Vol. 78 Tuesday, 

No. 24 February 5, 2013 

Part IV 

Department of the Treasury 

Community Development Financial Institutions Fund 

12 CFR Part 1808 

Guarantees for Bonds Issued for Community or Economic Development 

Purposes; Final Rule 


tkelley on DSK3SPTVN1PROD with RULES3
8296 Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Rules and Regulations 

DEPARTMENT OF THE TREASURY 

Community Development Financial 

Institutions Fund 

12 CFR Part 1808 

RIN 1559–AA01 

Guarantees for Bonds Issued for 

Community or Economic Development 

Purposes 

AGENCY: Community Development 

Financial Institutions (CDFI) Fund, 

Department of the Treasury. 

ACTION: Interim rule with request for 

public comment. 

SUMMARY: The Department of the 

Treasury is issuing the interim rule 

implementing the Community 

Development Financial Institutions 

(CDFI) Bond Guarantee Program, 

established through section 1134 of the 

Small Business Jobs Act of 2010 and 

administered by the CDFI Fund, under 

authority delegated by the Secretary of 

the Treasury. 

DATES: Interim rule effective April 8, 

2013. Comment due date: Comments on 

the interim rule must be received in the 

offices of the CDFI Fund on or before 

April 8, 2013. 

ADDRESSES: All comments concerning 

the interim rule should be submitted 

and viewed through the Federal eRulemaking Portal, http:// 

www.regulations.gov. Comments may 

also be addressed to Lisa M. Jones, 

Manager, CDFI Bond Guarantee 

Program, by mail to the CDFI Fund, 

Department of the Treasury, 1500 

Pennsylvania Avenue NW., Washington, 

DC 20220; by email to 

cdfihelp@cdfi.treas.gov; or by facsimile 

at (202) 508–0090 (this is not a toll free 

number). Comments will be made 

available for public review on the CDFI 

Fund’s Web site at www.cdfifund.gov. 

FOR FURTHER INFORMATION CONTACT: Lisa 

M. Jones, Manager, CDFI Bond 

Guarantee Program, CDFI Fund, at (202) 

653–0421 (this is not a toll free number). 

Information regarding the CDFI Fund 

and the CDFI Bond Guarantee Program 

may be downloaded from the CDFI 

Fund’s Web site at http:// 

www.cdfifund.gov. 

SUPPLEMENTARY INFORMATION: 

I. Executive Summary 

A. Purpose of the Regulatory Action 

1. The need for the regulatory action 

and how the action will meet that need: 

The CDFI Bond Guarantee Program is 

authorized by section 1134 of the Small 

Business Jobs Act of 2010 (Pub. L. 111– 

240; 12 U.S.C. 4713a) (the Act), which 

requires the Secretary of the Treasury to 

promulgate regulations to carry out that 

section of the Act. Capitalized terms 

used herein and not defined elsewhere 

are defined in section 1808.102 of the 

interim rule. 

2. Statement of legal authority for the 

regulatory action: 12 U.S.C. 4713a (j)(1). 

B. Summary of the Major Provisions of 

the Regulatory Action 

1. General provisions: Subpart A 

(sections 1808.100–106) sets forth the 

CDFI Bond Guarantee Program’s 

purpose, summary, program definitions, 

deviations, and relationship to other 

programs, among other provisions. 

2. Eligibility: Subpart B (sections 

1808.200–202) sets forth eligibility 

requirements and responsibilities for 

certain CDFI Bond Guarantee Program 

participants, particularly the Qualified 

Issuer, Designated Bonding Authority, 

and Eligible CDFIs. 

3. Eligible activities: Subpart C 

(sections 1808.300–309) sets forth the 

activities that are allowable under the 

CDFI Bond Guarantee Program, as well 

as interest rates, terms and conditions 

for Bonds, Bond Issues, the Risk-Share 

Pool, Bond Loans, Secondary Loans, 

and the Relending Account. 

4. Applications for Guarantee and 

Qualified Issuer: Subpart D (sections 

1808.400–401) sets forth the parameters 

of the Notice of Guarantee Availability, 

the Guarantee Application (which 

includes the Capital Distribution Plan), 

and the Qualified Issuer Application. 

5. Evaluation and selection: Subpart E 

(sections 1808.500–504) describes how 

the CDFI Fund will evaluate 

applications submitted by certain 

interested parties. 

6. Terms and conditions of Guarantee: 

Subpart F (sections 1808.600–627) sets 

forth terms and conditions of the 

Guarantee, certain parties’ roles and 

duties, representations and warranties, 

covenants, and reporting, conflict of 

interest, compliance, and other 

requirements. 

II. Summary of Estimated Economic 

Benefits 

Discounting by 3% Discounting by 7% 

$200 million issuance $2 billion issuance $200 million issuance $2 billion issuance 

COSTS 

Government costs .......................... $19.9 million ................... $28.8 million ................... $13.4 million ................... $18.6 million. 

Eligible CDFIs ................................ $4.6 million ..................... $45.7 million ................... $4.2 million ..................... $41.9 million. 

Low-Income communities .............. n/a .................................. n/a .................................. n/a .................................. n/a 

TRANSFERS 

Low-Income communities .............. $200 million .................... $2 billion ......................... $200 million .................... $2 billion. 

III. Background 

The Community Development 

Financial Institutions (CDFI) Bond 

Guarantee Program is authorized by the 

Small Business Jobs Act of 2010 (Pub. 

L. 111–240; 12 U.S.C. 4713a) (the Act). 

Section 1134 of the Act amended the 

Riegle Community Development and 

Regulatory Improvement Act of 1994 

(the Riegle Act) (12 U.S.C. 4701, et seq.) 

to provide authority to the Secretary of 

the Treasury to establish and administer 

the CDFI Bond Guarantee Program. 

Under authority delegated by the 

Secretary of the Treasury, the CDFI 

Bond Guarantee Program is 

administered by the Community 

Development Financial Institutions 

Fund (CDFI) Fund, a wholly owned 

government corporation within the U.S. 

Department of the Treasury. Pursuant to 

the Act the Secretary of the Treasury 

will provide a Guarantee for the 

repayment of the full amount of the 

Bond Issue, including the Verifiable 

Principal, Interest, and Call Premium, 

issued to finance Bond Loans to 

Certified CDFIs for Eligible Community 

or Economic Development Purposes for 

a period not to exceed 30 years. The 

Bonds will support CDFI lending in 

Investment Areas by providing a source 

of low-cost, long-term capital to Eligible 

CDFIs. 

Consistent with the Office of 

Management and Budget (OMB) 


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Circular A–129 (Policies for Federal 

Credit Programs and Non-Tax 

Receivables), Bonds issued pursuant to 

the CDFI Bond Guarantee Program will 

be purchased by the Federal Financing 

Bank (FFB), a body corporate and 

instrumentality of the Federal 

Government under the general 

supervision and direction of the 

Secretary of the Treasury. As required 

by the Act, the Guarantee will be fully 

assignable and transferable to capital 

markets on terms and conditions that 

are consistent with comparable Federal 

Government-guaranteed bonds and 

satisfactory to the CDFI Fund, the 

Guarantor, and the FFB. 

The interim rule creates the regulatory 

requirements and parameters for CDFI 

Bond Guarantee Program 

implementation and administration 

including, among others, Qualified 

Issuer eligibility, application 

requirements, application review, 

selection criteria, Guarantee and Bond 

Loan documentation, eligible uses of 

Bond Proceeds and Bond Loan 

proceeds, terms and conditions, and 

reporting requirements. The CDFI Fund 

seeks public comment on the entire 

interim rule. 

IV. Responses to the Request for Public 

Comment 

On July 1, 2011, the CDFI Fund 

published in the Federal Register a 

Request for Public Comment (76 FR 

38577) (the RPC), seeking public 

responses to specific questions 

regarding CDFI Bond Guarantee 

Program design, implementation, and 

administration. The CDFI Fund posed 

specific questions regarding a number of 

issues, including the following: how 

certain terms should be defined in the 

regulations; the eligible uses of funds 

(specifically, whether there should be 

any limitations on the types of loans 

that can be financed or refinanced with 

Bond Proceeds); provisions of the 

Guarantee; the eligibility of entities 

participating in the CDFI Bond 

Guarantee Program; and how the CDFI 

Fund should determine that a Qualified 

Issuer has the appropriate expertise, 

capacity, and experience to make Bond 

Loans for Eligible Community or 

Economic Development Purposes. 

The CDFI Fund received more than 60 

comment letters in response to the RPC. 

All comments have been reviewed by 

the CDFI Fund and have been taken into 

consideration in the drafting of the 

interim rule. A summary of the 

collective comments received in 

response to the RPC (as well as the CDFI 

Fund’s responses) follows. 

A. Definitions 

The Act requires that Bond Proceeds 

be used to make Bond Loans to Eligible 

CDFIs and that those Eligible CDFIs use 

the Bond Loan proceeds for Eligible 

Purposes. Such purposes include the 

various uses of financial assistance 

authorized under the Riegle Act, as well 

as the provision of community or 

economic development in ‘‘low-income 

or underserved rural areas.’’ Comments 

were solicited as to how the CDFI Fund 

should define those terms. 

(1) Low-Income 

With respect to defining Low-Income, 

the majority of comments suggested that 

the U.S. Department of Housing and 

Urban Development (HUD) definitions 

for States and Metropolitan Statistical 

Areas (MSAs) should be followed, 

including HUD definitions that are not 

based on census tracts. Other comments 

suggested that Low-Income should be 

defined: (i) In alignment with 

definitions used in other CDFI Fund 

programs such as the Community 

Development Financial Institutions 

(CDFI) Program, the Native American 

CDFI Assistance (NACA) Program, and 

the New Markets Tax Credit Program; 

(ii) as up to 120 percent of the Area 

Median Income as defined by HUD; (iii) 

based upon low-income school districts; 

(iv) based upon low wealth rather than 

income level; or (v) using Federal 

banking agencies’ definitions for 

determining Community Reinvestment 

Act compliance. 

The CDFI Fund’s Response: 

The CDFI Fund has adopted the 

definition of Low-Income that is set 

forth in section 1808.102 of the CDFI 

Bond Guarantee Program interim rule. 

This definition is in accordance with 

the Low-Income definition found in the 

CDFI Program regulations at 12 CFR 

1805.104(ee). The CDFI Fund selected a 

definition of Low-Income that is: (i) a 

standardized definition that is widely 

understood within the CDFI industry; 

(ii) a definition that the CDFI Fund can 

independently verify because the CDFI 

Fund has collected data under this 

definition over the past 10 years; (iii) 

more inclusive and allows for more 

Low-Income areas to comply with the 

CDFI Bond Guarantee Program; and (iv) 

consistent with the eligibility criteria for 

other CDFI Fund programs. 

(2) Underserved Rural Areas 

Regarding the term Underserved Rural 

Areas, the majority of comments 

suggested a definition consistent with 

the definition of Investment Area or 

Targeted Population set forth in the 

CDFI Program regulations (12 CFR 

1805.104 (dd) and (kk), respectively). 

The majority of comments suggested 

using the U.S. Department of 

Agriculture (USDA) definition of Rural 

Areas. Other comments suggested that 

Rural Areas should be defined using the 

Federal Financial Institutions 

Examination Council definition for nonmetro areas, and that the CDFI Fund 

should include Colonias in the 

definition of Rural Areas even when 

they otherwise fall within Metropolitan 

Statistical Areas (MSAs). Other 

suggestions included using: all nonMSA or HUD Fair Market Rent areas; 

the new Rural-Urban Commuting Area 

Codes definition established by the 

Office of Rural Health Policy; or the 

2008 Farm Bill definition of 

Substantially Underserved Trust Areas. 

The CDFI Fund’s Response: 

The CDFI Fund has adopted the 

definition of Underserved Rural Area 

that is forth in section 1808.102 of the 

interim rule. This definition is 

consistent with the definition of 

Investment Area as used in the CDFI 

Program (at 12 CFR 1805.104(dd)) and 

the definition of non-metropolitan as 

used in the New Markets Tax Credit 

Program. The CDFI Fund selected a 

combined definition of Underserved 

Rural Area because it is: (i) A 

standardized definition that is widely 

understood within the CDFI industry; 

(ii) a definition that the CDFI Fund can 

independently verify because the CDFI 

Fund has collected data under these 

definitions over the past 10 years; (iii) 

more inclusive and allows for more 

Low-Income areas to comply with the 

CDFI Bond Guarantee Program; and (iv) 

consistent with the eligibility criteria for 

other CDFI Fund programs. 

B. Use of Funds 

The Act requires that Bond Proceeds 

be used to make loans to Certified CDFIs 

for Eligible Purposes. 

(1) Eligible Uses of Bond Proceeds 

The CDFI Fund requested comments 

regarding the authorized uses of Bond 

Proceeds to finance Bond Loans. 

Specifically, comments were invited 

regarding any limitations on the types of 

Bond Loans to be financed, limitations 

on the percentage of Bond Loans that 

could be used to refinance outstanding 

loans, and any other restrictions that the 

CDFI Fund should impose on the Bond 

Loans such as interest rate and fee 

restrictions. 

The majority of comments were not in 

favor of limitations on the types of Bond 

Loans that can be financed with the 

Bond Proceeds, especially when the 

Bond Loans meet the provisions of the 


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Act and are similar in purpose to those 

that are permissible under other 

programs, such as the Financial 

Assistance Component of the CDFI 

Program. 

The majority of comments indicated 

that there should not be any limits on 

the percentage of Bond Loans that can 

be used to refinance outstanding loans 

with the Bond Proceeds. A few 

comments suggested that refinancing 

should be limited to 25 or 50 percent so 

as to encourage focus on new projects. 

Some comments suggested that any 

refinanced loans should meet minimum 

quality standards and should be nondelinquent in order to be refinanced 

with Bond Proceeds. 

The CDFI Fund’s Response: 

Bond Proceeds must be used by the 

Qualified Issuer to finance or Refinance 

loans to Eligible CDFIs for Eligible 

Purposes as set forth in sections 

1808.301 and 1808.302 of the interim 

rule. The CDFI Fund will not limit the 

amount of Bond Proceeds that the 

Qualified Issuer can use to Refinance 

loans. The Qualified Issuer must have a 

Capital Distribution Plan with the 

requisite Eligible CDFIs configured to 

on-lend the Bond Loans to Secondary 

Borrowers. Eligible CDFIs must on-lend 

the Bond Loans as Secondary Loans to 

Secondary Borrowers consistent with 

the Secondary Loan Requirements 

established by the CDFI Fund and 

defined in section 1808.102. The 

Secondary Loans must demonstrate a 

repayment source and collateral 

provisions consistent with the 

Secondary Loan Requirements. 

(2) Eligible Uses of Bond Loan Proceeds 

The CDFI Fund requested comments 

on the use of Bond Loan proceeds by 

CDFIs: specifically, the authorization of 

revolving loan funds; the permissibility 

of loan purchases with Bond Proceeds; 

and any other restrictions that the CDFI 

Fund should impose. 

The majority of comments indicated 

that eligible Bond Loan purposes should 

include: (i) Capitalization of revolving 

loan funds; (ii) capitalization of equity 

positions for regulated institutions; and 

(iii) loan loss reserves, debt service 

reserves, and/or sinking funds in 

support of a Federally guaranteed bond. 

Comments showed unanimous 

support for permitting loan proceeds to 

be used to purchase loans from other 

CDFIs. Comments also indicated that 

the purchase of loans is an important 

liquidity and aggregation mechanism 

and should be encouraged in order to 

increase capital flows in the CDFI 

industry. Suggested restrictions 

included restricting purchases to loans 

made after the enactment date of the 

Act, and requiring that the majority of 

loan purchase proceeds should be used 

for community development activities. 

The CDFI Fund’s Response: 

The CDFI Fund selected eligible uses 

for the Bond Loan proceeds that are 

consistent with the eligible uses of 

funds in the CDFI and NACA Programs 

and the Act. Bond Loan proceeds must 

be used for Eligible Purposes that 

include (i) The capitalization of Loan 

Loss Reserves in an amount that is up 

to five percent of the par amount of the 

Bond Loan; (ii) the financing or 

Refinancing for community or economic 

development purposes described in 12 

U.S.C. 4707 (b), which includes 

community or economic development 

purposes in Low-Income Areas or 

Underserved Rural Areas; (iii) prepaying 

one monthly installment of Bond Loan 

payments, and (iv) paying Bond 

Issuance Fees. The CDFI Fund included 

the capitalization of Loan Loss Reserves 

as an Eligible Purpose with the 

provision that Eligible CDFIs must 

obtain a Principal Loss Collateral 

Provision as collateral for this Eligible 

Purpose. Additional limitations, special 

rules, procedures and restrictions will 

be specified in the applicable Notice of 

Guarantee Availability (as described in 

section 1808.400 of the interim rule), as 

well as the Agreement to Guarantee, 

Bond Documents, and Bond Loan 

documents. 

(3) Bond Proceeds Deployment; 

Relending Account; Risk-Share Pool 

Pursuant to the Act, Qualified Issuers 

are required to use not less than 90 

percent of principal amount of a Bond 

(other than cost of Bond Issuance Fees) 

to make loans within one year after the 

Bond Issue Date. Not more than 10 

percent of the maximum principal 

amount of a Bond may be held in a 

Relending Account which may be made 

available for additional loans for 

Eligible Purposes. Each Eligible CDFI 

must contribute to a Risk-Share Pool 

equal to three percent of the principal 

amount of the Bond. The CDFI Fund 

requested comments regarding the 90 

percent loan requirement, use of the 

Relending Account, scope of the RiskShare Pool, and other measures that 

should be taken to minimize the risk of 

loss to the Federal Government. 

Commentators suggested that 

Qualified Issuers may face challenges 

disbursing Bond Loans to CDFIs equal 

to 90 percent of the Bond principal 

within one year. In their comments, 

they cited that CDFI business models 

often provide binding permanent loan 

commitments to small businesses and 

entities that engage in construction and 

development financing. CDFIs lend to 

these entities under a total commitment 

structure that includes draws on an as 

needed basis. In addition, commentators 

indicated that a one-year deployment 

requirement for 100 percent of Bond 

Loans would require: (1) CDFIs to have 

an actual pipeline of loans; (2) 

immediate funding availability for the 

pipeline of loans; and (3) CDFIs to close 

quickly on the loans. Commenters 

indicated that it would be impractical 

for CDFIs to present an actual pipeline 

as part of the Capital Distribution Plan, 

but to instead require the Qualified 

Issuer to demonstrate a CDFI’s intended 

versus actual pipeline of loans. Under a 

one-year deployment rule, CDFIs would 

face the undesirable prospect of having 

to develop a new financing program 

hastily and then terminate it 

prematurely. Commentators also 

suggested that most Qualified Issuers 

would be able to close Bond Loan 

commitments within one year of the 

Bond Issue Date but would require a 

period longer than one year, depending 

upon the end-borrowers’ needs, to 

disburse the Bond Loan funds. 

The majority of commentators stated 

that the Relending Account should be 

used to absorb and relend prepayments, 

permit early refinancing, and facilitate 

maturities shorter than the Bond 

duration. Some suggested that the 

Relending Account should be used for 

Bond payments if a default occurs, and 

that the 10 percent Relending Account 

should be calculated on a rollingaverage basis. 

Strong opinions were expressed 

against interest rate increases or 

requiring specific restrictions, 

covenants, or conditions not articulated 

in the statutory provisions. Some 

comments were in favor of requiring a 

larger Risk-Share Pool. Many comments 

suggested a variety of forms of 

supplemental credit enhancement. A 

‘‘one size fits all’’ approach was not 

endorsed and several suggestions were 

made, including: the purchase of 

insurance; collateral liens; increased 

rates on end borrowers; and a 

‘‘repurchase structure’’ where 

delinquent loans in an asset-backed 

portfolio were replaced after 180 days. 

The majority of the comments were in 

favor of allowing the Qualified Issuer to 

set aside the three percent from the 

Bond Proceeds for financing of the RiskShare Pool. Some commentators 

suggested that they favored flexible 

systems allowing for various funding 

streams, e.g., surety or escrow from the 

issuer pending approval of application, 

third party funding, or cash flows from 

investment. 


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The CDFI Fund’s Response: 

The CDFI Fund will require the 

Qualified Issuer to execute Bond Loan 

agreements for not less than 100 percent 

of the Bond principal on the Bond Issue 

Date. If the Eligible CDFI uses Bond 

Loan proceeds to make Secondary 

Loans, the Eligible CDFI must execute 

Secondary Loan documents (in the form 

of promissory notes) with Secondary 

Borrowers, as follows: (i) not later than 

12 months after the Bond Issue Date, 

Secondary Loan documents 

representing at least 50 percent of such 

Eligible CDFI’s Bond Loan proceeds 

allocated to Secondary Loans, and (ii) 

not later than 24 months after the Bond 

Issue Date, Secondary Loan documents 

representing 100 percent of such 

Eligible CDFI’s Bond Loan proceeds 

allocated to Secondary Loans (excluding 

any amounts used for payment of Bond 

Issuance Fees pursuant to section 

1808.304(b)). 

The CDFI Fund defines the Relending 

Account and the Capital Distribution 

Plan in section 1808.102 of the interim 

rule. 

The Risk-Share Pool, described in 12 

U.S.C. 4713a(d), must be funded by the 

Eligible CDFIs. The CDFI Fund will not 

allow the Bond Proceeds, or funds 

received from other CDFI Fund 

programs, to be used to fund the RiskShare Pool. The CDFI Fund defines the 

Risk-Share Pool in section 1808.102 of 

the interim rule. 

If the CDFI Fund determines that 

there is a need for protections to 

mitigate the risk of loss to the Federal 

Government, the CDFI Fund may 

require in the terms and conditions of 

the Guarantee that the Qualified Issuer 

implement various tools, in addition to 

the Risk-Share Pool, to compensate for 

risk which may include, but not be 

limited to, requiring the Eligible CDFI to 

provide for third-party Credit 

Enhancements. 

C. Guarantee Provisions 

The Act provides for a 100 percent 

guarantee for bonds issued as part of a 

Bond Issue under the CDFI Bond 

Guarantee Program. Consistent with the 

Office of Management and Budget 

(OMB) Circular A–129 (Policies for 

Federal Credit Programs and Non-Tax 

Receivables), these bonds will be 

purchased by the Federal Financing 

Bank (FFB). The CDFI Fund requested 

comments regarding potential loss 

remedies prior to the Bond Purchaser 

seeking reimbursement under the 

Guarantee, as well other any other 

terms, conditions, or Bond structure 

requirements that should be imposed to 

protect the taxpayer. 

The majority of comments stated that 

the CDFI Fund should work with the 

Qualified Issuer, aggregators (designated 

entities acting on behalf of the Qualified 

Issuers), and originators and Servicers of 

loans to exercise all rights and remedies 

available under law before calling the 

Guarantee. Some comments suggested 

that, for non-performing assets 

underlying a Bond, the CDFI Fund 

should consider using special servicers 

to deal with these assets. Recommended 

remedies include the substitution of 

non-performing assets, liquidation of 

underlying collateral, liquidation of 

risk-share and supplemental credit 

reserves, and the exercise of recourse. 

The majority of comments stated that 

the CDFI Fund should not set specific 

guidelines for the structure of the 

Bonds. It was suggested instead that the 

CDFI Fund should allow the 

marketplace to encourage the 

development of models for structuring 

the Bonds. Commentators recommended 

that the CDFI Fund require Qualified 

Issuers to issue Bonds of $100,000,000 

or more, but allow them to make 

incremental drawdowns of Bond 

Proceeds. Some comments suggested 

that Bonds could be issued in smaller 

increments as part of one application, as 

long as each Guarantee covered no less 

than $100,000,000 of Bonds. 

The CDFI Fund’s Response: 

The CDFI Fund defines Verifiable 

Losses of Principal, Interest, and Call 

Premium in section 1808.102 of the 

interim rule. When the Qualified Issuer 

has delinquent payments, the CDFI 

Fund and the Guarantor will exercise all 

available rights and remedies to protect 

the Federal Government’s interests. 

With regard to the structure of the 

Bond, the CDFI Fund will allow a 

Qualified Issuer to utilize multiple Bond 

Loans to CDFIs to meet the 

$100,000,000 minimum Guarantee 

requirement of the Act. However, each 

Bond Loan must be a minimum of 

$10,000,000. 

D. Eligible Entities 

The Act defines Eligible CDFI at 12 

U.S.C. 4713a(a)(1) as a CDFI certified by 

the Secretary that has applied to the 

Qualified Issuer for, or been granted by 

a Qualified Issuer, a loan under the 

program, and authorizes the CDFI Fund 

to determine which entities may serve 

as Qualified Issuers and Master 

Servicer. The CDFI Fund requested 

comments regarding the criteria that 

should be used to approve entities to 

participate in the CDFI Bond Guarantee 

Program. Specifically, the CDFI Fund 

solicited comments on the number of 

Qualified Issuers and Master Servicers 

that should be approved under the CDFI 

Bond Guarantee Program, as well as any 

eligibility criteria that should be applied 

to Eligible CDFIs beyond CDFI 

certification. 

The majority of commentators 

indicated that they were not in favor of 

the CDFI Fund requiring only one 

Qualified Issuer for all Bonds issued 

under the CDFI Bond Guarantee 

Program. Respondents stated that this 

requirement would be an unnecessary 

limitation that would prevent multiple 

CDFIs from serving as Qualified Issuers. 

Comments suggested, however, that it 

may be effective to have one Qualified 

Issuer issue most of the Bonds initially. 

There were mixed views regarding 

whether the CDFI Fund should permit 

an entity that is not a Certified CDFI to 

apply for CDFI certification 

simultaneously with submission of a 

Guarantee Application and a Capital 

Distribution Plan. The majority of 

commentators stated that only a CDFI 

that has been designated as a Certified 

CDFI prior to the applicable Guarantee 

Application deadline should be allowed 

to participate in the program. In 

contrast, some commentators stated that 

the CDFI Fund should permit noncertified entities the ability to apply to 

the CDFI Bond Guarantee Program 

while these entities pursue CDFI 

certification. The majority of 

commentators stated that the CDFI Fund 

should allow all existing CDFIs (or their 

designees) that are Certified CDFIs in 

good standing to apply to the CDFI 

Bond Guarantee Program. Respondents 

were consistent in stating that a CDFI 

that applies to the CDFI Bond Guarantee 

Program should demonstrate strong 

financial and capital positions, as well 

as a significant and sustained track 

record of economic development in 

Low-Income communities. Many 

respondents requested that the CDFI 

Fund require that Eligible CDFIs be 

certified by the CDFI Fund for a period 

of at least two to three years. 

The majority of commentators 

indicated that CDFIs should be allowed 

to service their own Bond Loans and the 

CDFI Fund should not require one 

Servicer for all Bonds issued under the 

CDFI Bond Guarantee Program. The 

comments suggested that the CDFI Fund 

should instead choose to limit the 

number of Servicers in order to keep 

program costs low. Comments were in 

favor of the CDFI Fund requiring the 

Master Servicer and Servicers to have a 

track record of providing similar 

services, and they stated that a key 

factor in determining CDFI Bond 

Guarantee Program success will be the 

level and skill of the Servicers 

responsible for remitting principal and 


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8300 Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Rules and Regulations 

interest payments on the Bonds. It was 

proposed that the Master Servicer 

should be rated by a national rating 

agency and should have broad 

experience in servicing community 

development needs. In addition, some 

commentators stated that the CDFI Fund 

should pre-qualify the Master Servicer 

and make it known to CDFIs prior to 

submission of a Guarantee Application. 

