies of scale. AMLC strongly
believes in the principle that a bank should receive full CRA credit for all dollars invested
in national community development funds, regardless of the location of the fund's
projects, provided that the fund has at least one project in the bank's assessment area(s) or
broader statewide area that includes the bank's assessment area(s).
We encourage you to do everything possible to make sure that banks will continue to
receive full CRA credit for the entire dollar amount of its investment in national, as well
as statewide and regional funds that make community development loans or investments,
generally as defined under the CRA rules, regardless of the location of the fund's
projects, provided that some of the fund's projects are located in the bank's assessment
area(s) or broader statewide or regional areas that includes the bank's assessment area(s).
Thank you for your attention to this really important and urgent issue.
Yours t/uly,
WILLIAM H. TlUff, JR.
Executive Director
1/
The PNC Financial Services Group, Inc.
2-19 Filth Avenue
One PNC Plaza, 21st Floor
Pittsburgh, PA 15222-2707
412 768-4251 Tel
412 705-2679 Pax
james.keller@pne.com
James S. Keller
Chief Regulatory Counsel
November 6, 2007
Office of the Comptroller of the Currency
250 E Street, SW
Public Information Room, Mailstop 1-5
Washington, DC 20219
regs.comments@occ.treas.gov
Attn.: Docket ID OCC-2007-0012
Mr. Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17lh Street, NW
Washington, DC 20429
Comments@FDIC.gov
Aim.: RIN3064-AC97
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the
Federal Reserve System
20* Street and Constitution Ave, NW
Washington. DC 20551
regs.comments@federalreserve.gov
Attn.: Docket No. OP-1290
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
regs.comments@ots.treas.gov
Attn.: ID OTS 2007-030
RE: Community Reinvestment Act; Interagency Questions and
Answers Regarding Community Reinvestment; Notice
Ladies and Gentlemen:
The PNC Financial Services Group, Inc. ('"PNC"), and its principal subsidiary
bank, PNC Bank, National Association ("PNC Bank NA"), both of Pittsburgh,
Pennsylvania, arc pleased to respond to the request for comments regarding the revised
interagency questions and answers on community reinvestment ("Interagency Questions
and Answers") (72 Fed. Reg. 37922 (July 11, 2007)). PNC is one of the largest
diversified financial organizations in the United States, with approximately $131.4 billion
in total assets as of September 30, 2007. Its major businesses include retail banking,
corporate and institutional banking, asset management, and global fund processing
services. PNC Bank NA has branches in the District of Columbia. Florida. Indiana,
Kentucky, Maryland, New Jersey, Ohio, Pennsylvania, and Virginia. PNC also has one
other bank subsidiary, PNC Bank, Delaware, Wilmington, Delaware, which has branches
in Delaware, and The Yardville National Bank, Yardville, New Jersey, which has
branches in New Jersey and Pennsylvania.
PNC would like to thank the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and
the Office of Thrift Supervision (together, the "Agencies") for the opportunity to
comment on the Interagency Questions and Answers.
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Office of the Comptroller of the Currency
Office of Thrift Supervision
November 6, 2007
Page 2
The purpose of this letter is to recommend that the Agencies propose an
amendment to the CRA regulation or the Interagency Questions and Answers to include
in the definition of "community development" programs that promote quality early
childhood education in low- and moderate-income (or 6*LMIM) communities. As
discussed below, these programs "promote economic development'* or, alternatively,
"revitalize and stabilize low- and moderate-income areas."
Early Childhood Education as an Activity that Promotes Economic Development
There has recently been a significant amount of economic analysis regarding the
benefits of providing quality early childhood education to children in low- and moderateincome families. In addition to economists at academic institutions, the Federal Reserve
Bank of Minneapolis has been extremely active, playing a significant role in the research
in this area. In addition, the Presidents of the Federal Reserve Bank of Richmond and the
Federal Reserve Bank of Cleveland have made significant speeches in which they link
early childhood education to economic development. While there is voluminous research
that could be cited for the proposition that quality early childhood education is a key
driver of economic development,3 the following excerpt from a research paper prepared
by economists at the Federal Reserve Bank of Minneapolis provides a summary of the
conclusions of much of the research:
"One of the most productive investments that is rarely viewed as economic
development is early childhood development (ECD). Several longitudinal ECD
studies that arc based on a relatively small number of at-risk children from lowincome families, demonstrate that the potential return is extraordinary. In a
previous essay we found that, based on these studies, the potential annual return
from focused, high-quality ECD programs might be as high as 16 percent
(inflation adjusted), of which the annual public return is 12 percent (inflation
adjusted).4
In a speech in February 2007, Federal Reserve Board Chairman Ben Bernanke,
summarized this research, stating:
"Although education and the acquisition of skills is a lifelong process, starting
early in life is crucial. Recent research—some sponsored by the Federal Reserve
See studies cited at website in footnote I above.
