[Federal Register Volume 75, Number 2 (Tuesday, January 5, 2010)]
[Rules and Regulations]
[Pages 678-704]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-31003]
[[Page 677]]
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Part VI
Federal Housing Finance Board
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12 CFR Parts 925 and 944
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Federal Housing Finance Agency
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12 CFR Parts 1263 and 1290
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Federal Home Loan Bank Membership for Community Development Financial
Institutions; Final Rule
Federal Register / Vol. 75, No. 2 / Tuesday, January 5, 2010 / Rules
and Regulations
[[Page 678]]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Parts 925 and 944
FEDERAL HOUSING FINANCE AGENCY
12 CFR Parts 1263 and 1290
RIN 2590-AA18
Federal Home Loan Bank Membership for Community Development
Financial Institutions
AGENCIES: Federal Housing Finance Board and Federal Housing Finance
Agency.
ACTION: Final rule.
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SUMMARY: The Federal Housing Finance Agency (FHFA) is amending its
membership regulations to implement provisions of the Housing and
Economic Recovery Act of 2008 (HERA) that authorized community
development financial institutions (CDFIs) that have been certified by
the CDFI Fund of the U.S. Treasury Department (CDFI Fund) to become
members of a Federal Home Loan Bank (Bank). The newly-eligible CDFIs
include community development loan funds, venture capital funds, and
State-chartered credit unions without Federal insurance. This final
rule sets out the eligibility and procedural requirements that will
enable CDFIs to become members of a Bank and relocates part 925 in its
entirety to part 1263. FHFA also is amending its community support
regulations to provide that certified CDFIs may be presumed to be in
compliance with the statutory community support requirements by virtue
of their certification by the CDFI Fund and relocates part 944 in its
entirety to part 1290.
DATES: This rule is effective February 4, 2010.
FOR FURTHER INFORMATION CONTACT: Sylvia C. Martinez, Senior Policy
Advisor, 202-408-2825, sylvia.martinez@fhfa.gov; Amy Bogdon, Senior
Advisor, 202-408-2546, amy.bogdon@fhfa.gov, Division of Federal Home
Loan Bank Regulation; Neil R. Crowley, Deputy General Counsel, 202-343-
1316, neil.crowley@fhfa.gov (not toll-free numbers), Office of General
Counsel, Federal Housing Finance Agency, Fourth Floor, 1700 G Street,
NW., Washington, DC 20552. The telephone number for the
Telecommunications Device for the Deaf is (800) 877-8339.
SUPPLEMENTARY INFORMATION:
I. Background
A. Regulatory History
On May 15, 2009, FHFA published a proposed rule to implement the
provisions of HERA authorizing CDFIs to become members of the Banks. 74
FR 22848 (May 15, 2009). FHFA received 79 comment letters on the
proposed rule, most of which were generally supportive of the proposal,
and many of which recommended ways in which the regulation could be
amended to better achieve its objectives. FHFA received comment letters
from the Banks, numerous CDFIs, trade associations, and other community
organizations. The key substantive issues raised by the comment letters
focused principally on the criteria that FHFA had proposed for the
Banks to use in evaluating the financial condition of CDFIs applying
for membership. In this final rule, FHFA has incorporated certain
revisions suggested by commenters, but in other respects retains the
substance of the proposed rule.
B. HERA Amendments
On July 30, 2008, HERA, Public Law 110-289, 122 Stat. 2654 (2008),
became law and created FHFA as an independent agency of the Federal
government. Among other things, HERA transferred to FHFA the
supervisory and oversight responsibilities over the Banks that formerly
had been vested in the now abolished Federal Housing Finance Board
(Finance Board). The Banks continue to operate under regulations
promulgated by Finance Board until such time as the existing
regulations are supplanted by regulations promulgated by FHFA. Section
1206 of HERA also amended section 4(a) of the Bank Act, 12 U.S.C.
1424(a), which relates to Bank membership, by expressly authorizing
certified CDFIs to become members.
C. CDFIs
CDFIs are private institutions that provide financial services
dedicated to economic development and community revitalization in
underserved markets. The CDFIs may be organized as nonprofit or for-
profit entities and comprise diverse institutional structures and
business lines. The four categories of institutions eligible for CDFI
certification and CDFI Fund financial support are: (1) Federally
regulated insured depository institutions and their holding companies;
(2) credit unions, whether federally or State-chartered; (3) community
development loan funds, which are unregulated institutions specializing
in financing of housing, businesses or community facilities that
provide health care, childcare, educational, cultural, or social
services; and (4) community development venture capital funds, which
are unregulated institutions that provide equity and debt-with-equity-
features to small and medium-sized businesses in distressed
communities.
The CDFIs serve as intermediary financial institutions that promote
economic growth and stability in low- and moderate-income communities.
They provide a unique range of financial products and services, such as
mortgage financing for low-income and first-time homebuyers; homeowner
or homebuyer counseling; financing for not-for-profit affordable
housing developers; flexible underwriting and risk capital for needed
community facilities; financial literacy training; technical
assistance; and commercial loans and investments to assist start-up
businesses in low-income areas. Frequently, CDFIs serve communities
that are underserved by conventional financial institutions and may
offer products and services that are not available from conventional
financial institutions. Although CDFIs are generally small in asset
size, studies have demonstrated that CDFIs can have meaningful positive
effects on the low-and-moderate income communities that they serve. One
common problem facing non-depository CDFIs, however, is that they do
not have access to long-term funding, which may limit their ability to
provide housing finance to their communities.
The CDFI Fund of the US Treasury was created to promote economic
revitalization and community development through investment in and
financial and technical assistance to CDFIs. See 12 U.S.C. 4701(b). The
CDFI Fund promotes these purposes through several programs, including
the CDFI Program, the New Markets Tax Credit Program, the Bank
Enterprise Award Program, and Native American Initiatives. See 12
U.S.C. 4701 et seq. and 12 CFR part 1805. An institution can obtain
access to those resources by becoming certified by the CDFI Fund and
then applying to the CDFI Fund to receive awards that are available
under its programs. See 12 U.S.C. 4704 and 12 CFR 1805.200. In order to
be certified as a CDFI, an institution must satisfy several statutory
and regulatory requirements, including that it have a primary mission
of promoting community development, that it provides development
services in conjunction with equity investments or loans, and that it
serves certain targeted areas or populations. The CDFI certification
requirements are more fully elaborated in the statute and the CDFI
[[Page 679]]
program regulations. See 12 U.S.C. 4702(5) and 12 CFR 1805.201. The
CDFI Fund does not regulate the CDFIs that it certifies, nor does it
evaluate their safety and soundness, either during the certification
process or the awards application process. Thus, certification by the
CDFI Fund does not represent a determination that a CDFI is in sound
financial condition, although it does represent a determination by the
CDFI fund that the entity satisfies the statutory requirements of being
a CDFI. Indeed, the regulations of the CDFI Fund expressly state that
certification does not constitute an opinion as to the financial
viability of the certified CDFI or as to the likelihood that the CDFI
will receive an award from the CDFI Fund. See 12 CFR 1805.201(a). If a
period of time has passed since an organization became certified as a
CDFI, the CDFI Fund may require the CDFI to attest that no events have
occurred that would materially affect its strategic direction, mission
or business operation, and thereby, its status as a CDFI, before it may
receive an award from the CDFI Fund.