Respondents were in favor of a CDFI 

being allowed to serve as its own 

Servicer, and they cited that the unique 

asset and/or borrower characteristics 

provide strength to CDFIs with respect 

to their loan servicing capabilities. 

Comments also suggested that the CDFI 

Fund should recognize a consortium of 

non-profit entities, led by a certified 

CDFI, as an eligible applicant. 

The CDFI Fund’s Response: 

The CDFI Fund has defined the 

criteria for Qualified Issuers and the 

Master Servicer in section 1808.200 and 

section 1808.606, respectively, of the 

interim rule. The CDFI Fund considered 

the servicing capabilities of the CDFI 

industry when defining the criteria for 

Qualified Issuers. As a result, the CDFI 

Fund will allow the Qualified Issuer to 

provide, in its Qualified Issuer 

Application, information on the 

proposed Servicer for each Bond Issue. 

In response to commenters request to 

keep the program costs low, the CDFI 

Fund will only allow one Master 

Servicer/Trustee for the CDFI Bond 

Guarantee Program. 

The CDFI Fund may also select a 

Designated Bonding Authority (DBA) to 

serve as a Qualified Issuer for CDFIs 

seeking Bond Loans that do not wish to 

designate their own Qualified Issuer 

and/or that cannot alone prepare a 

Capital Distribution Plan that meets the 

requirements for participation in the 

CDFI Bond Guarantee Program. A DBA 

will be prequalified as meeting the 

requirements for Qualified Issuers by 

the CDFI Fund; however, a Guarantee 

Application submitted by a DBA will 

not receive any preference in the 

selection process. The qualifications for 

a DBA are described in section 1808.201 

of the interim rule. The DBA will be 

selected in accordance with section 

1808.502, which requires interested 

parties to submit a Qualified Issuer 

Application in response to the 

applicable Notice of Guarantee 

Availability. 

Eligible CDFIs must be certified by the 

CDFI Fund and must meet the 

requirements set forth in section 

1808.202 of the interim rule. 

E. Capital Distribution Plan 

There were multiple 

recommendations as to what applicants 

should be required to submit in their 

Capital Distribution Plans. Comments 

were consistent in suggesting that the 

CDFI Fund should require applicants to 

detail (in a Capital Distribution Plan) 

their fixed and ongoing costs of 

deploying capital, including a detailed 

breakdown of the uses of funds, which 

would entail the 90 percent or greater 

portion of Bond Proceeds used to make 

Bond Loans for Eligible Purposes and 

managing a multitude of CDFI entities. 

In addition, respondents suggested that 

a detailed breakdown of uses of the 

remaining portion of Bond Proceeds 

should be submitted. Comments stated 

that the CDFI Fund should not impose 

a limit on the number of Bonds and 

Guarantees for which Qualified Issuers 

are allowed to apply or qualify; 

however, it was suggested that the CDFI 

Fund implement the CDFI Bond 

Guarantee Program in a broad manner 

that would potentially mitigate a 

concentration among too small a 

number of participants. In general, 

commentators recommended that, in 

their respective Capital Distribution 

Plans, applicants should demonstrate an 

intended pipeline of underlying assets 

as well as the ability to service the Bond 

based on the expected terms and 

conditions of the assets in the pipeline. 

Respondents were consistent in stating 

that the CDFI Fund should not set 

minimum underwriting criteria for 

borrowers. 

The CDFI Fund’s Response: 

The CDFI Fund defines Capital 

Distribution Plan in section 1808.102 of 

the interim rule. The CDFI Fund will 

require the Qualified Issuer to execute 

Bond Loan agreements for no less than 

100 percent of the Bond Proceeds on the 

Bond Issue Date. If the Eligible CDFI 

uses Bond Loan proceeds to make 

Secondary Loans, the Eligible CDFI 

must execute Secondary Loan 

documents (in the form of promissory 

notes) with Secondary Borrowers as 

follows: (i) not later than 12 months 

after the Bond Issue Date, Secondary 

Loan documents representing at least 50 

percent of such Eligible CDFI’s Bond 

Loan proceeds allocated for Secondary 

Loans, and (ii) not later than 24 months 

after the Bond Issue Date, Secondary 

Loan documents representing 100 

percent of such Eligible CDFI’s Bond 

Loan proceeds allocated for Secondary 

Loans (excluding any amounts used for 

payment of Bond Issuance Fees 

pursuant to section 1808.304(b)). 

A Qualified Issuer may apply for and 

receive more than one Guarantee under 

the CDFI Bond Guarantee Program; 

provided, however, that the Qualified 

Issuer must demonstrate in subsequent 

Guarantee Applications that all prior 

Bonds have been issued and executed as 

Bond Loans in accordance with the 

applicable Guarantee Application, 

Capital Distribution Plan, and Bond 

Documents. 

F. Accountability of Qualified Issuers 

Comments indicated a considerable 

push for allowing flexibility with regard 

to mandating the performance outcomes 

of the Qualified Issuer. Comments were 

in favor of accountability measures, 

including the submittal of an annual 

report, but did not indicate the need for 

any additional reporting. In addition, 

commentators agreed that all risk share, 

credit, and liquidity reserves should be 

included in calculating the annual 

percentage of Bond principal used to 

make Bond Loans. Comments expressed 

a key interest in ensuring that the CDFI 

Fund shows consistency across its 

various program areas. Some 

respondents expressed a need for the 

CDFI Fund to provide continuous 

training opportunities on compliance 

and reporting requirements for the CDFI 

Bond Guarantee Program. 

The CDFI Fund’s Response: 

Subsequent to publication of the 

interim rule, the CDFI Fund will 

provide outreach and training on the 

application process, compliance, and 

reporting requirements as defined in 

subsection 1808.619 for Qualified 

Issuers and Eligible CDFIs. To be 

eligible to participate in the CDFI Bond 

Guarantee Program, the CDFI Fund will 

require Qualified Issuers and Eligible 

CDFIs applicants that are prior 

awardees/allocatees of the CDFI Fund to 

be compliant under their assistance, 

allocation, or award agreements under 

all other CDFI Fund programs at the 

time of submission of the Guarantee 

Application. The CDFI Fund will not 

include the three percent Risk-Share 

Pool or any additional reserves in 

calculating the requirements of the 

Capital Distribution Plan. 

G. Prohibited Uses 

Commentators generally did not 

express a desire for additional mandates 

regarding prohibited uses. 

Commentators did advise, however, that 

the CDFI Fund adopt, as a model, the 

rules of the Financial Assistance 

Component of the CDFI Program, which 

permit a wide range of financing 

activities and allow for flexibility and 

innovation. 


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The CDFI Fund’s Response: 

The CDFI Fund selected Eligible 

Purposes that are consistent with the 

eligible uses of funds under the CDFI 

Program, NACA Program, and the Act. 

Uses of Bond Proceeds must be 

consistent with Eligible Community or 

Economic Development Purposes 

defined in 12 U.S.C. 4713a(a)(2) and 

sections 1808.301 and 1808.302 of the 

interim rule. 

The CDFI Fund prohibits certain uses 

of the Bond Proceeds as set forth in 12 

U.S.C. 4713a(c)(5) and section 1808.309 

of the interim rule. The CDFI Fund 

prohibits the use of Bond Proceeds to 

fund the Risk-Share Pool to further 

incentivize Eligible CDFIs to perform 

quality underwriting of Secondary 

Loans and repayment of Bond Loans. 

Other risk mitigations include Eligible 

CDFIs providing collateral and full 

recourse obligations to receive Bond 

Loans. 

H. Servicing of Transactions 

Commentators expressed an interest 

in limiting the duties of the CDFI Fund 

to the general administration and 

management of the CDFI Bond 

Guarantee Program, and stated that the 

CDFI Fund should not be involved in a 

Bond transaction. There were split 

opinions regarding the requirement that 

each Qualified Issuer have a designated 

Program Administrator. 

The CDFI Fund’s Response: 

The CDFI Fund addresses the 

aforementioned concerns in the interim 

rule, which delineates the roles of the 

CDFI Fund, the Guarantor, Program 

Administrators, and Qualified Issuers. 

The CDFI Fund will issue a solicitation 

to select the Master Servicer/Trustee, 

which will serve as a fiduciary, 

maintain funds and accounts, serve as 

the Special Servicer, oversee the 

Servicers, provide loan monitoring and 

reporting, and perform the duties 

described in 12 U.S.C. 4713a(f)(4) and 

section 1808.606 of the interim rule. 

I. General Compliance 

The majority of comments indicated 

that annual financial statements and a 

report of asset or portfolio performance 

should be collected and reviewed by the 

Master Servicer. A range of 

recommendations were made for the 

types of reports that should be 

submitted, including: institution level 

reports; disbursement reports; and a 

report verifying that Bond Proceeds are 

used for Eligible Purposes. With respect 

to the Act’s mandate regarding 

repayment of Bonds, respondents stated 

that there should be a cure period of 90 

days before action is taken. After the 90- 

day period, part of the Risk-Share Pool 

should be released to meet Bond terms 

in a way that preserves the outstanding 

Bond characteristics, such as coupon 

and term. Further, it was recommended 

that the CDFI Fund should retain the 

right to extend the cure period as 

deemed necessary and appropriate. 

Comments advised that before the CDFI 

Fund imposes penalties on a Qualified 

Issuer for noncompliance, the CDFI 

Fund should work collaboratively to 

resolve the issue and have a menu of 

additional options available for 

resolution. Suggested options included 

written notification, suspension from 

participation, and requiring repayment 

of the Bond, depending on the 

seriousness of the infraction and 

circumstances. These actions should be 

undertaken after a 90-day cure period. 

The CDFI Fund’s Response: 

Qualified Issuers must provide 

information requested by the CDFI Fund 

as described in section 1808.619 of the 

interim rule and be subject to periodic 

on-site audits by the CDFI Fund or its 

designee as needed to determine 

compliance with the requirements of the 

CDFI Bond Guarantee Program. The 

CDFI Fund will not exempt the 

Qualified Issuer from complying with 

all applicable Federal, State, and local 

laws, regulations, ordinances, OMB 

Circulars and Executive Orders. Bond 

payments must be made in accordance 

with the terms and conditions of the 

underlying Bond documents. Qualified 

Issuers will be required to include 

disclosure statements in all Bond Loan 

documents that identify the obligations 

of the parties to comply with the 

applicable statutes and regulations. 

J. General Comments 

The majority of comments stated that 

CDFI Bond Guarantee Program rules 

should be written to allow for maximum 

program flexibility. This includes a 

wide variety of issues such as: Multiple 

structures (special purpose entities and 

single-issuers); allowance of proceeds 

for lending and equity capital, loan loss 

reserves, and refinancing; flexible 

definitions of Eligible Purposes; 

allowing revolving loan funds in the 

program structure that meet the 90 

percent loan requirement; and allowing 

for smaller tranches of issuances as part 

of a total $100,000,000 package. 

Respondents stated that the CDFI Bond 

Guarantee Program regulations should 

foster immediate operability in the 

interest of time to expedite the issuance 

of Bonds. In addition, comments stated 

that requirements such as reporting and 

eligibility should align with other CDFI 

Fund programs such as the Financial 

Assistance Component of the CDFI 

Program. 

Several respondents raised a concern 

about the need to prepare CDFIs for 

access to mainstream financial 

institutions and capital markets. With 

respect to rulemaking, commentators 

stated that the regulations should not 

carry limiting constraints or be 

unnecessarily complicated such as 

requiring burdensome credit 

enhancements, agency credit ratings, or 

preset underwriting criteria. 

The CDFI Fund’s Response: 

The CDFI Fund agrees that the CDFI 

Bond Guarantee Program has the 

potential to provide expansive 

opportunity by offering low-cost capital 

to CDFIs. However, the CDFI Fund 

recognizes the need to balance 

flexibility for program participants 

against the need to mitigate risk to the 

taxpayer, and stay within the confines 

of various existing statutes, regulations, 

and guidance documents including, but 

not limited to, the Riegle Community 

Development and Regulatory 

Improvement Act of 1994, the Small 

Business Jobs Act of 2010, the Federal 

Credit Reform Act of 1990, as amended, 

and OMB Circular A–129 (Policies for 

Federal Credit Programs and Non-Tax 

Receivables). The CDFI Fund will 

develop and promulgate Bond Loan 

Requirements and Secondary Loan 

Requirements. 

V. Rulemaking Analysis 

A. Executive Order (E.O.) 12866; 

Regulatory Impact Analysis 

It has been determined that the 

interim rule of the CDFI Bond Guarantee 

Program is a significant regulatory 

action as defined in Executive Order 

12866 in that the program will result in 

an annual effect of $100 million of more 

on the economy. Accordingly, the 

interim rule has been reviewed by the 

Office of Management and Budget. The 

Regulatory Impact Analysis prepared by 

the CDFI Fund for the interim rule is 

provided below. 

1. Description of Need for the 

Regulatory Action 

The CDFI Bond Guarantee Program 

was authorized by the Small Business 

Jobs Act of 2010 (Pub. L. 111–240) (the 

Act), passed by Congress and signed 

into law by the President on September 

27, 2010. Sections 1134 and 1703 of the 

Act provide authority to the Secretary of 

the Department of the Treasury to 

establish the program by regulation, 

which will be administered by the CDFI 

Fund, a wholly owned government 

corporation within the U.S. Department 


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8302 Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Rules and Regulations 

1The terms Low-Income and Low-Income Area 

are defined in section 1808.102 of the interim rule. 

These definitions may be different from those used 

in the economic studies cited hereafter. For specific 

definitions related to the studies, please refer to the 

cited articles. 

of the Treasury, pursuant to authority 

delegated by the Secretary of the 

Treasury. 

The Act authorizes the Secretary to 

guarantee the full amount of Bonds, 

including the principal, interest, and 

call premiums, with terms not to exceed 

30 years, issued to finance or refinance 

loans for Eligible Community or 

Economic Development Purposes. The 

Bond Issues will support CDFI lending 

and investment in Investment Areas by 

providing a source of low-cost, longterm capital to CDFIs. The Act provides 

that the Secretary of the Treasury will 

not issue more than ten Guarantees in 

any calendar year. No Guarantee 

amount may be less than $100,000,000, 

provided the total principal amount of 

guaranteed Bond Issues outstanding for 

any one fiscal year may not exceed $1 

billion. 

2. Provision—Affected Populations 

The CDFI Fund was established 

through the Riegle Community 

Development and Regulatory 

Improvement Act of 1994 (Pub. L. 103– 

325) for the purpose of promoting 

economic and community development 

through investment in and assistance to 

CDFIs. The two target populations 

served by the CDFI Fund that will be 

affected by the CDFI Bond Guarantee 

Program are (i) Certified CDFIs and (ii) 

rural and urban Low-Income 

communities served by Certified CDFIs 

throughout the United States. 

Certified CDFIs are specialized, 

community-based financial institutions 

that serve rural and urban Low-Income 

communities or work in economically 

distressed areas, often operating in 

market niches that may be underserved 

by traditional financial institutions. 

Only financial institutions certified by 

the CDFI Fund can receive financial 

assistance awards through the CDFI 

Program and the NACA Program. 

Certified CDFIs include depository 

institutions such as community 

development banks, thrifts, and credit 

unions; and non-depository institutions 

such as loan and venture capital funds. 

Certified CDFIs provide a wide range of 

financial products and services in LowIncome Areas.1 While the types of 

products made available are generally 

similar to those provided by mainstream 

financial institutions (such as small 

business lending and lending for 

community facilities and commercial 

real estate development), Certified 

CDFIs often lend to and make equity 

investments in markets that may not be 

served by mainstream financial 

institutions. In addition, Certified CDFIs 

may offer rates and terms that are more 

flexible to Low-Income borrowers. 

Certified CDFIs also provide services 

that help ensure that credit is used 

effectively, such as technical assistance 

to small businesses, and home buying 

and credit counseling to consumers. 

As of April 2012, there were over 980 

Certified CDFIs (including Certified 

CDFI banks and their Certified CDFI 

bank holding companies) that provide 

financial products and services to 

underserved populations and distressed 

communities in the United States. A 

thorough analysis was conducted of a 

subset of 904 Certified CDFIs, excluding 

bank holding companies, to compile 

consistent asset data on this population, 

which is reported below. These 904 

Certified CDFIs are financial institutions 

that have average total assets of $55.6 

million (although average asset size 

varies by institution type). 

a. Community development loan 

funds (CDLFs) constitute about 66 

percent of Certified CDFIs and have 

average assets of about $19.9 million. 

CDLFs are usually nonprofits that 

provide financing and development 

services to businesses, organizations 

and individuals in Low-Income urban 

and rural areas. CDLFs can be further 

categorized based on the type of clients 

served, such as microenterprises, small 

businesses, housing, and community 

service organizations (e.g., health care 

providers, charter school operators). 

b. Community development credit 

unions (CDCUs) constitute about 22 

percent of Certified CDFIs and have 

average assets of $66.9 million. CDCUs 

are nonprofit cooperatives owned by 

members that promote ownership of 

assets and savings and provide 

affordable credit and retail financial 

services to Low-Income people. 

c. Community development banks 

and bank holding companies constitute 

about nine percent of Certified CDFIs 

and have average assets of $298.3 

million. CDFI banks provide capital to 

rebuild economically distressed 

communities through targeted lending 

and investment and the provision of 

financial services to community 

residents and business owners. 

d. Community development venture 

capital funds constitute about three 

percent of all Certified CDFIs, have 

average assets of $9.7 million, and 

include both for-profit and nonprofit 

organizations that provide equity and 

debt-with-equity features for businesses 

in distressed communities. 

A preliminary analysis conducted by 

the CDFI Fund shows that Certified 

CDFIs that are large enough to deploy at 

least $10 million in new lending to 

Low-Income communities are the most 

likely participants in the CDFI Bond 

Guarantee Program. The rationale is that 

only larger CDFIs will be able to absorb 

and deploy $10 million in new capital. 

In particular, non-profit CDFI loan 

funds are expected to be the primary 

participants in the CDFI Bond 

Guarantee Program. 

a. Analysis of CDFI Fund awardees. 

First, the CDFI Fund used its 

Community Investment Impact System 

(CIIS), which collects data from CDFIs 

that have received awards from the 

CDFI Fund. CDFI Program and NACA 

Program awardees are required to report 

total portfolio and financial data for 

three years. A total of 68 Certified CDFI 

loan funds were identified that provided 

consistent data for a five year period 

from 2006 to 2010 on assets, new 

lending, and type of lending. The results 

showed that a total of 59 CDFI loan 

funds out of the 68 originated more than 

$10 million in loans. These 59 loan 

funds, that annually originated more 

than $10 million in loans, had assets 

that ranged from $25 million to nearly 

$400 million. As a result, a cutoff point 

of a minimum of $25 million in assets 

was established as a preliminary 

estimate of the threshold to participate 

in the CDFI Bond Guarantee Program. 

Due to data limitations, this estimate is 

based on a sample of CDFI awardees 

and not on the total universe of Certified 

CDFIs. However, given the lack of data 

on non-awardee Certified CDFIs, it is 

possible there are eligible CDFIs below 

the $25 million threshold capable of 

participating in the CDFI Bond 

Guarantee Program. 

b. Analysis of CDFI Fund Certified 

CDFIs. Second, the CDFI Fund 

certification database was used to query 

the number and type of Certified CDFIs 

that had assets over $25 million. A total 

of 243 Certified CDFIs have assets over 

$25 million, including 77 CDFI banks, 

74 credit unions, 91 loan funds, and one 

venture capital fund. This group is a 

sample of potential participants in the 

CDFI Bond Guarantee Program. 


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Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Rules and Regulations 8303 

2http://www.ffiec.gov/craadweb/naaginfs.htm. 

3Charles Tansey, Michael Swack, Michael 

Tansey, Vicky Stein. Capital Markets, CDFIs, and 

Organizational Credit Risk, Carsey Institute, 

University of New Hampshire, Durham, New 

Hampshire, p. 37. 

4Michael Swack, Jack Northrup, and Eric 

Hangen. CDFI Industry Analysis, Spring 2012. 

Carsey Institute, University of New Hampshire, 

Durham, New Hampshire, p. 15. 

5Michael Swack, Jack Northrup, and Eric 

Hangen. CDFI Industry Analysis, Spring 2012. 

Carsey Institute, University of New Hampshire, 

Durham, New Hampshire, p. 10. 

TABLE 1—CDFIS WITH MORE THAN $25 MILLION IN ASSETS

CDFI type Count Share 

% Sum of assets 

Share of 

assets 

% 

Average assets Minimum asset 

size 

Maximum asset 

size 

Bank or Thrift ........... 77 32 $24,705,263,619 53 $320,847,579 $26,655,000 $2,144,987,000 

Credit Union ............. 74 30 12,589,364,746 27 170,126,551 26,456,363 1,623,228,958 

Loan Fund ................ 91 37 9,073,961,136 20 99,713,859 25,379,706 1,424,547,537 

Venture Capital Fund 1 0 59,151,038 0 59,151,038 59,151,038 59,151,038 

Grand Total ....... 243 100 46,427,740,539 100 191,060,661 25,379,706 2,144,987,000 

Source: CDFI Fund Community Investment Impact System (CIIS) and Certification Database. 

a. Targeted Populations. In general, 

Certified CDFIs primarily serve LowIncome communities and Low-Income 

targeted populations. A Certified CDFI’s 

Investment Area is defined as a 

geographic unit (state, county, census 

tract, block group, Indian/Native areas), 

or as contiguous geographic units 

entirely located within the United States 

that meets one of the following criteria: 

(1) Has a population poverty rate of at 

least 20 percent; 

(2) has an unemployment rate 1.5 

times the national average; 

(3) for a Metropolitan Area, has a 

median family income (MFI) at or below 

80 percent of the greater of either the 

Metropolitan or national Metropolitan 

MFI; 

(4) for a non-Metropolitan area, has an 

MFI at or below 80 percent of the greater 

of either the Statewide or national NonMetropolitan MFI; 

(5) is wholly located within an 

Empowerment Zone or Enterprise 

Community; or 

(6) has a county population loss 

greater than or equal to 10 percent 

between the two most recent census 

periods for Metropolitan Areas or five 

percent over last five years for NonMetropolitan areas. 

Under these criteria, there are 27,275 

census tracts (41 percent) that qualify as 

CDFI investment areas out of 66,285 

total census tracts in U.S. Of these, 

22,360 are Metropolitan census tracts 

and 4,915 Non-Metropolitan census 

tracts. There are 269 counties that 

qualify as a result of the combined 

impact of the population loss and 

outmigration criteria. Based on the most 

recent three-year of reporting by CDFIs 

awardees, about 20 percent of eligible 

census tracts are served; however, no 

transactional lending and investment 

data is available from Certified nonawardee CDFIs and therefore no 

estimates of lending in target markets 

can be provided for four-fifths of 

Certified CDFIs. 

However, it is noteworthy that CDFI 

investment areas and target markets are 

highly correlated with the distressed 

and underserved areas as defined in the 

Community Reinvestment Act.2 In 

general, Certified CDFIs provide 

financial products and services in areas 

that are historically underserved by 

mainstream depository institutions. 

b. Financial products offered by 

CDFIs. According to the CDFI Fund 

Agency Financial Report for Fiscal Year 

2012, CDFIs originated over $1.3 billion 

in loans in 2011. Of these, 15.6 percent 

were commercial real estate 

originations, which included 

investments in charter schools and 

community facilities such as health 

clinics, employment and training 

facilities, and centers that provide 

services for low-income children and 

youth. In addition, 28 percent of these 

annual originations supported small 

businesses and microenterprises, 

including support for business 

incubators. In 2011, CDFIs also financed 

over 24,000 affordable housing rental 

units. The majority of these investments 

were located in very Low-Income 

communities where lending for 

community infrastructure is limited. 

3. Description of the problem. 

The availability of long-term debt and 

equity capital for CDFIs, particularly 

non-profit loan funds, is one of the 

major structural issues facing the CDFI 

industry. Certified CDFIs face 

challenges accessing long term capital to 

support their lending and investment; 

such challenges are related to broader 

structural impediments faced by LowIncome communities in accessing 

affordable and appropriate financial 

services. 

Certified CDFIs traditionally receive 

grants, loans, and other forms of 

financing from various sources, notably 

banks incentivized by the Community 

Reinvestment Act (CRA). However, that 

capital tends to be short- or mediumterm, and expensive as compared to 

products non-CDFI or for-profit lenders 

can obtain.3 Lenders and investors to 

Certified CDFIs typically provide 

Certified CDFIs with capital that has 

maturities of ten years or less. As a 

result, Certified CDFIs endure asset 

liability mismatches when they offer 

longer term lending products (i.e., 

mortgages) to their target borrowers. 

According to an analysis by the 

Carsey Institute at the University of New 

Hampshire, which was prepared for and 

funded by the CDFI Fund, ‘‘the lack of 

long-term debt financing forces CDFIs to 

[save cash] pushing down leverage and 

giving the appearance that many 

underleveraged CDFIs are not lending as 

much as they could, thus neglecting 

demand among its targeted 

consumers.’’ 4 Certified CDFI loan funds 

are generally not well leveraged, 

possibly reflecting the cost of debt 

available to them. Additionally, the 

non-profit status of many CDFIs also 

means that they do not enjoy the tax 

benefits of debt leverage which forprofit financial institutions are able to 

take advantage of. According to the 

Carsey analysis, ‘‘[p]articularly among 

loan funds, a large number of CDFIs 

have very little leverage (i.e., they fund 

themselves mainly through net assets, 

not debt). The median CDFI loan fund 

in 2009 was leveraged at just $1.10 in 

liabilities for every $1 in net assets. 

About eight percent of loan funds had 

no liabilities whatsoever. Banks and 

credit unions are typically leveraged at 

a rate of 10:1 or more.’’ 5

The reasons behind the lack of access 

to long-term debt available in capital 

markets are complex; however, a 

market-based approach focuses on one 

key element: the risk of Certified CDFIs. 

Capital markets typically rely on the 

credit ratings by rating agencies to 

determine the interest rate and terms of 


tkelley on DSK3SPTVN1PROD with RULES3
8304 Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Rules and Regulations 

6Michael Swack, Jack Northrup, and Eric 

Hangen. CDFI Industry Analysis. Spring 2012. 

Carsey Institute, University of New Hampshire, 

Durham, New Hampshire, p. 14. Available at http:// 

www.cdfifund.gov/docs/CBI/2012/ 

Carsey%20Report%20PR%20042512.pdf. 

7For a list of persistent poverty counties used by 

the CDFI Fund, see http://www.cdfifund.gov/ 

what_we_do/persistentpoverty.asp. 

8See http://www.ers.usda.gov/Briefing/ 

incomepovertywelfare/povertygeography.htm. 

9 (A) Akerlof, George A. 1970. ‘‘The Market for 

Lemons: Quality Uncertainty and the Market 

Mechanism.’’ The Quarterly Journal of Economics. 

84 (3): 488–500. Akerlof argues that 

underdeveloped areas, such as Low-Income and 

persistent poverty areas, may remain undeveloped 

due to the lack of information (such as the lack of 

credit scores for households operating in the 

informal economy) and the high costs of obtaining 

accurate information on these credit risks. 

According to Akerlof, ‘‘Credit markets in 

underdeveloped areas often strongly reflect the 

operation of the Lemons Principle.’’ In the Lemons 

Principle, ‘‘bad cars drive out the good because they 

sell at the same prices as the good cars.’’ In other 

words, the perception of average higher risk in LowIncome Areas may prevent deserving borrowers 

from accessing credit and capital from mainstream 

lenders. However, non-traditional lenders such as 

CDFIs are willing to conduct individual 

underwriting and are able to enter these markets. 

