37922 Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

[Docket ID OCC–2007–0012] 

FEDERAL RESERVE SYSTEM 

[Docket No. OP–1290] 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

RIN 3064–AC97 

DEPARTMENT OF THE TREASURY 

Office of Thrift Supervision 

[Docket ID OTS–2007–0030] 

Community Reinvestment Act; 

Interagency Questions and Answers 

Regarding Community Reinvestment; 

Notice 

AGENCIES: Office of the Comptroller of 

the Currency, Treasury (OCC); Board of 

Governors of the Federal Reserve 

System (Board); Federal Deposit 

Insurance Corporation (FDIC); Office of 

Thrift Supervision, Treasury (OTS). 

ACTION: Notice and request for comment. 

SUMMARY: The staffs of the OCC, the 

Board, the FDIC, and OTS (collectively, 

the ‘‘agencies’’) have combined three 

previously adopted publications of 

informal staff guidance answering 

questions regarding community 

reinvestment (Interagency Questions 

and Answers). The Interagency 

Questions and Answers address 

frequently asked questions about 

community reinvestment to assist 

agency personnel, financial institutions, 

and the public. The agencies are 

proposing nine new questions and 

answers, as well as substantive and 

technical revisions to the existing 

Interagency Questions and Answers. 

Among the proposed new questions and 

answers is one that addresses activities 

engaged in by a majority-owned 

financial institution with a minority-or 

women-owned financial institution or a 

low-income credit union. In addition, 

three revisions are intended to 

encourage institutions to work with 

homeowners who are unable to make 

mortgage payments by highlighting that 

they can receive CRA consideration for 

foreclosure prevention programs for 

low- and moderate-income 

homeowners, consistent with the 

interagency Statement on Working with 

Mortgage Borrowers issued April 17, 

2007. Public comment is invited on the 

proposed new and revised questions 

and answers, as well as any other 

community reinvestment issues. 

DATES: Comments on the proposed 

questions and answers are requested by 

September 10, 2007. 

ADDRESSES: Comments should be 

directed to: 

OCC: You may submit comments by 

any of the following methods: 

• E-mail: 

regs.comments@occ.treas.gov. 

• Fax: (202) 874–4448. 

• Mail: Office of the Comptroller of 

the Currency, 250 E Street, SW., Mail 

Stop 1–5, Washington, DC 20219. 

• Hand Delivery/Courier: 250 E 

Street, SW., Attn: Public Information 

Room, Mail Stop 1–5, Washington, DC 

20219. 

Instructions: You must include 

‘‘OCC’’ as the agency name and ‘‘Docket 

ID OCC–2007–0012’’ in your comment. 

In general, OCC will enter all comments 

received into the docket without 

change, including any business or 

personal information that you provide 

such as name and address information, 

e-mail addresses, or phone numbers. 

Comments, including attachments and 

other supporting materials, received are 

part of the public record and subject to 

public disclosure. Do not enclose any 

information in your comment or 

supporting materials that you consider 

confidential or inappropriate for public 

disclosure. 

You may review comments and other 

related materials by any of the following 

methods: 

• Viewing Comments Personally: You 

may personally inspect and photocopy 

comments at the OCC’s Public 

Information Room, 250 E Street, SW., 

Washington, DC. For security reasons, 

the OCC requires that visitors make an 

appointment to inspect comments. You 

may do so by calling (202) 874–5043. 

Upon arrival, visitors will be required to 

present valid government-issued photo 

identification and submit to security 

screening in order to inspect and 

photocopy comments. 

• Docket: You may also view or 

request available background 

documents and project summaries using 

the methods described above. 

Board: You may submit comments, 

identified by Docket No. OP–1290, by 

any of the following methods: 

• Agency Web Site: http:// 

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: 

regs.comments@federalreserve.gov. 

Include docket number in the subject 

line of the message. 

• Fax: 202/452–3819 or 202/452– 

3102. 

• Mail: Jennifer J. Johnson, Secretary, 

Board of Governors of the Federal 

Reserve System, 20th Street and 

Constitution Avenue, NW., Washington, 

DC 20551. 

All public comments are available from 

the Board’s Web site at http:// 

www.federalreserve.gov/generalinfo/ 

foia/ProposedRegs.cfm as submitted, 

unless modified for technical reasons. 

Accordingly, your comments will not be 

edited to remove any identifying or 

contact information. Public comments 

may also be viewed electronically or in 

paper in Room MP–500 of the Board’s 

Martin Building (20th and C Streets, 

NW.) between 9 a.m. and 5 p.m. on 

weekdays. 

FDIC: You may submit comments, 

identified by RIN number 3064–AC97 

by any of the following methods: 

• Agency Web site: http:// 

www.fdic.gov/regulations/laws/federal/ 

propose.html. Follow instructions for 

submitting comments on the Agency 

Web Site. 

• E-mail: Comments@FDIC.gov. 

Include the RIN number in the subject 

line of the message. 

• Mail: Robert E. Feldman, Executive 

Secretary, Attention: Comments, Federal 

Deposit Insurance Corporation, 550 17th 

Street, NW., Washington, DC 20429. 

• Hand Delivery/Courier: Guard 

station at the rear of the 550 17th Street 

Building (located on F Street) on 

business days between 7 a.m. and 5 p.m. 

Instructions: All submissions received 

must include the agency name and RIN 

number. All comments received will be 

posted without change to http:// 

www.fdic.gov/regulations/laws/federal/ 

propose.html including any personal 

information provided. 

OTS: You may submit comments, 

identified by ID OTS–2007–0030, by 

any of the following methods: 

• E-mail: 

regs.comments@ots.treas.gov. Please 

include ID OTS–2007–0030 in the 

subject line of the message and include 

your name and telephone number in the 

message. 

• Fax: (202) 906–6518. 

• Mail: Regulation Comments, Chief 

Counsel’s Office, Office of Thrift 

Supervision, 1700 G Street, NW., 

Washington, DC 20552, Attention: ID 

OTS–2007–0030. 

• Hand Delivery/Courier: Guard’s 

Desk, East Lobby Entrance, 1700 G 

Street, NW., from 9 a.m. to 4 p.m. on 

business days, Attention: Regulation 

Comments, Chief Counsel’s Office, 

Attention: ID OTS–2007–0030. 

Instructions: All submissions received 

must include the agency name and 

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Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 37923 

docket number for this notice. All 

comments received will be entered into 

the docket without change, including 

any personal information provided. 

Comments, including attachments and 

other supporting materials received are 

part of the public record and subject to 

public disclosure. Do not enclose any 

information in your comment or 

supporting materials that you consider 

confidential or inappropriate for public 

disclosure. 

• Viewing Comments On-Site: You 

may inspect comments at the Public 

Reading Room, 1700 G Street, NW., by 

appointment. To make an appointment 

for access, call (202) 906–5922, send an 

e-mail to public.info@ots.treas.gov, or 

send a facsimile transmission to (202) 

906–6518. (Prior notice identifying the 

materials you will be requesting will 

assist us in serving you.) We schedule 

appointments on business days between 

10 a.m. and 4 p.m. In most cases, 

appointments will be available the next 

business day following the date we 

receive a request. 

FOR FURTHER INFORMATION CONTACT: 

OCC: Margaret Hesse, Special 

Counsel, Community and Consumer 

Law Division, (202) 874–5750; or Karen 

Tucker, National Bank Examiner, 

Compliance Policy Division, (202) 874–

4428, Office of the Comptroller of the 

Currency, 250 E Street, SW., 

Washington, DC 20219. 

Board: Anjanette M. Kichline, Senior 

Supervisory Consumer Financial 

Services Analyst, (202) 785–6054; or 

Brent Lattin, Attorney, (202) 452–3667, 

Division of Consumer and Community 

Affairs, Board of Governors of the 

Federal Reserve System, 20th Street and 

Constitution Avenue, NW., Washington, 

DC 20551. 

FDIC: Mira Marshall, Acting Chief, 

CRA & Fair Lending Section, (202) 898–

3912; Faye Murphy, Fair Lending 

Specialist, Division of Supervision and 

Consumer Protection, (202) 898–6613; 

or Susan van den Toorn, Counsel, Legal 

Division, (202) 898–8707, Federal 

Deposit Insurance Corporation, 550 17th 

Street, NW., Washington, DC 20429. 

OTS: Celeste Anderson, Senior Project 

Manager, Compliance and Consumer 

Protection, (202) 906–7990; or Richard 

Bennett, Counsel, Regulations and 

Legislation Division, (202) 906–7409, 

Office of Thrift Supervision, 1700 G 

Street, NW., Washington, DC 20552. 

SUPPLEMENTARY INFORMATION: 

Background 

The OCC, the Board, the FDIC, and 

OTS implement the Community 

Reinvestment Act (CRA) (12 U.S.C. 2901 

et seq.) through their CRA regulations. 

See 12 CFR parts 25, 228, 345, and 563e. 

The OCC, Board, and FDIC revised their 

CRA regulations in a joint final rule 

published on August 2, 2005 (70 FR 

44256) (2005 joint final rule). OTS did 

not join the agencies in adopting the 

August 2005 joint final rule; OTS 

published separate final rules on August 

18, 2004 (69 FR 51155), March 2, 2005 

(70 FR 10023), April 12, 2006 (71 FR 

18614), and March 22, 2007 (72 FR 

13429). Upon the effective date of OTS’s 

March 2007 final rule, July 1, 2007, 

OTS’s CRA regulation will be 

substantially the same as the CRA 

regulations of the OCC, Board, and 

FDIC. 

The agencies’ regulations are 

interpreted primarily through 

‘‘Interagency Questions and Answers 

Regarding Community Reinvestment,’’

which provide guidance for use by 

agency personnel, financial institutions, 

and the public, and which are 

supplemented periodically. Interagency 

Questions and Answers were first 

published under the auspices of the 

Federal Financial Institution 

Examination Council in 1996 (61 FR 

54647), and were revised on July 12, 

2001 (2001 Questions and Answers) (66 

FR 36620). 

Subsequent to the adoption of the 

2005 joint final rule, the OCC, Board, 

and FDIC, after notice and public 

comment, published new guidance in 

the form of questions and answers on 

March 10, 2006 (71 FR 12424) (2006 

Questions and Answers). Because of the 

desire to provide guidance about the 

2005 joint final rule in a timely manner, 

the 2006 Questions and Answers 

addressed primarily matters related to 

the 2005 joint final rule, without 

updating the 2001 Questions and 

Answers. On September 5, 2006, after 

notice and public comment, OTS 

published new guidance in the form of 

questions and answers pertaining to the 

revised definition of ‘‘community 

development’’ and certain other 

provisions of the CRA rule common to 

all four agencies (OTS’s September 2006 

Questions and Answers). 71 FR 52375. 

The 2001 Questions and Answers 

remained effective along with the new 

2006 Questions and Answers and OTS’s 

September 2006 Questions and 

Answers. 

These Proposed Interagency Questions 

and Answers and Request for Comment 

The document published today 

combines the previously adopted 2001 

Questions and Answers with the 2006 

Questions and Answers and OTS’s 

September 2006 Questions and 

Answers. In addition, the agencies are 

proposing for comment nine new 

questions and answers that will be 

added to the Interagency Questions and 

Answers. These nine new questions and 

answers are described below. OTS is 

also proposing four new and one revised 

questions and answers that are virtually 

identical to new and revised questions 

and answers the OCC, Board, and FDIC 

adopted in the 2006 Questions and 

Answers. The proposed questions and 

answers that are new for OTS are Q&As 

§ ll.12(u)(2)—1, § ll.26(c)—1, §

ll.26(c)(3)—1, and § ll.26(c)(4)—1; 

the proposed revised question and 

answer for OTS is Q&A § ll.26—1. 

These Q&As primarily relate to 

intermediate small savings associations. 

The agencies are also proposing to 

revise many of the previously adopted 

questions and answers. Most of the 

revisions are not substantive, rather they 

clarify or update the existing questions 

and answers, move existing questions 

and answers within the guidance (Q&As 

§ ll.21(a)—1 and § ll.28(b)—1), or 

merely conform the numbering of the 

question to the correct regulatory 

provision. The agencies also propose to 

delete an appendix that listed contact 

information for Bureau of Census offices 

because institutions may now obtain 

information from the FFIEC’s Web site. 

The agencies are explicitly requesting 

comment on specific questions and 

answers in which the revisions may be 

deemed to be of significance. These 

proposed revised questions and answers 

are also discussed below. 

The proposed new and revised 

questions and answers have been added 

to the combined Interagency Questions 

and Answers, which is being published 

in its entirety to enable commenters to 

review the proposed revisions in the 

context of the rest of the guidance. The 

text of the combined Interagency 

Questions and Answers is found at the 

end of this publication. Language that is 

proposed to be deleted as compared to 

the 2001 and 2006 Questions and 

Answers adopted by the OCC, Board, 

and FDIC is bracketed; language that is 

proposed to be added to these agencies’

guidance is enclosed within arrows. 

Where these agencies’ current questions 

and answers differ substantially from 

those of OTS, the differences are 

footnoted. After the agencies have 

considered any comments received in 

response to this proposal, the agencies 

will publish the final guidance in the 

Federal Register. 

The Interagency Questions and 

Answers are grouped by the provision of 

the CRA regulations that they discuss, 

are presented in the same order as the 

regulatory provisions, and employ an 

abbreviated method of citing to the 

regulations. For example, the small bank 

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37924 Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 

performance standards for national 

banks appear at 12 CFR 25.26; for 

Federal Reserve System member banks 

supervised by the Board, they appear at 

12 CFR 228.26; for state nonmember 

banks, they appear at 12 CFR 345.26; 

and for thrifts, the small savings 

association performance standards 

appear at 12 CFR 563e.26. Accordingly, 

the citation would be to 12 CFR ll.26. 

Each question is numbered using a 

system that consists of the regulatory 

citation (as described above) and a 

number, connected by a dash. For 

example, the first question addressing 

12 CFR ll.26 would be identified as 

§ ll.26—1. 

Although a particular question and 

answer may be found under one 

regulatory provision, e.g., 12 CFR 

ll.22 relating to the lending test, its 

content may also be applicable to, for 

example, small institutions, which are 

evaluated pursuant to small institution 

performance standards found at 12 CFR 

ll.26. Thus, readers with a particular 

interest in small institution issues, for 

example, should also consult the 

guidance that describes the lending, 

investment, and service tests. To assist 

readers in finding relevant guidance, the 

Interagency Questions and Answers will 

be indexed by topic when they are 

adopted as final guidance. 

Proposed New Questions and Answers 

The agencies specifically request 

comment on the nine proposed new 

questions and answers described below. 

I. Investments in minority- or womenowned financial institutions and lowincome credit unions. 

The CRA statute provides that, when 

evaluating the CRA performance of a 

non-minority-owned and non-womenowned (majority-owned) financial 

institution, the agencies may consider as 

a factor capital investment, loan 

participation, and other ventures 

undertaken by the institution in 

cooperation with minority- and womenowned financial institutions and lowincome credit unions provided that 

these activities help meet the credit 

needs of local communities in which 

such institutions are chartered. 12 

U.S.C. 2903(b). The agencies’ CRA 

regulations do not specifically address 

activities that a majority-owned 

financial institution may engage in with 

a minority- or women-owned financial 

institution or a low-income credit 

union. 

The Interagency Questions and 

Answers currently describe investments 

in minority- and women-owned 

financial institutions and low-income 

credit unions as an example of a 

qualified investment in Q&A §

ll.12(t)—4. 

The agencies have been asked 

whether a majority institution’s activity 

in conjunction with a minority- or 

women-owned financial institution or 

low-income credit union must benefit 

the majority-owned institution’s 

assessment area(s) or the broader 

statewide or regional area that includes 

the majority-owned institution’s 

assessment area(s). The CRA statute 

specifies that the activities must help 

meet the credit needs of local 

communities in which the minority- or 

women-owned institutions or lowincome credit unions are chartered. 

The agencies generally evaluate 

institutions’ activities in the 

institution’s assessment area(s) or a 

broader statewide or regional area that 

includes the assessment area(s). For 

example, a community development 

loan is defined, in part, as one 

benefiting the institution’s assessment 

area(s) or a broader statewide or regional 

area that includes the institution’s 

assessment area(s). 12 CFR 

ll.12(h)(2)(ii). Similarly, the 

investment test evaluates an 

institution’s record of helping to meet 

the credit needs of its assessment area(s) 

through qualified investments that 

benefit its assessment area(s) or a 

broader statewide or regional area that 

includes its assessment area(s). 12 CFR 

ll.23(a). In addition, the service test 

evaluates an institution’s record of 

helping to meet the credit needs of its 

assessment area(s) through its provision 

of retail banking and community 

development services. 12 CFR 

ll.24(a). Finally, the community 

development test applicable to 

wholesale and limited purpose 

institutions states that community 

development activities that benefit the 

institution’s assessment area(s) or the 

broader statewide or regional area that 

includes its assessment area(s) are 

considered in a CRA evaluation, and 

community development activities that 

benefit areas outside the institution’s 

assessment area(s) will be considered if 

the institution has adequately addressed 

the needs of its assessment area(s). 12 

CFR ll.25(e). 

The agencies propose a new question 

and answer, §ll.12(g)—4, that would 

give full effect to section 2903(b)’s 

broader geographic language. The 

proposed question and answer would 

state that activities engaged in by a 

majority-owned financial institution 

with a minority- or women-owned 

financial institution or a low-income 

credit union that benefit the local 

communities where the minority- or 

women-owned financial institution or 

low-income credit union is located will 

be favorably considered in the CRA 

performance evaluation of the majorityowned institution. The minority- or 

women-owned institution or lowincome credit union need not be located 

in, and the activities need not benefit, 

the assessment area(s) of the majorityowned institution or the broader 

statewide or regional area that includes 

its assessment area(s). 

II. Intermediate small institutions’ 

affordable home mortgage loans and 

small business and small farm loans. 

Q&A §ll.12(h)—2 states that 

mortgage loans made by a retail 

institution that is not required to report 

such loans under the Home Mortgage 

Disclosure Act (HMDA) will be 

evaluated as home mortgage loans, and 

that small business and small farm loans 

made by an institution that is not 

required to report small business and 

small farm loan data under the CRA 

regulations will, nonetheless, be 

evaluated as small business and small 

farm loans. Institutions do not have the 

option of having such loans considered 

as community development loans. 

The agencies are proposing a new 

question and answer, §ll.12(h)—3, 

which would clarify this guidance only 

as it affects intermediate small 

institutions. Intermediate small 

institutions are not required to collect 

and report small business and small 

farm loan data pursuant to the CRA 

regulations. Further, some intermediate 

small institutions may not be required 

to report home mortgage loans under the 

HMDA. Unlike large or small retail 

institutions, intermediate small 

institutions’ lending is evaluated using 

two performance tests, which are rated 

separately—the retail lending test and 

the community development test. If the 

current guidance (Q&A §ll.12(h)—2) 

were applied to an intermediate small 

institution, its overall CRA performance 

under the two tests may be adversely 

affected because home mortgage loans 

and small loans to businesses and farms 

that have a community development 

purpose could never be considered 

under the community development test. 

The proposed question and answer 

would permit institutions evaluated 

under the intermediate small institution 

performance standards to choose to 

have such loans evaluated as 

community development loans, 

provided the loans otherwise meet the 

regulatory definition of ‘‘community 

development,’’ or as retail home 

mortgages, small business loans, or 

small farm loans, as applicable. An 

institution that elects to have certain 

home mortgage, small business, or small 

farm loans considered as community 

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Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 37925 

development loans should notify its 

examiners of that decision prior to the 

start of its CRA examination. 

Please note that the agencies are also 

proposing to revise Q&A §ll.12(h)—2 

to except intermediate small institutions 

from applicability of that guidance. 

III. Examples of ‘‘other loan data.’’

The agencies’ CRA regulations, at 12 

CFR ll.22(a)(2), state that originations 

and purchases of loans, as well as any 

other loan data the institution may 

choose to provide, including data on 

loans outstanding, commitments, and 

letters of credit will be considered in an 

institution’s evaluation. Q&A 

§ll.22(a)(2)—3 provides that 

information about home mortgage loan 

modification, extension, and 

consolidation agreements (MECAs) may 

be provided by an institution to 

examiners as ‘‘other loan data.’’ Other 

questions and answers found 

throughout the guidance describe 

various lending-related activities as 

‘‘other loan data.’’ See, e.g., Q&As 

§ll.12(l)—2 and §ll.42(c)(2)—3. 

The agencies are proposing a new 

question and answer, which will follow 

the question and answer discussing 

MECAs, listing in one place the other 

various activities mentioned throughout 

the interagency guidance that may be 

provided to examiners for consideration 

as ‘‘other loan data.’’ In addition, the 

proposed question and answer, Q&A 

§ll.22(a)(2)—4, includes a discussion 

about when information on loans for 

properties with a certain amount or 

percentage of units set aside for 

affordable housing may be provided to 

examiners as ‘‘other loan data.’’ If these 

loans are in an amount greater than $1 

million, they would not be collected or 

reported as small business loans. If the 

loans do not have a primary purpose of 

community development, they would 

not be collected or reported as 

community development loans. 

Therefore, to ensure that institutions 

may have these loans considered during 

their CRA evaluations, the question and 

answer provides that institutions may, 

at their option, provide information 

about them to examiners as ‘‘other loan 

data.’’

IV. Purchased loan participations. 

The agencies’ staffs have received a 

number of questions about whether 

institutions that purchase loan 

participations should collect and report 

them, as applicable, as purchases of 

loans, and whether they will receive 

lending consideration for such 

purchases. The proposed question and 

answer, Q&A §ll.22(a)(2)—6, 

provides that loan participations are 

treated as the purchase of a loan, even 

though the institution has purchased 

only a part of a loan. Institutions receive 

the same consideration for their loan 

participations as they would receive for 

a purchased whole loan of the same 

type and amount. Although this 

proposed question and answer 

interprets the large institution lending 

test, 12 CFR ll.22(a)(2), the same 

guidance would also apply to the other 

examination types—small institution 

test, community development test 

applicable to wholesale and limited 

purpose institutions, and the strategic 

plan. (For guidance about reporting loan 

participations, see proposed new Q&A 

§ll.42(b)(2)—4 and Q&A 

§ll.42(a)(2)—1, as proposed to be 

revised.) 

V. Small business loans secured by a 

one-to-four family residence. 

In 2005, the agencies published 

technical revisions to their CRA 

regulations that reflected changes in the 

standards for defining metropolitan 

statistical areas made by the U.S. Office 

of Management and Budget (OMB) in 

December 2000; census tracts 

designated by the U.S. Census Bureau 

(Census); and changes to the Board’s 

Regulation C (12 CFR part 203), which 

implements the HMDA. 70 FR 15570 

(Mar. 28, 2005). In the supplementary 

information published with the 

agencies’ technical revisions, the 

agencies discussed the effect that the 

Board’s revisions to Regulation C 

regarding the treatment of refinancings 

of home mortgage loans would have on 

CRA evaluations. 70 FR at 15573. As 

explained in the supplementary 

information, revised Regulation C 

defined the term, ‘‘refinancing,’’ so that 

a loan is reportable as a refinancing if 

it satisfies and replaces an existing 

obligation, and both the new and the 

existing obligation are secured by a lien 

on a dwelling. 12 CFR 203.2(k). The 

agencies revised the definition of ‘‘home 

mortgage loan’’ in their CRA regulations 

to include refinancings, as well as home 

purchase loans and home improvement 

loans, as defined in the Board’s 

regulations at 12 CFR 203.2. See 12 CFR 

ll.12(l). 

For banks subject to the Call Report 

instructions: Because of the change in 

the Regulation C definition, loans to 

refinance small business or small farm 

loans are reportable as home mortgage 

loans for HMDA purposes (and would 

ordinarily be considered as home 

mortgage loans for CRA purposes) if 

they are secured by a dwelling and the 

replaced loan also was secured by a 

dwelling. If a dwelling continues to 

serve as collateral solely through an 

abundance of caution and where the 

terms of the loan, as a consequence, 

have not been made more favorable than 

they would have been in the absence of 

the lien, then the refinancing is also 

reportable for Call Report and CRA 

purposes as a loan to a small business 

or a loan to a small farm. If a refinancing 

of a small business or small farm loan 

is reported both as a home mortgage 

loan under HMDA and as a loan to a 

small business or a loan to a small farm 

on the Call Report and on the CRA 

disclosure, there is the potential for 

‘‘double counting’’ of these loans in 

CRA examinations. See 70 FR at 15573. 

For savings associations subject to the 

Thrift Financial Reporting instructions: 

Because of the change in the Regulation 

C definition, a savings association’s 

loans to refinance small business or 

small farm loans are reportable as home 

mortgage loans if they are secured by a 

dwelling and the replaced loan also was 

secured by a dwelling. This is true even 

if the loans are reported as nonmortgage commercial loans on the Thrift 

Financial Report (TFR). This results in 

the potential for ‘‘double counting’’ of 

the loans in CRA examinations. See 70 

FR at 15573. 

To clarify some of these issues, the 

agencies are proposing a new question 

and answer, Q&A §ll.22(a)(2)—7, to 

provide guidance about small business 

and small farm loans where a dwelling 

serves as collateral. 

VI. Investments in a national or 

regional fund. 

The agencies are proposing additional 

guidance, Q&A §ll.23(a)—2, to clarify 

that an institution that makes a loan or 

investment in a national or regional 

community development fund should 

be able to demonstrate that the 

investment meets the geographic 

requirements of the CRA regulation. If a 

fund does not become involved in a 

community development activity that 

meets both the purpose and geographic 

requirements of the regulation for the 

institution, the institution’s investment 

generally would not be considered 

under the investment or community 

development tests. The agencies are also 

proposing to highlight in the Q&A an 

example of a fund providing foreclosure 

relief to low- and moderate-income 

homeowners. 

VII. Examination as an intermediate 

small institution. 

The agencies allow a one-year ‘‘lag 

period’’ between when an institution is 

no longer a small institution (i.e., it had 

assets meeting or exceeding the small 

institution asset threshold amount 

delineated in 12 CFR ll.12(u)(1) as of 

December 31 of both of the prior two 

calendar years) and when it reports CRA 

data to be used in its evaluation under 

the lending, investment, and service 

tests. See 12 CFR ll.42(b). The lag 

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period allows the institution to collect 

loan data for one year before being 

evaluated under the lending, 

investment, and service tests. 

The agencies’ staffs have been asked 

whether an institution that was a small 

institution, but not an intermediate 

small institution, will also be allowed a 

one-year lag period before it is evaluated 

as an intermediate small institution 

once it becomes an intermediate small 

institution. The proposed question and 

answer, Q&A §ll.26(a)(2)—1, clarifies 

that there is no lag period between 

becoming an intermediate small 

institution and being examined as an 

intermediate small institution because 

there is no data collection and reporting 

requirement for intermediate small 

institutions. 

VIII. Reporting of a participation in a 

community development loan. 

Under the CRA regulations, an 

institution is required to report the 

aggregate number and aggregate amount 

of community development loans 

originated or purchased. 12 CFR 

ll.42(b)(2). The agencies’ staffs have 

been asked what loan purchase amount 

institutions that purchase participations 

in community development loans 

should report—the principal balance of 

the loan at origination or the amount of 

the participation purchased. 

The agencies are proposing a new 

question and answer, Q&A 

§ll.42(b)(2)—4, to clarify that 

institutions that purchase community 

development loan participations should 

report only the amount of their 

purchase. The proposed data collection 

and reporting of purchases of 

community development loan 

participations is different from the 

collection and reporting of purchases of 

small business and small farm loan 

participations. An institution reports the 

amount at the origination of the loan 

when it purchases a participation in a 

small business or small farm loan. See 

Q&A §ll.42(a)(2)—1. As explained in 

that question and answer, reporting the 

amount of the loan at origination is 

consistent with the Call Report’s or 

Thrift Financial Report’s use of the 

‘‘original amount of the loan’’ to 

determine whether a loan should be 

reported as a ‘‘loan to a small business’’

or a ‘‘loan to a small farm’’ and in which 

loan size category a loan should be 

reported. However, when assessing the 

volume of small business and small 

farm loan purchases for purposes of 

evaluating lending test performance 

under the CRA, examiners evaluate an 

institution’s small business and small 

farm lending based on the amount of the 

participation that is purchased. See id. 

The CRA regulations require that, 

when reporting small business and 

small farm loans originated or 

purchased, institutions report, among 

other things, the amount of the loans at 

origination. 12 CFR ll.42(a)(2). 

However, when reporting community 

development loan data, an institution 

reports only the aggregate number and 

aggregate amount of community 

development loans originated or 

purchased. 12 CFR ll.42(b)(2). 

Because the regulation does not specify 

whether the amount of purchased 

community development loans must be 

the amount of the loan at origination or 

the amount of the loan at purchase, the 

agencies propose that institutions 

should report the amount of the loan 

participations purchased. Reporting 

only the amount of the loan 

participation that was purchased will 

provide a more accurate picture of 

institutions’ community development 

loan activities. The agencies specifically 

request comment on whether having a 

different collection and reporting 

treatment for community development 

loans is appropriate. 

IX. Refinanced or renewed community 

development loans. 

The agencies are proposing a question 

and answer, Q&A §ll.42(b)(2)—5, to 

clarify that, generally, the same 

limitations that apply to the reporting of 

refinancings and renewals of small 

business and small farm loans apply to 

refinancings and renewals of 

community development loans. See 

Q&A §ll.42(a)—5. Generally, an 

institution may report only one 

community development loan 

origination (including a renewal or 

refinancing of that loan that is treated as 

an origination) per loan per year. If the 

loan amount is increased upon renewal 

or refinancing, the institution may 

report only the increase if the 

origination of the loan was also reported 

during the same year. 

