97-26206. Community Reinvestment Act; Interagency Questions and Answers Regarding Community Reinvestment  

  • [Federal Register Volume 62, Number 193 (Monday, October 6, 1997)]
    [Notices]
    [Pages 52105-52128]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 97-26206]
    
    
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    FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL
    
    
    Community Reinvestment Act; Interagency Questions and Answers 
    Regarding Community Reinvestment
    
    AGENCY: Federal Financial Institutions Examination Council.
    
    ACTION: Notice and request for comment.
    
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    SUMMARY: The Consumer Compliance Task Force of the Federal Financial 
    Institutions Examination Council (FFIEC) is supplementing, amending, 
    and republishing its Interagency Questions and Answers Regarding 
    Community Reinvestment. The Interagency Questions and Answers have been 
    prepared by staff of the Office of the Comptroller of the Currency 
    (OCC), the Federal Reserve Board (Board), the Federal Deposit Insurance 
    Corporation (FDIC), and the Office of Thrift Supervision (OTS) 
    (collectively, the ``agencies'') to answer most frequently asked 
    questions about community reinvestment. The Interagency Questions and 
    Answers contain informal staff guidance for agency personnel, financial 
    institutions, and the public. Staff of the agencies seek comment on the 
    proposed questions and answers concerning how to determine whether 
    particular activities have a ``primary purpose'' of community 
    development. In addition, staff also invite public comment on the new 
    and revised questions and answers, particularly the guidance regarding 
    home mortgage loans to middle- and upper-income individuals in low- or 
    moderate-income areas.
    
    DATES: Effective date of amended Interagency Questions and Answers on 
    Community Reinvestment: October 6, 1997. The agencies request that 
    comments on the proposed questions and answers be submitted on or 
    before December 5, 1997.
    
    ADDRESSES: Questions and comments may be sent to Joe M. Cleaver, 
    Executive Secretary, Federal Financial Institutions Examination 
    Council, 2100 Pennsylvania Avenue NW., Suite 200, Washington, DC 20037, 
    or by facsimile transmission to (202) 634-6556.
    
    FOR FURTHER INFORMATION CONTACT:
    
        OCC: Malloy Harris, National Bank Examiner, Community and Consumer 
    Policy Division, (202) 874-4446; or Margaret Hesse, Senior Attorney, 
    Community and Consumer Law Division, (202) 874-5750, Office of the 
    Comptroller of the Currency, 250 E Street, SW., Washington, DC 20219.
        Board: Glenn E. Loney, Associate Director, Division of Consumer and 
    Community Affairs, (202) 452-3585; or Robert deV. Frierson, Assistant 
    General Counsel, Legal Division, (202) 452-3711, Board of Governors of 
    the Federal Reserve System, 20th Street and Constitution Avenue, NW., 
    Washington, DC 20551.
        FDIC: Bobbie Jean Norris, National Coordinator, Community Affairs 
    and Community Reinvestment, Division of Compliance and Consumer 
    Affairs, (202) 942-3090; or Ann Hume Loikow, Counsel, Legal Division, 
    (202) 898-3796, Federal Deposit Insurance Corporation, 550 17th Street, 
    NW., Washington, DC 20429.
        OTS: Theresa A. Stark, Project Manager, Compliance Policy, (202) 
    906-7054; or Richard R. Riese, Project Manager, Compliance Policy, 
    (202) 906-
    
    [[Page 52106]]
    
    6134, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 
    20552.
    
    SUPPLEMENTARY INFORMATION:
    
    Background
    
        In 1995, the agencies revised their Community Reinvestment Act 
    (CRA) regulations by issuing a joint final rule, which was published on 
    May 4, 1995 (60 FR 22156). See 12 CFR parts 25, 228, 345 and 563e, 
    implementing 12 U.S.C. 2901 et seq. The agencies published two notices 
    of proposed rulemaking prior to publishing the joint final rule. See 58 
    FR 67466 (Dec. 21, 1993); 59 FR 51232 (Oct. 7, 1994). The agencies 
    published related clarifying documents on December 20, 1995 (60 FR 
    66048) and May 10, 1996 (61 FR 21362).
        On October 21, 1996, the Consumer Compliance Task Force of the 
    FFIEC published ``Interagency Questions and Answers Regarding Community 
    Reinvestment'' (hereinafter, Interagency Questions and Answers) to 
    provide informal staff guidance for use by agency personnel, financial 
    institutions, and the public. See 61 FR 54647. In the supplementary 
    information published with the Interagency Questions and Answers, the 
    agencies' staff requested comments and indicated that they intended to 
    update the Interagency Questions and Answers on a periodic basis. 61 FR 
    at 54648. This document supplements, revises, and republishes that 
    guidance based, in part, on questions and comments received from 
    examiners, financial institutions, and other interested parties. The 
    agencies consider the Interagency Questions and Answers to be their 
    primary vehicle for disseminating guidance interpreting their CRA 
    regulations.
        This document includes new questions and answers that: (1) Clarify 
    that not all activities that finance businesses meeting certain size 
    eligibility standards necessarily promote economic development under 
    the CRA regulations; (2) make a technical correction to one of the 
    questions and answers published in the original Interagency Questions 
    and Answers; (3) explain how the Agencies' examiners evaluate home 
    mortgage loans to middle- and upper-income borrowers in low- and 
    moderate-income areas under the CRA regulations' lending test; (4) 
    explain how a financial institution should geocode a small business or 
    small farm loan where the borrower provides only a post office box or 
    rural route and box number; and (5) caution that the Agencies' 
    quarterly publication of a list of financial institutions that will be 
    examined for CRA compliance is subject to change. Finally, this 
    document especially seeks comment on the proposed questions and answers 
    concerning how to determine whether particular activities have a 
    ``primary purpose'' of community development, and also invites public 
    comment on the new and revised questions and answers.
        A discussion of the revised and new questions and answers follows. 
    Questions and answers are grouped by the provision of the CRA 
    regulations that they discuss and are presented in the same order as 
    the regulatory provisions. The Interagency Questions and Answers employ 
    an abbreviated method to cite to the regulations. Because the 
    regulations of the four agencies are substantively identical, 
    corresponding sections of the different regulations usually bear the 
    same suffix. Therefore, the Interagency Questions and Answers typically 
    cite only to the suffix. For example, the small bank performance 
    standards for national banks appear at 12 CFR 25.26; for Federal 
    Reserve member banks supervised by the Board, they appear at 12 CFR 
    228.26; for nonmember banks, at 12 CFR 345.26; and for thrifts, at 12 
    CFR 563e.26. Accordingly, the citation in this document would be to 
    Sec. ----.26. In the few instances in which the suffix in one of the 
    regulations is different, the specific citation for that regulation is 
    provided.
    
    Do All Activities That Finance Businesses Meeting Certain Size 
    Eligibility Standards Promote Economic Development?
    
        The CRA Regulations define the term ``community development'' to 
    include ``activities that promote economic development by financing 
    businesses or farms that meet the size eligibility standards of the 
    Small Business Administration's Development Company or Small Business 
    Investment Company programs (13 CFR 121.301) or have gross annual 
    revenues of $1 million or less.'' 12 CFR 25.12(h)(3), 228.12(h)(3), 
    345.12(h)(3) and 563e.12(g)(3).
        The October 1996 Interagency Questions and Answers included a 
    question and answer concerning whether all activities that finance 
    these businesses or farms promote economic development. That question 
    and answer (Q&A), Q&A1 addressing Secs. __.12(h)(3) and 563e.12(g)(3), 
    is being revised in response to further questions and public comments. 
    The revised question and answer clarifies that to be considered as 
    ``community development'' under Secs. __.12(h)(3) and 563e.12(g)(3), a 
    loan, investment or service, whether made directly or through an 
    intermediary, must meet both a size test and a purpose test. An 
    activity meets the size requirement if it finances entities that 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 purpose test, the activity must promote 
    economic development. An activity is considered to promote economic 
    development if it 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 in low- 
    or moderate-income geographies targeted for redevelopment by Federal, 
    state, local or tribal governments. The agencies will presume that any 
    loan or investment in or to a SBDC or SBIC promotes economic 
    development. Funding provided in connection with other SBA programs may 
    also promote economic development; however, examiners will make that 
    determination based on business types, funding purposes, and other 
    relevant information.
    