(B) Stiglitz, Joseph E., and Andrew Weiss. 1980. 

Credit rationing in markets with imperfect 

information. Princeton, N.J.: Econometric Research 

Program, Princeton University. 

(C) Klausner, Michael, ‘‘Market failure and the 

Community Reinvestment Act: A market-oriented 

alternative to the Community Reinvestment Act.’’ 

University of Pennsylvania Law Review, Vol. 143, 

No. 5 (May 1995) pp. 1561–1593. 

(D) Richardson, Christopher, ‘‘The Community 

Reinvestment Act and the economics of regulatory 

policy.’’ Fordham Urban Law Journal, Vol. 29, Issue 

4, 2001, Article 11. Richardson argues that ‘‘low 

levels of lending in low- and moderate-income 

(LMI) areas result from the inability of rational 

lending decisions made by profit-maximizing 

lenders to achieve a socially optimal flow of credit 

to LMI areas. The market failure occurs because the 

marginal cost of a single lender acquiring the 

information necessary to adequately assess risk and 

identify profitable lending opportunities in LMI 

areas outweighs the potential marginal benefit the 

lender can expect to accrue. In the extreme case, if 

no single lender will rationally decide to lend in the 

area, and no loans will be made’’ (p. 1614). 

(E) Mills, E.S. and L.S. Lubuele. 1994. 

‘‘Performance of residential mortgages in lowincome and moderate-income neighborhoods.’’ 

Journal of Real Estate Finance and Economics 9(3): 

245–260. 

10 Klausner, Michael, ‘‘A tradable obligation 

approach to the Community Reinvestment Act’’ in 

Chakrabarti, Prabal. 2009. Revisiting the CRA: 

perspectives on the future of the Community 

Reinvestment Act. Boston, Mass: Federal Reserve 

Bank of Boston. http://www.frbsf.org/publications/ 

community/cra/revisiting_cra.pdf. 

an investment. According to Tansey et 

al., the inability of credit rating agencies 

to accurately assess credit risk of CDFIs 

is due to: the absence of standardized 

data of risk performance; the lack of 

consistent audited financials limiting 

the ability to discern assets, specifically 

cash, available for repayment; the need 

for the development of comparable 

ratios to analyze financial health; 

Certified CDFIs’ willingness to engage in 

non-conventional lending; and, the 

perceived risk of lending to Low-Income 

communities. Such challenges result in 

proposed investments to CDFIs that are 

unrated or rated as below investment 

grade, thus not attractive to the capital 

markets. 

a. Distributional issues in provision of 

financial services in Low-Income Areas. 

The risk of lending to Certified CDFIs 

and ultimately to Low-Income 

communities is steeped in the chronic 

distributional gaps in the provision of 

financial services and products to Rural 

and urban Low-Income Areas of the 

United States, thus contributing to 

limited credit risk information for 

mainstream financial institutions to 

underwrite new activity in these 

communities. The lack of credit 

information for many Low-Income 

households in addition to smaller loan 

sizes typical of Low-Income 

communities often results in higher 

transaction costs for current lending. In 

addition, the substantial lack of data 

and higher costs in serving these 

communities also inhibits the access to 

long-term capital for CDFIs that serve 

these communities. 

In rural areas, lack of access also 

stems from the more limited deal flows, 

limited supporting infrastructure, and 

the difficulty of providing oversight for 

sparsely populated areas. Furthermore, 

CDFI investments are often 

characterized by the small scale of 

individual transactions and the 

perception of a high degree of risk.6

Using census panel data on 

economically distressed areas, 

persistent poverty has been located in 

the same geographic areas for over half 

a century, including the lower 

Mississippi Delta, areas along the Rio 

Grande, and traditional Native 

American territories in the West.7 Many 

households in persistent poverty 

counties are ‘‘unbanked’’ and have little 

or no credit score information because 

they may operate with cash in the 

informal economy; many live in areas 

characterized by poverty rates of more 

than 20 percent. About three quarters of 

persistent poverty areas reflect the 

minority status of their populations, 

showing a concentration of persistent 

poverty, low incomes, and lack of 

financial services in minority 

communities. According to the 

Economic Research Service (ERS) at the 

U.S. Department of Agriculture (USDA), 

of the 442 ‘‘high-poverty counties in 

2000 (based on 1999 income), threefourths reflect the low income of their 

racial and ethnic minorities and are 

classified as Black, Hispanic, or Native 

American high-poverty counties. In 

these counties, either a majority of the 

poor are Black, Hispanic, or Native 

American, or it is only the high 

incidence of poverty among these 

minority groups that brings the county’s 

overall rate above 20 percent. Of the 

remaining fourth of high-poverty 

counties, most (91 counties) are located 

in the Southern Highlands of eastern 

Kentucky, West Virginia, and parts of 

Missouri and Oklahoma. In these areas, 

the poor are predominantly nonHispanic Whites.’’ 8

b. Market failure. Rural and urban 

Low-Income, very Low-Income, and 

persistent poverty areas are underserved 

by mainstream financial institutions and 

lack access to investment, capital, and 

credit. Low lending rates in these 

communities create an information 

deficit for assessing risk for individual 

households and neighborhoods in 

mortgage, business, and consumer credit 

markets, and contribute to higher 

transaction costs. Furthermore, credit 

rationing can affect both Low-Income 

communities and Certified CDFIs that 

serve this market niche. 

Market failures in the provision of 

financial services to Low-Income areas 

have been well-documented in the 

academic literature (see Akerlof, 

Stieglitz, Klausner, Richardson, Mills 

and Lubuele).9 One market imperfection 

is the inherently asymmetric 

information between a lender and a 

borrower. Klausner notes that 

‘‘borrowers often know more about their 

own risk of default than do lenders. 

[* * *] When a bank makes a loan it 

does so based on information regarding 

the default risk of the borrower.’’ 10

Both targeted and mainstream 

financial lending programs depend on 

credit scores to assess risk to provide 

financial services to their customers. 

However, credit scores are often limited 

in Low-Income communities due to the 

low level of lending by mainstream 

financial institutions in these 

communities and the resulting lack of 

information on the risk of default for 

these loan products. In addition, LowIncome households may operate in the 

informal economy and may not have 

credit score information. 

Credit rationing is likely to occur in 

Low-Income Areas because generating 

individual credit risk scores would be 

too costly for lenders. Klausner and 

Richardson note that because banks seek 

to maximize their profit, they [and other 

financial institutions] may be averse to 

lending to Low-Income Areas due to the 

low value of financial transactions and 

the lack of credit score information to 

assess the riskiness of loans. 


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11Michael Swack, Jack Northrup, and Eric 

Hangen. CDFI Industry Analysis. Spring 2012. 

Carsey Institute, University of New Hampshire, 

Durham, New Hampshire, p. 9. Available at http:// 

www.cdfifund.gov/docs/CBI/2012/Carsey%20

Report%20PR%20042512.pdf. 

12See: ‘‘Collaborators or Competitors? Examining 

the Relationship Between CDFIs and Mainstream 

Banks in Lending to Small Businesses in 

Underserved Markets’’ by Geoff Smith, Sean 

Zielenbach, Jennifer Newon and Sarah Duda, The 

Woodstock Institute, published by the CDFI Fund, 

2009 http://www.cdfifund.gov/impact_we_make/

research/community-economic-development. 

13Michael Swack, Jack Northrup, and Eric 

Hangen. CDFI Industry Analysis, Spring 2012. 

Carsey Institute, University of New Hampshire, 

Durham, New Hampshire, p. 15. 

4. Solutions to the Problem. 

Through the CDFI Bond Guarantee 

Program, Certified CDFIs will 

demonstrate the ability to successfully 

deploy conventional long-term debt, 

with maturity dates, payment schedules, 

conditions, covenants, and reporting 

requirements similar to those required 

and provided by capital markets. The 

CDFI Bond Guarantee Program will 

require standardized data collection and 

portfolio monitoring, develop a 

mechanism for accurately assessing 

Certified CDFI credit risk, and provide 

capital markets with a track record on 

which to base future lending and 

investment. Moreover, the CDFI Bond 

Guarantee Program, because of the 

maximum 30 year maturity, will allow 

Certified CDFIs to offer a higher volume 

of longer term products to their 

borrowers as well as manage their 

interest rate and duration risk because 

of improved asset/liability matching. 

This will further close the gap in the 

provision of investments in community 

facilities, business lending, and 

financial services to rural and LowIncome residents and businesses, 

addressing distributional issues in the 

provision of financial services. 

a. Certified CDFIs as potential 

solution to underserved markets and 

market failure. A potential solution to 

distributional issues in the provision of 

financial services and market failure is 

lending by financial institutions such as 

Certified CDFIs. However, due to their 

customer base (Low-Income residents 

and small businesses and nonprofits 

serving Low-Income communities), the 

credit rationing that limits access to 

capital for those customers also limits 

the ability of Certified CDFIs to secure 

affordable long-term capital. Moreover, 

there is no standardized data on the 

universe of Certified CDFIs, especially 

unregulated loan funds that do not have 

award reporting history. The CDFI Bond 

Guarantee Program would provide 

access to a maximum of $2 billion in 30- 

year long-term capital to address the 

distributional effects and market failure 

faced by Low-Income residents and 

communities as well as the inability of 

Certified CDFIs to secure long-term 

capital to support their lending and 

investment efforts. 

b. Lowering the transaction costs of 

lending to Low-Income Areas. 

Transaction costs for the provision of 

financial services in Low-Income Areas 

are often higher because many LowIncome households have no credit score 

data that can be used to standardize and 

lower the cost of the underwriting 

process. In part, this is due to the fact 

that many Low-Income households do 

not use traditional financial institutions 

for banking needs, relying on fringe 

banking services (e.g., check cashers, 

payday lenders, etc.) to conduct 

financial transactions, thereby limiting 

available credit histories and credit 

score data. The CDFI Fund estimates 

that, based on credit score data at the 

census tract level, a total of 27 percent 

of very Low-Income households are 

missing credit FICO scores, compared to 

eight percent for higher-income areas 

(see Table 2 below). These figures may 

underestimate the number of 

households without credit scores 

because they are based on a sample of 

households that provided data, adjusted 

for the population. 

TABLE 2—CREDIT SCORE

INFORMATION

Median family income as a percent of area income by census 

tract 

Population 

share in 

sample 

% 

Percent 

missing 

credit 

scores 

% 

a. <50% ............ 5.99 27 

b. 50%<80% ..... 26.83 18 

c. 80%<120% ... 46.99 12 

d. 120%<200% 18.40 9 

e. >200% .......... 1.79 8 

Grand Total 100.00 14 

Source: analysis by the CDFI Fund using 

Census Bureau 2000 Summary File 1 demographic data and FICO scores by census tract. 

Another factor inhibiting credit 

provisioning is the lower profitability 

associated with lower-value loans. This, 

combined with expensive underwriting, 

make the provision of loans and services 

to Low-Income populations unprofitable 

for mainstream financial institutions. 

According to the Carsey Institute 

‘‘[t]hese transactions costs can be high 

for CDFIs because CDFIs market, 

underwrite, and originate smaller loans, 

and provide more intensive services. As 

a cost driver for CDFI Loan Funds, 

operating expense [as a result of high 

transactions costs to collect information 

on Low-Income communities and to 

underwrite smaller value loans] is by far 

the largest component of an 

organization’s expenses, dwarfing both 

cost of capital and loan loss expense.’’ 11

If the $200 million to $2 billion range 

is used to estimate the minimum and 

maximum impact range for the CDFI 

Bond Guarantee program, using the 

average loan size of $75,000 for CDFIs, 

a total of 2,667 loans to 26,670 loans 

may be issued. A share of these loans— 

potentially over half—will involve 

detailed and costly underwriting 

information at the household and firm 

level for loan recipients that otherwise 

would not receive funding. A share of 

these loans will include households and 

firms that do not have credit available 

elsewhere from mainstream financial 

institutions for long-term mortgages, 

community facilities such as charter 

schools, small business and microloans, 

and financial banking services. As a 

result of lending by participating 

Certified CDFIs, the Certified CDFIs will 

generate new credit score data from the 

loans to such consumers, which in turn 

will provide new credit information on 

these products and market segments, 

which should mitigate the risk 

associated with a lack of credit data on 

Low-Income and rural communities and 

borrowers. This information can lower 

transaction costs and encourage 

increased participation of traditional 

financial institutions in underserved 

areas, thereby attracting additional 

capital from the private sector.12

c. Providing long-term debt and 

leverage. According to the Carsey 

Institute, ‘‘[t]he availability of long-term 

debt and equity capital for CDFIs, 

particularly loan funds, is one of the 

major structural issues facing the 

industry. [* * *] The lack of long-term 

debt financing forces CDFIs to [save 

cash] pushing down leverage and giving 

the appearance that many 

underleveraged CDFIs are not lending as 

much as they could, thus neglecting 

demand among its targeted 

consumers.’’ 13 The analysis by the 

Carsey Institute noted that Certified 

CDFIs have access to short-term capital 

and cannot access longer-term capital. 

Lenders and investors to Certified CDFIs 

typically provide Certified CDFIs with 

capital that has maturities of ten years 

or less. As a result, Certified CDFIs 

endure asset liability mismatches when 

they offer longer term lending products 

(i.e., mortgages) to their target 

borrowers. 

The analysis by the Carsey Institute 

also found that Certified CDFI loan 

funds are generally not well leveraged, 

possibly reflecting the cost of debt 

available to them. According to the 


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8306 Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Rules and Regulations 

14Michael Swack, Jack Northrup, and Eric 

Hangen. CDFI Industry Analysis, Spring 2012. 

Carsey Institute, University of New Hampshire, 

Durham, New Hampshire, p. 14. 

analysis, ‘‘[p]articularly among loan 

funds, a large number of CDFIs have 

very little leverage (i.e., they fund 

themselves mainly through net assets, 

not debt). The median CDFI loan fund 

in 2009 was leveraged at just $1.10 in 

liabilities for every $1 in net assets. 

About eight percent of loan funds had 

no liabilities whatsoever. Banks and 

credit unions are typically leveraged at 

a rate of 10:1 or more.’’ 14 The CDFI 

Bond Guarantee Program, because of the 

maximum 30 year maturity, will allow 

Certified CDFIs to offer a higher volume 

of longer term products to their 

borrowers as well as manage their 

interest rate and duration risk because 

of improved asset/liability matching. 

This will further close the gap in the 

provision of services to Low-Income 

residents and businesses. 

Finally, the Carsey analysis indicates 

that the average term for credit provided 

to CDFIs is rarely above 15 years. When 

appropriately compared based on term, 

the cost of funds under the CDFI Bond 

Guarantee Program is significantly 

lower than what is currently available in 

the market. The Carsey analysis notes 

that CDFIs typically borrow on a 

secured basis at more than 100 basis 

points above the London Interbank 

Offered Rate (LIBOR), and that this is for 

shorter terms than contemplated under 

the CDFI Bond Guarantee Program. 

5. Baseline 

Currently, the CDFI Fund administers 

six grant and tax allocation programs: 

TABLE 3—CDFI FUND AWARD PROGRAMS

Program Type/Status Purpose 

Total amount awarded/number of awardees last funding round 

Highest award amount 

CDFI Program ............ Grant/Annual Appropriations.Provides financial assistance awards to institutions that are certified as CDFIs, and 

technical assistance grants to Certified 

CDFIs and entities that will become certified as CDFIs within three years.

$149 million/144 

awardees.

$1.4 million. 

Note: The CDFI Fund may give a financial 

assistance award in the form of a loan if 

the CDFI provides a loan as its matching 

fund. Direct loans are dictated by the term 

and conditions of the loan submitted as 

matching funds. 

Native Initiatives ......... Grant/Annual Appropriations.Assists entities in overcoming barriers that 

prevent access to credit, capital, and financial services in Native American, Alaskan Native, and Native Hawaiian communities (Native Communities). The Native 

Initiatives’ central component is the Native 

American CDFI Assistance (NACA) Program, which increases the number and capacity of existing or new CDFIs serving 

Native Communities.

$11.5 million/33 

awardees.

$750,000. 

Bank Enterprise 

Award Program.

Grant/Annual Appropriations.Provides grants to FDIC-insured banks for 

increasing their investment in Low-Income 

communities and/or in CDFIs.

$18 million * ................ $500,000 *. 

New Markets Tax 

Credit Program.

Non-cash Tax Credit 

Authority/Annual 

Renewal.

Provides tax credit allocation authority to certified Community Development Entities 

(CDEs), enabling investors to claim tax 

credits against their Federal income taxes. 

The CDEs in turn use the capital raised to 

make investments in Low-Income communities.

$3.5 billion in annual 

authority.

n/a. 

Capital Magnet Fund Grant/FY 2010 only ... Provides grants for CDFIs and other nonprofits to finance the development, rehabilitation, and purchase of affordable housing for Low-Income people.$80 million/23 awardees.$6 million. 

Financial Education 

and Counseling 

Pilot Program.

Grant/FY 2009 and 

FY 2010 only.

Provides financial assistance awards to enable Certified CDFIs and other eligible organizations to deliver a variety of financial 

education and counseling services to prospective homebuyers.

$4.1 million/4 awardees **.$3.15 million/ 

$400,000 **. 

* Based on most recent funding round. 

** In FY 2010, the CDFI Fund was appropriated $4.1 million for the FEC Pilot Program, of which $3.1 million was specifically appropriated for 

an award to an organization located in the State of Hawaii and $1 million was appropriated in FY 2010 for the FEC Pilot Program. 

a. Size of loans under the CDFI Bond 

Guarantee Program greater than current 

CDFI Fund programs. While valuable, 

CDFI Fund programs provide limited, 

short-term capital for CDFIs. The 

increased competitiveness, small award 

size, and annual uncertainty in the total 

amounts to be awarded limit CDFIs’ 

ability to plan effectively for long-term 

project and capital needs. For the 

baseline analysis without the CDFI 

Bond Guarantee Program, the CDFI 

Fund assumes that the above-mentioned 

programs would be appropriated at 

historical levels and estimates that 


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15Through the CDFI Program, the CDFI Fund has 

made 157 loans with an average principal of 

approximately $512,000 from 1996–2008. 

Certified CDFIs would borrow and lend 

at current levels. 

b. CDFI lending at current levels. In 

FY 2011, CDFI Fund awardees reported 

originating 16,313 loans or investments 

totaling $1.2 billion, based on their 

portfolio of activities in 2010. This 

includes $357.3 million for 5,010 home 

improvement and purchase loans, 

$296.8 million for 5,233 business and 

microenterprise loans, and $289.2 

million for 679 residential real estate 

transactions. These data on the amount 

and number of loans or investments 

originated provide baselines for 

benchmarking and targeting program 

performance. Under the CDFI Program, 

real estate loans financed 17,778 

affordable housing units, including 

15,979 rental units and 1,799 owner 

units. CDFIs also provided extensive 

financial products and services to 

unbanked and underserved individuals 

by opening 6,537 new bank accounts 

and maintaining 7,007 Individual 

Development Accounts totaling 

$9,131,382 in savings. CDFIs reported 

providing financial literacy counseling 

and other training opportunities to 

177,252 individuals. Finally, loans and 

investments originated by CDFIs over 

the last three years were located in more 

than 22 percent of eligible census tracts, 

exceeding the target of 10 percent. 

Average Certified CDFI awardee loan 

sizes for all loan types from 2003 to 

2010 are $62,000, and the average term 

is 5.9 years. Average commercial real 

estate loan sizes are $694,000 with an 

average term of 6.4 years. 

c. What would occur in the absence of 

the CDFI Bond Guarantee Program. The 

absence of the CDFI Bond Guarantee 

Program limits the ability of Certified 

CDFIs to provide long-term affordable 

loans and investments to Low-Income 

borrowers, individuals, and small 

businesses. Financial innovation and 

development of products specifically 

tailored to Low-Income communities 

may be curtailed and the potential for 

Certified CDFIs entering private capital 

markets would also be limited. The 

CDFI Bond Guarantee Program would 

result in a share of lending that would 

not otherwise occur in Low-Income 

areas, as well as leveraging and 

relending which could result in 

potential economic benefits. The CDFI 

Fund’s award and tax credit programs 

would remain the primary source of 

Federally funded programs for Certified 

CDFIs. 

6. Time Horizon for the Analysis 

The CDFI Bond Guarantee Program is 

authorized to guarantee up to $1 billion 

in Bonds issued each year through FY 

2014, and the maximum maturity of the 

Bonds cannot exceed 30 years. 

Therefore, the appropriate time horizon 

for analysis is FY 2013–FY 2044. 

7. Alternative Approaches Considered 

To address the distributional gaps and 

market failure identified above, the 

CDFI Bond Guarantee Program structure 

should allow for participation by 

Eligible CDFIs that demonstrate the 

ability to deploy Bond Loan proceeds 

within the guidelines and credit subsidy 

constraints as written in the Act. The 

CDFI Fund has chosen to structure the 

program pursuant to alternatives c and 

d described below. 

Regulatory alternatives for the CDFI 

Bond Guarantee Program considered 

are: (a) Requiring minimum 

participation size to equal $100 million 

per institution per Guarantee; (b) 

requiring a pool of CDFIs with a 

minimum participation size equal to 

$500,000 per institution in a $100 

million Guarantee; (c) requiring a pool 

of CDFIs with a minimum participation 

size of $10 million per institution in a 

$100 million minimum Guarantee; or 

(d) requiring general recourse 

obligations by CDFI Borrowers. 

a. Minimum Bond Loan size of $100 

million. This alternative would only 

allow a maximum of ten Eligible CDFIs 

to participate in the CDFI Bond 

Guarantee Program each year, limiting 

the ability of a significant percentage of 

Certified CDFIs from accessing the Bond 

Proceeds and lending them to LowIncome households and businesses in 

Low-Income areas. Given the 

requirements of a zero-subsidy program 

and the debt service burden of a $100 

million liability, it is likely that only ten 

or fewer Certified CDFIs would be able 

to participate based upon estimates of 

the additional debt service burden 

imposed by a $100 million obligation. 

The reduced number of applicants 

would lead to a more streamlined 

approval and implementation process 

(e.g., faster processing, less variation in 

documentation) resulting in lower bond 

issuance costs for the Qualified Issuers 

and Eligible CDFIs in the obligation. 

Cumulative administrative costs for 

Eligible CDFIs would be lower legal 

fees, and the absence of Secondary 

Borrower applications that would 

require underwriting and due diligence. 

These cost reductions would be 

achieved in part by reduced reliance on 

outside counsel and consultants by 

applicants. 

However, the benefits of the CDFI 

Bond Guarantee Program would also be 

reduced due to the concentration of 

benefits in a handful of Certified CDFIs. 

It is less likely that the funds would be 

disbursed among various market 

segments categorized by geography, 

industry sector, ethnicity, and other 

socioeconomic factors. This alternative 

is less likely to address the credit 

rationing and distribution problems and 

therefore yield lower social benefits. 

The benefit of risk diversification would 

also be lessened, and could impose a 

greater overall cost in terms of interest 

rates to Secondary Borrowers. 

b. Minimum Bond Loan size of 

$500,000. Maximizing the number of 

organizations that can participate as an 

Eligible CDFI by setting a low Bond 

Loan limit does not result in the greatest 

net benefits due to the corresponding 

increase in administrative costs. The 

CDFI Fund could set the minimum 

Bond Loan size to $500,000. This 

number is representative of the 

approximate average size of loans 

disbursed through the CDFI Program.15

Under this scenario, up to 200 Eligible 

CDFIs could participate in a minimum 

$100 million issuance. There is a greater 

likelihood of the benefits being 

distributed among underserved market 

segments as measured by geography, 

industry sector, ethnicity, and other 

socioeconomic factors. Long-term 

capital would be provided to many of 

the smaller institutions certified by the 

CDFI Fund, and as a result these 

institutions would most likely be able to 

reduce asset-liability mismatches 

previously described. 

Increasing the number of possible 

Eligible CDFIs in a single Guarantee 

pool would: 

(1) Decrease the likelihood of issuing 

the maximum number of Bonds in a 

fiscal year due to the difficulty in 

grouping large numbers of Certified 

CDFIs into homogeneous credit qualities 

for credit scoring approval by the Office 

of Management and Budget (OMB); and 

(2) for Eligible CDFIs, significantly 

increase costs associated with loan 

documentation, legal counsel, 

underwriting and due diligence, as well 

as ongoing compliance and loan 

monitoring. 

The 10 basis point Agency 

Administrative Fee authorized by the 

Act would equal only $500 per 

institution on an annual basis based on 

a minimum participation of $500,000. 

This annual fee declines based upon 

outstanding principal balance. Further, 

Eligible CDFIs participating in the 

program would each incur fees 

associated with their own legal counsel 

and possibly consulting services in 

addition to the 10 basis point Agency 

Administration Fee. Although scale 


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effects exist, there is a minimum fixed 

cost of issuance associated with such 

services that each individual Eligible 

CDFI would incur, thus raising the 

aggregate total costs of issuance for 

Eligible CDFIs. Therefore, this 

alternative is less likely to address the 

credit rationing and distribution 

problems, and therefore does not 

maximize social benefits. 

c. Minimum participation size of $10 

million. The CDFI Fund has chosen to 

require a minimum Bond Loan size of 

$10 million so long as the aggregate 

principal amount is at least a $100 

million minimum Bond Issue. This has 

been determined as the best alternative 

that maximizes net benefits. The 

proposed structure of the CDFI Bond 

Guarantee Program would allow twotier borrowing: Eligible CDFIs would 

borrow at the $10 million minimum and 

then lend to Secondary Borrowers (in 

some cases also CDFIs) in increments 

below the $10 million minimum. Given 

this proposed structure, up to 100 

Eligible CDFIs could theoretically 

participate in a fiscal year; however, 

several dozen Eligible CDFIs may 

choose to apply for larger Bond Loan 

amounts. 

This program is not meant to be a 

reproduction of the CDFI Program, 

which provides hundreds of Certified 

CDFIs awards between $100,000 and 

$1,000,000 each year in an effort to 

support the capacity of Certified CDFIs 

to build direct equity in support of their 

capital needs. The minimum 

participation of $10 million targets 

Certified CDFIs that have the financial 

and operating capacity to quickly 

deploy capital to Low-Income 

communities as well as lend Secondary 

Loans of smaller amounts to Certified 

CDFIs that are unable to absorb large 

amounts of debt on their balance sheets. 

These Certified CDFIs will also be 

required to demonstrate the capacity to 

track and measure performance and 

impact of the Bond Loan proceeds, 

which will build the data needed to 

help counter the distributional issues 

noted in the earlier sections. 

By demonstrating that Low-Income 

households and businesses are able to 

borrow and repay loans of greater 

amounts and tenor, the transactional 

costs of lending to such borrowers will 

decrease over time and the ability of the 

participating Eligible CDFIs to relend 

and leverage those funds will increase 

as the loans are repaid. This regulatory 

alternative is best suited to ameliorating 

the credit rationing and distribution 

problems, and thus maximizes net 

social benefits. 

d. On-balance sheet, general recourse 

obligations. The CDFI Fund has chosen 

to require general recourse obligations 

that will be on-balance sheet liabilities 

of Eligible CDFIs. Eligible CDFIs will be 

underwritten for their financial strength, 

management capacity, and general 

probability of default based upon 

various factors. Additionally, the 

Eligible CDFIs are required to lend 

funds subject to Secondary Loan 

Requirements that satisfy a certain 

minimum recovery rate in the case of 

default or temporary financial hardship 

by an Eligible CDFI. 