Revised Questions and Answers 

The agencies are proposing revisions 

to a number of previously adopted 

questions and answers. Many of the 

proposed revisions update the guidance 

to reflect the 2005 technical revisions 

that conformed the agencies’ regulations 

to OMB, Census, and Board regulatory 

revisions, and to the changes made in 

the 2005 joint final rule and OTS’s 

March 2007 final rule. In many 

instances, the proposed revisions 

merely clarify existing guidance by 

conforming the guidance to the revised 

regulations, improving readability, or 

adopting current terminology. 

Although most of the proposed 

revisions are deemed to be insignificant 

clarifications, the agencies specifically 

request comment on the following 

revised questions and answers: 

I. Activities that promote economic 

development. 

Q&A §ll.12(g)(3)—1 describes the 

types of activities that promote 

economic development by financing 

small businesses and small farms. The 

agencies are proposing to revise Q&A 

§ll.12(g)(3)—1 to clarify the language 

in the current answer and to add loans 

to or investments in Rural Business 

Investment Companies (RBICs) and New 

Markets Tax Credit-eligible Community 

Development Entities (CDEs) as types of 

loans or investments that the agencies 

will presume to promote economic 

development. 

After notice and comment, the 

agencies added an investment in a RBIC 

as an example of a qualified investment 

in Q&A §ll.12(t)—4. 71 FR at 12433; 

71 FR at 52379 (OTS). The purpose of 

the Rural Business Investment Program, 

which is a joint initiative between the 

U.S. Small Business Administration and 

the U.S. Department of Agriculture, is 

intended to promote economic 

development by financing small 

businesses located primarily in rural 

areas. Thus, the agencies propose to 

revise Q&A §ll.12(g)(3)—1 to provide 

that there is a presumption that an 

investment in a RBIC will promote 

economic development. 

Likewise, the agencies are proposing 

that loans to or investments in CDEs 

will be presumed to promote economic 

development. Loans to or investments 

in CDEs pursuant to the New Markets 

Tax Credit program generally have a 

primary purpose of community 

development, as that term is defined in 

the CRA regulations. To the extent that 

a CDE lends to or invests in small 

businesses or farms, a loan to or 

investment in the CDE promotes 

economic development by financing 

small businesses or farms. Also, because 

the primary mission of the CDE is to 

service ‘‘low-income communities,’’

loans and investments made by the CDE 

generally would help to revitalize or 

stabilize low- or moderate-income 

geographies. Thus, the agencies propose 

to revise Q&A §ll.12(g)(3)—1 to 

provide that there is also a presumption 

that an investment in a CDE will 

promote economic development. 

II. Examples of community 

development loans. 

Q&A §ll.12(h)—1 provides 

examples of community development 

loans. For the same reasons as 

addressed above in connection with the 

proposed revision to Q&A 

§ll.12(g)(3)—1, the agencies propose 

to revise the fourth bullet in the answer 

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to Q&A §ll.12(h)—1 to add a loan to 

a New Markets Tax Credit-eligible CDE 

as an example of a community 

development loan. 

The agencies also propose to add a 

new bullet to the same question and 

answer stating that another example of 

a community development loan is a 

loan in an amount greater than $1 

million to a business, when the loan is 

made as part of the Small Business 

Administration’s (SBA’s) 504 Certified 

Development Company program. (Such 

loans in amounts of $1 million or less 

would be small business loans for CRA 

purposes.) The SBA’s 504 loan program 

is a long-term financing tool for 

economic development within a 

community. (See 13 CFR 120.800 et seq. 

for additional information about SBA’s 

504 program.) The 504 program 

provides growing businesses with longterm, fixed-rate financing for major 

fixed assets, such as land and buildings. 

A Certified Development Company is a 

nonprofit corporation that works with 

the SBA and private-sector lenders to 

provide financing to local small 

businesses. Loans to businesses under 

the 504 program must meet job creation 

criteria or a community development 

goal, or have a public policy goal. 

Generally, to meet the job creation 

criteria, a business must create or retain 

one job for every $50,000 provided by 

the SBA, except for ‘‘Small 

Manufacturers,’’ which have a $100,000 

job creation or retention goal. Examples 

of the 504 program’s public policy goals 

include business district revitalization, 

rural development, and expansion of 

minority business development. Based 

on the economic development and 

community revitalization purposes and 

goals of the 504 program, the agencies 

believe that loans to businesses made in 

connection with the program would 

have a primary purpose of community 

development, as defined in the CRA 

regulations. 

III. Examples of community 

development services. 

Q&A § ll.12(i)—3 provides 

examples of community development 

services. The agencies propose to add a 

new example of a community 

development service to this question 

and answer. The agencies believe that 

increasing access to financial services 

by opening or maintaining branches or 

other facilities that help to revitalize or 

stabilize a low- or moderate-income 

area, designated disaster area, or a 

distressed or underserved 

nonmetropolitan middle-income area 

would have a primary purpose of 

community development under the 

fourth prong of the definition of 

‘‘community development.’’ Thus, the 

agencies propose to add a new bullet in 

the answer to state that opening or 

maintaining branches and other 

facilities that help to revitalize or 

stabilize low- or moderate-income 

geographies, designated disaster areas, 

or distressed or underserved 

nonmetropolitan middle-income 

geographies is an example of a 

community development service and 

would be considered as a community 

development service unless the opening 

or maintaining of the branches or other 

facilities has been considered in the 

evaluation of the institution’s retail 

banking services under 12 CFR 

ll.24(d). See Q&As 

§ ll.12(g)(4)(ii)—2, 

§ ll.12(g)(4)(iii)—3, and 

§ ll.12(g)(4)(iii)—4 for additional 

guidance about activities that revitalize 

or stabilize designated disaster areas 

and distressed or underserved 

nonmetropolitan middle-income 

geographies, respectively. (With regard 

to an institution that is evaluated under 

the service test, branch openings are 

already considered as part of the 

availability and effectiveness of the 

institution’s systems for delivering retail 

banking services. See 12 CFR 

ll.24(d)(2). Similarly, whether an 

institution maintains branches is also 

considered under the service test when 

examiners evaluate the distribution of 

the institution’s branches based on 

geography income and the institution’s 

record of opening and closing branches. 

See 12 CFRll.24(d)(1) & (2). 

The agencies also propose to revise 

the example of community development 

services describing various types of 

consumer counseling services to 

highlight credit counseling that can 

assist borrowers in avoiding foreclosure 

on their homes. 

Finally, the agencies propose to add 

to the examples of financial services 

with the primary purpose of community 

development that increase access to 

financial services for low- or moderateincome individuals individual 

development accounts (IDAs) and free 

payroll check cashing. (A crossreference to this revised Q&A would be 

added to Q&A § ll.24(d)—2, which 

provides guidance about how examiners 

evaluate an institution’s activities in 

connection with IDAs.) 

IV. Federal Home Loan Bank unpaid 

dividends. 

Since the 1995 revision of the CRA 

regulations, the agencies have agreed 

that Federal Home Loan Bank (FHLB) 

stock does not have a sufficient 

connection to community development 

to be considered a qualified investment. 

See Joint Final Rule, 60 FR 22156, 

22161 (May 4, 1995). The agencies’

staffs have received questions from 

financial institutions about whether 

funds retained by the FHLBs to support 

the Affordable Housing Program (AHP), 

in lieu of being paid out in dividends to 

investing institutions, would receive 

consideration as qualified investments. 

The agencies propose to clarify that the 

required annual AHP contributions of 

the FHLBs are not qualified investments 

because they are not investments by the 

investing financial institution members, 

but rather a use of its own funds by the 

FHLB. The agencies propose to revise 

Q&A § ll.12(t)—3 to state that FHLB 

unpaid dividends are not qualified 

investments. 

V. Examples of qualified investments. 

Q&A § ll.12(t)—4 provides 

examples of qualified investments. For 

the same reasons as addressed above in 

connection with the proposed revision 

to Q&A § ll.12(g)(3)—1, the agencies 

propose to revise the first bullet in the 

answer to Q&A § ll.12(t)—4 to add an 

investment in a New Markets Tax 

Credit-eligible CDE as an example of a 

qualified investment. 

The agencies also propose to add a 

new fourth bullet that clarifies that an 

investment in a community 

development venture capital company 

that promotes economic development 

by financing small businesses would 

also be an example of a qualified 

investment. Although private 

community development venture 

capital companies are not statutorily 

authorized and government insured or 

guaranteed like the examples in the 

current third bullet of the Q&A (e.g., 

small business investment companies), 

community development venture 

capital companies may provide 

financing for small businesses that 

supports permanent job creation, 

retention, and/or improvement for 

persons who are currently low- or 

moderate-income, or supports 

permanent job creation, retention, and/ 

or improvement either in low- or 

moderate-income geographies or in 

areas targeted for redevelopment by 

Federal, state, local, or tribal 

governments. 

VI. Small institution adjustment. 

Q&A § ll.12(u)(2)—1, which was 

adopted by the OCC, Board, and FDIC 

in the 2006 Questions and Answers, 

provides information about the annual 

adjustments to the asset-size thresholds 

for small institutions and intermediate 

small institutions. (OTS does not 

currently have a comparable Q&A but is 

proposing to add one through this 

notice.) The agencies are proposing that 

this Q&A also refer the reader to the 

FFIEC’s Web site for historical and 

current asset-size threshold information. 

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VII. Responsive lending activities. 

Q&A § ll.22(a)—1 discusses types 

of lending activities that help meet the 

credit needs of an institution’s 

assessment areas and that may warrant 

favorable consideration as activities that 

are responsive to the needs of the 

institution’s assessment areas. The 

agencies propose to revise the answer to 

highlight that establishing loan 

programs that provide relief to low- and 

moderate-income homeowners who are 

facing foreclosure is another type of 

lending activity that would warrant 

favorable consideration as being 

responsive to the needs of an 

institution’s assessment areas. The 

agencies encourage institutions to 

develop and participate in such 

programs, consistent with safe and 

sound lending practices. 

VIII. Constraints on affiliate lending. 

Q&A § ll.22(c)(2)(i)—1 explains the 

constraint that no affiliate may claim a 

loan origination or loan purchase if 

another institution claims the same loan 

origination or loan purchase. The 

agencies propose to revise the answer by 

adding illustrative examples to help 

explain this provision. The answer 

states that a bona fide sale of a loan 

originated by one affiliate to another 

affiliate would be considered a loan 

origination by the first institution and a 

loan purchase by the other affiliate; 

however, the same institution may not 

claim both the origination and the 

purchase of the same loan. The question 

would also be revised to indicate that 

this guidance is relevant to all 

institutions, regardless of their 

examination type. 

IX. Retail banking services delivery 

systems. 

Q&A § ll.24(d)—1 explains how 

examiners evaluate the availability and 

effectiveness of an institution’s systems 

for delivering retail banking services. 

The agencies propose to revise Q&A 

§ ll.24(d)—1 to correspond more 

closely to the service test performance 

criteria. The regulation provides that 

examiners will evaluate the current 

distribution of an institution’s branches 

and, in the context of its current 

distribution of the institution’s 

branches, the institution’s record of 

opening and closing branches, 

particularly branches located in low- or 

moderate-income geographies or 

primarily serving low- or moderateincome individuals. The text of the 

answer would be modified to conform 

more closely to the regulatory language. 

X. Assessment areas may not extend 

substantially beyond metropolitan 

statistical area (MSA) boundaries. 

Q&As § ll.41(e)(4)—1 and 

§ ll.41(e)(4)—2 address the maximum 

size of an assessment area and whether 

one assessment area may consist of both 

an MSA and two counties that both abut 

the MSA. The agencies propose to revise 

these two questions and answers to 

reflect the changes in the Standards for 

Defining Metropolitan and Micropolitan 

Statistical Areas by the OMB. Although 

the OMB continues to designate MSAs, 

the OMB no longer designates 

Consolidated MSAs (CMSAs), which 

consisted of Primary MSAs. The OMB 

has also adopted a new area 

designation: Metropolitan division. As 

previously noted, in the 2005 technical 

revisions, the agencies aligned their 

CRA regulations with the OMB’s new 

nomenclature. See 70 FR 15570. 

The proposed revisions to Q&As 

§ ll.41(e)(4)—1 and § ll.41(e)(4)—2 

adopt the revised nomenclature and also 

memorialize guidance that the agencies 

provided in the supplementary 

information that was published with the 

2005 technical revisions. The agencies 

had noted in the supplementary 

information that one commenter 

suggested that the agencies, in their 

2005 technical revisions, replace 

‘‘CMSA’’ with ‘‘CSA’’ (combined 

statistical area), another new area 

standard that OMB adopted in 2000. 

The agencies declined to do so, but 

advised in the supplementary 

information that it may be appropriate 

for some institutions to delineate an 

assessment area based on a CSA. 

However, because CSAs can vary greatly 

in area and population, the agencies 

indicated that whether an assessment 

area should consist of a CSA is a 

determination to be made by each 

institution, considering its size, 

business strategy, capacity, and 

constraints, and subject to review by the 

appropriate agency. The agencies 

further noted that, if an institution 

designates an assessment area 

comprised of a CSA that, for example, 

consists of an MSA and a micropolitan 

statistical area (a new area standard 

adopted by OMB that is less populated 

than an MSA and considered a 

nonmetropolitan area for CRA 

purposes), examiners will separately 

evaluate performance in the MSA and 

the micropolitan statistical area within 

the assessment area because each of 

these areas has a distinct median 

income. Proposed revised Q&As 

§ ll.41(e)(4)—1 and § ll.41(e)(4)—2 

incorporate this information. 

XI. Reporting data under the CRA 

regulations. 

Q&A § ll.42—1 addresses when an 

institution must collect and report data. 

It focuses on a growing institution: One 

that was a small institution but that, 

over time, has outgrown that 

classification. The agencies propose to 

revise this question and answer for two 

reasons. First, because the definition of 

‘‘small institution’’ has been revised and 

the asset-size threshold for small 

institutions is adjusted annually, the 

text and example in the guidance 

require updating. The proposed revision 

refers to the definition of a ‘‘small 

institution’’ in the agencies’ CRA 

regulations so that the asset-size 

threshold does not become out-of-date 

as a result of annual adjustments. It also 

directs readers to the FFIEC’s Web site 

for examples, over time, based on the 

revised and adjusted asset-size 

thresholds for small institutions. 

Second, the mailing address to which an 

institution reports CRA data has been 

changed, and the proposed new 

guidance reflects the revised address. 

XII. Reporting home equity lines of 

credit for both home improvement and 

business purposes. 

Q&A § ll.42(a)—7 addresses the 

reporting of a home equity line of credit, 

part of which is for home improvement 

purposes and part of which is for small 

business purposes. Because of changes 

in the treatment of refinancings of loans 

secured by dwellings in the Board’s 

Regulation C (12 CFR part 203), which 

implements the HMDA (described 

above), the agencies are proposing to 

revise this question and answer to make 

it consistent with the revised Regulation 

C requirements. 

XIII. Participations in small business 

or small farm loans. 

Q&A § ll.42(a)(2)—1 provides 

guidance regarding the reporting of the 

amount of a small business or small 

farm loan that an institution purchases. 

The agencies propose to revise this 

question and answer to clarify that the 

guidance also applies to purchases of 

small business or small farm loan 

participations. The CRA regulations 

explicitly require institutions to collect 

and maintain ‘‘the loan amount at 

origination’’ when collecting data about 

small business and small farm loans. 12 

CFRll.42(a)(2). The agencies are 

proposing to revise the question and 

answer to clarify that this data 

collection requirement applies to 

participations, as well as to the 

purchase of whole loans. 

OTS Request for Comments 

OTS specifically solicits comment on 

whether it should adopt the four new 

and one revised questions and answers 

that are virtually identical to guidance 

the OCC, Board, and FDIC adopted in 

the 2006 Questions and Answers. Those 

new questions and answers for OTS are 

Q&As § ll.12(u)(2)—1, § ll26(c)—1, 

§ ll.26(c)(3)—1, and § ll.26(c)(4)—

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Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 37929 

1; the proposed revised question and 

answer for OTS is Q&A § ll.26—1. 

General Comments 

In addition to the specific requests for 

comments on the proposed new and 

revised questions and answers, public 

comment is invited on issues raised by 

the CRA and the Interagency Questions 

and Answers. If, after reading the 

Interagency Questions and Answers, 

financial institutions, examiners, 

community organizations, or other 

interested parties have unanswered 

questions or comments about the 

agencies’ community reinvestment 

regulations, they should submit them to 

the agencies. Such questions may be 

addressed in future revisions to the 

Interagency Questions and Answers. 

Solicitation of Comments Regarding the 

Use of ‘‘Plain Language’’ 

Section 722 of the Gramm-LeachBliley Act of 1999, 12 U.S.C. 4809, 

requires the agencies to use ‘‘plain 

language’’ in all proposed and final 

rules published after January 1, 2000. 

Although this proposed guidance is not 

a proposed rule, comments are 

nevertheless invited on whether the 

proposed interagency questions and 

answers are stated clearly and 

effectively organized, and how the 

guidance might be revised to make it 

easier to read. 

Small Business Regulatory Enforcement 

Fairness Act of 1996 (SBREFA) 

The SBREFA requires an agency, for 

each rule for which it prepares a final 

regulatory flexibility analysis, to publish 

one or more compliance guides to help 

small entities understand how to 

comply with the rule. 

Pursuant to section 605(b) of the 

Regulatory Flexibility Act, the OCC and 

the FDIC certified that the 2005 joint 

final rule would not have a significant 

economic impact on a substantial 

number of small entities. 70 FR at 

44264. Pursuant to section 605(b) of the 

Regulatory Flexibility Act, OTS certified 

that its March 22, 2007, April 12, 2006, 

March 2, 2005, and August 18, 2004 

final rules would not have a significant 

economic impact on a substantial 

number of small entities. 72 FR 13429, 

13434 (March 22, 2007); 71 FR 18614, 

18617 (April 12, 2006); 70 FR 10023, 

10030 (March 2, 2005); 69 FR 51155, 

51161 (August 18, 2004). 

The Board prepared a final regulatory 

flexibility analysis in connection with 

the 2005 joint final rule and found that 

the final rule minimized the economic 

impact on small entities by making the 

twelve small member banks that were 

not eligible for the streamlined CRA 

process prior to adoption of the joint 

final rule, eligible for the streamlined 

CRA process. Further, the joint final 

rule was intended by all three agencies 

to reduce unnecessary burden while 

maintaining or improving the CRA 

regulations’ effectiveness in evaluating 

performance. 

In the agencies’ continuing efforts to 

provide clear, understandable 

regulations and to comply with the 

letter and the spirit of the SBREFA, the 

agencies have compiled the Interagency 

Questions and Answers. The 

Interagency Questions and Answers 

serve the same purpose as the 

compliance guide described in the 

SBREFA by providing guidance on a 

variety of issues of particular concern to 

small institutions. 

The text of the combined Interagency 

Questions and Answers Regarding 

Community Reinvestment follows. 

Language that is proposed to be 

deleted as compared to the current 

OCC, Board, and FDIC questions and 

answers is bracketed; language that is 

proposed to be added to these agencies’

questions and answers is enclosed 

within arrows. Where these agencies’

current questions and answers differ 

substantially from those of OTS, the 

differences are footnoted. 

Interagency Questions and Answers 

Regarding Community Reinvestment 

§ ll.11 Authority, purposes, and 

scope. 

§ ll.11(c) Scope. 

§§ ll.11(c)(3) & 563e.11(c)(2) Certain 

special purpose institutions. 

§§ ll.11(c)(3) & 563e.11(c)(2)—1: Is 

the list of special purpose institutions 

exclusive? 

A1. No, there may be other examples 

of special purpose institutions. These 

institutions engage in specialized 

activities that do not involve granting 

credit to the public in the ordinary 

course of business. Special purpose 

institutions typically serve as 

correspondent banks, trust companies, 

or clearing agents or engage only in 

specialized services, such as cash 

management controlled disbursement 

services. A financial institution, 

however, does not become a special 

purpose institution merely by ceasing to 

make loans and, instead, making 

investments and providing other retail 

banking services. 

§§ ll.11(c)(3) & 563e.11(c)(2)—2: To 

be a special purpose institution, must 

an institution limit its activities in its 

charter? 

A2. No. A special purpose institution 

may, but is not required to, limit the 

scope of its activities in its charter, 

articles of association, or other corporate 

organizational documents. An 

institution that does not have legal 

limitations on its activities, but has 

voluntarily limited its activities, 

however, would no longer be exempt 

from Community Reinvestment Act 

(CRA) requirements if it subsequently 

engaged in activities that involve 

granting credit to the public in the 

ordinary course of business. An 

institution that believes it is exempt 

from CRA as a special purpose 

institution should seek confirmation of 

this status from its supervisory agency. 

§ ll.12 Definitions. 

§ ll.12(a) Affiliate. 

§ ll.12(a)—1: Does the definition of 

‘‘affiliate’’ include subsidiaries of an 

institution? 

A1. Yes, ‘‘affiliate’’ includes any 

company that controls, is controlled by, 

or is under common control with 

another company. An institution’s 

subsidiary is controlled by the 

institution and is, therefore, an affiliate. 

§ [ § ]ll.12(f) [ & 563e.12(e)] Branch. 

§ [ § ]ll.12(f) [ & 563e.12(e)]—1: Do 

the definitions of ‘‘branch,’’ ‘‘automated 

teller machine (ATM),’’ and ‘‘remote 

service facility (RSF)’’ include mobile 

branches, ATMs, and RSFs? 

A1. Yes. Staffed mobile offices that 

are authorized as branches are 

considered ‘‘branchesfl,fi’’ and mobile 

‘ATMs’ and ‘RSFs’ are considered 

‘‘ATMs’’ and ‘‘RSFs.’’

§ [ § ]ll.12(f)[ & 563e.12(e)]—2: Are 

loan production offices (LPOs) branches 

for purposes of the CRA? 

A2. LPOs and other offices are not 

‘‘branches’’ unless they are authorized 

as branches of the institution through 

the regulatory approval process of the 

institution’s supervisory agency. 

§ [ § ]ll.12([h]flgfi)[ & 563.12(g)] 

Community development. 

§ [ § ]ll.12([h]flgfi)[ & 563.12(g)]—

1: Are community development 

activities limited to those that promote 

economic development? 

A1. No. Although the definition of 

‘‘community development’’ includes 

activities that promote economic 

development by financing small 

businesses or farms, the rule does not 

limit community development loans 

and services and qualified investments 

to those activities. Community 

development also includes communityor tribal-based child care, educational, 

health, or social services targeted to 

low- or moderate-income persons, 

affordable housing for low- or moderateincome individuals, and activities that 

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revitalize or stabilize low- or moderateincome areasfl, designated disaster 

areas, or underserved or distressed 

nonmetropolitan middle-income 

geographiesfi. 

§ [§ ]ll.12([h]flgfi)[ & 

563e.12(g)]—2: Must a community 

development activity occur inside a lowor moderate-income area fl, designated 

disaster area, or underserved or 

distressed nonmetropolitan middleincome areafi in order for an 

institution to receive CRA consideration 

for the activity? 

A2. No. Community development 

includes activities [outside of low- and 

moderate-income areas]fl, regardless of 

their location,fi that provide affordable 

housing for, or community services 

targeted to, low- or moderate-income 

individuals and activities that promote 

economic development by financing 

small businesses and farms. Activities 

that stabilize or revitalize particular 

low- or moderate-income areas fl, 

designated disaster areas, or 

underserved or distressed 

nonmetropolitan middle-income 

areasfi (including by creating, 

retaining, or improving jobs for low- or 

moderate-income persons) also qualify 

as community development, even if the 

activities are not located in these [lowor moderate-income] areas. One 

example is financing a supermarket that 

serves as an anchor store in a small strip 

mall located at the edge of a middleincome area, if the mall stabilizes the 

adjacent low-income community by 

providing needed shopping services that 

are not otherwise available in the lowincome community. 

§ [§ ]ll.12([h]flgfi)[ & 

563e.12(g)]—3: Does the regulation 

provide flexibility in considering 

performance in high-cost areas? 

A3. Yes, the flexibility of the 

performance standards allows 

examiners to account in their 

evaluations for conditions in high-cost 

areas. Examiners consider lending and 

services to individuals and geographies 

of all income levels and businesses of 

all sizes and revenues. In addition, the 

flexibility in the requirement that 

community development loans, 

community development services, and 

qualified investments have as their 

‘‘primary’’ purpose community 

development allows examiners to 

account for conditions in high-cost 

areas. For example, examiners could 

take into account the fact that activities 

address a credit shortage among middleincome people or areas caused by the 

disproportionately high cost of building, 

maintaining or acquiring a house when 

determining whether an institution’s 

loan to or investment in an organization 

that funds affordable housing for 

middle-income people or areas, as well 

as low- and moderate-income people or 

areas, has as its primary purpose 

community development. 

fl§ ll.12(g)—4: The CRA provides 

that, in assessing the CRA performance 

of non-minority- and non-women-owned 

(majority-owned) financial institutions, 

examiners may consider as a factor 

capital investments, loan participations, 

and other ventures undertaken by the 

institutions in cooperation with 

minority- or women-owned financial 

institutions and low-income credit 

unions, provided that these activities 

help meet the credit needs of local 

communities in which the minority- or 

women-owned institutions or lowincome credit unions are chartered. 

Must such activities also benefit the 

majority-owned financial institution’s 

assessment area? 

A4. No. Although the regulations 

generally provide that an institution’s 

CRA activities will be evaluated for the 

extent to which they benefit the 

institution’s assessment area(s) or a 

broader statewide or regional area that 

includes the institution’s assessment 

area(s), the agencies apply a broader 

geographic criterion when evaluating 

capital investments, loan participations, 

and other ventures undertaken by that 

institution in cooperation with 

minority- or women-owned institutions 

or low-income credit unions, as 

provided by the CRA. Thus, such 

activities will be favorably considered 

in the CRA performance evaluation of 

the institution (as loans, investments, or 

services, as appropriate), even if the 

minority- or women-owned institution 

or low-income credit union is not 

located in, or such activities do not 

benefit, the assessment area(s) of the 

majority-owned institution or the 

broader statewide or regional area that 

includes its assessment area(s). The 

activities must, however, help meet the 

credit needs of the local communities in 

which the minority- or women-owned 

institutions or low-income credit unions 

are chartered.fi 

§ [§ ]ll.12([h]flgfi)(1)[ & 

563e.12(g)] Affordable housing 

(including multifamily rental housing) 

for low- or moderate-income individuals 

§ [§ ]ll.12([h]flgfi)(1)[ & 

563e.12(g)(1)]—1: When determining 

whether a project is ‘‘affordable housing 

for low- or moderate-income 

individuals,’’ thereby meeting the 

definition of ‘‘community 

development,’’ will it be sufficient to use 

a formula that relates the cost of 

ownership, rental fl,fi or borrowing to 

the income levels in the area as the only 

factor, regardless of whether the users, 

likely users, or beneficiaries of that 

affordable housing are low- or 

moderate-income individuals? 

A1. The concept of ‘‘affordable 

housing’’ for low- or moderate-income 

individuals does hinge on whether lowor moderate-income individuals benefit, 

or are likely to benefit, from the 

housing. It would be inappropriate to 

give consideration to a project that 

exclusively or predominately houses 

families that are not low- or moderateincome simply because the rents or 

housing prices are set according to a 

particular formula. 

For projects that do not yet have 

occupants, and for which the income of 

the potential occupants cannot be 

determined in advance, or in other 

projects where the income of occupants 

cannot be verified, examiners will 

review factors such as demographic, 

economicfl,fi and market data to 

determine the likelihood that the 

housing will ‘‘primarily’’ accommodate 

low- or moderate-income individuals. 

For example, examiners may look at 

median rents of the assessment area and 

the project; the median home value of 

either the assessment area, low- or 

moderate-income geographies or the 

project; the low- or moderate-income 

population in the area of the project; or 

the past performance record of the 

organization(s) undertaking the project. 

Further, such a project could receive 

consideration if its express, bona fide 

intent, as stated, for example, in a 

prospectus, loan proposalfl,fi or 

community action plan, is community 

development. 

§ [§ ]ll.12([h] flgfi)(3)[ & 

563e.12(g)(3)] Activities that promote 

economic development by financing 

businesses or farms that meet certain 

size eligibility standards. 

§ [§ ]ll.12([h]flgfi)(3)[ & 

563.12(g)(3)]—1: ‘‘Community 

development’’ includes activities that 

promote economic development by 

financing businesses or farms that meet 

certain size eligibility standards. Are all 

activities that finance businesses and 

farms that meet these size eligibility 

standards considered to be community 

development? 

A1. No. [To be considered as] flThe 

concept offi ‘‘community 

development’’ under [§§] fl12 

CFRfill.12([h]flgfi)(3)[and 

563e.12(g)(3)] flinvolves both a ‘‘size’’

test and a ‘‘purpose’’ test. An 

institution’sfi[, a] loan, investment, or 

service[, whether made]flmeets the 

‘‘size’’ test if it finances, eitherfi 

directly or through an intermediary, 

[must meet both a size test and a 

purpose test. An activity meets the size 

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Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 37931 

1The inserts and deletions are shown as 

compared to the current Q&A for the OCC, Board, 

and FDIC. The current Q&A for OTS reads: ‘‘Is the 

same definition of community development 

applicable to all savings associations? Yes, one 

definition of community development is applicable 

to all savings associations.’’ 71 FR at 52377. 

requirement if it finances entities that] 

flentities thatfi either meet the size 

eligibility standards of the Small 

Business Administration’s Development 

Company (SBDC) or Small Business 

Investment Company (SBIC) programs, 

or have gross annual revenues of $1 

million or less. 