A Proposal for Achieving High Returns on Early Childhood Development, by Rob Grunewald and Arthur
Rolnick, Federal Reserve Bank of Minneapolis (March 2006), at 2.
Board of Governors of the Federal Reserve .System
Federal Deposit Insurance Corporation
Office of the Comptroller of the Currency
Office of Thrift Supervision
November 6. 2007
Page 3
Bank of Minneapolis in collaboration with the University of Minnesota—has
documented the high returns that early childhood programs can pay in terms of
subsequent educational attainment and in lower rales of social problems, such as
teenage pregnancy and welfare dependency."*
PNC's Desire to Meet Community Needs
PNC has a long history of meeting credit needs and investing in low- and
moderate-income communities via traditional and innovative community and economic
development initiatives. In 2003, as one of the largest financial institutions in the country,
PNC researched a variety of economic and social issues affecting our country. Once the
issues were identified, we wanted to choose a cause that would have a long-term positive
impact in the communities in which we operate by utilizing the full force of PNC dollars
and human capital.
After extensive research, PNC understood the critical role that early childhood
education plays in the ability of low- and moderate-income communities to be successful
and sustainable. Moreover, PNC saw that awareness of the issue was low and that access
to quality early childhood education was uneven, with a critical lack of capacity in LMI
communities. In our desire to cause a long-term benefit to LMI families and
communities, allowing them the ability to one day be creditworthy and take advantage of
bank products and services, we decided to focus our resources on raising the_awareness
of the importance of, and encourage funding for, early childhood education. As a result,
PNC engaged consultants and partnered with experts in the early childhood education
field to develop a multi-faceted program called PNC Grow Up Great.
PNC's "Grow Up Great Program"
In 2004, PNC initiated "Grow Up Great, a $100 million. 10-year program for
early childhood education/school readiness focused on low- and moderate-income
Chairman Ben S. Bcmanke, "The Level and Distribution of Economic Well-Being/* before the Greater
Omaha Chamber of Commerce, Omaha, Nebraska (February 6, 2007). The speech is reprinted at
http://lcdcralrcscrvc.gov/newsevents/speech/Bernanke20070206a.htm.
Board of Governors ofthe Federal Reserve System
Federal Deposit Insurance Corporation
Office ofthe Comptroller ofthe Currency
Office of Thrift Supervision
November 6, 2007
Page 4
communities and individuals. The program has three principal parts: advocacy and
awareness, volunteerism by PNC employees, and financial grants. PNC believes that all
three aspects ofthe program are critical to its success. The total annual PNC investment
in Grow Up Great has been $10 million per year.
Advocacy and Awareness
The advocacy and awareness aspect of Grow Up Great has focused on both
participating in programs to create greater awareness ofthe importance and efficacy of
quality early childhood programs and a multifaceted communications and media
campaign to extend this awareness to parents and communities and providing tools and
resources for parents, caregivers and communities. In addition to print and television
advertising, PNC has distributed for free over a quarter of a million "Happy. Healthy,
Ready for School'' kits developed by Sesame Workshop. In Delaware and New Jersey,
these kits have been donated to state-funded preschools.
PNC believes that the advocacy and awareness component of Grow Up Great is
critical to the success ofthe program, as it helps to make the target community aware of
the critical importance of stimulating children at an early age and that everyday moments
can be learning opportunities, as well as helping to enlist community partners in
developing and expanding early childhood programs.
Volunteerism
One ofthe other key aspects of Grow Up Great is the integration of employee
volunteerism. PNC employees are eligible to receive 40 hours of paid time-off per year to
volunteer for Grow Up Great. PNC has built an internal infrastructure that maintains
over 4,000 volunteer opportunities at over 700 qualified non-profit early childhood
education centers. Employee volunteer hours are tracked and logged, and to date PNC
employees have volunteered over 42,000 hours in service to early childhood education
centers (over 90% ofthe volunteer opportunities are with Head Start). Volunteer
opportunities range from assisting teachers in the classroom, painting classrooms and
providing technology assistance to providing financial education for LMI parents and
staff. Volunteer efforts such as these at early education centers assist the staffs in
maintaining quality programs. An employee volunteer is valued at $17 per hour.
