[Federal Register: September 5, 2006 (Volume 71, Number 171)]
[Notices]
[Page 52375-52379]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05se06-80]
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DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
[No. 2006-32]
Community Reinvestment Act; Questions and Answers Regarding
Community Reinvestment; Notice
AGENCY: Office of Thrift Supervision (OTS).
ACTION: Notice.
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SUMMARY: This notice revises OTS guidance relating to the Community
Reinvestment Act (CRA).
DATES: Effective date: September 5, 2006.
FOR FURTHER INFORMATION CONTACT: Celeste Anderson, Senior Program
Manager, Operation Risk, (202) 906-7990; Richard Bennett, Counsel,
Regulations and Legislation Division, (202) 906-7409, Office of Thrift
Supervision, 1700 G Street, NW., Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
I. Background
To help savings associations meet their responsibilities under the
CRA and to increase public understanding of the CRA regulations, OTS,
the Office of the Comptroller of the Currency (OCC), the Board of
Governors of the Federal Reserve (Board), and the Federal Deposit
Insurance Corporation (FDIC) have previously published guidance in the
form of questions and answers about the CRA regulations. That guidance
is intended to provide the informal views of agency staff for use by
examiners and other agency personnel, financial institutions, and the
public, and is supplemented periodically. See Interagency Questions and
Answers Regarding Community Reinvestment, 66 FR 36620 (July 12, 2001)
(2001 Interagency Q&As).
Today, OTS is issuing questions and answers to provide additional
guidance for savings associations. OTS proposed this guidance on April
12, 2006. (70 FR 18807). Today's final guidance is identical to the
proposed OTS guidance and very similar to final guidance jointly issued
by the OCC, Board, and FDIC on March 10, 2006 (71 FR 12424). However,
as with OTS's proposal, today's final guidance only includes questions
and answers that pertain to OTS's revised definition of ``community
development'' and certain other provisions of the CRA rule that are
common to all four agencies. It does not include questions and answers
that pertain to additional revisions the OCC, Board, and FDIC made to
their CRA rules in their August 2, 2005 rulemaking (70 FR 44256), since
OTS has not adopted those revisions to date. Other minor wording
differences between OTS's guidance and that of the other agencies were
highlighted in the preamble to OTS's April 12, 2006 notice.
As in the 2001 Interagency Q&As, the 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. As a
result of technical changes made to the four federal banking agencies'
CRA rules (70 FR 15570 (March 28, 2005)) and recent revisions to OTS's
CRA rule, some of the numbering in the 2001 Interagency Q&As no longer
corresponds to the appropriate sections of the revised regulation.
However, in today's questions and answers, if a reference is made to an
existing question and answer, the number of the existing question and
answer, as published in the 2001 Interagency Q&As, is given, even if
the old reference does not
[[Page 52376]]
accurately describe the current provision in the regulations. OTS staff
is working to update the 2001 Interagency Q&As and will correct the
citation references in a revised integrated document containing all the
questions and answers.
II. Comments on Proposed Questions and Answers
OTS received 21 comment letters on its proposed guidance. Two were
from financial institution trade associations. Eighteen were from
entities that could generally be described as organizations that
advocate for community reinvestment or affordable housing or that
provide or finance affordable housing. One was from an individual whose
personal or professional interest in CRA was unclear and who simply
recommended continued government supervision of thrift institutions for
CRA compliance.
The proposed guidance was generally well received by commenters.
Indeed, the most common comment from organizations was not about the
proposed guidance per se, but about the CRA rule itself. These
commenters urged OTS to make further conforming amendments to its CRA
rule so that OTS's CRA rule would once again be consistent with those
of the other agencies. In particular, these commenters urged OTS to
adopt the intermediate small institution test and add the regulatory
provision elaborating on illegal or discriminatory lending practices
that count unfavorably in an institution's CRA evaluation. One also
specifically urged OTS to eliminate the flexible weight option for
large, retail savings associations.