    Where Do Institutions Find Income Level Data
    
        In the October 1996 Interagency Questions and Answers, Q&A1 
    addressing Secs. __.12(n) and 563e.12(m) contained an incorrect address 
    for the FFIEC's internet home page. That question and answer has been 
    revised to include the correct address: `http://www.ffiec.gov/'.
    
    Home Mortgage Loans to Middle- and Upper-Income Borrowers in Low- 
    and Moderate-Income Areas
    
        Several community development organizations have notified the 
    agencies of their belief that the CRA regulations do not sufficiently 
    recognize the efforts of financial institutions that make home mortgage 
    loans to middle- or upper-income borrowers in low- or moderate-income 
    areas. These community organizations have suggested to agency staff 
    that lower-income geographies should be developed into mixed-income 
    geographies, inhabited with residents of all income categories.
        For example, one community organization described problems that its 
    community encountered in redeveloping an inner city area by providing 
    single family housing affordable to low- and moderate-income borrowers 
    and other necessary services. Although affordable housing was provided, 
    the community had difficulty attracting retail services. A commercial 
    developer considered building a
    
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    shopping center near a new, affordable housing development, but 
    determined that the center would not be profitable because of the lower 
    level of disposable income of many of the low- and moderate-income 
    homeowners. Consequently, the community organization representative 
    stressed how important it is for future development that distressed 
    areas being revitalized attract residents of all income levels.
        The Agencies previously considered the appropriate weight that 
    should be accorded lending in low- and moderate-income areas to higher-
    income borrowers. During the CRA reform rulemaking process, however, 
    the agencies received public comment opposed to a proposal that would 
    have evaluated an institution's lending primarily based on its lending 
    activities in low- and moderate-income geographies. See, e.g., 58 FR 
    67,466, 67,480 (December 21, 1993). Those commenters opposed the 
    proposal, stating that it would inappropriately have given institutions 
    a greater incentive to make loans to high-income borrowers located in 
    low-income geographies than to make loans to low-income borrowers 
    located in high-income geographies. In response to these comments, the 
    final interagency CRA regulations de-emphasized the location of the 
    loans under the lending test by also evaluating lending based on 
    borrower characteristics, i.e., income.
        Because of the numerous inquiries the agencies have received since 
    the final rules were issued, agency staff are adding new guidance 
    addressing Sec. __.22(b)(2) & (3), answering how home mortgage loans to 
    borrowers of all incomes, but especially to middle- and upper-income 
    borrowers, located in low- or moderate-income areas will be evaluated 
    under the CRA regulations' lending test.
        The new question and answer explains that examiners consider all 
    home mortgage loans under the performance criteria of the lending test. 
    This means that examiners first evaluate the institution's lending 
    activity based on the number and amount of home mortgage loans in the 
    institution's assessment area(s). Examiners next evaluate the 
    geographic distribution of all of the institution's home mortgage loans 
    based on the loan location, including (1) the portion of the 
    institution's lending in the institution's assessment area(s); (2) the 
    dispersion of lending in the institution's assessment area(s); and (3) 
    the number and amount of loans in low-, moderate-, middle-, and upper-
    income geographies in the institution's assessment area(s). Finally, 
    examiners evaluate these loans based on borrower characteristics, i.e., 
    the number and amount of home mortgage loans to low-, moderate-, 
    middle-, and upper-income individuals.
        The regulation, however, allows examiners flexibility in judging 
    the appropriate consideration of loans to middle- or upper-income 
    individuals in low- or moderate-income areas. The new question and 
    answer explains that all of the lending test criteria must be 
    considered in light of an institution's performance context. The 
    performance context will determine the importance of the borrower 
    distribution criterion, particularly as it relates to the geographic 
    distribution of the loans. If the performance context information 
    indicates, for example, that the loans are for homes 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, the examiner 
    has the flexibility to consider these loans as favorably as loans to 
    low- or moderate-income borrowers in the low- or moderate-income 
    geography. 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. Thus, the performance context may significantly influence 
    how these loans affect an institution's performance.
    
    Geocoding Addresses Consisting of Post Office Boxes or Rural Routes 
    and Box Numbers
    
        Staff from the agencies previously provided guidance about how to 
    geocode (i.e., assign a census tract or block numbering area for) small 
    business or small farm loans for which the borrower provides an address 
    consisting of either a post office box number or a rural route and box 
    number. See Interagency Staff CRA Interpretive Letter, published as OCC 
    Interpretive Letter No. 729, (1995-1996 Transfer Binder) Fed. Banking 
    L. Rep. (CCH), para. 81-046 (June 14, 1996). In this letter, staff 
    indicated that, if an institution could not obtain from its small 
    business or small farm borrower a street address in addition to a rural 
    route and box number or post office box number, the institution could 
    collect and report the location of the loan based on the town, state, 
    and zip code provided by the borrower. The location of the borrower's 
    post office would serve as a proxy for the location of the small 
    business or farm.
        Staff have reconsidered this guidance and are now providing a 
    question and answer based on Sec. __.42(a)(3) addressing this issue. 
    The revised guidance states that, for purposes of 1997 data collection 
    and reporting, financial institutions may rely on the guidance provided 
    in the interpretive letter if a small business or small farm borrower 
    provides only a rural route and box number or a post office box number 
    as its address. Thus, for 1997, institutions may collect and report the 
    location of small business or small farm loans for which the 
    institution has been unable to ascertain a street address, using the 
    location (i.e., the census tract or block numbering area) of the 
    borrower's post office box as a proxy.
        Because financial institutions typically know where their small 
    business or small farm borrowers, or the collateral securing their 
    loans, are located, staff have provided new instructions for 1998 data 
    collection and reporting purposes. Beginning in 1998, financial 
    institutions should request the street address of small business and 
    small farm borrowers, even if the borrower initially provides only a 
    post office box number or rural route and box number. If no street 
    address exists, institutions should not use the post office box as a 
    proxy, but instead geocode the census tract or block numbering area as 
    ``NA.''
    
    Is Publication of the List of Institutions to be Examined in the 
    Upcoming Quarter Determinative of Whether an Institution Will, in 
    Fact, be Examined in the Upcoming Quarter
    
        Agency staff have added a new question and answer addressing 
    Sec. __.45 relating to the publication of the institutions to be 
    examined in the upcoming quarter. The question and answer clarifies 
    that whether or not an institution is included on the published list 
    will not always indicate that the institution will or will not be 
    examined in the upcoming quarter. Although the agencies will attempt to 
    ensure that the published lists are as accurate as possible, the 
    agencies sometimes may need to alter their examination plans.
    
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        Because of the potential for such adjustments, staff urge all 
    interested members of the public to file comments regarding the CRA 
    performance of an institution whether or not the institution has been 
    scheduled for a CRA examination.
    
    Request for Comment and Proposed Questions and Answers on Community 
    Development Explaining the ``Primary Purpose'' for Community 
    Development Activities
    
