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[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2250 Introduced in House (IH)]

103d CONGRESS
  1st Session
                                H. R. 2250

   To establish the National Community Development Administration to 
      facilitate community and economic development in low-income 
      neighborhoods in the United States, and for other purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                              May 25, 1993

  Mr. Rush (for himself, Mr. Frank of Massachusetts, Mr. Dellums, Mr. 
 Lewis of Georgia, Mr. Ford of Tennessee, Mr. Evans, Mr. Durbin, Mrs. 
   Collins of Illinois, Ms. Furse, Mr. Jefferson, Ms. Cantwell, Mrs. 
 Clayton, Ms. Norton, Mr. Berman, Ms. Eddie Bernice Johnson of Texas, 
 Mr. Watt, Mr. Wynn, Ms. Roybal-Allard, Mrs. Maloney, Mr. Hinchey, Mr. 
  Scott, Mr. Tucker, Mr. Reynolds, Mr. Blackwell, Ms. Velazquez, Mr. 
 Richardson, Mr. Brown of Ohio, Ms. Brown of Florida, Mr. Clyburn, Mr. 
 Barrett of Wisconsin, Mrs. Meek, Mr. Filner, Mr. Hastings, Mr. Fields 
  of Louisiana, Mr. Towns, Mr. Menendez, Mr. Gene Green of Texas, Mr. 
   Pastor, Mr. Bishop, Ms. McKinney, and Mr. Nadler) introduced the 
    following bill; which was referred jointly to the Committees on 
         Banking, Finance and Urban Affairs and Ways and Means

_______________________________________________________________________

                                 A BILL

 
   To establish the National Community Development Administration to 
      facilitate community and economic development in low-income 
      neighborhoods in the United States, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Community 
Development Financial Institutions Act of 1993''.

Sec. 1. Short title and table of contents.
Sec. 2. Definitions.
         TITLE I--NATIONAL COMMUNITY DEVELOPMENT ADMINISTRATION

Sec. 101. Establishment.
Sec. 102. Board of directors.
Sec. 103. Duties of board and powers of Administration.
Sec. 104. Capitalization.
Sec. 105. Obligations.
Sec. 106. Management reports and audits.
Sec. 107. Reports to Congress.
Sec. 108. Authorization of appropriations.
                    TITLE II--CERTIFICATION PROGRAMS

Sec. 201. Certification of CDFI's.
Sec. 202. Certification of entities to provide technical assistance to 
                            CDFI's and secondary market institutions.
 TITLE III--ASSISTANCE TO COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS

  Subtitle A--Assistance to Existing Community Development Financial 
                              Institutions

Sec. 301. Authority.
Sec. 302. Forms of assistance to CDFI's.
Sec. 303. Eligible uses of assistance by CDFI's.
Sec. 304. Community development financing initiatives.
Sec. 305. Matching requirement.
  Subtitle B--Assistance to Establish Community Development Financial 
                              Institutions

Sec. 321. Program authority.
Sec. 322. Program requirements.
    TITLE IV--ASSISTANCE FOR COMMUNITY DEVELOPMENT SECONDARY MARKET 
                              INSTITUTIONS

Sec. 401. Authority.
Sec. 402. Eligible uses of assistance.
Sec. 403. Community development loans.
Sec. 404. Standards for secondary market institutions.
Sec. 405. Secondary market initiatives.
Sec. 406. Matching requirement.
Sec. 407. Tax-exempt bond financing for secondary market institutions.
Sec. 408. Coordination with secondary mortgage market entities.
   TITLE V--COMMUNITY DEVELOPMENT INDIVIDUAL INVESTMENT CERTIFICATES

Sec. 501. Authorization to issue.
Sec. 502. Limitation on amount issued to any person.
Sec. 503. Terms of issuance.
Sec. 504. Tax treatment.

SEC. 2. DEFINITIONS.

    For purposes of this Act:
            (1) Administration.--The term ``Administration'' means the 
        National Community Development Administration established in 
        section 101.
            (2) Board.--The term ``Board'' means the board of directors 
        of the Administration established in section 102.
            (3) Certified technical assistance provider.--The term 
        ``certified technical assistance provider'' means an 
        individual, an organization, or any other entity certified 
        under the program pursuant to section 202 to provide technical 
        assistance to community development financial institutions or 
        to secondary market institutions.
            (4) Community development financing initiative.--The term 
        ``community development financing initiative'' means a plan 
        under section 304 by a community development financial 
        institution for financing community development activities 
        using assistance amounts provided under title III.
            (5) Community development financial institution.--The term 
        ``community development financial institution'' means an entity 
        certified pursuant to the program established under section 201 
        as a community development financial institution for purposes 
        of this Act.
            (6) Displaced homemaker.--The term ``displaced homemaker'' 
        means an individual who--
                    (A) is an adult;
                    (B) has not worked full-time full-year in the labor 
                force for a number of years but has, during such years, 
                worked primarily without remuneration to care for the 
                home and family; and
                    (C) is unemployed or underemployed and is 
                experiencing difficulty in obtaining or upgrading 
                employment.
            (7) Existing community development financial institution.--
        The term ``existing community development financial 
        institution'' means a community development financial 
        institution that (A) has been determined by the Administration 
        pursuant to certification under section 201, to have been 
        operating in the same manner required of a community 
        development financial institution continuously during the 3-
        year period ending upon the submission of an application for 
        assistance under title III, or (B) has been certified under 
        section 201 as a community development financial institution 
        continuously for such 3-year period.
            (8) First-time homebuyer.--The term ``first-time 
        homebuyer'' means an individual (and his or her spouse) who has 
        not had a present ownership interest in a principal residence 
        during the 3-year period ending upon the purchase of a 
        principal residence (or ending upon the date of redemption of a 
        Community Development Individual Investment Certificate issued 
        pursuant to title V, if applicable), except that--
                    (A) any individual who is a displaced homemaker may 
                not be excluded from consideration as a first-time 
                homebuyer under this paragraph on the basis that the 
                individual, while a homemaker, owned a home with his or 
                her spouse or resided in a home owned by the spouse;
                    (B) any individual who is a single parent may not 
                be excluded from consideration as a first-time 
                homebuyer under this paragraph on the basis that the 
                individual, while married, owned a home with his or her 
                spouse or resided in a home owned by the spouse;
                    (C) an individual shall not be excluded from 
                consideration as a first-time homebuyer under this 
                paragraph on the basis that the individual owns or 
                owned, as a principal residence during such 3-year 
                period, a dwelling unit whose structure is--
                            (i) not permanently affixed to a permanent 
                        foundation in accordance with local or other 
                        applicable regulations, or
                            (ii) not in compliance with State, local, 
                        or model building codes, or other applicable 
                        codes, and cannot be brought into compliance 
                        with such codes for less than the cost of 
                        constructing a permanent structure; and
                    (D) with respect to any individual redeeming a 
                Community Development Individual Investment Certificate 
                issued under title V, such individual may not be 
                considered a first-time homebuyer if subsection (a)(6), 
                (h), or (k) of section 1034 of the Internal Revenue 
                Code of 1986 suspended the running of any period of 
                time specified in section 1034 of such Code with 
                respect to such individual on the date of redemption.
            (9) Investment certificate.--The term ``Investment 
        Certificate'' means a Community Development Individual 
        Investment Certificate issued pursuant to title V.
            (10) Low-income family.--The term ``low-income family'' 
        means a family or individual whose income does not exceed 80 
        percent of the median income for the area involved, as 
        determined by the Administration with adjustments for smaller 
        and larger families, except that the Administration may 
        establish income ceilings higher or lower than 80 percent of 
        the median for the area on the basis of the findings of the 
        Administration that such variations are necessary because of 
        prevailing levels of construction costs or unusually high or 
        low family incomes.
            (11) Principal residence.--The term ``principal residence'' 
        has the same meaning as when used in section 1034 of the 
        Internal Revenue Code of 1986.
            (12) Secondary market initiative.--The term ``secondary 
        market initiative'' means a plan under section 405 by a 
        secondary market institution for carrying out secondary market 
        activities using assistance amounts provided under title IV.
            (13) Single parent.--The term ``single parent'' means an 
        individual who--
                    (A) is unmarried or legally separated from a 
                spouse; and
                    (B)(i) has 1 or more minor children for whom the 
                individual has custody or joint custody; or
                    (ii) is pregnant.
            (14) State.--The term ``State'' means the States of the 
        United States, the District of Columbia, the Commonwealth of 
        Puerto Rico, the Commonwealth of the Northern Mariana Islands, 
        Guam, the Virgin Islands, American Samoa, the Trust Territory 
        of the Pacific Islands, and any other territory or possession 
        of the United States.
            (15) Target community.--The term ``target community'' means 
        a geographical area established by a community development 
        financial institution for purposes of this Act--
                    (A) that is located wholly within a State or 
                contiguous States;
                    (B) that has a continuous boundary; and
                    (C)(i) within which not less than 75 percent of the 
                residents are members of low-income families; or
                    (ii) that is an area of pervasive poverty, 
                unemployment, and general distress, as determined by 
                the Administration.