The benefits of this approach include 

a streamlined application process where 

the Eligible CDFI is underwritten rather 

than each individual asset financed by 

Bond Loan proceeds. Where necessary, 

the Credit Enhancements required to 

increase an Eligible CDFI’s credit 

quality are more easily quantified and 

enforceable. Additionally, more Eligible 

CDFIs may be able to participate by 

achieving the zero subsidy level 

required of the program. 

Additional costs may be incurred in 

order to participate in the program, 

including the cost of acquiring Credit 

Enhancements and documenting the 

Eligible CDFI’s financial strength, 

management capacity, and other 

characteristics indicative of capacity to 

reduce the probability of default. Costs 

such as legal and consultant fees may be 

reduced because each individual asset 

financed by Bond Loan proceeds does 

not need to be underwritten. 

Although difficult to estimate, it is 

likely that this regulatory alternative is 

both the net most beneficial and least 

costly alternative. This alternative also 

allows the CDFI industry to demonstrate 

its ability to manage capital, mitigate 

risk, and leverage funds long-term in a 

way not currently captured or 

adequately assessed. This alternative is 

best suited to ameliorating the credit 

rationing and distribution issues 

identified. 

Therefore, the CDFI Fund has chosen 

to pursue regulatory alternatives (c) and 

(d), above, in the design and 

implementation of the CDFI Bond 

Guarantee Program. 

8. Economic Effects of Selected 

Approach. 

Per the Act, the CDFI Bond Guarantee 

Program will expire at the end of FY 

2014; therefore, in FY 2013 and FY 2014 

the Secretary of the Treasury can 

provide guarantees for Bond Issues with 

maturities up to 30 years. The CDFI 

Bond Guarantee Program would provide 

a maximum of $2 billion in long-term 

capital to fill the gap in mortgage 

lending, consumer lending, and 

business lending. A summary of the 

projected transfers and costs under two 

scenarios is provided in Table 3: One 

Bond Issue per fiscal year ($200 million) 

and 10 Bond Issues per fiscal year ($2 

billion). 

Transfers and costs have been 

discounted using a net present value 

methodology over a 30-year period 

using a three percent discount rate that 

reflects the cost of capital and seven 

percent discount value for benefits 

recommended by OMB in its guidance 

for Regulatory Impact Analyses. Table 3 

describes the transfers and costs 

discounted at both the three percent and 

seven percent levels. 

TABLE 4—POTENTIAL COSTS AND TRANSFERS

Discounting by 3% Discounting by 7% 

$200 million issuance $2 billion issuance $200 million issuance $2 billion issuance 

COSTS 

Government Costs .............. $19.9 million ..................... $28.8 million ..................... $13.4 million ..................... $18.6 million. 

Eligible CDFIs ..................... $4.6 million ....................... $45.7 million ..................... $4.2 million ....................... $41.9 million. 

Low-Income communities ... n/a ..................................... n/a ..................................... n/a ..................................... n/a. 

TRANSFERS 

Low-Income communities ... $200 million ...................... $2 billion ........................... $200 million ...................... $2 billion. 


tkelley on DSK3SPTVN1PROD with RULES3
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16Capital Markets, CDFIs, and Organization 

Credit Risk, p. 47. 

17http://www.bankrate.com/rates/interest-rates/ 

1-year-libor.aspx. 

18http://www.treasury.gov/resource-center/datachart-center/interest-rates/Pages/ 

TextView.aspx?data=yield. 

a. Government costs. The estimate of 

the administrative costs to the CDFI 

Fund (Government Costs) are based on 

current administrative costs of 

implementation and the FY 2014 budget 

request for additional Full-Time 

Employees (FTEs), as well as the staff 

required to administer and manage the 

program for the remaining 30 years of 

the program. Government costs may 

fluctuate depending on the size of the 

guaranteed Bond Issues, The costs do 

not reflect inflation factors or the use of 

non-governmental contractors to carry 

out administrative functions after FY 

2013 and FY 2014. 

b. Eligible CDFI costs. The estimated 

administrative costs to Eligible CDFIs 

for the CDFI Bond Guarantee Program 

are based on: (1) The future costs of 10 

basis points in Agency Administrative 

Fees of the amount of the unpaid 

principal of the Bonds, up to the 

maximum maturity of 30 years, for 

Bonds issued through September 30, 

2014, the expiration of the program, and 

these costs discounted back to the 

present value; and (2) the Bond Issue 

costs through September 30, 2014, the 

expiration of the program, and these 

costs discounted back to the present 

value. The Bond Issuance Fees are 

estimated to be one percent of principle 

value of the Bond Issue. 

9. Non-Quantified and Non-Monetized 

Benefits and Costs 

Non-quantified benefits include the 

reduction of information asymmetry 

between Eligible CDFI and mainstream 

financial institutions cited in section 

3(b), above. Regulated banks, thrifts, and 

credit unions are subject to intense and 

standard reporting requirements by their 

respective regulators. However, nonregulated Certified CDFIs frequently 

utilize disparate accounting 

methodologies and report certain data 

points, such as borrower defaults and 

delinquencies, in ways that are difficult 

to compare across organizations. Nonprofit Certified CDFIs are yet more 

difficult to compare due to the variety 

of reporting options available to nonprofit institutions under generally 

accepted accounting principles (GAAP). 

By addressing the information 

asymmetry challenge, Eligible CDFIs in 

the CDFI Bond Guarantee Program may 

be able to provide sufficient information 

to traditional capital market participants 

to access private sources of long-term 

capital. This non-quantified benefit 

would further result in the amelioration 

of credit rationing, thereby increasing 

the amount of credit information 

available for traditional financial 

institutions. 

Ancillary non-quantified benefits 

include additional information that the 

CDFI Fund will be able to develop using 

standardized data collection within the 

CDFI industry, creating consistent 

reporting within other programs, such 

as the CDFI Program, and within other 

related agencies and regulators that 

interact with Certified CDFIs. In 

addition, the CDFI industry will be able 

to develop innovative financial products 

to meet the long-term needs of their 

borrowers, thus increasing the level of 

direct investment from the Bond 

Proceeds and leveraging additional 

investment from the private sector. The 

program may also result in standardized 

credit rating information on the LowIncome communities served by Certified 

CDFIs. This would result in further 

reductions of informational asymmetry 

to the benefit of both individual 

borrowers and the CDFIs which serve 

them. 

Countervailing non-monetized costs 

include the increased reporting and 

monitoring requirements for 

participants in the CDFI Bond 

Guarantee Program and administrative 

burden posed by data collection and 

verification. Depending upon the 

structure and composition of Eligible 

CDFIs that may pool together for a 

minimum $100 million Bond Issue, 

non-monetized costs may vary greatly 

based on necessary legal counsel, labor 

hours of staff, travel requirements, and 

other overhead costs. CDFIs that are 

awardees of current CDFI Fund 

programs are already required to 

provide detailed reporting on an 

annualized basis. In compliance with 

OMB Circular A–129, the CDFI Bond 

Guarantee Program will collect all 

necessary information to manage the 

portfolio effectively, and track progress 

towards policy goals. Therefore, the 

non-quantified costs for participants in 

the CDFI Bond Guarantee Program 

would be the incremental burden of 

providing necessary reporting for the 

CDFI Fund to proactively manage 

portfolio risks and performance. 

10. Uncertainty in Economic Impacts 

The impact estimates are very 

dependent on a nested set of 

assumptions that presuppose knowledge 

of which Certified CDFIs will 

participate in the CDFI Bond Guarantee 

Program, their target markets, and the 

characteristics of the typical Certified 

CDFI lending portfolio. While the CDFI 

Fund could estimate average 

community and economic impacts 

based on reporting awardees, the 

reliability of such estimates would be 

misleading; econometric estimates 

based on awardee reporting would be 

inefficient and biased since such 

estimates would not necessarily reflect 

the subgroup of Certified CDFIs that 

would be deemed eligible given the 

asset and underwriting requirements of 

the CDFI Bond Guarantee Program. 

A firm estimate of the impacts of the 

CDFI Bond Guarantee Program is not 

feasible without understanding the costs 

of the assistance to participating CDFIs, 

which includes the interest rate on the 

Bond Loans and the costs of other terms 

and Credit Enhancements necessary to 

result in an estimated zero subsidy cost 

for the CDFI Bond Guarantee Program. 

The CDFI Fund intends to estimate the 

subsidy cost separately for each 

Guarantee, to account more accurately 

for the differing characteristics of each 

facility. Accordingly, the cost of capital 

to participating CDFIs will depend on 

these characteristics, as will the number 

of CDFIs that will participate (the take 

rate by type of institution) in the CDFI 

Bond Guarantee Program. Certified CDFI 

participation will also be affected by the 

cost of alternative financing that may be 

available. 

The Carsey Institute 16 report 

indicates that CDFIs typically can 

borrow, on a secured basis, on the open 

market at rates that are approximately 

75–100 basis points above the LIBOR. 

As of May 22, 2012, the one-year LIBOR 

Rate was 1.05 percent,17 or 85 basis 

points above the 0.20 percent 1-year 

Treasury Yield Curve Rate.18 Although 

it may not be appropriate to extrapolate 

due to other factors which affect yield 

spreads as duration increases, Certified 

CDFIs may face borrowing costs that are 

160–185 basis points above comparable 

Treasury securities. It is likely that the 

yield spread charged on 30-year 

maturities, which are not available to 

Certified CDFIs, would be significantly 

higher due to the additional interest-rate 

risk inherent to long-term debt 

issuances. Moreover, it is not possible to 

anticipate the amount of relending that 

CDFIs would engage in over the course 

of 30 years. 

Uncertainty in cost estimates results 

from the variety and complexity of 

financial structures that may be 

presented to the CDFI Bond Guarantee 

Program during the application process. 

Complex legal structures, Credit 

Enhancements, and tailored provisions 

in each Agreement to Guarantee may 

result in vastly different administrative 

burdens for the Eligible CDFI, as well as 


tkelley on DSK3SPTVN1PROD with RULES3
8310 Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Rules and Regulations 

the CDFI Fund. Depending upon the 

structure and composition of Eligible 

CDFIs that may pool together for a 

minimum $100 million Bond Issue, 

non-monetized costs may vary greatly 

based on necessary legal counsel, labor 

hours of staff, travel requirements, and 

other overhead costs. Further, the 

increased burden of compliance costs by 

participating Eligible CDFIs will depend 

on the degree of sophistication and 

ability of each organization’s 

management, staff, and information 

systems to process and submit data 

required throughout the life of the 

program. 

B. Regulatory Flexibility Act 

Because no notice of proposed 

rulemaking is required under the 

Administrative Procedure Act (5 U.S.C 

553) or any other law, the Regulatory 

Flexibility Act does not apply. 

C. Paperwork Reduction Act 

The collection of information 

contained in the interim rule will be 

separately submitted to the Office of 

Management and Budget (OMB) in 

accordance with the Paperwork 

Reduction Act of 1995 (PRA) for 

approval and issuance of an OMB 

Control Number. Under the PRA, an 

agency may not conduct or sponsor, and 

an individual is not required to respond 

to, a collection of information unless it 

displays a valid OMB control number. 

The CDFI Fund will publish a PRA 

Notice in the Federal Register to solicit 

comments on the information 

collections. In the PRA Notice 

published in the Federal Register, the 

CDFI Fund will specifically invite 

comments on: (a) Whether the collection 

of information is necessary for the 

proper performance of the functions of 

the CDFI Fund, including whether the 

information shall have practical utility; 

(b) the accuracy of the CDFI Fund’s 

estimate of the burden of the collection 

of information; (c) ways to enhance the 

quality, utility, and clarity of the 

information to be collected; (d) ways to 

minimize the burden of the collection of 

information on respondents, including 

through the use of technology; and (e) 

estimates of capital or start-up costs and 

costs of operation, maintenance, and 

purchase of services to provide 

information. 

The CDFI Fund will solicit public 

comment on each of these issues for the 

following sections of this document that 

contain information collection (ICs): 

1. ICs Regarding the Application 

Process (12 CFR 1808.401). This section 

provides the requirements for the 

Qualified Issuer Application and 

Guarantee Application. For the 

Qualified Issuer Application, the 

estimated burden for Qualified Issuer 

applicants is 240 hours. The estimated 

number of Qualified Issuer respondents 

is 10 per year. The estimated total 

annual burden regarding the Qualified 

Issuer Application process is 2,400 

hours. For the Guarantee Application, 

the estimated burden for Qualified 

Issuer applicants is 240 hours. The 

estimated burden for Eligible CDFI 

applicants is 50 hours. The estimated 

number of Qualified Issuer respondents 

is 10 per year. The estimated number of 

Eligible CDFI respondents is 100 per 

year. The estimated total annual burden 

regarding the Guarantee Application 

process is 7,400 hours. These estimates 

may be revised in the final PRA Notices 

published in the Federal Register. 

2. ICs Regarding Reporting 

Requirements (12 CFR 1808.619). This 

section provides the reporting 

requirements for the Qualified Issuer 

and Eligible CDFI participants. The 

estimated burden for a Qualified Issuer 

participant is 80 hours, consisting of 

monthly, quarterly, and annual 

reporting. The estimated burden for 

Eligible CDFI participants is 86 hours, 

consisting of monthly, quarterly, and 

annual reporting. The estimated number 

of Qualified Issuer participants is 5 per 

year. The estimated number of Eligible 

CDFI participants is 50 per year. The 

estimated total annual burden regarding 

the reporting requirements is 4,700 

hours. These estimates may be revised 

in the final PRA Notices published in 

the Federal Register. 

Comments concerning suggestions for 

reducing the burden of collections of 

information should be directed by mail 

to the Deputy Director, CDFI Fund, 

Department of the Treasury, 1500 

Pennsylvania Avenue NW, Washington, 

DC 20220, and to the Office of 

Management and Budget, Attention: 

Desk Officer for Department of the 

Treasury, Office of Information and 

Regulatory Affairs, Washington, DC 

20503. 

D. National Environmental Policy Act 

The interim rule has been reviewed in 

accordance with 12 CFR part 1815, the 

CDFI Fund’s environmental quality 

regulations published pursuant to the 

National Environmental Protection Act 

of 1969 (NEPA), which require that the 

CDFI Fund adequately consider the 

cumulative impact proposed activities 

have upon the human environment. It is 

the determination of the CDFI Fund that 

the interim rule does not constitute a 

major Federal action significantly 

affecting the quality of the human 

environment and, in accordance with 

NEPA and the CDFI Fund’s 

environmental quality regulations at 12 

CFR part 1815, neither an 

Environmental Assessment nor an 

Environmental Impact Statement is 

required. 

E. Administrative Procedure Act 

Pursuant to authority at 5 U.S.C. 

553(a)(2), the interim rule related to 

loans is exempt from the rulemaking 

requirements of the Administrative 

Procedure Act, 5 U.S.C. 551 et seq., 

including the requirement to provide 

prior notice and an opportunity for 

public comment. 

List of Subjects in 12 CFR Part 1808 

Community development, Guaranteed 

bonds, Guaranteed loans, Loan 

programs—housing and community 

development, Reporting and record 

keeping requirements. 

For the reasons set forth in the 

preamble, 12 CFR chapter XVIII is 

amended by adding part 1808 to read as 

follows: 

PART 1808—COMMUNITY 

DEVELOPMENT FINANCIAL 

INSTITUTIONS BOND GUARANTEE 

PROGRAM 

Subpart A—General Provisions 

Sec. 

1808.100 Purpose. 

1808.101 Summary. 

1808.102 Definitions. 

1808.103 Participant not instrumentality. 

1808.104 Deviations. 

1808.105 Relationship to other CDFI Fund 

programs. 

1808.106 OMB control number. 

Subpart B—Eligibility 

1808.200 Qualified Issuers. 

1808.201 Designated Bonding Authority. 

1808.202 Eligible CDFIs. 

Subpart C—Interest Rates; Terms and 

Conditions of Bonds, Bond Loans, and 

Secondary Loans 

1808.300 Interest rates. 

1808.301 Eligible uses of Bond Proceeds. 

1808.302 Bond terms and conditions. 

1808.303 Risk-Share Pool. 

1808.304 Eligible uses of Bond Loan 

proceeds. 

1808.305 Bond Loan terms and conditions. 

1808.306 Conditions precedent to Bond 

and Bond Loan. 

1808.307 Secondary Loan Eligible 

Purposes; Terms and conditions. 

1808.308 Relending Fund; Relending 

Account. 

1808.309 Restrictions on uses of Bond 

Proceeds and Bond Loan proceeds. 

Subpart D—Applications for Guarantee and 

Qualified Issuer 

1808.400 Notice of Guarantee Availability. 

1808.401 Application requirements. 


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Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Rules and Regulations 8311 

Subpart E—Evaluation and Selection 

1808.500 Evaluation of Qualified Issuer 

Applications. 

1808.501 Evaluation of Guarantee 

Applications. 

1808.502 Evaluation of Designated 

Bonding Authority Applications. 

1808.503 Consultation with Appropriate 

Regulatory Agencies. 

1808.504 Selection of Qualified Issuers; 

Approval for Guarantee. 

Subpart F—Terms and Conditions of 

Guarantee 

1808.600 Full faith and credit and 

incontestability of Guarantee. 

1808.601 Assignment and transfer of 

Guarantee. 

1808.602 Offer of Guarantee. 

1808.603 Issuance of Guarantee. 

1808.604 Agreement to Guarantee. 

1808.605 Agency Administrative Fee. 

1808.606 Program Administrator; Servicer; 

Master Servicer/Trustee. 

1808.607 Representations and warranties 

of Qualified Issuer with respect to 

Guarantee. 

1808.608 Representations and warranties 

of Eligible CDFI with respect to each 

Bond Loan. 

1808.609 Representations and warranties 

of Secondary Borrower. 

1808.610 Covenants of Qualified Issuer 

with respect to Guarantee. 

1808.611 Covenants of Eligible CDFI with 

respect to Bond and each Bond Loan. 

1808.612 Specific financial covenants of 

Eligible CDFI. 

1808.613 Negative covenants of Eligible 

CDFI. 

1808.614 Covenants of Secondary 

Borrower with respect to Secondary 

Loan. 

1808.615 Negative covenants of Secondary 

Borrower. 

1808.616 Events of default and remedies 

with respect to Bonds. 

1808.617 Events of default and remedies 

with respect to Bond Loans. 

1808.618 Events of default and remedies 

with respect to Secondary Loans. 

1808.619 Reporting requirements. 

1808.620 Investments in Guaranteed Bonds 

ineligible for Community Reinvestment 

Act Purposes. 

1808.621 Conflict of interest requirements. 

1808.622 Compliance with government 

requirements. 

1808.623 Lobbying restrictions. 

1808.624 Criminal provisions. 

1808.625 CDFI Fund deemed not to 

control. 

1808.626 Limitation on liability. 

1808.627 Fraud, waste and abuse. 

Authority: The Small Business Jobs Act of 

2010, Pub. L. 111–240, §§ 1134 and 1703; 12 

U.S.C. 4713a. 

Subpart A—General Provisions 

§ 1808.100 Purpose. 

The purpose of the Community 

Development Financial Institutions 

(CDFI) Bond Guarantee Program is to 

support CDFI lending by providing 

Guarantees for Bonds issued as part of 

a Bond Issue for Eligible Community or 

Economic Development Purposes, as 

authorized by sections 1134 and 1703 of 

the Small Business Jobs Act of 2010 

(Pub. L. 111–240; 12 U.S.C. 4713a). 

§ 1808.101 Summary. 

This section provides a summary 

overview of certain key provisions of 

the interim rule, the detailed 

requirements of which are set forth in 

subsequent subparts. 

(a) Guarantee. Through the CDFI 

Bond Guarantee Program, the Guarantor 

will provide a Guarantee for Bonds 

issued by Qualified Issuers as part of a 

Bond Issue. 

(b) Bonds. Pursuant to the Act at 12 

U.S.C. 4713a(e), a Bond Issue shall 

comprise Bonds having a minimum 

aggregate principal amount of 

$100,000,000 and a maximum aggregate 

principal amount of $1,000,000,000. 

The principal amount of each Bond (or 

series of Bonds) shall not be less than 

$10,000,000. A Bond Rate for each 

advance of funds under a Bond will be 

established by the Bond Purchaser as of 

the date of the respective advance, as 

provided in the Bond. 

(c) Bond Loans to Eligible CDFIs. The 

Qualified Issuer will use Bond Proceeds 

to make Bond Loans to Eligible CDFIs 

for Eligible Purposes, as those terms are 

defined in section 1808.102. The CDFI 

Fund will evaluate each Eligible CDFI 

using standard Bond Loan Requirements 

to assess their creditworthiness and 

capacity to receive a Bond Loan. Each 

Eligible CDFI may borrow a Bond Loan 

in an amount that is at least 

$10,000,000. The Bond Loan Rate shall 

be the same as the Bond Rate on the 

particular advance of funds under the 

Bond that funds the Bond Loan. The 

aggregate of the principal amounts of 

the Bond Loans must not exceed the 

maximum principal amount of the 

corresponding Bond Issue. The 

Qualified Issuer must execute Bond 

Loan documents for 100 percent of the 

principal amount of each Bond on the 

Bond Issue Date. Bond Loan proceeds 

may not be drawn down from the 

Qualified Issuer until the Eligible CDFI 

has an immediate use for the Bond Loan 

proceeds. Five percent, or such other 

amount that is determined by the CDFI 

Fund in its sole discretion, of Bond 

Loan proceeds may be used by an 

Eligible CDFI to capitalize Loan Loss 

Reserves. 

(d) Secondary Loans to Secondary 

Borrowers. If the Eligible CDFI uses 

Bond Loan proceeds to make Secondary 

Loans, the Eligible CDFI must execute 

Secondary Loan documents (in the form 

of promissory notes) with Secondary 

Borrowers as follows: 

(1) Not later than 12 months after the 

Bond Issue Date, Secondary Loan 

documents representing at least 50 

percent of such Eligible CDFI’s Bond 

Loan proceeds allocated for Secondary 

Loans; and 

(2) Not later than 24 months after the 

Bond Issue Date, Secondary Loan 

documents representing 100 percent of 

such Eligible CDFI’s Bond Loan 

proceeds allocated for Secondary Loans 

(excluding any amounts used for 

payment of Bond Issuance Fees 

pursuant to section 1808.304(b)). 

(e) Terms and conditions. Bonds, 

Bond Loans and Secondary Loans shall 

have terms and conditions as set forth 

in Subpart F of this interim rule 

including at a minimum, that: 

(1) Each Bond shall be a nonrecourse 

obligation of the Qualified Issuer, 

payable solely from amounts available 

pursuant to the Bond Documents. Each 

promissory note evidencing a Bond 

Loan shall be a general recourse 

obligation of the Eligible CDFI and 

secured by a first lien on collateral. Each 

Secondary Loan shall be secured by a 

first lien on collateral and payable 

solely from amounts available pursuant 

to the Secondary Loan documents; 

(2) The maturity date of a Bond shall 

not be later than 30 years after the Bond 

Issue Date. The maturity date of Bond 

Loans and Secondary Loans may be 

earlier than, but may not be later than, 

the maturity date of the corresponding 

Bond; 

(3) The Bonds shall be purchased by 

the Bond Purchaser on terms and 

conditions that are satisfactory to the 

Bond Purchaser, the Guarantor, and the 

CDFI Fund (under specific requirements 

set forth in § 1808.302 and the Bond 

Documents); and 

(4) The Guarantor shall guarantee 

payments on Bonds issued as part of a 

Bond Issue in such forms and on such 

terms and conditions and subject to 

such covenants, representations, 

warranties and requirements (including 

requirements for audits) as set forth in 

this interim rule in Subpart F. These 

requirements may be expanded upon 

through the program’s Notice of 

Guarantee Availability, the Bond 

Documents, and the Bond Loan 

documents. The Qualified Issuer shall 

enter into the applicable Bond 

Documents to evidence its acceptance of 

the terms and conditions of the 

Guarantee. 

§ 1808.102 Definitions. 

For purposes of this part, capitalized 

terms used herein and not defined 

elsewhere are defined as follows: 


tkelley on DSK3SPTVN1PROD with RULES3
8312 Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Rules and Regulations 

(a) Act means the Small Business Jobs 

Act of 2010, Pub. L. 111–240, sections 

1134 and 1703, 12 U.S.C. 4713a; 

(b) Affiliate means any entity that 

Controls, is Controlled by, or is under 

common Control with, another entity. 

