CRA: Community Revenue Bond

Man, I'm really trying to get some good CD bonds on the books. Any case to be made for a Utility Services Revenue Bond?

The purpose doesn't discuss any specific projects, but rather just a restructuring of existing bond debt. The community is within my AA.

If the community is located in an LMI, middle income distressed or underserved, or disaster area then yes under RS. Also, you may find documentation, or language in the bill that the city passed about the bond to find if there are any revitalization, or renewal planning by the city. Though if these bonds are to restructure debt, or are renewals they will not qualify again. The community has already benefited by the prior period investment.

The answer I expected. Just didn't know if any of you had a creative spin on getting credit. That often happens.

So, to move the ball forward, what are your primary sources of CD Investment credit? I'm really trying to stack the deck for the next exam cycle and am having problems getting the numbers up.

Following.

We have not gotten credit for utility bonds in past exam cycles because they serve everyone.

I'm also curious where banks are finding the majority of their CD investments. Our school bonds don't typically qualify because it's rare to find an entire district CRA eligible.

The most qualitative way that you can effect your exam is to go all out on LIHTC, NMTC, EQ2s, and bond participation programs. Have your bank do both the equity investment, and the loan simultaneously. Pair a loan with a NMTC, or EQ2. Remember, investments are only 25% of your overall exam score so trying to pair stuff together with the lending test is the best way to have an effective movement.

Has your institution been successful in obtaining both investment and lending credit?

The example below references HMDA loans but I would think it would also apply to Small Business/Small Farm Loans. Either the investment test or the lending test, but not both when the loans securing the investments are originated by the same institution.


From the Q and A in the FDIC Compliance Examination Manual https: https://www.fdic.gov/regulations/compliance/manual/11/xi-12.1.pdf

§ __.23(b) – 2: If home mortgage loans to low- and moderate-income borrowers have been considered under an institution’s lending test, may the institution that originated or purchased them also receive consideration under the investment test if it subsequently purchases mortgage-backed securities that are primarily or exclusively backed by such loans?
A2. No. Because the institution received lending test consideration for the loans that underlie the securities, the institution may not also receive consideration under the investment test for its purchase of the securities. Of course, an institution may receive investment test consideration for purchases of mortgage-backed securities that are backed by loans to low- and moderate-income individuals as long as the securities are not backed primarily or exclusively by loans that the same institution originated or purchased.

Indeed the predominate model for the bank that I had previously worked at both paired investment and lending credit for mainly LIHTC projects.

What you are referring to is double counting between CRA and HMDA. Loans that have been counted under HMDA may not also be counted for CRA.

[img]https://i.imgur.com/kENUeRa.png[/img]

For instance in the image above, you can invest in the LIHTC Equity, and then also provide the subordinated loan for the borrower. This does not enter into double reporting as each provides a portion of the whole. Then in the narrative you mention the investment in the loan, and the loan in the investment's write up. Because of the LIHTC on the investment you can take the presumption of CD on the loan as well. Be sure not to double count the qualitative elements on the loan and the investment. If you provide how many units are included on the loan you shouldn't also mention them on the investment unless you do so in proportion to their benefit to the project.

[img]https://i.imgur.com/xcdWmUk.png[/img]

Another instance as above with a NMTC and a tiered leveraged investment structure provides that investors supplement the lenders loan with their investment capital. The bank receives loan repayment and the investors receive tax credits & return on investment. So a bank in this scenario can be the lender and the investor--for instance if the loan exceeds credit policy--then a credit department can invest in the other end to fulfill the lending need. Again this doesn't cause issue with double counting because the investment and the loan are a part of the whole, but never overlap.

The Q and A cited in my prior post above is not referring to double counting HMDA and CRA Loans.

In short, if the institution received lending test consideration for the loans that underlie the securities, the institution may not also receive consideration under the investment test for its purchase of the securities.

You stated prior that the Q&A was referring to HMDA, which it is. Home mortgage originations and purchases are both HMDA which are considered under the lending test. And yes you are right that I cannot bundle those mortgages into a security and then also count them as an investment--I can do it, but it doesn't count for CRA because the originations and purchases are already accounted for under HMDA. But, this topic detracts from the lineage of the conversation.

To reiterate that investments can be tied to loans consider the structure of a LIHTC loan as noted in the image in my above comment:

Project Funding Structure:
Tax Exempt Bonds: 12,200,000
LIHTC Equity (4% LIHTC): 6,400,000 <---- CD Investment
Subordinated Loan: 800,000 <---- CD Loan
Total: 19,400,000

I want to make sure I can illustrate this for OP to answer their original question.

Thoughts on this:

Municipal Water Authority Bond that is used, in part, for wastewater infrastructure upgrades to a town that includes some moderate and low income tracts. I think it's a win.

Bump.

That's definitely a win--especially if there is a municipal redevelopment plan, or city plan for maintaining critical infrastructure.