[Federal Register Volume 72, Number 132 (Wednesday, July 11, 2007)]
[Notices]
[Pages 37922-37959]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-3223]



[[Page 37921]]

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Part III

Department of the Treasury
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Office of the Comptroller of the Currency



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Office of Thrift Supervision



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Federal Reserve System
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Federal Deposit Insurance Corporation
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Community Reinvestment Act; Interagency Questions and Answers Regarding 
Community Reinvestment; Notice

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

[[Page 37922]]


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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.

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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:
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#e597808296cb868a8888808b9196a58a8686cb9197808496cb828a93"><span class="__cf_email__" data-cfemail="483a2d2f3b662b2725252d263c3b08272b2b663c3a2d293b662f273e">[email protected]</span></a>.
    <bullet> Fax: (202) 874-4448.
    <bullet> Mail: Office of the Comptroller of the Currency, 250 E 
Street, SW., Mail Stop 1-5, Washington, DC 20219.
    <bullet> 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:
    <bullet> 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.
    <bullet> 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:
    <bullet> Agency Web Site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#66140301154805090b0b03081215260003020314070a1403150314100348010910"><span class="__cf_email__" data-cfemail="f183949682df929e9c9c949f8582b19794959483909d83948294838794df969e87">[email protected]</span></a>. Include docket 
number in the subject line of the message.
    <bullet> Fax: 202/452-3819 or 202/452-3102.
    <bullet> 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:
    <bullet> Agency Web site: http://www.fdic.gov/regulations/laws/federal/propose.html. Follow instructions for submitting comments on 
the Agency Web Site.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#cc8fa3a1a1a9a2b8bf8c8a88858fe2aba3ba"><span class="__cf_email__" data-cfemail="4f0c2022222a213b3c0f090b060c61282039">[email protected]</span></a>. Include the RIN number in the 
subject line of the message.
    <bullet> Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
    <bullet> 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:
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#f183949682df929e9c9c949f8582b19e8582df8583949082df969e87"><span class="__cf_email__" data-cfemail="ed9f888a9ec38e8280808883999ead82999ec3999f888c9ec38a829b">[email protected]</span></a>. Please include ID 
OTS-2007-0030 in the subject line of the message and include your name 
and telephone number in the message.
    <bullet> Fax: (202) 906-6518.
    <bullet> Mail: Regulation Comments, Chief Counsel's Office, Office 
of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, 
Attention: ID OTS-2007-0030.
    <bullet> 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

[[Page 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.
    <bullet> 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 
<a href="/cdn-cgi/l/email-protection#152974357d67707328" http: public.info">public.info</a>@ots.treas.gov">public.info@ots.treas.gov</a>, 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 Sec.  ----.12(u)(2)--1, Sec.  ----.26(c)--1, Sec.  
----.26(c)(3)--1, and Sec.  ----.26(c)(4)--1; the proposed revised 
question and answer for OTS is Q&A Sec.  ----.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 
Sec.  ----.21(a)--1 and Sec.  ----.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

[[Page 37924]]

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 ----.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 
----.26 would be identified as Sec.  ----.26--1.
    Although a particular question and answer may be found under one 
regulatory provision, e.g., 12 CFR ----.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 ----.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 women-owned financial institutions 
and low-income credit unions.
    The CRA statute provides that, when evaluating the CRA performance 
of a non-minority-owned and non-women-owned (majority-owned) financial 
institution, the agencies may consider as a factor capital investment, 
loan participation, and other ventures undertaken by the institution in 
cooperation with minority- and women-owned financial institutions and 
low-income credit unions provided that these activities help meet the 
credit needs of local communities in which such institutions are 
chartered. 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 
Sec.  ----.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 low-income 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 --
--.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 ----.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 ----.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 ----.25(e).
    The agencies propose a new question and answer, Sec. ----.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 majority-
owned institution. The minority- or women-owned institution or low-
income credit union need not be located in, and the activities need not 
benefit, the assessment area(s) of the majority-owned institution or 
the broader statewide or regional area that includes its assessment 
area(s).
    II. Intermediate small institutions' affordable home mortgage loans 
and small business and small farm loans.
    Q&A Sec. ----.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, Sec. --
--.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 Sec. ----.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

[[Page 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 
Sec. ----.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 ----.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 Sec. ----.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 Sec. ----.12(l)--2 and Sec. --
--.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 Sec. --
--.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 Sec. ----.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 ----.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 Sec. ----.42(b)(2)--4 and Q&A 
Sec. ----.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 ----.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 non-mortgage 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 Sec. ----.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 Sec. --
--.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 ----.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 ----.42(b). The lag

[[Page 37926]]

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 Sec. ----.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 ----.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 Sec. --
--.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 Sec. ----.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 --
--.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 --
--.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 Sec. --
--.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 Sec. ----.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 Sec. ----.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 Sec. ----.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 Sec. ----.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 Sec. ----.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 Sec. --
--.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 Sec. ----.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 Sec. ----.12(g)(3)--1, the agencies propose to 
revise the fourth bullet in the answer

[[Page 37927]]

to Q&A Sec. ----.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 long-term, 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 Sec.  ----.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 ----.24(d). 
See Q&As Sec.  ----.12(g)(4)(ii)--2, Sec.  ----.12(g)(4)(iii)--3, and 
Sec.  ----.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 ----.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 CFR----.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 moderate-income 
individuals individual development accounts (IDAs) and free payroll 
check cashing. (A cross-reference to this revised Q&A would be added to 
Q&A Sec.  ----.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 Sec.  ----.12(t)--3 to state that FHLB 
unpaid dividends are not qualified investments.
    V. Examples of qualified investments.
    Q&A Sec.  ----.12(t)--4 provides examples of qualified investments. 
For the same reasons as addressed above in connection with the proposed 
revision to Q&A Sec.  ----.12(g)(3)--1, the agencies propose to revise 
the first bullet in the answer to Q&A Sec.  ----.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 Sec.  ----.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.

[[Page 37928]]

    VII. Responsive lending activities.
    Q&A Sec.  ----.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 Sec.  ----.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 Sec.  ----.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 
Sec.  ----.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 moderate-income 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 Sec.  ----.41(e)(4)--1 and Sec.  ----.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 Sec.  ----.41(e)(4)--1 and Sec.  --
--.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 Sec.  --
--.41(e)(4)--1 and Sec.  ----.41(e)(4)--2 incorporate this information.
    XI. Reporting data under the CRA regulations.
    Q&A Sec.  ----.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 Sec.  ----.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 Sec.  ----.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 CFR----.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 
Sec.  ----.12(u)(2)--1, Sec.  ----26(c)--1, Sec.  ----.26(c)(3)--1, and 
Sec.  ----.26(c)(4)--

[[Page 37929]]

1; the proposed revised question and answer for OTS is Q&A Sec.  --
--.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-Leach-Bliley 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

Sec.  ----.11 Authority, purposes, and scope.

Sec.  ----.11(c) Scope.

Sec. Sec.  ----.11(c)(3) & 563e.11(c)(2) Certain special purpose 
institutions.

    Sec. Sec.  ----.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.
    Sec. Sec.  ----.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.

Sec.  ----.12 Definitions.

Sec.  ----.12(a) Affiliate.

    Sec.  ----.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.

Sec.  [ Sec.  ]----.12(f) [ & 563e.12(e)] Branch.

    Sec.  [ Sec.  ]----.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 ``branches[rtrif],[ltrif]'' and mobile `ATMs' and `RSFs' are 
considered ``ATMs'' and ``RSFs.''
    Sec.  [ Sec.  ]----.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.

Sec.  [ Sec.  ]----.12([h][rtrif]g[ltrif])[ & 563.12(g)] Community 
development.

    Sec.  [ Sec.  ]----.12([h][rtrif]g[ltrif])[ & 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 community- or tribal-
based child care, educational, health, or social services targeted to 
low- or moderate-income persons, affordable housing for low- or 
moderate-income individuals, and activities that

[[Page 37930]]

revitalize or stabilize low- or moderate-income areas[rtrif], 
designated disaster areas, or underserved or distressed nonmetropolitan 
middle-income geographies[ltrif].
    Sec.  [Sec.  ]----.12([h][rtrif]g[ltrif])[ & 563e.12(g)]--2: Must a 
community development activity occur inside a low- or moderate-income 
area [rtrif], designated disaster area, or underserved or distressed 
nonmetropolitan middle-income area[ltrif] 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][rtrif], regardless of their location,[ltrif] 
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 [rtrif], designated disaster areas, or underserved or 
distressed nonmetropolitan middle-income areas[ltrif] (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 [low- or 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 middle-income area, if the mall 
stabilizes the adjacent low-income community by providing needed 
shopping services that are not otherwise available in the low-income 
community.
    Sec.  [Sec.  ]----.12([h][rtrif]g[ltrif])[ & 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 middle-income people or 
areas caused by the disproportionately high cost of building, 
maintaining or acquiring a house when determining whether an 
institution's loan to or 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.
    [rtrif]Sec.  ----.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 low-income 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.[ltrif]
    Sec.  [Sec.  ]----.12([h][rtrif]g[ltrif])(1)[ & 563e.12(g)] 
Affordable housing (including multifamily rental housing) for low- or 
moderate-income individuals
    Sec.  [Sec.  ]----.12([h][rtrif]g[ltrif])(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 [rtrif],[ltrif] 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 low- or 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 
moderate-income 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, 
economic[rtrif],[ltrif] 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 proposal[rtrif],[ltrif] or community action plan, is community 
development.