Control is defined as: 

(1) Ownership, control or power to 

vote 25 percent or more of the 

outstanding shares of any class of 

Voting Securities (as that term is 

defined in 12 CFR 1805.104(mm)) of any 

legal entity, directly or indirectly or 

acting through one or more other 

persons; or 

(2) Control in any manner over the 

election of a majority of the directors, 

trustees, or general partners (or 

individuals exercising similar functions) 

of any legal entity; or 

(3) The power to exercise, directly or 

indirectly, a controlling influence, as 

determined by the CDFI Fund, over the 

management, credit decisions, 

investment decisions, or policies of any 

legal entity; 

(c) Agency Administrative Fee means 

a fee in an amount equal to 10 basis 

points (0.1 percent) of the amount of the 

unpaid principal of the Bond Issue, 

payable annually to the CDFI Fund by 

a Qualified Issuer; 

(d) Agreement to Guarantee means 

the written agreement between the 

Guarantor and the Qualified Issuer 

which sets forth the terms and 

conditions on which the Guarantor will 

provide the Guarantee; 

(e) Appropriate Federal Banking 

Agency has the same meaning as in 

section 3 of the Federal Deposit 

Insurance Act, 12 U.S.C. 1813(q), and 

includes, with respect to an Insured 

Credit Union (as such term is defined in 

12 CFR 1805.104(bb)), the National 

Credit Union Administration; 

(f) Appropriate State Agency means 

an agency or instrumentality of a State 

that regulates and/or insures the 

member accounts of a State-Insured 

Credit Union (as such term is defined in 

12 CFR 1805.104(e)); 

(g) Bond means a security in the form 

of a draw-down bond or note issued by 

the Qualified Issuer, with each advance 

of funds thereunder bearing interest at 

an applicable Bond Rate established by 

the Bond Purchaser in accordance with 

section 1808.300 of this part, and sold 

to the Bond Purchaser, the proceeds of 

which will be used for Eligible 

Purposes, and which benefit from a 

Guarantee; 

(h) Bond Documents mean, for each 

Bond, the respective Bond, Bond Trust 

Indenture, Agreement to Guarantee, 

Bond purchase agreement, and all other 

instruments and documentation 

pertaining to the issuance of the Bond; 

(i) Bond Issuance Fees mean amounts 

paid by an Eligible CDFI for reasonable 

and appropriate expenses, 

administrative costs, and fees for 

services incurred in connection with the 

issuance of the Bond (but not including 

the Agency Administrative Fee) and the 

making of the Bond Loan; 

(j) Bond Issue means at least 

$100,000,000, and no more than 

$1,000,000,000, in aggregate principal 

amount of Bonds secured by a single 

Guarantee; each Bond (or series of 

Bonds) in the Bond Issue being in the 

minimum principal amount of at least 

$10,000,000; 

(k) Bond Issue Date means the date on 

which the Bond is deemed to be issued 

or originated; 

(l) Bond Loan means a loan of Bond 

Proceeds by a Qualified Issuer to an 

Eligible CDFI. A Bond Loan must be in 

an initial principal amount that is not 

less than $10,000,000, and Bond Loan 

proceeds must be used for Eligible 

Purposes; 

(m) Bond Loan Payment Default Rate 

means, in the event of a Bond Loan 

payment default, the applicable interest 

rate on any overdue amount from its 

due date to the date of actual payment 

and shall be calculated in the same 

manner as a late charge rate is 

calculated in the underlying Bond; 

(n) Bond Loan Rate means the rate of 

interest for each advance of funds under 

a Bond Loan, which shall be the same 

as the Bond Rate; 

(o) Bond Loan Requirements means 

the credit criteria, established by the 

CDFI Fund, for assessing the 

creditworthiness and capacity of each 

Eligible CDFI applicant to receive a 

Bond Loan; 

(p) Bond Proceeds means the funds 

that are advanced by the Bond 

Purchaser to the Qualified Issuer under 

a Bond; 

(q) Bond Purchaser (or Bondholder) 

means the Federal Financing Bank, the 

body corporate and instrumentality of 

the Federal Government created by the 

Federal Financing Bank Act of 1973 (12 

U.S.C. 2281 et seq.); 

(r) Bond Rate means the rate of 

interest for each advance of funds under 

a Bond; 

(s) Bond Trust Indenture means the 

agreement between the Qualified Issuer 

and the Master Servicer/Trustee that 

sets forth the rights, duties, 

responsibilities and remedies of the 

Qualified Issuer and Master Servicer/ 

Trustee with respect to the Bonds, to 

include responsibilities regarding the 

management of the collateral, the 

management of the funds and accounts, 

the repayment and redemption of the 

Bonds, and the circumstances and 

processes surrounding any default; 

(t) Capital Distribution Plan means 

the component of the Guarantee 

Application that demonstrates the 

Qualified Issuer’s comprehensive plan 

for lending, disbursing, servicing, and 

monitoring each Bond Loan and that 

meets the requirements of § 1808.401 of 

this interim rule and such other 

requirements as may be designated in 

the applicable Notice of Guarantee 

Availability. The Capital Distribution 

Plan includes, among other components 

(specified in § 1808.401 of this interim 

rule), a Statement of Proposed Sources 

and Uses of Funds, and shall include 

one or more Secondary Capital 

Distribution Plans; 

(u) CDFI Bond Guarantee Program (or 

Program) means the program of 

providing Guarantees for Bonds issued 

as part of a Bond Issue by Qualified 

Issuers to make Bond Loans to Eligible 

CDFIs for Eligible Purposes, as 

authorized by subsections 1134 and 

1703 of the Act (12 U.S.C. 4713a), and 

implemented under this part; 

(v) Certified Community Development 

Financial Institution (or Certified CDFI) 

means a financing entity that has a 

primary mission of promoting 

community development and that has 

been certified by the CDFI Fund as 

meeting the eligibility requirements set 

forth in 12 CFR 1805.201; 

(w) Community Development 

Financial Institutions Fund (or CDFI 

Fund) means the Community 

Development Financial Institutions 

Fund, a wholly owned government 

corporation within the U.S. Department 

of the Treasury, established under the 

Riegle Community Development 

Banking and Financial Institutions Act 

of 1994 (12 U.S.C. 4701 et seq.), as 

amended; 

(x) Credit Enhancement means such 

instrument or document proffered by an 

Eligible CDFI to enhance the credit 

quality of a Bond and/or Bond Loan. 

Credit Enhancements may include, but 

are not limited to, pledges of financial 

resources and lines and letters of credit 

issued by: an Eligible CDFI; an Affiliate; 

a regulated financial institution; a 

foundation; or another entity. The RiskShare Pool is not a form of Credit 

Enhancement; 

(y) Department Opinion means an 

internal opinion by the CDFI Fund 

regarding compliance by the Qualified 

Issuer with the requirements for 

approval of a Guarantee; 

(z) Designated Bonding Authority (or 

DBA) means a Qualified Issuer selected 

by the CDFI Fund to issue Bonds on 

behalf of certain Eligible CDFIs and 


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make Bond Loans to such Eligible 

CDFIs, pursuant to this interim rule; 

(aa) Eligible Community Development 

Financial Institution (or Eligible CDFI) 

means a Certified CDFI that has 

submitted an application to a Qualified 

Issuer for a Bond Loan, has been 

deemed creditworthy based on the Bond 

Loan Requirements, and has received a 

Bond Loan; 

(bb) Eligible Community or Economic 

Development Purpose (or Eligible 

Purpose) means the allowable uses of 

Bond Proceeds and Bond Loan 

proceeds, which includes financing or 

Refinancing for community or economic 

development purposes described in 12 

U.S.C. 4707(b), including but not 

limited to community or economic 

development purposes in Low-Income 

Areas or Underserved Rural Areas, as 

deemed eligible by the CDFI Fund in its 

sole discretion; Bond Issuance Fees in 

an amount not to exceed one percent of 

Bond Loan proceeds; and capitalization 

of Loan Loss Reserves in an amount that 

is up to five percent of the par amount 

of the Bond Loan, or such other amount 

that is determined by the CDFI Fund in 

its sole discretion; 

(cc) Guarantee means the guarantee 

by the Guarantor, pursuant to an 

Agreement to Guarantee, of the 

repayment of 100 percent of the 

Verifiable Losses of Principal, Interest, 

and Call Premium, if any, on the 

corresponding Bonds issued as part of a 

Bond Issue; each Guarantee shall be for 

a Bond Issue of at least $100,000,000, 

plus the related interest and call 

premiums; 

(dd) Guarantee Application means the 

application document that a Qualified 

Issuer submits in order to apply for a 

Guarantee; 

(ee) Guarantor means the Secretary of 

the Treasury or the Secretary’s designee; 

(ff) Investment Area means a 

geographic area meeting the 

requirements of 12 CFR 

1805.201(b)(3)(ii); 

(gg) Loan Loss Reserves means the use 

of Bond Loan proceeds (secured by a 

Principal Loss Collateral Provision) for 

a set aside in the form of cash reserves 

that serve as a safeguard to protect the 

Eligible CDFI against future losses for 

any loans for community or economic 

development purposes described in 12 

U.S.C. 4707 (b), including community or 

economic development purposes in 

Low-Income Areas or Underserved 

Rural Areas, within the Eligible CDFI’s 

portfolio; 

(hh) Low-Income means an income, 

adjusted for family size, of not more 

than: (1) for Metropolitan Areas, 80 

percent of the area median family 

income; and (2) for non-Metropolitan 

Areas, the greater of: (1) 80 percent of 

the area median family income; or (2) 80 

percent of the Statewide nonMetropolitan Area median family 

income; 

(ii) Low-Income Area means a census 

tract or block numbering area in which 

the median income does not exceed 80 

percent of the median income for the 

area in which such census tract or block 

numbering area is located. With respect 

to a census tract or block numbering 

area located within a Metropolitan Area, 

the median family income shall be at or 

below 80 percent of the Metropolitan 

Area median family income or the 

national Metropolitan Area median 

family income, whichever is greater. In 

the case of a census tract or block 

numbering area located outside of a 

Metropolitan Area, the median family 

income shall be at or below 80 percent 

of the statewide non-Metropolitan Area 

median family income or the national 

non-Metropolitan Area median family 

income, whichever is greater; 

(jj) Master Servicer/Trustee means a 

third party trust company or financial 

institution that is in the business of 

administering facilities similar to the 

Bonds and Bond Loans, has been 

deemed acceptable by the CDFI Fund, 

and whose duties include, among 

others, exercising fiduciary powers to 

enforce the terms of Bonds and Bond 

Loans pursuant to the Bond Trust 

Indenture entered into by and between 

the Master Servicer/Trustee and the 

Qualified Issuer, overseeing the 

activities of Servicers, and facilitating 

Bond principal and interest payments to 

the Bond Purchaser; 

(kk) Metropolitan Area means an area 

that contains an urban core based 

statistical area of 50,000 or more 

population and is designated as such by 

the Office of Management and Budget 

pursuant to 44 U.S.C. 3504(e), 31 U.S.C. 

1104(d) and Executive Order 10253 (3 

CFR, 1949–1953 Comp., p. 758), as 

amended; 

(ll) Notice of Guarantee Availability 

(or NOGA) means the notice, published 

by the CDFI Fund, that announces to all 

interested parties the opportunity to 

submit Qualified Issuer Applications 

and Guarantee Applications pursuant 

sections 1808.400 and 1808.401 of this 

interim rule; 

(mm) Principal Loss Collateral 

Provision means a cash or cash 

equivalent guarantee or facility 

provided in lieu of pledged collateral set 

forth in the Bond Documents and Bond 

Loan documents; 

(nn) Program Administrator means 

the Qualified Issuer, or an entity 

designated by the Qualified Issuer and 

approved by the CDFI Fund, that 

performs certain administrative duties 

related to application preparation, 

compliance monitoring, and reporting, 

as well as other duties set forth under 

section 1808.606 of this interim rule; 

(oo) Qualified Issuer means a Certified 

CDFI, or any entity designated by a 

Certified CDFI to issue Bonds on its 

behalf, that meets the qualification 

requirements set forth in section 

1808.200 of this interim rule, and that 

has been approved as such by the CDFI 

Fund pursuant to review and evaluation 

of the Qualified Issuer Application; 

(pp) Qualified Issuer Application 

means the application document that a 

Certified CDFI (or any entity designated 

by a Certified CDFI to issue Bonds on 

its behalf) submits to the CDFI Fund in 

order to be approved as a Qualified 

Issuer prior to, or simultaneously with, 

a Guarantee Application; 

(qq) Qualified Secondary Loan 

Receivable means payment receivables 

from the Secondary Loan(s) relating to 

the corresponding Bond Loan; 

(rr) Refinance (or Refinancing) means 

the use of Bond Proceeds to refinance an 

Eligible CDFI’s or Secondary Borrower’s 

existing loan, which must have been 

used for an Eligible Purpose; 

(ss) Relending Fund means the fund 

maintained by the Master Servicer/ 

Trustee to allow an Eligible CDFI to 

relend Secondary Loan repayments for 

Eligible Purposes, not to exceed 10 

percent of the principal amount 

outstanding of the Bonds, minus the 

Risk Share Pool; the Relending Fund 

will include a Relending Account for 

each Bond Issue; and each Relending 

Account will include a Relending 

Subaccount for each Bond Loan; 

(tt) Risk-Share Pool means an account 

maintained by the Master Servicer/ 

Trustee throughout the term of a 

Guarantee to cover losses before the 

Guarantee is exercised; the Risk-Share 

Pool is capitalized by pro rata payments 

equal to three percent of the amount 

disbursed on the Bonds from all Eligible 

CDFIs within a Bond Issue; payments 

must be funded at each disbursement 

under the Bond and associated Bond 

Loan; amounts in the Risk-Share Pool 

will not be returned to the Eligible 

CDFIs until maturity of all of the Bonds, 

and termination of all Bond Loans, 

within a Bond Issue; 

(uu) Secondary Borrower means an 

entity that has made application to the 

Eligible CDFI for a Secondary Loan, 

been deemed creditworthy by the 

Eligible CDFI, meets the criteria set forth 

in the applicable Secondary Loan 

Requirements to receive a Secondary 

Loan, and has received a Secondary 

Loan; 


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(vv) Secondary Capital Distribution 

Plan means the component of the 

Capital Distribution Plan that pertains to 

the making of Secondary Loans, 

demonstrates the Eligible CDFI’s 

comprehensive plan for lending, 

disbursing, servicing and monitoring 

Secondary Loans, includes a description 

of how the proposed Secondary Loan 

will meet Eligible Purposes and meets 

such other the requirements as may be 

designated in the applicable Notice of 

Guarantee Availability; 

(ww) Secondary Loan means the use 

of Bond Loan proceeds by an Eligible 

CDFI to finance or Refinance a loan to 

a Secondary Borrower for Eligible 

Purposes, which meets the applicable 

Secondary Loan Requirements; 

(xx) Secondary Loan Requirements 

mean the minimum required criteria 

used by each Eligible CDFI (in addition 

to the Eligible CDFI’s underwriting 

criteria) to evaluate a request by a 

Secondary Borrower applicant for a 

Secondary Loan. The Secondary Loan 

Requirements will be established by the 

CDFI Fund and incorporated into the 

Bond Loan documents; 

(yy) Servicer means the Qualified 

Issuer, or an entity designated by the 

Qualified Issuer and approved by the 

CDFI Fund, to perform various Bond 

Loan servicing duties, as set forth in this 

part; 

(zz) Special Servicer means the Master 

Servicer/Trustee, or an entity designated 

by the Master Servicer/Trustee and 

approved by the CDFI Fund, that 

performs certain administrative duties 

related to the restructuring of Bond 

Loans that are in or about to enter into 

an event of default as well as other 

duties set forth under section 

1808.606(d) of this interim rule; 

(aaa) State means any of the States of 

the United States, the District of 

Columbia, the Commonwealth of Puerto 

Rico, the Commonwealth of the 

Northern Mariana Island, Guam, the 

Virgin Islands, American Samoa, the 

Trust Territory of the Pacific Islands, 

and any other territory of the United 

States; 

(bbb) Statement of Proposed Sources 

and Uses of Funds means the 

component of the Guarantee 

Application that describes the proposed 

uses of Bond Proceeds and the proposed 

sources of funds to repay principal and 

interest on the Bonds and the Bond 

Loans; 

(ccc) Targeted Population means 

individuals or an identifiable group of 

individuals who are Low-Income 

persons or lack adequate access to 

Financial Products or Financial Services 

and meet the requirements of 12 CFR 

1805.201(b)(3)(iii); 

(ddd) Trust Estate means the Bond 

Loan agreement and promissory notes 

evidencing the Bond Loan, all funds and 

accounts related to the Bonds and held 

by the Master Servicer/Trustee pursuant 

to the Bond Trust Indenture including, 

but not limited to, the Revenue 

Accounts and the Relending Accounts 

(as such terms are defined in subsection 

1808.606(f)), and any additional 

collateral pledged directly by the 

Eligible CDFI; 

(eee) Underserved Rural Area means 

an area that has significant unmet needs 

for loans, Equity Investments, or 

Financial Services (as those terms are 

defined in 12 CFR 1805.104) and is not 

contained within either a Consolidated 

Metropolitan Statistical Areas (CMSA) 

or Primary Metropolitan Statistical 

Areas (PMSA), as such areas are defined 

in OMB Bulletin No. 99–04 (Revised 

Statistical Definitions of Metropolitan 

Areas (MAs) and Guidance on Uses of 

MA Definitions); and 

(fff) Verifiable Losses of Principal, 

Interest, and Call Premium means any 

portion of required debt payments 

related to or arising out of a Bond and 

Bond Loan, or the enforcement of either 

of them, that the Qualified Issuer is 

unable satisfy. 

§ 1808.103 Participant not instrumentality. 

No participant in the CDFI Bond 

Guarantee Program shall be deemed to 

be an agency, department, or 

instrumentality of the United States. 

§ 1808.104 Deviations. 

To the extent that such requirements 

are not specified by statute, the 

Secretary of the Treasury in 

consultation with the Office of 

Management and Budget, may authorize 

deviations on an individual or general 

basis from the requirements of this 

interim rule upon a finding that such 

deviation is essential to program 

objectives, and the special 

circumstances stated in the proposal 

make such deviation clearly in the best 

interest of the Federal Government. All 

proposals must be in writing and 

supported by a statement of the facts 

and the grounds forming the basis of the 

deviation. For deviations of general 

applicability, after a determination is 

made by the Secretary of the Treasury 

based on the deviation proposal, the 

CDFI Fund must publish notification of 

granted deviations in the Federal 

Register. Any deviation that was not 

captured in the original credit subsidy 

cost estimate will require either 

additional fees, or discretionary 

appropriations to cover the cost. 

§ 1808.105 Relationship to other CDFI 

Fund programs. 

Award funds received under any 

other CDFI Fund program cannot be 

used by any participant, including 

Qualified Issuers, Eligible CDFIs and 

Secondary Borrowers, to pay principal, 

interest, fees, administrative costs, or 

issuance costs (including Bond Issuance 

Fees) related to the CDFI Bond 

Guarantee Program, or to fund the RiskShare Pool. 

§ 1808.106 OMB control number. 

The collection of information 

requirements in this part are subject to 

the review of the Office of Management 

and Budget (OMB). 

Subpart B—Eligibility 

§ 1808.200 Qualified Issuers. 

(a) Requirements and qualifications. 

An applicant shall be deemed a 

Qualified Issuer if it is determined, in 

writing by the CDFI Fund, to meet the 

following criteria: 

(1) The applicant must be a Certified 

CDFI, or an entity designated by a 

Certified CDFI to issue Bonds on its 

behalf; 

(2) The applicant must have 

appropriate expertise, capacity, and 

experience, or otherwise be qualified to 

issue Bonds for Eligible Purposes; 

(3) The applicant must have 

appropriate expertise, capacity, and 

experience, or otherwise be qualified to 

make Bond Loans for Eligible Purposes; 

(4) The applicant must have 

appropriate expertise, capacity, and 

experience to serve or have identified 

qualified entities that will serve as its 

Program Administrator and Servicer; 

and 

(5) The applicant must meet such 

other criteria as may be required by the 

CDFI Fund pursuant to this interim rule 

and the applicable Notice of Guarantee 

Availability. 

(b) Approval. The designation of an 

applicant as a Qualified Issuer does not 

ensure that the Guarantor will approve 

a Guarantee Application or issue a 

Guarantee. In order for the Guarantor to 

approve a Qualified Issuer’s Guarantee 

Application, the Qualified Issuer must 

meet all applicable Guarantee 

Application requirements including, but 

not limited to, creditworthiness and 

other requirements. 

(c) Qualified Issuer responsibilities. 

The responsibilities of a Qualified Issuer 

shall include, but are not limited to: 

(1) Preparing and submitting the 

Guarantee Application on behalf of 

Eligible CDFI applicants that designated 

it to serve as Qualified Issuer, including 

providing any additional information 

needed for review by the CDFI Fund; 


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(2) During the CDFI Fund’s review 

and evaluation of the Guarantee 

Application, serving as primary point of 

contact between the CDFI Fund and the 

Eligible CDFI applicants that designated 

the Qualified Issuer to serve on their 

behalf; 

(3) Issuing the Bond for purchase by 

the Bond Purchaser; 

(4) Making Bond Loans to Eligible 

CDFIs, ensuring that 100 percent of 

Bond Proceeds are used to make Bond 

Loans; 

(5) Charging interest on the Bond 

Loans as set forth in this interim rule 

and Bond Loan documents, and 

providing for such a schedule of 

repayment of Bond Loans as will, upon 

the timely repayment of the Bond 

Loans, provide adequate and timely 

funds for the payment of principal and 

interest on the Bonds; 

(6) During the duration of the Bonds 

and the Bond Loans, serving as primary 

point of contact between the CDFI Fund 

and Eligible CDFIs; 

(7) Overseeing the work of, or serving 

in the capacity of, the Program 

Administrator and Servicer; 

(8) Enforcing the terms and 

requirements of the Bond Trust 

Indenture including, but not limited to: 

ensuring the repayment of Bond Loans 

in a timely manner pursuant to the 

terms of Bond Loan documents; 

assigning delinquent Bond Loans to the 

Guarantor upon demand by the CDFI 

Fund or the Guarantor; and ensuring 

that the Master Servicer/Trustee 

establishes and maintains the RiskShare Pool throughout the term of the 

Guarantee; 

(9) Reviewing collateral and Credit 

Enhancement requirements for each 

Bond Loan and providing information 

on such collateral and Credit 

Enhancement, as requested, to the CDFI 

Fund; 

(10) Making payment of the Agency 

Administrative Fee to the CDFI Fund; 

(11) Submitting all required reports 

and additional documentation 

(including reconciling financial data 

and Capital Distribution Plan updates, 

as necessary); and 

(12) Such other duties and 

responsibilities as the CDFI Fund, the 

Guarantor, or the Bondholder may 

require. 

(d) Bond Issuance Fees. The Qualified 

Issuer may charge Bond Issuance Fees 

and all fees reasonable and necessary for 

administering and servicing the Bonds 

or the Bond Loans, post issuance, to 

Eligible CDFIs. 

(e) Restriction. A Qualified Issuer may 

not receive a Bond Loan under any 

Bond Issuance for which it serves as a 

Qualified Issuer. 

§ 1808.201 Designated Bonding Authority. 

(a) General. In its sole discretion, the 

CDFI Fund may solicit Qualified Issuer 

Applications from entities proposing to 

serve as the Designated Bonding 

Authority (DBA). The CDFI Bond 

Guarantee Program shall only have one 

DBA at any given time. In order to be 

selected to serve as the DBA, the entity 

must meet all qualifications of a 

Qualified Issuer set forth in section 

1808.200 of this interim rule; additional 

qualifications may be set forth in the 

applicable NOGA as determined by the 

CDFI Fund. 

(b) Selection. The DBA will serve as 

a CDFI Fund-selected Qualified Issuer 

and designated Qualified Issuer for 

Eligible CDFIs that do not elect to 

designate another Qualified Issuer. The 

DBA will prepare and submit a 

Guarantee Application on behalf of such 

Eligible CDFI applicants, in accordance 

with such criteria set forth in this 

interim rule, the applicable Notice of 

Guarantee Availability and the 

Qualified Issuer Application. 

§ 1808.202 Eligible CDFIs. 

Each Eligible CDFI applicant seeking 

a Bond Loan must meet the following 

criteria: 

(a) Be certified by the CDFI Fund as 

meeting the eligibility requirements set 

forth in 12 CFR 1805.201; 

(b) Have the appropriate expertise, 

capacity, and experience, or otherwise 

be qualified to use the proceeds of Bond 

Loans for Eligible Purposes; and 

(c) Meet such other criteria and 

requirements set forth in the applicable 

Notice of Guarantee Availability, the 

Guarantee Application, the Bond Loan 

Requirements, related Bond and Bond 

Loan documents, and such other 

requirements of the CDFI Fund. 

Subpart C—Interest Rates; Terms and 

Conditions of Bonds, Bond Loans, and 

Secondary Loans 

§ 1808.300 Interest rates. 

(a) Interest rates. (1) A Bond Rate will 

be established by the Bond Purchaser as 

of the date of the respective advance of 

funds, as provided in the Bond. The 

Bond Rate for each advance of funds 

must be fixed and consistent with 

Federal credit policies outlined in OMB 

Circular A–129. The FFB, as Bond 

Purchaser, will set rates to the borrower 

pursuant to section 6(b) of the Federal 

Financing Bank Act (12 U.S.C. 2285(b)) 

and the FFB Lending Policy. This rate 

will be indexed to the appropriate 

Treasury rate based on the Treasury 

yield curve and include a spread to be 

determined by the Bond Purchaser; 

variable Bond Rates are not permitted. 

(2) Interest on each advance of funds 

under a Bond shall be computed as 

provided in the Bond. 

(3) A principal and interest payment 

schedule will be determined and 

provided to the Qualified Issuer for each 

advance of funds under a Bond, based 

on the Bond Rate established for the 

respective advance. The final principal 

and interest payment schedule for 

amounts due under a Bond will be the 

aggregation of the individual principal 

and interest payment schedules for all 

advances of funds under the Bond. 

(4) The Bond Loan Rate shall be the 

same as the Bond Rate on the particular 

advance of funds under the Bond that 

funds the Bond Loan. 

(5) The rate of interest for each 

Secondary Loan shall be established by 

the Eligible CDFI in accordance with 

subsection 1808.307(c), and may be 

subject to limitations specified in the 

applicable NOGA. 

(b) Bond Loan payment default 

interest rate. In the event of a payment 

default on a Bond Loan, the Eligible 

CDFI shall pay interest on any overdue 

amount from its due date to the date of 

actual payment at the Bond Loan 

Payment Default Rate. The Bond Loan 

Payment Default Rate shall be 

calculated in the same manner as a late 

charge is calculated under the 

underlying Bond. 

§ 1808.301 Eligible uses of Bond 

Proceeds. 

Bond Proceeds must be used by a 

Qualified Issuer to finance Bond Loans 

or Refinance loans to Eligible CDFIs for 

Eligible Purposes as defined in section 

1808.102 of this interim rule. A 

Qualified Issuer that is also a Certified 

CDFI may not finance a Bond Loan to 

itself or refinance its own loan. One 

hundred percent of the principal 

amount of each Bond must be used to 

make Bond Loans. As a Bond Loan is 

repaid, such repaid Bond Loan proceeds 

in excess of those required for debt 

service payments on the Bond must be 

used to repay the Bond or held in the 

Relending Account and used for 

additional Secondary Loans, to the 

extent authorized under § 1808.308. 

§ 1808.302 Bond terms and conditions. 

(a) Maturity date. As required by 12 

U.S.C. 4713a(e)(1)(D), the maturity date 

of a Bond shall not be later than 30 

years after the Bond Issue Date. The 

maturity date for any advance of funds 

under a Bond shall not be later than the 

maturity date of the Bond. 

(b) Nonrecourse obligation. Each 

Bond shall be a nonrecourse obligation 

of the Qualified Issuer, payable solely 


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8316 Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Rules and Regulations 

from amounts available pursuant to the 

Bond Documents. 

(c) Terms. The Bonds may contain 

only terms that are consistent with the 

lending policies and terms of the Bond 

Purchaser. 

(d) No subordination. The Bonds or 

Bond Loans may not be subordinated to 

any new or existing liability and 

effective subordination of the Bonds or 

Bond Loans to tax-exempt obligations 

will render the Guarantee void, in 

accordance with OMB Circular No. A– 

129 (Policies for Federal Credit 

Programs and Non-Tax Receivables) and 

applicable provisions of the Internal 

Revenue Code. 

(e) Other limitations. The CDFI Fund 

may impose other limitations as 

appropriate to administer the CDFI 

Bond Guarantee Program including, but 

not limited to, requiring Qualified 

Issuers to obtain Credit Enhancement to 

safeguard against the risk of default. 

(f) Terms for Bond issuance and 

disbursement of Bond Proceeds. (1) The 

Qualified Issuer must execute Bond 

Loan documents for 100 percent of the 

principal amount of each Bond on the 

Bond Issue Date. There will be an 

annual assessment to determine 

whether the Qualified Issuer is subject 

to the repayment provision established 

in 12 U.S.C. 4713a(c)(4). Terms and 

conditions for the annual assessment 

will be set forth in the applicable Notice 

of Guarantee Availability. 

(2) Disbursements of Bond Proceeds 

to the Qualified Issuer shall be made 

pursuant to an advance request process 

established by the Bond Purchaser and 

the CDFI Fund under which the 

Qualified Issuer shall request an 

advance of funds under a Bond. 

(g) Amortization of Bond. The 

principal amount of each advance of 

funds under a Bond shall amortize in 

level debt service payments of principal 

and interest, which payments shall be 

due either quarterly or semi-annually, as 

determined by the Qualified Issuer and 

the Bond Purchaser, and which shall 

begin on the first principal payment 

date specified in the Bond, as 

determined by the Qualified Issuer and 

the Bond Purchaser. Prior to the first 

principal payment date, interest accrued 

shall be due on the payment dates 

specified in the Bond, as determined by 

the Qualified Issuer and the Bond 

Purchaser. 

(h) Optional prepayment of Bonds. 

All or a portion of any advance of funds 

under a Bond, or the Bond in its 

entirety, may be prepaid by the 

Qualified Issuer at any time. Any partial 

prepayment of an advance shall be in an 

amount equal to at least $100,000 of 

principal. Each partial prepayment of an 

advance of funds under a Bond shall be 

applied in the manner set forth in the 

Bond. Any partial or full prepayment of 

an advance of funds under a Bond shall 

be subject to the payment of a 

prepayment price, as provided in the 

Bond Documents. 