Grants
PNC has awarded more than eight million dollars to Head Start centers, non-profit
early childhood organizations, and institutions of higher learning to enhance the quality
of early childcare and education for disadvantaged children.
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Office of the Comptroller of the Currency
Office of Thrift Supervision
November 6. 2007
Page 5
Relationship of the Program to CRA
As the Grow Up Great program has been implemented. PNC has given
consideration to the extent to which it may receive CRA credit for the program. To date,
the bank regulators have focused on how particular parts of the program fit within the
existing CRA framework and the Interagency Questions and Answers. In reviewing the
program in the context of the CRA regulation, the Interagency Questions and Answers,
and various CRA interpretive letters, PNC has had some success demonstrating how the
grant and volunteerism (providing financial education) aspects of the programs constitute
"community development'" or "revitalize and stabilize low- and moderate-income areas."
PNC has had much greater difficulty, however, in making the argument that the
awareness and marketing aspects of the program should also be eligible for CRA credit,
notwithstanding the fact that these aspects of the program are crucial to its overall reach
and effectiveness. PNC believes that the interest and willingness of other insured
financial institutions to create and support programs similar to that of Grow Up Great
could be influenced significantly by the ability of those institutions to obtain full CRA
credit for such programs, which are expensive to initiate and to maintain in a manner that
supports the high quality programs that have been found to be effective.
PNC recommends that the Agencies propose that creating or supporting
multifaceted programs like Grow Up Great that promote and raise the awareness of the
importance of quality early education programs, as well as provide financial and
volunteer support for quality early childhood education programs for low and moderate
income communities be deemed a "community development" activity or, alternatively, an
activity that "revitalizes and stabilizes low- and moderate-income areas.M By adopting
such a position, the Agencies could give significant impetus to the implementation by
insured financial institutions of the types of programs that numerous academic
economists, including those within the Federal Reserve System, have determined to be
the most effective and productive form of community development.
Conclusion
PNC will continue its commitment to enhance the lives of the children and
families in low- and moderate-income communities as a means of hoping to revitalize
and stabilize their lives and communities. We encourage the Federal Agencies to join
with us in this cause by amending the CRA guidance as staled.
PNC appreciates the opportunity to comment on the Interagency Questions and
Answers, and would be pleased to assist the Agencies in addressing the issues raised by
this comment. If you have any questions or would like additional information, please do
Board ol Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Office of the Comptroller of the Currency
Office of Thrift Supervision
November 6, 2007
Page 6
not hesitate to contact the undersigned or Eva T. Blum, Senior Vice Presi
Community Affairs (412-762-2748).
Sincerely,
James S. Keller
cc:
Gary TeKolstc
Office of the Comptroller of the Currency
Michael Carroll
Federal Reserve Bank of Cleveland
Eva T. Blum
The PNC Financial Services Group, Inc.
KENNETH H. THOMAS, P H . D
www.CRAHandbook.com
6255 CHAPMAN FIELD DRIVE
MIAMI, FLORIDA 33156
Voice (305) 663-0100
Fax (305) 665-2203
MEMO
From: Kenneth H. Thomas, Ph.D
To: OCC (2007-0012), FRB (OP-1290), FDIC (RIN 3064-AC97), and OTS (2007-0030)
Date: September 10, 2007
Re: Two Comments on CRA Interagency Q and A (Federal Register, July 11, 2007)
The following two comments are based on my on-going analysis of CRA, some of which has
been published in Community Reinvestment Performance (1993) and The CRA Handbook
(1998). Also, my 2002 Public Policy Brief on Optimal CRA Reform (www.levy.org) contains
further background on my research and recommendations for improved CRA public policy.
1. NEED FOR OUTSIDE AUDITORS TO VERIFY NO FUND DOUBLE COUNTING.
We support the views of various community groups, including the NCRC in their 8/30/07
submitted comment in this matter, that the proposed Q&As should further address the issue of
"double-counting" of CRA activities and take preventive action to ensure this does not happen.
We therefore recommend that the proposed Q&A .23(a)-2 further expand upon the parenthetical
note about a national or regional fund "double counting" by REQUIRING an AUDITED statement
by an INDEPENDENT OUTSIDE auditor that no such double counting EVER occurred in the
subject fund if ANY CRA credit is to be considered. While this would require an added expense to
the fund, it would be the best way to ensure actual and potential fund investors that the subject
fund had never engaged in "double counting." The current self-regulation in the form of selfserving statements that a fund does not double count is not enough in the current Sarbanes
Oxley era where investors need independent outside auditors to verify such key information. We
would further propose that in the event that ONE such case of double counting was found at any
fund, going back to the very first allowed investment in it, that ALL subsequent investments in that
fund be denied credit. Otherwise, such double counting would result in CRA grade inflation as
pointed out in the cited NCRC comment.