Sec.  [Sec.  ]----.12([h] [rtrif]g[ltrif])(3)[ & 563e.12(g)(3)] 
Activities that promote economic development by financing businesses or 
farms that meet certain size eligibility standards.

    Sec.  [Sec.  ]----.12([h][rtrif]g[ltrif])(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] [rtrif]The concept of[ltrif] 
``community development'' under [Sec. Sec. ] [rtrif]12 CFR[ltrif]--
--.12([h][rtrif]g[ltrif])(3)[and 563e.12(g)(3)] [rtrif]involves both a 
``size'' test and a ``purpose'' test. An institution's[ltrif][, a] 
loan, investment, or service[, whether made][rtrif]meets the ``size'' 
test if it finances, either[ltrif] directly or through an intermediary, 
[must meet both a size test and a purpose test. An activity meets the 
size

[[Page 37931]]

requirement if it finances entities that] [rtrif]entities that[ltrif] 
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 [rtrif]``[ltrif]purpose test,[rtrif]''[ltrif] the 
[activity][rtrif] institution's loan, investment, or service[ltrif] 
must promote economic development. [An activity is][rtrif] These 
activities are[ltrif] considered to promote economic development if [it 
supports][rtrif] they support[ltrif] 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[rtrif],[ltrif] or 
tribal governments. The agencies will presume that any loan to or 
investment in a SBDC, SBIC, [or][rtrif] Rural Business Investment 
Company,[ltrif] New Markets Venture Capital Company[rtrif], or New 
Markets Tax Credit-eligible Community Development Entity[ltrif] 
promotes economic development. [rtrif](But also refer to Q&As Sec.  --
--.42(b)(2)-- 2, Sec.  ----.12(h)--2, and Sec.  ----.12(h)--3 for more 
information about which loans may be considered community development 
loans.)[ltrif]
    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.

Sec.  [Sec.  ]----.12([h][rtrif]g[ltrif])(4)[ & 563e.12(g)(4)] 
Activities that revitalize or stabilize [low- or moderate-
income][rtrif] certain[ltrif] geographies.

    Sec.  ----.12(g)(4)--1: Is the revised definition of community 
development, effective September 1, 2005 [rtrif](under the OCC, Board, 
and FDIC rules) and effective April 12, 2006 (under OTS's rule), 
[ltrif]applicable to all [banks][rtrif] institutions[ltrif] or only to 
intermediate small [banks][rtrif] institutions[ltrif]? \1\
---------------------------------------------------------------------------

    \1\ The 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.
---------------------------------------------------------------------------

    A1. The revised definition of community development is applicable 
to all [banks][rtrif] institutions[ltrif]. [rtrif]Examiners 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).[ltrif]
    Sec.  ----.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 
middle-income 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 upper-income 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 low- 
and moderate-income individuals in the community through the creation 
of temporary construction jobs. ([A][rtrif] Except in connection with 
intermediate small institutions, a[ltrif] 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 [rtrif] 12 CFR 
[ltrif][Sec.  ]----.12([i][rtrif]h[ltrif])(2)(i) and Q&As Sec.  [Sec.  
]----.12([i][rtrif]h[ltrif]) [& 563e.12(h)]--2[rtrif] and Sec.  
--.12(h)--3[ltrif].) 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 Sec.  [Sec.  ]--
--.12([h][rtrif]g[ltrif])(4)(i)[& 563.12(g)(4)]--1 and Sec.  [Sec.  ]--
--.12([i][rtrif]h[ltrif]) [& 563e.12(h)]--[4][rtrif]5[ltrif].
    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 mixed-
income housing development that provides housing for middle- and upper-
income individuals in an underserved nonmetropolitan middle-income 
geography would receive positive consideration if it also provides 
housing for low- or moderate-income individuals.

Sec.  [Sec.  ]----.12([h][rtrif]g[ltrif])(4)[rtrif](i)[ltrif][& 
563e.12(g)(4)] Activities that revitalize or stabilize low- or 
moderate-income geographies.

    Sec.  [Sec.  ]----.12([h][rtrif]g[ltrif])(4)[rtrif](i)[ltrif][& 
563e.12(g)(4)]--1: What [are] activities [that][rtrif]are 
considered[ltrif]to ``revitalize or stabilize'' a low- or moderate-
income geography[rtrif], and how are those activities 
considered[ltrif]?
    A1. Activities that revitalize or stabilize a low- or moderate-
income geography are activities that help to attract [rtrif]new, 
or[ltrif][and] retain [rtrif]existing,[ltrif] businesses 
[and][rtrif]or[ltrif] 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. Sec.  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, 
local[rtrif],[ltrif] or tribal government plan for the revitalization 
or stabilization of the [rtrif]low- or moderate-income[ltrif] 
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

[[Page 37932]]

or stabilize a low- or moderate-income geography, see 
[rtrif]Q&As[ltrif] Sec.  [Sec.  ]----.12([h][rtrif]g[ltrif])[& 
563e.12(g)]--2 and Sec.  [Sec.  ]----.12 ([i][rtrif]h[ltrif])[& 
563.12(h)]--4.

Sec. ----.12(g)(4)(ii) Activities that revitalize or stabilize 
designated disaster areas.

    Sec. ----.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][rtrif]institution[ltrif] 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.
    Sec. ----.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 Sec. ----.12([j][rtrif]i[ltrif])[& 
563e.12(i)]-3; Sec. ----.12([s][rtrif]t[ltrif])[& 563e.12(r)]--4; 
Sec. ----.22(b)(2) & (3)-4; Sec. ----.22(b)(2) & (3)--5; and Sec. --
--.24(d)(3)-1).

Sec. ----.12(g)(4)(iii) Activities that revitalize or stabilize 
distressed or underserved nonmetropolitan middle-income geographies.

    Sec. ----.12(g)(4)(iii)--1: What criteria are used to identify 
distressed or underserved nonmetropolitan, middle-income geographies?
    A1. Eligible nonmetropolitan middle-income 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 [rtrif]12 CFR[ltrif][Sec.  ]----.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 five-year 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).
    Sec.  ----.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] [rtrif]is[ltrif] 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.
    Sec. ----.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 moderate-income 
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 Sec.  [Sec.  ]--
--.12([h]([rtrif]g[ltrif])(4)[& 563e.12(g)(4)[rtrif](i)[ltrif]]--1 and 
Sec.  [Sec.  ]----.12([i] [rtrif]h[ltrif] )[& 563e.12(h)]--[4] 
[rtrif]5[ltrif] .
    Sec.  ----.12(g)(4)(iii)--4: What activities are considered to 
``revitalize or stabilize'' an underserved nonmetropolitan middle-
income

[[Page 37933]]

geography, and how are those activities evaluated?
    A4. The regulation provides that activities revitalize or stabilize 
an underserved nonmetropolitan middle-income 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 moderate-income individuals; a new or 
rehabilitated sewer line that serves community residents, including 
low- or moderate-income residents; a mixed-income 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 moderate-income families.
    Other activities in the area, such as financing a project to build 
a sewer line spur that connects services to a middle- or upper-income 
housing development while bypassing a low- or moderate-income 
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 Sec.  ----.12(g)(4)(ii)--2 and Sec.  --
--.12(g)(4)(iii)--3.

Sec.  [Sec.  ] ----.12([i] [rtrif]h[ltrif] )[& 563e.12(h)] Community 
development loan.

    Sec.  [Sec.  ] ----.12([i] [rtrif]h[ltrif] )[& 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:
    <bullet> Borrowers for affordable housing rehabilitation and 
construction, including construction and permanent financing of 
multifamily rental property serving low- and moderate-income persons;
    <bullet> Not-for-profit organizations serving primarily low- and 
moderate-income housing or other community development needs;
    <bullet> Borrowers to construct or rehabilitate community 
facilities that are located in low- and moderate-income areas or that 
serve primarily low- and moderate-income individuals;
    <bullet> Financial intermediaries including Community Development 
Financial Institutions (CDFIs), [rtrif]New Markets Tax Credit-eligible 
Community Development Entities,[ltrif] 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[.] [rtrif];[ltrif]
    <bullet> Local, state, and tribal governments for community 
development activities; [and]
    <bullet> 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[.][rtrif]; and
    <bullet> Businesses, in an amount greater than $1 million, when 
made as part of the Small Business Administration's 504 Certified 
Development Company program.[ltrif]
    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.
    Sec.  [Sec.  ]----.12([i][rtrif]h[ltrif])[ & 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 [rtrif]the[ltrif] 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 loans[rtrif], 
unless the small institution is an intermediate small institution (see 
Sec.  ----.12(h)--3)[ltrif]. Multifamily dwelling loans, however, may 
be considered as community development loans as well as home mortgage 
loans. See also [rtrif]Q&A[ltrif] Sec.  ----.42(b)(2)--2.
    [rtrif]Sec.  ----.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.[ltrif]
    Sec.  [Sec.  ]----.12([ i ][rtrif]h[ltrif])[ & 563e.12(h) ] --[3] 
[rtrif]4[ltrif]: Do secured credit cards or other credit card programs 
targeted to low- or moderate-income 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.''
    Sec.  [Sec.  ]----.12([i] [rtrif]h[ltrif])[ & 563e.12(h)]--
[4][rtrif]5[ltrif]: 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?