         TITLE I--NATIONAL COMMUNITY DEVELOPMENT ADMINISTRATION

SEC. 101. ESTABLISHMENT.

    (a) Establishment.--There is hereby established an Administration 
to be known as the National Community Development Administration. The 
principal office of the Administration shall be in the District of 
Columbia.
    (b) Purposes.--The purposes of the National Community Development 
Administration are--
            (1) to certify community development financial institutions 
        as eligible for assistance under this Act from the 
        Administration;
            (2) to certify entities as certified technical assistance 
        providers eligible to provide technical assistance to community 
        development financial institutions and secondary market 
        institutions;
            (3) to provide assistance under title III to assist 
        existing community development financial institutions to help 
        provide credit and promote comprehensive community development 
        in low-income communities;
            (4) to provide assistance under title IV to assist 
        secondary market institutions to purchase and securitize loans 
        for community development activities in low-income communities 
        to increase the liquidity of community development investments 
        in such communities and improve the distribution of investment 
        capital available for community development financing; and
            (5) to promote the use of Community Development Individual 
        Investment Certificates authorized under title V by 
        institutions eligible to issue such Certificates.

SEC. 102. BOARD OF DIRECTORS.

    (a) Initial Board.--
            (1) Composition.--The Administration shall be under the 
        management of a board of directors which, unless membership of 
        the Board is expanded pursuant to subsection (b), shall be 
        composed of 24 members, of which--
                    (A) 4 members shall be--
                            (i) the Secretary of the Treasury (or the 
                        Secretary's delegate);
                            (ii) the Secretary of Housing and Urban 
                        Development (or the Secretary's delegate);
                            (iii) the Secretary of Health and Human 
                        Services (or the Secretary's delegate); and
                            (iv) the Secretary of Commerce (or the 
                        Secretary's delegate); and
                    (B) 20 members shall be appointed by the President, 
                who shall be--
                            (i) 4 persons who are officers of existing 
                        community development financial institutions;
                            (ii) 4 persons who are officers of national 
                        consumer or public interest organizations;
                            (iii) 3 persons who are officers of insured 
                        depository institutions (as such term is 
                        defined in section 3 of the Federal Deposit 
                        Insurance Act);
                            (iv) 2 persons who are officials of State 
                        government agencies involved in community 
                        development;
                            (v) 2 persons who are officials of local 
                        government agencies involved in community 
                        development; and
                            (vi) 5 persons who have expertise in 
                        community development.
            (2) Appointment.--The President shall first appoint the 
        members referred to in paragraph (1)(B) not later than 6 months 
        after the date of the enactment of this Act.
            (3) Terms and vacancies.--Members appointed by the 
        President under paragraph (1)(B) shall serve for terms of 3 
        years, except as provided in paragraph (4) of this subsection 
        and subsection (c). Any vacancy in any position of the Board 
        under paragraph (1)(B) shall be filled by appointment by the 
        President.
            (4) Terms of initial appointees.--As designated by the 
        President at the time of appointment, of the members first 
        appointed--
                    (A) 6 shall be appointed for terms of 1 year; and
                    (B) 7 shall be appointed for terms of 2 years.
            (5) Quorum.--Unless membership of the Board is expanded 
        pursuant to subsection (b), 13 members of the Board shall 
        constitute a quorum.
    (b) Expanded Board.--
            (1) Authority.--If the Board provides for the issuance of 
        voting common stock under section 104, the Board shall be 
        composed of--
                    (A) the 24 members of the Board under subsection 
                (a)(1); and
                    (B) for every additional 71,400 shares of voting 
                common stock issued under section 104, 1 additional 
                member, who shall be elected by the holders of voting 
                common stock of the Administration, except that the 
                number of members of the Board elected pursuant to this 
                subparagraph may not at any time exceed 14.
            (2) Terms and vacancies.--The members elected by the 
        shareholders of the Administration under paragraph (1)(B) shall 
        be elected at the annual meeting of the voting common 
        stockholders for terms of 3 years ending on the date of such 
        annual meeting occurring 3 years after such election, except as 
        provided in paragraph (4) of this subsection and subsection 
        (c). Any position on the Board under paragraph (1)(B) of this 
        subsection that becomes vacant before the expiration of the 
        term for such position shall be filled by the Board, but only 
        for the remainder of such term.
            (3) First election.--The first election for members 
        referred to in paragraph (1)(B) shall be held at the first 
        annual meeting of the voting common stockholders of the 
        Administration occurring after the Board elects to provide for 
        the issuance of voting common stock of the Administration, 
        pursuant to section 104.
            (4) Terms of first members elected.--Of the members first 
        elected pursuant to paragraph (3)--
                    (A) 4 shall be elected for terms of 1 year; and
                    (B) 5 shall be elected for terms of 2 years.
            (5) Quorum.--If membership of the Board is expanded 
        pursuant to this subsection, 20 members of the Board shall 
        constitute a quorum.
    (c) Service After Expiration of Term.--A member of the Board may 
serve after the expiration of that member's term until a successor has 
taken office.
    (d) Prohibition of Compensation of Federal Employees.--Members of 
the Board who are full-time officers or employees of the United States 
may not receive additional pay, allowances, or benefits by reason of 
their service on the board.
    (e) Chairperson.--The President shall appoint the Chairperson of 
the board of directors.
    (f) Meetings.--The Board shall meet annually and shall meet at the 
call of the Chairperson or a majority of its members.

