CD Loan?

We are making a loan to complete the construction of an apartment complex; the collateral is a different apartment complex. If both apartment complexes meet community development purpose, can we report it as such? or does it have to be the same property>

Thanks

For Community Development loans, you follow the purpose -collateral is not relevant UNLESS the collateral and loan amount requires the loan be reported as a small business loan.

DOCUMENT, DOCUMENT, DOCUMENT the Community Development purpose of the loan.

Thank You.

I have a follow-up question regarding CD loans. Would a loan to purchase a group home for disabled adults that are on disability income qualify as a CD loan? it is not a multi-family, but does provide a community service to LMI. Appreciate feedback. Thank you!

If the loan is reportable on your HMDA LAR, and it is not a multi-family dwelling, then the loan is not eligible to be reported as Community Development.

You need to carefully review how this dwelling is utilized, and if it is truly a home or just provides "day" or short-term treatment and therefore is not considered to be a "dwelling" for HMDA.



If it is HMDA reportable, this is where your internal Performance Context/Self Evaluation becomes important in that you would highlight that loan along with the benefit to the LMI in your community even though you cannot include it as a CD loan on your LR.

Fretzer, we are an FDIC bank and have similar loans such as this. Group homes housed with residents who have cognitive learning disabilities of one form or another. They live there and are taught life/independent living skills, occupational skills, etc. Most tend to be on some type of financial assistance, but not necessarily all. The entity also relies of various State Dept of Public Health & Welfare grants to operate the homes. We have always received CRA credit for these loans from our FDIC examiners.

Yes - you can receive CRA Credit, but you will need to highlight the loan in your own self-assessment and make sure the examiners are aware of it.

If the property is considered "long-term housing" and it is a 1-4 dwelling and the loan was to purchase said property, then it is HMDA reportable and technically cannot be reported as a CD loan per the Q&A. Only multi-family dwellings can be double reported on HMDA and CD.

Your loan is community development qualified because it is secured by multifamily residential real estate. If there is a valid CD Purpose for the property being improved, or built upon then it would qualify for CD. Vice versa, if the collateral was multifamily, but the borrowers are taking over 50% of the loan in cash then it doesn't qualify, or if the proceeds from the collateral are being used to finance another multifamily dwelling without a CD purpose then the loan wouldn't qualify even if the collateral was rent restricted property.

With the new changes to HMDA--it will be easier to move something into multifamily if it provides a "community."

@Fretzer

Your loan can be reported for CD. The loan is not considered to be residential because it is a commercial entity providing a service, and thus is reported under section 1.e.(2) commercial owner occupied / other real estate on the call report.

1.e.(2) Loans secured by other nonfarm nonresidential properties. Report in column B the
amount of nonfarm nonresidential real estate loans that are not secured by owner-occupied
nonfarm nonresidential properties. “Loans secured by other nonfarm nonresidential properties” are those nonfarm nonresidential
property loans where the primary source of repayment is derived from rental income
associated with the property (i.e., loans for which 50 percent or more of the source of
repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale,
refinancing, or permanent financing of the property. Include loans secured by hotels, motels,
dormitories, nursing homes, assisted-living facilities, mini-storage warehouse facilities, and
similar properties in this item as loans secured by other nonfarm nonresidential properties.

If after determining the primary use of the property it would be considered a dwelling--then you have to consider the amount of beds/units to be greater than 5.

Also, if the loan is less than $1,000,000.00 it would be reported as small business, and the community development purpose reported in your "other loan data" submission.

Thanks for all the responses! This loan is being reported on line 1.e.(2). I did confirm with the lender that over 50% of the residents would be LMI. I did find out that this loan was to purchase the lot that the home will be built on. Does this change whether or not it will be CD reportable? Thanks folks!

If it is being reported on 1.e.(2), and is a considered a construction loan, then you can report it regardless of the dollar amount of the loan. If the lender is getting an estimation of how many people will be LMI since the home is not built yet I would get an LMI letter from the developer/sponsor. If you are also doing the permanent financing for the development it must be greater than 1MM, and have a valid CD purpose. If it is less than or equal to 1MM then it is reported as a small business loan even if it has a CD Purpose assuming you are a large or intermediate financial institution.

Also, if less than 50% of the residents are LMI then you can take credit for the pro rata share of the loan. Otherwise, you can consider this as economic development if you can get information on jobs created, and the salaries of said jobs to take full credit on the loan. Or also highlight the responsiveness of this loan by providing it's primary benefit of proving a community service, and a secondary purpose of economic development.

Thanks so much for the quick response! Appreciate the feedback.

You betcha!