[[Page 37934]]

    A4. No. Some loans may provide only indirect or short-term benefits 
to low- or moderate-income individuals in a low- or 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] [rtrif]low- or moderate-income[ltrif] area is not 
considered to have a community development purpose simply because of 
the indirect benefit to low- or moderate-income 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] [rtrif]low- 
or moderate-income[ltrif] area (or a nearby area)[, which] 
[rtrif]that[ltrif] employs or serves residents of the area[,] and 
[rtrif],[ltrif] thus[rtrif],[ltrif] stabilizes the area, may be 
considered to have a community development purpose. For example, in [an 
underserved, distressed] [rtrif]a low-income[ltrif] area, a loan for a 
pharmacy that employs and [provides supplies to][rtrif]serves[ltrif] 
residents of the area promotes community development.
    Sec.  [Sec.  ]----.12([i][rtrif]h[ltrif])[ & 563e.12(h)]--
[5][rtrif]6[ltrif]: 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).
    Sec.  [Sec.  ]----.12([i][rtrif]h[ltrif])[ & 563e.12(h)]--
[6][rtrif]7[ltrif]: 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 [rtrif],[ltrif] 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).
    Sec.  [Sec.  ]----.12([i][rtrif]h[ltrif])[ & 563e.12(h)]--
[7][rtrif]8[ltrif]: 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, 
[rtrif]designated disaster areas, or underserved or distressed 
nonmetropolitan middle-income areas, [ltrif] 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 [rtrif]12 
CFR [ltrif] [Sec.  Sec.  ]----.12([h][rtrif]g[ltrif])[ 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.

Sec.  [Sec.  ]----.12([j][rtrif]i[ltrif] )[& 563e.12(i)] Community 
development service.

    Sec.  [Sec.  ]----.12([j][rtrif]i[ltrif])[& 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

[[Page 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.
    Sec.  [Sec.  ]----.12([j][rtrif]i[ltrif])[& 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.
    Sec.  [Sec.  ]----.12[j][rtrif]i[ltrif])[ & 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:
    <bullet> Providing financial services to low- and 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][rtrif]an 
institution's[ltrif] retail banking services under [rtrif]12 
CFR[ltrif][Sec.  ]----.24(d);
    <bullet> [rtrif]Increasing 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 ----.24(d);[ltrif]
    <bullet> Providing technical assistance on financial matters to 
nonprofit, tribal or government organizations serving low- and 
moderate-income housing or economic revitalization and development 
needs;
    <bullet> 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;
    <bullet> Lending employees to provide financial services for 
organizations facilitating affordable housing construction and 
rehabilitation or development of affordable housing;
    <bullet> Providing credit counseling, home-buyer 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;
    <bullet> Establishing school savings programs [and 
developing][rtrif];[ltrif]
    <bullet> [rtrif]Developing[ltrif] or teaching financial [education] 
[rtrif]literacy[ltrif] curricula for low- or moderate-income 
individuals;
    <bullet> 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;
    <bullet> Providing international [remittances] 
[rtrif]remittance[ltrif] services that increase access to financial 
services by low- and moderate-income persons (for example, by offering 
reasonably priced international [remittances] [rtrif]remittance[ltrif] 
services in connection with a low-cost account); and
    <bullet> 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, [rtrif]individual development 
accounts (IDAs),[ltrif] or free government [rtrif]or payroll[ltrif] 
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:
    <bullet> Serving on a loan review committee;
    <bullet> Developing loan application and underwriting standards;
    <bullet> Developing loan processing systems;
    <bullet> Developing secondary market vehicles or programs;
    <bullet> Assisting in marketing financial services, including 
development of advertising and promotions, publications, workshops and 
conferences;
    <bullet> Furnishing financial services training for staff and 
management;
    <bullet> Contributing accounting/bookkeeping services; and
    <bullet> Assisting in fund raising, including soliciting or 
arranging investments.

Sec.  [Sec.  ]----.12([k][rtrif]j[ltrif] )[& 563e.12(j)] Consumer loan.

    Sec.  [Sec.  ]----.12([k][rtrif]j[ltrif])[& 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.
    Sec.  [Sec.  ]----.12 ([k][rtrif]j[ltrif])[& 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.
    Sec.  [Sec.  ]----.12 ([k][rtrif]j[ltrif])[& 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.

Sec.  [Sec.  ]----.12 ([m][rtrif]l[ltrif])[& 563e.12(l)] Home mortgage 
loan.

    Sec.  [Sec.  ]----.12 ([m][rtrif]l[ltrif])[& 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,'' [rtrif]and 
``refinancing,'' [ltrif] as defined in the HMDA regulation, Regulation 
C, 12 CFR part 203. This definition also includes multifamily (five-or-
more families) dwelling loans[,] [rtrif]and[ltrif] loans for the 
purchase of manufactured homes[, and refinancings of home improvement 
and home purchase

[[Page 37936]]

loans]. [rtrif]See also Q&A Sec.  ----.22(a) (2)--7.[ltrif]
    Sec.  [Sec.  ]----.12 ([m][rtrif]l[ltrif])[& 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] [rtrif]these[ltrif] 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-, middle- and 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.
    Sec.  [Sec.  ]----.12 ([n][rtrif]m[ltrif]) [& 563e.12(m)] Income 
level.
    Sec.  [Sec.  ]----.12 ([n][rtrif]m[ltrif])[& 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 [rtrif]approximately[ltrif] 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] [rtrif]Institutions[ltrif] may obtain 
[a list of the 1990 Census Bureau-calculated] [rtrif]2000 geography 
income information[ltrif] and the annually updated HUD median family 
incomes for metropolitan statistical areas (MSAs) and statewide 
nonmetropolitan areas by [calling] [rtrif]accessing[ltrif] the Federal 
Financial Institution Examination Council's (FFIEC's) [HMDA Help] 
[rtrif]Web site at http://www.ffiec.gov/cra or by calling the FFIEC's 
CRA Assistance[ltrif] Line at (202) [452-2016][rtrif]872-7584[ltrif]. 
[A free copy will be faxed to the caller through the ``fax-back'' 
system. Institutions may also call this number to have ``faxed-back'' 
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.]

Sec.  [Sec.  ]----.12 ([o][rtrif] n[ltrif])[& 563e.12(n)] Limited 
purpose institution

    Sec.  [Sec.  ]----.12 ([o][rtrif]n[ltrif])[& 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.
    Sec.  [Sec.  ]----.12 ([o][rtrif]n[ltrif])[& 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:
    <bullet> Is the [other] [rtrif]retail[ltrif] lending provided as an 
incident to the institution's wholesale lending?
    <bullet> Are the [rtrif]retail[ltrif] loans provided as an 
accommodation to the institution's wholesale customers?
    <bullet> Are the [rtrif]other types of[ltrif] loans made only 
infrequently to the limited purpose institution's customers?
    <bullet> Does only an insignificant portion of the institution's 
total assets and income result from the other lending?
    <bullet> How significant a role does the institution play in 
providing that type(s) of loan(s) in the institution's assessment 
area(s)?
    <bullet> Does the institution hold itself out as offering that 
type(s) of loan(s)?
    <bullet> Does the lending test or the community development test 
present a more accurate picture of the institution's CRA performance?
    Sec. [Sec.  ]----.12([o][rtrif]n[ltrif])[ & 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.

Sec. [Sec.  ]----.12([s][rtrif]t[ltrif])[ & 563e.12(r)] Qualified 
investment.

    Sec. [Sec.  ]----.12([s][rtrif]t[ltrif])[ & 563e.12(r)]1: Does the 
CRA regulation provide