SEC. 103. DUTIES OF BOARD AND POWERS OF ADMINISTRATION.

    (a) Duties of Board.--
            (1) In general.--The Board shall--
                    (A) determine the general policies that shall 
                govern the operations of the Administration and 
                establish the standards for carrying out the programs 
                and activities of the Administration under this Act;
                    (B) select, appoint, and determine the compensation 
                of qualified persons to serve as the officers of the 
                Administration established under subsection (b)(4), 
                pursuant to the bylaws of the Administration; and
                    (C) assign to such persons such executive 
                functions, powers, and duties as may be prescribed by 
                the bylaws of the Administration or by the Board.
            (2) Executive officers and functions.--The persons elected 
        or appointed under paragraph (1)(B) shall be the executive 
        officers of the Administration and shall discharge the 
        executive functions, powers, and duties of the Administration.
    (b) Powers of the Administration.--The Administration shall be a 
body corporate and shall have the following powers:
            (1) To operate under the direction of the Board.
            (2) To issue stock in the manner provided in section 104.
            (3) To adopt, alter, and use a corporate seal, which shall 
        be judicially noted.
            (4) To provide for a chief executive officer, president, 
        chief fiscal officer, 1 or more vice presidents, secretary, 
        treasurer, and such other officers, employees, and agents, as 
        may be necessary, define their duties and compensation levels, 
        all without regard to title 5, United States Code, and require 
        surety bonds or make other provisions against losses occasioned 
        by acts of such persons.
            (5) To prescribe and impose fees and charges for services 
        by the Administration.
            (6) To have succession until dissolved by a law enacted by 
        the Congress.
            (7) To prescribe bylaws, through the Board, not 
        inconsistent with this Act or any other law, that shall provide 
        for--
                    (A) the classes of the stock of the Administration; 
                and
                    (B) the manner in which--
                            (i) the stock shall be issued, transferred, 
                        and retired;
                            (ii) the officers, employees, and agents of 
                        the Administration are selected;
                            (iii) the property of the Administration is 
                        acquired, held, and transferred;
                            (iv) the commitments and other financial 
                        assistance of the Administration are made;
                            (v) the general business of the 
                        Administration is conducted; and
                            (vi) the privileges granted by law to the 
                        Administration are exercised and enjoyed.
            (8) To carry out the programs and activities of the 
        Administration under this Act.
            (9) To prescribe such standards as may be necessary to 
        carry out this Act.
            (10) To enter into contracts and make payments with respect 
        to the contracts.
            (11) To sue and be sued in its corporate capacity and to 
        complain and defend in any action brought by or against the 
        Administration in any State or Federal court of competent 
        jurisdiction.
            (12) To make and perform contracts, agreements, and 
        commitments.
            (13) To acquire, hold, lease, mortgage or dispose of, at 
        public or private sale, real and personal property, purchase or 
        sell any securities or obligations, and otherwise exercise all 
        the usual incidents of ownership of property necessary and 
        convenient to the business of the Administration.
            (14) To exercise such other incidental powers as are 
        necessary to carry out the powers, duties, and functions of the 
        Administration in accordance with this Act.
    (c) Tax-Exempt Status.--The Administration, including its 
franchise, activities, capital, reserves, surplus, and income, shall be 
exempt from all taxation imposed by any territory, dependency, or 
possession of the United States or by any State, county, municipality, 
or local taxing authority, except that any real property of the 
Administration shall be subject to State, territorial, county, 
municipal, or local taxation to the same extent according to its value 
as other real property is taxed.
    (d) Federal Jurisdiction.--Notwithstanding section 1349 of title 
28, United States Code, or any other provision of law:
            (1) The Corporation shall be considered an agency under 
        sections 1345 and 1442 of such title.
            (2) All civil actions to which the Corporation is a party 
        shall be deemed to arise under the laws of the United States 
        and, to the extent applicable, shall be deemed to be governed 
        by Federal common law. The district courts of the United States 
        shall have original jurisdiction of all such actions, without 
        regard to amount of value.
            (3) Any civil or other action, case, or controversy in a 
        court of a State or any court, other than a district court of 
        the United States, to which the Corporation is a party may at 
        any time before trial be removed by the Corporation, without 
        the giving of any bond or security--
                    (A) to the District Court of the United States for 
                the district and division embracing the place where the 
                same is pending; or
                    (B) if there is no such district court, to the 
                District Court of the United States for the district in 
                which the principal office of the Corporation is 
                located;
        by following any procedure for removal for causes in effect at 
        the time of such removal.
            (4) No attachment or execution shall be issued against the 
        Corporation or any of the property of the Corporation before 
        final judgment in any Federal, State, or other court.
    (e) Conflicts of Interest.--The Board shall adopt and publish its 
own conflict of interest rules, which shall be no less stringent in 
effect than the Federal Executive conflict of interest rules contained 
in Executive Order 11222 (18 U.S.C. 201 note) in prohibiting 
participation or action or the use of inside information for personal 
advantage on any matter involving a corporation, trust, partnership, or 
cooperative organization in which a Board member, officer, or employee 
holds a substantial financial interest or holds a position as board 
member or senior officer, the activities of which organization might be 
relevant to, competitive with, or inconsistent with the objectives of 
the Administration. The rules established under this subsection shall 
require--
            (1) each nominee for membership on the Board to make public 
        and file with the designated officer of the Administration a 
        statement of the nominee's financial interest and position, if 
        any, in such organization; and
            (2) each executive officer and appointed member of the 
        Board to file with the designated officer, before entering such 
        office, a statement of the officer's or member's financial 
        interest and position, if any, in such organizations, which 
        shall be available for inspection upon request by any 
        interested party.