        The definitions of ``community development loan,'' ``community 
    development service,'' and ``qualified investment'' all require a 
    ``primary purpose of community development.'' See 12 CFR 25.12(i)(1), 
    (j)(1), and (s); 228.12(i)(1), (j)(1), and (s); 345.12(i)(1), (j)(1), 
    and (s); and 563e.12(h)(1), (i)(1), and (r). The agencies have received 
    a number of inquiries about whether certain activities have the 
    necessary ``primary purpose'' of community development to qualify as a 
    community development loan, qualified investment or community 
    development service. Some inquiries come from persons interested in 
    creating new community development vehicles. These inquiries typically 
    ask what minimum characteristics should be designed into a targeted 
    loan, investment or service to possess the necessary primary purpose. 
    In answering these questions, the agencies have generally stated that a 
    ``primary purpose'' of community development exists when the loan, 
    investment or service is divisible and measurable in terms of dollars, 
    housing units built, or countable individuals benefited, and when an 
    identifiable majority of the dollars expended, units built or 
    individuals benefited is clearly attributable to one of the community 
    development purposes enumerated in the regulation.
        However, this answer does not address other inquiries concerning 
    activities that are subject to certain legal or market restraints, such 
    that they do not reach this threshold, yet often display laudable 
    community development purposes and result in real, long-term community 
    development benefits. In addition, many of the projects occur within a 
    performance context that buttresses a conclusion that the activity was 
    ``designed for the express purpose'' of achieving a qualifying 
    community development purpose, even though less than half the dollars 
    involved in the entire project have been concentrated on that purpose. 
    Federal tax-incentive affordable housing projects, where less than half 
    the units or half the dollars go into the portion of the project that 
    represents affordable housing for low- or moderate-income persons, fall 
    into this category.
        A number of other inquiries are characterized by a range of facts 
    and contexts. Given this variety, the agencies recognize that many 
    types of endeavors have been devised to address an array of community 
    development pursuits. In addition, the agencies have observed that 
    within the broad range of qualifying activities, distinctions can and 
    should be made among those activities. Accordingly, in publishing 
    proposed guidance on ``primary purpose,'' the agencies are also 
    providing additional commentary that emphasizes the quantitative and 
    qualitative distinctions that should be made when applying the 
    performance criteria of the pertinent regulatory tests to evaluate 
    eligible community development loans, qualified investments or 
    community development services.
        Proposed Q&A7 addressing Secs. __.12(i) and 563e.12(h) is based on 
    the preamble to the final rule as set forth at 60 FR 22,156, 22,159 
    (May 4, 1995), which states that activities not designed for the 
    express purpose of community development (as defined in the regulation) 
    are not eligible for consideration as community development loans or 
    services or qualified investments. The preamble further states that the 
    provision of indirect or short-term benefits to low- or moderate-income 
    persons does not make an activity community development. In addition to 
    incorporating this preamble language into the Interagency Questions and 
    Answers, the answer identifies the kind of information that would be 
    reviewed to determine whether an activity was designed for the express 
    purpose of community development. The answer adopts a simplified 
    threshold rule and an alternative approach for finding sufficient bases 
    to conclude that an activity possesses the requisite primary purpose.
        Agency staff are also proposing additional questions and answers 
    that provide relevant guidance on the evaluation of activities whose 
    primary purpose is community development, as well as the reporting of 
    community development loans. This additional guidance emphasizes that 
    once a loan or investment is found to possess a primary purpose of 
    community development, the evaluation of that community development 
    loan or qualified investment under the relevant performance criteria 
    would allow for differentiation among those activities based not only 
    on the differing dollar amounts attributable to the underlying 
    community development purpose, but also on the loan's innovation or 
    complexity under Sec. __.22(b)(4) or the investment's innovation, 
    complexity, responsiveness or non-routine characteristics under 
    Sec. __.23(e). In addition, proposed Q&A3 addressing Sec. __.42(b)(2) 
    discusses whether a loan may be reported as a community development 
    loan if its primary purpose is to finance an affordable housing project 
    for low- or moderate-income individuals, but only 40% of the units in 
    question will actually be occupied by individuals or families with low- 
    or moderate-incomes.
        Staff request public comment particularly addressing whether the 
    proposed primary purpose standard over-inclusively qualifies activities 
    as having a community development purpose, and, if so, is this 
    adequately balanced by the regulatory requirements that allow marginal 
    activities to be weighted less heavily than those activities that 
    provide a greater benefit related to the community development purpose 
    or demonstrate other performance criteria, such as innovation, 
    complexity, or responsiveness. Staff also invite comment about whether 
    the proposed guidance may result in excluding, as not having a primary 
    purpose of community development, deserving endeavors.
    
    Sections __.12(i) & 563e.12(h)
    
    Proposed Q7
        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?
    Proposed 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, 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 
    Secs. __.12(h) 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
    
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    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.
    
    Section __.22(b)(4)
    
    Proposed Q1
        When evaluating an institution's record of community development 
    lending, may an examiner distinguish among community development loans 
    on the basis of the actual amount of the loan that advances the 
    community development purpose?
    Proposed A1
        Yes. When evaluating the institution's record of community 
    development lending under 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% of its units for low-
    income residents and the other project allocates 65% of its units for 
    low-income residents. An institution would report both loans as $10 
    million community development loans under the Sec. __.42(b)(2) 
    aggregate reporting obligation. However, transaction complexity, 
    innovation and all other relevant considerations being equal, the 65% 
    project would receive greater positive consideration under the lending 
    test than the 40% project. The 65% project provides more affordable 
    housing for more people per dollar expended.
        Under Sec. __.22(b)(4), the amount 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 performance criteria, a community 
    development loan of a lower dollar amount could receive more favorable 
    consideration under the lending test than a community development loan 
    with a higher dollar amount, but with less innovation, complexity, or 
    impact on the community.
    
    Section __.23(e)
    
    Proposed Q1
        When applying the performance criteria of Sec. __.23(e), may an 
    examiner distinguish among qualified investments based on how much of 
    the investment actually supports the underlying community development 
    purpose?
    Proposed A1
        Yes. Although Sec. __.23(e)(1) speaks in terms of the dollar amount 
    of qualified investments, the criterion permits an examiner to weight 
    certain investments differently or to make other appropriate 
    distinctions when evaluating an institution's record of making 
    qualified investments. For instance, a targeted mortgage-backed 
    security that qualifies as an affordable housing issue that has only 
    60% of its face value supported by loans to low-or moderate-income 
    borrowers generally would not be weighted as heavily under 
    Sec. __.23(e)(1) as a targeted mortgage-backed security with 100% 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 Evaluation. 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 performance criteria set forth in Sec. __.23(e) 
    (2), (3) and (4) . By applying all criteria, a qualified investment of 
    a lower dollar amount could receive more favorable consideration under 
    the Investment Test than a qualified investment with a higher dollar 
    amount, but with fewer qualitative enhancements.
    
    Section__.42(b)(2)
    
    Proposed Q3
        When the primary purpose of a loan is to finance an affordable 
    housing project for low-or moderate-income individuals, but only 40% 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?
    Proposed 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.
    
    General Comments
    
        In addition to the specific request for comments on the proposed 
    ``primary purpose'' questions and answers, staff invite public comment 
    on the new and revised questions and answers, particularly the guidance 
    regarding home mortgage loans to middle-and upper-income individuals in 
    low-or moderate-income areas. Staff also invite public comment on a 
    continuing basis on any issues raised by the CRA and these Interagency 
    Questions and Answers. Staff of the agencies intend to continue to 
    update the Interagency Questions and Answers periodically. If, after 
    reading the Interagency Questions and Answers, financial institutions, 
    examiners, community groups, or other interested parties have 
    unanswered questions or comments about the agencies' community 
    reinvestment regulations, they should submit them to the agencies. 
    Staff will consider including questions received from the public in 
    future guidance.
    
    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 
    agencies certified that their proposed CRA rule would not have a 
    significant economic impact on a substantial number of small entities 
    and invited public comments on that determination. See 58 FR 67478 
    (Dec. 21, 1993); 59 FR 51250 (Oct. 7, 1994). In response to public 
    comment, the agencies voluntarily prepared a final regulatory 
    flexibility analysis for the joint final rule, although the analysis 
    was not required because it supported
    
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    the agencies' earlier certification regarding the proposed rule. 
    Because a regulatory flexibility analysis was not required, section 212 
    of the SBREFA does not apply to the final CRA rule. However, in their 
    continuing efforts to provide clear, understandable regulations and to 
    comply with 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 banks and thrifts. The text of the Interagency 
    Questions and Answers follows:
    
    Text of the Interagency Questions and Answers
    
    Interagency Questions and Answers Regarding Community Reinvestment
    
    Table of Contents
        The agencies are providing answers to questions pertaining to 
    the following provisions and topics of the CRA regulations:
    