[[Page 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.
    Sec. [Sec.  ]----.12([s][rtrif]t[ltrif])[ & 563e.12(r)]--2: Are 
mortgage-backed securities or municipal bonds ``qualified 
investments''?
    A2. As a general rule, mortgage-backed 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 housing-related. 
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. [rtrif]Certain municipal bonds 
in underserved nonmetropolitan middle-income geographies may also be 
qualified investments. See Q&A Sec.  ----.12(g)(4)(iii)-- 4.[ltrif] 
Housing-related bonds or securities must primarily address affordable 
housing (including multifamily rental housing) needs [rtrif]of low- or 
moderate-income individuals[ltrif] in order to qualify. See also 
[rtrif]Q&A[ltrif] Sec.  ----.23(b)--2.
    Sec. [Sec.  ]----.12([s][rtrif]t[ltrif])[ & 563e.12(r)]--3: Are 
Federal Home Loan Bank stocks [rtrif]or unpaid dividends[ltrif] and 
membership reserves with the Federal Reserve Banks ``qualified 
investments''?
    A3. No. Federal Home Loan Bank (FHLB) stocks [rtrif]or unpaid 
dividends[ltrif] 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 [rtrif]as a community development service[ltrif] for 
technical assistance they provide on behalf of applicants and 
recipients of funding from the FHLB's Affordable Housing Program. See 
[rtrif]Q&A[ltrif] Sec. [Sec.  ]----.12([j][rtrif]i[ltrif])[ & 
563e.12(i)]--3.
    Sec. [Sec.  ]----.12([s][rtrif]t[ltrif])[ & 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:
    <bullet> Financial intermediaries (including Community Development 
Financial Institutions (CDFIs), [rtrif] New Markets Tax Credit-eligible 
Community Development Entities,[ltrif] 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 moderate-
income areas or to low- and moderate-income individuals in order to 
promote community development, such as a CDFI that promotes economic 
development on an Indian reservation;
    <bullet> Organizations engaged in affordable housing rehabilitation 
and construction, including multifamily rental housing;
    <bullet> 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;[rtrif]
    <bullet> Community development venture capital companies that 
promote economic development by financing small businesses;[ltrif]
    <bullet> Facilities that promote community development [rtrif]by 
providing community services[ltrif] 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;
    <bullet> Projects eligible for low-income housing tax credits;
    <bullet> State and municipal obligations, such as revenue bonds, 
that specifically support affordable housing or other community 
development;
    <bullet> Not-for-profit organizations serving low- and moderate-
income housing or other community development needs, such as counseling 
for credit, home-ownership, home maintenance, and other financial 
[services education] [rtrif]literacy programs[ltrif]; and
    <bullet> 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] [rtrif]low- or moderate-income individuals[ltrif] to work.
    [rtrif]See also Q&As Sec.  ----.12(g)(4)(ii)--2; Sec.  --
--.12(g)(4)(iii)--3; Sec.  ----.12(g)(4)(iii)--4.[ltrif]
    Sec. [Sec.  ]----.12([s][rtrif]t[ltrif])[ &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.
    Sec. [Sec.  ]----.12([s][rtrif]t[ltrif])[ & 563e.12(r)]--6: An 
institution makes or participates in a community development loan. The 
institution provided the loan at below-market 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 
[rtrif]responsiveness,[ltrif] innovativeness[rtrif],[ltrif] and 
complexity of the community development loan within the bounds of safe 
and sound banking practices.
    Sec. [Sec.  ]----.12([s][rtrif]t[ltrif])[ & 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] [rtrif]as[ltrif] a community development service 
[rtrif]if the activity meets the regulatory definition of ``community 
development service.''[ltrif]
    Sec.  ----.12(t)--[rtrif]8[ltrif]: When evaluating a qualified 
investment, what consideration will be given for prior-period 
investments?
    A1. When evaluating [a bank's][rtrif]an institution's[ltrif] 
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 prior-period 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.

Sec. [Sec.  ]----.12([t][rtrif]u[ltrif])[ & 563e.12(s)] Small 
institution.

    [Sec. Sec.  ----.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

[[Page 37938]]

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.]
    Sec.  [Sec.  ]----.12([t][rtrif]u[ltrif])[& 563e.12(s)]--
[2][rtrif]1[ltrif]: How are Federal and State branch assets of a 
foreign bank calculated for purposes of the CRA?
    A[2][rtrif]1[ltrif]. A Federal or State branch of a foreign bank is 
considered a small institution if the Federal or State branch has 
[rtrif]assets[ltrif] less than [$250 million in assets] [rtrif]the 
asset threshold delineated in 12 CFR ----.12(u)(1) for small 
institutions.[ltrif] [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. 
Sec.  3103(a)(8)).]

[rtrif]Sec.  ----.12(u)(2) Small Institution Adjustment[ltrif]

    Sec.  ----.12(u)(2)--1: How often will the asset size thresholds 
for small [banks] [rtrif]institutions[ltrif] and intermediate small 
[banks] [rtrif]institutions[ltrif] be changed, and how will these 
adjustments be communicated? \2\
---------------------------------------------------------------------------

    \2\ The 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.
---------------------------------------------------------------------------

    A1. The asset size thresholds for ``small [banks] 
[rtrif]institutions[ltrif]'' and ``intermediate small [banks] 
[rtrif]institutions[ltrif]'' will be adjusted annually based on changes 
to the Consumer Price Index. More specifically, the dollar thresholds 
will be adjusted annually based on the year-to-year change in the 
average of the Consumer Price Index for Urban Wage Earners and Clerical 
Workers, not seasonally adjusted for each twelve-month period ending in 
November, with rounding to the nearest million. Any changes in the 
asset size thresholds will be published in the Federal Register. 
[rtrif]Historical and current asset-size threshold information may be 
found on the FFIEC's Web site at http://www.ffiec.gov/cra.[ltrif]

Sec.  [Sec.  ]----.12([u][rtrif]v[ltrif])[& 563e.12(t)] Small Business 
Loan

    Sec.  [Sec.  ]----.12([u][rtrif]v[ltrif])[& 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[.] [rtrif]of ``community development.''[ltrif]
    Sec.  [Sec.  ]----.12([u][rtrif]v[ltrif])[& 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] 
[rtrif]of[ltrif] $1 million [rtrif]or less[ltrif].
    Sec.  [Sec.  ]----.12([u][rtrif]v[ltrif])[& 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.'' [rtrif]See also Q&A Sec.  ----.22(a)(2)--
7.[ltrif]
    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.
    Sec.  [Sec.  ]----.12([u][rtrif]v[ltrif])[& 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.

Sec.  [Sec.  ]----.12([w][rtrif]x[ltrif])[& 563e.12(v)] Wholesale 
Institution

    Sec.  [Sec.  ]----.12([w][rtrif]x[ltrif])[& 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:
    <bullet> The institution holds itself out to the retail public as 
providing such loans; and
    <bullet> The institution's revenues from extending such loans are 
significant when compared to its overall operations[rtrif], including 
off-balance sheet activities[ltrif].
    A wholesale institution may make some retail loans without losing 
its wholesale designation as described above in [rtrif]Q&A[ltrif]Sec.  
[Sec.  ]----.12([o][rtrif]n[ltrif]) [ & 563e.12(n)]--2.

Sec.  ----.21 Performance tests, standards, and ratings, in general.

Sec.  ----.21(a) Performance tests and standards.

    [rtrif]Sec.  ----.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

[[Page 37939]]

institution's overall record of lending performance.[ltrif]
    Sec.  ----.21(a)--[1][rtrif]2[ltrif]: 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. ([rtrif]``Innovativeness'' and 
``complexity'' are not factors in the community development test 
applicable to intermediate small institutions.)[ltrif]

Sec.  ----.21(b) Performance context.

    Sec.  ----.21(b)--1: [Is][rtrif]What is[ltrif] 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][rtrif]some[ltrif] of this information[ prior to 
the examination]. The performance context is not a formal[ or written] 
assessment of community credit needs.

Sec.  ----.21(b)(2) Information maintained by the institution or 
obtained from community contacts.

    Sec.  ----.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 [rtrif] formal[ltrif] 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.
    Sec.  ----.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][rtrif]may[ltrif] 
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][rtrif]may[ltrif] share community contact 
information.

Sec.  ----.21(b)(4) Institutional capacity and constraints.

    Sec.  ----.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.

Sec.  ----.21(b)(5) Institution's past performance and the performance 
of similarly situated lenders

    Sec.  ----.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.
    Sec.  ----.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.

Sec.  ----.22 Lending test.

Sec.  ----.22(a) Scope of test.

    Sec.  ----.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:
    <bullet> Providing loan programs that include a financial education 
component about how to avoid lending activities that may be abusive or 
otherwise unsuitable;
    <bullet> 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;
    <bullet> 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[.] [rtrif];
    <bullet> Establishing loan programs that provide relief to low- and 
moderate-income homeowners who are facing foreclosure on their 
homes.[ltrif]

[[Page 37940]]

Examiners may consider favorably such lending activities, which have 
features augmenting the success and effectiveness of the [rtrif]small, 
intermediate small, or large[ltrif] institution's lending programs.

Sec.  ----.22(a)(1) Types of loans considered.

    Sec.  ----.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.
    Sec.  ----.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 
[rtrif]and has collected and maintained the data[ltrif] ; [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] [rtrif]and[ltrif] dollar volume of loans that 
the lending test evaluation would not meaningfully reflect its lending 
performance if consumer loans were excluded.

Sec.  ----.22(a)(2) Loan originations and purchases/other loan data.

    Sec.  ----.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 [rtrif], regardless of 
examination type[ltrif] . 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 [rtrif], but will be 
evaluated separately from the loans[ltrif] .
    Sec.  ----.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.
    Sec.  ----.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.] 
[rtrif]part[ltrif] 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] [rtrif]A 
small, intermediate small, or large[ltrif] 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.''
    [rtrif]Sec.  ----.22(a)(2)--4: In addition to MECAs, what are other 
examples of ``other loan data''?
    A4. Other loan data include, for example:
    <bullet> Loans funded for sale to the secondary markets that an 
institution has not reported under HMDA;
    <bullet> Unfunded loan commitments and letters of credit;
    <bullet> Commercial and consumer leases;
    <bullet> 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;
    <bullet> 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
    <bullet> 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. [ltrif]
    Sec.  ----.22(a)(2)--[4] [rtrif]5[ltrif] : Do institutions receive 
consideration for originating or purchasing loans that are fully 
guaranteed?
    A4. Yes. [The test evaluates] [rtrif]For all examination types, 
examiners evaluate[ltrif] 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] [rtrif]Examiners 
do[ltrif] not take into account whether or not such loans are 
guaranteed.
    [rtrif]Sec.  ----.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. 
[ltrif]
    [rtrif] Sec.  ----.22(a)(2)--7: How are refinancings of small 
business loans, which are secured by a one-to-four family residence and 
that have been reported under HMDA as a refinancing, evaluated under 
CRA?
    A6. For banks subject to the Call Report instructions: A loan of $1 
million or less with a business purpose that is secured by a one-to-
four family residence is considered a small business loan for CRA 
purposes only if the security interest in the residential property was 
taken as an abundance of caution and where the terms have not been made 
more favorable than they would have been in the absence of the lien. 
(See Call Report Glossary definition of ``Loan Secured by Real 
Estate.'') If this same loan is refinanced and the new loan is also 
secured by a one-to-four family residence, but only through an 
abundance of caution, this loan is reported not only as a refinancing 
under HMDA, but also as a small business loan under CRA. (Note that 
small farm loans are similarly treated.)
    It is not anticipated that ``double-reported'' loans will be so 
numerous as to affect the typical institution's CRA rating. In the 
event that an institution reports a significant number or amount of 
loans as both home mortgage and small business loans, examiners will 
consider that overlap in evaluating the institution's performance and 
generally will consider the ``double-reported'' loans as small business 
loans for CRA consideration.
    The origination of a small business or small farm loan that is 
secured by a one-to-four family residence is not reportable under HMDA, 
unless the purpose of the loan is home purchase or home improvement. 
Nor is the loan reported as a small business or small farm loan if the 
security interest is not taken merely as an abundance of caution. Any 
such loan may be provided to examiners as ``other loan data'' (``Other 
Secured Lines/Loans for Purposes of Small Business'') for consideration 
during a CRA evaluation. See Q&A Sec.  ----.12(v)--3. The