D. Membership Requirements
Each Bank is a cooperative institution that is owned by its
members. Bank membership is limited to the several types of financial
institutions listed in section 4(a)(1) of the Bank Act. Prior to HERA,
section 4(a)(1) provided that any building and loan association,
savings and loan association, cooperative bank, homestead association,
insurance company, savings bank, or federally insured depository
institution (including credit unions) was eligible to become a Bank
member. Thus, prior to HERA a CDFI could not become a member of a Bank
unless it was eligible for membership by virtue of being a federally
insured bank, thrift or credit union. Section 1206 of HERA amended
section 4(a)(1) to make all CDFIs that are certified by the CDFI Fund
of the US Department of the Treasury under the Community Development
Banking and Financial Institutions Act of 1994 (CDFI Act) eligible to
become members of a Bank. See 12 U.S.C. 1424(a)(1) (as amended). As a
result of the HERA amendments, any loan funds, venture capital funds,
or State-chartered credit unions without Federal insurance that have
been certified by the CDFI Fund are now eligible for Bank membership.
In order for any eligible institution to become a member of a Bank,
however, it also must comply with certain additional criteria that are
specified in section 4(a)(1) and (2) of the Bank Act. Specifically,
section 4(a)(1) of the Bank Act requires each applicant to demonstrate
that it: (a) Is duly organized under State or Federal law; (b) either
is subject to inspection and regulation under banking or similar laws
or is certified as a CDFI under the CDFI Act; and (c) makes such home
mortgage loans as are, in the judgment of the Director, long-term
loans. Those three statutory requirements apply to all types of
institutions that are eligible for membership, including the newly-
eligible CDFIs. In addition, section 4(a)(2) of the Bank Act requires
that an applicant that is an insured depository institution must: (a)
Have at least 10 percent of its total assets in residential mortgage
loans (with certain limited exceptions); (b) be in sound financial
condition such that a Bank may safely make advances to it; (c) have a
character of management that is consistent with sound and economical
home financing; and (d) have a home-financing policy that is consistent
with sound and economical home financing. 12 U.S.C. 1424(a)(1) and (2).
Prior to HERA, the Finance Board had adopted detailed regulations
governing the substantive and procedural requirements for institutions
seeking to become members of a Bank. Those membership regulations
applied the financial condition, character of management, and home
financing policy requirements to insurance company applicants (in
addition to depository institutions), and established a process for the
review and approval of all applications for Bank membership. See 12 CFR
part 925. The regulations included separate provisions governing the
admission of depository institutions and insurance companies,
respectively, recognizing that each type of institution operates under
a different business model and a different regulatory regime. The
regulations also included provisions dealing with several other
matters, such as member stock purchase requirements, consolidation of
Bank members, and withdrawal from Bank membership.
E. Proposed Rule
The proposed rule would have relocated the membership regulations
of the Finance Board in their entirety from part 925 of the Finance
Board regulations to part 1263 of the FHFA regulations, and also would
have amended various provisions of the relocated regulations to
implement the CDFI amendments. The proposed rule would have applied
only to those CDFIs that had not been eligible for membership prior to
HERA, such as loan funds, venture capital funds, and credit unions with
State or private insurance. Federally insured depository institutions
that also have been certified as CDFIs would be required to follow the
membership regulations applicable to insured depository institutions
generally, and could not become members under the CDFI provisions.
The key amendments to be made by the proposed rule related to how
the Banks were to assess the financial condition of CDFI applicants.
The proposed rule included two separate provisions relating to the
financial condition of CDFI applicants. The first provision, which was
set out in Sec. 1263.11, applied only to CDFI credit unions, which are
State-chartered credit unions that do not have National Credit Union
Administration (NCUA) share insurance. The proposed rule would have
required that the Banks assess the financial condition of all such CDFI
credit unions under the same provisions that the Banks currently use in
assessing the financial condition of NCUA-insured credit unions, which
were eligible for Bank membership prior to HERA by virtue of their
Federal share insurance. The second provision relating to financial
condition was set out in Sec. 1263.16(b) and applied to all other
types of CDFI applicants. Those provisions were similar to the Finance
Board's existing regulations relating to the financial condition of
depository institution applicants, but were tailored to recognize the
different structures and business models of the CDFIs. The proposed
rule also included a number of conforming amendments, such as to the
definitions and rebuttable presumptions, and sought comment on
particular issues, such as whether CDFIs could take advantage of
certain amendments made by HERA for the benefit of community financial
institutions (CFIs) and whether the final rule should subject CDFIs to
the existing community support requirements in the Finance Board
regulations or to new requirements developed solely for CDFIs.
F. Differences
Section 1201 of HERA (codified at 12 U.S.C. 4513(f)) requires the
Director of FHFA to consider the differences between the Federal Home
Loan Mortgage Corporation (Freddie Mac) and the Federal National
Mortgage Association (Fannie Mae) (collectively, the Enterprises) and
the Banks with respect to the Banks' cooperative ownership structure,
mission of providing liquidity to members, affordable housing and
community development mission, capital structure, and joint and several
liability, whenever promulgating regulations that affect the Banks. The
Director may also consider
[[Page 680]]
any other differences that are deemed appropriate. In preparing this
final rule, the Director considered the differences between the Banks
and the Enterprises as they relate to the above factors and determined
that the rule is appropriate, particularly because this final rule
implements a statutory provision that applies only to the Banks. See 12
U.S.C. 1424.
II. Summary of Comments
FHFA received 79 comment letters on the proposed rule. The
preponderance of the comments came from the CDFI sector, which was
represented by three national CDFI associations, a sign-on letter with
134 organizational signatures, and letters from nonprofit organizations
and individuals. FHFA also received comments from nine Banks, three
credit union associations, and two bank trade associations.