    Sec. __.11  Authority, purposes, and scope
    Sec. __.11(c)  Scope
        Secs. 25.11(c)(3), 228.11(c)(3) & 345.11(c)(3)  Certain special 
    purpose banks
    Sec. __.12  Definitions
    Sec. __.12(a)  Affiliate
    Secs. __.12(f) & 563e.12(e)  Branch
    Secs. __.12(h) & 563e.12(g)  Community development
        Sec. __.12(h)(3) & 563e.12(g)(3)  Activities that promote 
    economic development by financing businesses or farms that meet 
    certain size eligibility standards
    Secs. __.12(i) & 563e.12(h)  Community development loan
    Secs. __.12(j) & 563e.12(i)  Community development service
    Secs. __.12(k) & 563e.12(j)  Consumer loan
    Secs. __.12(m) & 563e.12(l)  Home mortgage loan
    Secs. __.12(n) & 563e.12(m)  Income level
    Secs. __.12(o) & 563e.12(n)  Limited purpose institution
    Secs. __.12(s) & 563e.12(r)  Qualified investment
    __.12(t)  Small institution
    Sec. __.12(u)  Small business loan
    Sec. __.12(w)  Wholesale institution
    Sec. __.21  Performance tests, standards, and ratings, in general
    Sec. __.21(a)  Performance tests and standards
    Sec. __.21(b)  Performance context
        Sec. __.21(b)(2)  Information maintained by the institution or 
    obtained from community contacts
        Sec. __.21(b)(4)  Institutional capacity and constraints
        Sec. __.21(b)(5)  Institution's past performance and the 
    performance of similarly situated lenders
    Sec. __.22  Lending  test
    Sec. __.22(a)  Scope of test
        Sec. __.22(a)(1)  Types of loans considered
        Sec. __.22(a)(2)  Other loan data
    Sec. __.22(b)  Performance criteria
        Sec. __.22(b)(1)  Lending activity
        Sec. __.22(b)(2) & (3)  Geographic distribution and borrower 
    characteristics
    Sec. __.22(c)  Affiliate lending
        Sec. __.22(c)(1)  In general
        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)(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(d)  Lending by a consortium or a third party
    Sec. __.23  Investment  test
    Sec. __.23(b)  Exclusion
    Sec. __.24  Service  test
    Sec. __.24(d)  Performance criteria--retail banking services
        Sec. __.24(d)(3)  Availability and effectiveness of alternative 
    systems for delivering retail banking services
    Sec. __.25  Community development test for wholesale or limited 
    purpose institutions
    Sec. __.25(d)  Indirect activities
    Sec. __.25(f)  Community development performance rating
    Sec. __.26  Small institution performance standards
    Sec. __.26(a)  Performance criteria
        Sec. __.26(a)(1)  Loan-to-deposit ratio
        Sec. __.26(a)(2)  Percentage of lending within assessment 
    area(s)
        Sec. __.26(a)(3) and (4)  Distribution of lending within 
    assessment area(s) by borrower income and geographic location
    Sec. __.26(b)  Performance rating
    Sec. __.27--Strategic plan
    Sec. __.27(c)  Plans in general
    Sec. __.27(f)  Plan content
        Sec. __.27(f)(1)  Measurable goals
    Sec. __.27(g)  Plan approval
        Sec. __.27(g)(2)  Public participation
    Sec. __.28--Assigned ratings
    Sec. __.28(a)  Ratings in general
    Sec. __.29--Effect of CRA performance on applications
    Sec. __.29(a)  CRA performance
    Sec. __.29(b)  Interested parties
    Sec. __.41--Assessment area delineation
    Sec. __.41(a)  In general
    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 one 
    or more contiguous political subdivisions
    Sec. __.41(d)  Adjustments to geographic area(s)
    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)(4)  May not extend substantially beyond a CMSA 
    boundary or beyond a state boundary unless located in a multistate 
    MSA
    Sec. __.42--Data collection, reporting, and disclosure
    Sec. __.42(a)  Loan information required to be collected and 
    maintained
        Sec. __.42(a)(2)  Loan amount at origination
        Sec. __.42(a)(3)  The loan location
        Sec. __.42(a)(4)  Indicator of gross annual revenue
    Sec. __.42(b)  Loan information required to be reported
        Sec. __.42(b)(1)  Small business and small farm loan data
        Sec. __.42(b)(2)  Community development loan data
        Sec. __.42(b)(3)  Home mortgage loans
    Sec. __.42(c)  Optional data collection and maintenance
        Sec. __.42(c)(1)  Consumer loans
        Sec. __.42(c)(1)(iv)  Income of borrower
        Sec. __.42(c)(2)  Other loan data
    Sec. __.42(d)  Data on affiliate lending
    Sec. __.43--Content and availability of public file
    Sec. __.43(a)  Information available to the public
        Sec. __.43(a)(1)  Public comments
    Sec. __.43(b)  Additional information available to the public
        Sec. __.43(b)(1)  Institutions other than small institutions
    Sec. __.43(c)  Location of public information
    Sec. __.44--Public notice by institutions
    Sec. __.45--Publication of planned examination schedule
    APPENDIX B to Part__CRA Notice
        The body of the Interagency Questions and Answers Regarding 
    Community Reinvestment follows:
    
    Section __ .11--Authority, purposes, and scope
    
    Section __ .11(c) Scope
    Section 25.11(c)(3), 228.11(c)(3) & 345.11(c)(3)  Certain Special 
    Purpose Banks
        Q1. Is the list of special purpose banks exclusive?
        A1. No, there may be other examples of special purpose banks. These 
    banks engage in specialized activities that do not involve granting 
    credit to the public in the ordinary course of business. Special 
    purpose banks 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 bank merely by ceasing to 
    make loans and, instead, making investments and providing other retail 
    banking services.
        Q2. To be a special purpose bank, must a bank limit its activities 
    in its charter?
        A2. No. A special purpose bank may, but is not required to, limit 
    the scope of its activities in its charter, articles of association or 
    other corporate organizational documents. A bank that
    
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    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. A bank that believes it is exempt from CRA 
    as a special purpose bank should seek confirmation of this status from 
    its supervisory agency.
    
    Section __ .12--Definitions
    
    Section __ .12(a)  Affiliate
        Q1. 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.
    Sections __ .12(f) & 563e.12(e) Branch
        Q1. 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'' and mobile ATMs and RSFs are considered 
    ``ATMs'' and ``RSFs.''
        Q2. 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.
    Sections __.12(h) & 563e.12(g)  Community Development
        Q1. 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 revitalize or 
    stabilize low- or moderate-income areas.
        Q2. Must a community development activity occur inside a low- or 
    moderate-income area 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 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 (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.
        Q3. 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.
    Sections __.12(h)(3) & 563e.12(g)(3)  Activities That Promote Economic 
    Development by Financing Businesses or Farms That Meet Certain Size 
    Eligibility Standards
        Q1. ``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 ``community development'' under 
    Secs. ----.12(h)(3) and 563e.12(g)(3), a loan, investment or service, 
    whether made directly or through an intermediary, must meet both a size 
    test and a purpose test. An activity meets the size requirement if it 
    finances entities that 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 purpose test, the activity 
    must promote economic development. An activity is considered to promote 
    economic development if it 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 in low- or moderate-income geographies targeted for 
    redevelopment by Federal, state, local or tribal governments. The 
    agencies will presume that any loan or investment in or to a SBDC or 
    SBIC promotes economic development.
    Sections __.12(i) & 563e.12(h)  Community Development Loan
        Q1. What are examples of community development loans?
        A1. Examples of community development loans include, but are not 
    limited to, loans to:
         Borrowers for affordable housing rehabilitation and 
    construction, including construction and permanent financing of 
    multifamily rental property serving low- and moderate-income persons;
         Not-for-profit organizations serving primarily low- and 
    moderate-income housing or other community development needs;
         Borrowers to construct or rehabilitate community 
    facilities that are located in low- and moderate-income areas or that 
    serve primarily low- and moderate-income individuals;
         Financial intermediaries including Community Development 
    Financial Institutions (CDFIs), 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.
         Local, state, and tribal governments for community 
    development activities; and
    