SEC. 104. CAPITALIZATION.

    (a) Common Stock.--
            (1) Initial offering of nonvoting stock to treasury.--The 
        members of the Board under section 102(a) shall arrange for an 
        initial offering of 2,000,000 shares of the nonvoting common 
        stock of the Administration. The shares initially offered shall 
        be issued only to the Secretary of the Treasury who, to the 
        extent or in such amounts as are appropriated pursuant to 
        section 108(1), purchase such shares at a par value of $50. 
        Such shares shall not be transferable. Any proceeds from the 
        sale of shares under this paragraph shall be used by the 
        Administration only to carry out title III.
            (2) Subsequent public offering of voting stock.--
                    (A) Authority and terms.--If at any time the Board, 
                by vote of a majority of its members so provides, the 
                Administration may issue shares of voting common stock 
                of the Administration having such par value as the 
                Board shall fix. Each share of voting common stock 
                shall be entitled to one vote with rights of cumulative 
                voting at all elections of directors. Not more than 
                1,000,000 shares of voting common stock of the 
                Administration may be outstanding at any time.
                    (B) Transferability.--Subject to the provisions of 
                this section and such limitations as the Board may 
                impose, the voting common stock issued under this 
                paragraph shall be freely transferable among all 
                persons, Administrations, and other entities, except 
                that, as to the Administration, such shares shall be 
                transferable only on the books of the Administration.
    (b) Dividends.--Such dividends as may be declared by the Board, in 
the discretion of the Board, shall be paid by the Administration to the 
holders of the voting common stock of the Administration pro rata based 
on the total number of shares of such stock outstanding.
    (c) Authority of Board To Establish Terms and Procedures.--Subject 
to the provisions of this section, the Board shall adopt such terms, 
conditions, and procedures with regard to the issue of stock under this 
section as may be necessary and may establish limitations on the 
concentration of ownership.

SEC. 105. OBLIGATIONS.

    (a) Authority.--Subject to the applicable provisions of chapter 91 
of title 31, United States Code, the Administration may borrow, give 
security, and issue notes, debentures, bonds, and other obligations 
upon such terms and conditions as the Administration may prescribe.
    (b) Limitation on Outstanding Obligations.--The aggregate amount of 
any obligations of the Administration outstanding at any 1 time may not 
exceed the greater of (1) the amount that is 20 times the sum of the 
Administration's capital, capital surplus, general surplus, reserves, 
and undistributed earnings, or (2) such other amount as the Secretary 
of the Treasury may establish.
    (c) Purchase by Secretary.--
            (1) In general.--The Secretary of the Treasury may purchase 
        any obligation issued by the Administration.
            (2) Limit on aggregate amount of obligations held by 
        treasury.--The aggregate amount of obligations of the 
        Administration which may be held by the Secretary of the 
        Treasury at any time shall not exceed $250,000,000.
            (3) Terms and conditions.--
                    (A) In general.--Except as provided in subparagraph 
                (B), the purchase or sale by the Secretary of any 
                obligation of the Administration under this subsection 
                shall be upon such terms and conditions as the 
                Secretary determines to be appropriate.
                    (B) Rate of return.--In considering any term or 
                condition for the purchase of any obligation of the 
                Administration by the Secretary under this subsection 
                which would determine the rate of return from such 
                investment, the Secretary shall take into account the 
                average rate on outstanding obligations of the United 
                States under chapter 31 of title 31, United States 
                Code, at similar maturities and rates of interest as of 
                the last day of the month preceding the making of such 
                purchase and may take into account rates of interest up 
                to 2 percent less than the rates on such obligations.

SEC. 106. MANAGEMENT REPORTS AND AUDITS.

    (a) In General.--The Administration shall submit such reports and 
conduct such audits as required of the Administration under title 31, 
United States Code.
    (b) Amendment to Title 3.--Section 9101(2) of title 31, United 
States Code, is amended by adding at the end the following new 
subparagraph:
                    ``(N) the National Community Development 
                Administration.''.

SEC. 107. REPORTS TO CONGRESS.

    The Administration shall annually submit a report to the Congress 
regarding its activities and programs.

SEC. 108. AUTHORIZATION OF APPROPRIATIONS.

    There is authorized to be appropriated to carry out this Act 
$200,000,000 for fiscal year 1994, of which--
            (1) $100,000,000 shall be available to the Secretary of the 
        Treasury to carry out section 104(a)(1);
            (2) $50,000,000 shall be available to the Administration 
        only to carry out title III;
            (3) $30,000,000 shall be available to the Administration 
        only to carry out title IV; and
            (4) $20,000,000 shall be available to the Administration 
        only to carry out section 501(b).
Any amounts appropriated pursuant to this section shall remain 
available until expended.

                    TITLE II--CERTIFICATION PROGRAMS

SEC. 201. CERTIFICATION OF CDFI'S.

    (a) In General.--The Administration shall carry out a program to 
review and certify financial institutions and other entities as 
community development financial institutions for purposes of this Act.
    (b) Standards.--The Board shall establish standards for 
certification of financial institutions and other entities as community 
development financial institutions, which shall--
            (1) provide for the certification of--
                    (A) depository institutions (as such term is 
                defined in section 3(c) of the Federal Deposit 
                Insurance Act) and credit unions (including community 
                development credit unions, savings and loan 
                associations, and other depository institutions) that 
                meet the requirements pursuant to this section; and
                    (B) such other corporations, partnerships, 
                organizations, agencies, persons, and other entities as 
                the Administration considers appropriate (which may 
                include for-profit and nonprofit entities, community 
                development loan funds, microenterprise loan funds and 
                organizations, and community organizations) and that 
                meet the requirements pursuant to this section;
            (2) require for certification that any such entity have 
        among its principal purposes making credit and credit-related 
        services available to low-income families and in low-income 
        communities and promoting the development and revitalization of 
        low-income communities;
            (3) require for certification that any such entity carry 
        out such purpose in a target community by--
                    (A) providing financing to individuals, families, 
                businesses, organizations, and other entities, which 
                may include mortgage loans, loans for housing 
                development, rehabilitation, and weatherization, 
                business development and assistance loans, personal 
                loans, operating loans, construction loans, loans for 
                community and economic development activities, and 
                other repayable assistance; and
                    (B) conducting such other activities and services 
                relating to making loans (such as loan counseling and 
                servicing) as the institution considers appropriate;
            (4) require for certification that any such entity (or the 
        portion of such entity acting as the community development 
        financial institution) be governed by a board of directors 
        that--
                    (A) is solely responsible for determining policy 
                for the community development financial institution 
                with respect to management and operations, lending 
                activities, loan standards and implementation, 
                employment, asset management, and any other issues; and
                    (B) includes among its members a significant number 
                of members who are individuals meeting the requirements 
                of any of clauses (i) through (ii), who shall include--
                            (i) individuals who are experienced in 
                        providing financial assistance or financial 
                        advice to low-income individuals or residents, 
                        businesses, or organizations in low-income 
                        neighborhoods; and
                            (ii) individuals who have significant 
                        experience in serving the target community 
                        served by the community development financial 
                        institution or any other low-income 
                        neighborhood;
            (5) require for certification that any such entity meet 
        such standards for safety and soundness of financial operations 
        and for capital reserves as the Administration shall establish; 
        and
            (6) provide for determining whether community development 
        financial institutions may be treated as existing community 
        development financial institutions (pursuant to section 2(7)) 
        for purposes of assistance under title III.
    (c) Coordination.--Notwithstanding any provision of title III, the 
Administration shall provide for coordinating certification of entities 
as community development financial institutions in connection with the 
submission of applications by such entities for assistance to carry out 
community development financial initiatives under title III.