2. NEED FOR NEW NATIONWIDE FUNDS TO PROVIDE FORECLOSURE RELIEF
We support the views of various community groups, including the NCRC in their 8/30/07
submitted comment, that the proposed Q&As should support foreclosure prevention activities.
The proposed Q&A .23(a)-2 gives an example of an investment in a "...new nationwide fund
providing foreclosure relief..." We recommend it be expanded to emphasize the need for more
NEW funds and affirmatively encourage further such NEW activities. This is because the current
subprime crisis is a NEW crisis, our first major financial crisis since the 1997-98 Asian currency
crisis. The result has been many foreclosures, estimated at perhaps TWO MILLION or more, and
this is all a NEW problem. Therefore, we need NEW nationwide funds to respond to this NEW
problem that would not only provide needed foreclosure relief but also needed COMPETITION to
existing nationwide funds. Good public policy not only encourages public welfare activities such
as foreclosure relief but also increased COMPETITION which lowers prices and raises output.
Both of these comments follow from the 8/30/07 NCRC submitted comment on the proposed
Q&As. While we don't agree with all of the material in the NCRC comment, and, in fact, disagree
with some of it, we do support their views in the above two instances.
NEW YORK CITY
HOUSING DEVELOPMENT
CORPORATION
April 15, 2008
Office of the Comptroller of the Currency
250 E Street, SW, Mail Stop 1-5
Washington, DC 2 0 2 1 9
Docket ID O C C-2 0 0 7-0 0 1 2
Mr. Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 2 0 4 2 9
Comments@FDIC. gov
RTN 3 0 6 4-A C 9 7
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 2 0 5 5 1
Docket No. OP-1 2 9 0
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1 7 0 0 G Street, NW
Washington, DC 2 0 5 5 2
JD OTS-2 0 0 7-0 0 3 0
Re:
Community Reinvestment Act; Interagency Questions and Answers
Regarding Community Reinvestment; Notice: O O C-2 0 0 7-0 0 1 2; RT N
3 0 6 4-A C 9 7; O P-1 2 9 0; and O T S-2 0 0 7-0 0 3 0
Dear Ladies and Gentlemen:
As you may know, in 2005, Mayor Michael Bloomberg announced the most ambitious
municipal housing program in the histoiy of the United States. The "New Housing
110 William Street, New York, NY 1 0 0 3 8 eel: 2 1 2.2 2 7.5 5 0 0 fax: 2 1 2.2 2 7.6 8 6 5
info@nychdc.com www.nychdc.com
Page 2
Marketplace initiative includes the new construction or preservation of 165,000 units of
affordable housing over 10 years. Central to the Mayor s plan is the ability of the City 's
housing bond financing agency, the Housing Development Corporation(" HD C ) to issue
tax-exempt and taxable multi-family housing bonds. HD C is being relied upon to finance
more than 20% of the projected units in the plan, approximately 42,000 apartments and,
to date, is ahead of that goal, having financed approximately 34% of the units produced
to date or more than 33,000 apartments.
To accomplish that task, HD C issues both tax-exempt and taxable bonds which are
purchased by investors. Its ability to issue tax-exempt bonds is especially crucial to this
effort, because they come with 4% as-of-right low income housing tax credits. The tax
credits are the source of equity for the housing project. Coupled with the low interest rate
associated with tax exempt bonds, the financing supports the creation of affordable
housing for a broad spectrum of households. Indispensable to that process is the
participation of financial institutions, including commercial banks and G S E's. While the
proceeds of bonds issued by HD C are used to finance affordable housing projects
throughout New York City's neighborhoods, it is the Letters of Credit ("L C's") issued by
highly rated financial institutions that induce investors to buy the bonds.
Absent the L C's, the process of raising capital for affordable housing projects would be, at
best, arduous and unpredictable; more likely, it would be impossible. Simply put, the
ability of investors to look to the Letter of Credit provider, the credit enhancer, for
security allows the process of accessing the capital markets to proceed with ease, since in
the event of a default on the real estate, the LC provider must pay-off the bond holders
and assume the role of mortgagee responsible for working out the project's difficulties.
In other words, the provision by a financial institution of an L C to a project is tantamount
to lending to the project. Evidence of this fact is the underwriting and credit process
undertaken by a lending institution participating in a bond financed development. It is no
different than the process they would pursue if they were providing conventional debt to
the project. Although the form of extending credit to the project differs, the level of risk
remains the same.