To meet the fl‘‘fipurpose test,fl’’fi 

the [activity]fl institution’s loan, 

investment, or servicefi must promote 

economic development. [An activity 

is]fl These activities arefi considered 

to promote economic development if [it 

supports]fl they supportfi permanent 

job creation, retention, and/or 

improvement for persons who are 

currently low- or moderate-income, or 

supports permanent job creation, 

retention, and/or improvement either in 

low- or moderate-income geographies or 

in areas targeted for redevelopment by 

Federal, state, localfl,fi or tribal 

governments. The agencies will 

presume that any loan to or investment 

in a SBDC, SBIC, [or]fl Rural Business 

Investment Company,fi New Markets 

Venture Capital Companyfl, or New 

Markets Tax Credit-eligible Community 

Development Entityfi promotes 

economic development. fl(But also 

refer to Q&As § ll.42(b)(2)— 2, 

§ ll.12(h)—2, and § ll.12(h)—3 for 

more information about which loans 

may be considered community 

development loans.)fi 

In addition to their quantitative 

assessment of the amount of a financial 

institution’s community development 

activities, examiners must make 

qualitative assessments of an 

institution’s leadership in community 

development matters and the 

complexity, responsiveness, and impact 

of the community development 

activities of the institution. In reaching 

a conclusion about the impact of an 

institution’s community development 

activities, examiners may, for example, 

determine that a loan to a small 

business in a low- or moderate-income 

geography that provides needed jobs 

and services in that area may have a 

greater impact and be more responsive 

to the community credit needs than 

does a loan to a small business in the 

same geography that does not directly 

provide additional jobs or services to 

the community. 

§ [§ ]ll.12([h]flgfi)(4)[ & 

563e.12(g)(4)] Activities that revitalize 

or stabilize [low- or moderate-income]fl 

certainfi geographies. 

§ ll.12(g)(4)—1: Is the revised 

definition of community development, 

effective September 1, 2005 fl(under 

the OCC, Board, and FDIC rules) and 

effective April 12, 2006 (under OTS’s 

rule), fiapplicable to all [banks]fl 

institutionsfi or only to intermediate 

small [banks]fl institutionsfi? 1

A1. The revised definition of 

community development is applicable 

to all [banks]fl institutionsfi. 

flExaminers will not use the revised 

definition to qualify activities that were 

funded or provided prior to September 

1, 2005 (under the OCC, Board, and 

FDIC rules) or prior to April 12, 2006 

(under OTS’s rule).fi 

§ ll.12(g)(4)—2: Will activities that 

provide housing for middle-income and 

upper-income persons qualify for 

favorable consideration as community 

development activities when they help 

to revitalize or stabilize a distressed or 

underserved nonmetropolitan middleincome geography or designated 

disaster areas? 

A2. An activity that provides housing 

for middle- or upper-income individuals 

qualifies as an activity that revitalizes or 

stabilizes a distressed nonmetropolitan 

middle-income geography or a 

designated disaster area if the housing 

directly helps to revitalize or stabilize 

the community by attracting new, or 

retaining existing, businesses or 

residents and, in the case of a 

designated disaster area, is related to 

disaster recovery. The Agencies 

generally will consider all activities that 

revitalize or stabilize a distressed 

nonmetropolitan middle-income 

geography or designated disaster area, 

but will give greater weight to those 

activities that are most responsive to 

community needs, including needs of 

low- or moderate-income individuals or 

neighborhoods. Thus, for example, a 

loan solely to develop middle- or upperincome housing in a community in need 

of low- and moderate-income housing 

would be given very little weight if 

there is only a short-term benefit to lowand moderate-income individuals in the 

community through the creation of 

temporary construction jobs. ([A]fl 

Except in connection with intermediate 

small institutions, afi housing-related 

loan is not evaluated as a ‘‘community 

development loan’’ if it has been 

reported or collected by the institution 

or its affiliate as a home mortgage loan, 

unless it is a multifamily dwelling loan. 

See fl 12 CFR 

fi[§ ]ll.12([i]flhfi)(2)(i) and Q&As 

§ [§ ]ll.12([i]flhfi) [& 563e.12(h)]—

2fl and § l.12(h)—3fi.) An activity 

will be presumed to revitalize or 

stabilize such a geography or area if the 

activity is consistent with a bona fide 

government revitalization or 

stabilization plan or disaster recovery 

plan. See Q&As 

§ [§ ]ll.12([h]flgfi)(4)(i)[& 

563.12(g)(4)]—1 and 

§ [§ ]ll.12([i]flhfi) [& 563e.12(h)]—

[4]fl5fi. 

In underserved nonmetropolitan 

middle-income geographies, activities 

that provide housing for middle- and 

upper-income individuals may qualify 

as activities that revitalize or stabilize 

such underserved areas if the activities 

also provide housing for low- or 

moderate-income individuals. For 

example, a loan to build a mixedincome housing development that 

provides housing for middle- and 

upper-income individuals in an 

underserved nonmetropolitan middleincome geography would receive 

positive consideration if it also provides 

housing for low- or moderate-income 

individuals. 

§ [§ ]ll.12([h]flgfi)(4)fl(i)fi[& 

563e.12(g)(4)] Activities that revitalize 

or stabilize low- or moderate-income 

geographies. 

§ [§ ]ll.12([h]flgfi)(4)fl(i)fi[& 

563e.12(g)(4)]—1: What [are] activities 

[that]flare consideredfito ‘‘revitalize 

or stabilize’’ a low- or moderate-income 

geographyfl, and how are those 

activities consideredfi? 

A1. Activities that revitalize or 

stabilize a low- or moderate-income 

geography are activities that help to 

attract flnew, orfi[and] retain 

flexisting,fi businesses [and]florfi 

residents. Examiners will presume that 

an activity revitalizes or stabilizes a 

low- or moderate-income geography if 

the activity has been approved by the 

governing board of an Enterprise 

Community or Empowerment Zone 

(designated pursuant to 26 U.S.C. 

§ 1391) and is consistent with the 

board’s strategic plan. They will make 

the same presumption if the activity has 

received similar official designation as 

consistent with a federal, state, 

localfl,fi or tribal government plan for 

the revitalization or stabilization of the 

fllow- or moderate-incomefi 

geography. To determine whether other 

activities revitalize or stabilize a low- or 

moderate-income geography, examiners 

will evaluate the activity’s actual impact 

on the geography, if information about 

this is available. If not, examiners will 

determine whether the activity is 

consistent with the community’s formal 

or informal plans for the revitalization 

and stabilization of the low- or 

moderate-income geography. For more 

information on what activities revitalize 

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37932 Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 

or stabilize a low- or moderate-income 

geography, see flQ&Asfi 

§ [§ ]ll.12([h]flgfi)[& 563e.12(g)]—2 

and § [§ ]ll.12 

([i]flhfi)[& 563.12(h)]—4. 

§ll.12(g)(4)(ii) Activities that 

revitalize or stabilize designated 

disaster areas. 

§ll.12(g)(4)(ii)—1: What is a 

‘‘designated disaster area’’ and how 

long does it last? 

A1. A ‘‘designated disaster area’’ is a 

major disaster area designated by the 

federal government. Such disaster 

designations include, in particular, 

Major Disaster Declarations 

administered by the Federal Emergency 

Management Agency (FEMA) (http:// 

www.fema.gov), but excludes counties 

designated to receive only FEMA Public 

Assistance Emergency Work Category A 

(Debris Removal) and/or Category B 

(Emergency Protective Measures). 

Examiners will consider 

[bank]flinstitutionfi activities related 

to disaster recovery that revitalize or 

stabilize a designated disaster area for 

36 months following the date of 

designation. Where there is a 

demonstrable community need to 

extend the period for recognizing 

revitalization or stabilization activities 

in a particular disaster area to assist in 

long-term recovery efforts, this time 

period may be extended. 

§ll.12(g)(4)(ii)—2: What activities 

are considered to ‘‘revitalize or 

stabilize’’ a designated disaster area, 

and how are those activities considered? 

A2. The Agencies generally will 

consider an activity to revitalize or 

stabilize a designated disaster area if it 

helps to attract new, or retain existing, 

businesses or residents and is related to 

disaster recovery. An activity will be 

presumed to revitalize or stabilize the 

area if the activity is consistent with a 

bona fide government revitalization or 

stabilization plan or disaster recovery 

plan. The Agencies generally will 

consider all activities relating to disaster 

recovery that revitalize or stabilize a 

designated disaster area, but will give 

greater weight to those activities that are 

most responsive to community needs, 

including the needs of low- or 

moderate-income individuals or 

neighborhoods. Qualifying activities 

may include, for example, providing 

financing to help retain businesses in 

the area that employ local residents, 

including low- and moderate-income 

individuals; providing financing to 

attract a major new employer that will 

create long-term job opportunities, 

including for low- and moderate-income 

individuals; providing financing or 

other assistance for essential 

community-wide infrastructure, 

community services, and rebuilding 

needs; and activities that provide 

housing, financial assistance, and 

services to individuals in designated 

disaster areas and to individuals who 

have been displaced from those areas, 

including low- and moderate-income 

individuals (see, e.g., Q&As 

§ll.12([j]flifi)[& 563e.12(i)]–3; 

§ll.12([s]fltfi)[& 563e.12(r)]—4; 

§ll.22(b)(2) & (3)–4; §ll.22(b)(2) & 

(3)—5; and §ll.24(d)(3)–1). 

§ll.12(g)(4)(iii) Activities that 

revitalize or stabilize distressed or 

underserved nonmetropolitan middleincome geographies. 

§ll.12(g)(4)(iii)—1: What criteria 

are used to identify distressed or 

underserved nonmetropolitan, middleincome geographies? 

A1. Eligible nonmetropolitan middleincome geographies are those 

designated by the Agencies as being in 

distress or that could have difficulty 

meeting essential community needs 

(underserved). A particular geography 

could be designated as both distressed 

and underserved. As defined in fl12 

CFRfi[§ ]ll.12(k), a geography is a 

census tract delineated by the United 

States Bureau of the Census. 

A nonmetropolitan middle-income 

geography will be designated as 

distressed if it is in a county that meets 

one or more of the following triggers: (1) 

An unemployment rate of at least 1.5 

times the national average, (2) a poverty 

rate of 20 percent or more, or (3) a 

population loss of 10 percent or more 

between the previous and most recent 

decennial census or a net migration loss 

of five percent or more over the fiveyear period preceding the most recent 

census. 

A nonmetropolitan middle-income 

geography will be designated as 

underserved if it meets criteria for 

population size, density, and dispersion 

that indicate the area’s population is 

sufficiently small, thin, and distant from 

a population center that the tract is 

likely to have difficulty financing the 

fixed costs of meeting essential 

community needs. The Agencies will 

use as the basis for these designations 

the ‘‘urban influence codes,’’ numbered 

‘‘7,’’ ‘‘10,’’ ‘‘11,’’ and ‘‘12,’’ maintained 

by the Economic Research Service of the 

United States Department of 

Agriculture. 

The Agencies [will] publish data 

source information along with the list of 

eligible nonmetropolitan census tracts 

on the Federal Financial Institutions 

Examination Council Web site (http:// 

www.ffiec.gov). 

§ ll.12(g)(4)(iii)—2: How often will 

the Agencies update the list of 

designated distressed and underserved 

nonmetropolitan middle-income 

geographies? 

A2. The Agencies will review and 

update the list annually [as needed]. 

The list [will be] flisfi published on 

the Federal Financial Institutions 

Examination Council Web site (http:// 

www.ffiec.gov). 

To the extent that changes to the 

designated census tracts occur, the 

Agencies have determined to adopt a 

one-year ‘‘lag period.’’ This lag period 

will be in effect for the twelve months 

immediately following the date when a 

census tract that was designated as 

distressed or underserved is removed 

from the designated list. Revitalization 

or stabilization activities undertaken 

during the lag period will receive 

consideration as community 

development activities if they would 

have been considered to have a primary 

purpose of community development if 

the census tract in which they were 

located were still designated as 

distressed or underserved. 

§ll.12(g)(4)(iii)—3: What activities 

are considered to ‘‘revitalize or 

stabilize’’ a distressed nonmetropolitan 

middle-income geography, and how are 

those activities evaluated? 

A3: An activity revitalizes or 

stabilizes a distressed nonmetropolitan 

middle-income geography if it helps to 

attract new, or retain existing, 

businesses or residents. An activity will 

be presumed to revitalize or stabilize the 

area if the activity is consistent with a 

bona fide government revitalization or 

stabilization plan. The Agencies 

generally will consider all activities that 

revitalize or stabilize a distressed 

nonmetropolitan middle-income 

geography, but will give greater weight 

to those activities that are most 

responsive to community needs, 

including needs of low- or moderateincome individuals or neighborhoods. 

Qualifying activities may include, for 

example, providing financing to attract 

a major new employer that will create 

long-term job opportunities, including 

for low- and moderate-income 

individuals, and activities that provide 

financing or other assistance for 

essential infrastructure or facilities 

necessary to attract or retain businesses 

or residents. See Q&As 

§ [§ ]ll.12([h](flgfi)(4)[& 

563e.12(g)(4)fl(i)fi]—1 and 

§ [§ ]ll.12([i] flhfi )[& 563e.12(h)]—

[4] fl5fi . 

§ ll.12(g)(4)(iii)—4: What activities 

are considered to ‘‘revitalize or 

stabilize’’ an underserved 

nonmetropolitan middle-income 

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geography, and how are those activities 

evaluated? 

A4. The regulation provides that 

activities revitalize or stabilize an 

underserved nonmetropolitan middleincome geography if they help to meet 

essential community needs, including 

needs of low- or moderate-income 

individuals. Activities such as financing 

for the construction, expansion, 

improvement, maintenance, or 

operation of essential infrastructure or 

facilities for health services, education, 

public safety, public services, industrial 

parks, or affordable housing, will be 

evaluated under these criteria to 

determine if they qualify for 

revitalization or stabilization 

consideration. Examples of the types of 

projects that qualify as meeting essential 

community needs, including needs of 

low- or moderate-income individuals, 

would be a new or expanded hospital 

that serves the entire county, including 

low- and moderate-income residents; an 

industrial park for businesses whose 

employees include low- or moderateincome individuals; a new or 

rehabilitated sewer line that serves 

community residents, including low- or 

moderate-income residents; a mixedincome housing development that 

includes affordable housing for low- and 

moderate-income families; or a 

renovated elementary school that serves 

children from the community, including 

children from low- and moderateincome families. 

Other activities in the area, such as 

financing a project to build a sewer line 

spur that connects services to a middleor upper-income housing development 

while bypassing a low- or moderateincome development that also needs the 

sewer services, generally would not 

qualify for revitalization or stabilization 

consideration in geographies designated 

as underserved. However, if an 

underserved geography is also 

designated as distressed or a disaster 

area, additional activities may be 

considered to revitalize or stabilize the 

geography, as explained in Q&As 

§ ll.12(g)(4)(ii)—2 and 

§ ll.12(g)(4)(iii)—3. 

§ [§ ] ll.12([i] flhfi )[& 563e.12(h)] 

Community development loan. 

§ [§ ] ll.12([i] flhfi )[& 

563e.12(h)]–1: What are examples of 

community development loans? 

A1. Examples of community 

development loans include, but are not 

limited to, loans to: 

• Borrowers for affordable housing 

rehabilitation and construction, 

including construction and permanent 

financing of multifamily rental property 

serving low- and moderate-income 

persons; 

• Not-for-profit organizations serving 

primarily low- and moderate-income 

housing or other community 

development needs; 

• Borrowers to construct or 

rehabilitate community facilities that 

are located in low- and moderateincome areas or that serve primarily 

low- and moderate-income individuals; 

• Financial intermediaries including 

Community Development Financial 

Institutions (CDFIs), flNew Markets 

Tax Credit-eligible Community 

Development Entities,fi Community 

Development Corporations (CDCs), 

minority- and women-owned financial 

institutions, community loan funds or 

pools, and low-income or community 

development credit unions that 

primarily lend or facilitate lending to 

promote community development[.] 

fl;fi 

• Local, state, and tribal governments 

for community development activities; 

[and] 

• Borrowers to finance environmental 

clean-up or redevelopment of an 

industrial site as part of an effort to 

revitalize the low- or moderate-income 

community in which the property is 

located[.]fl; and 

• Businesses, in an amount greater 

than $1 million, when made as part of 

the Small Business Administration’s 

504 Certified Development Company 

program.fi 

The rehabilitation and construction of 

affordable housing or community 

facilities, referred to above, may include 

the abatement or remediation of, or 

other actions to correct, environmental 

hazards, such as lead-based paint, that 

are present in the housing, facilities, or 

site. 

§ [§ ]ll.12([i]flhfi)[ & 

563e.12(h)]—2: If a retail institution that 

is not required to report under the Home 

Mortgage Disclosure Act (HMDA) makes 

affordable home mortgage loans that 

would be HMDA-reportable home 

mortgage loans if it were a reporting 

institution, or if a small institution that 

is not required to collect and report loan 

data under flthefi CRA makes small 

business and small farm loans and 

consumer loans that would be collected 

and/or reported if the institution were a 

large institution, may the institution 

have these loans considered as 

community development loans? 

A2. No. Although small institutions 

are not required to report or collect 

information on small business and small 

farm loans and consumer loans, and 

some institutions are not required to 

report information about their home 

mortgage loans under HMDA, if these 

institutions are retail institutions, the 

agencies will consider in their CRA 

evaluations the institutions’ originations 

and purchases of loans that would have 

been collected or reported as small 

business, small farm, consumer or home 

mortgage loans, had the institution been 

a collecting and reporting institution 

under the CRA or the HMDA. Therefore, 

these loans will not be considered as 

community development loansfl, 

unless the small institution is an 

intermediate small institution (see 

§ ll.12(h)—3)fi. Multifamily 

dwelling loans, however, may be 

considered as community development 

loans as well as home mortgage loans. 

See also flQ&Afi § ll.42(b)(2)—2. 

fl§ ll.12(h)—3: May an 

intermediate small institution that is not 

subject to HMDA reporting have home 

mortgage loans considered as 

community development loans? 

Similarly, may an intermediate small 

institution have small business and 

small farm loans and consumer loans 

considered as community development 

loans? 

A3. Yes. These loans may be 

considered, at the institution’s option, 

as community development loans 

provided they meet the regulatory 

definition of ‘‘community 

development.’’ However, these loans 

may not be considered under both the 

lending test and the community 

development test for intermediate small 

institutions. Thus, if an institution 

elects that these loans be considered 

under the community development test, 

the loans may not also be considered 

under the lending test, and would be 

excluded from the lending test 

analysis.fi 

§ [§ ]ll.12([ i ]flhfi)[ & 

563e.12(h) ] —[3] fl4fi: Do secured 

credit cards or other credit card 

programs targeted to low- or moderateincome individuals qualify as 

community development loans? 

A3. No. Credit cards issued to low- or 

moderate-income individuals for 

household, family, or other personal 

expenditures, whether as part of a 

program targeted to such individuals or 

otherwise, do not qualify as community 

development loans because they do not 

have as their primary purpose any of the 

activities included in the definition of 

‘‘community development.’’

§ [§ ]ll.12([i] flhfi)[ & 

563e.12(h)]—[4]fl5fi: The regulation 

indicates that community development 

includes ‘‘activities that revitalize or 

stabilize low- or moderate-income 

geographies.’’ Do all loans in a low-to 

moderate-income geography have a 

stabilizing effect? 

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37934 Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 

A4. No. Some loans may provide only 

indirect or short-term benefits to low- or 

moderate-income individuals in a lowor moderate-income geography. These 

loans are not considered to have a 

community development purpose. For 

example, a loan for upper-income 

housing in a [distressed] fllow- or 

moderate-incomefi area is not 

considered to have a community 

development purpose simply because of 

the indirect benefit to low- or moderateincome persons from construction jobs 

or the increase in the local tax base that 

supports enhanced services to low- and 

moderate-income area residents. On the 

other hand, a loan for an anchor 

business in a [distressed] fllow- or 

moderate-incomefi area (or a nearby 

area)[, which] flthatfi employs or 

serves residents of the area[,] and fl,fi 

thusfl,fi stabilizes the area, may be 

considered to have a community 

development purpose. For example, in 

[an underserved, distressed] fla lowincomefi area, a loan for a pharmacy 

that employs and [provides supplies 

to]flservesfi residents of the area 

promotes community development. 

§ [§ ]ll.12([i]flhfi)[ & 

563e.12(h)]—[5]fl6fi: Must there be 

some immediate or direct benefit to the 

institution’s assessment area(s) to 

satisfy the regulations’ requirement that 

qualified investments and community 

development loans or services benefit an 

institution’s assessment area(s) or a 

broader statewide or regional area that 

includes the institution’s assessment 

area(s)? 

A5. No. The regulations recognize that 

community development organizations 

and programs are efficient and effective 

ways for institutions to promote 

community development. These 

organizations and programs often 

operate on a statewide or even 

multistate basis. Therefore, an 

institution’s activity is considered a 

community development loan or service 

or a qualified investment if it supports 

an organization or activity that covers 

an area that is larger than, but includes, 

the institution’s assessment area(s). The 

institution’s assessment area(s) need not 

receive an immediate or direct benefit 

from the institution’s specific 

participation in the broader organization 

or activity, provided that the purpose, 

mandate, or function of the organization 

or activity includes serving geographies 

or individuals located within the 

institution’s assessment area(s). 

In addition, a retail institution that, 

considering its performance context, has 

adequately addressed the community 

development needs of its assessment 

area(s) will receive consideration for 

certain other community development 

activities. These community 

development activities must benefit 

geographies or individuals located 

somewhere within a broader statewide 

or regional area that includes the 

institution’s assessment area(s). 

Examiners will consider these activities 

even if they will not benefit the 

institution’s assessment area(s). 

§ [§ ]ll.12([i]flhfi)[ & 

563e.12(h)]—[6]fl7fi: What is meant 

by the term ‘‘regional area’’? 

A6. A ‘‘regional area’’ may be [as 

small as a city or county or] as large as 

a multistate area. For example, the 

‘‘mid-Atlantic states’’ may comprise a 

regional area. 

Community development loans and 

services and qualified investments to 

statewide or regional organizations that 

have a bona fide purpose, mandate, or 

function that includes serving the 

geographies or individuals within the 

institution’s assessment area(s) will be 

considered as addressing assessment 

area needs. When examiners evaluate 

community development loans and 

services and qualified investments that 

benefit a regional area that includes the 

institution’s assessment area(s), they 

will consider the institution’s 

performance context as well as the size 

of the regional area and the actual or 

potential benefit to the institution’s 

assessment area(s). With larger regional 

areas, benefit to the institution’s 

assessment area(s) may be diffused and, 

thus fl,fi less responsive to assessment 

area needs. 

In addition, as long as an institution 

has adequately addressed the 

community development needs of its 

assessment area(s), it will also receive 

consideration for community 

development activities that benefit 

geographies or individuals located 

somewhere within the broader 

statewide or regional area that includes 

the institution’s assessment area(s), even 

if those activities do not benefit its 

assessment area(s). 

§ [§ ]ll.12([i]flhfi)[ & 

563e.12(h)]—[7]fl8fi: What is meant 

by the term ‘‘primary purpose’’ as that 

term is used to define what constitutes 

a community development loan, a 

qualified investment or a community 

development service? 

A7. A loan, investment or service has 

as its primary purpose community 

development when it is designed for the 

express purpose of revitalizing or 

stabilizing low- or moderate-income 

areas, fldesignated disaster areas, or 

underserved or distressed 

nonmetropolitan middle-income 

areas, fi providing affordable housing 

for, or community services targeted to, 

low- or moderate-income persons, or 

promoting economic development by 

financing small businesses and farms 

that meet the requirements set forth in 

fl12 CFR fi [§ § ]ll.12([h]flgfi)[ or 

563e.12(g)]. To determine whether an 

activity is designed for an express 

community development purpose, the 

agencies apply one of two approaches. 

First, if a majority of the dollars or 

beneficiaries of the activity are 

identifiable to one or more of the 

enumerated community development 

purposes, then the activity will be 

considered to possess the requisite 

primary purpose. Alternatively, where 

the measurable portion of any benefit 

bestowed or dollars applied to the 

community development purpose is less 

than a majority of the entire activity’s 

benefits or dollar value, then the activity 

may still be considered to possess the 

requisite primary purpose if (1) the 

express, bona fide intent of the activity, 

as stated, for example, in a prospectus, 

loan proposal, or community action 

plan, is primarily one or more of the 

enumerated community development 

purposes; (2) the activity is specifically 

structured (given any relevant market or 

legal constraints or performance context 

factors) to achieve the expressed 

community development purpose; and 

(3) the activity accomplishes, or is 

reasonably certain to accomplish, the 

community development purpose 

involved. The fact that an activity 

provides indirect or short-term benefits 

to low- or moderate-income persons 

does not make the activity community 

development, nor does the mere 

presence of such indirect or short-term 

benefits constitute a primary purpose of 

community development. Financial 

institutions that want examiners to 

consider certain activities under either 

approach should be prepared to 

demonstrate the activities’

qualifications. 

§ [§ ]ll.12([j]flifi )[& 563e.12(i)]

Community development service. 

§ [§ ]ll.12([j]flifi)[& 563e.12(i)]—

1: In addition to meeting the definition 

of ‘‘community development’’ in the 

regulation, community development 

services must also be related to the 

provision of financial services. What is 

meant by ‘‘provision of financial 

services’’? 

A1. Providing financial services 

means providing services of the type 

generally provided by the financial 

services industry. Providing financial 

services often involves informing 

community members about how to get 

or use credit or otherwise providing 

credit services or information to the 

community. For example, service on the 

board of directors of an organization 

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Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 37935 

that promotes credit availability or 

finances affordable housing is related to 

the provision of financial services. 

Providing technical assistance about 

financial services to community-based 

groups, local or tribal government 

agencies, or intermediaries that help to 

meet the credit needs of low- and 

moderate-income individuals or small 

businesses and farms is also providing 

financial services. By contrast, activities 

that do not take advantage of the 

employees’ financial expertise, such as 

neighborhood cleanups, do not involve 

the provision of financial services. 

§ [§ ]ll.12([j]flifi)[& 563e.12(i)]—

2: Are personal charitable activities 

provided by an institution’s employees 

or directors outside the ordinary course 

of their employment considered 

community development services? 

A2. No. Services must be provided as 

a representative of the institution. For 

example, if a financial institution’s 

director, on her own time and not as a 

representative of the institution, 

volunteers one evening a week at a local 

community development corporation’s 

financial counseling program, the 

institution may not consider this 

activity a community development 

service. 

§ [§ ]ll.12[j]flifi)[ & 563e.12(i)]—3: 

What are examples of community 

development services? 

A3. Examples of community 

development services include, but are 

not limited to, the following: 

• Providing financial services to lowand moderate-income individuals 

through branches and other facilities 

located in low- and moderate-income 

areas, unless the provision of such 

services has been considered in the 

evaluation of [a bank’s]flan 

institution’sfi retail banking services 

under fl12 CFRfi[§ ]ll.24(d); 

• flIncreasing access to financial 

services by opening or maintaining 

branches or other facilities that help to 

revitalize or stabilize a low- or 

moderate-income geography, a 

designated disaster area, or a distressed 

or underserved nonmetropolitan 

middle-income geography, unless the 

opening or maintaining of such 

branches or other facilities has been 

considered in the evaluation of the 

institution’s retail banking services 

under 12 CFR ll.24(d);fi 

• Providing technical assistance on 

financial matters to nonprofit, tribal or 

government organizations serving lowand moderate-income housing or 

economic revitalization and 

development needs; 

• Providing technical assistance on 

financial matters to small businesses or 

community development organizations, 

including organizations and individuals 

who apply for loans or grants under the 

Federal Home Loan Banks’ Affordable 

Housing Program; 

• Lending employees to provide 

financial services for organizations 

facilitating affordable housing 

construction and rehabilitation or 

development of affordable housing; 

• Providing credit counseling, homebuyer and home-maintenance 

counseling, financial planning or other 

financial services education to promote 

community development and affordable 

housing, including credit counseling to 

assist borrowers in avoiding foreclosure 

on their homes; 

• Establishing school savings 

programs [and developing]fl;fi 

• flDevelopingfi or teaching 

financial [education] flliteracyfi 

curricula for low- or moderate-income 

individuals; 

• Providing electronic benefits 

transfer and point of sale terminal 

systems to improve access to financial 

services, such as by decreasing costs, for 

low- or moderate-income individuals; 

• Providing international 

[remittances] flremittancefi services 

that increase access to financial services 

by low- and moderate-income persons 

(for example, by offering reasonably 

priced international [remittances] 

flremittancefi services in connection 

with a low-cost account); and 

• Providing other financial services 

with the primary purpose of community 

development, such as low-cost bank 

accounts, including ‘‘Electronic Transfer 

Accounts’’ provided pursuant to the 

Debt Collection Improvement Act of 

1996, flindividual development 

accounts (IDAs),fi or free government 

flor payrollfi check cashing that 

increases access to financial services for 

low- or moderate-income individuals. 

Examples of technical assistance 

activities that might be provided to 

community development organizations 

include: 

• Serving on a loan review 

committee; 

• Developing loan application and 

underwriting standards; 

• Developing loan processing 

systems; 

• Developing secondary market 

vehicles or programs; 

• Assisting in marketing financial 

services, including development of 

advertising and promotions, 

publications, workshops and 

conferences; 

• Furnishing financial services 

training for staff and management; 

• Contributing accounting/ 

bookkeeping services; and 

• Assisting in fund raising, including 

soliciting or arranging investments. 

§ [§ ]ll.12([k]fljfi )[& 563e.12(j)] 

Consumer loan. 

§ [§ ]ll.12([k]fljfi)[& 563e.12(j)]—

1: Are home equity loans considered 

‘‘consumer loans’’? 

A1. Home equity loans made for 

purposes other than home purchase, 

home improvement or refinancing home 

purchase or home improvement loans 

are consumer loans if they are extended 

to one or more individuals for 

household, family, or other personal 

expenditures. 

§ [§ ]ll.12 ([k]fljfi)[& 563e.12(j)]—

2: May a home equity line of credit be 

considered a ‘‘consumer’’ loan even if 

part of the line is for home improvement 

purposes? 

