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#607360 - 08/30/06 07:17 PM Qualification for Community Development Loan
megandmel Offline
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megandmel
Joined: Nov 2004
Posts: 141
OK
I have a loan to construct a duplex in a low to mod AA.

I cannot take the loan for HMDA purposes do to the construction exemption. AND, the loan does not qualify under small business because it is secured by the property.

So, my question is.....can I qualify the above as a CD loan. (I'm worried that it doesn't meet the MULTI-family definition. )
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#607361 - 08/30/06 07:28 PM Re: Qualification for Community Development Loan
Bullseye Offline
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Bullseye
Joined: Jan 2004
Posts: 968
Is the purpose of the duplex to provide housing affordable to low or moderate income individuals? If so, you should be able to count it as such.

In our assessment area we have one low income census tract that recently had half-million dollar condos built in it. Again, in a low income area, but definately doesn't qualify as affordable housing.

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#607362 - 08/30/06 07:48 PM Re: Qualification for Community Development Loan
megandmel Offline
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megandmel
Joined: Nov 2004
Posts: 141
OK
For CRA purposes, does my duplex (they are only building) fit the definition of MULTI family?
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#607363 - 08/30/06 09:29 PM Re: Qualification for Community Development Loan
CRAatBOK Offline

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Joined: Mar 2004
Posts: 6,172
Further South than I wanna be.
No, multi family must have 5 or more units. If you can show the duplex will have income restrictions for the renters then it could be community development.
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#607364 - 08/30/06 09:37 PM Re: Qualification for Community Development Loan
megandmel Offline
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megandmel
Joined: Nov 2004
Posts: 141
OK
As affordable housing?

Thanks all! This CRA qualification is still too new to me...
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#607365 - 08/30/06 09:39 PM Re: Qualification for Community Development Loan
Don_Narup Offline

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Joined: Jul 2001
Posts: 3,708
Las Vegas Nevada
If the property is affordable housing for Low and Moderate income individuals it can qualify as a Community Development Loan.

A direct benefit to LMI individuals must be shown and you must document evidence that the property will be rented to such individuals.

Just saying its afordable housing in Low of Modertate Income classified census tract is not enough to qualify the loan as CD.

Otherwise it will not qualify as a CD loan
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#607366 - 08/30/06 10:20 PM Re: Qualification for Community Development Loan
megandmel Offline
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megandmel
Joined: Nov 2004
Posts: 141
OK
Sorry to keep asking questions.....does the fact that this is a construction loan hurt the affordable housing qualification?
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#607367 - 08/30/06 10:37 PM Re: Qualification for Community Development Loan
CRAatBOK Offline

Power Poster
Joined: Mar 2004
Posts: 6,172
Further South than I wanna be.
No, it is the end use that qualifies it. If the borrower is building a home or homes that will qualify, you can count the loan.
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#607368 - 08/31/06 01:12 AM Re: Qualification for Community Development Loan
Don_Narup Offline

Power Poster
Joined: Jul 2001
Posts: 3,708
Las Vegas Nevada
Not to be redundant, but you need to document that the end use will be a direct benefit to an LMI individual or individuals.

One of the 4 categories that qualify as Community Development is "Affordable Housing (including multiple family housing) for low and moderate income individuals."

Eventually you will be asked to show that LMI individuals received a direct benefit from this project.

If you cannot show that LMI individuals were able to rent or purchase the homes, then it probably will not be approved as a Community Development Loan.

Ask yourself, Can I document that the builder is specifically constructing these homes so Low and Moderate Income individuals can live in them? Have the rents already been set, and are they at a level that LMI individuals in the area can afford them? Do I know the median Family income of LMI individuals in the area, and what rents are affordable to them?

Not trying to make this complicated. But its not as simple as believing because a home is being built in a Low or Moderate classified census tract that it becomes "Affordable Housing for CD credit. I am told that examiners disqualify 60% -_70% of loans banks have listed for CD credit. Mainly because of assumptions and lack of supportable documentation.

The key is to document like crazy. If you think a loan has a chance, and you can document well, the odds are in your favor of getting credit.

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#607369 - 08/31/06 01:20 PM Re: Qualification for Community Development Loan
Len S Online
Diamond Poster
Joined: Oct 2004
Posts: 1,966
Connecticut
Don, you are absolutely correct as far as documentation is concerned. I've seen many a community development loan disqualified during an exam for lack of documentation. You not only should have internal documents explaining the CD qualifications you should have third party documents substantiating the qualifications. By laws and charter of the organization showing it is focused on rendering community services to LMI people and statements from the borrower explaining the use of funds and how the proceeds or project will benefit the LMI community or any reasonable independent source of information are strongly recommended.
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#607370 - 08/31/06 03:17 PM Re: Qualification for Community Development Loan
megandmel Offline
100 Club
megandmel
Joined: Nov 2004
Posts: 141
OK
Thank you all sooooo much! This is the information I'm looking for.
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