[[Page 37941]]

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-to-four 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-to-four family residence is not reportable under HMDA, unless the 
purpose of the loan is home purchase or home improvement. Nor is the 
loan reported as small business or small farm if it was reported as a 
mortgage on the TFR report.
    OTS does not anticipate that ``double-reported'' loans will be so 
numerous as to affect the typical institution's CRA rating. In the 
event that an institution reports a significant number or amount of 
loans as both home mortgage and small business loans, examiners will 
consider that overlap in evaluating the institution's performance and 
generally will consider the ``double-reported'' loans as small business 
loans for CRA consideration.
    The origination of a small business or small farm loan that is 
secured by a one-to-four family residence should be reported in 
accordance with Q&A Sec.  ----.12(v)--3. The refinancings of such loans 
would be reported under HMDA.[ltrif]

Sec.  ----.22(b) Performance criteria.

    [Sec.  ----.22(b)--1: How will examiners apply the performance 
criteria in the lending test? \3\
---------------------------------------------------------------------------

    \3\ Note that this Q&A would be slightly revised and moved to 
become Q&A Sec.  ----.22(a)--1, not deleted.
---------------------------------------------------------------------------

    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.]

Sec.  ----.22(b)(1) Lending activity.

    Sec.  ----.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 low- and moderate-income areas and low- and 
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 moderate-income 
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.

Sec.  ----.22(b)(2) & (3) Geographic distribution and borrower 
characteristics.

    Sec.  ----.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 [rtrif]applicable to either large or small 
institutions[ltrif]?
    A1. Examiners generally will consider both the distribution of an 
institution s loans among geographies of different income 
levels[rtrif],[ltrif] and among borrowers of different income levels 
and businesses [rtrif]and farms[ltrif] 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.
    Sec.  ----.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 institution[rtrif], 
regardless of examination type,[ltrif] 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 moderate-income 
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 moderate-income 
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).
    Sec.  ----.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.
    Sec.  ----.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 small[rtrif]and intermediate 
small[ltrif] institutions being

[[Page 37942]]

evaluated under [the small institution][rtrif]their respective[ltrif] 
performance standards. Loans to low- and 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).
    Sec.  ----.22(b)(2) & (3)--5: Under the lending 
test[rtrif]applicable to small, intermediate small, or large 
institutions[ltrif], 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 community-based development organization has developed a 
revitalization or stabilization plan (such as a Federal enterprise 
community or empowerment zone) that includes attracting mixed-income 
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.

Sec.  ----.22(b)(4) Community development lending.

    Sec.  ----.22(b)(4)--1: When evaluating an institution's record of 
community development lending [rtrif] under the lending test applicable 
to large institutions[ltrif], 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 [rtrif]12 CFR[ltrif] [Sec.  ]----.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 [rtrif]12 CFR[ltrif] [Sec.  ]----.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 [rtrif]12 CFR[ltrif] [Sec.  ]----.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.

Sec.  ----.22(b)(5) Innovative or flexible lending practices.

    Sec.  .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 [rtrif]under the lending test applicable to large 
institutions[ltrif]?
    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:
    <bullet> In connection with a community development loan program, 
[a bank] [rtrif]an institution[ltrif] may establish a technical 
assistance program under which the [bank] [rtrif]institution[ltrif], 
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.
    <bullet> In connection with a small business lending program in a 
low- or moderate-income area and consistent with safe and sound lending 
practices, [a bank] [rtrif]an institution[ltrif] may implement a 
program under which, in addition to providing financing, the [bank] 
[rtrif]institution[ltrif] 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.

Sec.  ----.22(c) Affiliate lending.

Sec.  ----.22(c)(1) In general.

    Sec.  ----.22(c)(1)--1: If an institution[rtrif], regardless of 
examination type,[ltrif] 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

[[Page 37943]]

loans (motor vehicle loans, credit card loans, home equity loans, other 
secured loans, and other unsecured loans).

Sec.  ----.22(c)(2) Constraints on affiliate lending.

Sec.  ----.22(c)(2)(i) No affiliate may claim a loan origination or 
loan purchase if another institution claims the same loan origination 
or purchase.

    Sec.  ----.22(c)(2)(i)--1: [How] [rtrif]Regardless of examination 
type, how[ltrif] 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. [rtrif]For 
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.[ltrif]

Sec.  ----.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.

    Sec.  ----.22(c)(2)(ii)--1: [How] [rtrif]Regardless of examination 
type, how[ltrif] is this constraint on affiliate lending applied?
    A1. This constraint prohibits ``cherry-picking'' 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][rtrif]several[ltrif] affiliates, [such as][rtrif]including[ltrif] 
a mortgage [bank][rtrif]company[ltrif] that makes loans in the 
institution's assessment area. If the institution elects to include the 
mortgage [bank's][rtrif]company's[ltrif] home mortgage loans, it must 
include all of [mortgage bank's] [rtrif]its affiliates'[ltrif] home 
mortgage loans made in its assessment area. [The][rtrif]In addition, 
the[ltrif] institution cannot elect to include only those low- and 
moderate-income home mortgage loans made by [the mortgage bank 
affiliate] [rtrif]its affiliates[ltrif] and not home mortgage loans to 
middle- and upper-income individuals or areas.
    Sec.  ----.22(c)(2)(ii)-2: [How][rtrif]Regardless of examination 
type, how[ltrif] 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.

Sec.  ----.22(d) Lending by a consortium or a third party.

    Sec.  ----.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. [rtrif]Q&A[ltrif] Sec.  ----.23(b)--1 provides 
information concerning consideration of an equity or equity-type 
investment under the investment test and both the lending and 
investment tests.[rtrif] (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.)[ltrif]
    Sec.  ----.22(d)-2: [How] [rtrif]Regardless of examination type, 
how[ltrif] 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 considered[rtrif]only[ltrif] if they qualify as 
community development loans and will[ only] be 
considered[rtrif]only[ltrif] 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 test[rtrif]or community development[ltrif] test 
criteria appropriate to them depending on the type of loan[rtrif]and 
type of examination[ltrif].
    Sec.  ----.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 CFR----.22(d), may

[[Page 37944]]

the third party also receive consideration for these loans?
    A3. Yes, [rtrif]regardless of examination type,[ltrif]as long as 
the financial institution and the third party are not affiliates. The 
regulations state, at 12 CFR----.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 CFR----.22(d).

Sec.  ----.23 Investment test.

Sec.  ----.23(a) Scope of test.

    Sec.  ----.23(a)--1: May an institution[rtrif], regardless of 
examination type,[ltrif] 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).
    [rtrif]Sec. ----.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 moderate-income homeowners, written documentation 
provided by fund managers in connection with the institution's 
investment indicating that the fund will use its best efforts to invest 
in a qualifying activity that meets the geographic requirements may be 
used for these purposes. Similarly, a fund may explicitly earmark all 
projects or investments to its investors and their specific assessment 
areas. (Note, however, that a financial institution has not 
demonstrated that the investment meets the geographic requirements of 
the CRA regulation if the fund ``double-counts'' investments, by 
earmarking the same dollars or the same portions of projects or 
investments in a particular geography to more than one investor.) In 
addition, if a fund does not earmark projects or investments to 
individual institution investors, an allocation method may be used that 
recognizes that each investor institution has an undivided interest in 
all projects in a fund; thus, each investor institution may claim its 
pro-rata share of each project that meets the geographic requirements 
of that institution. If, however, a fund does not become involved in a 
community development activity that meets both the purpose and 
geographic requirements of the regulation for the institution, the 
institution's investment generally would not be considered under the 
investment or community development tests. See Q&As Sec. ----.12(h)--6 
and Sec. ----.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)).[ltrif]

Sec. ----.23(b) Exclusion.

    Sec. ----.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][rtrif]its pro rata[ltrif] 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 
[rtrif]only[ltrif] the amount of its investment multiplied by the 
percentage of the CDC's assets that meet the definition of a qualified 
investment.
    Sec. ----.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.