A2. If the predominant purpose of the 

line is home improvement, the line may 

only be reported under HMDA and may 

not be considered a consumer loan. 

However, the full amount of the line 

may be considered a ‘‘consumer loan’’ if 

its predominant purpose is for 

household, family, or other personal 

expenditures, and to a lesser extent 

home improvement, and the full amount 

of the line has not been reported under 

HMDA. This is the case even though 

there may be ‘‘double counting’’ because 

part of the line may also have been 

reported under HMDA. 

§ [§ ]ll.12 ([k]fljfi)[& 563e.12(j)]—

3: How should an institution collect or 

report information on loans the 

proceeds of which will be used for 

multiple purposes? 

A3. If an institution makes a single 

loan or provides a line of credit to a 

customer to be used for both consumer 

and small business purposes, consistent 

with the Call Report and TFR 

instructions, the institution should 

determine the major (predominant) 

component of the loan or the credit line 

and collect or report the entire loan or 

credit line in accordance with the 

regulation’s specifications for that loan 

type. 

§ [§ ]ll.12 ([m]fllfi)[& 563e.12(l)]

Home mortgage loan. 

§ [§ ]ll.12 ([m]fllfi)[& 

563e.12(l)]—1: Does the term ‘‘home 

mortgage loan’’ include loans other than 

‘‘home purchase loans’’? 

A1. Yes. ‘‘Home mortgage loan’’

includes [a] ‘‘home improvement loan,’’

[as well as a] ‘‘home purchase loan,’’

fland ‘‘refinancing,’’fi as defined in 

the HMDA regulation, Regulation C, 12 

CFR part 203. This definition also 

includes multifamily (five-or-more 

families) dwelling loans[,] flandfi 

loans for the purchase of manufactured 

homes[, and refinancings of home 

improvement and home purchase 

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37936 Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 

loans]. flSee also Q&A § ll.22(a) 

(2)—7.fi 

§ [§ ]ll.12 ([m]fllfi)[& 

563e.12(l)]—2: Some financial 

institutions broker home mortgage 

loans. They typically take the borrower’s 

application and perform other 

settlement activities; however, they do 

not make the credit decision. The broker 

institutions may also initially fund these 

mortgage loans, then immediately 

assign them to another lender. Because 

the broker institution does not make the 

credit decision, under Regulation C 

(HMDA), they do not record the loans on 

their HMDA–LARs, even if they fund the 

loans. May an institution receive any 

consideration under CRA for its home 

mortgage loan brokerage activities? 

A2. Yes. A financial institution that 

funds home mortgage loans but 

immediately assigns the loans to the 

lender that made the credit decisions 

may present information about these 

loans to examiners for consideration 

under the lending test as ‘‘other loan 

data.’’ Under Regulation C, the broker 

institution does not record the loans on 

its HMDA–LAR because it does not 

make the credit decisions, even if it 

funds the loans. An institution electing 

to have these home mortgage loans 

considered must maintain information 

about all of the home mortgage loans 

that it has funded in this way. 

Examiners will consider [this] 

flthesefi other loan data using the 

same criteria by which home mortgage 

loans originated or purchased by an 

institution are evaluated. 

Institutions that do not provide 

funding but merely take applications 

and provide settlement services for 

another lender that makes the credit 

decisions will receive consideration for 

this service as a retail banking service. 

Examiners will consider an institution’s 

mortgage brokerage services when 

evaluating the range of services 

provided to low-, moderate-, middleand upper-income geographies and the 

degree to which the services are tailored 

to meet the needs of those geographies. 

Alternatively, an institution’s mortgage 

brokerage service may be considered a 

community development service if the 

primary purpose of the service is 

community development. An institution 

wishing to have its mortgage brokerage 

service considered as a community 

development service must provide 

sufficient information to substantiate 

that its primary purpose is community 

development and to establish the extent 

of the services provided. 

§ [§ ]ll.12 ([n]flmfi) [& 

563e.12(m)] Income level. 

§ [§ ]ll.12 ([n]flmfi)[& 

563e.12(m)]—1: Where do institutions 

find income level data for geographies 

and individuals? 

A1. The income levels for 

geographies, i.e., census tracts[ and 

block numbering areas], are derived 

from Census Bureau information and are 

updated flapproximatelyfi every ten 

years. [Institutions may contact their 

regional Census Bureau office or the 

Census Bureau’s Income Statistics 

Office at (301) 763–8576 to obtain 

income levels for geographies. See 

Appendix A of these Interagency 

Questions and Answers for a list of the 

regional Census Bureau offices.] The 

income levels for individuals are 

derived from information calculated by 

the Department of Housing and Urban 

Development (HUD) and updated 

annually. [Institutions may contact HUD 

at (800) 245–2691 to request a copy of 

‘‘FY [year number, e.g., 1996] Median 

Family Incomes for States and their 

Metropolitan and Nonmetropolitan 

Portions.’’] 

[Alternatively, institutions] 

flInstitutionsfi may obtain [a list of the 

1990 Census Bureau-calculated] fl2000 

geography income informationfi and 

the annually updated HUD median 

family incomes for metropolitan 

statistical areas (MSAs) and statewide 

nonmetropolitan areas by [calling] 

flaccessingfi the Federal Financial 

Institution Examination Council’s 

(FFIEC’s) [HMDA Help] flWeb site at 

http://www.ffiec.gov/cra or by calling 

the FFIEC’s CRA Assistancefi Line at 

(202) [452–2016]fl872–7584fi. [A free 

copy will be faxed to the caller through 

the ‘‘fax-back’’ system. Institutions may 

also call this number to have ‘‘faxedback’’ an order form, from which they 

may order a list providing the median 

family income level, as a percentage of 

the appropriate MSA or 

nonmetropolitan median family income, 

of every census tract and block 

numbering area (BNA). This list costs 

$50. Institutions may also obtain the list 

of MSA and statewide nonmetropolitan 

area median family incomes or an order 

form through the FFIEC’s home page on 

the Internet at <http://www.ffiec.gov.] 

§ [§ ]ll.12 ([o]fl nfi)[& 563e.12(n)] 

Limited purpose institution 

§ [§ ]ll.12 ([o]flnfi)[& 

563e.12(n)]—1: What constitutes a 

‘‘narrow product line’’ in the definition 

of ‘‘limited purpose institution’’? 

A1. An institution offers a narrow 

product line by limiting its lending 

activities to a product line other than a 

traditional retail product line required 

to be evaluated under the lending test 

(i.e., home mortgage, small business, 

and small farm loans). Thus, an 

institution engaged only in making 

credit card or motor vehicle loans offers 

a narrow product line, while an 

institution limiting its lending activities 

to home mortgages is not offering a 

narrow product line. 

§ [§ ]ll.12 ([o]flnfi)[& 

563e.12(n)]—2: What factors will the 

agencies consider to determine whether 

an institution that, if limited purpose, 

makes loans outside a narrow product 

line, or, if wholesale, engages in retail 

lending, will lose its limited purpose or 

wholesale designation because of too 

much other lending? 

A2. Wholesale institutions may 

engage in some retail lending without 

losing their designation if this activity is 

incidental and done on an 

accommodation basis. Similarly, limited 

purpose institutions continue to meet 

the narrow product line requirement if 

they provide other types of loans on an 

infrequent basis. In reviewing other 

lending activities by these institutions, 

the agencies will consider the following 

factors: 

• Is the [other] flretailfi lending 

provided as an incident to the 

institution’s wholesale lending? 

• Are the flretailfi loans provided 

as an accommodation to the institution’s 

wholesale customers? 

• Are the flother types offi loans 

made only infrequently to the limited 

purpose institution’s customers? 

• Does only an insignificant portion 

of the institution’s total assets and 

income result from the other lending? 

• How significant a role does the 

institution play in providing that type(s) 

of loan(s) in the institution’s assessment 

area(s)? 

• Does the institution hold itself out 

as offering that type(s) of loan(s)? 

• Does the lending test or the 

community development test present a 

more accurate picture of the 

institution’s CRA performance? 

§[§ ]ll.12([o]flnfi)[ & 

563e.12(n)]—3: Do ‘‘niche institutions’’

qualify as limited purpose (or 

wholesale) institutions? 

A3. Generally, no. Institutions that are 

in the business of lending to the public, 

but specialize in certain types of retail 

loans (for example, home mortgage or 

small business loans) to certain types of 

borrowers (for example, to high-end 

income level customers or to 

corporations or partnerships of licensed 

professional practitioners) (‘‘niche 

institutions’’) generally would not 

qualify as limited purpose (or 

wholesale) institutions. 

§[§ ]ll.12([s]fltfi)[ & 563e.12(r)]

Qualified investment. 

§[§ ]ll.12([s]fltfi)[ & 563e.12(r)]1: 

Does the CRA regulation provide 

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Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 37937 

authority for institutions to make 

investments? 

A1. No. The CRA regulation does not 

provide authority for institutions to 

make investments that are not otherwise 

allowed by Federal law. 

§[§ ]ll.12([s]fltfi)[ & 563e.12(r)]—

2: Are mortgage-backed securities or 

municipal bonds ‘‘qualified 

investments’’? 

A2. As a general rule, mortgagebacked securities and municipal bonds 

are not qualified investments because 

they do not have as their primary 

purpose community development, as 

defined in the CRA regulations. 

Nonetheless, mortgage-backed securities 

or municipal bonds designed primarily 

to finance community development 

generally are qualified investments. 

Municipal bonds or other securities 

with a primary purpose of community 

development need not be housingrelated. For example, a bond to fund a 

community facility or park or to provide 

sewage services as part of a plan to 

redevelop a low-income neighborhood 

is a qualified investment. flCertain 

municipal bonds in underserved 

nonmetropolitan middle-income 

geographies may also be qualified 

investments. See Q&A 

§ ll.12(g)(4)(iii)— 4.fi Housingrelated bonds or securities must 

primarily address affordable housing 

(including multifamily rental housing) 

needs flof low- or moderate-income 

individualsfi in order to qualify. See 

also flQ&Afi § ll.23(b)—2. 

§[§ ]ll.12([s]fltfi)[ & 563e.12(r)]—

3: Are Federal Home Loan Bank stocks 

flor unpaid dividendsfi and 

membership reserves with the Federal 

Reserve Banks ‘‘qualified investments’’? 

A3. No. Federal Home Loan Bank 

(FHLB) stocks flor unpaid dividendsfi 

and membership reserves with the 

Federal Reserve Banks do not have a 

sufficient connection to community 

development to be qualified 

investments. However, FHLB member 

institutions may receive CRA 

consideration flas a community 

development servicefi for technical 

assistance they provide on behalf of 

applicants and recipients of funding 

from the FHLB’s Affordable Housing 

Program. See flQ&Afi 

§[§ ]ll.12([j]flifi)[ & 563e.12(i)]—3. 

§[§ ]ll.12([s]fltfi)[ & 563e.12(r)]—

4: What are examples of qualified 

investments? 

A4. Examples of qualified 

investments include, but are not limited 

to, investments, grants, deposits or 

shares in or to: 

• Financial intermediaries (including 

Community Development Financial 

Institutions (CDFIs), fl New Markets 

Tax Credit-eligible Community 

Development Entities,fi Community 

Development Corporations (CDCs), 

minority- and women-owned financial 

institutions, community loan funds, and 

low-income or community development 

credit unions) that primarily lend or 

facilitate lending in low- and moderateincome areas or to low- and moderateincome individuals in order to promote 

community development, such as a 

CDFI that promotes economic 

development on an Indian reservation; 

• Organizations engaged in affordable 

housing rehabilitation and construction, 

including multifamily rental housing; 

• Organizations, including, for 

example, Small Business Investment 

Companies (SBICs), specialized SBICs, 

and Rural Business Investment 

Companies (RBICs) that promote 

economic development by financing 

small businesses;fl 

• Community development venture 

capital companies that promote 

economic development by financing 

small businesses;fi 

• Facilities that promote community 

development flby providing 

community servicesfi for low- and 

moderate-income individuals, such as 

youth programs, homeless centers, soup 

kitchens, health care facilities, battered 

women’s centers, and alcohol and drug 

recovery centers; 

• Projects eligible for low-income 

housing tax credits; 

• State and municipal obligations, 

such as revenue bonds, that specifically 

support affordable housing or other 

community development; 

• Not-for-profit organizations serving 

low- and moderate-income housing or 

other community development needs, 

such as counseling for credit, homeownership, home maintenance, and 

other financial [services education] 

flliteracy programsfi; and 

• Organizations supporting activities 

essential to the capacity of low- and 

moderate-income individuals or 

geographies to utilize credit or to 

sustain economic development, such as, 

for example, day care operations and job 

training programs that enable [people] 

fllow- or moderate-income 

individualsfi to work. 

flSee also Q&As § ll.12(g)(4)(ii)—

2; § ll.12(g)(4)(iii)—3; 

§ ll.12(g)(4)(iii)—4.fi 

§[§ ]ll.12([s]fltfi)[ &563e.12(r)]—

5: Will an institution receive 

consideration for charitable 

contributions as ‘‘qualified 

investments’’? 

A5. Yes, provided they have as their 

primary purpose community 

development as defined in the 

regulations. A charitable contribution, 

whether in cash or an in-kind 

contribution of property, is included in 

the term ‘‘grant.’’ A qualified investment 

is not disqualified because an 

institution receives favorable treatment 

for it (for example, as a tax deduction 

or credit) under the Internal Revenue 

Code. 

§[§ ]ll.12([s]fltfi)[ & 563e.12(r)]—

6: An institution makes or participates 

in a community development loan. The 

institution provided the loan at belowmarket interest rates or ‘‘bought down’’

the interest rate to the borrower. Is the 

lost income resulting from the lower 

interest rate or buy-down a qualified 

investment? 

A6. No. The agencies will, however, 

consider the flresponsiveness,fi 

innovativenessfl,fi and complexity of 

the community development loan 

within the bounds of safe and sound 

banking practices. 

§[§ ]ll.12([s]fltfi)[ & 563e.12(r)]—

7: Will the agencies consider as a 

qualified investment the wages or other 

compensation of an employee or 

director who provides assistance to a 

community development organization 

on behalf of the institution? 

A7. No. However, the agencies will 

consider donated labor of employees or 

directors of a financial institution [in 

the service test if the activity is] flasfi 

a community development service flif 

the activity meets the regulatory 

definition of ‘‘community development 

service.’’fi 

§ ll.12(t)—fl8fi: When evaluating 

a qualified investment, what 

consideration will be given for priorperiod investments? 

A1. When evaluating [a bank’s]flan 

institution’sfi qualified investment 

record, examiners will consider 

investments that were made prior to the 

current examination, but that are still 

outstanding. Qualitative factors will 

affect the weighting given to both 

current period and outstanding priorperiod qualified investments. For 

example, a prior-period outstanding 

investment with a multi-year impact 

that addresses assessment area 

community development needs may 

receive more consideration than a 

current period investment of a 

comparable amount that is less 

responsive to area community 

development needs. 

§[§ ]ll.12([t]flufi)[ & 563e.12(s)] 

Small institution. 

[§§ ll.12(t) & 563e.12(s)—1: How 

are the ‘‘total bank and thrift assets’’ of 

a holding company determined? 

A1. ‘‘Total banking and thrift assets’’

of a holding company are determined by 

combining the total assets of all banks 

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37938 Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 

2The inserts and deletions are shown as 

compared to the current Q&A for the OCC, Board, 

and FDIC. There currently is no comparable Q&A 

for OTS. 

and/or thrifts that are majority-owned 

by the holding company. An institution 

is majority-owned if the holding 

company directly or indirectly owns 

more than 50 percent of its outstanding 

voting stock.] 

§ [§ ]ll.12([t]flufi)[& 563e.12(s)]—

[2]fl1fi: How are Federal and State 

branch assets of a foreign bank 

calculated for purposes of the CRA? 

A[2]fl1fi. A Federal or State branch 

of a foreign bank is considered a small 

institution if the Federal or State branch 

has flassetsfi less than [$250 million 

in assets] flthe asset threshold 

delineated in 12 CFR ll.12(u)(1) for 

small institutions.fi [and the total 

assets of the foreign bank’s or its 

holding company’s U.S. bank and thrift 

subsidiaries that are subject to the CRA 

are less than $1 billion. This calculation 

includes not only FDIC-insured bank 

and thrift subsidiaries, but also the 

assets of any FDIC-insured branch of the 

foreign bank and the assets of any 

uninsured Federal or State branch (other 

than a limited branch or a Federal 

agency) of the foreign bank that results 

from an acquisition described in section 

5(a)(8) of the International Banking Act 

of 1978 (12 U.S.C. § 3103(a)(8)).] 

fl§ ll.12(u)(2) Small Institution 

Adjustmentfi 

§ ll.12(u)(2)—1: How often will the 

asset size thresholds for small [banks] 

flinstitutionsfi and intermediate small 

[banks] flinstitutionsfi be changed, 

and how will these adjustments be 

communicated? 2

A1. The asset size thresholds for 

‘‘small [banks] flinstitutionsfi’’ and 

‘‘intermediate small [banks] 

flinstitutionsfi’’ will be adjusted 

annually based on changes to the 

Consumer Price Index. More 

specifically, the dollar thresholds will 

be adjusted annually based on the yearto-year change in the average of the 

Consumer Price Index for Urban Wage 

Earners and Clerical Workers, not 

seasonally adjusted for each twelvemonth period ending in November, with 

rounding to the nearest million. Any 

changes in the asset size thresholds will 

be published in the Federal Register. 

flHistorical and current asset-size 

threshold information may be found on 

the FFIEC’s Web site at http:// 

www.ffiec.gov/cra.fi 

§ [§ ]ll.12([u]flvfi)[& 563e.12(t)]

Small Business Loan 

§ [§ ]ll.12([u]flvfi)[& 563e.12(t)]—

1: Are loans to nonprofit organizations 

considered small business loans or are 

they considered community 

development loans? 

A1. To be considered a small business 

loan, a loan must meet the definition of 

‘‘loan to small business’’ in the 

instructions in the ‘‘Consolidated 

Reports of Conditions and Income’’ (Call 

Report) and ‘‘Thrift Financial Report’’

(TFR). In general, a loan to a nonprofit 

organization, for business or farm 

purposes, where the loan is secured by 

nonfarm nonresidential property and 

the original amount of the loan is $1 

million or less, if a business loan, or 

$500,000 or less, if a farm loan, would 

be reported in the Call Report and TFR 

as a small business or small farm loan. 

If a loan to a nonprofit organization is 

reportable as a small business or small 

farm loan, it cannot also be considered 

as a community development loan, 

except by a wholesale or limited 

purpose institution. Loans to nonprofit 

organizations that are not small business 

or small farm loans for Call Report and 

TFR purposes may be considered as 

community development loans if they 

meet the regulatory definition[.] flof 

‘‘community development.’’fi 

§ [§ ]ll.12([u]flvfi)[& 563e.12(t)]—

2: Are loans secured by commercial real 

estate considered small business loans? 

A2. Yes, depending on their principal 

amount. Small business loans include 

loans secured by ‘‘nonfarm 

nonresidential properties,’’ as defined in 

the Call Report and TFR, in amounts 

[less than] floffi $1 million flor 

lessfi. 

§ [§ ]ll.12([u]flvfi)[& 563e.12(t)]—

3: Are loans secured by nonfarm 

residential real estate to finance small 

businesses ‘‘small business loans’’? 

A3. Applicable to banks filing Call 

Reports: Typically not. Loans secured 

by nonfarm residential real estate that 

are used to finance small businesses are 

not included as ‘‘small business’’ loans 

for Call Report purposes unless the 

security interest in the nonfarm 

residential real estate is taken only as an 

abundance of caution. (See Call Report 

Glossary definition of ‘‘Loan Secured by 

Real Estate.’’) The agencies recognize 

that many small businesses are financed 

by loans that would not have been made 

or would have been made on less 

favorable terms had they not been 

secured by residential real estate. If 

these loans promote community 

development, as defined in the 

regulation, they may be considered as 

community development loans. 

Otherwise, at an institution’s option, the 

institution may collect and maintain 

data separately concerning these loans 

and request that the data be considered 

in its CRA evaluation as ‘‘Other Secured 

Lines/Loans for Purposes of Small 

Business.’’ flSee also Q&A 

§ ll.22(a)(2)—7.fi 

Applicable to institutions that file 

TFRs: Possibly, depending how the loan 

is classified for TFR purposes. Loans 

secured by nonfarm residential real 

estate to finance small businesses may 

be included as small business loans 

only if they are reported on the TFR as 

nonmortgage, commercial loans. (See 

TFR Q&A No. 62.) Otherwise, loans that 

meet the definition of mortgage loans, 

for TFR reporting purposes, may be 

classified as mortgage loans. 

§ [§ ]ll.12([u]flvfi)[& 563e.12(t)]—

4: Are credit cards issued to small 

businesses considered ‘‘small business 

loans’’? 

A4. Credit cards issued to a small 

business or to individuals to be used, 

with the institution’s knowledge, as 

business accounts are small business 

loans if they meet the definitional 

requirements in the Call Report or TFR 

instructions. 

§ [§ ]ll.12([w]flxfi)[& 563e.12(v)]

Wholesale Institution 

§ [§ ]ll.12([w]flxfi)[& 

563e.12(v)]—1: What factors will the 

agencies consider in determining 

whether an institution is in the business 

of extending home mortgage, small 

business, small farm, or consumer loans 

to retail customers? 

A1. The agencies will consider 

whether: 

• The institution holds itself out to 

the retail public as providing such 

loans; and 

• The institution’s revenues from 

extending such loans are significant 

when compared to its overall 

operationsfl, including off-balance 

sheet activitiesfi. 

A wholesale institution may make 

some retail loans without losing its 

wholesale designation as described 

above in 

flQ&Afi§ [§ ]ll.12([o]flnfi)[ & 

563e.12(n)]—2. 

§ ll.21 Performance tests, standards, 

and ratings, in general. 

§ ll.21(a) Performance tests and 

standards. 

fl§ ll.21(a)—1: How will examiners 

apply the performance criteria? 

A1. Examiners will apply the 

performance criteria reasonably and 

fairly, in accord with the regulations, 

the examination procedures, and this 

guidance. In doing so, examiners will 

disregard efforts by an institution to 

manipulate business operations or 

present information in an artificial light 

that does not accurately reflect an 

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institution’s overall record of lending 

performance.fi 

§ ll.21(a)—[1]fl2fi: Are all 

community development activities 

weighted equally by examiners? 

A1. No. Examiners will consider the 

responsiveness to credit and community 

development needs, as well as the 

innovativeness and complexity, if 

applicable, of an institution’s 

community development lending, 

qualified investments, and community 

development services. These criteria 

include consideration of the degree to 

which they serve as a catalyst for other 

community development activities. The 

criteria are designed to add a qualitative 

element to the evaluation of an 

institution’s performance. 

(fl‘‘Innovativeness’’ and ‘‘complexity’’

are not factors in the community 

development test applicable to 

intermediate small institutions.)fi 

§ ll.21(b) Performance context. 

§ ll.21(b)—1: [Is]flWhat isfi the 

performance context[ essentially the 

same as the former regulation’s needs 

assessment]? 

A1. [No.] The performance context is 

a broad range of economic, 

demographic, and institution- and 

community-specific information that an 

examiner reviews to understand the 

context in which an institution’s record 

of performance should be evaluated. 

The agencies will provide examiners 

with [much]flsomefi of this 

information[ prior to the examination]. 

The performance context is not a 

formal[ or written] assessment of 

community credit needs. 

§ ll.21(b)(2) Information maintained 

by the institution or obtained from 

community contacts. 

§ ll.21(b)(2)—1: Will examiners 

consider performance context 

information provided by institutions? 

A1. Yes. An institution may provide 

examiners with any information it 

deems relevant, including information 

on the lending, investment, and service 

opportunities in its assessment area(s). 

This information may include data on 

the business opportunities addressed by 

lenders not subject to the CRA. 

Institutions are not required, however, 

to prepare a fl formalfi needs 

assessment. If an institution provides 

information to examiners, the agencies 

will not expect information other than 

what the institution normally would 

develop to prepare a business plan or to 

identify potential markets and 

customers, including low- and 

moderate-income persons and 

geographies in its assessment area(s). 

The agencies will not evaluate an 

institution’s efforts to ascertain 

community credit needs or rate an 

institution on the quality of any 

information it provides. 

§ ll.21(b)(2)—2: Will examiners 

conduct community contact interviews 

as part of the examination process? 

A2. Yes. Examiners will consider 

information obtained from interviews 

with local community, civic, and 

government leaders. These interviews 

provide examiners with knowledge 

regarding the local community, its 

economic base, and community 

development initiatives. To ensure that 

information from local leaders is 

considered—particularly in areas where 

the number of potential contacts may be 

limited—examiners may use 

information obtained through an 

interview with a single community 

contact for examinations of more than 

one institution in a given market. In 

addition, the agencies [will]flmayfi 

consider information obtained from 

interviews conducted by other agency 

staff and by the other agencies. In order 

to augment contacts previously used by 

the agencies and foster a wider array of 

contacts, the agencies [will]flmayfi 

share community contact information. 

§ ll.21(b)(4) Institutional capacity 

and constraints. 

§ ll.21(b)(4)—1: Will examiners 

consider factors outside of an 

institution’s control that prevent it from 

engaging in certain activities? 

A1. Yes. Examiners will take into 

account statutory and supervisory 

limitations on an institution’s ability to 

engage in any lending, investment, and 

service activities. For example, a savings 

association that has made few or no 

qualified investments due to its limited 

investment authority may still receive a 

low satisfactory rating under the 

investment test if it has a strong lending 

record. 

§ ll.21(b)(5) Institution’s past 

performance and the performance of 

similarly situated lenders 

§ ll.21(b)(5)—1: Can an 

institution’s assigned rating be 

adversely affected by poor past 

performance? 

A1. Yes. The agencies will consider 

an institution’s past performance in its 

overall evaluation. For example, an 

institution that received a rating of 

‘‘needs to improve’’ in the past may 

receive a rating of ‘‘substantial 

noncompliance’’ if its performance has 

not improved. 

§ ll.21(b)(5)—2: How will 

examiners consider the performance of 

similarly situated lenders? 

A2. The performance context section 

of the regulation permits the 

performance of similarly situated 

lenders to be considered, for example, 

as one of a number of considerations in 

evaluating the geographic distribution of 

an institution’s loans to low-, 

moderate-, middle-, and upper-income 

geographies. This analysis, as well as 

other analyses, may be used, for 

example, where groups of contiguous 

geographies within an institution’s 

assessment area(s) exhibit abnormally 

low penetration. In this regard, the 

performance of similarly situated 

lenders may be analyzed if such an 

analysis would provide accurate insight 

into the institution’s lack of 

performance in those areas. The 

regulation does not require the use of a 

specific type of analysis under these 

circumstances. Moreover, no ratio 

developed from any type of analysis is 

linked to any lending test rating. 

§ ll.22 Lending test. 

§ ll.22(a) Scope of test. 

§ ll.22(a)—1: Are there any types of 

lending activities that help meet the 

credit needs of an institution’s 

assessment area(s) and that may 

warrant favorable consideration as 

activities that are responsive to the 

needs of the institution’s assessment 

area(s)? 

A1. Credit needs vary from 

community to community. However, 

there are some lending activities that are 

likely to be responsive in helping to 

meet the credit needs of many 

communities. These activities include: 

• Providing loan programs that 

include a financial education 

component about how to avoid lending 

activities that may be abusive or 

otherwise unsuitable; 

• Establishing loan programs that 

provide small, unsecured consumer 

loans in a safe and sound manner (i.e., 

based on the borrower’s ability to repay) 

and with reasonable terms; 

• Offering lending programs, which 

feature reporting to consumer reporting 

agencies, that transition borrowers from 

loans with higher interest rates and fees 

(based on credit risk) to lower-cost 

loans, consistent with safe and sound 

lending practices. Reporting to 

consumer reporting agencies allows 

borrowers accessing these programs the 

opportunity to improve their credit 

histories and thereby improve their 

access to competitive credit products[.] 

fl; 

• Establishing loan programs that 

provide relief to low- and moderateincome homeowners who are facing 

foreclosure on their homes.fi 

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Examiners may consider favorably such 

lending activities, which have features 

augmenting the success and 

effectiveness of the flsmall, 

intermediate small, or largefi 

institution’s lending programs. 

§ ll.22(a)(1) Types of loans 

considered. 

§ ll.22(a)(1)—1: If a large retail 

institution is not required to collect and 

report home mortgage data under the 

HMDA, will the agencies still evaluate 

the institution’s home mortgage lending 

performance? 

A1. Yes. The agencies will sample the 

institution’s home mortgage loan files in 

order to assess its performance under 

the lending test criteria. 

§ ll.22(a)(1)—2: When will 

examiners consider consumer loans as 

part of an institution’s CRA evaluation? 

A2. Consumer loans will be evaluated 

if the institution so elects fland has 

collected and maintained the datafi ; 

[and] an institution that elects not to 

have its consumer loans evaluated will 

not be viewed less favorably by 

examiners than one that does. However, 

if consumer loans constitute a 

substantial majority of the institution’s 

business, the agencies will evaluate 

them even if the institution does not so 

elect. The agencies interpret 

‘‘substantial majority’’ to be so 

significant a portion of the institution’s 

lending activity by number [or] flandfi 

dollar volume of loans that the lending 

test evaluation would not meaningfully 

reflect its lending performance if 

consumer loans were excluded. 

§ ll.22(a)(2) Loan originations and 

purchases/other loan data. 

§ ll.22(a)(2)—1: How are lending 

commitments (such as letters of credit) 

evaluated under the regulation? 

A1. The agencies consider lending 

commitments (such as letters of credit) 

only at the option of the institution fl, 

regardless of examination typefi . 