Presently, HD C has issued construction bonds for 98 projects with L C's from financial
institutions totaling approximately $1.8 billion. In addition, HD C has 96 projects with
permanent L C's amounting to approximately $2.5 billion which are enhanced by financial
institutions. The more than $4 billion in financing that this represents would have been
unattainable without the provision of LC's by approximately 14 financial institutions,
including commercial banks such as Bank of America, Citibank and JP Morgan Chase.
Moreover, in 2008, we will be relying upon these financial institutions to provide L C's on
a pipeline of tax-exempt and taxable bond deals which exceeds $1 billion.
It is critical that Community Reinvestment Act regulations encourage regulated banks to
participate in providing these credit enhancements. Our understanding is that the Office
of the Comptroller of the Currency ("O C C") does not weigh L C's as heavily as loans.
Page 3
Unfortunately, at a time of financial turmoil as well great affordable housing needs, this
is having the effect of discouraging regulated banks from participating in our programs.
We urge the O G C to remedy this situation immediately by changmg its practice to align
with the spirit and purpose of C RA.
Sincerely, signed
Shaun Donovan
Chairperson
cc:
Marc Jahr
President
Michael Bylsma: michael.bylsma@occ.treas.gov
Ann Jaedicke: ann.jacdicke@occ.treas.gov
Barry Wides: barry.wides(a),occ.treas.gov
Luke Brown: lbrown@fdic.gov
Bob Mooney: rmooney@fdic. gov
Glenn Loney: glenn.loney@frb.gov
Montrice Yakimov: montrice.yakimov@ots.gov
Celeste Anderson: celeste.anderson@ots.gov
N A
A
H
L
NATIONAL ASSOCIATION OF AFFORDABLE HOUSING LENDERS
April 17, 2008
Office of the Comptroller of the Currency
250 E Street, SW, Mail Stop 1-5
Washington, DC 20219
regs.comments@occ.trea.gov
Docket ID OCC-2007-0012
Mr. Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
Comments@fdic.gov
RIN 3064-AC97
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Regs.comments@federalreserve.gov
Docket No. OP-1290
Regulation Comments
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Regs.comments@ots.treas.gov
ID OTS-2007-0030
Dear Sirs and Madams:
Our comments respond to your request at the April 4 FFIEC meeting that we provide additional
information and perspective on why banks should receive fully-weighted community
development (CD) loan recognition for letters of credit (LCs) in performance evaluations. To
provide clarity to regulated institutions and examination staff, we recommend that LCs be
included in the loan tables, thus ensuring recognition equivalent to other CD loans.
By not recognizing the importance of LCs, the Community Reinvestment Act (CRA) guidance
is misaligned with the largest, most important, Federally-subsidized, affordable rental housing
program in the country. By design, the Federal Low Income Housing Tax Credit (LIHTC)
program includes a 4% category that frequently must utilize an LC credit enhancement
structure.
LC's are increasingly critical to the building of affordable rental housing. CRA should
encourage insured institutions to participate in providing such credit enhancement. A bank’s
willingness to credit enhance the affordable housing bonds attached to 4% tax credit
developments allows local public agencies to reduce their cost of borrowing, thus increasing
both availability of affordable housing and the ability to serve lower-income households through
reduced rents.
LC's, however, are not currently included in the lending tables at the end of some performance
evaluations, but are mentioned only in the text of the lending performance discussion, thereby
receiving lesser “weight” than a loan. Additionally, the dollar value of LC's is not included in
the comparison to Tier 1 capital that is referenced in the community development lending
summary by at least one Agency. This has created a disincentive for banks to provide much
needed LC's.
As was discussed at our meeting, there has been a dramatic reduction in available equity capital
resulting from the exit of the two large GSE's from the market. Thus, it is critical that the
agencies move quickly and modify the regulation to ensure sustained participation by banks.
Reasons for giving full credit for LC's include the following.
1) The credit risk of an LC is identical to that associated with a conventional loan.
LC's are legally binding instruments provided by financial institutions based upon requirements
of issuing agencies to protect bondholders against credit risk of the underlying borrower/project.
They are subject to safety and soundness exams, an indication that they are legally binding
liabilities which require risk management. The risks of an LC and a loan are equivalent because
an LC is funded when a project is troubled; a lender is exposed to the same principal and interest
loss on such a project. In the event of a default and subsequent drawing on an LC, the
institution assumes ownership of the mortgage-secured bonds in order to preserve and protect its
collateral position.
