Are they under a rock? Are they in a sock? Could they be ad hoc? Capturing community development loans can be just as easy as reading Dr. Seuss or they can be just as hard as capturing a moose. Ok, that’s a bad rhyme but you get the idea! The key is knowing what a Community Development Loan is, how to find them, who reports them, and why they are reported.
What is a Community Development Loan (“CD Loan”)? The primary purpose of a CD Loan must be for affordable housing, revitalization, and stabilization of a LMI area or to promote economic development/create jobs for low-to-moderate-income people. A CD loan cannot already be reported as a small business or small farm loan. It also cannot already be reported as a HMDA loan, unless the loan is for the purpose of multi-family affordable housing. This is the only instance when the loan can be reported under both HMDA and as a CD loan. If CRA qualification is based on job creation, gross annual revenue size eligibility requirements must be met based on the Small Business Administration’s guidelines found here: https://www.sba.gov/document/support-table-size-standards. Under the current CRA rule, the loan must also benefit your bank’s assessment area or a broader, statewide or regional area that includes the bank’s assessment area to qualify for CRA credit.
What are some examples of CD Loans? Loans to finance multi-family affordable housing or made in conjunction with the SBA’s 504 loan program where the loans are greater than $1 million are eligible for CRA credit. Loans made to minority and women-owned financial institutions that have a community development purpose are also eligible for CRA credit. Loans made to local or state governments that have a community development purpose are also eligible.
How do you locate CD Loans? Finding CD Loans can be a daunting task. Because there are so many ways a loan might qualify as a CD Loan, it’s difficult to automate their capture like small business or HMDA loans. Your loan officers should be regularly trained on CD Loan qualification. The bank’s CRA Officer should also consider attending loan committee meetings to determine if any loans in their pipeline might qualify.
Another way to capture these types of loans is to research all commercial purpose loans over $1 million. Though a CD Loan does not have to be over $1 million to qualify for CRA credit, this would help identify those loans already captured as small business loans and therefore, not eligible as CD loans. You can also research loans to non-profit organizations to determine if they might have a community development purpose.
Who reports CD loans and why? Under the current CRA rule, large banks must report their CD loans. Small and intermediate banks may report CD loans, but it is not required. A small bank that chooses to report their CD loans, however, may help demonstrate to their regulator their bank’s commitment to meeting the credit needs of their communities as well as prepare for future growth of the bank.
Because CD Loans are included in a bank’s lending test, these loans can have a positive effect on the lending test and can sometimes help mitigate deficiencies in other areas of lending.
Can Dr. Seuss help me? Though Dr. Seuss is a master storyteller, he cannot help you with your community development loan “story.” When documenting these loans, tell your bank’s story. Describe how the loan qualifies as “community development.” Specifically describe how the loan benefitted the community or individuals within the community. When applicable, take photos of the project and include them in your documentation for the examiners. Sometimes pictures really are worth a thousand words.
Can you help me? When researching community development loans, contact me with your questions. I’m only a stone’s throw. I won’t say no! Another bad rhyme, but you get the idea!
Steffani Jenkins is the CRA Liaison for ICBA CRA Solutions. She has over 20 years of experience in CRA, serving in multiple capacities, including Community Development Manager, CRA Analyst, and Deputy CRA Officer.