Commitments must be legally binding 

between an institution and a borrower 

in order to be considered. Information 

about lending commitments will be 

used by examiners to enhance their 

understanding of an institution’s 

performance fl, but will be evaluated 

separately from the loansfi . 

§ ll.22(a)(2)—2: Will examiners 

review application data as part of the 

lending test? 

A2. Application activity is not a 

performance criterion of the lending 

test. However, examiners may consider 

this information in the performance 

context analysis because this 

information may give examiners insight 

on, for example, the demand for loans. 

§ ll.22(a)(2)—3: May a financial 

institution receive consideration under 

CRA for home mortgage loan 

modification, extension, and 

consolidation agreements (MECAs), in 

which it obtains home mortgage loans 

from other institutions without actually 

purchasing or refinancing the home 

mortgage loans, as those terms have 

been interpreted under CRA and HMDA, 

as implemented by 12 CFR [pt.] 

flpartfi 203? 

A3. Yes. In some states, MECAs, 

which are not considered loan 

refinancings because the existing loan 

obligations are not satisfied and 

replaced, are common. Although these 

transactions are not considered to be 

purchases or refinancings, as those 

terms have been interpreted under CRA, 

they do achieve the same results. [An] 

flA small, intermediate small, or 

largefi institution may present 

information about its MECA activities 

with respect to home mortgages to 

examiners for consideration under the 

lending test as ‘‘other loan data.’’

fl§ ll.22(a)(2)—4: In addition to 

MECAs, what are other examples of 

‘‘other loan data’’? 

A4. Other loan data include, for 

example: 

• Loans funded for sale to the 

secondary markets that an institution 

has not reported under HMDA; 

• Unfunded loan commitments and 

letters of credit; 

• Commercial and consumer leases; 

• Loans secured by nonfarm 

residential real estate, not taken as an 

abundance of caution, that are used to 

finance small businesses or small farms 

and that are not reported as small 

business/small farm loans or reported 

under HMDA; 

• Loans that do not have a primary 

purpose of community development, 

but where a certain amount or 

percentage of units is set aside for 

affordable housing; and 

• An increase to a small business or 

small farm line of credit if the increase 

would cause the total line of credit to 

exceed $1 million, in the case of a small 

business line, or $500,000, in the case 

of a small farm line. fi 

§ ll.22(a)(2)—[4] fl5fi : Do 

institutions receive consideration for 

originating or purchasing loans that are 

fully guaranteed? 

A4. Yes. [The test evaluates] flFor all 

examination types, examiners 

evaluatefi an institution’s record of 

helping to meet the credit needs of its 

assessment area(s) through the 

origination or purchase of specified 

types of loans. [The test does] 

flExaminers dofi not take into account 

whether or not such loans are 

guaranteed. 

fl§ ll.22(a)(2)—6: Do institutions 

receive consideration for purchasing 

loan participations? 

A5. Yes. Examiners will consider the 

amount of loan participations purchased 

when evaluating an institution’s record 

of helping to meet the credit needs of its 

assessment area(s) through the 

origination or purchase of specified 

types of loans, regardless of examination 

type. fi 

fl § ll.22(a)(2)—7: How are 

refinancings of small business loans, 

which are secured by a one-to-four 

family residence and that have been 

reported under HMDA as a refinancing, 

evaluated under CRA? 

A6. For banks subject to the Call 

Report instructions: A loan of $1 million 

or less with a business purpose that is 

secured by a one-to-four family 

residence is considered a small business 

loan for CRA purposes only if the 

security interest in the residential 

property was taken as an abundance of 

caution and where the terms have not 

been made more favorable than they 

would have been in the absence of the 

lien. (See Call Report Glossary 

definition of ‘‘Loan Secured by Real 

Estate.’’) If this same loan is refinanced 

and the new loan is also secured by a 

one-to-four family residence, but only 

through an abundance of caution, this 

loan is reported not only as a 

refinancing under HMDA, but also as a 

small business loan under CRA. (Note 

that small farm loans are similarly 

treated.) 

It is not anticipated that ‘‘doublereported’’ loans will be so numerous as 

to affect the typical institution’s CRA 

rating. In the event that an institution 

reports a significant number or amount 

of loans as both home mortgage and 

small business loans, examiners will 

consider that overlap in evaluating the 

institution’s performance and generally 

will consider the ‘‘double-reported’’

loans as small business loans for CRA 

consideration. 

The origination of a small business or 

small farm loan that is secured by a oneto-four family residence is not 

reportable under HMDA, unless the 

purpose of the loan is home purchase or 

home improvement. Nor is the loan 

reported as a small business or small 

farm loan if the security interest is not 

taken merely as an abundance of 

caution. Any such loan may be provided 

to examiners as ‘‘other loan data’’

(‘‘Other Secured Lines/Loans for 

Purposes of Small Business’’) for 

consideration during a CRA evaluation. 

See Q&A § ll.12(v)—3. The 

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3Note that this Q&A would be slightly revised 

and moved to become Q&A §ll.22(a)—1, not 

deleted. 

refinancings of such loans would be 

reported under HMDA. 

For savings associations subject to the 

Thrift Financial Reporting instructions: 

A loan of $1 million or less with a 

business purpose secured by a one-tofour family residence is considered a 

small business loan for CRA purposes if 

it is reported as a small business loan 

for TFR purposes and was not reported 

on the TFR as a mortgage loan (TFR 

Instructions for Commercial Loans: 

Secured). If this same loan is refinanced 

and the new loan is also secured by a 

one-to-four family residence, and was 

not reported for TFR purposes as a 

mortgage loan, this loan is reported not 

only as a refinancing for HMDA, but is 

also reported as a small business loan 

under the TFR and CRA. The 

origination of a small business or small 

farm loan that is secured by a one-tofour family residence is not reportable 

under HMDA, unless the purpose of the 

loan is home purchase or home 

improvement. Nor is the loan reported 

as small business or small farm if it was 

reported as a mortgage on the TFR 

report. 

OTS does not anticipate that ‘‘doublereported’’ loans will be so numerous as 

to affect the typical institution’s CRA 

rating. In the event that an institution 

reports a significant number or amount 

of loans as both home mortgage and 

small business loans, examiners will 

consider that overlap in evaluating the 

institution’s performance and generally 

will consider the ‘‘double-reported’’

loans as small business loans for CRA 

consideration. 

The origination of a small business or 

small farm loan that is secured by a oneto-four family residence should be 

reported in accordance with Q&A 

§ ll.12(v)—3. The refinancings of 

such loans would be reported under 

HMDA.fi 

§ ll.22(b) Performance criteria. 

[§ ll.22(b)—1: How will examiners 

apply the performance criteria in the 

lending test? 3

A1. Examiners will apply the 

performance criteria reasonably and 

fairly, in accord with the regulations, 

the examination procedures, and this 

Guidance. In doing so, examiners will 

disregard efforts by an institution to 

manipulate business operations or 

present information in an artificial light 

that does not accurately reflect an 

institution’s overall record of lending 

performance.] 

§ ll.22(b)(1) Lending activity. 

§ ll.22(b)(1)—1: How will the 

agencies apply the lending activity 

criterion to discourage an institution 

from originating loans that are viewed 

favorably under CRA in the institution 

itself and referring other loans, which 

are not viewed as favorably, for 

origination by an affiliate? 

A1. Examiners will review closely 

institutions with (1) a small number and 

amount of home mortgage loans with an 

unusually good distribution among lowand moderate-income areas and lowand moderate-income borrowers and (2) 

a policy of referring most, but not all, of 

their home mortgage loans to affiliated 

institutions. If an institution is making 

loans mostly to low- and moderateincome individuals and areas and 

referring the rest of the loan applicants 

to an affiliate for the purpose of 

receiving a favorable CRA rating, 

examiners may conclude that the 

institution’s lending activity is not 

satisfactory because it has 

inappropriately attempted to influence 

the rating. In evaluating an institution’s 

lending, examiners will consider 

legitimate business reasons for the 

allocation of the lending activity. 

§ ll.22(b)(2) & (3) Geographic 

distribution and borrower 

characteristics. 

§ ll.22(b)(2) & (3)—1: How do the 

geographic distribution of loans and the 

distribution of lending by borrower 

characteristics interact in the lending 

test flapplicable to either large or small 

institutionsfi? 

A1. Examiners generally will consider 

both the distribution of an institution s 

loans among geographies of different 

income levelsfl,fi and among 

borrowers of different income levels and 

businesses fland farmsfi of different 

sizes. The importance of the borrower 

distribution criterion, particularly in 

relation to the geographic distribution 

criterion, will depend on the 

performance context. For example, 

distribution among borrowers with 

different income levels may be more 

important in areas without identifiable 

geographies of different income 

categories. On the other hand, 

geographic distribution may be more 

important in areas with the full range of 

geographies of different income 

categories. 

§ ll.22(b)(2) & (3)—2: Must an 

institution lend to all portions of its 

assessment area? 

A2. The term ‘‘assessment area’’

describes the geographic area within 

which the agencies assess how well an 

institutionfl, regardless of examination 

type,fi has met the specific 

performance tests and standards in the 

rule. The agencies do not expect that 

simply because a census tract [or block 

numbering area] is within an 

institution’s assessment area(s), the 

institution must lend to that census 

tract[or block numbering area]. Rather 

the agencies will be concerned with 

conspicuous gaps in loan distribution 

that are not explained by the 

performance context. Similarly, if an 

institution delineated the entire county 

in which it is located as its assessment 

area, but could have delineated its 

assessment area as only a portion of the 

county, it will not be penalized for 

lending only in that portion of the 

county, so long as that portion does not 

reflect illegal discrimination or 

arbitrarily exclude low- or moderateincome geographies. The capacity and 

constraints of an institution, its business 

decisions about how it can best help to 

meet the needs of its assessment area(s), 

including those of low- and moderateincome neighborhoods, and other 

aspects of the performance context, are 

all relevant to explain why the 

institution is serving or not serving 

portions of its assessment area(s). 

§ ll.22(b)(2) & (3)—3: Will 

examiners take into account loans made 

by affiliates when evaluating the 

proportion of an institution’s lending in 

its assessment area(s)? 

A3. Examiners will not take into 

account loans made by affiliates when 

determining the proportion of an 

institution’s lending in its assessment 

area(s), even if the institution elects to 

have its affiliate lending considered in 

the remainder of the lending test 

evaluation. However, examiners may 

consider an institution’s business 

strategy of conducting lending through 

an affiliate in order to determine 

whether a low proportion of lending in 

the assessment area(s) should adversely 

affect the institution’s lending test 

rating. 

§ ll.22(b)(2) & (3)—4: When will 

examiners consider loans (other than 

community development loans) made 

outside an institution’s assessment 

area(s)? 

A4. Consideration will be given for 

loans to low- and moderate-income 

persons and small business and farm 

loans outside of an institution’s 

assessment area(s), provided the 

institution has adequately addressed the 

needs of borrowers within its 

assessment area(s). The agencies will 

apply this consideration not only to 

loans made by large retail institutions 

being evaluated under the lending test, 

but also to loans made by smallfland 

intermediate smallfi institutions being 

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37942 Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 

evaluated under [the small 

institution]fltheir respectivefi 

performance standards. Loans to lowand moderate-income persons and small 

businesses and farms outside of an 

institution s assessment area(s), 

however, will not compensate for poor 

lending performance within the 

institution s assessment area(s). 

§ ll.22(b)(2) & (3)—5: Under the 

lending testflapplicable to small, 

intermediate small, or large 

institutionsfi, how will examiners 

evaluate home mortgage loans to 

middle- or upper-income individuals in 

a low- or moderate-income geography? 

A5. Examiners will consider these 

home mortgage loans under the 

performance criteria of the lending test, 

i.e., by number and amount of home 

mortgage loans, whether they are inside 

or outside the financial institution’s 

assessment area(s), their geographic 

distribution, and the income levels of 

the borrowers. Examiners will use 

information regarding the financial 

institution’s performance context to 

determine how to evaluate the loans 

under these performance criteria. 

Depending on the performance context, 

examiners could view home mortgage 

loans to middle-income individuals in a 

low-income geography very differently. 

For example, if the loans are for homes 

or multifamily housing located in an 

area for which the local, state, tribal, or 

Federal government or a communitybased development organization has 

developed a revitalization or 

stabilization plan (such as a Federal 

enterprise community or empowerment 

zone) that includes attracting mixedincome residents to establish a 

stabilized, economically diverse 

neighborhood, examiners may give more 

consideration to such loans, which may 

be viewed as serving the low- or 

moderate-income community’s needs as 

well as serving those of the middle- or 

upper-income borrowers. If, on the other 

hand, no such plan exists and there is 

no other evidence of governmental 

support for a revitalization or 

stabilization project in the area and the 

loans to middle- or upper-income 

borrowers significantly disadvantage or 

primarily have the effect of displacing 

low- or moderate-income residents, 

examiners may view these loans simply 

as home mortgage loans to middle- or 

upper-income borrowers who happen to 

reside in a low- or moderate-income 

geography and weigh them accordingly 

in their evaluation of the institution. 

§ ll.22(b)(4) Community 

development lending. 

§ ll.22(b)(4)—1: When evaluating 

an institution’s record of community 

development lending fl under the 

lending test applicable to large 

institutionsfi, may an examiner 

distinguish among community 

development loans on the basis of the 

actual amount of the loan that advances 

the community development purpose? 

A1. Yes. When evaluating the 

institution s record of community 

development lending under fl12 CFRfi 

[§ ]ll.22(b)(4), it is appropriate to give 

greater weight to the amount of the loan 

that is targeted to the intended 

community development purpose. For 

example, consider two $10 million 

projects (with a total of 100 units each) 

that have as their express primary 

purpose affordable housing and are 

located in the same community. One of 

these projects sets aside 40 percent of its 

units for low-income residents and the 

other project allocates 65 percent of its 

units for low-income residents. An 

institution would report both loans as 

$10 million community development 

loans under the fl12 CFRfi 

[§ ]ll.42(b)(2) aggregate reporting 

obligation. However, transaction 

complexity, innovation and all other 

relevant considerations being equal, an 

examiner should also take into account 

that the 65 percent project provides 

more affordable housing for more 

people per dollar expended. 

Under fl12 CFRfi [§ ]ll.22(b)(4), 

the extent of CRA consideration an 

institution receives for its community 

development loans should bear a direct 

relation to the benefits received by the 

community and the innovation or 

complexity of the loans required to 

accomplish the activity, not simply to 

the dollar amount expended on a 

particular transaction. By applying all 

lending test performance criteria, a 

community development loan of a lower 

dollar amount could meet the credit 

needs of the institution’s community to 

a greater extent than a community 

development loan with a higher dollar 

amount, but with less innovation, 

complexity, or impact on the 

community. 

§ ll.22(b)(5) Innovative or flexible 

lending practices. 

§ .22(b)(5)—1: What is the range of 

practices that examiners may consider 

in evaluating the innovativeness or 

flexibility of an institution s lending 

flunder the lending test applicable to 

large institutionsfi? 

A1. In evaluating the innovativeness 

or flexibility of an institution’s lending 

practices (and the complexity and 

innovativeness of its community 

development lending), examiners will 

not be limited to reviewing the overall 

variety and specific terms and 

conditions of the credit products 

themselves. In connection with the 

evaluation of an institution’s lending, 

examiners also may give consideration 

to related innovations when they 

augment the success and effectiveness 

of the institution’s lending under its 

community development loan programs 

or, more generally, its lending under its 

loan programs that address the credit 

needs of low- and moderate-income 

geographies or individuals. For 

example: 

• In connection with a community 

development loan program, [a bank] 

flan institutionfi may establish a 

technical assistance program under 

which the [bank] flinstitutionfi, 

directly or through third parties, 

provides affordable housing developers 

and other loan recipients with financial 

consulting services. Such a technical 

assistance program may, by itself, 

constitute a community development 

service eligible for consideration under 

the service test of the CRA regulations. 

In addition, the technical assistance 

may be favorably considered as an 

innovation that augments the success 

and effectiveness of the related 

community development loan program. 

• In connection with a small business 

lending program in a low- or moderateincome area and consistent with safe 

and sound lending practices, [a bank] 

flan institutionfi may implement a 

program under which, in addition to 

providing financing, the [bank] 

flinstitutionfi also contracts with the 

small business borrowers. Such a 

contracting arrangement would not, 

standing alone, qualify for CRA 

consideration. However, it may be 

favorably considered as an innovation 

that augments the loan program’s 

success and effectiveness, and improves 

the program’s ability to serve 

community development purposes by 

helping to promote economic 

development through support of small 

business activities and revitalization or 

stabilization of low- or moderate-income 

geographies. 

§ ll.22(c) Affiliate lending. 

§ ll.22(c)(1) In general. 

§ ll.22(c)(1)—1: If an institutionfl, 

regardless of examination type,fi elects 

to have loans by its affiliate(s) 

considered, may it elect to have only 

certain categories of loans considered? 

A1. Yes. An institution may elect to 

have only a particular category of its 

affiliate’s lending considered. The basic 

categories of loans are home mortgage 

loans, small business loans, small farm 

loans, community development loans, 

and the five categories of consumer 

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loans (motor vehicle loans, credit card 

loans, home equity loans, other secured 

loans, and other unsecured loans). 

§ ll.22(c)(2) Constraints on affiliate 

lending. 

§ ll.22(c)(2)(i) No affiliate may 

claim a loan origination or loan 

purchase if another institution claims 

the same loan origination or purchase. 

§ ll.22(c)(2)(i)—1: [How] 

flRegardless of examination type, 

howfi is this constraint on affiliate 

lending applied? 

A1. This constraint prohibits one 

affiliate from claiming a loan origination 

or purchase claimed by another affiliate. 

However, an institution can count as a 

purchase a loan originated by an 

affiliate that the institution 

subsequently purchases, or count as an 

origination a loan later sold to an 

affiliate, provided the same loans are 

not sold several times to inflate their 

value for CRA purposes. flFor example, 

assume that two institutions are 

affiliated. Bank A originates a loan and 

claims it as a loan origination. Bank B 

later purchases the loan. Bank B may 

count the loan as a purchased loan. 

The same institution may not count 

both the origination and purchase. 

Thus, for example, if an institution 

claims loans made by an affiliated 

mortgage company as loan originations, 

the institution may not also count the 

loans as purchased loans if it later 

purchases the loans from its affiliate.fi 

§ ll.22(c)(2)(ii) If an institution 

elects to have its supervisory agency 

consider loans within a particular 

lending category made by one or more 

of the institution s affiliates in a 

particular assessment area, the 

institution shall elect to have the agency 

consider all loans within that lending 

category in that particular assessment 

area made by all of the institution’s 

affiliates. 

§ ll.22(c)(2)(ii)—1: [How] 

flRegardless of examination type, 

howfi is this constraint on affiliate 

lending applied? 

A1. This constraint prohibits ‘‘cherrypicking’’ affiliate loans within any one 

category of loans. The constraint 

requires an institution that elects to 

have a particular category of affiliate 

lending in a particular assessment area 

considered to include all loans of that 

type made by all of its affiliates in that 

particular assessment area. For example, 

assume that an institution has [one or 

more]flseveralfi affiliates, [such 

as]flincludingfi a mortgage 

[bank]flcompanyfi that makes loans in 

the institution’s assessment area. If the 

institution elects to include the 

mortgage [bank’s]flcompany’sfi home 

mortgage loans, it must include all of 

[mortgage bank’s] flits affiliates’fi 

home mortgage loans made in its 

assessment area. [The]flIn addition, 

thefi institution cannot elect to include 

only those low- and moderate-income 

home mortgage loans made by [the 

mortgage bank affiliate] flits affiliatesfi 

and not home mortgage loans to middleand upper-income individuals or areas. 

§ ll.22(c)(2)(ii)–2: 

[How]flRegardless of examination type, 

howfi is this constraint applied if an 

institution’s affiliates are also insured 

depository institutions subject to the 

CRA? 

A2. Strict application of this 

constraint against ‘‘cherry-picking’’ to 

loans of an affiliate that is also an 

insured depository institution covered 

by the CRA would produce the 

anomalous result that the other 

institution would, without its consent, 

not be able to count its own loans. 

Because the agencies did not intend to 

deprive an institution subject to the 

CRA of receiving consideration for its 

own lending, the agencies read this 

constraint slightly differently in cases 

involving a group of affiliated 

institutions, some of which are subject 

to the CRA and share the same 

assessment area(s). In those 

circumstances, an institution that elects 

to include all of its mortgage affiliate’s 

home mortgage loans in its assessment 

area would not automatically be 

required to include all home mortgage 

loans in its assessment area of another 

affiliate institution subject to the CRA. 

However, all loans of a particular type 

made by any affiliate in the institution’s 

assessment area(s) must either be 

counted by the lending institution or by 

another affiliate institution that is 

subject to the CRA. This reading reflects 

the fact that a holding company may, for 

business reasons, choose to transact 

different aspects of its business in 

different subsidiary institutions. 

However, the method by which loans 

are allocated among the institutions for 

CRA purposes must reflect actual 

business decisions about the allocation 

of banking activities among the 

institutions and should not be designed 

solely to enhance their CRA evaluations. 

§ ll.22(d) Lending by a consortium 

or a third party. 

§ ll.22(d)—1: Will equity and 

equity-type investments in a third party 

receive consideration under the lending 

test? 

A1. If an institution has made an 

equity or equity-type investment in a 

third party, community development 

loans made by the third party may be 

considered under the lending test. On 

the other hand, asset-backed and debt 

securities that do not represent an 

equity-type interest in a third party will 

not be considered under the lending test 

unless the securities are booked by the 

purchasing institution as a loan. For 

example, if an institution purchases 

stock in a community development 

corporation (‘‘CDC’’) that primarily 

lends in low- and moderate-income 

areas or to low- and moderate-income 

individuals in order to promote 

community development, the institution 

may claim a pro rata share of the CDC’s 

loans as community development loans. 

The institution’s pro rata share is based 

on its percentage of equity ownership in 

the CDC. flQ&Afi § ll.23(b)—1 

provides information concerning 

consideration of an equity or equitytype investment under the investment 

test and both the lending and 

investment tests.fl (Note that in 

connection with an intermediate small 

institution’s CRA performance 

evaluation, community development 

loans, including pro rata shares of 

community development loans, are 

considered only in the community 

development test.)fi 

§ ll.22(d)–2: [How] flRegardless of 

examination type, howfi will examiners 

evaluate loans made by consortia or 

third parties [under the lending test]? 

A2. Loans originated or purchased by 

consortia in which an institution 

participates or by third parties in which 

an institution invests will[ only] be 

consideredflonlyfi if they qualify as 

community development loans and 

will[ only] be consideredflonlyfi 

under the community development 

criterion[ of the lending test]. However, 

loans originated directly on the books of 

an institution or purchased by the 

institution are considered to have been 

made or purchased directly by the 

institution, even if the institution 

originated or purchased the loans as a 

result of its participation in a loan 

consortium. These loans would be 

considered under[ all] the lending 

testflor community developmentfi test 

criteria appropriate to them depending 

on the type of loanfland type of 

examinationfi. 

§ ll.22(d)—3: In some 

circumstances, an institution may invest 

in a third party, such as a community 

development bank, that is also an 

insured depository institution and is 

thus subject to CRA requirements. If the 

investing institution requests its 

supervisory agency to consider its pro 

rata share of community development 

loans made by the third party, as 

allowed under 12 CFRll.22(d), may 

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37944 Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 

the third party also receive 

consideration for these loans? 

A3. Yes, flregardless of examination 

type,fias long as the financial 

institution and the third party are not 

affiliates. The regulations state, at 12 

CFRll.22(c)(2)(i), that two affiliates 

may not both claim the same loan 

origination or loan purchase. However, 

if the financial institution and the third 

party are not affiliates, the third party 

may receive consideration for the 

community development loans it 

originates, and the financial institution 

that invested in the third party may also 

receive consideration for its pro rata 

share of the same community 

development loans under 12 

CFRll.22(d). 

§ ll.23 Investment test. 

§ ll.23(a) Scope of test. 

§ ll.23(a)—1: May an institutionfl, 

regardless of examination type,fi 

receive consideration under the CRA 

regulations if it invests indirectly 

through a fund, the purpose of which is 

community development, as that is 

defined in the CRA regulations? 

A1: Yes, the direct or indirect nature 

of the qualified investment does not 

affect whether an institution will 

receive consideration under the CRA 

regulations because the regulations do 

not distinguish between ‘‘direct’’ and 

‘‘indirect’’ investments. Thus, an 

institution’s investment in an equity 

fund that, in turn, invests in projects 

that, for example, provide affordable 

housing to low- and moderate-income 

individuals, would receive 

consideration as a qualified investment 

under the CRA regulations, provided the 

investment benefits one or more of the 

institution’s assessment area(s) or a 

broader statewide or regional area(s) 

that includes one or more of the 

institution’s assessment area(s). 

Similarly, an institution may receive 

consideration for a direct qualified 

investment in a nonprofit organization 

that, for example, supports affordable 

housing for low- and moderate-income 

individuals in the institution’s 

assessment area(s) or a broader 

statewide or regional area(s) that 

includes the institution’s assessment 

area(s). 

fl§ll.23(a)—2: In order to receive 

CRA consideration, should an 

institution be able to demonstrate that 

an investment in a national or regional 

fund with a primary purpose of 

community development meets the 

geographic requirements of the CRA 

regulation by benefiting one or more of 

the institution’s assessment area(s) or a 

broader statewide or regional area that 

includes the institution’s assessment 

area(s)? 

A2. Yes. A financial institution 

should be able to demonstrate that the 

investment meets the geographic 

requirements of the CRA regulation, 

although the agencies will employ 

appropriate flexibility in this regard. 

There are several ways to demonstrate 

that the institution’s investment meets 

the geographic requirements. For 

example, if an institution invests in a 

new nationwide fund providing 

foreclosure relief to low- and moderateincome homeowners, written 

documentation provided by fund 

managers in connection with the 

institution’s investment indicating that 

the fund will use its best efforts to 

invest in a qualifying activity that meets 

the geographic requirements may be 

used for these purposes. Similarly, a 

fund may explicitly earmark all projects 

or investments to its investors and their 

specific assessment areas. (Note, 

however, that a financial institution has 

not demonstrated that the investment 

meets the geographic requirements of 

the CRA regulation if the fund ‘‘doublecounts’’ investments, by earmarking the 

same dollars or the same portions of 

projects or investments in a particular 

geography to more than one investor.) In 

addition, if a fund does not earmark 

projects or investments to individual 

institution investors, an allocation 

method may be used that recognizes 

that each investor institution has an 

undivided interest in all projects in a 

fund; thus, each investor institution 

may claim its pro-rata share of each 

project that meets the geographic 

requirements of that institution. If, 

however, a fund does not become 

involved in a community development 

activity that meets both the purpose and 

geographic requirements of the 

regulation for the institution, the 

institution’s investment generally would 

not be considered under the investment 

or community development tests. See 

Q&As §ll.12(h)—6 and §ll.12(h)—

7 for additional information about the 

geographic requirements for qualified 

investments (recognition of investments 

benefiting an area outside an 

institution’s assessment area(s)).fi 

§ll.23(b) Exclusion. 

§ll.23(b)—1: Even though the 

regulations state that an activity that is 

considered under the lending or service 

tests cannot also be considered under 

the investment test, may parts of an 

activity be considered under one test 

and other parts be considered under 

another test? 

A1. Yes, in some instances the nature 

of an activity may make it eligible for 

consideration under more than one of 

the performance tests. For example, 

certain investments and related support 

provided by a large retail institution to 

a CDC may be evaluated under the 

lending, investment, and service tests. 

Under the service test, the institution 

may receive consideration for any 

community development services that it 

provides to the CDC, such as service by 

an executive of the institution on the 

CDC’s board of directors. If the 

institution makes an investment in the 

CDC that the CDC uses to make 

community development loans, the 

institution may receive consideration 

under the lending test for its pro-rata 

share of community development loans 

made by the CDC. Alternatively, the 

institution’s investment may be 

considered under the investment test, 

assuming it is a qualified investment. In 

addition, an institution may elect to 

have a part of its investment considered 

under the lending test and the 

remaining part considered under the 

investment test. If the investing 

institution opts to have a portion of its 

investment evaluated under the lending 

test by claiming [a]flits pro ratafi share 

of the CDC’s community development 

loans, the amount of investment 

considered under the investment test 

will be offset by that portion. Thus, the 

institution[ only] would receive 

consideration under the investment test 

for flonlyfi the amount of its 

investment multiplied by the percentage 

of the CDC’s assets that meet the 

definition of a qualified investment. 

§ll.23(b)—2: If home mortgage 

loans to low- and moderate-income 

borrowers have been considered under 

an institution’s lending test, may the 

institution that originated or purchased 

them also receive consideration under 

the investment test if it subsequently 

purchases mortgage-backed securities 

that are primarily or exclusively backed 

by such loans? 

A2. No. Because the institution 

received lending test consideration for 

the loans that underlie the securities, 

the institution may not also receive 

consideration under the investment test 

for its purchase of the securities. Of 

course, an institution may receive 

investment test consideration for 

purchases of mortgage-backed securities 

that are backed by loans to low- and 

moderate-income individuals as long as 

the securities are not backed primarily 

or exclusively by loans that the same 

institution originated or purchased. 