2) LC transactions are underwritten through the same methodology as conventional
loans. Due diligence for an LC is no different, with the exception of enhanced scrutiny
regarding the timing of funding of bond proceeds. Further, the legal documentation has
identical rights and remedies to a conventional loan.
3) LC's require the same level of asset management and thus are monitored equally to
those of conventional loans.
When the proceeds of a bond issue enhanced by the institution’s LC are used for the
construction of real estate improvements, standard construction loan procedures govern the
disbursement of the bond funds. The bond trustee may only disburse bond proceeds upon
written authorization from the LC provider. As with a loan, such authorization is normally
preceded by satisfaction of construction loan draw procedures and documentation. Performance
monitoring continues throughout leasing and initial operations to track compliance with
conventional stabilization benchmarks, with standard provisions to convert a constructionperiod LC to one enhancing the permanent term. Performance monitoring continues throughout
the permanent term in a manner identical to conventional permanent loans.
In addition to the interest rate advantage, the use of tax-exempt bonds enables utilization of the
“as of right” 4% LIHTC. Equity generated from the sale of tax credits does not require a cash
return from the real estate. The combination of low interest rates and return-free equity helps to
establish the economic feasibility of affordable rents, even in an environment of escalating
housing costs. LCs are critical components of this financing structure.
If we can provide any additional information, please do not hesitate to call me.
Sincerely,
Judith A. Kennedy
NAAHL OFFICE
1300 Connecticut Ave., NW, Washington, D.C. 2 0036 / Tel (202) 293-9850 Fax (2 02) 293 -9852 http://www.naahl.org
NAAHL
National Association of affordable housing lenders
NATIONAL ASSOCIATION OF AFFORDABLE HOUSING LENDERS
May 5, 2008
Office of the Comptroller of the Currency
250 E Street, SW, Mail Stop 1-5
Washington, DC 20219
Docket ID OCC-2007-0012
Mr. Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
RIN 3064-AC97
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
Docket No. OP-1290
Regulation Comments
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
ID OTS-2007-0030
Dear Sirs and Madams:
This is a follow-up to our meeting with FFIEC representatives on April 4. We very much
appreciate having had the opportunity to meet and share our concerns about CRA examination
procedures. This letter provides clarification regarding the current regulatory treatment of
unfunded, legally binding Low Income Housing Tax Credit (LIHTC) investments, and the
potential negative impact on affordable housing finance.
Background
The Federal LIHTC program was first created as part of the Tax Reform Act of 1986, and the
LIHTC is now considered the most important resource for creating affordable rental housing in
the United States. Its success is due in large part to investments by financial institutions and their
receipt of CRA credit for these investments. Investment by banks in LIHTC's is even more
important today than in the past, because of both the current economic environment, as well as
the loss of equity investors. It is critical that the agencies do not further destabilize the market
through regulatory actions that discourage bank investments.
Recommendation
NAAHL recommends that CRA regulatory procedures serve to encourage, rather than
discourage, bank investment in affordable housing. To that purpose, financial institutions should
receive credit for the full amount of their LIHTC investments at the time the investments are
committed and in future years while the investments remain on the financial statements of the
institution. By full credit, we mean equal consideration and treatment for both the funded and
unfunded amounts of any LIHTC investment. Further, we recommend the agencies publish a
policy statement or provide written guidance to that effect. Such communication would offer
clear and definitive guidance for banks and examination staff alike. The presence of very
specific guidance would provide the assurance banks need to make such investments.
Current Practice
There is a practice among some banking regulatory agencies of giving credit only for the amount
of investment funded during the CRA review period and lesser credit for the outstanding
balances of prior period investments. This practice apparently contradicts the current Q&A,
__.23(e), which the proposed Q & A would amend. Specifically, our concern is that by not
giving full credit for total exposure (outstanding balance plus unfunded commitments), for each
year the asset remains on financial statements, the agencies are discouraging banks from
investing in LIHTC's in favor of other investments that are less critical, but fully funded at the
front end and have a liquid secondary market. Though LIHTC investments can be sold, the
secondary market for such assets is very narrow and so they are typically held through the tax
credit compliance term (15 years after development is completed).
CRA Regulation & Q&A
NAAHL believes that the current practice of not giving full weight to unfunded, legally binding
investments is not only harmful to the affordable housing industry, but contrary to the spirit of
the CRA and its implementing regulations. For example, 12 CFR 25.23(e) defines criteria for
evaluating a bank’s investment performance, with the dollar amount of qualified investments
being the first criterion. The July 12, 2001 Interagency CRA Questions and Answers document
(“Q&A”) provides further clarification regarding treatment of investments.