SEC. 202. CERTIFICATION OF ENTITIES TO PROVIDE TECHNICAL ASSISTANCE TO 
              CDFI'S AND SECONDARY MARKET INSTITUTIONS.

    (a) In General.--The Administration shall carry out a program to 
review and certify individuals, organizations, and other for-profit and 
nonprofit entities as certified technical assistance providers for 
purposes of this Act. Under the program, the Administration shall 
certify entities that are competent to provide technical assistance 
regarding--
            (1) conducting community and economic development 
        activities in low-income neighborhoods;
            (2) providing financing for such activities;
            (3) educating individuals, businesses, and organizations 
        about the capabilities and advantages of community development 
        financial institutions;
            (4) establishing, managing, or operating community 
        development financial institutions in target communities and 
        other low-income neighborhoods;
            (5) carrying out secondary market activities with respect 
        to community development loans; and
            (6) assisting community development financial institutions 
        to meet specific community development needs in target 
        communities, including providing job training programs, 
        assisting in optimizing components of loan applications, and 
        assisting small businesses to prepare business plans and obtain 
        financial management, accounting, and marketing services.
    (b) Standards.--To be eligible for certification under the program 
established pursuant to this section, an individual, organization, or 
other entity shall have such demonstrated experience in the activities 
for which the individual, organization, or entity is to be certified, 
as the Administration shall prescribe.

 TITLE III--ASSISTANCE TO COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS

  Subtitle A--Assistance to Existing Community Development Financial 
                              Institutions

SEC. 301. AUTHORITY.

    (a) Program Authority.--The Administration shall establish and 
carry out a program under this subtitle to provide assistance to 
existing community development financial institutions, using amounts 
available pursuant to section 108, to assist such institutions to carry 
out community development financing initiatives to stimulate broad-
based and long-range community development in target communities and to 
enable such financial institutions to obtain technical assistance 
regarding such activities from certified technical assistance 
providers.
    (b) Authority To Establish Program Requirements.--The 
Administration may establish any conditions, terms, or requirements 
under the program under this subtitle that the Administration considers 
appropriate to carry out the purposes of this subtitle and that are not 
inconsistent with the provisions of this subtitle.

SEC. 302. FORMS OF ASSISTANCE TO CDFI'S.

    Assistance may be provided under the program to existing community 
development financial institutions in the form of grants, loans, equity 
advances, or loan guarantees, or in any other form that the 
Administration determines is appropriate and effective. Notwithstanding 
any other provision of law, any loan guarantee made under this title by 
the Administration shall not constitute a guarantee, debt, or 
obligation of the United States or any other agency or instrumentality 
of the United States, other than the Administration.

SEC. 303. ELIGIBLE USES OF ASSISTANCE BY CDFI'S.

    (a) Eligible Community Activities.--Except as provided in 
subsection (c), assistance provided to an existing community 
development financial institution under this subtitle may be used by 
the institution only to provide financing for community development 
activities conducted in accordance with a community development 
financing initiative approved by the Administration under section 304. 
Such community development activities shall include the following 
activities:
            (1) Real property.--Acquisition or development of real 
        property that is--
                    (A) to be used for providing affordable housing;
                    (B) to be made available for purchase by low-income 
                families or first-time homebuyers;
                    (C) blighted, deteriorated, deteriorating, or 
                inappropriately developed, for purposes of 
                rehabilitating the property in accordance with a 
                specific plan for rehabilitation in existence at the 
                time of acquisition or development;
                    (D) to be rehabilitated or used for conservation 
                activities; or
                    (E) to be used as a center for senior citizen 
                activities, a day care center, a job training site, a 
                recreation facility, or a facility to provide 
                assistance to for-profit or non-profit businesses or 
                economic development organizations.
            (2) Clearance and demolition.--Activities involving the 
        clearance, demolition, removal, or rehabilitation of buildings 
        and improvements, including interim assistance and financing 
        rehabilitation of privately owned properties.
            (3) Affordable housing.--Development of new housing 
        affordable to low-income families, which shall include 
        acquisition, new construction, reconstruction, or moderate or 
        substantial rehabilitation of such housing, and site 
        improvement, conversion, demolition, financing, and other 
        activities necessary to develop such housing.
            (4) Small business assistance.--Providing assistance to 
        small businesses, including financing, marketing, management, 
        business counseling, and business planning assistance.
            (5) Microenterprise assistance.--Development of 
        microenterprises (as such term is defined in section 102 of the 
        Housing and Community Development Act of 1974).
            (6) Capacity building.--Activities designed to enable 
        borrowers and prospective borrowers of amounts made available 
        under this subtitle and organizations and entities in which 
        such amounts are invested or to be invested by such borrowers, 
        to facilitate the activities under this subsection carried out 
        with such amounts and improve the effectiveness of such 
        activities.
            (7) Other activities.--Such other community development 
        activities as the Administration may prescribe generally or 
        approve pursuant to a specific community development financing 
        initiative.
    (b) Ineligible Activities.--Assistance provided to an existing 
community development financial institution under this subtitle may not 
be used, directly or indirectly, for any of the following activities:
            (1) Public facilities.--Development or assistance of public 
        facilities not specifically referred to in subsection (a), 
        which public facilities shall include buildings and facilities 
        for the general conduct of government, stadiums and sports 
        arenas, auditoriums, concert halls, convention centers, 
        museums, schools, airports, subways, trolley lines, bus or 
        other transit terminals, and hospitals or other general public 
        medical facilities.
            (2) Government expenses.--Payment of expenses required to 
        carry out the general responsibilities of any unit of general 
        local government or State.
            (3) Operating and maintenance expenses.--Payment of any 
        expense associated with operating, repairing, or maintaining 
        public facilities, improvements, or services.
            (4) Political activities.--Financing the use of facilities 
        or equipment for political purposes or to engage in other 
        partisan political activities.
            (5) Income supplement payments.--Providing any income 
        payments for housing or any other purpose.
    (c) Technical Assistance.--
            (1) In general.--An existing community development 
        financial institution that receives assistance under this 
        subtitle may use such assistance to obtain technical assistance 
        from certified technical assistance providers regarding the 
        management, operation, and activities of the financial 
        institution, but only if such use is expressly authorized by 
        the Administration in approving the community development 
        financing initiative of the institution and then only to the 
        extent provided by the Administration.
            (2) Permissible assistance.--Technical assistance obtained 
        under this subsection may include--
                    (A) conducting an analysis of the market of the 
                community development financial institution;
                    (B) preparing business or marketing plans for the 
                community development financial institution;
                    (C) designing instruments, financing initiatives, 
                and other offerings to meet the economic and community 
                development needs of the target community for the 
                institution;
                    (D) training and assistance to expand the real 
                estate and business development activities of the 
                institution;
                    (E) improving the financial management of the 
                institution;
                    (F) revising the governance of the institution; and
                    (G) any other technical assistance activities 
                described in section 202(a) or that the Administration 
                determines are appropriate to assist the institution to 
                carry out the purposes of this subtitle.