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         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.
        Q2. 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 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. 
    Multifamily dwelling loans, however, may be considered as community 
    development loans as well as home mortgage loans. See also Q&A2 
    addressing Sec. __.42(b)(2).
        Q3. 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.''
        Q4. 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?
        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 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 area (or a nearby area), that employs or serves residents of 
    the area, and thus stabilizes the area, may be considered to have a 
    community development purpose. For example, in an underserved, 
    distressed area, a loan for a pharmacy that employs, and provides 
    supplies to, residents of the area promotes community development.
        Q5. 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, for example, recognize that community 
    development organizations and programs are frequently efficient and 
    effective ways for institutions to promote community development. These 
    organizations and programs often operate on a statewide or even multi-
    state 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 need not receive an immediate or direct 
    benefit from the institution's specific participation in the broader 
    organization or activity, provided the purpose, mandate, or function of 
    the organization or activity includes serving geographies or 
    individuals located within the institution's assessment area. 
    Furthermore, the regulations permit a wholesale or limited purpose 
    institution to consider community development loans, community 
    development services, and qualified investments wherever they are 
    located, as long as the institution has otherwise adequately addressed 
    the credit needs within its assessment area(s).
        Q6. What is meant by a ``regional area'' in the requirement that a 
    community development loan must benefit the institution's assessment 
    area(s) or a broader statewide or regional area that includes the 
    institution's assessment area(s)?
        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. When examiners evaluate community 
    development loans that benefit a regional area that includes the 
    institution's assessment area, however, the examiners will consider the 
    size of the regional area and the actual or potential benefit to the 
    institution's assessment area(s). In most cases, the larger the 
    regional area, the more diffuse the benefit will be to the 
    institution's assessment area(s). Examiners may view loans with more 
    direct benefits to an institution's assessment area(s) as more 
    responsive to the credit needs of the area(s) than loans for which the 
    actual benefit to the assessment area(s) is uncertain or for which the 
    benefit is diffused throughout a larger area that includes the 
    assessment area(s).
    Sections__.12(j) & 563e.12(i)  Community Development Service
        Q1. 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 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.
        Q2. 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
    
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    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.
        Q3. What are examples of community development services?
        A3. Examples of community development services include, but are not 
    limited to, the following:
         Providing technical assistance on financial matters to 
    nonprofit, tribal or government organizations serving low- and 
    moderate-income housing or economic revitalization and development 
    needs;
         Providing technical assistance on financial matters to 
    small businesses or community development organizations;
         Lending employees to provide financial services for 
    organizations facilitating affordable housing construction and 
    rehabilitation or development of affordable housing;
         Providing credit counseling, home buyers and home 
    maintenance counseling, financial planning or other financial services 
    education to promote community development and affordable housing;
         Establishing school savings programs for low- or moderate-
    income individuals;
         Providing electronic benefits transfer and point of sale 
    terminal systems to improve access to financial services, such as by 
    decreasing costs, for low- or moderate-income individuals; and
         Providing other financial services with the primary 
    purpose of community development, such as low-cost bank accounts or 
    free government check cashing that increases access to financial 
    services for low- or moderate-income individuals.
        Examples of technical assistance activities that might be provided 
    to community development organizations include:
         Serving on a loan review committee;
         Developing loan application and underwriting standards;
         Developing loan processing systems;
         Developing secondary market vehicles or programs;
         Assisting in marketing financial services, including 
    development of advertising and promotions, publications, workshops and 
    conferences;
         Furnishing financial services training for staff and 
    management;
         Contributing accounting/bookkeeping services; and
         Assisting in fund raising, including soliciting or 
    arranging investments.
    Sections__.12(k) & 563e.12(j)  Consumer Loan
        Q1. 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.
        Q2. 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.
        Q3. 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.
    Sections__.12(m) & 563e.12(l)  Home Mortgage Loan
        Q1. 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,'' as both terms are defined 
    in the HMDA regulation, Regulation C, 12 CFR part 203. This definition 
    also includes multifamily (five-or-more families) dwelling loans, loans 
    for the purchase of manufactured homes, and refinancings of home 
    improvement and home purchase loans.
        Q2. 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 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.
    Sections __.12(n) & 563e.12(m)  Income Level
        Q1. 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
    
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    Census Bureau information and are updated 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 may obtain a list of the 1990 Census 
    Bureau-calculated and the annually updated HUD median family incomes 
    for metropolitan statistical areas (MSAs) and statewide nonmetropolitan 
    areas by calling the Federal Financial Institution Examination 
    Council's (FFIEC's) HMDA Help Line at (202) 452-2016. 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/'.
    Sections__.12(o) & 563e.12(n) Limited Purpose Institution
        Q1. 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.
        Q2. What factors will the agencies consider to determine whether an 
    institution that, if limited purpose, makes loans outside a narrow 
    product line, or, if wholesale, engages in retail lending, will lose 
    its limited purpose or wholesale designation because of too much other 
    lending?
        A2. Wholesale institutions may engage in some retail lending 
    without losing their designation if this activity is incidental and 
    done on an accommodation basis. Similarly, limited purpose institutions 
    continue to meet the narrow product line requirement if they provide 
    other types of loans on an infrequent basis. In reviewing other lending 
    activities by these institutions, the agencies will consider the 
    following factors:
         Is the other lending provided as an incident to the 
    institution's wholesale lending?
         Are the loans provided as an accommodation to the 
    institution's wholesale customers?
         Are the loans made only infrequently to the limited 
    purpose institution's customers?
         Does only an insignificant portion of the institution's 
    total assets and income result from the other lending?
         How significant a role does the institution play in 
    providing that type(s) of loan(s) in the institution's assessment 
    area(s)?
         Does the institution hold itself out as offering that 
    type(s) of loan(s)?
         Does the lending test or the community development test 
    present a more accurate picture of the institution's CRA performance?
        Q3. 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.
    Sections__.12(s) & 563e.12(r)  Qualified Investment
        Q1. Does the CRA regulation provide 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.
        Q2. 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. Housing-related bonds or 
    securities must primarily address affordable housing (including 
    multifamily rental housing) needs in order to qualify.
        Q3. Are Federal Home Loan Bank stocks and membership reserves with 
    the Federal Reserve Banks ``qualified investments''?
        A3. No. Federal Home Loan Bank stock and membership reserves with 
    the Federal Reserve Banks do not have a sufficient connection to 
    community development to be qualified investments.
        Q4. What are examples of qualified investments? 
        A4. Examples of qualified investments include, but are not limited 
    to, investments, grants, deposits or shares in or to:
         Financial intermediaries (including, Community Development 
    Financial Institutions (CDFIs), 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;
         Organizations engaged in affordable housing rehabilitation 
    and construction, including multifamily rental housing;
         Organizations, including, for example, Small Business 
    Investment Companies (SBICs) and specialized SBICs, that promote 
    economic development by financing small businesses;
         Facilities that promote community development in low- and 
    moderate-income areas for low- and moderate-income individuals, such as 
    youth programs, homeless centers, soup kitchens, health care 
    facilities, battered women's centers, and alcohol and drug recovery 
    centers;
         Projects eligible for low-income housing tax credits;
         State and municipal obligations, such as revenue bonds, 
    that specifically
    
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    support affordable housing or other community development;
         Not-for-profit organizations serving low- and moderate-
    income housing or other community development needs, such as counseling 
    for credit, home-ownership, home maintenance, and other financial 
    services education; and
         Organizations supporting activities essential to the 
    capacity of low- and moderate-income individuals or geographies to 
    utilize credit or to sustain economic development, such as, for 
    example, day care operations and job training programs that enable 
    people to work.
        Q5. 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.
        Q6. 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 innovativeness and 
    complexity of the community development loan within the bounds of safe 
    and sound banking practices.
        Q7. 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 a community development service.
    Section__.12(t)  Small institution
        Q1. 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 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.
        Q2. How are Federal and State branch assets of a foreign bank 
    calculated for purposes of the CRA?
        A2. A Federal or State branch of a foreign bank is considered a 
    small institution if the Federal or State branch has less than $250 
    million in assets 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)).
    Section__.12(u)  Small business loan
        Q1. 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 Reports'' (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.
        Q2. 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 $1 million.
        Q3. Are loans secured by nonfarm residential real estate to finance 
    small businesses ``small business loans''?
        A3. No. Loans secured by nonfarm residential real estate that are 
    used to finance small businesses are not included as ``small business'' 
    loans for Call Report and TFR purposes. The agencies recognize that 
    many small businesses are financed by loans 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.''
        Q4. 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.
    Section__.12(w)  Wholesale Institution
        Q1. What factors will the agencies consider in determining whether 
    an institution is in the business of extending home mortgage, small 
    business, small farm, or consumer loans to retail customers?
        A1. The agencies will consider whether:
         The institution holds itself out to the retail public as 
    providing such loans; and
         The institution's revenues from extending such loans are 
    significant when compared to its overall operations.
        A wholesale institution may make some retail loans without losing 
    its wholesale designation as described above in Q&A2 addressing 
    Secs. __.12(o) and 563e.12(n).
    