§ ll.23(e) Performance criteria 

§ ll.23(e)–1: When applying the 

flfourfi performance criteria of [§ ] 

fl12 CFRfill.23(e), may an 

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Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 37945 

examiner distinguish among qualified 

investments based on how much of the 

investment actually supports the 

underlying community development 

purpose? A1. Yes. [Although § ll.23(e)(1) 

speaks in terms of the dollar amount of 

qualified investments, the criterion 

permits] flBy applying all the criteria, 

a qualified investment of a lower dollar 

amount may be weighed more heavily 

under the investment test than a 

qualified investment with a higher 

dollar amount that has fewer qualitative 

enhancements. The criteria permitfi an 

examiner to flqualitativelyfi weight 

certain investments differently or to 

make other appropriate distinctions 

when evaluating an institution’s record 

of making qualified investments. For 

instance, an examiner should take into 

account that a targeted mortgage-backed 

security that qualifies as an affordable 

housing issue that has only 60 percent 

of its face value supported by loans to 

low-or moderate-income borrowers 

would not provide as much affordable 

housing for low- and moderate-income 

individuals as a targeted mortgagebacked security with 100 percent of its 

face value supported by affordable 

housing loans to low- and moderateincome borrowers. The examiner should 

describe any differential weighting (or 

other adjustment), and its basis in the 

[Public] flPerformancefi Evaluation. 

flSee also Q&A § ll.12(t)–8 for a 

discussion about the qualitative 

consideration of prior period 

investments.fi [However, no matter 

how a qualified investment is handled 

for purposes of § ll.23(e)(1), it will 

also be evaluated with respect to the 

qualitative performance criteria set forth 

in § ll.23(e)(2), (3), and (4). By 

applying all criteria, a qualified 

investment of a lower dollar amount 

may be weighed more heavily under the 

Investment Test than a qualified 

investment with a higher dollar amount, 

but with fewer qualitative 

enhancements.] 

§ ll.23(e)—2: How do examiners 

evaluate an institution’s qualified 

investment in a fund, the primary 

purpose of which is community 

development, as [that is] defined in the 

CRA regulations? A2. When evaluating qualified 

investments that benefit an institution’s 

assessment area(s) or a broader 

statewide or regional area that includes 

its assessment area(s) flunder the 

investment testfi, examiners will look 

at the following four performance 

criteria: 

(1) The dollar amount of qualified 

investments; 

(2) The innovativeness or complexity 

of qualified investments; 

(3) The responsiveness of qualified 

investments to credit and community 

development needs; and 

(4) The degree to which the qualified 

investments are not routinely provided 

by private investors. 

With respect to the first criterion, 

examiners will determine the dollar 

amount of qualified investments by 

relying on the figures recorded by the 

institution according to generally 

accepted accounting principles (GAAP). 

Although institutions may exercise a 

range of investment strategies, including 

short-term investments, long-term 

investments, investments that are 

immediately funded, and investments 

with a binding, up-front commitment 

that are funded over a period of time, 

institutions making the same dollar 

amount of investments over the same 

number of years, all other performance 

criteria fland performance contextfi 

being equal, would receive the same 

level of consideration. Examiners will 

include both new and outstanding 

investments in this determination. [The 

dollar amount] flIn addition, the 

reviewfi of qualified investments[ also] 

will [include] flconsiderfi the dollar 

amount of legally binding commitments 

recorded by the institution according to 

GAAP. 

The extent to which qualified 

investments receive consideration, 

however, depends on how examiners 

evaluate the investments under the 

remaining three performance criteria—

innovativeness and complexity, 

responsiveness, and degree to which the 

investment is not routinely provided by 

private investors. Examiners also will 

consider factors relevant to the 

institution’s CRA performance context, 

such as the effect of outstanding longterm qualified investments, the pay-in 

schedule, and the amount of any cash 

call, on the capacity of the institution to 

make new investments. 

§ ll.24 Service test. 

§ ll.24(d) Performance criteria—

retail banking services. 

§ ll.24(d)—1: How do examiners 

evaluate the availability and 

effectiveness of an institution’s systems 

for delivering retail banking services? 

A1. Convenient access to full service 

branches within a community is an 

important factor in determining the 

availability of credit and non-credit 

services. Therefore, the service test 

performance standards place primary 

emphasis on full service branches while 

still considering alternative systems, 

such as automated teller machines 

(‘‘ATMs’’). The principal focus is on an 

institution’s current distribution of 

branches[; therefore] fland its record of 

opening and closing branches, 

particularly branches located in low-or 

moderate-income geographies or 

primarily serving low-or moderateincome individuals. However,fi an 

institution is not required to expand its 

branch network or operate unprofitable 

branches. Under the service test, 

alternative systems for delivering retail 

banking services, such as ATMs, are 

considered only to the extent that they 

are effective alternatives in providing 

needed services to low- and moderateincome areas and individuals. 

§ ll.24(d)—2: How do examiners 

evaluate an institution’s activities in 

connection with Individual 

Development Accounts (IDAs)? 

A2. Although there is no standard 

IDA program, IDAs typically are deposit 

accounts targeted to low- and moderateincome families that are designed to 

help them accumulate savings for 

education or job-training, downpayment and closing costs on a new 

home, or start-up capital for a small 

business. Once participants have 

successfully funded an IDA, their 

personal IDA savings are matched by a 

public or private entity. Financial 

institution participation in IDA 

programs comes in a variety of forms, 

including providing retail banking 

services to IDA account holders, 

providing matching dollars or operating 

funds to an IDA program, designing or 

implementing IDA programs, providing 

consumer financial education to IDA 

account holders or prospective account 

holders, or other means. The extent of 

financial institutions’ involvement in 

IDAs and the products and services they 

offer in connection with the accounts 

will vary. Thus, subject to 12 CFR 

ll.23(b), examiners evaluate the 

actual services and products provided 

by an institution in connection with 

IDA programs as one or more of the 

following: community development 

services, retail banking services, 

qualified investments, home mortgage 

loans, small business loans, consumer 

loans, or community development 

loans. flSee, e.g., Q&A § ll.12(i) 3. 

Note that all types of institutions may 

participate in IDA programs. Their IDA 

activities are evaluated under the 

performance criteria of the type of 

examination applicable to the particular 

institution.fi 

§ ll.24(d)(3) Availability and 

effectiveness of alternative systems for 

delivering retail banking services. 

§ ll.24(d)(3)—1: How will 

examiners evaluate alternative systems 

for delivering retail banking services? 

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37946 Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 

4The inserts and deletions are shown as 

compared to the current Q&A for the OCC, Board, 

and FDIC. The comparable Q&A for OTS does not 

currently refer to the intermediate small institution 

test. See 71 FR at 52379. 

A1. The regulation recognizes the 

multitude of ways in which an 

institution can provide services, for 

example, ATMs, banking by telephone 

or computer, and bank-by-mail 

programs. Delivery systems other than 

branches will be considered under the 

regulation to the extent that they are 

effective alternatives to branches in 

providing needed services to low- and 

moderate-income areas and individuals. 

The list of systems in the regulation is 

not intended to be [inclusive] 

flcomprehensivefi. 

§ ll.24(d)(3)—2: Are debit cards 

considered under the service test as an 

alternative delivery system? 

A2. By themselves, no. However, if 

debit cards are a part of a larger 

combination of products, such as a 

comprehensive electronic banking 

service, that allows an institution to 

deliver needed services to low- and 

moderate-income areas and individuals 

in its community, the overall delivery 

system that includes the debit card 

feature would be considered an 

alternative delivery system. 

§ ll.24(e) Performance criteria—

community development services. 

§ ll.24(e)—1: Under what 

conditions may an institution receive 

consideration for community 

development services offered by 

affiliates or third parties? 

A1. At an institution’s option, the 

agencies will consider services 

performed by an affiliate or by a third 

party on the institution’s behalf under 

the service test if the services provided 

enable the institution to help meet the 

credit needs of its community. Indirect 

services that enhance an institution’s 

ability to deliver credit products or 

deposit services within its community 

and that can be quantified may be 

considered under the service test, if 

those services have not been considered 

already under the lending or investment 

test (see flQ&Afi § ll.23(b)—1). For 

example, an institution that contracts 

with a community organization to 

provide home ownership counseling to 

low- and moderate-income home buyers 

as part of the institution’s mortgage 

program may receive consideration for 

that indirect service under the service 

test. In contrast, donations to a 

community organization that offers 

financial services to low- or moderateincome individuals may be considered 

under the investment test, but would 

not also be eligible for consideration 

under the service test. Services 

performed by an affiliate will be treated 

the same as affiliate loans and 

investments made in the institution’s 

assessment area and may be considered 

if the service is not claimed by any other 

institution. See fl12 CFRfi 

[§§ ]ll.22(c) and ll.23(c). 

§ ll.25 Community development test 

for wholesale or limited purpose 

institutions. 

§ ll.25(a) Scope of test. 

§ ll.25(a)—1: How can certain 

credit card banks help to meet the credit 

needs of their communities without 

losing their exemption from the 

definition of ‘‘bank’’ in the Bank 

Holding Company Act (the BHCA), as 

amended by the Competitive Equality 

Banking Act of 1987 (CEBA)? 

A1. Although the BHCA restricts 

institutions known as CEBA credit card 

banks to credit card operations, a CEBA 

credit card bank can engage in 

community development activities 

without losing its exemption under the 

BHCA. A CEBA credit card bank could 

provide community development 

services and investments without 

engaging in operations other than credit 

card operations. For example, the bank 

could provide credit card counseling, or 

the financial expertise of its executives, 

free of charge, to community 

development organizations. In addition, 

a CEBA credit card bank could make 

qualified investments, as long as the 

investments meet the guidelines for 

passive and noncontrolling investments 

provided in the BHC Act and the 

Board’s Regulation Y. Finally, although 

a CEBA credit card bank cannot make 

any loans other than credit card loans, 

under [§ ] fl12 CFRfi ll.25(d)(2) 

(community development test-indirect 

activities), the bank could elect to have 

part of its qualified passive and 

noncontrolling investments in a thirdparty lending consortium considered as 

community development lending, 

provided that the consortium’s loans 

otherwise meet the requirements for 

community development lending. When 

assessing a CEBA credit card bank’s 

CRA performance under the community 

development test, examiners will take 

into account the bank’s performance 

context. In particular, examiners will 

consider the legal constraints imposed 

by the BHCA on the bank’s activities, as 

part of the bank’s performance context 

in [§ ] fl12 CFRfi ll.21(b)(4). 

§ ll.25(d) Indirect activities. 

§ ll.25(d)—1: How are investments 

in third party community development 

organizations considered under the 

community development test? 

A1. Similar to the lending test for 

retail institutions, investments in third 

party community development 

organizations may be considered as 

qualified investments or as community 

development loans or both (provided 

there is no double counting), at the 

institution’s option, as described above 

in the discussion regarding §§ ll.22(d) 

and ll.23(b). 

§ ll.25(e) Benefit to assessment 

area(s). 

§ ll.25(e)—1: How do examiners 

evaluate a wholesale or limited purpose 

institution’s qualified investment in a 

fund that invests in projects nationwide 

and which has a primary purpose of 

community development, as that is 

defined in the regulations? 

A1. If examiners find that a wholesale 

or limited purpose institution has 

adequately addressed the needs of its 

assessment area(s), they will give 

consideration to qualified investments, 

as well as community development 

loans and community development 

services, by that institution nationwide. 

In determining whether an institution 

has adequately addressed the needs of 

its assessment area(s), examiners will 

consider qualified investments that 

benefit a broader statewide or regional 

area that includes the institution’s 

assessment area(s). 

§ll.25(f) Community development 

performance rating. 

§ll.25(f)—1: Must a wholesale or 

limited purpose institution engage in all 

three categories of community 

development activities (lending, 

investment, and service) to perform well 

under the community development test? 

A1. No, a wholesale or limited 

purpose institution may perform well 

under the community development test 

by engaging in one or more of these 

activities. 

§ll.26 Small institution 

performance standards. 

§ll.26—1: When evaluating a small 

or intermediate small [bank’s] 

flinstitution’sfi performance, will 

examiners consider, at the institution’s 

request, retail and community 

development loans originated or 

purchased by affiliates, qualified 

investments made by affiliates, or 

community development services 

provided by affiliates? 4

A1: Yes. However, a small institution 

that elects to have examiners consider 

affiliate activities must maintain 

sufficient information that the 

examiners may evaluate these activities 

under the appropriate performance 

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Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 37947 

criteria and ensure that the activities are 

not claimed by another institution. The 

constraints applicable to affiliate 

activities claimed by large institutions 

also apply to small and intermediate 

small institutions. See [Q&A] flQ&As 

addressingfi §ll.22(c)(2) and related 

guidance provided to large institutions 

regarding affiliate activities. Examiners 

will not include affiliate lending in 

calculating the percentage of loans and, 

as appropriate, other lending-related 

activities located in [a bank’s] flan 

institution’sfi assessment area. 

fl§ll.26(a) Performance criteria. 

§ll.26(a)(2) Intermediate small 

institutions.fi 

fl§ll.26(a)(2)—1: When is an 

institution examined as an intermediate 

small institution? 

A1. When a small institution has met 

the intermediate small institution asset 

threshold delineated in §ll.12(u)(1) 

for two consecutive calendar year-ends, 

the institution may be examined under 

the intermediate small institution 

examination procedures. The regulation 

does not specify an additional lag 

period between becoming an 

intermediate small institution and being 

examined as an intermediate small 

institution, as it does for large 

institutions, because an intermediate 

small institution is not subject to CRA 

data collection and reporting 

requirements. Institutions should 

contact their primary regulator for 

information on examination 

schedules.fi 

§ll.26[(a) Performance criteria] 

fl(b) Lending test.fi 

§ll.26([a]flbfi)—1: May 

examiners consider, under one or more 

of the performance criteria of the small 

institution performance standards, 

lending-related activities, such as 

community development loans and 

lending-related qualified investments, 

when evaluating a small institution? 

A1. Yes. Examiners can consider 

‘‘lending-related activities,’’ including 

community development loans and 

lending-related qualified investments, 

when evaluating the first four 

performance criteria of the small 

institution performance test. Although 

lending-related activities are specifically 

mentioned in the regulation in 

connection with only the first three 

criteria (i.e., loan-to-deposit ratio, 

percentage of loans in the institution’s 

assessment area, and lending to 

borrowers of different incomes and 

businesses of different sizes), examiners 

can also consider these activities when 

they evaluate the fourth criteria—

geographic distribution of the 

institution’s loans. 

flAlthough lending-related 

community development activities are 

evaluated under the community 

development test applicable to 

intermediate small institutions, these 

activities may also augment the loan-todeposit ratio analysis (12 CFR 

ll.26(b)(1)) and the percentage of 

loans in the intermediate small 

institution’s assessment area analysis 

(12 CFR ll.26(b)(2)), if appropriate.fi 

§ll.26([a]—flbfi)—2: What is 

meant by ‘‘as appropriate’’ when 

referring to the fact that lending-related 

activities will be considered, ‘‘as 

appropriate,’’ under the various small 

institution performance criteria? 

A2. ‘‘As appropriate’’ means that 

lending-related activities will be 

considered when it is necessary to 

determine whether an institution meets 

or exceeds the standards for a 

satisfactory rating. Examiners will also 

consider other lending-related activities 

at an institution’s request fl, provided 

they have not also been considered 

under the community development test 

applicable to intermediate small 

institutionsfi. 

§ll.26([a]flb fi)—3: When 

evaluating a small institution’s lending 

performance, will examiners consider, 

at the institution’s request, community 

development loans originated or 

purchased by a consortium in which the 

institution participates or by a third 

party in which the institution has 

invested? 

A3. Yes. However, a small institution 

that elects to have examiners consider 

community development loans 

originated or purchased by a consortium 

or third party must maintain sufficient 

information on its share of the 

community development loans so that 

the examiners may evaluate these loans 

under the small institution performance 

criteria. 

§ll.26([a]flbfi)—4: Under the 

small institution fllending testfi 

performance standards, will examiners 

consider both loan originations and 

purchases? 

A4. Yes, consistent with the other 

assessment methods in the regulation, 

examiners will consider both loans 

originated and purchased by the 

institution. Likewise, examiners may 

consider any other loan data the small 

institution chooses to provide, 

including data on loans outstanding, 

commitments, and letters of credit. 

§ ll.26([a]flbfi)—5: Under the 

small institution fllending testfi 

performance standards, how will 

qualified investments be considered for 

purposes of determining whether a 

small institution receives a satisfactory 

CRA rating? 

A5. The small institution lending test 

performance standards focus on lending 

and other lending-related activities. 

Therefore, examiners will consider only 

lending-related qualified investments 

for the [purposes] flpurposefi of 

determining whether [the] flafi small 

institution fl that is not an intermediate 

small institutionfi receives a 

satisfactory CRA rating. 

§ ll.26([a] flbfi)(1) Loan-to-deposit 

ratio. 

§ ll.26([a]flbfi)(1)—1: How is the 

loan-to-deposit ratio calculated? 

A1. A small institution’s loan-todeposit ratio is calculated in the same 

manner that the Uniform Bank 

Performance Report/Uniform Thrift 

Performance Report (UBPR/UTPR) 

determines the ratio. It is calculated by 

dividing the institution’s net loans and 

leases by its total deposits. The ratio is 

found in the Liquidity and Investment 

Portfolio section of the UBPR and 

UTPR. Examiners will use this ratio to 

calculate an average since the last 

examination by adding the quarterly 

loan-to-deposit ratios and dividing the 

total by the number of quarters. 

§ ll.26([a]flbfi)(1)—2: How is the 

‘‘reasonableness’’ of a loan-to-deposit 

ratio evaluated? 

A2. No specific ratio is reasonable in 

every circumstance, and each small 

institution’s ratio is evaluated in light of 

information from the performance 

context, including the institution’s 

capacity to lend, demographic and 

economic factors present in the 

assessment area, and the lending 

opportunities available in the 

assessment area(s). If a small 

institution’s loan-to-deposit ratio 

appears unreasonable after considering 

this information, lending performance 

may still be satisfactory under this 

criterion taking into consideration the 

number and the dollar volume of loans 

sold to the secondary market or the 

number and amount and innovativeness 

or complexity of community 

development loans and lending-related 

qualified investments. 

§ ll.26([a]flbfi)(1)—3: If an 

institution makes a large number of 

loans off-shore, will examiners segregate 

the domestic loan-to-deposit ratio from 

the foreign loan-to-deposit ratio? 

A3. No. Examiners will look at the 

institution’s net loan-to-deposit ratio for 

the whole institution, without any 

adjustments. 

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37948 Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 

5The inserts and deletions are shown as 

compared to the current Q&A for the OCC, Board, 

and FDIC. There currently is no comparable Q&A 

for OTS. 

6The inserts and deletions are shown as 

compared to the current Q&A for the OCC, Board, 

and FDIC. There currently is no comparable Q&A 

for OTS. 

7The inserts and deletions are shown as 

compared to the current Q&A for the OCC, Board, 

and FDIC. There currently is no comparable Q&A 

for OTS. 

§ ll.26([a]flbfi)(2) Percentage of 

lending within assessment area(s). 

§ ll.26([a]flbfi)(2)—1: Must a 

small institution have a majority of its 

lending in its assessment area(s) to 

receive a satisfactory performance 

rating? 

A1. No. The percentage of loans and, 

as appropriate, other lending-related 

activities located in the [bank’s] 

flinstitution’sfi assessment area(s) is 

but one of the performance criteria upon 

which small institutions are evaluated. 

If the percentage of loans and other 

lending related activities in an 

institution’s assessment area(s) is less 

than a majority, then the institution 

does not meet the standards for 

satisfactory performance only under this 

criterion. The effect on the overall 

performance rating of the institution, 

however, is considered in light of the 

performance context, including 

information regarding economic 

conditions[,]fl;fi loan demand[,]fl;fi 

the institution’s size, financial condition 

[and] fl,fi business strategies, and 

branching network fl;fi and other 

aspects of the institution’s lending 

record. 

§ ll.26([a] flbfi)(3) & (4)

Distribution of lending within 

assessment area(s) by borrower income 

and geographic location. 

§ ll.26([a] flbfi)(3) & (4)—1: How 

will a small institution’s performance be 

assessed under these lending 

distribution criteria? 

A1. Distribution of loans, like other 

small institution performance criteria, is 

considered in light of the performance 

context. For example, a small institution 

is not required to lend evenly 

throughout its assessment area(s) or in 

any particular geography. However, in 

order to meet the standards for 

satisfactory performance under this 

criterion, conspicuous gaps in a small 

institution’s loan distribution must be 

adequately explained by performance 

context factors such as lending 

opportunities in the institution’s 

assessment area(s), the institution’s 

product offerings and business strategy, 

and institutional capacity and 

constraints. In addition, it may be 

impracticable to review the geographic 

distribution of the lending of an 

institution with flveryfi few 

demographically distinct geographies 

within an assessment area. If sufficient 

information on the income levels of 

individual borrowers or the revenues or 

sizes of business borrowers is not 

available, examiners may use[ proxies 

such as] loan size flas a proxyfi for 

estimating borrower characteristics, 

where appropriate. 

fl§ ll.26(c) Intermediate small 

institution community development 

test.fi 

§ ll.26(c)—1: How will the 

community development test be applied 

flexibly for intermediate small [banks] 

flinstitutionsfi ? 5

A1: Generally, intermediate small 

[banks] flinstitutionsfi engage in a 

combination of community 

development loans, qualified 

investments, and community 

development services. [A bank] flAn 

institutionfi may not simply ignore one 

or more of these categories of 

community development, nor do the 

regulations prescribe a required 

threshold for community development 

loans, qualified investments, and 

community development services. 

Instead, based on the [bank’s] 

flinstitution’sfi assessment of 

community development needs in its 

assessment area(s), it may engage in 

different categories of community 

development activities that are 

responsive to those needs and 

consistent with the [bank’s] 

flinstitution’sfi capacity. 

An intermediate small [bank] 

flinstitutionfi has the flexibility to 

allocate its resources among community 

development loans, qualified 

investments, and community 

development services in amounts that it 

reasonably determines are most 

responsive to community development 

needs and opportunities. Appropriate 

levels of each of these activities would 

depend on the capacity and business 

strategy of the [bank] flinstitution fi, 

community needs, and number and 

types of opportunities for community 

development. 

fl§ll.26(c)(3) Community 

development services.fi 

§ll.26(c)(3)—1: What will 

examiners consider when evaluating the 

provision of community development 

services by an intermediate small 

[bank]flinstitutionfi? 6

A1: Examiners will consider not only 

the types of services provided to benefit 

low- and moderate-income individuals, 

such as low-cost [bank] checking 

accounts and low-cost remittance 

services, but also the provision and 

availability of services to low- and 

moderate-income individuals, including 

through branches and other facilities 

located in low- and moderate-income 

areas. Generally, the presence of 

branches located in low- and moderateincome geographies will help to 

demonstrate the availability of banking 

services to low- and moderate-income 

individuals. 

fl§ll.26(c)(4) Responsiveness to 

community development needsfi 

§ll.26(c)(4)–1: When evaluating an 

intermediate small 

[bank’s]flinstitution’sficommunity 

development record, what will 

examiners consider when reviewing the 

responsiveness of community 

development lending, qualified 

investments, and community 

development services to the community 

development needs of the area? 7

A1: When evaluating an intermediate 

small [bank’s]flinstitution’sfi

community development record, 

examiners will consider not only 

quantitative measures of performance, 

such as the number and amount of 

community development loans, 

qualified investments, and community 

development services, but also 

qualitative aspects of performance. In 

particular, examiners will evaluate the 

responsiveness of the 

[bank’s]flinstitution’sfi community 

development activities in light of the 

[bank’s]flinstitution’sfi capacity, 

business strategy, the needs of the 

community, and the number and types 

of opportunities for each type of 

community development activity (its 

performance context). Examiners also 

will consider the results of any 

assessment by the institution of 

community development needs, and 

how the [bank’s]flinstitution’sfi 

activities respond to those needs. 

An evaluation of the degree of 

responsiveness considers the following 

factors: the volume, mix, and qualitative 

aspects of community development 

loans, qualified investments, and 

community development services. 

Consideration of the qualitative aspects 

of performance recognizes that 

community development activities 

sometimes require special expertise or 

effort on the part of the institution or 

provide a benefit to the community that 

would not otherwise be made available. 

(However, ‘‘innovativeness’’ and 

‘‘complexity,’’ factors examiners 

consider when evaluating a large 

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Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 37949 

[bank]flinstitutionfi under the 

lending, investment, and service tests, 

are not criteria in the intermediate small 

[banks’]flinstitutions’fi community 

development test.) In some cases, a 

smaller loan may have more qualitative 

benefit to a community than a larger 

loan. Activities are considered 

particularly responsive to community 

development needs if they benefit lowand moderate-income individuals in 

low- or moderate-income geographies, 

designated disaster areas, or distressed 

or underserved nonmetropolitan 

middle-income geographies. Activities 

are also considered particularly 

responsive to community development 

needs if they benefit low- or moderateincome geographies. 

§ll.26([b]fldfi) Performance rating. 

§ll.26([b]fldfi)—1: How can a 

small institutionflthat is not an 

intermediate small institutionfiachieve 

an outstanding performance rating? 

A1. A small institutionflthat is not an 

intermediate small institutionfithat 

meets each of the standards in the 

lending test for a ‘‘satisfactory’’ rating 

and exceeds some or all of those 

standards may warrant an 

‘‘outstanding’’ performance rating. In 

assessing performance at the 

‘‘outstanding’’ level, the agencies 

consider the extent to which the 

institution exceeds each of the 

performance standards and, at the 

institution’s option, its performance in 

making qualified investments and 

providing services that enhance credit 

availability in its assessment area(s). In 

some cases, a small institution may 

qualify for an ‘‘outstanding’’

performance rating solely on the basis of 

its lending activities, but only if its 

performance materially exceeds the 

standards for a ‘‘satisfactory’’ rating, 

particularly with respect to the 

penetration of borrowers at all income 

levels and the dispersion of loans 

throughout the geographies in its 

assessment area(s) that display income 

variation. An institution with a high 

loan-to-deposit ratio and a high 

percentage of loans in its assessment 

area(s), but with only a reasonable 

penetration of borrowers at all income 

levels or a reasonable dispersion of 

loans throughout geographies of 

differing income levels in its assessment 

area(s), generally will not be rated 

‘‘outstanding’’ based only on its lending 

performance. However, the institution’s 

performance in making qualified 

investments and its performance in 

providing branches and other services 

and delivery systems that enhance 

credit availability in its assessment 

area(s) may augment the institution’s 

satisfactory rating to the extent that it 

may be rated outstanding. 

§ll.26([b]fldfi)—2: Will a small 

institution’s qualified investments, 

community development loans, and 

community development services be 

considered if they do not directly benefit 

its assessment area(s)? 

A2. Yes. These activities are eligible 

for consideration if they benefit a 

broader statewide or regional area that 

includes a small institution s 

assessment area(s), as discussed more 

fully inflQ&Asfi 

§[§ ]ll.12([i]flhfi)[& 563e.12(h)]—

6fland §ll.12(h)—7fi. 

§ll.27 Strategic plan. 

§ll.27(c) Plans in general. 

§ll.27(c)—1: To what extent will 

the agencies provide guidance to an 

institution during the development of its 

strategic plan? 

A1. An institution will have an 

opportunity to consult with and provide 

information to the agencies on a 

proposed strategic plan. Through this 

process, an institution is provided 

guidance on procedures and on the 

information necessary to ensure a 

complete submission. For example, the 

agencies will provide guidance on 

whether the level of detail as set out in 

the proposed plan would be sufficient to 

permit agency evaluation of the plan. 

However, the agencies’ guidance during 

plan development and, particularly, 

prior to the public comment period, will 

not include commenting on the merits 

of a proposed strategic plan or on the 

adequacy of measurable goals. 

§ll.27(c)–2: How will a joint 

strategic plan be reviewed if the 

affiliates have different primary Federal 

supervisors? 

A2. The agencies will coordinate 

review of and action on the joint plan. 

Each agency will evaluate the 

measurable goals for those affiliates for 

which it is the primary regulator. 

§ll.27(f) Plan content. 

§ll.27(f)(1) Measurable goals. 

§ll.27(f)(1)—1: How should 

flannualfi[‘‘]measurable goals[’’] be 

specified in a strategic plan? 

A1. [Measurable]flAnnual 

measurablefigoals (e.g., number of 

loans, dollar amount, geographic 

location of activity, and benefit to lowand moderate-income areas or 

individuals) must be stated with 

sufficient specificity to permit the 

public and the agencies to quantify what 

performance will be expected. However, 

institutions are provided flexibility in 

specifying goals. For example, an 

institution may provide ranges of 

lending amounts in different categories 

of loans. Measurable goals may also be 

linked to funding requirements of 

certain public programs or indexed to 

other external factors as long as these 

mechanisms provide a quantifiable 

standard. 

§ ll.27(g) Plan approval. 

§ ll.27(g)(2) Public participation. 

§ ll.27(g)(2)—1: How will the public 

receive notice of a proposed strategic 

plan? 

A1. An institution submitting a 

strategic plan for approval by the 

agencies is required to solicit public 

comment on the plan for a period of 

thirty (30) days after publishing notice 

of the plan at least once in a newspaper 

of general circulation. The notice should 

be sufficiently prominent to attract 

public attention and should make clear 

that public comment is desired. An 

institution may, in addition, provide 

notice to the public in any other manner 

it chooses. 

§ ll.28 Assigned ratings. 

§ ll.28—1: Are innovative lending 

practices, innovative or complex 

qualified investments, and innovative 

community development services 

required for a ‘‘satisfactory’’ or 

‘‘outstanding’’ CRA rating? 

A1. No. flThe performance criterion 

of innovativeness applies only under 

the lending, investment, and service 

tests applicable to large institutions and 

the community development test 

applicable to wholesale and limited 

purpose institutions.fi Moreover, 

fleven under these tests,fi the lack of 

innovative lending practices, innovative 

or complex qualified investments, or 

innovative community development 

services alone will not result in a 

‘‘needs to improve’’ CRA rating. 

