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#2188461 - 08/08/18 07:32 PM Large Bank CD Loans - Must be over $1 Million?
Mel in WA Offline
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Joined: Mar 2013
Posts: 1,120
We are a large bank and I thought a community development loan must not only satisfy one of the activities (affordable housing, services targeted to LMI, economic development, etc.), but must ALSO be $1 million or more. Is that correct? We have originated a $250,000 loan to Habitat for operating expenses and I'm hoping it will qualify.

Thanks!

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#2188476 - 08/08/18 09:23 PM Re: Large Bank CD Loans - Must be over $1 Million? Mel in WA
rlcarey Online
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rlcarey
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Galveston, TX
I have never heard that a CD loan must be a $1MM or more.
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#2188484 - 08/08/18 10:47 PM Re: Large Bank CD Loans - Must be over $1 Million? Mel in WA
TMatt87 Online
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TMatt87
Joined: May 2011
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Idaho
My understanding of the rule is if a loan can be classified as a small business loan, it must be. That leaves those loans > $1MM and any loans not to businesses.
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#2188485 - 08/08/18 11:03 PM Re: Large Bank CD Loans - Must be over $1 Million? Mel in WA
Moman Offline
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Posts: 505
WA
Multifamily loans are also counted as CDLs, even though they would most likely be on your HMDA-LAR.

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#2188487 - 08/08/18 11:58 PM Re: Large Bank CD Loans - Must be over $1 Million? Mel in WA
mrogersfib Offline
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Loans to nonprofits not secured by mining payments, or oil production do not have a dollar limit on them if they have a valid CD Purpose. If the loan is also not secured by mining payments, or oil production and does not have a valid CD purpose it would not be reported.

Loans to non profits secured by mining payments or oil production less than or equal to 1MM must be reported as small business loans, and as community development loans if greater than 1MM with a valid CD Purpose.

If it is secured by nonresidental nonfarm real estate it must be greater than 1MM if it is a permanent loan to a non profit entity with a valid CD purpose. If it is less than 1MM it would be reported as a small business loan even if it has a valid CD purpose. Alternatively, if it is a construction loan secured by nonresidential nonfarm real estate it would not have a dollar limit for CD if it has a valid CD purpose. Alternatively, if it is a construction loan without a valid CD purpose to a nonprofit it would not be reported at all.

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#2188575 - 08/09/18 06:05 PM Re: Large Bank CD Loans - Must be over $1 Million? Mel in WA
Princess Romeo Offline

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The whole rigmarole on Community Development lending started (IMO) when a short-cut was taken to provide a definition of "small business loan" and someone got the bright idea of piggy-backing on the Call Report definition of "Small Business loan". ("Oh hey, we can just use this handy-dandy definition right here!") and the powers that be didn't consider that Call Report definitions serve a different purpose than CRA.

So you have to review the Call Report instructions, the short-hand of which is:
- IF the loan is properly classified as either 01E (loan secured by non-farm, non-residential property) OR 04A (Commercial & Industrial loan)
- AND the loan is $1Million or less,
if you are a Large Bank then you must report that loan as Small Business and you cannot double count it as Community Development.

Also- if you make Ag or farm loans, then any loan correctly reported as 01b or 03 and the amount is $500,000 or less, you must report as a small farm loan and cannot double count it as Community Development.

ANY other non-consumer loan (except for 1-4 family RE reported on HMDA) is fair game to report as Community Development IF the loan meets the criteria for Community Development.

In the instructions for Call Report Code 04A, there is a whole host of items that either must be included or excluded when it comes to nonprofit organizations, but the most common scenario, an unsecured loan to a non-profit, if that loan has a Community Development purpose then it can be reported as a Community Development loan regardless of the loan amount.

CRA officers need to establish a good line of communication with the person/department responsible for assigning the Call Report codes on loans. It also helps to be familiar with the Call Report instructions:
https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_FFIEC041_201806_i.pdf
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#2188600 - 08/09/18 06:47 PM Re: Large Bank CD Loans - Must be over $1 Million? Princess Romeo
mrogersfib Offline
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Also, keep the loan data collection grid handy ( CRA Loan Data Collection Grid).

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#2188733 - 08/10/18 05:19 PM Re: Large Bank CD Loans - Must be over $1 Million? Mel in WA
Mel in WA Offline
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This post has been so helpful. It's frustrating when loans that have a CD purpose are being originated, but since they are less than $1 million, they must be included in the data. We have a few others similar to the Habitat loan.

Thanks!!!

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#2188897 - 08/13/18 05:41 PM Re: Large Bank CD Loans - Must be over $1 Million? Mel in WA
Princess Romeo Offline

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So - show of hands, how many have run across a loan to a non-profit entity where the loan is secured by oil or mining production payments?