The comments from the CDFI sector were supportive of the general
direction of the proposed rule but offered recommendations on specific
membership standards, particularly those establishing thresholds for
financial condition. Several commenters also recommended changes to
current regulations as they relate to advances and collateral. The
proposed rule sought to amend only the membership regulations and the
community support regulations, and did not propose any revisions to the
advances and collateral regulations. As a result, FHFA does not have
the authority under the Administrative Procedure Act to amend those
provisions as part of this rulemaking. To the extent that the
collateral and advances regulations may need to be revised to better
accommodate CDFI members, FHFA would undertake those changes as part of
a separate rulemaking.
A number of commenters urged FHFA to establish a CDFI membership
goal for each Bank, i.e., require each Bank to admit a certain number
of CDFIs as members each year, and requested that FHFA publicly release
the number of CDFIs that become members, the amount of advances made to
by CDFIs, and the reasons for the denial of any CDFI membership
applications. At present, the number of members by type of institution
is made available through the Federal Home Loan Banks' Combined
Financial Report, and in the future, the number of CDFIs that become
members each year should be included in the report for that year. FHFA
also intends to release the number of CDFI members through its Public
Use Data Base.
The final rule does not establish goals for CDFI membership.
Whether any institution may become a member of a Bank depends on
whether the institution has satisfied the statutory and regulatory
requirements for membership. Because each application must be evaluated
individually, FHFA does not believe that it is appropriate to establish
membership goals, which suggest that CDFIs should be granted membership
without regard to those requirements.
In a similar fashion, the final rule does not require the Banks to
disclose the reasons for denying membership to a CDFI. Generally
speaking, the Banks may deny an application only if an institution does
not satisfy the statutory or regulatory requirements for membership,
and the Banks do not disclose the reasons for the denial of individual
applications. FHFA expects that the Banks will deny applications from
CDFIs only in those circumstances, and further believes that releasing
reasons for the denial of a membership application might result in
reputational harm to the applicant with no public benefit. FHFA intends
to monitor the Banks' implementation of the final rule, to ensure that
they carry out the intent and spirit of the HERA amendments authorizing
CDFIs to become members.
With respect to advances, neither FHFA nor the Banks track the use
of member advances, and the final rule does not impose that requirement
for advances made to CDFI members. With the exception of Community
Investment Program Funds (12 U.S.C. 1430(i)), Bank advances to their
members are not project-specific. As is the case with any member, the
proceeds of advances are fungible and can be used by the CDFIs for
overall asset-liability management, to enhance liquidity, and for other
purposes.
Bank and depository institution commenters, in general, expressed
concern that CDFI membership would compromise safe and sound lending
practices and have an adverse financial impact on the Banks. Those
concerns appear to be more closely related to risks of lending to a
member, rather than to the key issue of this rulemaking, which relates
to whether particular CDFIs have satisfied the statutory and regulatory
requirements for membership. FHFA finds that these comments reflect a
perception of risk that is not warranted by the performance of the CDFI
sector or the asset size of these institutions.\1\ The Banks are
protected from the risks of doing business with their members through
stock purchase requirements, sound underwriting, and collateral
requirements. Moreover, CDFIs are small institutions. In 2008, the
average size of a non-depository CDFI was $21,000,000, which suggests
that, in the case of any single CDFI member the dollar amount of
advances outstanding to that member is apt to be comparatively modest.
Thus, even if a non-depository CDFI were to fail, the financial impact
on a Bank would likely not be material. Notwithstanding those safety
and soundness concerns, Congress has unambiguously spoken on the matter
of CDFI membership and has determined that CDFIs that satisfy the
requirements for membership are entitled to become Bank members. FHFA
also is confident that CDFIs will bring added value to the Federal Home
Loan Bank System (Bank System) consistent with the Banks' mission and
without compromising their safety and soundness and it expects the
Banks to be proactive in educating themselves about the CDFIs' lines of
business and risk profiles.
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\1\ See Social Funds Community Investment Center, ``Community
Investing'' (http://www.communityinvest.org/overview/index.cfm.
Accessed on 7/27/09). According to this study, between 2003 and
2005, loan loss ratios among CDFIs were less than one percent.
Through their tax exempt status not-for-profit CDFIs can address
risk through patient investments, equity capital, risk-sharing
arrangements, charitable contributions and private investments.
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The commenters also raised a number of other issues relating to
specific provisions of the proposed rule. To the extent that FHFA
either adopts revisions in the final rule in response to those comments
or declines to adopt comments that raised significant issues about the
proposed rule, those matters are addressed below as part of the
discussion about the individual sections of the final rule.
III. The Final Rule
A. General
The proposed rule would have relocated many provisions of the
Finance Board's membership regulations without substantive changes. In
the final rule, FHFA is adopting those provisions of the proposed rule
without any further substantive changes. Thus, the provisions of the
final rule that are located in Subpart B (Membership Application
Process), Subpart D (Stock Requirements), Subpart E (Consolidations
Involving Members), Subpart F (Withdrawal and Removal From Membership),
Subpart G (Orderly Liquidation of Advances and Redemption of Stock),
Subpart H (Reacquisition of Membership), Subpart I (Bank Access to
Information) and Subpart J (Membership Insignia) are all
[[Page 681]]
unchanged from the proposed rule and the predecessor provisions of the
Finance Board regulations, apart from certain technical or conforming
changes. All of the substantive revisions to the membership regulations
relating to CDFI membership were located in Subpart A (Definitions) and
Subpart C (Eligibility Requirements) of the proposed rule, and that
remains the case with respect to the final rule. Those revisions are
described separately below.
B. Definitions--Subpart A
Section 1263.1--Definitions. The proposed rule would have carried
over into part 1263 without substantive change to nearly all of the
existing definitions from the Finance Board regulations, but would have
revised certain definitions and added a number of new definitions to
implement the statutory amendments regarding CDFI members. Except as
described below, the final rule adopts the definitions from the
proposed rule without further change.