One financial institution trade association and a few organizations
expressed concerns about the extent to which the guidance emphasizes
activities that benefit low- and moderate-income individuals. The trade
association argued that the guidance overemphasizes activities that can
be documented as benefiting low- and moderate-income individuals. It
pointed out that in non-metropolitan areas, low-and moderate-income
census tracts are not as segregated as they are in large metropolitan
areas and identifying low- and moderate-income individuals who will
benefit from a program is not easy. It explained that community banks
conduct activities that benefit an entire community but may not have
sufficient data to demonstrate particular benefit to low- and moderate-
income individuals. Accordingly, it advocated that any activity that
benefits an entire community should be granted CRA credit, regardless
of whether it can be demonstrated to serve low- and moderate-income
individuals. It argued that, particularly with respect to activities
that assist in disaster recovery, it is not appropriate to focus on
whether an activity benefits low- and moderate-income areas but rather
on whether it benefits the community at large.
In direct contrast, the organizations emphasized the need to keep
CRA focused on low- and moderate-income families and communities. Some
suggested that all the agencies' CRA questions and answers should be
clearer in this emphasis.
The trade association also urged the agencies to publish a list of
designated disaster areas for ease of reference, rather than making the
public rely on the list published by the Federal Emergency Management
Agency (FEMA) on its Web site. It also urged the agencies to
continually update the lists in the guidance of community development
services and qualified investments, commenting that the lists are
helpful. One organization proposed a number of changes that would make
OTS's questions and answers less consistent with those of the other
agencies.
III. Final Questions and Answers
Having considered the comments, OTS has decided to finalize the
guidance as proposed. OTS's approach with these questions and answers
is to make them as consistent as possible with those of the other
agencies, given that some differences are necessary because of
differences in the CRA rules themselves. Since OTS is adopting the
questions and answers as proposed without any changes, it does not
repeat the detailed discussion of each of the questions and answers
that it included in the preamble to its April 12, 2006 proposal.
Instead, OTS refers interested readers to that document.
As discussed above, the organizations who commented urged OTS to
make further conforming amendments to its CRA rule so that it once
again would be consistent with those of the other agencies. OTS is
still considering whether to do so.
With respect to commenters who expressed opposing views on the
extent to which the guidance should emphasize activities that benefit
low- and moderate-income individuals, OTS believes the guidance,
uniform among all agencies, strikes the appropriate balance. As
discussed in Q&A sections 563e.12(g)(4)-2, 563e.12(g)(4)(ii)-2, and
563e.12(g)(4)(iii)-3, OTS generally will consider all activities that
revitalize or stabilize a distressed nonmetropolitan middle-income
geography or designated disaster area, but will give greater weight to
those activities that are most responsive to community needs, including
needs of low- or moderate-income individuals or neighborhoods. Also, as
discussed in Q&A section 563e.12(g)(4)(iii)-4, OTS will consider
activities to revitalize or stabilize an underserved nonmetropolitan
middle-income geography if they help to meet essential community needs,
including the needs of low- or moderate-income individuals.
With regard to the comment on identifying designated disaster
areas, at this time OTS believes the quickest and most reliable way for
the public to determine which geographies are in designated disaster
areas is to refer to FEMA's Web site http://www.fema.gov. As explained in Q&A
section 563e.12(g)(4)(ii)-1, geographies encompassed by a Major
Disaster Declaration count except for those counties designated to
receive only FEMA Public Assistance Emergency Work Category A (Debris
Removal) and/or Category B (Emergency Protective Measures). With regard
to the comment on updating the lists of community development services
and qualified investments that qualify for CRA credit, OTS anticipates
updating CRA guidance as appropriate.
Q&A section 563e.12(g)(4)(ii)-2 explains activities that revitalize
or stabilize and designated disaster area. These include activities
that provide housing, financial assistance, and services to individuals
who have been displaced from designated disaster areas (e.g., where a
savings association assists displaced individuals who evacuate into its
assessment area).
Finally, OTS wishes to highlight one aspect of CRA credit for
activities that revitalize or stabilize designated disaster areas that
is not specifically discussed in the questions and answers but has been
addressed in other guidance. This issue has to do with geographical
limits on the availability of credit for disaster relief efforts.
In a December 20, 2005 memorandum to all chief executive officers,
OTS indicated it would favorably consider activities by savings
associations that revitalize or stabilize the areas stricken by
Hurricanes Katrina and Rita, even if those areas are outside the
association's assessment area or the broader statewide or regional
area. OTS CEO Mem. 232 (December 20, 2005), available at
http://www.ots.treas.gov/docs/2/25232.pdf. OTS indicated that while the
CRA regulation does not set forth an expectation for savings
associations to engage in activities outside their assessment areas or
broader statewide or
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regional areas, given the magnitude of these disasters and their impact
on the country, if any association elected to engage in such
activities, OTS would favorably consider them. That guidance was
limited in application to that unique situation.