SEC. 304. COMMUNITY DEVELOPMENT FINANCING INITIATIVES.

    (a) Requirement for Assistance.--The Administration may provide 
assistance under this subtitle only to an existing community 
development financial institution that has had a community developing 
financing initiative reviewed and approved under this section by the 
Administration.
    (b) Requirements of Initiative.--For purposes of this subtitle, a 
community development financing initiative shall be a plan for an 
existing community development financial institution to provide 
financing to individuals, businesses, organizations, or other entities 
to carry out eligible community development activities under section 
303(a) within a target community, using amounts provided under this 
subtitle and amounts from other sources (including amounts required 
under section 305). Under an initiative, financing may be limited to 
particular activities, types of assistance, or locations.
    (c) Application.--The Administration shall provide for community 
development financial institutions to submit applications for approval 
of community development financing initiatives under this section. Each 
such application shall include such information as the Administration 
considers appropriate to carry out this subtitle and ensure that 
assistance is provided and used in accordance with the provisions of 
this subtitle, including--
            (1) a description of the existing community development 
        financial institution that is requesting assistance under this 
        subtitle and any information that the Board considers necessary 
        to indicate the financial soundness of the institution;
            (2) a description of the boundaries and characteristics of 
        the target community in which activities to be financed under 
        the community development financing initiative are to be 
        carried out, which shall include descriptions of the income 
        characteristics of the community or neighborhood and the need 
        for the initiative in the community or neighborhood;
            (3) a description of the community development activities 
        or types of such activities to be financed under the 
        initiative;
            (4) evidence of amounts or commitments to provide amounts 
        to supplement assistance provided under this subtitle in 
        accordance with the requirement under section 305;
            (5) a description of any participation in developing or 
        carrying out the initiative by any individuals, businesses, 
        organizations, and governments located or interested in the 
        community in which the initiative is to be carried out; and
            (6) a description of the type and amount of assistance that 
        institution is requesting from the Administration.
    (d) Selection.--
            (1) In general.--The Administration shall review each 
        application submitted under this section. The Administration 
        may approve a community development financing initiative to 
        receive assistance under this subtitle only if the 
        Administration determines that the application complies with 
        the requirements pursuant to this section and the initiative 
        complies with the requirements pursuant to this Act.
            (2) Rating system.--
                    (A) Use.--The Administration shall establish a 
                competitive rating system by which to rank community 
                development financing initiatives for which 
                applications have been submitted under this paragraph 
                and shall use the rating system to determine which 
                community development financing initiatives to approve 
                for assistance under this subtitle.
                    (B) Goals.--The rating system shall be designed to 
                select for approval initiatives that--
                            (i) will result in significant development 
                        in the communities in which such initiatives 
                        are to be carried out or that will have 
                        significant positive effects on the economies 
                        of such communities; and
                            (ii) will be carried out in a financially 
                        responsible manner by community development 
                        financial institutions that have the 
                        capability, capacity, resources, and commitment 
                        to provide such financing for such purposes.
                    (C) Impact on target community.--The rating system 
                shall take into consideration, with respect to each 
                community development financing initiative, the extent 
                to which--
                            (i) the initiative will assist individuals, 
                        businesses, and organizations within the target 
                        community for the initiative;
                            (ii) the initiative is designed to meet 
                        specific community and economic development 
                        needs of the target community for the 
                        initiative;
                            (iii) the community development financial 
                        institution that will carry out the initiative 
                        has previously provided financing for 
                        individuals, businesses, and organizations 
                        within the target community for the initiative;
                            (iv) amounts other than assistance under 
                        this subtitle have been acquired to carry out 
                        the initiative or commitments for such amounts 
                        have been obtained, and the rating system shall 
                        specifically provide for a series of higher 
                        levels of ranking of initiatives based on the 
                        extent to which such amounts exceed the amounts 
                        required under section 305;
                            (v) individuals and organizations in the 
                        target community for the initiative have been 
                        involved in developing the initiative or other 
                        activities carried out by the community 
                        development financial institution that will 
                        carry out the initiative; and
                            (vi) the initiative comprehensively 
                        addresses development needs of the target 
                        community.

SEC. 305. MATCHING REQUIREMENT.

    (a) In General.--The Administration may not provide assistance 
under this subtitle in any form to any community development financial 
institution in an amount in excess of the amount that the institution 
certifies, as the Administration shall require, that the institution 
will contribute from non-Federal sources to the community development 
financing initiative to be assisted under this subtitle.
    (b) Prohibition of Substitution of Funds.--A community development 
financial institution may use assistance received under this Act only 
so as to supplement and increase any amounts that would, in the absence 
of assistance provided under this subtitle, be made available for 
carrying out the community development initiative of the institution 
from other sources, and in no case may such assistance be used so as to 
supplant amounts for such purpose from other sources.

  Subtitle B--Assistance to Establish Community Development Financial 
                              Institutions

SEC. 321. PROGRAM AUTHORITY.