Community development financial institution or CDFI (holding
companies). Section 1263.1 of the proposed rule defined ``community
development financial institution'' and ``CDFI'' to include any
institution that is certified by the CDFI Fund of the US Department of
the Treasury, but excluded any bank or savings association that is
insured under the Federal Deposit Insurance Act (12 U.S.C. 1811 et
seq.) or a credit union that is insured under the Federal Credit Union
Act (12 U.S.C. 1751 et seq.). The proposal excluded federally insured
depository institutions and credit unions because they already were
eligible for membership under the pre-HERA law. The final rule retains
those aspects of the proposed definition, and also adds a new provision
relating to bank or savings and loan holding companies that have been
certified as CDFIs. The proposal did not include CDFI holding companies
among the entities eligible for membership under the HERA amendments,
and sought comment on that issue. One holding company, that has been
certified as a CDFI and that controls a depository institution that is
a member of a Bank, favored allowing similarly situated holding
companies to become members in addition to the membership of their
depository institution subsidiaries. That view was endorsed by another
commenter, but several other commenters opposed allowing a bank or
savings and loan holding company to obtain its own membership via the
CDFI provisions. As a matter of general policy, FHFA believes that the
benefits of Bank membership are best conveyed through depository
institutions that have direct relationships with the communities in
which they do business, and has decided not to allow depository
institution holding companies to become Bank members at this time. FHFA
intends to monitor the implementation of the CDFI membership provisions
and is open to reconsidering this issue at a later date. FHFA notes,
however, that there may be certain practical impediments to any holding
company becoming a member, in addition to its depository institution
subsidiaries, because a holding company would have to purchase its own
membership stock in the Bank, in addition to any Bank stock owned by
its subsidiaries. Moreover, the additional membership for the holding
company would not necessarily provide any additional borrowing capacity
beyond that already available to the subsidiary depository institution
because current law allows a member to borrow against collateral owned
and pledged by an affiliate. In the final rule, the definition of CDFI
has been revised to make clear that holding companies for depository
institutions cannot obtain membership via the CDFI membership
provisions.
Community financial institutions. The proposed rule also carried
over without change from the Finance Board regulations the definition
of ``community financial institution.'' The Bank Act defines CFIs as
FDIC-insured members that have average total assets of $1 billion or
less, as adjusted annually for inflation. Section 1211 of HERA amended
the Bank Act to allow CFIs to obtain long-term advances for the purpose
of funding ``community development activities'' and further allowed
CFIs to pledge secured loans for ``community development activities''
as collateral for their advances. As HERA authorized CDFIs to become
members and separately authorized CFIs to pledge community development
collateral, the proposal requested comment on whether there was any
basis in the legislative history to HERA that would allow FHFA to
construe the new CFI provisions as applying to CDFIs as well as to
CFIs. Commenters addressing this issue overwhelmingly favored allowing
CDFI members to be deemed to be CFIs so they could take advantage of
the HERA amendments relating to community development collateral for
CFIs, although no commenters identified anything in the legislative
history to support that view. In the absence of any such evidence of
Congressional intent, FHFA must give effect to the language that
Congress actually has used in the Bank Act. That language allows an
institution to be designated as a CFI, and thus benefit from the
expanded collateral available to CFIs, only if it has FDIC deposit
insurance and also has total assets less than the statutory amount.
Because none of the newly-eligible CDFIs are insured by the FDIC, they
cannot be CFIs and thus cannot either pledge community development
loans as collateral or obtain long-term advances to support community
development purposes. Accordingly, the final rule does not change the
existing definition of CFI.
FHFA did not propose any revisions to the definitions of ``home
mortgage loan,'' ``long-term,'' ``manufactured housing,'' or
``residential mortgage loan.'' Nonetheless, a number of commenters
suggested that FHFA amend each of those provisions in certain respects
to bring them more in line with the business of CDFIs generally or with
the business of the commenters. Those provisions are discussed
separately below.
Home mortgage loan. Some commenters asked that FHFA expand the
definition of ``home mortgage loan'' to include certain other types of
loans, such as loans secured by second liens, community acquisition
loans (loans made to manufactured home communities), or pre-development
or construction bridge loans. The Bank Act defines both ``home
mortgage'' and ``home mortgage loan'' and FHFA cannot adopt a
regulation that would include loans that would be precluded by the
statutory definitions. The Bank Act defines a ``home mortgage loan'' as
a loan made by a member upon the security of a home mortgage. It
further defines a ``home mortgage'' as a mortgage upon real estate
(held either in fee simple or a leasehold) on which one or more homes
is located, and includes first mortgages and other types of first liens
commonly used in the State where the real estate is located. 12 U.S.C.
1422(4) and (5). FHFA believes, for purposes of meeting the Bank Act
standard, that an applicant must make long-term mortgage loans the
existing definition of ``home mortgage loan'' in Sec. 1263.1 is
sufficiently expansive to accommodate loans typically made by CDFIs.
Such loans as loans on one-to-four family properties, multifamily
properties, residential properties that are partially used for business
or farm purposes, or interests in long-term mortgages and mortgage
pass-through securities backed by such mortgages qualify as home
mortgage loans. FHFA is confident that most CDFIs would be able to meet
the home mortgage loan eligibility requirements in the Bank Act.
[[Page 682]]
Because the statute requires a ``home mortgage'' to be a first
mortgage or other type of first lien, which requirement has long been
in the Finance Board regulations, a loan secured by a subordinate lien
cannot qualify as a ``home mortgage loan.'' Similarly, if a pre-
development loan or construction bridge loan is not secured by real
estate, or is secured by real estate that has no homes on it, then
those loans also could not qualify as ``home mortgage loans'' under the
statute. Whether other types of loans identified by the commenters may
constitute ``home mortgage loans'' is largely a question of whether the
particular types of loans at issue satisfy the statutory requirements
noted above. FHFA believes that this issue is more appropriately
addressed on a case-by-case basis, rather than by revisions to the
regulatory definitions. In each such case, however, the inquiry will be
the same, i.e., whether the loan at issue is secured by a mortgage
instrument, whether that instrument creates a first lien on real
estate, and whether there are one or more homes or other dwelling units
on the real estate at the time the loan is made and the security
interest is created. If each of those questions can be answered in the
affirmative, then the particular types of loans made by a CDFI
applicant could qualify as ``home mortgage loans.'' To the extent that
issues may arise about whether a particular type of loan made or held
by a CDFI applicant in fact qualifies as a home mortgage loan, FHFA
staff can assist the Banks and CDFI applicants in resolving that
question on a case-by-case basis.
Long-term. The proposed regulation retained the existing definition
of ``long- term,'' which meant a term-to-maturity of five years or
greater. Some CDFI commenters noted that many CDFIs make short-term
pre-development or construction bridge loans and requested that the
definition of ``long-term'' be changed to accommodate these loan types.