“… examiners will determine the dollar amount of qualified investments by
relying on the figures recorded by the institution according to generally
accepted accounting principles (GAAP). Although institutions may exercise a
range of investment strategies, including short-term investments, long-term
investments, up-front commitments that are funded over a period of time,
institutions making the same dollar amount of investments over the same
number of years, all other performance criteria being equal, would receive the
same level of consideration. Examiners will include both new and outstanding
investments in this determination. The dollar amount of qualified investments
will include the dollar amount of legally binding commitments recorded by the
institution according to GAAP.”
According to this interpretation, regardless of whether the investment is an up-front commitment
or one that provides funds over time, such as a LIHTC investment, it will receive the same level
of consideration. The regulation and the Q&A state that the dollar amount of qualified
investments is to include legally binding commitments recorded by the institution according to
GAAP.
LIHTCs’ Unfunded Investments Are Legally Binding Liabilities
Verification that unfunded commitments are legally binding is realized in a number of ways.
First, promissory notes provided by investors to make payments over a period of time contain
language that makes collection of such notes enforceable. Investors are subject to legal action if
they do not fulfill on their obligation. Further, syndicators pledge such notes as collateral for
bridge loans. Bridge lenders review the notes to ensure enforceability and typically require
minimum risk ratings for the obligors.
Additionally, the full exposure (balance and unfunded commitments) must be disclosed in 3
reports: the Call Report, the Public Welfare Investment (PWI) cap analysis, and financial
statements.
•
Call Reports: National banks are required to report legally binding, unfunded
commitments as a liability, evidencing its on-balance sheet treatment in accordance with
GAAP
•
Part 24 Public Welfare Investment Cap: There is consistency between the CRA and PWI
regulations in that legally binding, unfunded investments are included in the dollar
amount of qualified investments for CRA and the aggregate limit for PWI investments.
There is a disconnect, however, between application of 12 CFR 24 relating to a bank’s
limit for Part 24 Public Welfare Investments, and 12 CFR 25 relating to full recognition
of the dollar amount of qualified investments
•
Financial Statements: GAAP as well as Emerging Issues Task Force (EITF) 94-1 require
that legally binding, unfunded commitments be reported as a liability on financial
statements
Summary
We urge the agencies to correct the existing practices described above and publish a policy
statement or otherwise provide additional written guidance to that effect as soon as possible.
The presence of very specific guidance would encourage banks to continue to invest in LIHTC's
which remain extraordinarily important to the development of affordable rental housing. It
would remove the disincentive which may cause banks to de-emphasize LIHTC investments and
focus on those investments that immediately fund and have a deep secondary market.
Given the current conditions of the LI HTC market, time is of the essence.
Thank you for your thoughtful consideration of these recommendations.
Sincerely,
Judith A. Kennedy
President and CEO
National Association of Affordable Housing Lenders (NAAHL)
N ALHF A
National Association of Local Housing Finance Agencies
Officers
President
Patricia Braynon
Miami-Dade
County, Florida
Housing Finance
Authority
Vice President
Jim Shaw
Austin, Texas
Capital Area
Housing Finance
Corporation
Treasurer
Paula Sampson
Fairfax County,
Virginia
Department of
Housing &
Community
Development
Secretary
Ernestine Garey
Atlanta, Georgia
Development
Authority
Past President
Norman S.
McLoughlin
Kitsap County,
Washington
Consolidated
Housing Authority
Directors
Tom Cummings
Pittsburgh,
Pennsylvania
2025 M Street, Northwest,Suite 800
Washington, DC 20036-33 09
Phone: (202) 367-1197
Fax: (202) 36 7-2197
www.n a
May 7, 2008
Office of the Comptroller of the Currency
250 E Street,Southwest,Mail Stop 1-5
Washington, DC 20219
Docket ID OCC-2007-0012
Mr. Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
55017thStreet, Northwest
Washington, DC 20429
RIN 3064-AC97
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20thStreet and Constitution Avenue, Northwest
Washington, DC 20551
Docket No. OP-1290
Regulation Comments
Chief Counsel’s Office
Office of Thrift Supervision
1700 G Street, Northwest
Washington, DC 20552
ID OTS-2007-0030
Re:
Community Reinvestment Act; Interagency Questions and Answers
Regarding Community Reinvestment; Notice: OCC-2007-0012; RIN 3064-AC97;
OP-1290; and OTS-2007-0030
Dear Lady and Gentlemen:
I am writing on behalf to the National Association of Local Housing Finance Agencies (NALHFA) whose members
finance affordable rental housing for low-and moderate-income families using tax-exempt, as well as taxable,
housing bonds. It has come to NALHFA’s attention that the Office of the Comptroller of the Currency does not give
fully weighted community development loan recognition for “Letters of Credit” (LOC) in performance evaluation.