And I agree that it IS frustrating when you have a loan that is as "CRA" as CRA gets, but because of a technicality, you have to report it as small business. Sometimes you can get a sympathetic examiner who will still give you credit in your exam for making that loan, but other times you get a bureaucratic examiner who basically says "too bad." Consider a loan made to a non-profit that is running a day care for low- and moderate income families. The loan is for $950,000 and is secured by the day care facility that is located in a middle-income census tract because that's the side of the street the facility is on. The non-profit receives annual revenue of $3 Million that helps them carry out their mission of serving the poor. The other side of the street is a moderate-income tract, and many low- and moderate-income tracts are located close by.

But in your lending analysis, all you get is a small business loan to a large business located in a middle income census tract.
Last edited by Princess Romeo; 08/13/18 05:53 PM.
_________________________
CRCM,CAMS
Regulations are a poor substitute for ethics.
Just sayin'

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#2188957 - 08/13/18 10:18 PM Re: Large Bank CD Loans - Must be over $1 Million? Princess Romeo
mrogersfib Offline
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I recently switched from an employer who is the largest CRA lender in the states, and was apart of their CRA Risk team, and there they report small business loans with a CD Purpose as CD loans. Then at my newest employer they only collect business with less than 1MM in rev/dollar amount as small business.

As such, from what I have gathered, according to A Guide to CRA Data Collection and Reporting (pg 11, Link, FFIEC, 2016) on page 11 it states:
Quote:
Small Business Loans
Secured by Nonfarm
Residential Real Estate

Loans secured by nonfarm
residential real estate used to
finance small business must be
reported as “loans secured by
real estate” when the real estate
collateral taken is greater than
50 percent of the principal amount
of the loan at origination unless
the security interest in the nonfarm
residential real estate is taken as an
abundance of caution and where
the loan terms as a consequence
have not been made more favorable
than they would have been in
the absence of the lien or liens.
See instructions for Call Report
Schedule RC-C in Appendix E.
If the estimated value of the real
estate collateral is 50% or less of
the loan amount, the loan should
be reported in another category
based on the purpose of the
loan (such as Commercial and
Industrial). If the loans promote
community development, they
may be considered as community
development loans. Otherwise, the
institution may opt to collect and
maintain data separately as “Other
Secured Lines/Loans for Purposes
of Small Business” for examiner
evaluation.


but interestingly in the Interagency Q&As on page 29 it states
Quote:
§ll.12(v) Small Business Loan
§ll.12(v)—1: 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
‘‘loans to small businesses’’ in the
instructions in the Call Report. 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 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
purposes may be considered as
community development loans if they
meet the regulatory definition of
‘‘community development.’’


But here is the death nail for us that are not small or intermediate institutions:
Quote:
§ll.42(b)(2)—2: 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
Federal Housing Administration,
Veterans Affairs, and Small Business
Administration 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 definition of ‘‘home mortgage loan,’’
‘‘small business loan,’’ or ‘‘small farm
loan’’ only in those respective categories
even if they also meet the definition of
‘‘community development loan.’’ As a
practical matter, this is not a
disadvantage for institutions evaluated
under the lending, investment, and
service tests because any affordable
housing mortgage, small business, small
farm, or consumer loan that would
otherwise meet the definition of
‘‘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(s) can receive
consideration under the borrower
characteristic criteria of the lending test.
See Q&A §ll.22(b)(2) & (3)–4.
Limited purpose and wholesale
institutions that meet the size threshold
for reporting purposes also must report
loans that meet the definitions of home
mortgage, small business, or small farm
loans in those respective categories.
However, these institutions must also
report any loans from those categories
that meet the regulatory definition of
‘‘community development loan’’ 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.


So, else where in the Q&As it states that if a small business loan does have a CD purpose it should be collected in the "Other Loan Data" field, or "Information on Small Business Loans, and Lines of Credit" that isn't reported, but held to provide to examiners during your actual CRA Exam. This information is considered Qualitative, and provides missing context to loans that otherwise should be demonstrated for having a response to community credit needs.

Quote:
Q&A §ll.12(v)–3.) Loans extended to
small businesses with gross annual
revenues of $1 million or less may,
however, be secured by residential real
estate. May an institution collect this
information to supplement its 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 the
loans as community development loans.
Otherwise, at the institution’s option, it
may collect and maintain data
concerning loans, purchases, and lines
of credit extended to small businesses
and secured by nonfarm residential real
estate for consideration in the CRA
evaluation of its small business lending.
An institution may collect this
information as ‘‘Other Secured Lines/
Loans for Purposes of Small Business’’
in the individual loan data. This
information should be maintained at the
institution but should not be submitted
for central reporting purposes.


So essentially, if you want to get the full bang for your buck--you would still qualify Small Business Loans for CD, but keep that in a separate file to supplement your request letter when it comes evaluation time.

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