The phrase ``long-term'' appears only in four provisions of the
proposed rules, just two of which--Sec. Sec. 1263.6(a)(3) and 1263.9--
are relevant to CDFI applicants. In each of those cases, the phrase
modifies the term ``home mortgage loan.'' As noted above, ``home
mortgage loan'' is also defined by statute and requires that the loan
be secured by a first lien on real estate on which a home is located.
To the extent that the pre-development or construction bridge loans are
unsecured or are secured by property that has no homes on it, those
loans would not qualify as home mortgage loans under the Bank Act
irrespective of their maturity. Accordingly, the final rule does not
change the definition of ``long-term.''
Manufactured housing. The existing regulation defines
``manufactured housing'' to mean a manufactured home as defined in
section 603 of the National Manufactured Housing Construction and
Safety Standards Act of 1974. This provision establishes safety and
quality standards for the housing units. Some commenters proposed
expanding the definition of ``manufactured housing'' and the
definitions of ``one-to-four family property'' and ``multifamily
property'' in Sec. 1263.1 to accommodate real property loans for such
uses as resident-owned manufactured housing cooperatives in which the
land is owned in common or rented, and, to include real estate loans
used to finance community facilities, infrastructure, and access roads
within a manufactured housing complex. FHFA finds that for purposes of
meeting the requirement in Sec. 1263.9, the existing definitions of
``home mortgage loans,'' ``multifamily property,'' and ``one-to-four
family property'' in Sec. 1263.1 are adequate to accommodate real
property loans to manufactured housing complexes where the property is
used for residential purposes and dwellings are located on the
property. Therefore, no change to the definition is necessary.
Residential mortgage loan. Certain CDFI commenters asked that FHFA
revise the definition of ``residential mortgage loan'' to expressly
include loans made to manufactured housing communities. The term
``residential mortgage loan'' appears only in two provisions of the
membership regulations--Sec. Sec. 1263.6(b) and 1263.10--both of which
relate to the statutory requirement that federally insured depository
institutions must have at least 10 percent of their assets in
residential mortgage loans in order to become a member of a Bank. That
10 percent requirement applies only to depository institutions and thus
is not relevant for CDFI members. Because any amendments to this
definition would have no effect on the newly-eligible CDFIs, the final
rule does not amend that provision.
C. Eligibility Requirements--Subpart C
The proposed rule would have carried over into part 1263 all of the
existing provisions from Subpart C of the Finance Board regulations,
which established the various eligibility requirements for Bank
membership. Subpart C is made up of 13 separate sections, and the
proposed rule would have carried over six of those sections without any
substantive changes. The final rule adopts each of those six sections
without any substantive change. Those unchanged provisions are
Sec. Sec. 1263.8 (which relates to the inspection and regulation
requirement, and includes a nonsubstantive conforming change to the
existing language), 1263.10 (which requires depository institutions to
have 10 percent of assets in residential mortgage loans), 1263.13
(which relates to an applicant's home financing policy), 1263.14 (which
relates to applicants that are de novo depository institutions),
1263.15 (relating to applicants that have recently merged) and 1263.18
(relating to which Bank an applicant may join).
Although FHFA did not propose to amend any of those provisions,
certain commenters raised questions about them or asked that they be
revised in certain respects. For example, a number of commenters asked
that CDFI applicants not be required to demonstrate that they have 10
percent of their assets in residential mortgage loans in order to
become Bank members. The provisions about which those commenters
expressed concern are Sec. Sec. 1263.6(b) and 1263.10, both of which
implement section 4(a)(2)(A) of the Bank Act, which requires federally
insured depository institutions to have at least 10 percent of their
assets in residential mortgage loans as a condition to becoming a Bank
member. The proposed rule did not subject the newly-eligible CDFI
applicants (which are not federally insured depository institutions) to
the 10 percent requirement, nor does the final rule.
Certain other commenters asked that FHFA revise Sec. 1263.14,
which establishes special procedures for de novo insured depository
institutions, so that newly organized CDFIs could also have the benefit
of those procedures. FHFA declines to amend Sec. 1263.14 to
accommodate newly organized CDFI applicants because the requirements
for obtaining a depository institution charter and Federal deposit
insurance are considerably more rigorous than are the processes for
obtaining certification from the CDFI Fund. A de novo depository
institution typically is allowed to commence business and obtain
deposit insurance only after one or more bank regulatory agencies have
determined that the institution is adequately capitalized, has a sound
business plan, capable management, and can operate in a safe and sound
manner. There is no comparable regulatory review for CDFIs; indeed, the
regulations of the CDFI Fund expressly state that CDFI certification
does not represent an assessment that the entity is financially viable.
12 CFR 1805.201(a). In the absence of any such
[[Page 683]]
independent financial evaluation of the CDFI applicants, FHFA does not
believe that they should be included within the provisions for de novo
depository institutions.
With respect to each of the seven other sections located within
Subpart C, the proposed rule included some substantive revisions, all
of which were intended to implement the HERA amendments. In the final
rule, FHFA is adopting certain of those provisions as proposed, but is
revising other provisions in response to comments received on the
proposed rule. Each of those sections is described separately below.
Section 1263.6--General Eligibility Requirements. Section 1263.6 of
the proposed rule closely followed the requirements of section 4(a) of
the Bank Act, which established the eligibility requirements for Bank
membership. 12 U.S.C. 1424(a). That statutory provision lists the types
of entities that are eligible to apply for membership, and then
establishes several requirements that each entity must satisfy in order
to be approved for membership. Certain of those statutory requirements
apply to all applicants. Those requirements are located at section
4(a)(1)(A) through (C) and require that an applicant: (1) Is duly
organized under Federal or State law; (2) is subject to inspection and
regulation under Federal or State banking laws, or is a certified CDFI;
and (3) makes long-term home mortgage loans. The other statutory
requirements apply only to federally insured depository institutions,
although the Finance Board also had long applied them to insurance
company applicants, based on its authority to oversee the Banks to
ensure that they operate in a safe and sound manner and carry out their
housing finance mission. See 12 CFR 925.6(a)(4) to (6). Those other
statutory provisions are located at section 4(a)(2)(B) through (C) and
require that an applicant: (1) Be in sound financial condition so that
a Bank may safely make advances to it; and (2) have a character of
management and a home financing policy that are consistent with sound
and economical home financing. That Finance Board regulation also
included a requirement that any applicant that is not an insured
depository institution must have mortgage-related assets that reflect a
commitment to housing finance, as determined by the Bank in its
discretion. 12 CFR 925.6(c).