    Section__.21--Performance  tests, Standards, and Ratings, in General
    
    Section__.21(a)  Performance Tests and Standards
        Q1. 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 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
    
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    catalyst for other community development activities. The criteria are 
    designed to add a qualitative element to the evaluation of an 
    institution's performance.
    Section__.21(b)  Performance Context
        Q1. Is 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 of this information prior to the examination. The 
    performance context is not a formal or written assessment of community 
    credit needs.
    Section__.21(b)(2)  Information Maintained by the Institution or 
    Obtained From Community Contacts
        Q1. 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 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.
        Q2. 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 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 share 
    community contact information.
    Section__.21(b)(4)  Institutional Capacity and Constraints
        Q1. 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
        Q1. 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's 
    past performance may support a rating of ``substantial noncompliance'' 
    if the institution has not improved performance rated as ``needs to 
    improve.''
        Q2. 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)  Types of Loans Considered
        Q1. 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.
        Q2. 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; 
    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 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)  Other Loan Data
        Q1. 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. 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.
        Q2. 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.
        Q3. May a financial institution receive consideration under CRA for 
    modification, extension, and consolidation agreements (MECAs), in which 
    it obtains loans from other institutions without actually purchasing
    
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    or refinancing the loans, as those terms have been interpreted under 
    CRA?
        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 institution 
    may present information about its MECA activities to examiners for 
    consideration under the lending test as ``other loan data.''
    Section __.22(b)  Performance Criteria
        Q1. How will examiners apply the performance criteria in the 
    lending test?
        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.
    Section __.22(b)(1)  Lending Activity
        Q1. 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.
    Section __.22(b)(2) & (3)  Geographic Distribution and Borrower 
    Characteristics
        Q1. How do the geographic distribution of loans and the 
    distribution of lending by borrower characteristics interact in the 
    lending test?
        A1. Examiners generally will consider both the distribution of an 
    institution's loans among geographies of different income levels and 
    among borrowers of different income levels and businesses 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.
        Q2. 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 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).
        Q3. 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.
        Q4. When will examiners consider loans (other than community 
    development loans) made outside an institution's assessment area(s)?
        A4. Favorable 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 institutions being evaluated 
    under the small institution 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).
        Q5. Under the lending test, 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 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
    
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    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.
    Section__.22(c)  Affiliate Lending
    Section__.22(c)(1)  In General
        Q1. If an institution 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 loans 
    (motor vehicle loans, credit card loans, home equity loans, other 
    secured loans, and other unsecured loans).
    Section__.22(c)(2)  Constraints on Affiliate Lending
    Section__.22(c)(2)(i)  No Affiliate may Claim a Loan Origination or 
    Loan Purchase if Another Institution Claims the Same Loan Origination 
    or Purchase
        Q1. How 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.
    Section__.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
        Q1. How 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 affiliates, such as a mortgage bank that makes loans in the 
    institution's assessment area. If the institution elects to include the 
    mortgage bank's home mortgage loans, it must include all of mortgage 
    bank's home mortgage loans made in its assessment area. The institution 
    cannot elect to include only those low- and moderate-income home 
    mortgage loans made by the mortgage bank affiliate and not home 
    mortgage loans to middle- and upper-income individuals or areas.
        Q2. How 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.
    Section__.22(d)  Lending by a Consortium or a Third Party
        Q1. Will equity and equity-type investments in a third party 
    receive positive consideration under the lending test?
        A1. If an institution has made an equity or equity-type investment 
    in a third party, 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.
        Q&A1 addressing Sec. __.23(b) provides information concerning 
    consideration of an equity or equity-type investment under the 
    investment test and both the lending and investment tests.
        Q2. How 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 if they qualify as community 
    development loans and will only be considered 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 criteria appropriate to 
    them depending on the type of loan.
        Q3. 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 Sec. __.22(d), may the third party also receive 
    consideration for these loans?
    
    [[Page 52119]]
    
        A3. Yes, as long as the financial institution and the third party 
    are not affiliates. The regulations state, at 12 CFR 
    Sec. __.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 Sec. __.22(d).
    
    Section__.23--Investment Test
    
    Section__.23(b)  Exclusion
        Q1. 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 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 would only receive consideration 
    under the investment test for the amount of its investment multiplied 
    by the percentage of the CDC's assets that meet the definition of a 
    qualified investment.
    
    Section__.24--Service test
    
    Section__.24(d)  Performance Criteria--Retail Banking Services
        Q1. 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, 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.
    Section__.24(d)(3)  Availability and Effectiveness of Alternative 
    Systems for Delivering Retail Banking Services
        Q1. How will examiners evaluate alternative systems for delivering 
    retail banking services?
        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 positively 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.
        Q2. 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.
    
    Section__.25 Community Development Test for Wholesale or Limited 
    Purpose Institutions
    
    Section__.25(d)  Indirect Activities
        Q1. 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 Secs. __.22(d) 
    and __.23(b).
    Section __.25(f)  Community Development Performance Rating
        Q1. 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.
    Section __.26--Small Institution Performance Standards
    Section __.26(a) Performance Criteria
        Q1. 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.
        Q2. What is meant by ``as appropriate'' when referring to the fact 
    that lending-related activities will be considered, ``as appropriate,'' 
    under the
    
    [[Page 52120]]
    
    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.
        Q3. 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.
        Q4. Under the small institution 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.
        Q5. Under the small institution 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 performance standards focus on lending 
    and other lending-related activities. Therefore, examiners will 
    consider only lending-related qualified investments for the purposes of 
    determining whether the small institution receives a satisfactory CRA 
    rating.
    Section __ .26(a)(1)  Loan-to-Deposit Ratio
        Q1. 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.
        Q2. 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.
        Q3. 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.
    Section __ .26(a)(2)  Percentage of Lending Within Assessment Area(s)
        Q1. 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 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, loan demand, the institution's size, financial 
    condition and business strategies, and branching network and other 
    aspects of the institution's lending record.
    Section __.26(a) (3) & (4)  Distribution of Lending Within Assessment 
    Area(s) by Borrower Income and Geographic Location
        Q1. 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 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 for 
    estimating borrower characteristics, where appropriate.
    Section __.26(b)  Performance Rating
        Q1. How can a small institution achieve an ``outstanding'' 
    performance rating?
        A1. A small institution that meets each of the standards 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
    
    [[Page 52121]]
    
    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.''
        Q2. 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 Q&A6 
    addressing Secs. __.12(i) and 563e.12(h).
    
    Section __.27--Strategic plan
    
    Section __.27(c)  Plans in General
        Q1. 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.
        Q2. 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.
    Section __.27(f)  Plan Content
    Section __.27(f)(1)  Measurable Goals
        Q1. How should ``measurable goals'' be specified in a strategic 
    plan?
        A1. Measurable 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.
    Section __.27(g)  Plan Approval
    Section __.27(g)(2)  Public Participation
        Q1. 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.
    
    Section __.28--Assigned Ratings
    
    Section __.28(a)  Ratings in General
        Q1. 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.
        Q2. 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.
        Q3. How do the agencies weight performance under the lending, 
    investment and service test 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
    
    [[Page 52122]]
    
                                                                            
    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.
    
    Section __.29--Effect of CRA Performance on Applications
    
    Section __.29(a)  CRA Performance
        Q1. What weight is given to an institution's CRA performance 
    examination in reviewing an application? 
        A1. In cases in which CRA performance is a relevant factor, 
    information from a CRA performance examination of the institution is a 
    particularly important consideration in the applications process 
    because it represents 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 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.
        Q2. 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.
    Section __.29(b)  Interested Parties
        Q1. What consideration is given to comments from interested parties 
    in reviewing an application? 
        A1. Materials relating to CRA performance received during the 
    applications 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. 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.
        Q2. 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.
    