The text of OTS's revisions to the Interagency Questions and
Answers Regarding Community Reinvestment follows:
Section 563e.12(g)(4) Activities That Revitalize or Stabilize
Section 563e.12(g)(4)-1: Is the same definition of community
development applicable to all savings associations?
Yes, one definition of community development is applicable to all
savings associations.
Section 563e.12(g)(4)-2: Will activities that provide housing for
middle-income and upper-income persons qualify for favorable
consideration as community development activities when they help to
revitalize or stabilize a distressed or underserved, nonmetropolitan
middle-income geography or designated disaster areas?
An activity that provides housing for middle- or upper-income
individuals qualifies as an activity that revitalizes or stabilizes a
distressed nonmetropolitan middle-income geography or a designated
disaster area if the housing directly helps to revitalize or stabilize
the community by attracting new, or retaining existing, businesses or
residents and, in the case of a designated disaster area, is related to
disaster recovery. OTS generally will consider all activities that
revitalize or stabilize a distressed nonmetropolitan middle-income
geography or designated disaster area, but will give greater weight to
those activities that are most responsive to community needs, including
needs of low- or moderate-income individuals or neighborhoods. For
example, a loan solely to develop middle- or upper-income housing in a
community in need of low- and moderate-income housing would be given
very little weight if there is only a short-term benefit to low- and
moderate-income individuals in the community through the creation of
temporary construction jobs. (A housing-related loan is not evaluated
as a ``community development loan'' if it has been reported or
collected by the institution or its affiliate as a home mortgage loan,
unless it is a multifamily dwelling loan. See 12 CFR 563e.12(h)(2)(i)
and Q&A section ----.12(i) & 563e.12(h)-2.) OTS will presume that an
activity revitalizes or stabilizes such a geography or area if the
activity is consistent with a bona fide government revitalization or
stabilization plan or disaster recovery plan. See Q&A section --
--.12(h)(4) & 563e.12(g)(4)-1 and Q&A section ----.12(i) & 563e.12(h)-
4.
In underserved nonmetropolitan middle-income geographies,
activities that provide housing for middle- and upper-income
individuals may qualify as activities that revitalize or stabilize such
underserved areas if the activities also provide housing for low- or
moderate-income individuals. For example, a loan to build a mixed-
income housing development that provides housing for middle- and upper-
income individuals in an underserved nonmetropolitan middle-income
geography would receive positive consideration if it also provides
housing for low- or moderate-income individuals.
Section 563e.12(g)(4)(ii) Activities That Revitalize or Stabilize
Designated Disaster Areas
Section 563e.12(g)(4)(ii)-1: What is a ``designated disaster area''
and how long does the designation last?
A ``designated disaster area'' is a major disaster area designated
by the Federal Government. Such disaster designations include, in
particular, Major Disaster Declarations administered by the Federal
Emergency Management Agency (FEMA) (http://www.fema.gov), but exclude
counties designated to receive only FEMA Public Assistance Emergency
Work Category A (Debris Removal) and/or Category B (Emergency
Protective Measures).
Examiners will consider savings association activities related to
disaster recovery that revitalize or stabilize a designated disaster
area for 36 months following the date of designation. Where there is a
demonstrable community need to extend the period for recognizing
revitalization or stabilization activities in a particular disaster
area to assist in long-term recovery efforts, this period may be
extended.
Section 563e.12(g)(4)(ii)-2: What activities are considered to
``revitalize or stabilize'' a designated disaster area, and how are
those activities considered?
OTS generally will consider an activity to revitalize or stabilize
a designated disaster area if it helps to attract new, or retain
existing, businesses or residents and is related to disaster recovery.