However, flunder these tests,fi the use 

of innovative lending practices, 

innovative or complex qualified 

investments, and innovative community 

development services may augment the 

consideration given to an institution’s 

performance under the quantitative 

criteria of the regulations, resulting in a 

higher level of performance rating. 

flSee also Q&A § ll.26(c)(4)—1 for a 

discussion about responsiveness to 

community development needs under 

the community development test 

applicable to intermediate small 

institutions. fi 

[§ ll.28—2: How is performance 

under the quantitative and qualitative 

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37950 Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 

8Note that this Q&A would be moved to become 

Q&A §ll.28(b)—1, not deleted. 

performance criteria weighed when 

examiners assign a CRA rating? 8

A2. The lending, investment, and 

service tests each contain a number of 

performance criteria designed to 

measure whether an institution is 

effectively helping to meet the credit 

needs of its entire community, 

including low- and moderate-income 

neighborhoods, in a safe and sound 

manner. Some of these performance 

criteria are quantitative, such as number 

and amount, and others, such as the use 

of innovative or flexible lending 

practices, the innovativeness or 

complexity of qualified investments, 

and the innovativeness and 

responsiveness of community 

development services, are qualitative. 

The performance criteria that deal with 

these qualitative aspects of performance 

recognize that these loans, qualified 

investments, and community 

development services sometimes require 

special expertise and effort on the part 

of the institution and provide a benefit 

to the community that would not 

otherwise be possible. As such, the 

agencies consider the qualitative aspects 

of an institution’s activities when 

measuring the benefits received by a 

community. An institution’s 

performance under these qualitative 

criteria may augment the consideration 

given to an institution’s performance 

under the quantitative criteria of the 

regulations, resulting in a higher level of 

performance and rating.] 

§ ll.28(a) Ratings in general. 

§ ll.28(a)—1: How are institutions 

with domestic branches in more than 

one state assigned a rating? 

A1. The evaluation of an institution 

that maintains domestic branches in 

more than one state (‘‘multistate 

institution’’) will include a written 

evaluation and rating of its CRA record 

of performance as a whole and in each 

state in which it has a domestic branch. 

The written evaluation will contain a 

separate presentation on a multistate 

institution’s performance for each 

metropolitan statistical area and the 

nonmetropolitan area within each state, 

if it maintains one or more domestic 

branch offices in these areas. This 

separate presentation will contain 

conclusions, supported by facts and 

data, on performance under the 

performance tests and standards in the 

regulation. The evaluation of a 

multistate institution that maintains a 

domestic branch in two or more states 

in a multistate metropolitan area will 

include a written evaluation (containing 

the same information described above) 

and rating of its CRA record of 

performance in the multistate 

metropolitan area. In such cases, the 

statewide evaluation and rating will be 

adjusted to reflect performance in the 

portion of the state not within the 

multistate metropolitan statistical area. 

§ ll.28(a)—2: How are institutions 

that operate within only a single state 

assigned a rating? 

A2. An institution that operates 

within only a single state (‘‘single-state 

institution’’) will be assigned a rating of 

its CRA record based on its performance 

within that state. In assigning this 

rating, the agencies will separately 

present a single-state institution’s 

performance for each metropolitan area 

in which the institution maintains one 

or more domestic branch offices. This 

separate presentation will contain 

conclusions, supported by facts and 

data, on the single-state institution’s 

performance under the performance 

tests and standards in the regulation. 

§ ll.28(a)—3: How do the agencies 

weight performance under the lending, 

investment, and service [test] fltestsfi 

for large retail institutions? 

A3. A rating of ‘‘outstanding,’’ ‘‘high 

satisfactory,’’ ‘‘low satisfactory,’’ ‘‘needs 

to improve,’’ or ‘‘substantial 

noncompliance,’’ based on a judgment 

supported by facts and data, will be 

assigned under each performance test. 

Points will then be assigned to each 

rating as described in the first matrix set 

forth below. A large retail institution’s 

overall rating under the lending, 

investment and service tests will then 

be calculated in accordance with the 

second matrix set forth below, which 

incorporates the rating principles in the 

regulation. 

POINTS ASSIGNED FOR PERFORMANCE UNDER LENDING, INVESTMENT AND SERVICE TESTS

Lending Service Investment 

Outstanding ...................................................................................................................... 12 6 6 

High Satisfactory .............................................................................................................. 9 4 4 

Low Satisfactory .............................................................................................................. 6 3 3 

Needs to Improve ............................................................................................................ 3 1 1 

Substantial Noncompliance ............................................................................................. 0 0 0 

COMPOSITE RATING POINT

REQUIREMENTS

[Add points from three tests] 

Rating Total Points 

Outstanding ....................... 20 or over. 

Satisfactory ........................ 11 through 19. 

Needs to Improve .............. 5 through 10. 

Substantial Noncompliance 0 through 4. 

Note: There is one exception to the 

Composite Rating matrix. An institution may 

not receive a rating of ‘‘satisfactory’’ unless 

it receives at least ‘‘low satisfactory’’ on the 

lending test. Therefore, the total points are 

capped at three times the lending test score. 

fl§ ll.28(b) Lending, investment, 

and service test ratingsfi 

fl§ ll.28(b)—1: How is 

performance under the quantitative and 

qualitative performance criteria weighed 

when examiners assign a CRA rating? 

A2. The lending, investment, and 

service tests each contain a number of 

performance criteria designed to 

measure whether an institution is 

effectively helping to meet the credit 

needs of its entire community, 

including low- and moderate-income 

neighborhoods, in a safe and sound 

manner. Some of these performance 

criteria are quantitative, such as number 

and amount, and others, such as the use 

of innovative or flexible lending 

practices, the innovativeness or 

complexity of qualified investments, 

and the innovativeness and 

responsiveness of community 

development services, are qualitative. 

The performance criteria that deal with 

these qualitative aspects of performance 

recognize that these loans, qualified 

investments, and community 

development services sometimes require 

special expertise and effort on the part 

of the institution and provide a benefit 

to the community that would not 

otherwise be possible. As such, the 

agencies consider the qualitative aspects 

of an institution’s activities when 

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measuring the benefits received by a 

community. An institution’s 

performance under these qualitative 

criteria may augment the consideration 

given to an institution’s performance 

under the quantitative criteria of the 

regulations, resulting in a higher level of 

performance and rating.fi 

§ ll.28(c) Effect of evidence of 

discriminatory or other illegal credit 

practices 

§ ll.28(c)—1: What is meant by 

‘‘discriminatory or other illegal credit 

practices’’? 

A1. An institution engages in 

discriminatory credit practices if it 

discourages or discriminates against 

credit applicants or borrowers on a 

prohibited basis, in violation, for 

example, of the Fair Housing Act or the 

Equal Credit Opportunity Act (as 

implemented by Regulation B). 

Examples of other illegal credit 

practices inconsistent with helping to 

meet community credit needs include 

violations of: 

• The Truth in Lending Act regarding 

rescission of certain mortgage 

transactions and regarding disclosures 

and certain loan term restrictions in 

connection with credit transactions that 

are subject to the Home Ownership and 

Equity Protection Act; 

• The Real Estate Settlement 

Procedures Act regarding the giving and 

accepting of referral fees, unearned fees 

or kickbacks in connection with certain 

mortgage transactions; and 

• The Federal Trade Commission Act 

regarding unfair or deceptive acts or 

practices. Examiners will determine the 

effect of evidence of illegal credit 

practices as set forth in examination 

procedures and § ll.28(c) of the 

regulation. 

Violations of other provisions of the 

consumer protection laws generally will 

not adversely affect an institution’s CRA 

rating, but may warrant the inclusion of 

comments in an institution’s 

performance evaluation. These 

comments may address the institution’s 

policies, procedures, training programs, 

and internal assessment efforts. 

§ ll.29 Effect of CRA performance 

on applications. 

§ ll.29(a) CRA performance. 

§ ll.29(a)—1: What weight is given 

to an institution’s CRA performance 

examination in reviewing an 

application? 

A1. In [cases]flreviewing 

applicationsfi in which CRA 

performance is a relevant factor, 

information from a CRA[ performance] 

examination of the institution is a 

particularly important consideration[ in 

the application process because it 

represents]fl. The examination isfi a 

detailed evaluation of the institution’s 

CRA performance by its Federal 

supervisory agency. In this light, an 

examination is an important, and often 

controlling, factor in the consideration 

of an institution’s record. In some cases, 

however, the examination may not be 

recentfl,fi or a specific issue raised in 

the application process, such as 

progress in addressing weaknesses 

noted by examiners, progress in 

implementing commitments previously 

made to the reviewing agency, or a 

supported allegation from a commenter, 

is relevant to CRA performance under 

the regulation and was not addressed in 

the examination. In these 

circumstances, the applicant should 

present sufficient information to 

supplement its record of performance 

and to respond to the substantive issues 

raised in the application proceeding. 

§ ll.29(a)—2: What consideration is 

given to an institution’s commitments 

for future action in reviewing an 

application by those agencies that 

consider such commitments? 

A2. Commitments for future action 

are not viewed as part of the CRA record 

of performance. In general, institutions 

cannot use commitments made in the 

applications process to overcome a 

seriously deficient record of CRA 

performance. However, commitments 

for improvements in an institution’s 

performance may be appropriate to 

address specific weaknesses in an 

otherwise satisfactory record or to 

address CRA performance when a 

financially troubled institution is being 

acquired. 

§ ll.29(b) Interested parties. 

§ ll.29(b)—1: What consideration is 

given to comments from interested 

parties in reviewing an application? 

A1. Materials relating to CRA 

performance received during the 

[applications]flapplicationfi process 

can provide valuable information. 

Written comments, which may express 

either support for or opposition to the 

application, are made a part of the 

record in accordance with the agencies’

procedures, and are carefully 

considered in making the agencies’

[decision]fldecisionsfi. Comments 

should be supported by facts about the 

applicant’s performance and should be 

as specific as possible in explaining the 

basis for supporting or opposing the 

application. These comments must be 

submitted within the time limits 

provided under the agencies’

procedures. 

§ ll.29(b)—2: Is an institution 

required to enter into agreements with 

private parties? 

A2. No. Although communications 

between an institution and members of 

its community may provide a valuable 

method for the institution to assess how 

best to address the credit needs of the 

community, the CRA does not require 

an institution to enter into agreements 

with private parties. [These agreements 

are not monitored or enforced by the 

agencies.]flThe agencies do not 

monitor compliance with nor enforce 

these agreements.fi 

§ ll.41 Assessment area delineation. 

§ ll.41(a) In general. 

§ ll.41(a)—1: How do the agencies 

evaluate ‘‘assessment areas’’ under the 

[revised] CRA regulations[ compared to 

how they evaluated ‘‘local 

communities’’ that institutions 

delineated under the original CRA 

regulations]? 

A1. The[ revised] rule focuses on the 

distribution and level of an institution’s 

lending, investments, and services 

rather than on how and why an 

institution delineated its[ ‘‘local 

community’’ or] assessment area(s) in a 

particular manner. Therefore, the 

agencies will not evaluate an 

institution’s delineation of its 

assessment area(s) as a separate 

performance criterion[as they did under 

the original regulation]. Rather, the 

agencies will only review whether the 

assessment area delineated by the 

institution complies with the limitations 

set forth in the regulations at 

§ ll.41(e). 

§ ll.41(a)—2: If an institution elects 

to have the agencies consider affiliate 

lending, will this decision affect the 

institution’s assessment area(s)? 

A2. If an institution elects to have the 

lending activities of its affiliates 

considered in the evaluation of the 

institution’s lending, the geographies in 

which the affiliate lends do not affect 

the institution’s delineation of 

assessment area(s). 

§ ll.41(a)—3: Can a financial 

institution identify a specific fl racial 

orfi ethnic group rather than a 

geographic area as its assessment area? 

A3. No, assessment areas must be 

based on geography. flThe only 

exception to the requirement to 

delineate an assessment area based on 

geography is that an institution, the 

business of which predominantly 

consists of serving the needs of military 

personnel or their dependents who are 

not located within a defined geographic 

area, may delineate its entire deposit 

customer base as its assessment area.fi 

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37952 Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 

§ ll.41(c) Geographic area(s) for 

institutions other than wholesale or 

limited purpose institutions. 

§ ll.41(c)(1) Generally consist of one 

or more MSAs or metropolitan divisions 

or one or more contiguous political 

subdivisions. 

§ ll.41(c)(1)—1: Besides cities, 

towns, and counties, what other units of 

local government are political 

subdivisions for CRA purposes? 

A1. Townships and Indian 

reservations are political subdivisions 

for CRA purposes. Institutions should 

be aware that the boundaries of 

townships and Indian reservations may 

not be consistent with the boundaries of 

the census tracts [or block numbering 

areas ] (‘‘geographies’’) in the area. In 

these cases, institutions must ensure 

that their assessment area(s) consists 

only of whole geographies by adding 

any portions of the geographies that lie 

outside the political subdivision to the 

delineated assessment area(s). 

§ ll.41(c)(1)—2: Are wards, school 

districts, voting districts, and water 

districts political subdivisions for CRA 

purposes? 

A2. No. However, an institution that 

determines that it predominantly serves 

an area that is smaller than a city, 

townfl,fi or other political subdivision 

may delineate as its assessment area the 

larger political subdivision and then, in 

accordance with fl12 CFRfi [§ ] 

ll.41(d), adjust the boundaries of the 

assessment area to include only the 

portion of the political subdivision that 

it reasonably can be expected to serve. 

The smaller area that the institution 

delineates must consist of entire 

geographies, may not reflect illegal 

discrimination, and may not arbitrarily 

exclude low- or moderate-income 

geographies. 

§ ll.41(d) Adjustments to 

geographic area(s). 

§ ll.41(d)—1: When may an 

institution adjust the boundaries of an 

assessment area to include only a 

portion of a political subdivision? 

A1. Institutions must include whole 

geographies (i.e., census tracts[ or block 

numbering areas]) in their assessment 

areas and generally should include 

entire political subdivisions. Because 

census tracts [and block numbering 

areas] are the common geographic areas 

used consistently nationwide for data 

collection, the agencies require that 

assessment areas be made up of whole 

geographies. If including an entire 

political subdivision would create an 

area that is larger than the area the 

institution can reasonably be expected 

to serve, an institution may, but is not 

required to, adjust the boundaries of its 

assessment area to include only portions 

of the political subdivision. For 

example, this adjustment is appropriate 

if the assessment area would otherwise 

be extremely large, of unusual 

configuration, or divided by significant 

geographic barriers (such as a river, 

mountain, or major highway system). 

When adjusting the boundaries of their 

assessment areas, institutions must not 

arbitrarily exclude low- or moderateincome geographies or set boundaries 

that reflect illegal discrimination. 

§ ll.41(e) Limitations on delineation 

of an assessment area. 

§ ll.41(e)(3) May not arbitrarily 

exclude low- or moderate-income 

geographies. 

§ ll.41(e)(3)—1: How will 

examiners determine whether an 

institution has arbitrarily excluded lowor moderate-income geographies? 

A1. Examiners will make this 

determination on a case-by-case basis 

after considering the facts relevant to 

the institution’s assessment area 

delineation. Information that examiners 

will consider may include: 

• Income levels in the institution’s 

assessment area(s) and surrounding 

geographies; 

• Locations of branches and deposittaking ATMs; 

• Loan distribution in the 

institution’s assessment area(s) and 

surrounding geographies; 

• The institution’s size; 

• The institution’s financial 

condition; and 

• The business strategy, corporate 

structure and product offerings of the 

institution. 

§ ll.41(e)(4) May not extend 

substantially beyond [a CMSA]flan 

MSAfi boundary or beyond a state 

boundary unless located in a multistate 

MSA. 

§ ll.41(e)(4)—1: What are the 

maximum limits on the size of an 

assessment area? 

A1. An institution [shall]flmayfi not 

delineate an assessment area extending 

substantially across the boundaries of [a 

consolidated metropolitan statistical 

area (CMSA) or the boundaries of an 

MSA, if the MSA is not located in a 

CMSA.]flan MSA unless the MSA is in 

a combined statistical area (CSA)). 

Although more than one MSA in a CSA 

may be delineated as a single 

assessment area, an institution’s CRA 

performance in individual MSAs in 

those assessment areas will be evaluated 

using separate median family incomes 

and other relevant information at the 

MSA level rather than at the CSA 

level.fi 

[Similarly, an]flAnfi assessment 

areafl alsofi may not extend 

substantially across state boundaries 

unless the assessment area is located in 

a multistate MSA. An institution may 

not delineate a whole state as its 

assessment area unless the entire state is 

contained within [a CMSA]flan MSA 

fi . These limitations apply to 

wholesale and limited purpose 

institutions as well as other institutions. 

An institution [shall]flmustfi 

delineate separate assessment areas for 

the areas inside and outside [a CMSA 

(or MSA if the MSA is not located in a 

CMSA)]flan MSAfi if the area served 

by the institution’s branches outside the 

[CMSA (or MSA)]flMSAfi extends 

substantially beyond the [CMSA (or 

MSA)]flMSAfi boundary. Similarly, 

the institution [shall]flmustfi 

delineate separate assessment areas for 

the areas inside and outside of a state if 

the institution’s branches extend 

substantially beyond the boundary of 

one state (unless the assessment area is 

located in a multistate MSA). In 

addition, the institution’should also 

delineate separate assessment areas if it 

has branches in areas within the same 

state that are widely separate and not at 

all contiguous. For example, an 

institution that has its main office in 

New York City and a branch in Buffalo, 

New York, and each office serves only 

the immediate areas around it, should 

delineate two separate assessment areas. 

§ ll.41(e)(4)—2: [Can]flMayfi an 

institution delineate one assessment 

area that consists of an MSA and two 

large counties that abut the MSA but are 

not adjacent to each other? 

A2. As a general rule, an institution’s 

assessment area should not extend 

substantially beyond the boundary of an 

MSA [if the MSA is not located in a 

CMSA]. Therefore, the MSA would be a 

separate assessment area, and because 

the two abutting counties are not 

adjacent to each other and, in this 

example, extend substantially beyond 

the boundary of the MSA, the 

institution would delineate each county 

as a separate assessment area[ (, so]fl, 

assuming branches or deposit-taking 

ATMs are located in each county and 

the MSA. Sofi , in this example, there 

would be three assessment areas[)]. 

[However, if the MSA and the two 

counties were in the same CMSA, then 

the institution could delineate only one 

assessment area including them 

all.]flHowever, if the MSA and the two 

counties were in the same CSA, then the 

institution could delineate only one 

assessment area including them all. But, 

the institution’s CRA performance in the 

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MSAs and the non-MSA counties in that 

assessment area would be evaluated 

using separate median family incomes 

and other relevant information at the 

MSA and state, non-MSA level, rather 

than at the CSA level.fi 

§ ll.42 Data collection, reporting, 

and disclosure. 

§ ll.42—1: When must an 

institution collect and report data under 

the CRA regulations? 

A1. All institutions except small 

institutions are subject to data collection 

and reporting requirements. fl(‘‘Small 

institution’’ is defined in the agencies’

CRA regulations at § ll.12(u).) 

Examples describing the data collection 

requirements of institutions, in 

particular those that have just surpassed 

the asset-size threshold of a small 

institution, may be found on the FFIEC 

Web site at http://www.ffiec.gov/ 

cra.fi[A small institution is an 

institution that, as of December 31 of 

either of the prior two calendar years, 

had total assets of less than $1 billion 

(as adjusted). 

For example (assuming no adjustment 

to the $1 billion small bank asset level): 

Date Institution’s asset size 

(in dollars) 

Data collection required for 

following calendar year? 

12/31/05 ............................................................................ 990 million ....................................................................... No. 

12/31/06 ............................................................................ 1.1 billion ...................................................................... No. 

12/31/07 ............................................................................ 980 million ....................................................................... No. 

12/31/08 ............................................................................ 1.1 billion ...................................................................... No. 

12/31/09 ............................................................................ 1.2 billion ...................................................................... Yes, beginning 1/01/10.] 

All institutions that are subject to the 

data collection and reporting 

requirements must report the data for a 

calendar year by March 1 of the 

subsequent year. [In the example, above, 

the institution would report the data 

collected for calendar year 2010 by 

March 1, 2011.] 

The Board of Governors of the Federal 

Reserve System [is handling the 

processing of] fl processes fi the 

reports for all of the primary regulators. 

[The reports should be submitted in a 

prescribed electronic format on a timely 

basis. The mailing address for 

submitting these reports is: Attention: 

CRA Processing, Board of Governors of 

the Federal Reserve System, 1709 New 

York Avenue, NW., 5th Floor, 

Washington, DC 20006]. 

fl Data may be submitted on diskette, 

CD–ROM, or via Internet e-mail. CRA 

respondents are encouraged to send 

their data via the Internet. E-mail a 

properly encrypted CRA file (using the 

FFIEC software only Internet e-mail 

export feature) to the following e-mail 

address: crasub@frb.gov. Please mail 

diskette or CD–ROM submissions to: 

Board of Governors of the Federal 

Reserve System, Attention: CRA 

Processing, 20th & Constitution Avenue, 

NW., MS N502, Washington, DC 20551–

0001. fi 

§ __.42—2: Should an institution 

develop its own program for data 

collection, or will the regulators require 

a certain format? 

A2. An institution may use the free 

software that is provided by the FFIEC 

to reporting institutions for data 

collection and reporting or develop its 

own program. Those institutions that 

develop their own programs [must 

follow the precise format for the new 

CRA data collection and reporting rules. 

This format may be obtained by 

contacting the CRA Assistance Line at 

(202) 872–7584.] fl may create a data 

submission using the File Specifications 

and Edit Validation Rules that have 

been set forth to assist with electronic 

data submissions. For information about 

specific electronic formatting 

procedures, contact the CRA Assistance 

Line at (202) 872–7584 or click on ‘‘How 

to File’’ at http://www.ffiec.gov/cra. fi 

§ __.42—3: How should an institution 

report data on lines of credit? 

A3. Institutions must collect and 

report data on lines of credit in the same 

way that they provide data on loan 

originations. Lines of credit are 

considered originated at the time the 

line is approved or increased; and an 

increase is considered a new 

origination. Generally, the full amount 

of the credit line is the amount that is 

considered originated. In the case of an 

increase to an existing line, the amount 

of the increase is the amount that is 

considered originated and that amount 

should be reported. However, consistent 

with the Call Report and TFR 

instructions, institutions would not 

report an increase to a small business or 

small farm line of credit if the increase 

would cause the total line of credit to 

exceed $1 million, in the case of a small 

business line, or $500,000, in the case 

of a small farm line. Of course, 

institutions may provide information 

about such line increases to examiners 

as other loan data. 

§ __.42—4: Should renewals of lines of 

credit be collected and/or reported? 

A4. Renewals of lines of credit for 

small business, small farm[ or] fl , fi 

consumer fl, or community 

development fi purposes should be 

collected and reported, if applicable, in 

the same manner as renewals of small 

business or small farm loans. See fl 

Q&A fi § ll.42(a)—5. Institutions that 

are HMDA reporters continue to collect 

and report home equity lines of credit 

at their option in accordance with the 

requirements of 12 CFR part 203. 

§ __.42—5: When should merging 

institutions collect data? 

A5. Three scenarios of data collection 

responsibilities for the calendar year of 

a merger and subsequent data reporting 

responsibilities are described below. 

• Two institutions are exempt from 

CRA collection and reporting 

requirements because of asset size. The 

institutions merge. No data collection is 

required for the year in which the 

merger takes place, regardless of the 

resulting asset size. Data collection 

would begin after two consecutive years 

in which the combined institution had 

year-end assets [of at least $250 million 

or was part of a holding company that 

had year-end banking and thrift assets of 

at least $1 billion] fl at least equal to 

the small institution asset-size threshold 

amount described in 12 CFR 

ll.12(u)(1).fi 

• Institution A, an institution 

required to collect and report the data, 

and Institution B, an exempt institution, 

merge. Institution A is the surviving 

institution. For the year of the merger, 

data collection is required for Institution 

A’s transactions. Data collection is 

optional for the transactions of the 

previously exempt institution. For the 

following year, all transactions of the 

surviving institution must be collected 

and reported. 

• Two institutions that each are 

required to collect and report the data 

merge. Data collection is required for 

the entire year of the merger and for 

subsequent years so long as the 

surviving institution is not exempt. The 

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37954 Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 

surviving institution may file either a 

consolidated submission or separate 

submissions for the year of the merger 

but must file a consolidated report for 

subsequent years. 

§ __.42—6: Can small institutions get 

a copy of the data collection software 

even though they are not required to 

collect or report data? 

A6. Yes. Any institution that is 

interested in receiving a copy of the 

software [may send a written request to: 

Attn.: CRA Processing, Board of 

Governors of the Federal Reserve 

System, 1709 New York Ave, NW., 5th 

Floor, Washington, DC 20006. They] fl 

may download it from the FFIEC Web 

site at http://www.ffiec.gov/cra. For 

assistance, institutions fi may [also] 

call the CRA Assistance Line at (202) 

872–7584 or send [Internet] fl an fi email to CRAHELP@FRB.GOV. 

§ __.42—7: If a small institution is 

designated a wholesale or limited 

purpose institution, must it collect data 

that it would not otherwise be required 

to collect because it is a small 

institution? 

A7. No. However, small institutions 

fl that are designated as wholesale or 

limited purpose institutions fi must be 

prepared to identify those loans, 

investments, and services to be 

evaluated under the community 

development test. 

§ __.42(a) Loan information required to 

be collected and maintained. 

§ __.42(a)—1: Must institutions collect 

and report data on all commercial loans 

[under] fl of fi $1 million fl or less 

fi at origination? 

A1. No. Institutions that are not 

exempt from data collection and 

reporting are required to collect and 

report only those commercial loans that 

they capture in the Call Report, 

Schedule RC–C, Part II, and in the TFR, 

Schedule SB. Small business loans are 

defined as those whose original 

amounts are $1 million or less and that 

were reported as either ‘‘Loans secured 

by nonfarm or nonresidential real 

estate’’ or ‘‘Commercial and Industrial 

loans’’ in Part I of the Call Report or 

TFR. 

§ __.42(a)— 2: For loans defined as 

small business loans, what information 

should be collected and maintained? 

A2. Institutions that are not exempt 

from data collection and reporting are 

required to collect and maintain fl , fi 

in a standardized, machine fl — fi 

readable format, information on each 

small business loan originated or 

purchased for each calendar year: 

• A unique number or alpha-numeric 

symbol that can be used to identify the 

relevant loan file; 

• The loan amount at origination; 

• The loan location; and 

• An indicator whether the loan was 

to a business with gross annual 

revenues of $1 million or less. 

The location of the loan must be 

maintained by census tract [ or block 

numbering area]. In addition, 

supplemental information contained in 

the file specifications includes a date 

associated with the origination or 

purchase and whether a loan was 

originated or purchased by an affiliate. 

The same requirements apply to small 

farm loans. 

§ ll.42(a)—3: Will farm loans need 

to be segregated from business loans? 

A3. Yes. 

§ ll.42(a)—4: Should institutions 

collect and report data on all 

agricultural loans [under] floffi 

$500,000fl or lessfi at origination? 

A4. Institutions are to report those 

farm loans that they capture in the Call 

Report, Schedule RC–C, Part II and 

Schedule SB of the TFR. Small farm 

loans are defined as those whose 

original amounts are $500,000 or less 

and were reported as either ‘‘Loans to 

finance agricultural production and 

other loans to farmers’’ or ‘‘Loans 

secured by farmland’’ in Part I of the 

Call Report [and] florfi TFR. 

§ ll.42(a)–5: Should institutions 

collect and report data about small 

business and small farm loans that are 

refinanced or renewed? 

A5. An institution should collect 

information about small business and 

small farm loans that it refinances or 

renews as loan originations. (A 

refinancing generally occurs when the 

existing loan obligation or note is 

satisfied and a new note is written, 

while a renewal refers to an extension 

of the term of a loan. However, for 

purposes of small business and small 

farm CRA data collection and reporting, 

it is [no longer] flnotfi necessary to 

distinguish between the two.) When 

reporting small business and small farm 

data, however, an institution may only 

report one origination (including a 

renewal or refinancing treated as an 

origination) per loan per year, unless an 

increase in the loan amount is 

granted.fl However, a demand loan that 

is merely reviewed annually is not 

reported as a renewal because the term 

of the loan has not been extended.fi 

If an institution increases the amount 

of a small business or small farm loan 

when it extends the term of the loan, it 

should always report the amount of the 

increase as a small business or small 

farm loan origination. The institution 

should report only the amount of the 

increase if the original or remaining 

amount of the loan has already been 

reported one time that year. For 

example, a financial institution makes a 

term loan for $25,000; principal 

payments have resulted in a present 

outstanding balance of $15,000. In the 

next year, the customer requests an 

additional $5,000, which is approved, 

and a new note is written for $20,000. 

In this example, the institution should 

report both the $5,000 increase and the 

renewal or refinancing of the $15,000 as 

originations for that year. These two 

originations may be reported together as 

a single origination of $20,000. 

§ ll.42(a)—6: Does a loan to the 

‘‘fishing industry’’ come under the 

definition of a small farm loan? 

A6. Yes. Instructions for Part I of the 

Call Report and Schedule SB of the TFR 

include loans ‘‘made for the purpose of 

financing fisheries and forestries, 

including loans to commercial 

fishermen’’ as a component of the 

definition for ‘‘Loans to finance 

agricultural production and other loans 

to farmers.’’ Part II of Schedule RC–C of 

the Call Report and Schedule SB of the 

TFR, which serve as the basis of the 

definition for small business and small 

farm loans in the [revised] regulation, 

capture both ‘‘Loans to finance 

agricultural production and other loans 

to farmers’’ and ‘‘Loans secured by 

farmland.’’

§ ll.42(a)—7: How should an 

institution report a home equity line of 

credit, part of which is for home 

improvement purposes[, but the 

predominant]fl andfi part of which is 

for small business purposes? 