(i) Mandatory prepayment of Bonds. 

(1) Any Bond shall be subject to 

mandatory prepayment if Bond Loans or 

Secondary Loans are not made in a 

timely manner, as follows: 

(i) On the Calculation Date (as defined 

in subsection 1808.308(e)) of each year, 

any amount retained in the Relending 

Subaccount that exceeds the Relending 

Subaccount Maximum (as defined in 

subsection 1808.308(d)) by $100,000 or 

more shall be applied to prepay Bonds 

on the next succeeding payment date. 

(ii) Any amounts derived from the 

liquidation of collateral from the Bond 

Loan and/or Secondary Loan in 

connection with the exercise by the 

Guarantor, the Qualified Issuer or the 

Bondholder of remedies upon default of 

the Bond Loan shall be applied, 

immediately upon liquidation, in the 

following order (inclusive of reasonable 

fees and expenses associated therewith): 

(A) To the repayment of any amounts 

drawn under the Guarantee; 

(B) To the prepayment of Bonds, in a 

like amount; 

(C) To the replenishment of any funds 

drawn from the Risk-Share Pool Fund; 

and 

(D) To the Eligible CDFI for 

application in accordance with the 

Secondary Loan documents. 

(2) When an amount is required to be 

applied as a mandatory prepayment of 

Bonds, the Qualified Issuer may select 

which advances of funds under a Bond 

are to be prepaid. Any amount applied 

as a partial prepayment of an advance 

under a Bond shall be applied as 

provided in the Bond. Any partial or 

full prepayment of an advance of funds 

under a Bond shall be subject to the 

payment of a prepayment price, as 

provided in the Bond Documents. 

§ 1808.303 Risk-Share Pool. 

The Master Servicer/Trustee, on 

behalf of the Qualified Issuer and for the 

benefit of the Bondholder, shall 

establish a Risk-Share Pool that is 

funded at each disbursement of the 

Bond Loan proceeds by payment from 

each Eligible CDFI in accordance with 

12 U.S.C. 4713a(d). The Risk-Share Pool 

must remain in place throughout the 

term of the Guarantee. Amounts in the 

Risk Share Pool Fund will not be 

returned to Eligible CDFIs until maturity 

of all of the Bonds, and termination of 

all of the Bond Loans, within a Bond 

Issue. 

(a) At each disbursement of the Bond 

Loan proceeds, each Eligible CDFI shall 

deposit an amount that is equal to three 

percent of the disbursement, for a total 

of three percent of the guaranteed 

amount outstanding of the Bond, from 

monies other than Bond Loan proceeds, 

into the applicable subaccount of the 

Risk-Share Pool Fund. Such monies 

shall remain in said account throughout 

the term of the Bond. 

(b) Any interest on a Bond Loan in 

excess of the Bond Loan Rate derived by 

the Qualified Issuer during any period 

during which the Bond Loan Payment 

Default Rate applies shall also be 

deposited in the Risk-Share Pool Fund. 

(c) The Risk-Share Pool Fund shall be 

applied by the Master Servicer/Trustee 

to payments of debt service on the Bond 

Issue in the event that the Eligible CDFI 

defaults in the corresponding payment 

of debt service on the Bond Loan. The 

defaulted Eligible CDFI’s deposit shall 

be applied first to any such payment of 

debt service. After depletion of the 

defaulted Eligible CDFI’s deposit, each 

remaining Eligible CDFI’s deposit shall 

be applied prorata to any such payment 

of debt service. Monies on deposit in the 

Risk-Share Pool Fund shall be applied 

to such payments and shall be depleted 

in full prior to any draw on the 

Guarantee. 

(d) Eligible CDFIs (excluding the 

Eligible CDFI in default and responsible 

for a draw) shall not be required to 

replenish the Risk-Share Pool Fund in 

the event of a draw. 

(e) The Risk Share Pool deposit shall 

be sufficient collateral to secure any 

draw on Bond Loan proceeds related to 

the costs of issuance pursuant to 

1808.304(b). 

(f) In the event of a payment default 

on the Bond Loan by an Eligible CDFI, 

the Qualified Issuer shall notify the 

CDFI Fund and request permission to 

draw from the Risk-Share Pool to cover 

any default of principal and interest 

payments due to the Bond Purchaser. 

(g) Amounts in the Risk Share Pool 

Fund will not be returned to Eligible 

CDFIs until maturity of all of the Bonds, 

and termination of all of the Bond 

Loans, within a Bond Issue. Upon 

maturity of all of the Bonds, and 

termination of the Bond Loans, within 

a Bond Issue, the pro rata amount of 

each Eligible CDFI’s payments in the 

Risk-Share Pool shall be returned to 

each Eligible CDFI; provided however, 

that such Eligible CDFI has properly 

replenished any draws on the RiskShare Pool attributed to nonpayment of 

its Bond Loan and the corresponding 

Bond. 


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§ 1808.304 Eligible uses of Bond Loan 

proceeds. 

(a) Eligible uses. Bond Loan proceeds 

shall be only used for Eligible Purposes, 

to prefund one monthly installment of 

Bond Loan payments, and to pay Bond 

Issuance Fees. As a Bond Loan is repaid, 

such repaid Bond Loan proceeds must 

be held in the Relending Account and 

used for additional Secondary Loans, to 

the extent authorized under § 1808.308. 

(b) Bond Issuance Fees. (1) Amounts 

not to exceed one percent of Bond Loan 

proceeds may be applied to pay Bond 

Issuance Fees. Bond Loan proceeds that 

are used to pay Bond Issuance Fees 

shall be applied in the following order 

of priority: 

(i) To pay reasonable transaction fees 

and expenses of the Qualified Issuer, its 

advisors and consultants, related to the 

Bond issuance (but not including any 

salaries or administrative costs of the 

Qualified Issuer unrelated to the Bond 

issuance); 

(ii) To pay reasonable transaction fees 

and expenses of the Master Servicer/ 

Trustee, its advisors and consultants, 

related to the Bond issuance; and 

(iii) To pay reasonable transaction 

fees and expenses of the Eligible CDFI, 

its advisors and consultants, related to 

the making of the Bond Loan. 

(2) Any fees and expenses arising out 

of each transaction which, in the 

aggregate, exceed the one percent limit 

on Bond Issuance Fees payable from 

Bond Loan proceeds must be paid by 

the Eligible CDFI from monies other 

than Bond Loan proceeds. 

(c) Prefunding of Bond Loan 

payments. Bond Loan proceeds may be 

used to prefund one monthly 

installment of Bond Loan payments. 

§ 1808.305 Bond Loan terms and 

conditions. 

(a) Maturity date. The maturity date of 

a Bond Loan shall not be later than 30 

years after the Bond Issue Date. The 

maturity date of Bond Loans may be 

earlier than, but may not be later than, 

the maturity date of the corresponding 

Bond. 

(b) Bond Loan general recourse 

obligation; Collateral. (1) The Bond 

Loan shall be a general recourse 

obligation of the Eligible CDFI. 

(2) The Bond Loan shall be further 

secured by a first lien of the Master 

Servicer/Trustee, on behalf of the 

Bondholder, on: 

(i) The Trust Estate; 

(ii) Qualified Secondary Loan 

Receivables; and 

(iii) Either: 

(A) An assignment of the Secondary 

Loan collateral (other than a Principal 

Loss Collateral Provision) from the 

Eligible CDFI to the Master Servicer/ 

Trustee; or 

(B) Provision of a Principal Loss 

Collateral Provision for the benefit of 

the Master Servicer/Trustee, in 

accordance with the Bond Loan 

Requirements and the Secondary Loan 

Requirements, as applicable. 

(3) The CDFI Fund may, in its sole 

discretion, approve alternative forms of 

Bond Loan collateral. 

(4) A parity first lien on pledged 

collateral may be accepted, in the sole 

discretion of the CDFI Fund. 

(5) If any collateral becomes nonperforming during the term of the Bond 

Loan, the Guarantor may require the 

applicable Eligible CDFI to substitute 

other collateral that is of equal quality 

to the initial collateral, when 

performing, acceptable to the Guarantor 

in its sole discretion. 

(6) An Eligible CDFI’s parent 

organization, Affiliate, or an entity that 

is related to the Eligible CDFI through 

its management structure, may assume 

limited recourse obligation for the Bond 

Loan if it provides Credit Enhancement 

and/or pledges financial resources or 

such other financial support or risk 

mitigation that would enhance the 

Eligible CDFI’s creditworthiness and its 

ability to repay the Bond Loan, thereby 

decreasing the risk underlying the 

Guarantee. 

(c) Disbursement of Bond Loan 

proceeds. (1) Bond Loans shall be drawdown loans. Disbursements of Bond 

Loan proceeds to the Eligible CDFI shall 

be made pursuant to a requisition 

process established by the Bond 

Purchaser and the CDFI Fund, which 

shall include a process by which the 

Qualified Issuer shall request an 

advance from the Bondholder under the 

Bond and a process by which the 

Eligible CDFI shall request 

disbursement from the Qualified Issuer. 

(2) Each requisition shall be 

accompanied by invoices and 

certifications by the Eligible CDFI (and 

the Secondary Borrower, if applicable) 

as to expenditure of proceeds for 

Eligible Purposes. 

(3) No Bond Loan proceeds may be 

disbursed later than 60 months after the 

Bond Issue Date. Any Bond Loan 

proceeds not disbursed will have been 

forfeited by the Eligible CDFI. 

(4) Disbursements to capitalize the 

Eligible CDFI’s Loan Loss Reserves shall 

be made pursuant to a requisition 

process established by the Qualified 

Issuer and the CDFI Fund. 

(d) Amortization of Bond Loan. Each 

Bond Loan shall amortize in the same 

manner as the corresponding Bond; 

provided that principal and/or interest 

on each Bond Loan shall be payable to 

the Qualified Issuer in monthly 

installments based on the required 

quarterly or semi-annual installments, 

as applicable, due on the corresponding 

Bond; provided further, that each 

Eligible CDFI shall prefund one monthly 

payment installment not later than the 

thirtieth day prior to the first payment 

date of the corresponding Bond so that 

on the thirtieth day prior to such Bond 

payment date, the Eligible CDFI shall 

have paid in full all amounts due on the 

Bond payment date. 

(e) Optional prepayment of Bond 

Loan. The Bond Loan shall be subject to 

prepayment, in whole or in part, at the 

option of the Eligible CDFI in 

accordance with the optional 

prepayment provisions of the 

corresponding Bond (including the 

required prepayment minimums of 

$100,000) and shall be subject to the 

payment of a prepayment price, as 

determined by the Bondholder in 

accordance with the corresponding 

Bond. 

(f) Mandatory prepayment of Bond 

Loan. The Bond Loan shall be subject to 

mandatory prepayment by the Eligible 

CDFI in accordance with the mandatory 

prepayment provisions of the 

corresponding Bond. 

§ 1808.306 Conditions precedent to Bond 

and Bond Loan. 

The ability of the Qualified Issuer to 

issue a Bond and make a Bond Loan 

shall be subject to the satisfaction of the 

following conditions precedent: 

(a) Evidence satisfactory to the 

Qualified Issuer that the Eligible CDFI 

will comply with the terms and 

conditions of the Bond Loan documents, 

including repayment of the Bond Loan; 

(b) Evidence satisfactory to the 

Qualified Issuer, the Guarantor, and the 

CDFI Fund that the Eligible CDFI has 

the authority to enter into the Bond 

Loan, has secured the Credit 

Enhancement, if any, demonstrated a 

reasonable prospect of repayment of the 

Bond Loan, and pledged the collateral 

(including executed security 

documents, UCC–1 financing statements 

or mortgages, as applicable); 

(c) A Guarantee Application that has 

been approved by the Guarantor; 

(d) A satisfactory credit review by the 

CDFI Fund and in compliance with the 

Bond Loan Requirements, including 

submission of complete and accurate 

Guarantee Application materials, 

submitted in a timely manner, 

demonstrating the Eligible CDFI’s ability 

to repay the Bond Loan; 

(e) Opinions of legal counsel to the 

Qualified Issuer and the Eligible CDFI; 

(f) Executed Bond Loan documents; 


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8318 Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Rules and Regulations 

(g) Organizational documents of the 

Eligible CDFI; 

(h) Certifications by the Qualified 

Issuer and Eligible CDFIs that Bond 

Proceeds and Bond Loan proceeds will 

not be used for lobbying by recipients of 

Federal loans or guarantees; 

(i) A statement that no default, event 

of default, or due and unsatisfied 

liability has occurred and is continuing 

with respect to any obligations of the 

Qualified Issuer and each Eligible CDFI 

to the CDFI Fund, the Guarantor, the 

Bond Purchaser, the U.S. Internal 

Revenue Service, or any other agency, 

authority or instrumentality of the 

Federal Government; and 

(j) Any other conditions precedent set 

forth in the Bond Loan documents, 

including documentation that any credit 

enhancements have been secured by the 

Eligible CDFI. 

§ 1808.307 Secondary Loan Eligible 

Purposes; Terms and conditions. 

(a) Eligible Purposes. Eligible CDFIs 

must make Secondary Loans for Eligible 

Purposes. Secondary Loan proceeds 

may not be used to capitalize loan loss 

reserves. 

(b) Making Secondary Loans. (1) If the 

Eligible CDFI uses Bond Loan proceeds 

to make Secondary Loans, the Eligible 

CDFI must execute Secondary Loan 

documents (in the form of promissory 

notes) with Secondary Borrowers as 

follows: 

(i) Not later than 12 months after the 

Bond Issue Date, Secondary Loan 

documents representing at least 50 

percent of the Eligible CDFIs’ Bond 

Loan proceeds allocated for Secondary 

Loans; and 

(ii) Not later than 24 months after the 

Bond Issue Date, Secondary Loan 

documents representing 100 percent of 

the Eligible CDFIs’ Bond Loan proceeds 

allocated for Secondary Loans 

(excluding any amounts used for 

payment of Bond Issuance Fees 

pursuant to section 1808.304(b)). 

(2) In the event that the Eligible CDFI 

does not comply with the foregoing 

requirements of paragraphs (b)(1)(i) and 

(ii) of this section, the available Bond 

Loan proceeds at the end of the 

applicable period shall be reduced by an 

amount equal to the difference between 

the amount required by paragraphs 

(b)(1)(i) and (ii) minus the amount 

previously committed to the Secondary 

Loans in the applicable period. 

Consistent with the corresponding Bond 

Loan, the Secondary Loans shall be 

drawn down by the Secondary 

Borrowers upon demonstration of an 

Eligible Purpose. 

(c) Secondary Loan interest rate. The 

rate of interest with respect to each 

Secondary Loan shall be determined by 

each Eligible CDFI in accordance with 

the following limitations: 

(1) With respect to each Secondary 

Loan, the Eligible CDFI will be required 

to propose to the CDFI Fund: 

(i) A minimum and maximum spread 

over the corresponding Bond Loan Rate 

which will represent the standard 

minimum and maximum interest rate 

(Minimum Secondary Loan Rate and 

Maximum Secondary Loan Rate, 

respectively); and 

(ii) A maximum spread over the 

Maximum Secondary Loan Rate in event 

of a Secondary Loan default (Maximum 

Secondary Loan Default Spread). 

(2) The CDFI Fund reserves the right 

to evaluate, approve, modify, or 

disapprove the proposed Minimum 

Secondary Loan Rate, Maximum 

Secondary Loan Rate, and Maximum 

Secondary Loan Default Spread before 

approving any Guarantee Application. 

(d) Secondary Loan default rate. The 

Eligible CDFI may charge a default rate 

on the Secondary Loan so long as such 

rate does not exceed the Maximum 

Secondary Rate, plus the Maximum 

Secondary Loan Default Spread. 

(e) Secondary Loan maturity. The 

maturity date with respect to the 

Secondary Loan shall be in accordance 

with the requirements of the applicable 

Secondary Loan Requirements. The 

maturity date of Secondary Loans may 

be earlier than, but may not be later 

than, the maturity date of the 

corresponding Bond. 

(f) Secondary Loan collateral. (1) The 

Secondary Loan shall be payable from 

amounts made available pursuant to the 

Secondary Loan documents, and 

secured by: 

(i) A first lien of the Eligible CDFI on 

pledged collateral in an amount that is 

consistent with the loan-to-value ratio 

requirements set forth in the Secondary 

Loan Requirements; or 

(ii) A Principal Loss Collateral 

Provision for the benefit of the Master 

Servicer/Trustee, in accordance with the 

Bond Loan Requirements and the 

Secondary Loan Requirements, as 

applicable. 

(2) Qualified Secondary Loan 

Receivables may be used as collateral; 

provided however, that such collateral 

is secured by a first lien on the 

Secondary Loan collateral in accordance 

with the Bond Loan Requirements and 

the Secondary Loan Requirements, as 

applicable. 

(3) A parity first lien on pledged 

collateral may be accepted, in the sole 

discretion of the CDFI Fund. 

(g) Commitments for Secondary 

Loans. Each proposed Secondary Loan 

shall be approved by the credit 

committee of the Eligible CDFI or its 

equivalent, in accordance with the 

applicable Secondary Loan 

Requirements and the Eligible CDFI’s 

own underwriting requirements. 

(h) Disbursement of Secondary Loan 

proceeds. (1) Consistent with the 

corresponding Bond Loan, Secondary 

Loans shall be draw-down loans. 

Disbursements of Secondary Loan 

proceeds to the Secondary Borrower 

shall be made pursuant to a requisition 

process established by the Qualified 

Issuer and the CDFI Fund and shall 

mirror the requirements for the 

disbursement of Bond Proceeds. 

(2) Each requisition shall be 

accompanied by invoices and 

certifications by the Secondary 

Borrower as to expenditure of proceeds 

for Eligible Purposes. The Eligible CDFI 

must also attest that the Secondary Loan 

conforms to the requirements set forth 

in the applicable Secondary Loan 

Requirements. In the case of 

Refinancings, the Eligible CDFI must 

also attest that the original loan was 

used for an Eligible Purpose. 

(3) Secondary Loan proceeds shall be 

disbursed in accordance with the 

applicable Secondary Loan 

Requirements which shall set forth, 

among other requirements, that 

Secondary Loan disbursements shall be 

made in accordance with commercially 

reasonable standards and timeframes for 

disbursement based on the nature of the 

Eligible Purposes. The Secondary Loan 

Requirements shall also specify what 

constitutes a commercially reasonable 

timeframe for disbursement in 

connection with specific types of 

Eligible Purposes. Notwithstanding the 

foregoing, each Eligible CDFI shall 

propose a timeframe for disbursement in 

connection with each Secondary Loan, 

which timeframe shall be subject to the 

requirements set forth in the Secondary 

Loan Requirements. 

(i) Amortization of Secondary Loans. 

Secondary Loans shall amortize as 

determined by the Eligible CDFI; 

provided that Secondary Loan 

amortization installments shall conform 

to the requirements of the applicable 

Secondary Loan Requirements. 

(j) Prepayment of Secondary Loans. 

Secondary Loans shall be subject to 

prepayment as determined by the 

Eligible CDFI; provided that the 

Secondary Loan documents may 

provide for modification of Secondary 

Loan terms (so long as such 

modification does not affect the 

corresponding Bond or Bond Loan) and 

shall provide for mandatory prepayment 

of the Secondary Loan from liquidation 

of collateral upon the exercise of default 

remedies by the Eligible CDFI, the 


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Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Rules and Regulations 8319 

Qualified Issuer or the Guarantor as 

required by the Bond, the Bond Loan 

documents, or the Agreement to 

Guarantee, as applicable. 

(k) Repayment of Secondary Loans. 

As Secondary Loans are repaid, the 

Eligible CDFI may, through the 

Relending Fund, Refinance and 

substitute as collateral for the Bond 

Loan other loan(s) for Eligible Purposes 

that meet the required Secondary Loan 

Requirements, provided that the Eligible 

CDFI makes Bond Loan payments as 

required. If the outstanding principal 

balance of the Bond Loan exceeds the 

outstanding principal balance of the 

Bond Loan in use for the Eligible 

Purposes, the Eligible CDFI shall repay 

the difference, which shall be deposited 

in the Relending Account, and credited 

to the corresponding Relending 

Subaccount. 

§ 1808.308 Relending Fund; Relending 

Account. 

(a) General. As Bond Loans are repaid, 

such amounts in excess of those 

required for debt service payments on 

the Bonds may be held in the Relending 

Account and used for additional 

Secondary Loans, to the extent 

authorized in this section. 

(b) Application of funds to Secondary 

Loans. Amounts on deposit in the 

Relending Account shall be applied by 

the Eligible CDFI to make additional 

Secondary Loans, the term of which 

shall not exceed the maturity of the 

Bond. 

(c) Requirements of Secondary Loans 

from Relending Account. Secondary 

Loans made from the Relending 

Account shall meet all the requirements 

of the Secondary Loan Requirements, 

and conform to the following additional 

conditions: 

(1) The Qualified Issuer has received 

and approved a Bond Loan commitment 

request submitted by the Eligible CDFI; 

(2) No material event has occurred 

and is continuing or is threatened at the 

Eligible CDFI level or Qualified Issuer 

level that adversely affects the Eligible 

CDFI, the Bond or the Bond Loan; 

(3) No Eligible CDFI event of default 

has occurred and is continuing with 

respect to the Bond Loan; 

(4) No Qualified Issuer event of 

default has occurred and is continuing 

with respect to the Bond; 

(5) There exists no unreplenished 

draw on the Risk-Share Pool Fund by 

the Eligible CDFI; 

(6) The maturity of Secondary Loans 

made from the Relending Fund shall not 

extend beyond the maturity date of the 

corresponding Bond; and 

(7) Any other conditions set forth in 

this interim rule, the applicable Notice 

of Guarantee Availability, the Secondary 

Loan Requirements or the Bond Loan 

documents. 

(d) Relending Subaccounts. The 

balance of each subaccount of the 

Relending Fund (each a Relending 

Subaccount) shall not equal more than 

10 percent of the principal amount 

outstanding of the Bond Loan, minus 

the prorata share of the Risk-Share Pool, 

as of the Calculation Date (the 

Relending Subaccount Maximum). 

(e) Notification Date. For purposes of 

this section, Notification Date means the 

date on which the Master Servicer/ 

Trustee notifies the Eligible CDFI that 

the balance in the applicable Relending 

Subaccount exceeds the applicable 

Relending Subaccount Maximum. 

Calculation Date means, following the 

Notification Date, the earlier of: 

(1) The date on which the balance in 

such Relending Subaccount becomes 

less than or equal to the applicable 

Relending Subaccount Maximum, or 

(2) Six months following the 

Notification Date. 

(f) Mandatory redemption. Any 

amounts retained in the Relending 

Subaccount that exceeds the Relending 

Subaccount Maximum by $100,000 or 

more as of the applicable Calculation 

Date shall be transferred to the 

Redemption Account of the Debt 

Service Fund (as defined in 

§ 1808.606(f)) to effectuate a mandatory 

redemption of the corresponding Bond 

in accordance with the terms of the 

Bond Trust Indenture. The 

determination of the actual amount on 

deposit on any Calculation Date shall 

exclude amounts then obligated 

pursuant to any executed promissory 

notes, whether then disbursed or 

undisbursed. 

§ 1808.309 Restrictions on uses of Bond 

Proceeds and Bond Loan proceeds. 

Pursuant to 12 U.S.C. 47123a(c)(5), 

Bond Loan proceeds shall not be used 

for: 

(a) Political activities; 

(b) Lobbying, whether directly or 

through other parties; 

(c) Outreach; 

(d) Counseling services; 

(e) Travel expenses; 

(f) For the salaries or administrative 

costs of the Qualified Issuer or any 

recipients of Bond Proceeds, other than 

those costs covered by Bond Issuance 

Fees; 

(g) To fund the Risk-Share Pool; 

(h) To pay fees other than Bond 

Issuance Fees; or 

(i) Any other use as may be specified 

in the applicable Notice of Guarantee 

Availability. 

Subpart D—Applications for Guarantee 

and Qualified Issuer 

§ 1808.400 Notice of Guarantee 

Availability. 

Interested parties will be invited to 

submit Qualified Issuer Applications 

and Guarantee Applications in 

accordance with this interim rule and 

the applicable Notice of Guarantee 

Availability. The NOGA will set forth 

application and eligibility requirements 

for an entity that wishes to be 

designated as a Qualified Issuer 

(including, in the CDFI Fund’s sole 

discretion, the Designated Bonding 

Authority) and a Qualified Issuer that 

wishes to be approved to receive a 

Guarantee. The NOGA may also contain 

eligibility requirements, application 

procedures, and additional terms and 

conditions for entities wishing to serve 

as Servicers, Program Administrators, 

and other roles as may be determined by 

the CDFI Fund. The NOGA will advise 

interested parties on how to apply and 

will establish criteria, deadlines, and 

other Qualified Issuer and Guarantee 

Application requirements, including 

specifying any additional terms and 

conditions, limitations, special rules, 

procedures, and restrictions for a given 

application period. 

§ 1808.401 Application requirements. 

(a) Qualified Issuer Application. A 

Qualified Issuer applicant shall provide 

all required information in its Qualified 

Issuer Application to establish that it 

meets all criteria for designation as a 

Qualified Issuer and can carry out all 

Qualified Issuer responsibilities and 

requirements including, but not limited 

to, information that demonstrates that 

the applicant has the appropriate 

expertise, capacity, and experience and 

is qualified to make, administer and 

service Bond Loans for Eligible 

Purposes. After receipt of a Qualified 

Issuer Application, the CDFI Fund may 

request additional information and 

clarifying or technical information on 

the materials submitted as part of the 

Qualified Issuer Application. The CDFI 

Fund will provide the template for the 

Qualified Issuer Application. 

(b) Guarantee Application. (1) A 

Qualified Issuer shall provide all 

required information in its Guarantee 

Application to establish that it meets all 

criteria set forth in this interim rule to 

receive a Guarantee and can carry out 

all Guarantee requirements including, 

but not limited to, information that 

demonstrates that the Qualified Issuer 

has the appropriate expertise, capacity, 

and experience and is qualified to make, 

administer and service Bond Loans for 

Eligible Purposes. The Guarantee 


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8320 Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Rules and Regulations 

Application shall include a Capital 

Distribution Plan and a Secondary 

Capital Distribution Plan for each 

potential Eligible CDFI, as well as any 

other requirements set forth in the 

applicable Notice of Guarantee 

Availability or as may be required by 

the CDFI Fund in its sole discretion for 

the evaluation and selection of 

Guarantee applicants. After receipt of a 

Guarantee Application, the CDFI Fund 

may request additional information and 

clarifying or technical information on 

the materials submitted as part of the 

Guarantee Application. The CDFI Fund 

will provide the template for the 

Guarantee Application. 

(2) The Capital Distribution Plan shall 

include, but not be limited to, the 

following information: 

(i) Statement of Proposed Sources and 

Uses of Funds; 

(ii) For the Qualified Issuer and each 

Certified CDFI seeking a Bond Loan, an 

organizational capacity statement, a 

plan that describes how the proposed 

Bond Loan will meet Eligible Purposes, 

and a description of Credit 

Enhancement, if any; 

(iii) A Secondary Capital Distribution 

Plan, if applicable; and 

(iv) Assurances and certifications that 

not less than 100 percent of the 

principal amount of Bonds will be used 

to make Bond Loans for Eligible 

Purposes beginning on the Bond Issue 

Date, and that Secondary Loans shall be 

made as set forth in subsection 

1808.307(b). 

