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03 Dec
2015

CRA: Get the Credit You Deserve – Part II

CRA: Get the Credit You Deserve – Part II

An important component of the Community Reinvestment Act (CRA) Examination is Community Development.  In Part II, we will concentrate on community development loans.

The Interagency Questions and Answers Regarding Community Reinvestment provides the following examples of community development loans include, but are not limited to, loans to:

  • Borrowers for affordable housing rehabilitation and construction, including construction and permanent financing of multifamily rental property serving low- and moderate-income persons;
  • Not-for-profit organizations serving primarily low- and moderate-income housing or other community development needs;
  • Borrowers to construct or rehabilitate community facilities that are located in low- and moderate income areas or that serve primarily low- and moderate-income individuals;
  • Financial intermediaries including Community Development Financial Institutions (CDFIs), New Markets Tax Credit-eligible Community Development Entities, Community Development Corporations (CDCs), minority- and women-owned financial institutions, community loan funds or pools, and low-income or community development credit unions that primarily lend or facilitate lending to promote community development;
  • Local, state, and tribal governments for community development activities;
  • Borrowers to finance environmental clean-up or redevelopment of an industrial site as part of an effort to revitalize the low- or moderate-income community in which the property is located; and
  • Businesses, in an amount greater than $1 million, when made as part of the Small Business Administration’s 504 Certified Development Company program.

The rehabilitation and construction of affordable housing or community facilities, referred to above, may include the abatement or remediation of, or other actions to correct, environmental hazards, such as lead-based paint, that are present in the housing, facilities, or site.

Except for multifamily affordable housing loans, which may be reported by retail institutions both under HMDA as home mortgage loans and as community development loans, in order to avoid double counting, retail institutions must report loans that meet the definition of ‘‘home mortgage loan,’’ ‘‘small business loan,’’ or ‘‘small farm loan’’ only in those respective categories even if they also meet the definition of ‘‘community development loan.’

For participation loans, an 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.

For refinanced and renewed Community Development Loans, 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.  When reporting small business and small farm data; however, an institution may only report one origination (including a renewal or refinancing treated as an origination) per loan per year, unless an increase in the loan amount is granted. However, a demand loan that is merely reviewed annually is not reported as a renewal because the term of the loan has not been extended.

The Federal Reserve Bank of Dallas has created a CRA Loan Data Collection Grid to help financial institutions with proper reporting of loans. https://www.dallasfed.org/assets/documents/cd/pubs/craloan.pdf

We will discuss Community Development Investments and Services in Part III.

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