Hi,

Our bank is looking at buying a pool of correspondent loans from a local non-profit CDFI that provides financing/assistance to LMI individuals. Is it possible to get investment credit for buying the pool of loans? We would be the only institution involved in the purchase.

We have received investment credit for something similar in the past. However, even though some of the loans were in our assessment area, we received credit for the "broader regional area including our assessment area". So we had to prove that we were reasonably meeting the needs in our assessment area first in order to qualify these investments. Hopefully that makes sense. In other words, for us, it was not a guarantee.

Thanks for responding

We were purchasing the pool as correspondent loans not as an investment but question was whether the pool of loans could be treated as an investment for CRA purposes. My thought would be no unless the organization selling the pool of loans can legally structure the pool as an investment.

There is one q and a that comes close to this situation.

§ll.23(b)—1: 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 its pro rata 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 receive consideration under the
investment test for only the amount of
its investment multiplied by the
percentage of the CDC’s assets that meet
the definition of a qualified investment.

To get credit for Community Development Investment an investment must be a "qualified investment". What is a "qualified investment?"

From the CRA Guide and Q&A's: Qualified investment. A lawful investment (emphasis added), deposit, membership share, or grant that has as its primary purpose community development.

From my brief review a purchase of a pool of loans from a local development entity does not appear to qualify as a "lawful investment" for banks. You should review the list of permissible investments issued by the OCC and you definitely would need a legal opinion from a qualified source to confirm that the debt obligation is a lawful investment. I believe the governing regulation would be 12 CFR Part 1. In the event you cannot treat the transaction as an investment you still may receive CD credit as a qualified CD loan.