Subpart E—Evaluation and Selection 

§ 1808.500 Evaluation of Qualified Issuer 

Applications. 

(a) General. Each Qualified Issuer 

Application will be evaluated by the 

CDFI Fund and, if acceptable, the 

applicant will be designated as a 

Qualified Issuer, at the sole discretion of 

the CDFI Fund. The Qualified Issuer 

Application review and evaluation 

process will be based on established 

standard operating procedures, which 

may include interviews of applicants 

and/or site visits to applicants 

conducted by the CDFI Fund. Through 

the application review process, the CDFI 

Fund will evaluate Qualified Issuer 

applicants on a merit basis and in a fair 

and consistent manner. Each Qualified 

Issuer applicant will be reviewed on its 

ability to successfully implement the 

activities proposed in its Qualified 

Issuer Application and carry out the 

responsibilities of a Qualified Issuer 

over the life of the Bond. The CDFI 

Fund will periodically reevaluate the 

Qualified Issuer over the life of the 

Bond to ensure it meets the performance 

standards over the life of the facilities. 

(b) Eligibility and completeness. A 

Qualified Issuer applicant will not be 

eligible to be designated as a Qualified 

Issuer if it fails to meet the eligibility 

requirements described in § 1808.200 of 

this part and the applicable NOGA, or 

if it has not submitted complete and 

timely Qualified Issuer Application 

materials. The CDFI Fund reserves the 

right to request additional information 

from the Qualified Issuer applicant, as 

the CDFI Fund deems appropriate. 

(c) Substantive review. When 

evaluating Qualified Issuer Applications 

and selecting applicants to be 

designated as Qualified Issuers, the 

CDFI Fund will apply the criteria set 

forth in the Act at 12 U.S.C. 4713a(a)(8), 

this interim rule, and the applicable 

NOGA including, but not limited to, the 

following evaluation factors: 

(1) The extent to which the Qualified 

Issuer Application demonstrates that the 

applicant possesses the appropriate 

expertise, capacity and experience, or 

other qualifications to manage the Bond 

Issue on the terms and conditions set 

forth in this interim rule and the 

applicable NOGA; 

(2) The expertise and experience of its 

Program Administrator and Servicers; 

(3) The Qualified Issuer applicant’s 

demonstrated performance of 

financially sound business practices 

relative to the industry norm for bond 

issuers, as evidenced by reports of 

Appropriate Federal Banking Agencies, 

Appropriate State Agencies, and/or 

auditors; 

(4) Information that demonstrates the 

applicant, its Program Administrator 

and Servicers have the appropriate 

expertise, capacity, and experience or 

otherwise be qualified to originate, 

underwrite, service and monitor loan 

portfolios that serve Eligible Purposes 

and are targeted toward Low-Income 

and Underserved Rural Areas; and 

(5) Such other criteria that the CDFI 

Fund deems appropriate for purposes of 

evaluating the merits of a Qualified 

Issuer Application. 

§ 1808.501 Evaluation of Guarantee 

Applications. 

(a) General. After being designated as 

a Qualified Issuer, the Qualified Issuer 

may submit a Guarantee Application, 

seeking authority to issue Bonds and 

receive a Guarantee on the proposed 

Bond Issue. A successful Guarantee 

Application must: 

(1) Demonstrate that the Qualified 

Issuer and the proposed Eligible CDFIs 

have a feasible plan to successfully 

repay the Bond (including principal, 

interest, and call premium) and Bond 

Loans according to their respective 

terms, to the satisfaction of the CDFI 

Fund; and 

(2) Meet any other requirements 

deemed appropriate by the CDFI Fund 

and the Guarantor. 

(b) Eligibility and completeness. A 

Qualified Issuer will not be eligible to 

receive a Guarantee if it fails to meet the 

eligibility requirements set forth in 

§ 1808.200 of this part and the 

applicable NOGA, or if it has not 

submitted complete and timely 

Guarantee Application materials. The 

CDFI Fund reserves the right to request 

additional information from the 

Qualified Issuer, or to reject a Guarantee 

Application as the CDFI Fund may 

deem appropriate. 

(c) Substantive review. In evaluating 

Guarantee Applications and selecting a 

Qualified Issuer to receive a Guarantee, 

the CDFI Fund and the Guarantor will 

apply the criteria set forth in this 

interim rule and the applicable NOGA 

including, but not limited to, the 

following evaluation factors: 

(1) The extent to which the Guarantee 

Application proposes strategies that 

demonstrate the Qualified Issuer’s 

ability to implement the Capital 

Distribution Plan; 

(2) The adequacy of proposed risk 

mitigation provisions designed to 

protect the financial interests of the 

Federal Government based on 

information that includes, but is not 

limited to: the amount and quality of 

any Credit Enhancements; the amount 

and quality of any other financial 

resources to be pledged or risk 

mitigation to be provided by an Affiliate 

to the Eligible CDFI through its 

management structure, that will assume 

limited obligation for the Bond Loan 

and enhance the Eligible CDFI’s 

creditworthiness and its ability to repay 

the Bond Loan; and the provision for an 

orderly retirement of principal; 

(3) The extent to which the Guarantee 

Application demonstrates that the 

Qualified Issuer possesses the 

appropriate expertise, capacity and 

experience, or other qualifications to 

manage the Bond Issue on the terms and 

conditions set forth in this interim rule 

and the applicable NOGA; 

(4) The Qualified Issuer’s 

demonstrated performance of 

financially sound business practices 

relative to the industry norm for bond 

issuers, as evidenced by financial audits 

and reports of Appropriate Federal 

Banking Agencies, Appropriate State 

Agencies, independent regulators, or 

auditors; 

(5) Information that demonstrates that 

the Qualified Issuer has the appropriate 

expertise, capacity, and experience or is 


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otherwise qualified to make, service and 

monitor Bond Loans; 

(6) The extent to which the proposed 

Bond Loans are likely to serve LowIncome Areas or Underserved Rural 

Areas; and 

(7) Such other criteria that the CDFI 

Fund and the Guarantor deem 

appropriate for purposes of evaluating 

the merits of a Guarantee Application. 

§ 1808.502 Evaluation of Designated 

Bonding Authority Applications. 

In addition to the evaluation criteria 

for Qualified Issuers set forth above, 

DBA applicants must demonstrate the 

existence of resources to perform 

functions of the DBA as set forth in 

section 1808.201 and meet any other 

criteria set forth in the applicable NOGA 

and that may be required by the CDFI 

Fund. 

§ 1808.503 Consultation with Appropriate 

Regulatory Agencies. 

In the case of any CDFI Bond 

Guarantee Program applicant that is a 

Federally regulated financial institution 

(or an Affiliate thereof), the CDFI Fund 

may consult with the Appropriate 

Federal Banking Agency or Appropriate 

State Agency prior to designating the 

applicant as a Qualified Issuer, Servicer, 

Master Servicer/Trustee, Program 

Administrator or other role, making a 

final Guarantee commitment, issuing a 

Guarantee, and/or entering into an 

Agreement to Guarantee. The CDFI 

Fund also reserves the right, in its sole 

discretion, to consult with the 

Appropriate Federal Banking Agency 

and Appropriate State Agency with 

respect to any Eligible CDFI that is 

proposed to receive a Bond Loan or any 

Secondary Borrower that is proposed to 

receive a Secondary Loan. 

§ 1808.504 Selection of Qualified Issuers; 

Approval for Guarantee. 

(a) General. Designation of an 

applicant as a Qualified Issuer shall be 

based on the foregoing evaluation 

criteria and processes, and any other 

requirements or processes that may be 

set forth in the applicable NOGA. An 

applicant may simultaneously apply for 

Qualified Issuer designation and a 

Guarantee; however, the entity must be 

designated as a Qualified Issuer before 

being selected to receive a Guarantee. 

(b) The Guarantor will determine 

whether a Qualified Issuer will be 

authorized to issue Bonds and receive a 

Guarantee based on the foregoing 

evaluation criteria and processes, and 

any other requirements or processes set 

forth in the applicable NOGA. 

(1) Not later than 30 days after receipt 

of a complete Guarantee Application (or 

30 days after designation as a Qualified 

Issuer, if submitting simultaneous 

applications) by a Qualified Issuer, the 

CDFI Fund shall provide an internal 

Department Opinion regarding 

compliance by the Qualified Issuer with 

the requirements of the CDFI Bond 

Guarantee Program. 

(2) The Guarantor shall approve or 

deny a Guarantee Application no later 

than 90 days after receipt of a complete 

Guarantee Application, and all other 

required information by the CDFI Fund 

or the Guarantor with respect to a 

request for such Guarantee. 

(c) The Guarantor may limit the 

number of Guarantees made per year or 

Guarantee Applications accepted to 

ensure that a sufficient examination of 

Guarantee Applications is conducted. 

(d) The CDFI Fund shall notify the 

Qualified Issuer in writing of the 

Guarantor’s approval or disapproval of a 

Guarantee Application. 

(e) The Guarantor reserves the sole 

discretion to approve a Guarantee 

Application for a Guarantee amount that 

is less than that which is requested. 

(f) In the event that there are material 

changes after submission of a Guarantee 

Application (including, but not limited 

to, a revision of the Capital Distribution 

Plan or a change in the Certified CDFIs 

that are proposed for receiving Bond 

Loans) prior to or after the designation 

as a Qualified Issuer or approval of a 

Guarantee Application or Guarantee, the 

Qualified Issuer or Guarantee applicant 

must notify the CDFI Fund of such 

material changes information in a timely 

and complete manner. The Guarantor 

will evaluate such material changes, 

along with the Guarantee Application, 

to approve or deny the Guarantee 

Application and/or determine whether 

to modify the terms and conditions of 

the Guarantee. 

Subpart F—Terms and Conditions of 

Guarantee 

§ 1808.600 Full faith and credit and 

incontestability of Guarantee. 

The full faith and credit of the Federal 

Government is pledged to the payment 

of all Bonds issued as part of a Bond 

Issue with respect to Verifiable Losses of 

Principal, Interest, and Call Premium. 

An executed Guarantee shall be 

conclusive evidence that: the Guarantee 

has been properly authorized; the 

underlying Bond qualified for such 

Guarantee; and, but for fraud or material 

misrepresentation, such Guarantee will 

be presumed to be legally valid, 

binding, and enforceable. 

§ 1808.601 Assignment and transfer of 

Guarantee. 

The Guarantee shall be fully 

assignable and transferrable to the 

capital markets, on terms and 

conditions that are consistent with 

comparable bonds guaranteed by the 

Federal Government and satisfactory to 

the Guarantor and the CDFI Fund. 

§ 1808.602 Offer of Guarantee. 

Upon approval of the Guarantee 

Application, the Qualified Issuer will 

receive from the Guarantor an offer of 

Guarantee that will set forth certain 

required terms and conditions to be 

fulfilled prior to issuance of the 

Guarantee. 

§ 1808.603 Issuance of Guarantee. 

(a) Conditions precedent. The 

commitment of the Guarantor to issue a 

Guarantee shall be subject to conditions 

precedent that are usual and customary 

for financings of this type or otherwise 

deemed appropriate by the Guarantor 

including, but not limited to, the 

following: 

(1) The conditions precedent to the 

Bond Issue and the making of the Bond 

Loan have been satisfied, including a 

credit review that indicates a reasonable 

prospect of repayment as demonstrated 

by the CDFI Fund’s analysis of the cash 

flow and collateral provisions of the 

Eligible CDFI; 

(2) The Qualified Issuer shall have 

submitted to the CDFI Fund a complete 

Guarantee Application, containing all 

required information relating to the 

Bond and the Bond Loan, as required by 

the Guarantor; 

(3) There have been no material 

changes to the Bond and Bond Loan 

documents from the forms thereof 

approved by the Guarantor and the CDFI 

Fund; 

(4) The Bond Purchaser and the 

Qualified Issuer shall have executed a 

Bond Purchase Agreement; and 

(5) Such additional information or 

documents as may be required by the 

CDFI Fund, the Guarantor, or the Bond 

Purchaser. 

(b) Rescission of approval. The 

Guarantor, in its sole discretion, may 

rescind its approval of a Guarantee 

Application if: 

(1) The Guarantor or the CDFI Fund 

determines that the Qualified Issuer 

cannot, or is unwilling to, provide 

adequate documentation and proof of 

compliance with paragraph (a) of this 

section within the time provided for in 

the offer of Guarantee, or 

(2) The Guarantor or the CDFI Fund 

determines, in its sole discretion, that 

the Qualified Issuer no longer meets 

applicable CDFI Bond Guarantee 

Program criteria and requirements. 

§ 1808.604 Agreement to Guarantee. 

(a) General. The Qualified Issuer must 

enter into an Agreement to Guarantee 


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that sets forth the terms and conditions 

on which the Guarantor will provide the 

Guarantee of the Bonds issued as part of 

a Bond Issue. 

(b) Terms and conditions. The terms 

and conditions of the Agreement to 

Guarantee may include, but are not 

limited to, the following: 

(1) The form and amount of 

Guarantee; 

(2) Any prohibited amendments of 

Bond Documents or limitations on 

transfer of the Guarantee; 

(3) Terms and conditions of the RiskShare Pool and any Credit Enhancement 

that may be required by the CDFI Fund 

and the Guarantor; 

(4) Provisions regarding the Agency 

Administrative Fee; 

(5) Representations and warranties of 

the Qualified Issuer; 

(6) Pledged security; 

(7) Financial covenants; 

(8) Events of default and remedies; 

(9) Assignment of Bond Loans to the 

Guarantor; 

(10) Guarantor payment does not 

discharge Qualified Issuer; subrogation; 

(11) Undertakings for the benefit of 

the Bondholder including: notices, 

registration, prohibited amendments, 

prohibited transfers, and 

indemnification; 

(12) Governing law; 

(13) Terms and conditions of Bond 

Loans; 

(14) Prohibition against 

subordination; and 

(15) Such other matters as the 

Guarantor or the CDFI Fund may deem 

necessary or appropriate. 

(c) Access to funds. In the event that 

the Qualified Issuer does not execute 

Bond Loan agreements for 100 percent 

of the Bond principal on the Bond Issue 

Date, the Qualified Issuer will have no 

further access to the amount of funds for 

which Bond Loan agreements were not 

executed. 

§ 1808.605 Agency Administrative Fee. 

The Qualified Issuer shall pay the 

CDFI Fund annually a fee equal to 10 

basis points (0.1 percent) of the amount 

of the unpaid principal of the Bond(s). 

The initial Agency Administrative Fee 

must be paid in full as a condition to 

closing any Agreement to Guarantee, no 

later than the effective date of the 

Agreement to Guarantee. 

§ 1808.606 Program Administrator; 

Servicer; Master Servicer/Trustee. 

(a) General. Bond Loans shall be 

overseen by qualified Program 

Administrators, Servicers, and a Master 

Servicer/Trustee. For purposes of 

maximizing efficiencies and minimizing 

costs, Program Administrator and 

Servicer duties may be consolidated and 

performed by Qualified Issuers. 

(b) Program Administrator. (1) Duties. 

The duties of a Program Administrator, 

which may be performed by the 

Qualified Issuer, shall include, but not 

be limited to: 

(i) Approving and qualifying Eligible 

CDFI applications for participation in 

the Guarantee Application; 

(ii) Bond and Bond Loan packaging; 

(iii) Reviewing and approving 

Secondary Loan commitments from 

Eligible CDFIs for funds from the 

Bondholder or the Relending Account 

based on the Secondary Loan 

Requirements; 

(iv) Compliance monitoring of Bond 

Loans and Secondary Loans; 

(v) Preparing and submitting reports 

required by this interim rule; and 

(vi) All other duties and related 

services that are customarily expected of 

a Program Administrator, and as may be 

required by the CDFI Fund or the 

Guarantor. 

(2) Selection. There shall be one 

Program Administrator for each Bond 

Issue. The Qualified Issuer applicant 

shall provide, in its Qualified Issuer 

Application, information on its 

proposed Program Administrator that 

demonstrates the appropriate expertise, 

capacity and experience, as well as any 

additional information that may be 

required to meet the criteria set forth in 

the applicable Notice of Guarantee 

Availability, including, but not limited 

to, information on the entity’s 

management and organization, loan 

administration, and financial capability. 

(3) Fees and expenses. The Program 

Administrator’s administrative fees and 

expenses shall be paid by the Eligible 

CDFI in accordance with applicable 

financing documents. 

(c) Servicer. (1) Duties. The duties of 

a Servicer, which may be performed by 

the Qualified Issuer, shall include, but 

not be limited to: 

(i) Billing and collecting Bond Loan 

payments from Eligible CDFIs; 

(ii) Initiating collection activities on 

past-due Bond Loans; 

(iii) Transferring Bond Loan payments 

to the respective funds and accounts 

managed by the Master Servicer/ 

Trustee; 

(iv) Bond Loan administration and 

servicing; 

(v) Systematic and timely reporting of 

Bond Loan performance through 

remittance and servicing reports, and 

providing such reports as may be 

required by this interim rule; 

(vi) Proper measurement of annual 

outstanding Bond Loan requirements; 

and 

(vii) All other duties and related 

services that are customarily expected of 

Servicers, and as may be required by the 

CDFI Fund or the Guarantor. 

(2) Selection. There shall be one 

Servicer for each Bond Issue. Each 

Qualified Issuer applicant shall provide, 

in its Qualified Issuer Application, 

information on its proposed Servicer 

that demonstrates the appropriate 

expertise, capacity and experience, as 

well as any additional information that 

as may be required to meet the criteria 

set forth in the applicable Notice of 

Guarantee Availability including, but 

not limited to, information on the 

entity’s management and organization, 

loan servicing, and financial capability. 

(3) Fees and expenses. The Servicer’s 

administrative fees and expenses for 

each Bond Issue shall be paid by the 

associated Eligible CDFIs in accordance 

with applicable financing documents. 

(d) Special Servicer. (1) Duties. The 

duties of the Special Servicer shall be 

performed by the Master Servicer/ 

Trustee and shall include, but not be 

limited to: 

(i) Negotiating the restructuring of 

Bond Loans that are in or about to enter 

into an event of Default; 

(ii) Initiating foreclosure action and 

appointing a receiver; and 

(iii) Enforcing deficiency judgments. 

(2) Evaluation. The Master Servicer/ 

Trustee applicant shall provide, in its 

Master Servicer/Trustee application, 

information on its proposed Special 

Servicer capabilities and experience. 

These capabilities may be performed by 

the Master Servicer/Trustee or an entity 

designated by the Master Servicer/ 

Trustee. The CDFI Fund shall evaluate 

the Master Servicer/Trustee applicant’s 

or its designee’s ability to perform the 

duties of Special Servicer based on the 

capacity and experience in the 

following areas: 

(i) Restructuring, recovery, and 

foreclosure of loans that are similar to 

Bond Loans; 

(ii) Financial strength and capacity; 

(iii) Managing regional or national 

intake, processing, or servicing 

operational systems and infrastructure 

of loans that are similar to Bond Loans; 

(iv) Managing regional or national 

originator communication systems and 

infrastructure; 

(v) Developing and implementing 

training and other risk management 

strategies on a regional or national basis; 

(vi) Compliance monitoring and 

reporting; and 

(vii) Such other criteria that may be 

required by the CDFI Fund. 

(3) Fees and expenses. The Bond 

Trust Indenture will outline the Special 

Servicer’s administrative fees and 

expenses; these fees shall be paid by the 

Eligible CDFI in accordance with the 


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Bond Trust Indenture and related 

documents. 

(e) Master Servicer/Trustee. (1) Duties. 

The duties of the Master Servicer/ 

Trustee shall include, but not be limited 

to: 

(i) The fiduciary power to enforce the 

terms of Bonds and the Bond Loans 

pursuant to the Bond Trust Indenture; 

(ii) Establishing and managing the 

funds and accounts set forth in this 

interim rule; 

(iii) Providing such reports as 

required; 

(iv) Overseeing the activities of 

Servicers and managing loan 

administration; 

(v) Servicing and monitoring of Bond 

Issues with respect to repayment 

obligations to the Bondholder and the 

terms of the Agreement to Guarantee; 

(vi) Tracking the movement of funds 

between the accounts of the Master 

Servicer/Trustee and all Servicers; 

(vii) Ensuring orderly receipt of the 

monthly remittance and servicing 

reports of the Servicers; 

(viii) Monitoring collection and 

foreclosure actions; 

(ix) Aggregating the reporting and 

distribution of funds to the Qualified 

Issuer, CDFI Fund, and the Bondholder, 

as necessary; 

(x) Removing and replacing Servicers, 

as necessary; 

(xi) Performing systematic and timely 

reporting of Bond Loan performance 

compiled from Servicers’ reports, and 

providing such reports as required in 

this interim rule; 

(xii) Ensuring proper distribution of 

funds to Eligible CDFIs, servicing the 

Bonds, and repayment to the 

Bondholder; and 

(xiii) All other duties and related 

services that are customarily expected of 

a Master Servicer/Trustee, and as may 

be required by the CDFI Fund. 

(2) Selection. There shall be one 

Master Servicer/Trustee for the CDFI 

Bond Guarantee Program. The CDFI 

Fund shall solicit applications and 

make a selection of a Master Servicer/ 

Trustee based on the capacity and 

experience of the applicant in the areas 

set forth in paragraph (a)(1) of this 

section and in the following paragraphs 

(a)(2)(i) through (vi): 

(i) Administration, servicing, and 

monitoring of loans that are similar to 

Bond Loans; 

(ii) Financial strength and capacity; 

(ii) Managing regional or national 

intake, processing, or servicing 

operational systems and infrastructure 

of loans that are similar to Bond Loans; 

(iii) Managing regional or national 

originator communication systems and 

infrastructure; 

(iv) Developing and implementing 

training and other risk management 

strategies on a regional or national basis; 

(v) Compliance monitoring and 

reporting; and 

(vi) Such other criteria that may be 

required by the CDFI Fund. 

(3) Fees and expenses. The Master 

Servicer/Trustee’s administrative fees 

and expenses shall be paid by the 

Eligible CDFI in accordance with the 

Bond Trust Indenture and related 

documents. 

(f) Funds and accounts. The following 

funds shall be established by the Master 

Servicer/Trustee at the time of 

execution of the Bond Trust Indenture, 

on behalf of the Qualified Issuer and for 

the benefit of the Bondholder. On the 

Bond Issue Date, separate accounts shall 

be established therein for each Bond 

and, furthermore, within each account 

there shall be established a subaccount 

for each Bond Loan on the date of the 

closing of each Bond Loan: 

(1) The Project Fund, and therein a 

Project Account for each Bond: All 

disbursements of Bond Proceeds from 

the Bondholder pursuant to the 

requisition processes shall be deposited 

in the applicable Project Account or 

Subaccount, and the Master Servicer/ 

Trustee shall disburse advances with 

respect to the Bond Loan to the Eligible 

CDFI therefrom; 

(2) The Revenue Fund, and therein a 

Revenue Account for each Bond: All 

payments of debt service or 

prepayments on the Bond Loan 

pursuant to the Bond Loan documents, 

other payments by the Eligible CDFI 

pursuant to the Bond Loan documents, 

and any investment income derived 

from the corresponding accounts or 

subaccounts in the Debt Service Fund 

shall be deposited in the accounts and 

subaccounts of the Revenue Fund; 

(3) The Debt Service Fund, and 

therein an Interest Account, a Principal 

Account and a Redemption Account for 

each Bond: Not later than 30 days prior 

to a Bond payment date, the Master 

Servicer/Trustee shall make the 

following transfers from the applicable 

account or subaccount of the Revenue 

Fund: 

(i) All scheduled payments 

(amortization installments or at 

maturity) of principal received from the 

Eligible CDFI on the Bond Loan shall be 

transferred to the Principal Account or 

Subaccount; 

(ii) All scheduled payments 

(amortization installments or at 

maturity) of interest received from the 

Eligible CDFI on the Bond Loan shall be 

transferred to the Interest Account or 

Subaccount; and 

(iii) All prepayments of principal, 

interest and premium, if any, received 

from the Eligible CDFI on the Bond 

Loan shall be transferred to the 

Redemption Account or Subaccount; 

(4) The Administrative Fees Fund, 

and therein an Administrative Fees 

Account for each Bond: All fees 

necessary for administering and 

servicing the Bond or the Bond Loan 

(including the Agency Administrative 

Fee and Bond Issuance Fees), payable 

by the Eligible CDFI pursuant to the 

Bond Loan documents, shall be 

deposited in the applicable account or 

subaccount of the Administrative Fees 

Fund and, thereafter, shall be disbursed 

by the Master Servicer/Trustee to the 

subject recipient in accordance with the 

terms of each such payment; 

(5) The Risk-Share Pool Fund, and 

therein a Risk-Share Pool Account for 

each Bond, in accordance with 

§ 1808.303 of this part; 

(6) The Relending Fund, and therein 

a Relending Account for each Bond, in 

accordance with § 1808.308 of this part; 

and 

(7) Such other funds and accounts as 

may be required by the CDFI Fund and 

the Qualified Issuer in connection with 

a Bond Issue, Bond or Bond Loan. 

(g) Other funds and accounts. The 

Master Servicer/Trustee shall be 

permitted to establish such other funds 

and accounts as deemed necessary to 

administer the requirements of the Bond 

Trust Indenture. Each account shall be 

designated by the name of the 

applicable Bond and each subaccount 

shall be designated by the name of the 

applicable Bond Loan. 

(h) No commingling of funds. No 

commingling of monies shall be 

permitted between accounts or 

subaccounts. 

(i) Permitted investments. Monies on 

deposit in the Revenue Fund, the Debt 

Service Fund, the Risk-Share Pool Fund, 

the Relending Fund, if invested, shall be 

invested in U.S. Treasury securities 

with maturities that do not exceed the 

dates on which monies will be required 

for anticipated purposes and may be 

sold to the extent funds are needed 

sooner than anticipated. All interest 

shall be credited to the relevant account 

in the relevant fund. 

§ 1808.607 Representations and 

warranties of Qualified Issuer with respect 

to Guarantee. 

The Qualified Issuer shall represent 

and warrant to the Guarantor, at the 

execution of any Agreement to 

Guarantee to which it is a party and 

thereafter at the closing of any Bond 

Loan and the issuance of any Bond, the 

following: 


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(a) The Qualified Issuer is duly 

organized, validly existing and in good 

standing in its State of organization with 

the power and authority to enter into 

the agreements and consummate the 

transactions thereby contemplated; 

(b) The information contained in the 

Qualified Issuer Application is true and 

correct; 

(c) The Bonds, when executed, are 

and will be duly authorized, executed, 

valid, binding and enforceable 

obligations of the Qualified Issuer; 

(d) Except as disclosed to the 

Guarantor, no claim or litigation is 

pending or threatened which would 

materially adversely affect the Qualified 

Issuer’s ability to consummate the 

transactions contemplated by the 

Agreement to Guarantee, the Bond, or 

the Bond Loan; 

(e) The consummation of the 

transactions contemplated by the 

Agreement to Guarantee, the Bond, and 

the Bond Loan will not conflict with or 

constitute an event of default under any 

law or agreement to which the Qualified 

Issuer is subject; 

(f) No authorization, approval or 

consent of a governmental authority is 

necessary on the part of the Qualified 

Issuer to consummate the transactions 

contemplated by the Bond or the Bond 

Loan which has not been obtained; 

(g) No funds from any other CDFI 

Fund program are being used to pay 

principal, interest, fees, administrative 

costs, or issuance costs (including Bond 

Issuance Fees) related to the CDFI Bond 

Guarantee Program, or to fund the RiskShare Pool; and 

(h) Any other representation or 

warranty deemed appropriate by the 

Guarantor, the CDFI Fund or the Bond 

Purchaser. 