An activity will be presumed to revitalize or stabilize the area if the
activity is consistent with a bona fide government revitalization or
stabilization plan or disaster recovery plan. OTS generally will
consider all activities relating to disaster recovery that revitalize
or stabilize a designated disaster area, but will give greater weight
to those activities that are most responsive to community needs,
including the needs of low- or moderate-income individuals or
neighborhoods. Qualifying activities may include, for example,
providing financing to help retain businesses in the area that employs
local residents, including low- and moderate-income individuals;
providing financing to attract a major new employer that will create
long-term job opportunities, including for low- and moderate-income
individuals; providing financing or other assistance for essential
community-wide infrastructure, community services, and rebuilding
needs; and activities that provide housing, financial assistance, and
services to individuals in designated disaster areas and to individuals
who have been displaced from those areas, including low- and moderate-
income individuals (see, e.g., Q&A section ----.12(j) & 563e.12(i)-3;
Q&A section ----.12(s) & 563e.12(r)-4; Q&A sections ----.22(b)(2) &
(3)-4; Q&A sections ----.22(b)(2) & (3)-5; and Q&A section --
--.24(d)(3)-1).
Section 563e.12(g)(4)(iii) Activities That Revitalize or Stabilize
Distressed or Underserved, Nonmetropolitan Middle-income Geographies
Section 563e.12(g)(4)(iii)-1: What criteria are used to identify
distressed or underserved, nonmetropolitan middle-income geographies?
Eligible nonmetropolitan middle-income geographies are those
designated by OTS as being in distress or that could have difficulty
meeting essential community needs (underserved). A particular geography
could be designated as both distressed and underserved. As defined in
12 CFR 563e.12(k), a geography is a census tract delineated by the
United States Bureau of the Census.
A nonmetropolitan middle-income geography will be designated as
distressed if it is in a county that meets one or more of the following
triggers: (1) An unemployment rate of at least 1.5 times the national
average, (2) a poverty rate of 20 percent or more, or (3) a population
loss of ten percent or more between the previous and most recent
decennial census or a net migration loss of five percent or more over
the five-year period preceding the most recent census.
A nonmetropolitan middle-income geography will be designated as
underserved if it meets criteria for population size, density, and
dispersion that indicate the area's population is
[[Page 52378]]
sufficiently small, thin, and distant from a population center that the
tract is likely to have difficulty financing the fixed costs of meeting
essential community needs. OTS will use as the basis for these
designations the ``urban influence codes,'' numbered ``7,'' ``10,''
``11,'' and ``12,'' maintained by the Economic Research Service of the
United States Department of Agriculture.
Data source information along with the list of eligible
nonmetropolitan census tracts will be published on the Federal
Financial Institutions Examination Council Web site (http://www.ffiec.gov
).
Section 563e.12(g)(4)(iii)-2: How often will the list of designated
distressed or underserved, nonmetropolitan middle-income geographies be
updated?
The list will be reviewed and updated annually as needed. The list
will be published on the Federal Financial Institutions Examination
Council Web site (http://www.ffiec.gov).
To the extent that changes to the designated census tracts occur,
OTS has determined to adopt a twelve-month lag period. This lag period
will be in effect for the twelve months immediately following the date
when a census tract that was designated as distressed or underserved is
removed from the designated list. Revitalization or stabilization
activities undertaken during the lag period will receive consideration
as community development activities if they would have been considered
to have a primary purpose of community development if the census tract
in which they were located were still designated as distressed or
underserved.
Section 563e.12(g)(4)(iii)-3: What activities are considered to
``revitalize or stabilize'' a distressed nonmetropolitan middle-income
geography, and how are those activities evaluated?
An activity revitalizes or stabilizes a distressed nonmetropolitan
middle-income geography if it helps to attract new, or retain existing,
businesses or residents. An activity will be presumed to revitalize or
stabilize the area if the activity is consistent with a bona fide
government revitalization or stabilization plan. OTS generally will
consider all activities that revitalize or stabilize a distressed
nonmetropolitan middle-income geography, but will give greater weight
to those activities that are most responsive to community needs,
including needs of low-or moderate-income individuals or neighborhoods.
Qualifying activities may include, for example, providing financing to
attract a major new employer that will create long-term job
opportunities, including for low- and moderate-income individuals, and
activities that provide financing or other assistance for essential
infrastructure or facilities necessary to attract or retain businesses
or residents. See Q&A section ----.12(h)(4) & 563e.12(g)(4)-1 and Q&A
section ----.12(i) & 563e.12(h)-4.
Section 563e.12(g)(4)(iii)-4: What activities are considered to
``revitalize or stabilize'' an underserved nonmetropolitan middle-
income geography, and how are those activities evaluated?