    Section __.41--Assessment Area Delineation
    
    Section __ ----.41(a)  In General
        Q1. 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).
        Q2. 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).
        Q3. Can a financial institution identify a specific ethnic group 
    rather than a geographic area as its assessment area?
        A3. No, assessment areas must be based on geography.
    Section __.41(c)  Geographic Area(s) for Institutions Other Than 
    Wholesale or Limited Purpose Institutions
    Section __.41(c)(1)  Generally Consist of one or More MSAs or one or 
    More Contiguous Political Subdivisions
        Q1. 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).
        Q2. 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 or other 
    political subdivision may delineate as its assessment area the larger 
    political subdivision and then, in accordance with Sec. __.41(d), 
    adjust the boundaries of the assessment area to
    
    [[Page 52123]]
    
    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.
    Section __.41(d)  Adjustments to Geographic Area(s)
        Q1. 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.
    Section__.41(e)  Limitations on Delineation of an Assessment Area
    Section__.41(e)(3)  May not Arbitrarily Exclude Low- or Moderate-Income 
    Geographies
        Q1. 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:
         Income levels in the institution's assessment area(s) and 
    surrounding geographies;
         Locations of branches and deposit-taking ATMs;
         Loan distribution in the institution's assessment area(s) 
    and surrounding geographies;
         The institution's size;
         The institution's financial condition; and
         The business strategy, corporate structure and product 
    offerings of the institution.
    Section__.41(e)(4)  May not Extend Substantially Beyond a CMSA Boundary 
    or Beyond a State Boundary Unless Located in a Multistate MSA
        Q1. What are the maximum limits on the size of an assessment area?
        A1. An institution shall 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. Similarly, an assessment area 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. These limitations apply to wholesale and limited purpose 
    institutions as well as other institutions.
        An institution shall delineate separate assessment areas for the 
    areas inside and outside a CMSA (or MSA if the MSA is not located in a 
    CMSA) if the area served by the institution's branches outside the CMSA 
    (or MSA) extends substantially beyond the CMSA (or MSA) boundary. 
    Similarly, the institution shall 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.
        Q2. Can 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, 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.
    Section__.42--Data  Collection, Reporting, and Disclosure
        Q1. 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. A small institution is a bank or 
    thrift that, as of December 31 of either of the prior two calendar 
    years, had total assets of less than $250 million and was independent 
    or an affiliate of a holding company that, as of December 31 of either 
    of the prior two calendar years, had total banking and thrift assets of 
    less than $1 billion.
        For example:
    
    ------------------------------------------------------------------------
                                                                     Data   
                                                                  collection
                                                  Institution's    required 
                        Date                        asset size       for    
                                                    (millions)    following 
                                                                   calendar 
                                                                    year?   
    ------------------------------------------------------------------------
    12/31/94....................................          $240           No.
    12/31/95....................................          $260           No.
    12/31/96....................................          $230           No.
    12/31/97....................................          $280           No.
    12/31/98....................................          $260          Yes,
                                                                 beginning 1/
                                                                      01/99.
    ------------------------------------------------------------------------
    
        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 1999 by March 1, 
    2000.
        The Board of Governors of the Federal Reserve System is handling 
    the processing of 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, N.W., 5th Floor, Washington, DC 20006.
        Q2. 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
    
    [[Page 52124]]
    
    CRA data collection and reporting rules. This format may be obtained by 
    contacting the CRA Assistance Line at (202) 872-7584.
        Q3. 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.
        Q4. Should renewals of lines of credit be reported?
        A4. No. Similar to loan renewals, renewals of lines of credit are 
    not considered loan originations and should not be reported.
        Q5. When should merging institutions collect data?
        A5. Three scenarios of data collection responsibilities for the 
    calendar year of a merger and subsequent data reporting 
    responsibilities are described below.
         Two institutions are exempt from CRA collection and 
    reporting requirements because of asset size. The institutions merge. 
    No data collection is required for the year in which the merger takes 
    place, regardless of the resulting asset size. Data collection would 
    begin after two consecutive years in which the combined institution had 
    year-end assets of at least $250 million or was part of a holding 
    company that had year-end banking and thrift assets of at least $1 
    billion.
         Institution A, an institution required to collect and 
    report the data, and Institution B, an exempt institution, merge. 
    Institution A is the surviving institution. For the year of the merger, 
    data collection is required for Institution A's transactions. Data 
    collection is optional for the transactions of the previously exempt 
    institution. For the following year, all transactions of the surviving 
    institution must be collected and reported.
         Two institutions that each are required to collect and 
    report the data merge. Data collection is required for the entire year 
    of the merger and for subsequent years so long as the surviving 
    institution is not exempt. The 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.
        Q6. 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, 
    N.W., 5th Floor, Washington, DC 20006.
        They may also call the CRA Assistance Line at (202) 872-7584 or 
    send Internet e-mail to [email protected]
        Q7. 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 must be prepared to identify 
    those loans, investments and services to be evaluated under the 
    community development test.
    Section__.42(a)  Loan Information Required to be Collected and 
    Maintained
        Q1. Must institutions collect and report data on all commercial 
    loans under $1 million 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.
        Q2. 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 in a standardized, 
    machine readable format information on each small business loan 
    originated or purchased for each calendar year:
         A unique number or alpha-numeric symbol that can be used 
    to identify the relevant loan file;
         The loan amount at origination;
         The loan location; and
         An indicator whether the loan was to a business with gross 
    annual revenues of $1 million or less.
        The location of the loan must be maintained by census tract or 
    block numbering area. In addition, supplemental information contained 
    in the file specifications includes a date associated with the 
    origination or purchase and whether a loan was originated or purchased 
    by an affiliate. The same requirements apply to small farm loans.
    
    Q3. Will farm loans need to be segregated from business loans?
    
        A3. Yes.
        Q4. Should institutions collect and report data on all agricultural 
    loans under $500,000 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 TFR.
        Q5. Should institutions collect and report data about small 
    business and small farm loans that are refinanced or renewed?
        A5. An institution collects and reports information about 
    refinancings but does not collect and report information about 
    renewals. A refinancing typically involves the satisfaction of an 
    existing obligation that is replaced by a new obligation undertaken by 
    the same borrower. When an institution refinances a loan, it is 
    considered a new origination and loan data should be collected and 
    reported if otherwise required. Consistent with HMDA, however, if under 
    the original loan agreement, the institution is unconditionally 
    obligated to refinance the loan, or is obligated to refinance the loan 
    subject to conditions within the borrower's control, the institution 
    would not report these events as originations.
        For purposes of the CRA data collection and reporting requirements, 
    an extension of the maturity of an existing loan is a renewal, and is 
    not considered a loan origination. Therefore, institutions should not 
    collect and report data on loan renewals.
        Q6. 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
    
    [[Page 52125]]
    
    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.''
        Q7. How should an institution report a home equity line of credit, 
    part of which is for home improvement purposes, but the predominant 
    part of which is for small business purposes?
        A7. The institution has the option of reporting the portion of the 
    home equity line that is for home improvement purposes under HMDA. That 
    portion of the loan would then be considered when examiners evaluate 
    home mortgage lending. If 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.''
        Q8. 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.
        Q9. 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.
        Q10. 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 dictate that an institution know the 
    location of its customers or loan collateral. 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. Once the institution receives this information from the 
    borrower, it should assign a census tract or block numbering area to 
    that location (geocode) and report that information as required under 
    the regulation.
        There may be cases in which a borrower cannot provide a street 
    address because of the rural nature of the community. If a borrower can 
    provide only a rural route and box number, or in those rare instances 
    in which a borrower reports a post office box and the institution 
    cannot determine the location of the business, the following guidance 
    will apply, depending on the date the loan is originated or purchased:
         For loans originated or purchased in 1997, if an 
    institution cannot determine the borrower's street address, the 
    institution should geocode the location of the loan using the town, 
    state, and zip code of the location of the post office as a proxy for 
    the location of the borrower. In cases where the assigned location of 
    the zip code for the rural route and box number or post office box 
    encompasses more than one census tract or block numbering area, the 
    institution should be able to provide a specific rationale for the 
    census tract or block numbering area selected for geocoding purposes.
         For loans originated or purchased in 1998 or later, if the 
    institution cannot determine the borrower's street address, the 
    institution should report the borrower's state, county, MSA, if 
    applicable, and ``NA,'' for ``not available,'' in lieu of a census 
    tract or block numbering area code.
    Section __.42(a)(2)  Loan Amount at Origination
        Q1. When an institution purchases a small business or small farm 
    loan, 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, 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.
        Q2. 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.
        Q3. 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' 
    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.
    Section__.42(a)(3)  The Loan Location
        Q1. 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 business headquarters or the location where the 
    greatest portion of the proceeds are applied, as indicated by the 
    borrower.
    Section__.42(a)(4)  Indicator of Gross Annual Revenue
        Q1. When indicating whether a small business borrower had gross 
    annual
    