§ 1808.608 Representations and 

warranties of Eligible CDFI with respect to 

each Bond Loan. 

The Eligible CDFI shall represent and 

warrant to the Qualified Issuer, at the 

execution of each set of Bond Loan 

documents and, thereafter, until 

repayment in full of such Bond Loan, 

the following: 

(a) The performance by the Eligible 

CDFI under the Bond Loan documents 

is duly authorized, does not require 

consent or approval of any 

governmental authority not already 

obtained, does not constitute a default 

of any law or agreement to which the 

Eligible CDFI is subject, will not result 

in the imposition of any lien (other than 

pursuant to the Bond Loan), and 

constitutes a valid, binding and 

enforceable obligation of the Eligible 

CDFI; 

(b) The information provided by the 

Eligible CDFI fairly represents the 

financial position (in conformity with 

generally accepted accounting 

principles), experience and capacity of 

the Eligible CDFI, and there have been 

no material adverse changes in the 

Eligible CDFI’s financial condition since 

the date of such financial information; 

(c) No claim or litigation is pending 

or threatened which would materially 

adversely affect the Eligible CDFI’s 

ability to consummate the transactions 

contemplated by the Bond Loan, or 

repay the Bond Loan; 

(d) No event of default or other 

material event which could become an 

event of default has occurred and is 

continuing; 

(e) The Eligible CDFI has filed all 

Federal, State and local tax returns 

required and paid all liabilities in 

connection therewith; 

(f) The Eligible CDFI has good and 

marketable title to the collateral; 

(g) The Bond Loan will be applied to 

Eligible Purposes; 

(h) The information provided in the 

Guarantee Application is true and 

accurate; 

(i) No default, event of default or due 

and unsatisfied liability has occurred 

and is continuing with respect to any 

obligations of the Eligible CDFI to the 

Guarantor, the CDFI Fund, the Bond 

Purchaser, the U. S. Internal Revenue 

Service, or any other agency, authority 

or instrumentality of the Federal 

Government; 

(j) No funds from any other CDFI 

Fund program are being used to pay 

principal, interest, fees, administrative 

costs, or issuance costs (including Bond 

Issuance Fees) related to the CDFI Bond 

Guarantee Program, or to fund the RiskShare Pool; and 

(k) Any other representations and 

warranties set forth in the Bond Loan 

documents. 

§ 1808.609 Representations and 

warranties of Secondary Borrower. 

Each Secondary Borrower shall make 

identical representations and warranties 

as the Eligible CDFI and shall make 

specific representations and warranties 

with respect to the collateral and the 

project that is proposed to be financed 

by the Secondary Loan, upon which the 

Eligible CDFI, the Qualified Issuer, the 

Bondholder, the Guarantor, and the 

CDFI Fund may rely. These 

representation and warranties shall be 

to the satisfaction of the Guarantor and 

the CDFI Fund. 

§ 1808.610 Covenants of Qualified Issuer 

with respect to Guarantee. 

The Qualified Issuer shall covenant in 

the Agreement to Guarantee that it will: 

(a) Furnish to the CDFI Fund, at the 

Qualified Issuer’s expense, all annual 

and periodic financial reporting as 

described in § 1808.619 of this part; 

(b) Maintain books and records 

related to each Bond Loan, the collateral 

and the project that is to be financed by 

Bond Proceeds, and allow inspection 

thereof; 

(c) Preserve its corporate existence 

and Certified CDFI status, if applicable; 

(d) Comply with all laws to which it 

is subject; 

(e) Maintain its solvency; 

(f) To the extent it assigns any of its 

obligations under the agreement to an 

Affiliate, guarantee performance of such 

obligations; 

(g) Allow audits and investigations by 

the CDFI Fund, the Treasury Inspector 

General, the Comptroller General, or 

such other Federal Government offices 

as may be designated by the Guarantor 

or the CDFI Fund; 

(h) Provide such reports as required in 

§ 1808.619 of this part; 

(i) Make, execute and deliver such 

instruments as the Guarantor or the 

CDFI Fund may reasonably request; 

(j) Sign and certify as true and correct 

all Bond Documents and Bond Loan 

documents; 

(k) Not amend or modify any 

agreement related to the Bond without 

the consent of the Bondholder, the 

Guarantor, or the CDFI Fund, as 

applicable; 

(l) Comply with the terms and 

conditions of the Agreement to 

Guarantee, the Bond Trust Indenture, 

and the Bond and Bond Loan 

documents; 

(m) Immediately notify the Guarantor 

and the CDFI Fund of any material 

change or event that affects any 

representation, warranty or covenant of 

the Guarantee, Bond or Bond Loan 

documents; 

(n) Pay and discharge all Federal, 

State and local taxes; 

and 

(o) Comply with all other covenants 

set forth in the Bond Documents and 

Bond Loan documents. 

§ 1808.611 Covenants of Eligible CDFI with 

respect to Bond and each Bond Loan. 

The Eligible CDFI shall covenant in 

the Bond Loan agreement that it will: 

(a) Furnish to the Qualified Issuer, at 

the Eligible CDFI’s expense, certain 

annual and periodic financial and 

performance reporting; 

(b) Maintain books and records 

related to the Bond Loan and Secondary 

Loans, the collateral and the project that 

is to be financed by Bond Loan 

proceeds, and allow inspection thereof; 

(c) Preserve its corporate existence 

and Certified CDFI status; 


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(d) Comply with all laws to which it 

is subject; 

(e) Maintain insurance, as required by 

the Qualified Issuer, against such risks 

as would customarily be maintained by 

commercially reasonable companies in a 

similar line of business; 

(f) Pay and discharge all Federal, State 

and local taxes; 

(g) Ensure proper use of proceeds of 

the Bond Loan; 

(h) Pay all required administrative 

expenses; 

(i) Indemnify the Guarantor, the CDFI 

Fund, the Qualified Issuer and the 

Master Servicer/Trustee and their 

Affiliates; 

(j) Collaterally assign all rights, title, 

and interest in and to Secondary Loan 

collateral to the Master Servicer/ 

Trustee; 

(k) Maintain the collateral; 

(l) Enforce the covenants against the 

Secondary Borrowers; 

(m) Be bound, to the extent 

applicable, to provisions of the Bond 

Trust Indenture; 

(n) Periodically, as directed by the 

CDFI Fund, furnish certain information 

designed to measure the impacts of the 

Bond Loan and the CDFI Bond 

Guarantee Program; 

(o) Periodically, as directed by the 

CDFI Fund, furnish to the Qualified 

Issuer and/or the CDFI Fund updates to 

the Capital Distribution Plan; and 

(p) Comply with all other 

representations and warranties set forth 

in the Bond Loan documents. 

§ 1808.612 Specific financial covenants of 

Eligible CDFI. 

The Eligible CDFI shall covenant in 

Bond Loan documents that it will 

comply with specific financial 

requirements as required by the 

Guarantor and the CDFI Fund. Such 

financial requirements will be 

determined based upon the quantity and 

the character of the existing loan 

facilities of the Eligible CDFI, among 

other factors. The specific financial 

covenants may include, but are not 

limited to, one or more of the following 

measures: consolidated net asset ratio; 

consolidated unrestricted net asset ratio; 

and minimum available liquidity (or, in 

the case of Eligible CDFIs that are 

regulated financial institutions, such 

ratios and information as may be 

required by the applicable Appropriate 

Federal Banking Agency or Appropriate 

State Agency). The specific financial 

requirements shall be measured based 

upon such Eligible CDFI’s financial 

statements prepared in accordance with 

generally accepted accounting 

principles and consistent with 

historically applied accounting policies 

and practices. 

§ 1808.613 Negative covenants of Eligible 

CDFI. 

The Eligible CDFI will covenant in 

Bond Loan documents that it will 

comply with certain negative covenants, 

as required by the CDFI Fund including, 

but not limited to, that it will: 

(a) Not incur or issue additional longterm or short-term debt to the extent 

that the incurrence of such additional 

debt would violate the specific financial 

covenants of such Eligible CDFI under 

the Bond Loan; and 

(b) Not permit liens on all or any part 

of the Bond Loan collateral, except as 

permitted pursuant to the Bond Loan 

documents, and only then to the extent 

consistent with the applicable laws and 

regulations governing the Bond Loan 

and as approved by the CDFI Fund. 

§ 1808.614 Covenants of Secondary 

Borrower with respect to Secondary Loan. 

In addition to making specific 

representations and warranties with 

respect to the collateral and the project 

being financed by the Secondary Loan 

proceeds, each Secondary Borrower 

shall covenant in the Secondary Loan 

agreement that it will: 

(a) Periodically, as directed by the 

Eligible CDFI, furnish to the Eligible 

CDFI certain annual and periodic 

financial and performance reporting; 

(b) Maintain books and records 

related to the Secondary Loan, the 

collateral and the project that is to be 

financed by Bond Loan proceeds, and 

allow inspection thereof; 

(c) Preserve its corporate existence, as 

applicable; 

(d) Comply with all laws to which it 

is subject; 

(e) Maintain insurance, as directed by 

the Eligible CDFI, against such risks as 

would customarily be maintained by 

commercially reasonable companies in a 

similar line of business; 

(f) Pay and discharge all Federal, State 

and local taxes; 

(g) Ensure proper use of proceeds of 

the Secondary Loan; 

(h) Maintain the collateral; 

(i) Periodically, as directed by the 

Eligible CDFI, furnish to the Eligible 

CDFI certain information designed to 

measure the impacts of the Bond Loan 

and the CDFI Bond Guarantee Program; 

and 

(j) Comply with all other 

representations and warranties set forth 

in the Secondary Loan documents. 

§ 1808.615 Negative covenants of 

Secondary Borrower. 

Any additional debt of the Secondary 

Borrower shall be in accordance with 

the requirements set forth in the 

applicable Secondary Loan 

Requirements and the Secondary Loan 

agreement, and may include, but shall 

not be limited to, that: 

(a) The Secondary Borrower will not 

incur or issue additional long-term or 

short-term debt payable from and 

having a lien on all or a portion of the 

Secondary Loan collateral that is 

(1) Equally and ratably secured; or 

(2) Superior or senior to the lien 

thereon of the Secondary Loan as more 

specifically set forth in the Secondary 

Loan agreement; and 

(b) So long as no event of default has 

occurred and is continuing, the 

Secondary Borrower may, subject to the 

approval of the Eligible CDFI, incur or 

issue at any time additional debt 

payable from and having a lien on all or 

a portion of the Secondary Loan 

collateral that is subordinate or junior to 

the lien thereon of the Secondary Loan 

and enter into subordinate credit facility 

agreements, provided that no events of 

default have occurred and are 

continuing under the Secondary Loan 

documents or any parity senior loan 

documents and that such debt meets the 

requirements set forth in paragraph (a) 

of this section. 

§ 1808.616 Events of default and remedies 

with respect to Bonds. 

(a) Events of default. An event of 

default with respect to any Bond shall 

include, but not be limited to: 

(1) Nonpayment of interest or the 

Agency Administrative Fee when due 

and payable; 

(2) Nonpayment of principal or 

prepayment price when due and 

payable; 

(3) The use of Bond Proceeds for any 

purpose other than an Eligible Purpose; 

and 

(4) Any other events of default set 

forth in the Bond or the Bond Trust 

Indenture. 

(b) Default of other Bonds. An event 

of default under one Bond shall not 

constitute an event of default under 

another Bond. 

(c) Remedies. Pursuant to the 

Agreement to Guarantee and the Bond 

Trust Indenture, remedies upon an 

event of default shall include, but not be 

limited to, the following: 

(1) Declaring the entire amount of 

unpaid principal and interest on the 

applicable Bond immediately due and 

payable; and 

(2) Exercising all remedies available 

under the applicable Agreement to 

Guarantee and the Bond Trust 

Indenture. 

(d) Notice and comment. Prior to 

imposing any remedies pursuant to this 

section or the Agreement to Guarantee, 

the Guarantor shall, to the maximum 


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8326 Federal Register / Vol. 78, No. 24 / Tuesday, February 5, 2013 / Rules and Regulations 

extent practicable, provide the Qualified 

Issuer with written notice of the 

proposed sanction and an opportunity 

to comment. Nothing in this section, 

however, shall provide a Qualified 

Issuer the right to any formal or 

informal hearing or comparable 

proceeding not otherwise required by 

law. 

§ 1808.617 Events of default and remedies 

with respect to Bond Loans. 

(a) Events of default. The following 

shall constitute an event of default with 

respect to each Bond Loan: 

(1) Nonpayment of interest when due 

and payable; 

(2) Nonpayment of principal or 

prepayment price when due and 

payable; 

(3) Failure of the Eligible CDFI to 

perform any condition or covenant 

under any Bond Loan document; 

(4) Any representation or warranty of 

the Eligible CDFI made in connection 

with the Guarantee Application or the 

Bond Loan is false or incorrect in any 

material respect; 

(5) Principal or interest on any 

indebtedness of the Eligible CDFI or any 

subsidiary of the Eligible CDFI in excess 

of $100,000 is not paid when due 

(subject to a cure period); 

(6) The holder of any junior or parity 

lien on collateral institutes a proceeding 

to enforce a lien on the collateral; 

(7) The Eligible CDFI files bankruptcy 

or consents to the appointment of a 

receiver or trustee for itself or the 

collateral; 

(8) Any money judgment is filed 

against the Eligible CDFI and remains 

unvacated for a period of 60 days from 

filing; 

(9) The use of Bond Loan proceeds for 

any purpose other than an Eligible 

Purpose; or 

(10) Any other events of default set 

forth in the Bond Loan documents. 

(b) Remedies. Remedies of the 

Qualified Issuer upon an event of 

default include, but are not limited to, 

the following: 

(1) Declaring the entire amount of 

unpaid principal and interest on the 

applicable Bond Loan immediately due 

and payable; 

(2) Applying for appointment of a 

receiver or trustee for the collateral; 

(3) At the direction of the Guarantor, 

terminating the Bond Loan agreement, 

declaring the entire amount of unpaid 

principal and interest on the applicable 

Bond Loan immediately due and 

payable; and 

(4) Exercising all remedies available 

under the applicable Bond Loan 

agreement, including declaring the 

Bond Loan Payment Default Rate in 

effect. 

(c) Enforcement rights. The Guarantor 

reserves all rights to enforce remedies 

upon an event of default. 

§ 1808.618 Events of default and remedies 

with respect to Secondary Loans. 

(a) Events of default. The following 

shall constitute an event of default with 

respect to each Secondary Loan: 

(1) Nonpayment of interest when due 

and payable; 

(2) Nonpayment of principal when 

due and payable; 

(3) Failure of the Secondary Borrower 

to perform any condition or covenant 

under any Secondary Loan document; 

(4) Any representation or warranty of 

the Secondary Borrower made in 

connection with the Secondary Loan 

application or the Secondary Loan 

documents is false or incorrect in any 

material respect; 

(5) Principal or interest on any 

indebtedness of the Secondary Borrower 

or any subsidiary of the Secondary 

Borrower in excess of $100,000 is not 

paid when due (subject to a cure 

period); 

(6) The holder of any junior or parity 

lien on collateral institutes a proceeding 

to enforce a lien on the collateral; 

(7) The Secondary Borrower files 

bankruptcy or consents to the 

appointment of a receiver or trustee for 

itself or the collateral; 

(8) Any money judgment is filed 

against the Secondary Borrower and 

remains unvacated for a period of 60 

days from filing; or 

(9) Any other events of default set 

forth in the Secondary Loan documents. 

(b) Remedies. The Qualified Issuer 

and the Guarantor will reserve certain 

rights to enforce (or direct enforcement 

of) remedies upon an event of default 

under the Secondary Loan documents. 

§ 1808.619 Reporting requirements. 

The Bond Documents and Bond Loan 

documents shall specify such 

monitoring and financial reporting 

requirements as deemed appropriate by 

the CDFI Fund including, but not 

limited to the following: 

(a) Data—General. As long as the 

Bonds remain outstanding, a Qualified 

Issuer shall provide such reports and 

shall maintain such records as may be 

prescribed by the CDFI Fund that are 

necessary to: 

(1) Disclose the manner in which 

Bond Proceeds are used, including 

providing documentation to 

demonstrate proceeds of the Bond Loans 

were used for Eligible Purposes; 

(2) Demonstrate compliance with the 

requirements of this part and the Bond 

Documents; 

(3) Evaluate the impact of the CDFI 

Bond Guarantee Program; 

(4) Ensure the Qualified Issuer meets 

the performance standards over the life 

of the facilities; and 

(5) Accomplish such other purposes 

that the CDFI Fund may deem 

appropriate. 

(b) Customer profiles. The Qualified 

Issuer shall require each Eligible CDFI 

to compile such data on the gender, 

race, ethnicity, national origin, or other 

information on individuals and entities 

that utilize its products and services as 

the CDFI Fund shall prescribe and as is 

permissible under applicable law. In 

general, such data will be used to 

determine whether residents of 

Investment Area(s) or members of 

Targeted Population(s) are adequately 

served and to evaluate the impact of the 

CDFI Bond Guarantee Program. 

(c) Audits; Access to records. (1) The 

CDFI Fund may, if it deems appropriate, 

audit Qualified Issuers, Eligible CDFIs, 

Program Administrators, Servicers, and/ 

or the Master Servicer/Trustee, or 

provide for or require an audit, at least 

annually. Portfolio management and 

loan monitoring will also employ riskbased, on-site verification of the Eligible 

CDFI’s lending activities to Secondary 

Borrowers and compliance with the 

terms in Secondary Lending 

Requirements. 

(2) Qualified Issuers, Eligible CDFIs, 

Program Administrators, Servicers, the 

Master Servicer/Trustee, as applicable, 

must submit such financial and activity 

reports, records, statements, and 

documents at such times, in such forms, 

and accompanied by such reporting 

data, as required by the CDFI Fund to 

ensure compliance with the 

requirements of this interim rule and to 

evaluate the impact of the CDFI Bond 

Guarantee Program. 

(3) The Federal Government, 

including the U.S. Department of the 

Treasury, the Comptroller General, and 

their duly authorized representatives, 

shall have full and free access to such 

entities’ offices and facilities and all 

books, documents, records, and 

financial statements relating to the 

Guarantee and may copy such 

documents as they deem appropriate 

(4) The CDFI Fund, if it deems 

appropriate, may prescribe audit and 

access to record requirements for 

Eligible CDFIs and Secondary 

Borrowers. 

(d) Retention of records. Qualified 

Issuers, Eligible CDFIs, Program 

Administrators, the Master Servicer/ 

Trustee, and Servicers shall comply 

with all record retention requirements 

as set forth in OMB Circular A–110 (as 

applicable). 

(e) Data collection and reporting. 

Qualified Issuers, Eligible CDFIs, the 


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Program Administrator, the Master 

Servicer/Trustee, and Servicers, as 

applicable, shall submit to the CDFI 

Fund, monthly, quarterly, and annually, 

as specified in the Bond Documents, 

and as long as the Bond shall remain 

outstanding, such information and 

documentation that will permit the 

CDFI Fund to review compliance with 

the Capital Distribution Plan and the 

terms and conditions of the Bond 

Documents, and to perform adequate 

portfolio management and loan 

monitoring. The information and 

documentation may include, but not be 

limited to, the following: 

(1) Financial statements, including 

but not limited to: 

(i) Annual financial statements for the 

Qualified Issuer and each Eligible CDFI 

that have been audited in conformity 

with generally accepted auditing 

principles; and 

(ii) With respect to any nonprofit 

Qualified Issuer and any Eligible CDFI 

that is required to have its financial 

statements audited pursuant to OMB 

Circular A–133 Audits of States, Local 

Governments and Non-Profit 

Organizations, annual A–133 audited 

financial statements. Non-profit 

Qualified Issuers and Eligible CDFIs that 

are not required to have financial 

statements audited pursuant to OMB 

Circular A–133 must submit to the CDFI 

Fund a statement signed by the 

Qualified Issuer or Eligible CDFI’s 

authorized representative or certified 

public accountant, asserting that a 

single audit pursuant OMB Circular A– 

133 is not required; 

(2) Pro forma projection of the 

Qualified Issuer’s and Eligible CDFI’s 

respective balance sheet, income 

statement, and statement of cash flows 

over the ensuing five years, or such 

other time period as specified by the 

CDFI Fund; 

(3) Such institution-level and 

transaction-level reports as may be 

required by the CDFI Fund; 

(4) Information necessary to measure 

the financial condition of the Eligible 

CDFI. This includes, but is not limited 

to, measuring solvency by collecting 

data on fixed charge coverage, capital 

adequacy, debt coverage, and measuring 

liquidity by collecting data on core 

financial ratios, including current ratios, 

quick ratios, working capital, and 

operating liquidity ratio. This will also 

include credit reporting, financial 

statement analysis, trend analysis of 

financial conditions, market valuation, 

loan performance (30/60/90 payment 

history) of Bond Loans and Secondary 

Loans, valuation and eligibility of 

Secondary Loan collateral, and 

management and organization changes; 

(5) Information necessary to assess 

Program impact performance and 

outcome measures, including 

information necessary to evaluate the 

credit-worthiness of loan applicants; 

and 

(6) Other such information and 

reports as may be requested by the CDFI 

Fund. 

(f) Qualified Issuer reports. Qualified 

Issuers are responsible for the timely 

and complete submission of all required 

information and reports, even if all or a 

portion of the documents actually are 

completed by the Eligible CDFI. The 

CDFI Fund reserves the right to contact 

the Qualified Issuer or Eligible CDFI and 

require that additional information and 

documentation be provided. 

(g) Regulator information. The CDFI 

Fund’s review of a regulated Qualified 

Issuer’s or regulated Eligible CDFI’s 

performance or compliance with the 

Bond Documents may also include 

information provided by the 

Appropriate Federal Banking Agency or 

Appropriate State Agency, as the case 

may be. 

(h) Public inspection. The CDFI Fund 

shall make reports described in this 

section available for public inspection 

after deleting any materials necessary to 

protect privacy or proprietary interests 

pursuant to all applicable laws and 

regulations. 

(i) Availability of referenced 

publications. The publications 

referenced in this section are available 

as follows: 

(1) OMB Circulars may be obtained 

from the Office of Administration, 

Publications Office, 725 17th Street 

NW., Room 2200, New Executive Office 

Building, Washington, DC 20503 or on 

the Internet (http:// 

www.whitehouse.gov/omb/ 

grants_circulars/); and 

(2) Government Accountability Office 

materials may be obtained from GAO 

Distribution, 700 4th Street NW., Suite 

1100, Washington, DC 20548. 

§ 1808.620 Investments in Guaranteed 

Bonds ineligible for Community 

Reinvestment Act Purposes. 

Notwithstanding any other provision 

of law, any investment by a financial 

institution in Bonds shall not be taken 

into account in assessing the record of 

such institution for purposes of the 

Community Reinvestment Act of 1977 

(12 U.S.C. 2901). Other forms of 

participation by financial institutions in 

CDFI Bond Guarantee Program 

transactions may be eligible for 

inclusion in Community Reinvestment 

Act records to the extent permitted by 

the Appropriate Federal Banking 

Agency. 

§ 1808.621 Conflict of interest 

requirements. 

(a) Provision of Bond Loans or 

Secondary Loans to Affiliates. (1) A 

Qualified Issuer or Eligible CDFI that is 

not regulated by an Appropriate Federal 

Banking Agency or Appropriate State 

Agency may not use any Bond Proceeds 

or Bond Loan proceeds to make any 

Bond Loans or Secondary Loans 

available to an Affiliate unless it meets 

the following restrictions: 

(i) The loan must be provided 

pursuant to standard underwriting 

procedures, terms and conditions; 

(ii) The Affiliate receiving the loan 

shall not participate in any way in the 

decision-making regarding such loan; 

(iii) The board of directors or other 

governing body of the lender shall 

approve the extension of the loan; and 

(iv) The loan must be provided in 

accordance with a policy regarding 

credit to Affiliates that has been 

approved in advance by the CDFI Fund. 

(2) A Qualified Issuer or Eligible CDFI 

that is an Insured CDFI, a Depository 

Institution Holding Company or a StateInsured Credit Union (as such terms are 

defined in 12 CFR 1805.104) shall 

comply with the restrictions on insider 

activities and any comparable 

restrictions established by its 

Appropriate Federal Banking Agency or 

Appropriate State Agency, as 

applicable. 

(b) Standards of conduct. Qualified 

Issuers, Eligible CDFIs, Program 

Administrators, the Master Servicer, and 

Servicers shall maintain a code or 

standards of conduct acceptable to the 

CDFI Fund that govern the performance 

of employees engaged in the awarding 

and administration of any loan. No 

employee of a Qualified Issuer, Eligible 

CDFI, Program Administrators, the 

Master Servicer, and Servicer shall 

solicit or accept gratuities, favors or 

anything of monetary value from any 

actual or potential borrowers for such 

loans. Such policies shall provide for 

disciplinary actions to be applied for 

violation of the standards by employees. 

§ 1808.622 Compliance with government 

requirements. 

In carrying out its responsibilities 

pursuant to any agreements associated 

with the CDFI Bond Guarantee Program, 

all Qualified Issuers, Eligible CDFIs, 

Program Administrators, Servicers, and 

the Master Servicer/Trustee shall 

comply with all applicable Federal, 

State, and local laws, regulations, and 

ordinances, OMB Circulars, and 

Executive Orders, including restrictions 

on lending to entities with delinquent 

Federal debt. 


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§ 1808.623 Lobbying restrictions. 

No fees or funds made available under 

this part may be expended by a party to 

pay any person to influence or attempt 

to influence any agency, elected official, 

officer or employee of a State or local 

government in connection with the 

making, award, extension, continuation, 

renewal, amendment, or modification of 

any State or local government contract, 

grant, loan or cooperative agreement as 

such terms are defined in 31 U.S.C. 

1352. 

§ 1808.624 Criminal provisions. 

The criminal provisions of 18 U.S.C. 

657 regarding embezzlement or 

misappropriation of funds are 

applicable to all CDFI Bond Guarantee 

Program participants and insiders. 

§ 1808.625 CDFI Fund deemed not to 

control. 

The CDFI Fund shall not be deemed 

to control a CDFI Bond Guarantee 

Program participant by reason of any 

Guarantee provided under the Act for 

the purpose of any applicable law. 

§ 1808.626 Limitation on liability. 

The liability of the Federal 

Government arising out of any fees or 

funds obtained by a CDFI Bond 

Guarantee Program participant in 

accordance with this interim rule shall 

be limited to the amount of the fees or 

funds obtained by the CDFI Bond 

Guarantee Program participant. The 

Federal Government shall be exempt 

from any assessments and other 

liabilities that may be imposed on 

controlling or principal shareholders by 

any Federal law or the law of any State. 

Nothing in this section shall affect the 

application of any Federal tax law. 

§ 1808.627 Fraud, waste and abuse. 

Any person who becomes aware of 

the existence or apparent existence of 

fraud, waste or abuse of any Guarantee, 

Bond, Bond Loan or Secondary Loan 

provided under this interim rule must 

report such incidents to the Office of 

Inspector General of the U.S. 

Department of the Treasury. 

Dated: January 24, 2013. 

Donna J. Gambrell, 

Director, Community Development Financial 

Institutions Fund. 

[FR Doc. 2013–02055 Filed 2–1–13; 8:45 am] 

BILLING CODE 4810–70–P 


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