The Division strongly recommends that those institutions engaging in subprime lending carefully review underwriting policies to ensure that all risks have been identified and that adequate controls and limits are in place. Institutions also need to ensure that they are in full compliance with consumer protection laws and regulations, and that all policies are prudent and fair. The Investment Test is the second of three areas evaluated by the Division of Banks during the course of a CRA examination of a large institution. A qualified investment is defined as a lawful investment, deposit, membership share, or grant that has as its primary purpose community development. One of the most common types of qualified investments that examiners come across during the course of an examination are direct grants.
Direct grants are probably one of the easiest types of qualified investments to administer.
With a grant, an institution provides funds to a group or entity which meets a community development purpose. In some instances, a charitable contribution to certain non-profit groups and organizations may be considered a qualified investment, provided it can be shown that a community development purpose is being met. Some types of qualified investments are more complex and therefore, more difficult to administer. While the Division will give consideration to all qualified investments under the investment test, those activities which are more innovative or complex are given more weight. The Division has seen several examples of more complex investments.