The regulation provides that activities revitalize or stabilize an
underserved nonmetropolitan middle-income geography if they help to
meet essential community needs, including needs of low-or moderate-
income individuals. Activities such as financing for the construction,
expansion, improvement, maintenance, or operation of essential
infrastructure or facilities for health services, education, public
safety, public services, industrial parks, or affordable housing, will
be evaluated under these criteria to determine if they qualify for
revitalization or stabilization consideration. Examples of the types of
projects that qualify as meeting essential community needs, including
needs of low-or moderate-income individuals, would be a new or expanded
hospital that serves the entire county, including low- and moderate-
income residents; an industrial park for businesses whose employees
include low-or moderate-income individuals; a new or rehabilitated
sewer line that serves community residents, including low-or moderate-
income residents; a mixed-income housing development that includes
affordable housing for low- and moderate-income families; or a
renovated elementary school that serves children from the community,
including children from low- and moderate-income families. Other
activities in the area, such as financing a project to build a sewer
line spur that connects services to a middle-or upper-income housing
development while bypassing a low-or moderate-income development that
also needs the sewer services, generally would not qualify for
revitalization or stabilization consideration in geographies designated
as underserved. However, if an underserved geography is also designated
as distressed or a disaster area, additional activities may be
considered to revitalize or stabilize the geography, as explained in
Q&A sections 563e.12(g)(4)(ii)-2 and 563e.12(g)(4)(iii)-3.
Section 563e.12(i) Community Development Service
Section 563e.12(i)-3: What are examples of community development
services?
Examples of community development services include, but are not
limited to, the following:
Providing financial services to low- and moderate-income
individuals through branches and other facilities located in low- and
moderate-income areas, unless the provision of such services has been
considered in the evaluation of a saving association's retail banking
services under 12 CFR 563e.24(d);
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, including
organizations and individuals who apply for loans or grants under the
Federal Home Loan Banks' Affordable Housing Program;
Lending employees to provide financial services for
organizations facilitating affordable housing construction and
rehabilitation or development of affordable housing;
Providing credit counseling, home-buyer and home-
maintenance counseling, financial planning or other financial services
education to promote community development and affordable housing;
Establishing school savings programs and developing or
teaching financial education curricula 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;
Providing international remittance services that increase
access to financial services by low- and moderate-income persons (for
example, by offering reasonably priced international remittance
services in connection with a low-cost account); and
Providing other financial services with the primary
purpose of community development, such as low-cost bank accounts,
including ``Electronic Transfer Accounts'' provided pursuant to the
Debt Collection Improvement Act of 1996, 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
[[Page 52379]]
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.
Section 563e.12(t) Qualified Investment
Section 563e.12(t)-1: When evaluating a qualified investment, what
consideration will be given for prior-period investments?
When evaluating a savings association's qualified investment
record, examiners will consider investments that were made prior to the
current examination, but that are still outstanding. Qualitative
factors will affect the weighting given to both current period and
outstanding prior-period qualified investments. For example, a prior-
period outstanding investment with a multi-year impact that addresses
assessment area community development needs may receive more
consideration than a current period investment of a comparable amount
that is less responsive to area community development needs.
Section 563e.12(t)-4: What are examples of qualified investments?
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- or 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), specialized SBICs, and Rural Business
Investment Companies (RBICs), that promote economic development by
financing small businesses or small farms;
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 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.
Section 563e.26 Small Savings Association Performance Standards
Section 563e.26-1: When evaluating a small savings association's
performance, will examiners consider, at the institution's request,
retail and community development loans originated or purchased by
affiliates, qualified investments of affiliates, or community
development services of affiliates?
Yes. However, a small institution that elects to have examiners
consider affiliate activities must maintain sufficient information that
the examiners may evaluate these activities under the appropriate
performance criteria and ensure that the activities are not claimed by
another institution. The constraints applicable to affiliate activities
claimed by large institutions also apply to small institutions. See Q&A
section --.22(c)(2) and related guidance provided to large institutions
regarding affiliate activities. Examiners will not include affiliate
lending in calculating the percentage of loans and, as appropriate,
other lending-related activities located in a savings association's
assessment area.
This concludes the text of OTS's revisions to the Interagency
Questions and Answers Regarding Community Reinvestment.
By the Office of Thrift Supervision.
Dated: August 23, 2006.
John M. Reich,
Director.
[FR Doc. E6-14648 Filed 9-1-06; 8:45 am]
BILLING CODE 6720-01-P