Sec.  ----.23(e) Performance criteria

    Sec.  ----.23(e)-1: When applying the [rtrif]four[ltrif] 
performance criteria of [Sec.  ] [rtrif]12 CFR[ltrif]----.23(e), may an

[[Page 37945]]

examiner distinguish among qualified investments based on how much of 
the investment actually supports the underlying community development 
purpose?
    A1. Yes. [Although Sec.  ----.23(e)(1) speaks in terms of the 
dollar amount of qualified investments, the criterion permits] 
[rtrif]By 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 permit[ltrif] an examiner to 
[rtrif]qualitatively[ltrif] 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 mortgage-backed security with 100 
percent of its face value supported by affordable housing loans to low- 
and moderate-income borrowers. The examiner should describe any 
differential weighting (or other adjustment), and its basis in the 
[Public] [rtrif]Performance[ltrif] Evaluation. [rtrif]See also Q&A 
Sec.  ----.12(t)-8 for a discussion about the qualitative consideration 
of prior period investments.[ltrif] [However, no matter how a qualified 
investment is handled for purposes of Sec.  ----.23(e)(1), it will also 
be evaluated with respect to the qualitative performance criteria set 
forth in Sec.  ----.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.]
    Sec.  ----.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) [rtrif]under the investment 
test[ltrif], 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 [rtrif]and 
performance context[ltrif] being equal, would receive the same level of 
consideration. Examiners will include both new and outstanding 
investments in this determination. [The dollar amount] [rtrif]In 
addition, the review[ltrif] of qualified investments[ also] will 
[include] [rtrif]consider[ltrif] 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 long-term qualified investments, the pay-in 
schedule, and the amount of any cash call, on the capacity of the 
institution to make new investments.

Sec.  ----.24 Service test.

Sec.  ----.24(d) Performance criteria--retail banking services.

    Sec.  ----.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] [rtrif]and its record of opening and closing 
branches, particularly branches located in low-or moderate-income 
geographies or primarily serving low-or moderate-income individuals. 
However,[ltrif] 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 moderate-income 
areas and individuals. Sec.  ----.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 moderate-income families that are 
designed to help them accumulate savings for education or job-training, 
down-payment 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 --
--.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. [rtrif]See, e.g., Q&A 
Sec.  ----.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.[ltrif]

Sec.  ----.24(d)(3) Availability and effectiveness of alternative 
systems for delivering retail banking services.

    Sec.  ----.24(d)(3)--1: How will examiners evaluate alternative 
systems for delivering retail banking services?

[[Page 37946]]

    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] 
[rtrif]comprehensive[ltrif].
    Sec.  ----.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.

Sec.  ----.24(e) Performance criteria--community development services.

    Sec.  ----.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 [rtrif]Q&A[ltrif] Sec.  ----.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 moderate-income 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 [rtrif]12 CFR[ltrif] [Sec. Sec.  ]----.22(c) 
and ----.23(c).

Sec.  ----.25 Community development test for wholesale or limited 
purpose institutions.

Sec.  ----.25(a) Scope of test.

    Sec.  ----.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 [Sec.  ] [rtrif]12 CFR[ltrif] --
--.25(d)(2) (community development test-indirect activities), the bank 
could elect to have part of its qualified passive and noncontrolling 
investments in a third-party 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 [Sec.  ] [rtrif]12 CFR[ltrif] --
--.21(b)(4).

Sec.  ----.25(d) Indirect activities.

    Sec.  ----.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 Sec. Sec.  --
--.22(d) and ----.23(b).

Sec.  ----.25(e) Benefit to assessment area(s).

    Sec.  ----.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).

Sec. ----.25(f) Community development performance rating.

    Sec. ----.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.

Sec. ----.26 Small institution performance standards.

    Sec. ----.26--1: When evaluating a small or intermediate small 
[bank's] [rtrif]institution's[ltrif] 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\
---------------------------------------------------------------------------

    \4\ The 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: 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

[[Page 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] [rtrif]Q&As addressing[ltrif] Sec. --
--.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] [rtrif]an 
institution's[ltrif] assessment area.

[rtrif]Sec. ----.26(a) Performance criteria.

Sec. ----.26(a)(2) Intermediate small institutions.[ltrif]

    [rtrif]Sec. ----.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 Sec. ----.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.[ltrif]

Sec. ----.26[(a) Performance criteria] [rtrif](b) Lending test.[ltrif]

    Sec. ----.26([a][rtrif]b[ltrif])--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.
    [rtrif]Although lending-related community development activities 
are evaluated under the community development test applicable to 
intermediate small institutions, these activities may also augment the 
loan-to-deposit ratio analysis (12 CFR ----.26(b)(1)) and the 
percentage of loans in the intermediate small institution's assessment 
area analysis (12 CFR ----.26(b)(2)), if appropriate.[ltrif]
    Sec. ----.26([a]--[rtrif]b[ltrif])--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 [rtrif], provided they have not also been considered under the 
community development test applicable to intermediate small 
institutions[ltrif].
    Sec. ----.26([a][rtrif]b [ltrif])--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.
    Sec. ----.26([a][rtrif]b[ltrif])--4: Under the small institution 
[rtrif]lending test[ltrif] 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.
    Sec.  ----.26([a][rtrif]b[ltrif])--5: Under the small institution 
[rtrif]lending test[ltrif] 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] [rtrif]purpose[ltrif] of determining whether [the] 
[rtrif]a[ltrif] small institution [rtrif] that is not an intermediate 
small institution[ltrif] receives a satisfactory CRA rating.

Sec.  ----.26([a] [rtrif]b[ltrif])(1) Loan-to-deposit ratio.

    Sec.  ----.26([a][rtrif]b[ltrif])(1)--1: How is the loan-to-deposit 
ratio calculated?
    A1. A small institution's loan-to-deposit 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.
    Sec.  ----.26([a][rtrif]b[ltrif])(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.
    Sec.  ----.26([a][rtrif]b[ltrif])(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.

[[Page 37948]]

Sec.  ----.26([a][rtrif]b[ltrif])(2) Percentage of lending within 
assessment area(s).

    Sec.  ----.26([a][rtrif]b[ltrif])(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] [rtrif]institution's[ltrif] 
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[,][rtrif];[ltrif] loan 
demand[,][rtrif];[ltrif] the institution's size, financial condition 
[and] [rtrif],[ltrif] business strategies, and branching network 
[rtrif];[ltrif] and other aspects of the institution's lending record.

Sec.  ----.26([a] [rtrif]b[ltrif])(3) & (4) Distribution of lending 
within assessment area(s) by borrower income and geographic location.

    Sec.  ----.26([a] [rtrif]b[ltrif])(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 [rtrif]very[ltrif] 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 [rtrif]as a proxy[ltrif] for estimating borrower 
characteristics, where appropriate.

[rtrif]Sec.  ----.26(c) Intermediate small institution community 
development test.[ltrif]

    Sec.  ----.26(c)--1: How will the community development test be 
applied flexibly for intermediate small [banks] 
[rtrif]institutions[ltrif] ? \5\
---------------------------------------------------------------------------

    \5\ The 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.
---------------------------------------------------------------------------

    A1: Generally, intermediate small [banks] 
[rtrif]institutions[ltrif] engage in a combination of community 
development loans, qualified investments, and community development 
services. [A bank] [rtrif]An institution[ltrif] 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] [rtrif]institution's[ltrif] 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] 
[rtrif]institution's[ltrif] capacity.
    An intermediate small [bank] [rtrif]institution[ltrif] 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] [rtrif]institution [ltrif], community needs, and number and 
types of opportunities for community development.

[rtrif]Sec. ----.26(c)(3) Community development services.[ltrif]

    Sec. ----.26(c)(3)--1: What will examiners consider when evaluating 
the provision of community development services by an intermediate 
small [bank][rtrif]institution[ltrif]? \6\
---------------------------------------------------------------------------

    \6\ The 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.
---------------------------------------------------------------------------

    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 moderate-income geographies will help to 
demonstrate the availability of banking services to low- and moderate-
income individuals.

[rtrif]Sec. ----.26(c)(4) Responsiveness to community development 
needs[ltrif]

    Sec. ----.26(c)(4)-1: When evaluating an intermediate small 
[bank's][rtrif]institution's[ltrif]community 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\
---------------------------------------------------------------------------

    \7\ The 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.
---------------------------------------------------------------------------

    A1: When evaluating an intermediate small 
[bank's][rtrif]institution's[ltrif]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][rtrif]institution's[ltrif] community 
development activities in light of the 
[bank's][rtrif]institution's[ltrif] 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][rtrif]institution's[ltrif] 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

[[Page 37949]]

[bank][rtrif]institution[ltrif] under the lending, investment, and 
service tests, are not criteria in the intermediate small 
[banks'][rtrif]institutions'[ltrif] 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 low- and 
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 
moderate-income geographies.

Sec. ----.26([b][rtrif]d[ltrif]) Performance rating.

    Sec. ----.26([b][rtrif]d[ltrif])--1: How can a small 
institution[rtrif]that is not an intermediate small 
institution[ltrif]achieve an outstanding performance rating?
    A1. A small institution[rtrif]that is not an intermediate small 
institution[ltrif]that 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.
    Sec. ----.26([b][rtrif]d[ltrif])--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 
in[rtrif]Q&As[ltrif] Sec. [Sec.  ]----.12([i][rtrif]h[ltrif])[& 
563e.12(h)]--6[rtrif]and Sec. ----.12(h)--7[ltrif].