A7. [The]fl When an institution 

originates a home equity line of credit 

that is for both home improvement and 

small business purposes, thefi 

institution has the option of reporting 

the portion of the home equity line that 

is for home improvement purposesfl as 

a home improvement loanfi under 

HMDA. [That]fl Examiners would 

consider thatfi portion of the [loan]fl 

linefi [would be considered ]when 

[examiners]fl theyfi evaluatefl the 

institution’sfi home mortgage lending. 

fl When an institution refinances a 

home equity line of credit into another 

home equity line of credit, HMDA 

reporting continues to be optional. If the 

institution opts to report the refinanced 

line, the entire amount of the line would 

be reported as a refinancing and 

examiners will consider the entire 

refinanced line when they evaluate the 

institution’s home mortgage lending.fi 

[If]fl If an institution that has 

originated a home equity line of credit 

for both home improvement and small 

business purposes (or if an institution 

that has refinanced such a line into 

another line) chooses not to report a 

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home improvement loan (or a 

refinancing) under HMDA, and iffi the 

line meets the regulatory definition of a 

‘‘community development loan,’’ the 

institution should collect and report 

information on the entire line as a 

community development loan. If the 

line does not qualify as a community 

development loan, the institution has 

the option of collecting and maintaining 

(but not reporting) the entire line of 

credit as ‘‘Other Secured Lines/Loans 

for Purposes of Small Business.’’

§ ll.42(a)—8: When collecting small 

business and small farm data for CRA 

purposes, may an institution collect and 

report information about loans to small 

businesses and small farms located 

outside the United States? 

A8. At an institution’s option, it may 

collect data about small business and 

small farm loans located outside the 

United States; however, it cannot report 

this data because the CRA data 

collection software will not accept data 

concerning loan locations outside the 

United States. 

§ ll.42(a)—9: Is an institution that 

has no small farm or small business 

loans required to report under CRA? 

A9. Each institution subject to data 

reporting requirements must, at a 

minimum, submit a transmittal sheet, 

definition of its assessment area(s), and 

a record of its community development 

loans. If the institution does not have 

community development loans to 

report, the record should be sent with 

‘‘0’’ in the community development 

loan composite data fields. An 

institution that has not purchased or 

originated any small business or small 

farm loans during the reporting period 

would not submit the composite loan 

records for small business or small farm 

loans. 

§ ll.42(a)—10: How should an 

institution collect and report the 

location of a loan made to a small 

business or farm if the borrower 

provides an address that consists of a 

post office box number or a rural route 

and box number? 

A10. Prudent banking practicesfl and 

Bank Secrecy Act regulationsfi dictate 

that [an institution]flinstitutionsfi 

know the location of [its]fltheirfi 

customers and loan collateral.fl 

Further, Bank Secrecy Act regulations 

specifically state that a post office box 

is not an acceptable address.fi 

Therefore, institutions typically will 

know the actual location of their 

borrowers or loan collateral beyond an 

address consisting only of a post office 

box. 

Many borrowers have street addresses 

in addition to[ post office box numbers 

or] rural route and box numbers. 

Institutions should ask their borrowers 

to provide the street address of the main 

business facility or farm or the location 

where the loan proceeds otherwise will 

be applied. Moreover, in many cases in 

which the borrower s address consists 

only of a rural route number[ or post 

office box], the institution knows the 

location (i.e., the census tract[ or block 

numbering area]) of the borrower or loan 

collateral. Once the institution has this 

information available, it should assign 

[a]flthefi census tract[ or block 

numbering area] to that location 

(geocode) and report that information as 

required under the regulation. 

[For loans originated or purchased in 

1998 or later]flHoweverfi , if 

[the]flanfi institution cannot 

determine [the]fla ruralfi borrower’s 

street address, and does not know the 

census tract[ or block numbering area], 

the institution should report the 

borrower’s state, county, MSAfl or 

metropolitan divisionfi , if applicable, 

and ‘‘NA,’’ for ‘‘not available,’’ in lieu of 

a census tract[ or block numbering area] 

code. 

§ ll.42(a)(2) Loan amount at 

origination. 

§ ll.42(a)(2)—1: When an 

institution purchases a small business 

or small farm loan,fl in whole or in 

part,fi which amount should the 

institution collect and report—the 

original amount of the loan or the 

amount at purchase? 

A1. When collecting and reporting 

information on purchased small 

business and small farm loans, 

including loan participations, an 

institution collects and reports the 

amount of the loan at origination, not at 

the time of purchase. This is consistent 

with the Call Report s and TFR’s use of 

the ‘‘original amount of the loan’’ to 

determine whether a loan should be 

reported as a ‘‘loan to a small business’’

or a ‘‘loan to a small farm’’ and in which 

loan size category a loan should be 

reported. When assessing the volume of 

small business and small farm loan 

purchases for purposes of evaluating 

lending test performance under CRA, 

however, examiners will evaluate an 

institution s activity based on the 

amounts at purchase. 

§ ll.42(a)(2)—2: How should an 

institution collect data about multiple 

loan originations to the same business? 

A2. If an institution makes multiple 

originations to the same business, the 

loans should be collected and reported 

as separate originations rather than 

combined and reported as they are on 

the Call Report or TFR, which reflect 

loans outstanding, rather than 

originations. However, if institutions 

make multiple originations to the same 

business solely to inflate artificially the 

number or volume of loans evaluated for 

CRA lending performance, the agencies 

may combine these loans for purposes 

of evaluation under the CRA. 

§ ll.42(a)(2)—3: How should an 

institution collect data pertaining to 

credit cards issued to small businesses? 

A3. If an institution agrees to issue 

credit cards to a [business’]fl 

business’sfi employees, all of the credit 

card lines opened on a particular date 

for that single business should be 

reported as one small business loan 

origination rather than reporting each 

individual credit card line, assuming 

the criteria in the ‘‘small business loan’’

definition in the regulation are met. The 

credit card program’s ‘‘amount at 

origination’’ is the sum of all of the 

employee/business credit cards’ credit 

limits opened on a particular date. If 

subsequently issued credit cards 

increase the small business credit line, 

the added amount is reported as a new 

origination. 

§ ll.42(a)(3) The loan location. 

§ ll.42(a)(3)—1: Which location 

should an institution record if a small 

business loan’s proceeds are used in a 

variety of locations? 

A1. The institution should record the 

loan location by either the location of 

thefl smallfi businessfl borrower’sfi 

headquarters or the location where the 

greatest portion of the proceeds are 

applied, as indicated by the borrower. 

§ ll.42(a)(4) Indicator of gross 

annual revenue. 

§ ll.42(a)(4)—1: When indicating 

whether a small business borrower had 

gross annual revenues of $1 million or 

less, upon what revenues should an 

institution rely? 

A1. Generally, an institution should 

rely on the revenues that it considered 

in making its credit decision. For 

example, in the case of affiliated 

businesses, such as a parent corporation 

and its subsidiary, if the institution 

considered the revenues of the entity’s 

parent or a subsidiary corporation of the 

parent as well, then the institution 

would aggregate the revenues of both 

corporations to determine whether the 

revenues are $1 million or less. 

Alternatively, if the institution 

considered the revenues of only the 

entity to which the loan is actually 

extended, the institution should rely 

solely upon whether gross annual 

revenues are above or below $1 million 

for that entity. However, if the 

institution considered and relied on 

revenues or income of a cosigner or 

guarantor that is not an affiliate of the 

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37956 Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 

borrower, such as a sole proprietor, the 

institution should not adjust the 

borrower s revenues for reporting 

purposes. 

§ ll.42(a)(4)—2: If an institution 

that is not exempt from data collection 

and reporting does not request or 

consider revenue information to make 

the credit decision regarding a small 

business or small farm loan, must the 

institution collect revenue information 

in connection with that loan? 

A2. No. In those instances, the 

institution should enter the code 

indicating ‘‘revenues not known’’ on the 

individual loan portion of the data 

collection software or on an internally 

developed system. Loans for which the 

institution did not collect revenue 

information may not be included in the 

loans to businesses and farms with gross 

annual revenues of $1 million or less 

when reporting this data. 

§ ll.42(a)(4)—3: What gross revenue 

should an institution use in determining 

the gross annual revenue of a start-up 

business? 

A3. The institution should use the 

actual gross annual revenue to date 

(including $0 if the new business has 

had no revenue to date). Although a 

start-up business will provide the 

institution with pro forma projected 

revenue figures, these figures may not 

accurately reflect actual gross revenuefl 

and, therefore, should not be usedfi. 

§ ll.42(a)(4)—4: When [collecting 

and reporting]fl indicatingfi the gross 

annual revenue of small business or 

small farm borrowers, do institutions 

[collect and report]fl rely onfi the 

gross annual revenue or the adjusted 

gross annual revenue of [its]fl theirfi 

borrowers? 

A4. Institutions [collect and report]fl 

rely onfi the gross annual revenue, 

rather than the adjusted gross annual 

revenue, of their small business orfl 

smallfi farm borrowersfl when 

indicating the revenue of small business 

or small farm borrowersfi. The purpose 

of this data collection is to enable 

examiners and the public to judge 

whether the institution is lending to 

small businesses and flsmallfi farms 

or whether it is only making small loans 

to larger businesses and farms. 

The regulation does not require 

institutions to request or consider 

revenue information when making a 

loan; however, if institutions do gather 

this information from their borrowers, 

the agencies expect them to collect and 

[report] flrely uponfi the borrowers’

gross annual revenue for purposes of 

CRA. The CRA regulations similarly do 

not require institutions to verify revenue 

amounts; thus, institutions may rely on 

the gross annual revenue amount 

provided by borrowers in the ordinary 

course of business. If an institution does 

not collect gross annual revenue 

information for its small business and 

small farm borrowers, the institution 

[would not indicate on the CRA data 

collection software that the gross annual 

revenues of the borrower are $1 million 

or less]fl should enter the code 

‘‘revenues not known’’fi. (See 

flQ&Afi § ll.42(a)(4)—2.) 

§ ll.42(b) Loan information required 

to be reported. 

§ ll.42(b)(1) Small business and 

small farm loan data. 

§ ll.42(b)(1)—1: For small business 

and small farm loan information that is 

collected and maintained, what data 

should be reported? 

A1. Each institution that is not 

exempt from data collection and 

reporting is required to report in 

machine-readable form annually by 

March 1 the following information, 

aggregated for each census tract[ or 

block numbering area] in which the 

institution originated or purchased at 

least one small business or small farm 

loan during the prior year: 

• The number and amount of loans 

originated or purchased with original 

amounts of $100,000 or less; 

• The number and amount of loans 

originated or purchased with original 

amounts of more than $100,000 but less 

than or equal to $250,000; 

• The number and amount of loans 

originated or purchased with original 

amounts of more than $250,000 but not 

more than $1 million, as to small 

business loans, or $500,000, as to small 

farm loans; and 

• To the extent that information is 

available, the number and amount of 

loans to businesses and farms with gross 

annual revenues of $1 million or less 

(using the revenues the institution 

considered in making its credit 

decision). 

§ ll.42(b)(2) Community 

development loan data. 

§ ll.42(b)(2)—1: What information 

about community development loans 

must institutions report? 

A1. Institutions subject to data 

reporting requirements must report the 

aggregate number and amount of 

community development loans 

originated and purchased during the 

prior calendar year. 

§ ll.42(b)(2)—2: If a loan meets the 

definition of a home mortgage, small 

business, or small farm loan AND 

qualifies as a community development 

loan, where should it be reported? Can 

FHA, VA and SBA loans be reported as 

community development loans? 

A2. Except for multifamily affordable 

housing loans, which may be reported 

by retail institutions both under HMDA 

as home mortgage loans and as 

community development loans, in order 

to avoid double counting, retail 

institutions must report loans that meet 

the [definitions] fldefinitionfi of 

[home mortgage,] fl‘‘home mortgage 

loan,’’fi [small business,] fl‘‘small 

business loan,’’fi or fl‘‘fismall farm 

[loans] flloan’’fi only in those 

respective categories even if they also 

meet the definition of fl‘‘ficommunity 

development [loans.] flloan.’’fi As a 

practical matter, this is not a 

disadvantage for [retail] institutions 

flevaluated under the lending, 

investment, and service testsfi because 

any affordable housing mortgage, small 

business, small farm, or consumer loan 

that would otherwise meet the 

definition of [a] fl‘‘ficommunity 

development loanfl’’fi will be 

considered elsewhere in the lending 

test. Any of these types of loans that 

occur outside the institution’s 

assessment area can receive 

consideration under the borrower 

characteristic criteria of the lending test. 

See flQ&Afi § ll.22(b)(2) & (3)—4. 

Limited purpose and wholesale 

institutions flthat meet the size 

threshold for reporting purposesfi also 

must report loans that meet the 

definitions of home mortgage, small 

business, or small farm loans in those 

respective categories[; however, they]fl. 

However, these institutionsfi must also 

report any loans from those categories 

that meet the regulatory definition of 

‘‘community development [loans] 

flloanfi’’ as community development 

loans. There is no double counting 

because wholesale and limited purpose 

institutions are not subject to the 

lending test and, therefore, are not 

evaluated on their level and distribution 

of home mortgage, small business, small 

farm fl,fi and consumer loans. 

§ ll.42(b)(2)—3: When the primary 

purpose of a loan is to finance an 

affordable housing project for low- or 

moderate-income individuals, but, for 

example, only 40 percent of the units in 

question will actually be occupied by 

individuals or families with low or 

moderate incomes, should the entire 

loan amount be reported as a 

community development loan? 

A3. Yes. As long as the primary 

purpose of the loan is a community 

development purpose, the full amount 

of the institution’s loan should be 

included in its reporting of aggregate 

amounts of community development 

lending. However, as noted in flQ&Afi 

§ ll.22(b)(4)—1, examiners may make 

qualitative distinctions among 

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community development loans on the 

basis of the extent to which the loan 

advances the community development 

purpose. 

fl§ ll.42(b)(2)—4: When an 

institution purchases a participation in 

a community development loan, which 

amount should the institution report—

the entire amount of the credit 

originated by the lead lender or the 

amount of the participation purchased? 

A4. The institution reports only the 

amount of the participation purchased 

as a community development loan. 

However, the institution uses the entire 

amount of the credit originated by the 

lead lender to determine whether the 

original credit meets the definition of a 

‘‘loan to a small business,’’ ‘‘loan to a 

small farm,’’ or ‘‘community 

development loan.’’ For example, if an 

institution purchases a $400,000 

participation in a business credit that 

has a community development purpose, 

and the entire amount of the credit 

originated by the lead lender is over $1 

million, the institution would report 

$400,000 as a community development 

loan.fi 

fl§ ll.42(b)(2)—5: Should 

institutions collect and report data 

about community development loans 

that are refinanced or renewed? 

A5. Yes. Institutions should collect 

information about community 

development loans that they refinance 

or renew as loan originations. 

Community development loan 

refinancings and renewals are subject to 

the reporting limitations that apply to 

refinancings and renewals of small 

business and small farm loans. See Q&A 

§ ll.42(a)—5.fi 

§ ll.42(b)(3) Home mortgage loans. 

§ ll.42(b)(3)—1: Must institutions 

that are not required to collect home 

mortgage loan data by the HMDA collect 

home mortgage loan data for purposes 

of the CRA? 

A1. No. If an institution is not 

required to collect home mortgage loan 

data by the HMDA, the institution need 

not collect home mortgage loan data 

under the CRA. Examiners will sample 

these loans to evaluate the institution’s 

home mortgage lending. If an institution 

wants to ensure that examiners consider 

all of its home mortgage loans, the 

institution may collect and maintain 

data on these loans. 

§ ll.42(c) Optional data collection 

and maintenance. 

§ ll.42(c)(1) Consumer loans. 

§ ll.42(c)(1)—1: What are the data 

requirements regarding consumer loans? 

A1. There are no data reporting 

requirements for consumer loans. 

Institutions may, however, opt to collect 

and maintain data on consumer loans. If 

an institution chooses to collect 

information on consumer loans, it may 

collect data for one or more of the 

following categories of consumer loans: 

motor vehicle, credit card, home equity, 

other secured, and other unsecured. If 

an institution collects data for loans in 

a certain category, it must collect data 

for all loans originated or purchased 

within that category. The institution 

must maintain these data separately for 

each category for which it chooses to 

collect data. The data collected and 

maintained should include for each 

loan: 

• A unique number or alpha-numeric 

symbol that can be used to identify the 

relevant loan file; 

• The loan amount at origination or 

purchase; 

• The loan location; and 

• The gross annual income of the 

borrower that the institution considered 

in making its credit decision. 

Generally, guidance given with 

respect to data collection of small 

business and small farm loans, 

including, for example, guidance 

regarding collecting loan location data, 

and whether to collect data in 

connection with refinanced or renewed 

loans, will also apply to consumer 

loans. 

§ ll.42(c)(1)(iv) Income of borrower. 

§ ll.42(c)(1)(iv)—1: If an institution 

does not consider income when making 

an underwriting decision in connection 

with a consumer loan, must it collect 

income information? 

A1. No. Further, if the institution 

routinely collects, but does not verify, a 

borrower’s income when making a 

credit decision, it need not verify the 

income for purposes of data 

maintenance. 

§ ll.42(c)(1)(iv)—2: May an 

institution list ‘‘0’’ in the income field 

on consumer loans made to employees 

when collecting data for CRA purposes 

as the institution would be permitted to 

do under HMDA? 

A2. Yes. 

§ ll.42(c)(1)(iv)—3: When collecting 

the gross annual income of consumer 

borrowers, do institutions collect the 

gross annual income or the adjusted 

gross annual income of the borrowers? 

A3. Institutions collect the gross 

annual income, rather than the adjusted 

gross annual income, of consumer 

borrowers. The purpose of income data 

collection in connection with consumer 

loans is to enable examiners to 

determine the distribution, particularly 

in the institution’s assessment area(s), of 

the institution’s consumer loans, based 

on borrower characteristics, including 

the number and amount of consumer 

loans to low-, moderate-, middle-, and 

upper-income borrowers, as determined 

on the basis of gross annual income. 

The regulation does not require 

institutions to request or consider 

income information when making a 

loan; however, if institutions do gather 

this information from their borrowers, 

the agencies expect them to collect the 

borrowers gross annual income for 

purposes of CRA. The CRA regulations 

similarly do not require institutions to 

verify income amounts; thus, 

institutions may rely on the gross 

annual income amount provided by 

borrowers in the ordinary course of 

business. 

[§ ]§ll.42(c)(1)(iv)–4: Whose income 

does an institution collect when a 

consumer loan is made to more than 

one borrower? 

A4. An institution that chooses to 

collect and maintain information on 

consumer loans collects the gross 

annual income of all primary obligors 

for consumer loans, to the extent that 

the institution considered the income of 

the obligors when making the decision 

to extend credit. Primary obligors 

include co-applicants and co-borrowers, 

including co-signers. An institution 

does not, however, collect the income of 

guarantors on consumer loans, because 

guarantors are only secondarily liable 

for the debt. 

§ll.42(c)(2) Other loan data. 

§ll.42(c)(2)–1: Schedule RC–C, Part 

II of the Call Report does not allow 

banks to report loans for commercial 

and industrial purposes that are secured 

by residential real estate, unless the 

security interest in the nonfarm 

residential real estate is taken only as 

an abundance of caution. (See 

flQ&Afi [§ ]§ll.12([u] flvfi) [& 

563e.12(t)]–3.) Loans extended to small 

businesses with gross annual revenues 

of $1 million or less may, however, be 

secured by residential real estate. May a 

bank collect this information to 

supplement its small business lending 

data at the time of examination? 

A1. Yes. If these loans promote 

community development, as defined in 

the regulation, the bank should collect 

and report information about the loans 

as community development loans. 

Otherwise, at the bank’s option, it may 

collect and maintain data concerning 

loans, purchases, and lines of credit 

extended to small businesses and 

secured by nonfarm residential real 

estate for consideration in the CRA 

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37958 Federal Register / Vol. 72, No. 132 / Wednesday, July 11, 2007 / Notices 

evaluation of its small business lending. 

A bank may collect this information as 

‘‘Other Secured Lines/Loans for 

Purposes of Small Business’’ in the 

individual loan data. This information 

should be maintained at the bank but 

should not be submitted for central 

reporting purposes. 

§ll.42(c)(2)–2: Must an institution 

collect data on loan commitments and 

letters of credit? 

A2. No. Institutions are not required 

to collect data on loan commitments 

and letters of credit. Institutions may, 

however, provide for examiner 

consideration information on letters of 

credit and commitments. 

§ll.42(c)(2)–3: Are commercial and 

consumer leases considered loans for 

purposes of CRA data collection? 

A3. Commercial and consumer leases 

are not considered small business or 

small farm loans or consumer loans for 

purposes of the data collection 

requirements in 12 CFR [§ ]ll.42(a) & 

(c)(1). However, if an institution wishes 

to collect and maintain data about 

leases, the institution may provide this 

data to examiners as ‘‘other loan data’’

under 12 CFR [§ ]ll.42(c)(2) for 

consideration under the lending test. 

§ll.42(d) Data on affiliate lending. 

§ll.42(d)–1: If an institution elects 

to have an affiliate’s home mortgage 

lending considered in its CRA 

evaluation, what data must the 

institution make available to examiners? 

A1. If the affiliate is a HMDA reporter, 

the institution must identify those loans 

reported by its affiliate under 12 CFR 

part 203 (Regulation C, implementing 

HMDA). At its option, the institution 

may [either] provide examiners with 

fleitherfi the affiliate’s entire HMDA 

Disclosure Statement or just those 

portions covering the loans in its 

assessment area(s) that it is electing to 

consider. If the affiliate is not required 

by HMDA to report home mortgage 

loans, the institution must provide 

sufficient data concerning the affiliate’s 

home mortgage loans for the examiners 

to apply the performance tests. 

§ll.43 Content and availability of 

public file. 

§ll.43(a) Information available to 

the public. 

§ll.43(a)(1) Public comments 

related to [a bank’s] flan institution’sfi 

CRA performance. 

§ll.43(a)(1)–1: What happens to 

comments received by the agencies? 

A1. Comments received by a Federal 

financial supervisory agency will be on 

file at the agency for use by examiners. 

Those comments are also available to 

the public unless they are exempt from 

disclosure under the Freedom of 

Information Act. 

§ll.43(a)(1)—2: Is an institution 

required to respond to public 

comments? 

A2. No. All institutions should review 

comments and complaints carefully to 

determine whether any response or 

other action is warranted. A small 

institution subject to the small 

institution performance standards is 

specifically evaluated on its record of 

taking action, if warranted, in response 

to written complaints about its 

performance in helping to meet the 

credit needs in its assessment area(s) 

(fl12 CFRfi [§ ] ll.26([a]flbfi)(5)). 

For all institutions, responding to 

comments may help to foster a dialogue 

with members of the community or to 

present relevant information to an 

institution’s Federal financial 

supervisory agency. If an institution 

responds in writing to a letter in the 

public file, the response must also be 

placed in that file, unless the response 

reflects adversely on any person or 

placing it in the public file violates a 

law. 

fl§ll.43(a)(2) CRA performance 

evaluation.fi 

§ll.43(a)([1]fl2fi)—[3]fl1fi: May 

an institution include a response to its 

CRA [Performance Evaluation] 

flperformance evaluationfi in its 

public file? 

A[3]fl1fi. Yes. However, the format 

and content of the evaluation, as 

transmitted by the supervisory agency, 

may not be altered or abridged in any 

manner. In addition, an institution that 

received a less than satisfactory rating 

during its most recent examination must 

include in its public file a description 

of its current efforts to improve its 

performance in helping to meet the 

credit needs of its entire community. 

flSee 12 CFRll.43(b)(5).fi The 

institution must update the description 

on a quarterly basis. 

§ll.43(b) Additional information 

available to the public. 

§ll.43(b)(1) Institutions other than 

small institutions. 

§ll.43(b)(1)—1: Must an institution 

that elects to have affiliate lending 

considered include data on this lending 

in its public file? 

A1. Yes. The lending data to be 

contained in an institution’s public file 

covers the lending of the institution’s 

affiliates, as well as of the institution 

itself, considered in the assessment of 

the institution’s CRA performance. An 

institution that has elected to have 

mortgage loans of an affiliate considered 

must include either the affiliate’s 

HMDA Disclosure Statements for the 

two prior years or the parts of the 

Disclosure Statements that relate to the 

institution’s assessment area(s), at the 

institution’s option. 

§ll.43(b)(1)—2: May an institution 

retain [the compact disc provided by the 

Federal Financial Institution 

Examination Council that contains] its 

CRA [Disclosure Statement] disclosure 

statement flin electronic formatfi in its 

public file, rather than printing a hard 

copy of the CRA [Disclosure Statement] 

fldisclosure statementfi for retention 

in its public file? 

A2. Yes, if the institution can readily 

print out [from the compact disc (or a 

duplicate of the compact disc)] its CRA 

[Disclosure Statement for]fldisclosure 

statement from an electronic medium 

(e.g., CD, DVD, or Internet website) 

whenfi a consumer [when the public 

file is requested] flrequests the public 

filefi. If the request is at a branch other 

than the main office or the one 

designated branch in each state that 

holds the complete public file, the 

[bank] flinstitutionfi should provide 

the CRA [Disclosure Statement] 

fldisclosure statementfi in a paper 

copy, or in another format acceptable to 

the requestor, within 5 calendar days, as 

required by fl12 CFRfi 

[§]ll.43(c)(2)(ii). 

§ll.43(c) Location of public 

information. 

§ll.43(c)—1: What is an 

institution’s ‘‘main office’’? 

A1. An institution’s main office is the 

main, home, or principal office as 

designated in its charter. 

§ll.43(c)— 2: May an institution 

maintain a copy of its public file on an 

intranet or the Internet? 

A2. Yes, an institution may keep all 

or part of its public file on an intranet 

or the Internet, provided that the 

institution maintains all of the 

information, either in paper or 

electronic form, that is required in 

§ll.43 of the regulations. An 

institution that opts to keep part or all 

of its public file on an intranet or the 

Internet must follow the rules in fl12 

CFRfi[§ ]ll.43(c)(1) and (2) as to what 

information is required to be kept at a 

main office and at a branch. The 

institution also must ensure that the 

information required to be maintained 

at a main office and branch, if kept 

electronically, can be readily 

downloaded and printed for any 

member of the public who requests a 

hard copy of the information. 

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§ll.44 Public notice by institutions. 

§ll.44–1: Are there any placement 

or size requirements for an institution’s 

public notice? 

A1. The notice must be placed in the 

institution’s public lobby, but the size 

and placement may vary. The notice 

should be placed in a location and be of 

a sufficient size that customers can 

easily see and read it. 

§ll.45—Publication of planned 

examination schedule. 

§ll.45–1: Where will the agencies 

publish the planned examination 

schedule for the upcoming calendar 

quarter? 

A1. The agencies may use the Federal 

Register, a press release, the Internet, or 

other existing agency publications for 

disseminating the list of the institutions 

scheduled [to] for CRA examinations 

during the upcoming calendar quarter. 

Interested parties should contact the 

appropriate Federal financial 

supervisory agency for information on 

how the agency is publishing the 

planned examination schedule. 

§ll.45–2: Is inclusion on the list of 

institutions that are scheduled to 

undergo CRA examinations in the next 

calendar quarter determinative of 

whether an institution will be examined 

in that quarter? 

A2. No. The agencies attempt to 

determine as accurately as possible 

which institutions will be examined 

during the upcoming calendar quarter. 

However, whether an institution’s name 

appears on the published list does not 

conclusively determine whether the 

institution will be examined during that 

quarter. The agencies may need to defer 

a planned examination or conduct an 

unforeseen examination because of 

scheduling difficulties or other 

circumstances. 

Appendix A to Partll—Ratings 

APPENDIX A to Partll—1: Must an 

institution’s performance fit each aspect of a 

particular rating profile in order to receive 

that rating? 

A1. No. Exceptionally strong performance 

in some aspects of a particular rating profile 

may compensate for weak performance in 

others. For example, a retail institution 

flother than an intermediate small 

institutionfi that uses non-branch delivery 

systems to obtain deposits and to deliver 

loans may have almost all of its loans outside 

the institution’s assessment area. Assume 

that an examiner, after consideration of 

performance context and other applicable 

regulatory criteria, concludes that the 

institution has weak performance under the 

lending [test] criteria applicable to lending 

activity, geographic distribution, and 

borrower characteristics within the 

assessment area. The institution may 

compensate for such weak performance by 

exceptionally strong performance in 

community development lending in its 

assessment area or a broader statewide or 

regional area that includes its assessment 

area. 

Appendix B to Partll—CRA Notice 

APPENDIX B to Partll—1: What agency 

information should be added to the CRA 

notice form? 

A1. The following information should be 

added to the form: 

OCC-supervised institutions only: [The] 

flFor community banks, thefi address of the 

deputy comptroller of the district in which 

the institution is located should be inserted 

in the appropriate blank. These addresses can 

be found at [12 CFR 4.5(a).] flhttp:// 

www.occ.gov. For banks supervised under the 

large bank program, insert ‘‘Large Bank 

Supervision, 250 E Street, SW., Washington, 

DC 20219–0001.’’ For banks supervised 

under the mid-size/credit card bank program, 

insert ‘‘Mid-Size and Credit Card Bank 

Supervision, 250 E Street, SW., Washington, 

DC 20219–0001.’’fi 

OCC-, FDIC-, and Board-supervised 

institutions: Officer in Charge of Supervision 

is the title of the responsible official at the 

appropriate Federal Reserve Bank. 

[Appendix A—Regional Offices of the 

Bureau of the Census] is deleted in its 

entirety. 

End of text of the Interagency Questions 

and Answers 

Dated: June 26, 2007. 

John C. Dugan, 

Comptroller of the Currency. 

Dated: June 26, 2007. 

By order of the Board of Governors of the 

Federal Reserve System. 

Jennifer J. Johnson, 

Secretary of the Board. 

Dated at Washington, DC, this 26th day of 

June, 2007. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

Dated: June 26, 2007. 

By the Office of Thrift Supervision. 

John M. Reich, 

Director. 

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

BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P; 

6720–01–P 

mstockstill on PROD1PC66 with NOTICES2