    [[Page 52126]]
    
    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 borrower, 
    the institution should not adjust the borrower's revenues for reporting 
    purposes.
        Q2. 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.
        Q3. 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.
    Section__.42(b)  Loan Information Required To Be Reported
    Section__.42(b)(1)  Small Business and Small Farm Loan Data
        Q1. For small business and small farm loan information that is 
    collected and maintained, what data should be reported?
        A1. Each institution that is not exempt from data collection and 
    reporting is required to report in machine-readable form annually by 
    March 1 the following information, aggregated for each census tract or 
    block numbering area in which the institution originated or purchased 
    at least one small business or small farm loan during the prior year:
         The number and amount of loans originated or purchased 
    with original amounts of $100,000 or less;
         The number and amount of loans originated or purchased 
    with original amounts of more than $100,000 but less than or equal to 
    $250,000;
         The number and amount of loans originated or purchased 
    with original amounts of more than $250,000 but not more than $1 
    million; and
         To the extent that information is available, the number 
    and amount of loans to businesses and farms with gross annual revenues 
    of $1 million or less (using the revenues the institution considered in 
    making its credit decision).
    Section __.42(b)(2)  Community Development Loan Data
        Q1. 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.
        Q2. 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 of home 
    mortgage, small business, or small farm loans only in those respective 
    categories even if they also meet the definition of community 
    development loans. As a practical matter, this is not a disadvantage 
    for retail institutions because any affordable housing mortgage, small 
    business, small farm or consumer loan that would otherwise meet the 
    definition of a community development loan will be considered elsewhere 
    in the lending test. Any of these types of loans that occur outside the 
    institution's assessment area can receive favorable consideration under 
    the borrower characteristic criteria of the lending test. See Q&A4 
    under Sec. __.22(b) (2) & (3).
        Limited purpose and wholesale institutions also must report loans 
    that meet the definitions of home mortgage, small business, or small 
    farm loans in those respective categories; however, they must also 
    report any loans from those categories that meet the regulatory 
    definition of ``community development loans'' 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 and consumer loans.
    Section __.42(b)(3)  Home Mortgage Loans
        Q1. 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.
    Section __.42(c)  Optional data collection and maintenance
    Section __.42(c)(1)  Consumer loans
        Q1. What are the data requirements regarding consumer loans?
        A1. There are no data reporting requirements for consumer loans. 
    Institutions may, however, opt to collect and maintain data on consumer 
    loans. If an institution chooses to collect information on consumer 
    loans, it may collect data for one or more of the following categories 
    of consumer loans: motor vehicle, credit card, home equity, other 
    secured, and other unsecured. If an institution collects data for loans 
    in a certain category, it must collect data for all loans originated or 
    purchased within that category. The institution must maintain these 
    data separately for each category for which it chooses to collect data. 
    The data collected and maintained should include for each loan:
         A unique number or alpha-numeric symbol that can be used 
    to identify the relevant loan file;
         The loan amount at origination or purchase;
         The loan location; and
    
    [[Page 52127]]
    
         The gross annual income of the borrower that the 
    institution considered in making its credit decision.
    Section __.42(c)(1)(iv)  Income of borrower
        Q1. 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.
        Q2. 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.
    Section __.42(c)(2)  Other Loan Data
        Q1. Schedule RC-C, Part II of the Call Report and schedule SB of 
    the TFR do not allow financial institutions to report loans for 
    commercial and industrial purposes that are secured by residential real 
    estate. Loans extended to small businesses with gross annual revenues 
    of $1 million or less may, however, be secured by residential real 
    estate. Is there a way to collect this information on the software to 
    supplement an institution's small business lending data at the time of 
    examination?
        A1. Yes. If these loans promote community development, as defined 
    in the regulation, the institution should collect and report 
    information about these loans as community development loans. 
    Otherwise, at an institution's option, it may collect and maintain data 
    concerning loans, purchases, and lines of credit extended to small 
    businesses and secured by residential real estate for consideration in 
    the CRA evaluation of its small business lending. To facilitate this 
    optional data collection, the software distributed free-of-charge by 
    the FFIEC provides that an institution may collect this information to 
    supplement its small business lending data by choosing loan type, 
    ``Other Secured Lines/Loans for Purposes of Small Business,'' in the 
    individual loan data. (The title of the loan type, ``Other Secured 
    Lines of Credit for Purposes of Small Business,'' which was found in 
    the instructions accompanying the 1996 data collection software, is 
    being changed to ``Other Secured Lines/Loans for Purposes of Small 
    Business'' in order to accurately reflect that lines of credit and 
    loans may be reported under this loan type.) This information should be 
    maintained at the institution but should not be submitted for central 
    reporting purposes.
        Q2. 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.
        Q3. 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.
    Section __.42(d)  Data on Affiliate Lending
        Q1. 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 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.
    Section __.43--Content and Availability of Public File
    Section __.43(a)  Information Available to the Public
    Section __.43(a)(1)  Public Comments
        Q1. 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.
        Q2. 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) (Sec. __.26(a)(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.
        Q3. May an institution include a response to its CRA Performance 
    Evaluation in its public file?
        A3. 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 it 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. The institution must update the description on a quarterly 
    basis.
    Section __.43(b)  Additional Information Available to the Public
    Section __.43(b)(1)  Institutions Other Than Small Institutions
        Q1. 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.
    Section__.43(c)  Location of Public Information
        Q1. 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.
    
    [[Page 52128]]
    
    Section__.44--Public Notice by Institutions
    
        Q1. 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.
    
    Section__.45--Publication of Planned Examination Schedule
    
        Q1. 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.
        Q2. 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 B to Part__CRA Notice
    
        Q1. 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 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 Sec. 4.5(a).
        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
    
        To obtain median family income levels of census tracts, MSAs, block 
    numbering areas and statewide nonmetropolitan areas, contact the 
    appropriate regional office of the Bureau of the Census as indicated 
    below. The list shows the states covered by each regional office.
    
    Atlanta, (404) 730-3833
    
    Alabama, Florida, Georgia
    
    Boston, (617) 424-0510
    
    Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont
    
    Charlotte, (704) 344-6144
    
    District of Columbia, Kentucky, North Carolina, South Carolina, 
    Tennessee, Virginia
    
    Chicago, (708) 562-1740
    
    Illinois, Indiana, Wisconsin
    
    Dallas, (214) 640-4470 or (800) 835-9752
    
    Louisiana, Mississippi, Texas
    
    Denver, (303) 969-7750
    
    Arizona, Colorado, Nebraska, New Mexico, North Dakota, South Dakota, 
    Utah, Wyoming
    
    Detroit, (313) 259-1875
    
    Michigan, Ohio, West Virginia
    
    Kansas City, (913) 551-6711
    
    Arkansas, Iowa, Kansas, Minnesota, Missouri, Oklahoma
    
    Los Angeles, (818) 904-6339
    
    California
    
    New York, (212) 264-4730
    
    New York, Puerto Rico
    
    Philadelphia, (215) 597-8313 or (215) 597-8312
    
    Delaware, Maryland, New Jersey, Pennsylvania
    
    Seattle, (206) 728-5314
    
    Alaska, Hawaii, Idaho, Montana, Nevada, Oregon, Washington
    
        Dated: September 29, 1997.
    Joe M. Cleaver,
    Executive Secretary, Federal Financial Institutions Examination 
    Council.
    [FR Doc. 97-26206 Filed 10-3-97; 8:45 am]
    BILLING CODE 4810-33-P; 6714-01-P; 6210-01-P 6720-01-P
    
    
    

Document Information

Effective Date:
10/6/1997
Published:
10/06/1997
Department:
Federal Financial Institutions Examination Council
Entry Type:
Notice
Action:
Notice and request for comment.
Document Number:
97-26206
Dates:
Effective date of amended Interagency Questions and Answers on Community Reinvestment: October 6, 1997. The agencies request that comments on the proposed questions and answers be submitted on or before December 5, 1997.
Pages:
52105-52128 (24 pages)
PDF File:
97-26206.pdf