Any of you who have purchased MBS investments for CRA purposes - did you classify them as "hold to maturity" in the bank's investment portfolio or do you later sell them and purchase others as the bank would normally do with MBS investments? We would hold them as long as possible, of course, but if it was in the bank's best interest to sell the MBS, I would like to be able to do so and not have to hold it just because it was a CRA investment.

I know that loans purchased for CRA purposes are bought and sold and you still get credit. Just wondering if the same holds true for investments.

These are just one facet of our investments but we do utilize them because of the difficulty of obtaining reasonable investments in our area.

Our investment test credit is primarily MBS with the underlying collateral exclusively from LTM census tracts. Our securities portfolio is classed as held for sale. We have not sold our CRA securities between CRA evaluations, since they are typically underwater (which is a hit to capital since they are held for sale). If yours are held for sale, the important consideration is that your bank have them replaced when your CRA evalution takes place.

So basically you do hold them for sale vs hold for maturity (which has dire consequences if sold before maturity) - which means you could sell if you needed to for other bank liquidity considerations, and would need to replace with other CRA investments pre-exam.

Did I re-state that correctly?

Yes, that sounds like what I meant to say. I would be concerned if I had sold all my CRA investments prior to CRA evaluation time and had none on the books when evaluated.

Thanks. That was my thought process. I just don't want to put the investments into hold til maturity and then we are stuck with them even if they are dogs!

WAIT! I don't hold anything and I get full credit. (Well I don't hold if it doesn’t make sense to sell). The regulation does not hold this as a caviat to listing an investment for CRA credit.

The value you provide to the investment in MBS (or any other CRA investment) is making the purchase in the first place. That funding allows the process to take place (construction, low income buyers, etc). Without your initial funding of the investment it wouldn't take place.

Selling the investment at a later date to a bank or other investor makes no difference in the credit you get during an exam.

We are supposed to perform our CRA duties in a safe and sound manner. Holding an investment that can be sold at a later date for a premium, or dumping a cold investment in a hot market is a decision for your CFO, not your examining agency. That's all part of a sensible/sound investment plan.

Half of my investments were sold prior to the exam taking place, some within months of purchasing long term investments. We had no issues what so ever as we'd complied with the goals of CRA by funding the purchase in the first place. 100% of the credit was alloted to my investment in the exam. The only thing I lost in the sale was the ability to carry the investment over through another exam period.

Apply the same thought to MBS you might buy on the open market from a bank letting their shares go....wouldn't you take CRA credit for the purchase? (If it qualified under all guidelines otherwise). Of course you would. You're still helping the process by keeping funding in the stream.

Thanks! That was the answer I was "hoping" for but I had never tried it so wasn't sure.

Do you just show investments you purchased and they either have sold dates or not (if you still hold them?) With other info of course showing why you should receive credit.

One other question, Dawnie. Last exam the bank had some MBS purchased that were in the assessment area, a large portion in low to mod census tracts, but some borrowers in the low to mod tracts had middle income. The bank rec'd credit for the low to mod borrowers.

Do you find you get credit for low to mod borrowers in or out of low to mod tracts? All borrowers in low to mod tracts, or what?

Thanks.

My exact write up:

Community Development Investments
My Bank Name

Investment Name: Alaska Housing Finance Corporation
Mortgage Revenue Bonds, 1999 Series A-2

1. Does the primary purpose of this investment address at least one of the following? (Highlight in bold the item/s that apply)
Affordable housing for low- or moderate-income individuals
Community Services targeted to low- or moderate-income individuals
Promote economic development by: financing businesses or farms eligible by size per 13 DFR 121.301 or gross revenues =<$1,000,000.
Activities that revitalize or stabilize low- or moderate-income geographies

2. This investment has not been reported or collected by an affiliate for considerate in the affiliate's CRA performance. (First National Bank has no affiliates)

3. This investment benefits the bank’s assessment area(s) or a broader statewide or regional area that includes the bank’s assessment areas. What area is benefited:
State of Alaska

4. If the investment benefits a broader statewide or regional area, explain how funds are allocated in the area.
All regions within the state of Alaska are able to take part in the program funded with this investment. This particular program encourages homebuyers to seek a low interest rate program in both rural and metropolitan areas of the state if their family income is low or moderate.

5. Was there potential that the funds would be invested within the bank’s assessment area(s) at the time the investment was initially made? (Highlight in bold the correct answer)
YES NO

6. Book Value: $0
(as of 08/30/01)
Initial Commitment $2,075,000.00
Amount of Funding: $2,083,945.00
Date of Investment: 11/99
Maturity 12/03

7. Describe the investment, how it addresses the community development purpose, and the results/success of the investment:
This bond raised funds for the Tax Exempt First Time Homebuyers Program offered through AHFC. The program has income limits making it favorable to low to moderate-income persons within the state.

8. Is this investment innovative and/or flexible (highlight in bold the correct answer) YES NO

9. Provide supporting documentation or the name and phone number of the person who has the supporting documentation available for review.
Additional documentation (other than included in this file) is maintained in the office of the bank’s CFO, (contact information is included in the write up)

(I use the form that's posted in the tools section of BOL under Dawn Lowrie)

Frankly the MBS you received probably needed a bit more documentation, or you might not have seen some pertinent documents that your examiner reviewed (I hope)

The investment probably served a proponderance of tracts that were low and mod income, which is enough to qualify for CRA even though there were middle income buyers. If this was the case I'd choose "Activities that revitalize or stabilize low- or moderate-income geographies". You can take CRA credit for either (low and mod borrowers or low and mod tracts, you just adjust your write up).

If this was not the case and the investment was reserved for low and mod home buyers, then I'd choose the option I selected from the above write up. I had the prospectus on the investment so I could show that the majority of loans would be reserved for low and mod persons verses relying on tract information.

If you aren't reading the prospectus, start They are the documentation that leads you to choose your CD Purpose and they're the back up docs you MUST provide your examiner to receive proper credit. Better you provide them than leave it up to the examiner to beg for the information from your CFO.

(Warning...they're also boring as heck...pour a BIG cup of coffee before you start!)

The exam in which we did not receive credit for all of the loans in the MBS was the one right when I had started at the bank. You gave some good advice during the exam and we got a Satisfactory despite having to refile CRA and HMDA for 2 years AND explaining how the bank lost the other 1/2 year of data included in the exam. I was so thankful to get the Satisfactory, I was not going to argue. I think it was a pity rating!

We are now documenting, documenting!

Some of these MBS's are being custom created from other (large) banks portfolios. Basically, they ask "what do you want" and then create a Freddie Gold security! I don't know that there is a prospectus but I have all of the preliminary data presented to us to make our selection, etc.

YOu know I"m always glad to hear I've helped in a small way. I think the real help your bank got was when they chose to hire someone smart enough to clean up the mess and get them through the exam alive!!!

Provide whatever documents that the sellers are using to sell you the MBS. This should support the product since it's custom made for you given your CRA needs. The examiners should be quite happy with this

Thanks. That is what we are doing. Creating a file and writeup on each investment.