NAL HF A strongly urges the O C C to reconsider this practice and give L O C's provided by
financial institutions full credit under the Community Reinvestment Act, the same treatment as
that afforded direct loans that support affordable housing. Without these L O C's housing finance
agencies will have considerable difficulty marketing their bonds.
In 2007, local housing finance agencies issued in excess of $2 billion in tax-exempt, affordable
multifamily bonds. Many of these bonds were credit-enhanced by L O C's issued by financial
institutions. These L O C's provide security to the bond purchasers that they will be made whole
should there be a default of the bonds. These L O C's are tantamount to lending to the project and
are underwritten as such.
The nation faces an affordable rental housing crisis. Local housing finance agencies are doing
their part to help address this crisis. They need willing partners to help them with their
financings. Letters of Credit providers are essential to these financings and they should be given
full C RA credit for their contribution to the transaction.
Sincerely, signed
John C. Murphy
Executive Director
Congress of the United States
Washington, D C 2 0 5 1 5
June 6, 2008
Office of the Comptroller of the Currency
250 E Street, Southwest,Mail Stop 1-5
Washington, D C 2 0 2 1 9
Regs.comments@occ.treas.gov
Docket ID O C C-2007-0 0 1 2
Mr. Robert E. Feldman, Executive Secretary
Attention: Comments
Federal Deposit Insurance Corporation
55017thStreet, Northwest
Washington, D C 2 0 4 2 9
Comments@F D I C. gov
RIN 3064-A C 97
Ms. Jennifer J. Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, Northwest
Washington, D C 2 0 5 5 1
Regs.comments@federalreserve.gov
Docket No. O P-1290
Regulation Comments
Chief Counsel's Office
Office of Thrift Supervision
1700 G Street, Northwest
Washington, D C 2 0 5 5 2
Regs.comments@ots.treas.gov
I D O T S-2007-0 0 3 0
Re:
Community Reinvestment Act; Interagency Questions and Answers
Regarding Community Reinvestment; Notice: O O C-2007-0 0 1 2; RIN
30 64-A C 97; O P-12 90; and O T S-2007-0030
Dear Ladies and Gentlemen:
As you consider issuing revised Community Reinvestment Act Q & A's to financial
institutions, we urge you to give Letters of Credit (L C's) the same C RA credit as loans, as
L C's are critical to the development of affordable housing. As Members of Congress
representing New York who serve or have served on the Financial Services Committee,
we support using C RA credits to encourage lenders to issue L C's in support of community
development.
Letters of Credit serve an important function in the development of affordable
housing. L C's issued by highly rated financial institutions encourage investors to buy
both tax-exempt and taxable bonds issued by states for the development of affordable
housing for a broad spectrum of households. L C's provide this inducement by acting as
credit enhancers that, in the event of a default on the real estate, require the L C provider
to pay off the bond holders and assume the role of mortgagee responsible for working out
the project's difficulties.
For example, the New York City Housing Development Corporation, the city's
bond financing agency, has issued bonds for 98 projects with L C's from financial
institutions totaling some $1.8 billion. The H D C also has 96 more projects with
permanent L C's enhanced by financial institutions in the amount of roughly $2.5 billion.
The L C's that make possible this $4 billion in financing for affordable housing in New
York City are provided by 14 financial institutions, including commercial banks such as
Citi, JP Morgan Chase, and Bank of America.
It is very important that the C RA guidelines support and encourage regulated
banks to participate in providing these credit enhancements. Unfortunately, current C RA
guidelines fail to recognize that L C's are most valuable when they don't turn into actual
loans. When they don't turn into loans, it means the L C's have spurred the development
of successful affordable housing and the L C provider has not had to pay off the debt.
Ironically, current Q & A's appear to give less C RA credit for successful L C's and more
credit for L C's that turn into loans to pay off the debt of troubled developments. Thus,
current Q & A's potentially give more C RA credit for failed community development.
This would be a perverse outcome, indeed.
The Community Reinvestment Act should provide incentives that consistently
support and encourage community investment. We urge you to consider giving equal
C RA credit to L C's as to loans.
Sincerely,
signed.C a r o l y nB. Maloney
Member of Congress
signed. Gary Ackerman
Member of Congress
signed. Carolyn McCarthy
Member of Congress
signed. Gregory Merks
Member of Congress
signed.JosephCrowley
Member of Congress