In Sec. 1263.6 of the proposed rule, FHFA made only one
substantive change to the Finance Board regulations, which was to add
CDFIs to the list of entities that are eligible for membership. As a
result, the proposed rule would have required CDFI applicants to comply
with each of the three eligibility requirements imposed by section
4(a)(1) of the Bank Act, i.e., duly organized, certified, and making
home mortgage loans, as well as with the regulatory requirements
relating to financial condition, character of management, and home
financing policy. The proposed rule also retained the requirement that
applicants that are not insured depository institutions must have
mortgage-related assets that reflect a commitment to housing finance,
and relocated it to Sec. 1263.6(c). FHFA stated that it expected the
Banks to assess the commitment to housing finance requirement in light
of the unique community development orientation of CDFI applicants.
In the final rule, FHFA has retained the language of the proposed
rule regarding the general eligibility requirements, but has also made
certain further revisions in response to the comments. In paragraph
(a), FHFA has added a clarifying parenthetical reference to CDFI credit
unions. In paragraph (a)(1), FHFA has added a reference to ``Tribal
law.'' Certain commenters had suggested this revision in order to allow
CDFIs that are organized under the laws of Tribal governments to become
members, which FHFA believes is permissible under the statute and is
consistent with the intent of Congress. In paragraph (a)(2), FHFA has
added a reference to certified CDFIs, to make clear that the
``inspection and regulation'' eligibility requirement does not apply to
a CDFI applicant, which need only demonstrate that it has been
certified by the CDFI Fund.
With respect to the requirement that applicants other than insured
depository institutions must have mortgage-related assets that reflect
a commitment to housing finance, FHFA is also retaining that provision
in the final rule without change. The term ``mortgage-related assets''
is not defined, and FHFA believes that the term can be construed
broadly in considering whether a CDFI applicant meets this requirement.
Moreover, the regulations do not require that a CDFI applicant's assets
be exclusively, or even predominantly, oriented to traditional housing
finance. What is required is that the CDFI applicant has assets that,
when viewed in the overall context of the applicant's business and how
it provides products and services to its targeted markets, can be
fairly said to support housing finance. Because CDFI applicants are apt
to have asset profiles that differ from those that the Banks typically
review, FHFA expects that the Banks will consider the assets of CDFI
applicants in light of their unique products and mission. Thus,
although a CDFI may be able to demonstrate its commitment to housing
finance through traditional means, such as by originating mortgage
loans or otherwise to supporting the development or acquisition of
housing, it also may demonstrate its commitment through other means.
Examples of such other means would include, but are not limited to,
loans related to manufactured housing (regardless of whether the unit
is deemed to be real estate), pre-development or construction loans for
real estate that will become or include residential property, or loans
secured by subordinated liens on residential real estate.
Section 1263.7--Duly Organized Requirement. Section 4(a)(1)(A) of
the Bank Act requires an applicant to be duly organized under the laws
of any State or of the United States. 12 U.S.C. 1424(a)(1)(A). The
regulations of the Finance Board provided that an applicant would be
deemed to be duly organized if it is chartered by a State or Federal
agency as one of several types of entities eligible for Bank
membership. In the proposed rule, FHFA retained the existing language
from the Finance Board regulation and added new language providing that
being incorporated under State law would be sufficient for a CDFI to
demonstrate that it is duly organized. As noted in the prior section,
several commenters asked that FHFA also allow CDFIs that are organized
under Tribal law to be deemed to be duly organized, and the final rule
includes an additional reference to Tribal law to clarify that a CDFI
that is incorporated under State or Tribal law is deemed to satisfy the
statutory requirement.
Section 1263.8--Subject to Inspection and Regulation Requirement.
Section 4(a)(1)(B) of the Bank Act generally requires an applicant for
membership to be subject to inspection and regulation under State or
Federal banking or similar laws. In the case of a CDFI, the statute
imposes an alternative requirement, which is that the applicant be
certified by the CDFI Fund. See 12 U.S.C. 1424(a)(1)(B). The proposed
rule simply carried over the language from the Finance Board
regulations without any changes. Nonetheless, several commenters asked
that the final rule make clear that a CDFI applicant is not subject to
the inspection and regulation requirement because of the alternative
requirement noted above. FHFA agrees that clarification of this issue
is appropriate and has addressed that
[[Page 684]]
matter in both the general eligibility provisions of Sec. 1263.6(a)(2)
of the final rule, which states that an applicant must be either
subject to inspection and regulation by a regulatory agency or be
certified as a CDFI by the CDFI Fund, and in Sec. 1263.8, which states
that a certified CDFI is not subject to the ``inspection and
regulation'' requirement.
Section 1263.9--Makes Long-Term Mortgage Loans Requirement. As
noted previously, section 4(a)(1)(C) of the Bank Act requires that
every applicant for membership, including CDFIs, must make such home
mortgage loans that the Director determines to be ``long-term loans.''
12 U.S.C. 1424(a)(1)(C). The regulations of the Finance Board presumed
that an applicant had satisfied that requirement if the regulatory
reports that it filed with its regulator showed that it originates or
purchases long-term home mortgage loans. Section 1263.9 of the proposed
rule carried over the substance of the Finance Board regulation, with
some modifications to accommodate CDFI applicants. Under that provision
of the proposed rule, a CDFI applicant also would have been presumed to
have satisfied that requirement if it provides to the Bank other
documentation showing that the applicant originates or purchases long-
term home mortgage loans.
In the final rule, FHFA is adopting this provision without change.
Because certain commenters sought FHFA guidance on how the Banks are to
apply this provision, as well as the other provisions relating to an
applicant's home financing policy and its commitment to housing
finance, FHFA is providing such guidance in this preamble. Although it
is clear that a CDFI applicant must originate or purchase long-term
home mortgage loans in order to become a member, the Bank Act and the
implementing regulations do not set a minimum threshold for the amount
of home mortgage loans that an applicant must make in order to satisfy
that requirement. Similarly, neither the statute nor the regulations
characterize this as an ongoing requirement for membership.