    The Administration shall establish and carry out a program to 
provide assistance to nonprofit and for-profit organizations for the 
establishment of community development financial institutions. Any 
institution established with assistance provided under this subtitle 
shall be established for the purpose of providing financing for 
community development activities described in section 303(a). The 
Administration shall provide for such organizations to submit 
applications for assistance under this subtitle, which shall be in such 
form and contain such information as the Administration shall provide.

SEC. 322. PROGRAM REQUIREMENTS.

    The Administration shall require that--
            (1) the program carried out under this subtitle shall be, 
        to the extent practicable, consistent with the provisions of 
        subtitle A; and
            (2) any financial institution receiving assistance provided 
        under this subtitle shall carry out a community development 
        financing initiative approved by the Administration for a 
        target community.

    TITLE IV--ASSISTANCE FOR COMMUNITY DEVELOPMENT SECONDARY MARKET 
                              INSTITUTIONS

SEC. 401. AUTHORITY.

    (a) Program Authority.--The Administration shall establish and 
carry out a program under this title to provide assistance to secondary 
market institutions, using amounts available pursuant to section 108 
and section 407, to assist such institutions to--
            (1) establish a secondary market for community development 
        loans and provide stability for such market; and
            (2) increase the liquidity of community development 
        investments and improve the distribution of investment capital 
        available for community development financing.
    (b) Authority To Establish Program Requirements.--The 
Administration may establish any conditions, terms, or requirements 
under the program under this title that the Administration considers 
appropriate to carry out the purposes of this title and that are not 
inconsistent with the provisions of this title.

SEC. 402. ELIGIBLE USES OF ASSISTANCE.

    (a) In General.--Assistance under this title may be used by the 
secondary market institution receiving the assistance only for the 
following purposes:
            (1) Capital for secondary market activities.--To carry out 
        secondary market activities under the secondary market 
        initiative for the institution approved by the Administration 
        pursuant to section 405.
            (2) Technical assistance.--To obtain technical assistance 
        from certified technical assistance providers regarding the 
        management, operation, and activities of the secondary market 
        institution, but only if such use is expressly authorized by 
        the Administration in approving the secondary market initiative 
        of the institution and then only to the extent provided by the 
        Administration.
    (b) Secondary Market Activities.--For purposes of this title, 
secondary market activities shall include such activities as the 
Administration shall prescribe, including the following:
            (1) Loan purchase.--Purchasing of community development 
        loans and making of commitments to purchase such loans.
            (2) Loan portfolios and dealing.--Maintaining a portfolio 
        of community development loans and otherwise dealing in and 
        disposing of such loans.
            (3) Lending.--Lending on the security of, and to make 
        commitments to lend on the security of, community development 
        loans.
            (4) Securities.--Issuing securities representing interests 
        in, or secured by, a pool of community development loans held 
        by the secondary market institution.
            (5) Guarantee of securities.--Guaranteeing the timely 
        payment of principal and interest on securities representing 
        interests in, or secured by, a pool of community development 
        loans.

SEC. 403. COMMUNITY DEVELOPMENT LOANS.

    For purposes of this title, the term ``community development loan'' 
means a loan--
            (1) made for the purpose of carrying out, within a target 
        community--
                    (A) a community development activity referred to in 
                section 303(a);
                    (B) an activity generally prescribed by the 
                Administration as an eligible community development 
                activity under section 303(a)(7); or
                    (C) any other activity approved by the 
                Administration as a community development activity 
                pursuant to a specific secondary marketing initiative;
            (2) that meets such standards and requirements as the 
        Administration shall establish.

SEC. 404. STANDARDS FOR SECONDARY MARKET INSTITUTIONS.

    (a) In General.--For purposes of this title, a secondary market 
institution shall be an organization, agency, corporation, or other 
entity engaged primarily in secondary market activities with respect to 
community development and similar loans that meet such standards and 
requirements as the Administration shall establish, which shall include 
standards and requirements regarding ownership, organization, 
management, capital reserves, investments, functions and activities, 
accounting practices, and reporting.
    (b) Secondary Market Activities.--To be eligible to receive 
assistance under this title, a secondary market institution shall 
comply with such standards and qualifications and shall operate in 
accordance with such guidelines, as the Administration shall establish 
regarding the secondary market activities under section 402(b). Such 
standards and guidelines shall provide that a secondary market 
institution receiving such assistance may purchase, hold, securitize, 
or lend on the security of community development loans--
            (1) only from sellers and servicers meeting such standards 
        and requirements as the Administration shall establish, which 
        may include standards and requirements regarding, among other 
        things, (A) minimum net worth, (B) supervisory mechanisms, (C) 
        warranty compensation mechanisms, (D) prior approval of 
        facilities, (E) prior origination and servicing experience with 
        respect to different types of loans, (F) capital contributions 
        and substitutes, (G) loan purchase volume limits, and (H) 
        reduction of loan purchases during periods of borrowing;
            (2) that are of such quality, type, and class as the 
        Administration shall provide; and
            (3) that have original principal obligations not exceeding 
        such maximum amounts as the Administration shall establish for 
        various qualities, types, and classes of loans.

SEC. 405. SECONDARY MARKET INITIATIVES.

    (a) Requirement for Assistance.--The Administration may provide 
assistance under this title only to a secondary market institution that 
has had a secondary market initiative reviewed and approved under this 
section by the Administration.
    (b) Requirements of Initiative.--For purposes of this title, a 
secondary market initiative shall be a plan for a secondary market 
institution to carry out eligible secondary market activities under 
section 402(b) within a specified area or region within the States or 
with respect to specified types of community development loans, using 
amounts provided under this title and amounts from other sources 
(including amounts required under section 406).
    (c) Application.--The Administration shall provide for secondary 
market institutions to submit applications for approval of secondary 
market initiatives under this section. Each such application shall 
include such information as the Administration considers appropriate to 
carry out this title and shall ensure that assistance amounts are 
provided and used in accordance with the requirements pursuant to this 
title.
    (d) Selection.--
            (1) In general.--The Administration shall review each 
        application submitted under this section. The Administration 
        may approve a secondary market initiative to receive assistance 
        under this title only if the Administration determines that the 
        application complies with the requirements pursuant to this 
        section and the initiative complies with the requirements 
        pursuant to this title.
            (2) Limitations.--In selecting secondary market initiatives 
        to approve to receive assistance under this title, the 
        Administration shall attempt to ensure that each such 
        initiative is carried out with respect to a geographic area or 
        region, or types of community development loan, that is not the 
        primary region or loan classification for any other secondary 
        market initiative approved and receiving assistance under this 
        title.
            (3) Preferences.--In selecting secondary market initiatives 
        to approve to receive assistance under this title, the 
        Administration shall take into consideration the extent to 
        which amounts other than assistance under this title have been 
        acquired to carry out the initiative or commitments for such 
        amounts have been obtained, and shall specifically provide for 
        a series of higher levels of ranking of initiatives based on 
        the extent to which such amounts exceed the amounts required 
        under section 406.