Sec. ----.27 Strategic plan.

Sec. ----.27(c) Plans in general.

    Sec. ----.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.
    Sec. ----.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.

Sec. ----.27(f) Plan content.

Sec. ----.27(f)(1) Measurable goals.

    Sec. ----.27(f)(1)--1: How should 
[rtrif]annual[ltrif][``]measurable goals[''] be specified in a 
strategic plan?
    A1. [Measurable][rtrif]Annual measurable[ltrif]goals (e.g., number 
of loans, dollar amount, geographic location of activity, and benefit 
to low- and 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.

Sec.  ----.27(g) Plan approval.

Sec.  ----.27(g)(2) Public participation.

    Sec.  ----.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.

Sec.  ----.28 Assigned ratings.

    Sec.  ----.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. [rtrif]The performance criterion of innovativeness applies 
only under the lending, investment, and service tests applicable to 
large institutions and the community development test applicable to 
wholesale and limited purpose institutions.[ltrif] Moreover, 
[rtrif]even under these tests,[ltrif] 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, [rtrif]under these tests,[ltrif] 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. [rtrif]See also Q&A Sec.  ----.26(c)(4)--1 for a 
discussion about responsiveness to community development needs under 
the community development test applicable to intermediate small 
institutions. [ltrif]
    [Sec.  ----.28--2: How is performance under the quantitative and 
qualitative

[[Page 37950]]

performance criteria weighed when examiners assign a CRA rating? \8\
---------------------------------------------------------------------------

    \8\ Note that this Q&A would be moved to become Q&A Sec.  --
--.28(b)--1, not deleted.
---------------------------------------------------------------------------

    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.]

Sec.  ----.28(a) Ratings in general.

    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.28(a)--3: How do the agencies weight performance under 
the lending, investment, and service [test] [rtrif]tests[ltrif] 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.

[rtrif]Sec.  ----.28(b) Lending, investment, and service test 
ratings[ltrif]

    [rtrif]Sec.  ----.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

[[Page 37951]]

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.[ltrif]

Sec.  ----.28(c) Effect of evidence of discriminatory or other illegal 
credit practices

    Sec.  ----.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:
    <bullet> 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;
    <bullet> 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
    <bullet> 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 Sec.  ----.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.

Sec.  ----.29 Effect of CRA performance on applications.

Sec.  ----.29(a) CRA performance.

    Sec.  ----.29(a)--1: What weight is given to an institution's CRA 
performance examination in reviewing an application?
    A1. In [cases][rtrif]reviewing applications[ltrif] 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][rtrif]. The examination is[ltrif] 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 recent[rtrif],[ltrif] 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.
    Sec.  ----.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.

Sec.  ----.29(b) Interested parties.

    Sec.  ----.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][rtrif]application[ltrif] 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][rtrif]decisions[ltrif]. 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.
    Sec.  ----.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.][rtrif]The agencies do not monitor compliance with nor 
enforce these agreements.[ltrif]

Sec.  ----.41 Assessment area delineation.

Sec.  ----.41(a) In general.

    Sec.  ----.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 Sec.  ----.41(e).
    Sec.  ----.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).
    Sec.  ----.41(a)--3: Can a financial institution identify a 
specific [rtrif] racial or[ltrif] ethnic group rather than a geographic 
area as its assessment area?
    A3. No, assessment areas must be based on geography. [rtrif]The 
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.[ltrif]

[[Page 37952]]

Sec.  ----.41(c) Geographic area(s) for institutions other than 
wholesale or limited purpose institutions.

Sec.  ----.41(c)(1) Generally consist of one or more MSAs or 
metropolitan divisions or one or more contiguous political 
subdivisions.

    Sec.  ----.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).
    Sec.  ----.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, 
town[rtrif],[ltrif] or other political subdivision may delineate as its 
assessment area the larger political subdivision and then, in 
accordance with [rtrif]12 CFR[ltrif] [Sec.  ] ----.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.

Sec.  ----.41(d) Adjustments to geographic area(s).

    Sec.  ----.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 
moderate-income geographies or set boundaries that reflect illegal 
discrimination.

Sec.  ----.41(e) Limitations on delineation of an assessment area.

Sec.  ----.41(e)(3) May not arbitrarily exclude low- or moderate-income 
geographies.

    Sec.  ----.41(e)(3)--1: How will examiners determine whether an 
institution has arbitrarily excluded low- or 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:
    <bullet> Income levels in the institution's assessment area(s) and 
surrounding geographies;
    <bullet> Locations of branches and deposit-taking ATMs;
    <bullet> Loan distribution in the institution's assessment area(s) 
and surrounding geographies;
    <bullet> The institution's size;
    <bullet> The institution's financial condition; and
    <bullet> The business strategy, corporate structure and product 
offerings of the institution.

Sec.  ----.41(e)(4) May not extend substantially beyond [a 
CMSA][rtrif]an MSA[ltrif] boundary or beyond a state boundary unless 
located in a multistate MSA.

    Sec.  ----.41(e)(4)--1: What are the maximum limits on the size of 
an assessment area?
    A1. An institution [shall][rtrif]may[ltrif] 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.][rtrif]an 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.[ltrif]
    [Similarly, an][rtrif]An[ltrif] assessment area[rtrif] also[ltrif] 
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][rtrif]an MSA [ltrif] . These limitations 
apply to wholesale and limited purpose institutions as well as other 
institutions.
    An institution [shall][rtrif]must[ltrif] delineate separate 
assessment areas for the areas inside and outside [a CMSA (or MSA if 
the MSA is not located in a CMSA)][rtrif]an MSA[ltrif] if the area 
served by the institution's branches outside the [CMSA (or 
MSA)][rtrif]MSA[ltrif] extends substantially beyond the [CMSA (or 
MSA)][rtrif]MSA[ltrif] boundary. Similarly, the institution 
[shall][rtrif]must[ltrif] 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.
    Sec.  ----.41(e)(4)--2: [Can][rtrif]May[ltrif] 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][rtrif], assuming branches or deposit-taking 
ATMs are located in each county and the MSA. So[ltrif] , 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.][rtrif]However, 
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

[[Page 37953]]

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.[ltrif]

Sec.  ----.42 Data collection, reporting, and disclosure.

    Sec.  ----.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. [rtrif](``Small institution'' is 
defined in the agencies' CRA regulations at Sec.  ----.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.[ltrif][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):

----------------------------------------------------------------------------------------------------------------
                                          Institution's asset size      Data collection required for following
                  Date                          (in dollars)                        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] [rtrif] processes [ltrif] 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].
    [rtrif] 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: <a href="/cdn-cgi/l/email-protection#d1b2a3b0a2a4b391b7a3b3ffb6bea7"><span class="__cf_email__" data-cfemail="761504170503143610041458111900">[email protected]</span></a>. 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. [ltrif]
    Sec.  ----.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.] [rtrif] 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. [ltrif]
    Sec.  ----.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.
    Sec.  ----.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] 
[rtrif] , [ltrif] consumer [rtrif], or community development [ltrif] 
purposes should be collected and reported, if applicable, in the same 
manner as renewals of small business or small farm loans. See [rtrif] 
Q&A [ltrif] Sec.  ----.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.
    Sec.  ----.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.
    <bullet> 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] [rtrif] at least equal to the small institution asset-size 
threshold amount described in 12 CFR ----.12(u)(1).[ltrif]
    <bullet> 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.
    <bullet> 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

[[Page 37954]]

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.
    Sec.  ----.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] [rtrif] may download it 
from the FFIEC Web site at http://www.ffiec.gov/cra. For assistance, 
institutions [ltrif] may [also] call the CRA Assistance Line at (202) 
872-7584 or send [Internet] [rtrif] an [ltrif] e-mail to 
<a href="/cdn-cgi/l/email-protection#4c0f1e0d0409001c0c0a1e0e620b031a"><span class="__cf_email__" data-cfemail="044756454c414854444256462a434b52">[email protected]</span></a>.
    Sec.  ----.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 [rtrif] that are designated as 
wholesale or limited purpose institutions [ltrif] must be prepared to 
identify those loans, investments, and services to be evaluated under 
the community development test.

Sec.  ----.42(a) Loan information required to be collected and 
maintained.