Given the differences between the business of a typical depository
institution and that of a typical CDFI, the amount of home mortgage
loans that a CDFI applicant originates or purchases will likely be
considerably less than the amount that a similarly sized depository
institution would originate or purchase. FHFA expects that in assessing
a CDFI applicant's compliance with this ``makes long-term home mortgage
loans'' requirement the Banks will view the extent to which the CDFI
originates or purchases long-term home mortgage loans in light of their
unique mission and community development orientation, and thus will
deem such applicants to have satisfied this requirement if they in fact
have originated or purchased home mortgage loans and can document that
fact. Moreover, an applicant's compliance with this provision need be
assessed only at the time that a CDFI applies for membership. This
approach is consistent with how the Banks assess compliance with
section 4(a)(2)(A) of the Bank Act, which requires certain insured
depository institution applicants to have at least 10 percent of their
assets in ``residential mortgage loans.''
In an earlier portion of this preamble FHFA discussed in some
detail the definitions of the terms ``home mortgage loan'' and ``long-
term'' as they are used in the context of the membership regulations.
As discussed earlier, FHFA believes that for purposes of meeting the
``makes long-term home mortgage loans'' requirement the definition of
home mortgage loans in Sec. 1263.1 is sufficiently expansive to
accommodate loans typically made by CDFIs, such as loans on one-to-four
family properties, multifamily properties, residential properties with
business components, interests in long-term mortgages, and mortgage
pass-through securities backed by such mortgages.
Section 1263.11--Financial Condition Requirement for Depository
Institutions and CDFI Credit Unions. The proposed rule included two
separate provisions for evaluating the financial condition of CDFI
applicants: Sec. 1263.11, which related to CDFI credit unions, and
Sec. 1263.16, which related to all other types of CDFIs. The proposal
defined ``CDFI credit unions'' as State-chartered credit unions that
have been certified as CDFIs but do not have Federal share insurance.
Because the Finance Board had previously adopted regulations for
evaluating the financial condition of all depository institution
applicants, including State-chartered credit unions with NCUA share
insurance, FHFA proposed to require CDFI credit unions to comply with
the same regulations under which all other depository institution
applicants are evaluated. In brief, the proposal would require the
Banks to evaluate the financial condition of CDFI credit unions based
on information in the regulatory financial reports they file with their
applicable regulators, their audited financial statements, and the
examination reports prepared by their regulators. Although CDFI credit
unions do not file financial regulatory reports with the NCUA, they do
file comparable reports with their appropriate State regulator, and
FHFA believes that those documents may be used to assess the financial
condition of the CDFI credit unions. The proposed rule would have
amended the Finance Board's regulatory text in two respects--by adding
CDFI credit unions to the list of institutions that are subject to
Sec. 1263.11, and by requiring all CDFI credit unions to meet certain
performance trend criteria.
These provisions of the proposed rule generated few comments, and
FHFA is adopting Sec. 1263.11 as proposed. One commenter asked that
FHFA revise the ``earnings'' provision of the regulation to require a
CDFI credit union to demonstrate positive earnings for two of the last
three years, rather than for four of the six most recent calendar
quarters, as was in the proposed rule. As noted above, the financial
condition requirements for CDFI credit unions are essentially identical
to those of the Finance Board regulations, which the Banks have long
used to evaluate the condition other depository institutions that apply
for membership. FHFA believes that those requirements are well
understood by the Banks and by depository institutions generally, and
does not believe that there is a compelling reason to alter the
earnings requirement solely for the benefit of CDFI credit union
applicants. Moreover, to revise the regulation in the manner requested
would change the earnings analysis for all other depository institution
applicants, which FHFA does not believe is warranted.
A few commenters, including those representing State-chartered
credit unions, objected to the provisions of the proposed rule that
would have required all CDFI credit union applicants to meet certain
performance trend criteria. For all other depository institution
applicants, those performance trend criteria apply only if the
applicant has received a composite regulatory examination rating of
``2'' or ``3.'' FHFA did not receive comments from any prospective CDFI
credit union member on this proposal. As was stated in the proposed
rule, CDFI credit unions are not subject to oversight by the NCUA and
have not previously been eligible for membership. As a result, the
Banks may be less familiar with State examination processes and
ratings, and FHFA believes that it is prudent to require all CDFI
credit unions to demonstrate that their earnings, nonperforming assets,
and allowance for loan and lease losses are consistent with the
existing performance criteria. Thus,
[[Page 685]]
the final rule adopts the language of the proposed rule on this issue
without change.
Section 1263.12--Character of Management Requirement. The proposed
rule carried over all of the substance of the Finance Board regulation
relating to the character of management standard and added a separate
paragraph for assessing the management of all CDFI applicants other
than CDFI credit unions. Under the proposed rule, the character of a
CDFI applicant's management would be deemed to be consistent with sound
and economical home financing if the applicant provides the Bank with
an unqualified written certification that neither the applicant nor its
senior officials are subject to any enforcement actions, criminal,
civil or administrative proceedings, or criminal, civil or
administrative monetary liabilities, lawsuits or judgments. The
proposed rule would have required CDFI credit unions to comply with the
existing provisions applicable to depository institutions generally,
but would have imposed slightly different standards on other types of
CDFIs, such as loan funds and venture capital funds, because they are
not regulated and thus are not subject to regulatory examinations or
administrative enforcement actions. This provision of the proposed rule
did not generate any significant comments and is being adopted in final
form without change.
Section 1263.13--Home Financing Policy Requirement. Section
4(a)(2)(C) of the Bank Act provides that any insured depository
institution applicant must have a home financing policy that is
consistent with sound and economical home financing. Although the Bank
Act applies this requirement only to depository institutions, the
Finance Board regulations have applied it to all entities applying for
Bank membership. See 12 CFR 925.6(a)(6). The Finance Board regulations
provide that an insured depository institution applicant may be deemed
to have satisfied the statutory requirement if it has a satisfactory
Community Reinvestment Act (CRA) rating, but requires that applicants
not subject to the CRA file with the Bank a written justification
showing how and why their home financing policy is consistent with the
housing finance mission of the Bank System. Id. at 925.13.
FHFA did not propose any changes to the Finance Board regulation,
and stated that CDFI applicants would be required to provide a written
justification, acceptable to the Bank, explaining how and why their
home financing policy is consistent with the Bank System's housing
finance mission. Certain commenters asked that CDFI applicants be
presumed to comply with this requirement by virtue of their
certification from the CDFI Fund. Although some certified CDFIs may in
fact have a housing finance orientation that would satisfy this
requirement, that will not necessarily be the case for every CDFI that
is certified by the CDFI Fund, given the potential variety of
activities in which a CDFI may engage. Because not all CDFIs will have
the same degree of involvement in housing finance activities, FHFA
believes that the better approach is to have the Banks assess the
housing finance policies of the CDFI applicants on an individual basis,
which is what the proposed rule required. Accordingly, a CDFI applicant
must provide to the Bank a written narrative describing the manner in
which the CDFI supports housing finance generally, which may include
direct support such as originating loans, as well as indirect support
through other investments, activities, or services. FHFA believes that
this should not be a burdensome requirement for most CDFI applicants,
as they are likely to have some direct or indirect nexus to housing
finance in their communities. Thus, FHFA expects that most CDFI
applicants can readily demonstrate that their business operations and
housing finance policies are consistent with the mission of the Bank
System, which includes both traditional housing finance as well as
other community investment activities.