SEC. 406. MATCHING REQUIREMENT.

    (a) In General.--The Administration may not provide assistance 
under this title to any secondary market institution in an amount in 
excess of the amount that the institution certifies, as the 
Administration shall require, that the institution will contribute from 
non-Federal sources to the secondary market initiative to be assisted 
under this title.
    (b) Prohibition of Substitution of Funds.--A secondary market 
institution may use assistance received under this title only so as to 
supplement and increase any amounts that would, in the absence of 
assistance provided under this title, be made available for carrying 
out the secondary market initiative of the institution from other 
sources, and in no case may such assistance be used so as to supplant 
amounts for such purpose from other sources.

SEC. 407. TAX-EXEMPT BOND FINANCING FOR SECONDARY MARKET INSTITUTIONS.

    (a) Authority.--The Administration may issue such bonds and other 
obligations the proceeds of which shall be used to provide assistance 
under this title to secondary market institutions in the form of loans 
for carrying out secondary market initiatives approved under section 
405. In determining the terms and conditions of repayment of any loan 
financed with the proceeds of any bonds or obligations issued pursuant 
to this section, the Administration shall consider the terms and 
conditions of such bonds or obligations. Any bonds or obligations shall 
be issued under this section only upon the approval of the Secretary of 
the Treasury.
    (b) Terms.--Bonds and other obligations guaranteed pursuant to this 
section shall be in such form and denomination, have such maturities, 
be redeemable, bear interest at such rates, and be subject to such 
conditions, as the Administration shall provide by regulation, with the 
approval of the Secretary of the Treasury.
    (c) Tax-Exempt Status.--Notwithstanding any other provision of law, 
any interest on any bond or other obligation issued under this section 
shall be exempt from tax under subtitle A of the Internal Revenue Code 
of 1986.

SEC. 408. COORDINATION WITH SECONDARY MORTGAGE MARKET ENTITIES.

    In carrying out this title, the Administration shall consult with 
the Federal National Mortgage Association, the Federal Home Loan 
Mortgage Corporation, and other appropriate entities and shall, to the 
extent feasible, coordinate the activities under the program under this 
title to carry out the purposes of this title.

   TITLE V--COMMUNITY DEVELOPMENT INDIVIDUAL INVESTMENT CERTIFICATES

SEC. 501. AUTHORIZATION TO ISSUE.

    (a) In General.--Any community development credit union or 
community development bank may issue certificates of indebtedness to be 
known as ``Community Development Individual Investment Certificates''. 
Such Certificates shall be issued by any such credit union in a manner 
designed to ensure that at least 35 percent of the Investment 
Certificates issued by such institution are issued to persons within 
its area of business or to organizations exempt from tax under chapter 
1 of the Internal Revenue Code of 1986. Notwithstanding any provision 
of law other than the preceding sentence, there shall be no limitation 
on type or location of persons to which such Certificates may be 
issued.
    (b) Promotion of Certificates by Administration.--The 
Administration shall carry out a program to promote the use of 
Community Development Individual Investment Certificates to 
institutions eligible to issue such Certificates.

SEC. 502. LIMITATION ON AMOUNT ISSUED TO ANY PERSON.

    The aggregate amount of Investment Certificates issued to any 
individual during any calendar year shall not exceed $2,500 ($3,200 in 
the case of a married couple). The aggregate amount of Investment 
Certificates issued to any entity during any calendar year shall not 
exceed $100,000.

SEC. 503. TERMS OF ISSUANCE.

    (a) Discount Basis.--Investment Certificates shall be issued--
            (1) on a discount basis;
            (2) with a fixed term of 4 years (8 years in the case of a 
        Certificate issued to an entity), except that any such 
        Certificate may be redeemed before its maturity for an amount 
        equal to its redemption value (as of such time) reduced by any 
        reasonable prepayment penalty specified by the issuer;
            (3) with an investment yield determined by the issuer; and
            (4) on a nontransferable basis.
        For purposes of paragraph (2), the redemption value of any 
        Certificate as of any time is an amount equal to the sum of its 
        issue price and the portion of the original issue discount 
        which has accrued before such time (as determined under the 
        principles of section 1272(a) of the Internal Revenue Code of 
        1986).
    (b) Certain Early Redemptions Without Prepayment Penalty.--
            (1) In general.--Notwithstanding subsection (a), any 
        Investment Certificate may be redeemed before its maturity 
        without any prepayment penalty if the proceeds from such 
        redemption are to be used for a qualified purpose.
            (2) Qualified purpose.--For purposes of paragraph (1), the 
        term ``qualified purpose'' means--
                    (A) any payment of qualified acquisition costs with 
                respect to a principal residence of a first-time 
                homebuyer who is the individual receiving the proceeds 
                of the redemption, or the spouse, child, or grandchild 
                of such individual;
                    (B) any payment of qualified higher education 
                expenses; or
                    (C) any use to capitalize a trade or small business 
                carried on (directly or through a corporation or other 
                entity) by an individual described in subparagraph (A).
        For purposes of paragraph (1), any redemption after the 
        individual has attained age 59\1/2\ shall be treated as a 
        redemption for a qualified purpose.
    (c) Qualified Acquisition Costs.--For purposes of this section, the 
term `qualified acquisition costs' means the costs of acquiring, 
constructing, or reconstructing a residence. Such term includes any 
usual or reasonable settlement, financing, or other closing costs.
    (d) Qualified Higher Education Expenses.--For purposes of this 
section, the term ``qualified higher education expenses'' means 
tuition, fees, books, supplies, and equipment required for the 
enrollment or attendance of--
            (1) the individual receiving the proceeds of the 
        redemption,
            (2) such individual's spouse, or
            (3) such individual's child (as defined in section 
        151(c)(3) of the Internal Revenue Code of 1986) or grandchild,
at an eligible educational institution (as defined in section 135(c)(3) 
of the Internal Revenue Code of 1986).

SEC. 504. TAX TREATMENT.

    For purposes of the Internal Revenue Code of 1986--
            (1) section 1271 of such Code (requiring current inclusion 
        of accrued original issue discount) shall not apply to any 
        Investment Certificate; and
            (2) except as provided in section 454 of such Code, any 
        income from an Investment Certificate shall be included in 
        gross income only when such Certificate is redeemed.

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