    Sec.  ----.42(a)--1: Must institutions collect and report data on 
all commercial loans [under] [rtrif] of [ltrif] $1 million [rtrif] or 
less [ltrif] 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.
    Sec.  ----.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 [rtrif] , [ltrif] in a 
standardized, machine [rtrif] -- [ltrif] readable format, information 
on each small business loan originated or purchased for each calendar 
year:
    <bullet> A unique number or alpha-numeric symbol that can be used 
to identify the relevant loan file;
    <bullet> The loan amount at origination;
    <bullet> The loan location; and
    <bullet> 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.
    Sec.  ----.42(a)--3: Will farm loans need to be segregated from 
business loans?
    A3. Yes.
    Sec.  ----.42(a)--4: Should institutions collect and report data on 
all agricultural loans [under] [rtrif]of[ltrif] $500,000[rtrif] or 
less[ltrif] 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] [rtrif]or[ltrif] TFR.
    Sec.  ----.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] [rtrif]not[ltrif] 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.[rtrif] 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.[ltrif]
    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.
    Sec.  ----.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.''
    Sec.  ----.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][rtrif] and[ltrif] part of which is for small business 
purposes?
    A7. [The][rtrif] When an institution originates a home equity line 
of credit that is for both home improvement and small business 
purposes, the[ltrif] institution has the option of reporting the 
portion of the home equity line that is for home improvement 
purposes[rtrif] as a home improvement loan[ltrif] under HMDA. 
[That][rtrif] Examiners would consider that[ltrif] portion of the 
[loan][rtrif] line[ltrif] [would be considered ]when [examiners][rtrif] 
they[ltrif] evaluate[rtrif] the institution's[ltrif] home mortgage 
lending. [rtrif] 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.[ltrif]
    [If][rtrif] 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

[[Page 37955]]

home improvement loan (or a refinancing) under HMDA, and if[ltrif] 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.''
    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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 practices[rtrif] and Bank Secrecy Act 
regulations[ltrif] dictate that [an 
institution][rtrif]institutions[ltrif] know the location of 
[its][rtrif]their[ltrif] customers and loan collateral.[rtrif] Further, 
Bank Secrecy Act regulations specifically state that a post office box 
is not an acceptable address.[ltrif] 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][rtrif]the[ltrif] 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][rtrif]However[ltrif] , if [the][rtrif]an[ltrif] institution 
cannot determine [the][rtrif]a rural[ltrif] borrower's street address, 
and does not know the census tract[ or block numbering area], the 
institution should report the borrower's state, county, MSA[rtrif] or 
metropolitan division[ltrif] , if applicable, and ``NA,'' for ``not 
available,'' in lieu of a census tract[ or block numbering area] code.

Sec.  ----.42(a)(2) Loan amount at origination.

    Sec.  ----.42(a)(2)--1: When an institution purchases a small 
business or small farm loan,[rtrif] in whole or in part,[ltrif] 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.
    Sec.  ----.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.
    Sec.  ----.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'][rtrif] business's[ltrif] 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.

Sec.  ----.42(a)(3) The loan location.

    Sec.  ----.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 the[rtrif] small[ltrif] business[rtrif] borrower's[ltrif] 
headquarters or the location where the greatest portion of the proceeds 
are applied, as indicated by the borrower.

Sec.  ----.42(a)(4) Indicator of gross annual revenue.

    Sec.  ----.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

[[Page 37956]]

borrower, such as a sole proprietor, the institution should not adjust 
the borrower s revenues for reporting purposes.
    Sec.  ----.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.
    Sec.  ----.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 revenue[rtrif] and, therefore, should not be 
used[ltrif].
    Sec.  ----.42(a)(4)--4: When [collecting and reporting][rtrif] 
indicating[ltrif] the gross annual revenue of small business or small 
farm borrowers, do institutions [collect and report][rtrif] rely 
on[ltrif] the gross annual revenue or the adjusted gross annual revenue 
of [its][rtrif] their[ltrif] borrowers?
    A4. Institutions [collect and report][rtrif] rely on[ltrif] the 
gross annual revenue, rather than the adjusted gross annual revenue, of 
their small business or[rtrif] small[ltrif] farm borrowers[rtrif] when 
indicating the revenue of small business or small farm 
borrowers[ltrif]. The purpose of this data collection is to enable 
examiners and the public to judge whether the institution is lending to 
small businesses and [rtrif]small[ltrif] 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] [rtrif]rely upon[ltrif] 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][rtrif] should enter the code ``revenues not 
known''[ltrif]. (See [rtrif]Q&A[ltrif] Sec.  ----.42(a)(4)--2.)

Sec.  ----.42(b) Loan information required to be reported.

Sec.  ----.42(b)(1) Small business and small farm loan data.

    Sec.  ----.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:
    <bullet> The number and amount of loans originated or purchased 
with original amounts of $100,000 or less;
    <bullet> 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;
    <bullet> 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
    <bullet> 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).

Sec.  ----.42(b)(2) Community development loan data.

    Sec.  ----.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.
    Sec.  ----.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] 
[rtrif]definition[ltrif] of [home mortgage,] [rtrif]``home mortgage 
loan,''[ltrif] [small business,] [rtrif]``small business loan,''[ltrif] 
or [rtrif]``[ltrif]small farm [loans] [rtrif]loan''[ltrif] only in 
those respective categories even if they also meet the definition of 
[rtrif]``[ltrif]community development [loans.] [rtrif]loan.''[ltrif] As 
a practical matter, this is not a disadvantage for [retail] 
institutions [rtrif]evaluated under the lending, investment, and 
service tests[ltrif] because any affordable housing mortgage, small 
business, small farm, or consumer loan that would otherwise meet the 
definition of [a] [rtrif]``[ltrif]community development 
loan[rtrif]''[ltrif] 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 [rtrif]Q&A[ltrif] 
Sec.  ----.22(b)(2) & (3)--4.
    Limited purpose and wholesale institutions [rtrif]that meet the 
size threshold for reporting purposes[ltrif] also must report loans 
that meet the definitions of home mortgage, small business, or small 
farm loans in those respective categories[; however, they][rtrif]. 
However, these institutions[ltrif] must also report any loans from 
those categories that meet the regulatory definition of ``community 
development [loans] [rtrif]loan[ltrif]'' 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 [rtrif],[ltrif] and consumer 
loans.
    Sec.  ----.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 [rtrif]Q&A[ltrif] Sec.  --
--.22(b)(4)--1, examiners may make qualitative distinctions among

[[Page 37957]]

community development loans on the basis of the extent to which the 
loan advances the community development purpose.
    [rtrif]Sec.  ----.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.[ltrif]
    [rtrif]Sec.  ----.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 Sec.  ----.42(a)--5.[ltrif]

Sec.  ----.42(b)(3) Home mortgage loans.

    Sec.  ----.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.

Sec.  ----.42(c) Optional data collection and maintenance.

Sec.  ----.42(c)(1) Consumer loans.

    Sec.  ----.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:
    <bullet> A unique number or alpha-numeric symbol that can be used 
to identify the relevant loan file;
    <bullet> The loan amount at origination or purchase;
    <bullet> The loan location; and
    <bullet> 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.

Sec.  ----.42(c)(1)(iv) Income of borrower.

    Sec.  ----.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.
    Sec.  ----.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.
    Sec.  ----.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.
    [Sec.  ]Sec. ----.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.

Sec. ----.42(c)(2) Other loan data.

    Sec. ----.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 [rtrif]Q&A[ltrif] [Sec.  ]Sec. --
--.12([u] [rtrif]v[ltrif]) [& 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

[[Page 37958]]

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.
    Sec. ----.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.
    Sec. ----.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 [Sec.  ]----.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 [Sec.  ]----.42(c)(2) for consideration under the lending 
test.

Sec. ----.42(d) Data on affiliate lending.

    Sec. ----.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 [rtrif]either[ltrif] 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.

Sec. ----.43 Content and availability of public file.

Sec. ----.43(a) Information available to the public.

Sec. ----.43(a)(1) Public comments related to [a bank's] [rtrif]an 
institution's[ltrif] CRA performance.

    Sec. ----.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.
    Sec. ----.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) ([rtrif]12 CFR[ltrif] [Sec.  ] ----.26([a][rtrif]b[ltrif])(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.

[rtrif]Sec. ----.43(a)(2) CRA performance evaluation.[ltrif]

    Sec. ----.43(a)([1][rtrif]2[ltrif])--[3][rtrif]1[ltrif]: May an 
institution include a response to its CRA [Performance Evaluation] 
[rtrif]performance evaluation[ltrif] in its public file?
    A[3][rtrif]1[ltrif]. 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. [rtrif]See 12 CFR--
--.43(b)(5).[ltrif] The institution must update the description on a 
quarterly basis.

Sec. ----.43(b) Additional information available to the public.

Sec. ----.43(b)(1) Institutions other than small institutions.

    Sec. ----.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.
    Sec. ----.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 [rtrif]in 
electronic format[ltrif] in its public file, rather than printing a 
hard copy of the CRA [Disclosure Statement] [rtrif]disclosure 
statement[ltrif] 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][rtrif]disclosure statement from an electronic medium 
(e.g., CD, DVD, or Internet website) when[ltrif] a consumer [when the 
public file is requested] [rtrif]requests the public file[ltrif]. 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] [rtrif]institution[ltrif] should provide the CRA [Disclosure 
Statement] [rtrif]disclosure statement[ltrif] in a paper copy, or in 
another format acceptable to the requestor, within 5 calendar days, as 
required by [rtrif]12 CFR[ltrif] [Sec. ]----.43(c)(2)(ii).

Sec. ----.43(c) Location of public information.

    Sec. ----.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.
    Sec. ----.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 Sec. ----.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 [rtrif]12 CFR[ltrif][Sec.  ]----.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.

[[Page 37959]]

Sec. ----.44 Public notice by institutions.

    Sec. ----.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.

Sec. ----.45--Publication of planned examination schedule.

    Sec. ----.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.
    Sec. ----.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 Part------Ratings

    APPENDIX A to Part------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 [rtrif]other than an 
intermediate small institution[ltrif] 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 Part------CRA Notice

    APPENDIX B to Part------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] [rtrif]For community 
banks, the[ltrif] 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).] 
[rtrif]http://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.''[ltrif]
    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


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