Community Developments Investments (March 2017)

How Affordable Housing Qualifies for Community Reinvestment Act Consideration

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Vonda Eanes, Director for CRA and Fair Lending Policy, OCC

Affordable housing is a core component of community development under the Community Reinvestment Act (CRA) regulations. National banks and federal savings associations (collectively, banks) may receive CRA consideration for loans, qualified investments, and community development services with a primary purpose of providing affordable housing, including multifamily housing for low- or moderate-income (LMI) individuals.

Under the CRA, the OCC evaluates a bank's record of helping to meet credit needs in the communities where the bank has deposit-taking facilities. This evaluation includes considering the number and dollar amount of bank loans used to purchase, develop, refinance, or improve multifamily residential properties. Unlike loans for other purposes, loans related to multifamily housing that primarily benefit LMI individuals or families may be considered retail loans under the lending test as well as community development loans. For banks evaluated under the OCC's large bank procedures, community development loans are considered under the lending test. For intermediate small banks and wholesale and limited purpose banks, community development loans are considered under their respective community development tests.

Community development loans include loans that support affordable housing to benefit LMI persons. Community development loans also include loans that help to revitalize or stabilize LMI areas, designated disaster areas, or areas defined by the OCC, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation as underserved or distressed nonmetropolitan middle-income areas.

The "Interagency Questions and Answers Regarding Community Reinvestment (Q&A)," dated July 25, 2016, provides guidance on how to determine whether a project is considered affordable housing for LMI individuals. The guidance notes that the concept of "affordable housing" hinges on whether LMI individuals benefit, or are likely to benefit, from the housing. It would be inappropriate to give CRA consideration to a project that exclusively or predominately houses families that are not LMI simply because the rents or housing prices are set according to a particular formula.

Examiners review demographic and economic factors as well as market data to determine the likelihood that housing primarily accommodates LMI individuals. Such a review is useful for projects that do not yet have occupants and for which the income of potential occupants cannot be determined in advance—or for projects where occupant income is unknown. For example, examiners may look at median rents of an assessment area compared with the project; median home values in the assessment area and in LMI geographies compared with the project; affordability based on incomes for LMI families in the area of the project; and the past performance record of the organization or organizations undertaking the project. Such a project could receive CRA consideration if there is an expressed bona fide intent of community development, for example, in the project prospectus, loan proposal, or related community action plan.

Banks also can receive CRA consideration for loans to or investments in organizations that provide services primarily to LMI populations. CRA guidance explicitly recognizes loans to and investments in community development financial institutions (CDFI) as community development activities. In the case of a qualified investment, CRA consideration may be based, at the bank's option, on either the full amount of an investment or a pro rata share of community development loans made by the CDFI. The pro rata share is based on the bank's percent of equity in the CDFI. A bank may also choose to receive partial consideration for both the qualified investment test and its pro rata share of loans.

Banks that provide technical assistance for CDFIs—including developing loan application and underwriting standards, lending employees, or serving on boards and committees—are eligible for CRA consideration for these activities as a community development service. Other examples of community development services with CDFIs include developing secondary market vehicles or programs, assisting in marketing financial products, furnishing financial services training for staff, contributing accounting or bookkeeping services, and assisting in fund-raising. Referring an applicant to a CDFI or another community development lender may also receive CRA consideration if a bank has determined the applicant is ineligible for bank financing and it is bank policy to refer credit building loans to the CDFI.

Loans and investments supporting an organization that covers an area larger than the bank's assessment area(s) may also receive CRA consideration. The bank's assessment area(s) need not receive immediate or direct benefit, provided that the purpose, function, or mandate of the organization includes serving geographies or individuals within the bank's assessment area(s). Examiners may also consider activities in the broader statewide or regional area even if the activities do not serve the bank's assessment area(s) as long as the bank has been responsive to needs in its assessment area(s). In evaluating "responsiveness," examiners consider all activities that serve the bank's assessment area(s) as well as opportunities available to the bank in its assessment area(s).

Bankers should consult with their supervisory office if they have questions about specific projects, loans, investments, or services and the types of documentation needed to demonstrate the benefit to LMI individuals or other qualifying purposes of community development.

For more information, contact Vonda Eanes.

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