Pro-rata on Mixed-income Housing

I am getting creative these days~ Let me know if I am getting too carry away~

On Q&A 12(h)-8, It talks about if project involving low-income housing tax credit (LIHTC), even if less than 50% of units are rented out to LMI, they can still receive full consideration. (meaning no pro-rata is needed). This is due to the LIHTC has express and dona fide intent for affordable housing.

I recently learnt about FHLB's Community Investment Program (CIP). In order for a project to be qualified under CIP, it has to have community development purpose on top of other requirements. (I attached two links regarding the CIP)

http://www.occ.gov/topics/community-affairs/publications/fact-sheets/fact-sheet-fed-home-loan.pdf
http://www.fhlbsf.com/community/credit/cip-profile.aspx

Following the reporting logic of LIHTC case; If the Bank financed a housing project that is confirmed to be FHLB's CIP, since the CIP has express community development purpose, can we report the full amount, instead of pro-rated one. Please kindly let me know your thoughts~

Thank you very much.

If the express community development purpose is affordable housing, the bank should receive credit. From the discussion section of the 2010 Q and A:

"Commenters generally supported the proposed revision. One commenter suggested that the agencies should allow only pro rata treatment in all situations where less than a majority of an activity’s dollars will be used for community development. This commenter further suggested that the agencies should eliminate full consideration of activities that have an ‘‘express, bona fide intent’’ of community development when the measurable portion of any benefit bestowed or dollars applied is less than a majority of the entire activity’s benefits or dollar value. The agencies decline to adopt this suggestion. If the express, bona fide intent of an activity
is community development, even though the measurable portion of any benefit bestowed or dollars applied is less than a majority of the entire activity’s benefits or dollar value, the agencies continue to believe that it is important that such activities, such as projects involving low-income housing tax credits, receive full consideration."

LIHTC s are merely one example.

So if I have CD loan for a mixed income project where at least 51% of the units are for affordable housing can I count the entire amount as a CD loan? Thus I would only use pro rata what "less than a majority" applies?

Below is an example in the CRA Q and A https://www.govinfo.gov/content/pkg/FR-2016-07-25/pdf/2016-16693.pdf Page 48530

"For example, if an institution makes a $10 million loan to finance a mixed-income housing development in which 10 percent of the units will be set aside as affordable housing for low- and moderate-income individuals, the institution may elect to treat $1 million of such loan as a community development loan. In other words, the pro rata dollar amount of the total activity will be based on the percentage of units set-aside for affordable housing for low- or moderate-income individuals."

You are correct MrE. Pro rata only applies when less than a majority of the units are benefiting LMI people. If the predominate element of the loan is Affordable Housing then it is as such; if it walks, talks, and acts like a duck it's probably a duck.

I have a Construction CD loan that is a mixed income project that is exactly 50% set aside by state program for LMI and the other 50% are NRR and above HUDFMR.

This is also a participation and we are not the lead Bank.

My question is: Do I count our Bank's whole participation amount or only 50% "pro rata" of our participation amount because only 50% of the units qualify?

Would love a clear answer on this. Thanks!

I would only count 50% of the pro rata share, unless you find out for some reason the other bank isn't counting any of it. I once had a participation loan where the lead bank didn't plan to claim anything because it was too far outside their AA....so I claimed it all. But I think that was very unusual.

There are 3 ways of getting credit for affordable housing as community development under CRA. Essentially you must meet the "primary purpose test" in one of the following ways:
1- the majority of the units are affordable and occupied by low- or moderate-income tenants - 100% of the loan is reported as CD
2- less than a majority of the units are affordable and occupied by LMI tenants and (a) you have documentation from the borrower that the structure will contain a certain number or percent of units that would qualify, (b) the loan is structured to achieve the affordable housing purpose (i.e., have a formal set aside), and (3) there is a reasonable basis that the goal will be achieved (the borrower has a proven track record) - 100% of loan is reported for CD credit
3- you can qualify under the primary purpose but you have documentation substantiating that X% of the units are qualified as affordable and occupied by LMI tenants - pro rata credit

For loan participations that you are not the lead bank on, you would report your pro rata share of the reportable amount (see #1-3)

Thanks, I did further analysis and found out 20 of the NRR units are below the Med. Rent Standard as well so now I can say 56% of the units are affordable. This project is in a LMI tract, and I know at least 50% will be occupied by LMI tenants as required by the state program. So I am going to count the whole portion of our participation amount Does that sound right?

How did you go about finding out the other Bank wasn't claiming any of it? I thought we could only claim our participation amount.

Can't you ask them?