Section 1263.16--Financial Condition Requirement for Insurance
Company and Certain CDFI Applicants. In the proposed rule, FHFA
included new provisions for evaluating the financial condition of CDFI
applicants. The provisions for evaluating CDFI credit unions were
located in Sec. 1263.11 and were discussed earlier in this document.
The provisions for evaluating all other types of CDFI applicants, such
as loan funds and venture capital funds, were located in Sec.
1263.16(b) of the proposed rule. Those new provisions were similar in
substance to the provisions relating to depository institutions,
although their specific requirements differed somewhat, in recognition
of the differences between depository institutions and the newly-
eligible CDFIs. The structure of proposed Sec. 1263.16(b) generally
paralleled that of the provisions used for depository institutions,
i.e., the regulation identified the types of financial documents that a
Bank must review in assessing a CDFI applicant's financial condition
and established standards for determining whether the financial
condition of a particular applicant was such that a Bank could safely
make advances to the applicant. These provisions of the proposed rule
generated a significant number of comment letters, which raised a
variety of issues relating to the manner in which the Banks were to
assess the financial condition of CDFI applicants. The following
paragraphs address the various provisions of Sec. 1263.16(b) in the
order they appear within the regulation, and describe key aspects of
the proposal, the comments, and the approach taken in the final rule.
Review requirement. Section 1263.16(b)(1) of the proposed rule
required a Bank to obtain certain specified financial statements from
each CDFI applicant, as well as its certification from the CDFI Fund,
and any other information the Bank deemed necessary to assessing the
applicant's financial condition. In the introductory language for this
provision, the proposed rule restated language from the regulations of
the Finance Board for depository institution applicants, which stated
that a Bank ``shall obtain'' certain information from an applicant in
assessing its financial condition. In the final rule, FHFA has revised
that language to state that an applicant ``shall submit'' the required
information, which is intended to make clear that an applicant must
provide a Bank with sufficient information for the Bank to make an
informed assessment of the applicant's financial condition. The final
rule also adds a new requirement to this introductory language, which
provides that a Bank shall consider all information provided by a
member before deciding whether to approve or deny the membership
application. This change relates to the standards established by Sec.
1263.16(b)(2), which are presumptive indicators of an applicant's
compliance with the requirement that it be in sufficiently sound
financial condition that a Bank can safely make advances to it. Under
the proposed rule, an applicant's failure to comply with one or more of
the presumptive standards does not mean that the applicant cannot
become a member of a Bank. Instead, it means that the applicant must
overcome the presumption of noncompliance by providing the Bank with
additional information demonstrating that the applicant is indeed in
sufficiently sound financial condition to obtain advances from the
Bank. The processes for rebutting such presumptions of noncompliance
are established by Sec. 1263.17, which applies to all types of
[[Page 686]]
applicants. The new requirement added to the introductory language of
Sec. 1263.16(b)(1) is intended to ensure that a Bank does not
automatically deny membership to a CDFI applicant based solely on that
applicant's failure to satisfy any of the presumptive standards. It
also is intended to make clear that a CDFI applicant has a right to
submit additional information, beyond that required by the regulation,
to demonstrate that it is in sound financial condition and to have that
information considered by the Bank before it decides whether to approve
the application.
The above revisions are intended to work in tandem with additional
new language that the final rule adds to Sec. 1263.16(b)(1)(iii). As
proposed, that provision would have required an applicant to provide
any additional information relating to its financial condition that is
requested by the Bank. Because of the possibility that some CDFI
applicants may not satisfy one of the presumptive standards, but may
nonetheless be in sound financial condition, FHFA believes that it is
important to make clear in the regulation that each CDFI applicant has
the right to submit whatever information that it believes demonstrates
its financial condition, regardless of whether the Bank has asked for
such information. For example, if a CDFI applicant would not satisfy
the net asset ratio requirement, it could submit additional information
as part of its initial membership application demonstrating that its
financial condition is sufficiently sound to satisfy the regulatory
requirement, notwithstanding its failure to satisfy the presumptive
standard. If the information in fact demonstrates that the applicant's
financial condition is sufficiently sound to borrow from the Bank, FHFA
expects that the Bank would approve the membership application.
The revisions described above are the only substantive amendments
that the final rule makes to Sec. 1263.16(b)(1). As to the particular
financial statements that must be submitted, Sec. 1263.16(b)(i) of the
proposed rule would have required CDFIs to submit financial statements
audited under generally accepted auditing standards (GAAS), as well as
more recent quarterly financial statements, if those are available. An
applicant also was required to submit financial statements for the two
years prior to the most recent audited financial statements. At a
minimum, all such financial statements must include income and expense
statements, statements of activities, statements of financial position,
and statements of cash flows. The financial statements for the most
recent year also would have to include detailed disclosures or
schedules relating to the affiliates of the CDFI applicant regarding
the financial position of each affiliate, their lines of business, and
the relationship between the affiliates and the applicant CDFI. There
were no objections from commenters to this requirement and it is
retained in the final rule. FHFA believes that in most cases a GAAS
audited statement will suffice to show evidence of financial condition
and anticipates that the Banks will be judicious in the amount of
additional information they require CDFI applicants to submit. The
proposed rule also asked whether CDFIs that do not typically obtain
audited financial statements should be permitted to submit an
alternative financial statement. Some commenters representing both the
CDFI sector and the Banks recommended that in addition to an audited
statement, a CDFI applicant be permitted to submit an alternative third
party assessment, such as the CDFI Assessment and Rating System
(CARSTM) assessment. The final rule does not require the
submission of a CARSTM statement or other similar documents.
In light of the revisions made to Sec. 1263.16(b)(1)(iii), which
allows a CDFI applicant to provide the Bank with any information the
applicant believes relevant to its financial condition, FHFA does not
believe that the final rule needs to specify by name any other types of
documents to be submitted.
The proposed rule also required any CDFI applicant that had been
certified more than three years prior to applying for membership to
submit to the Bank a written statement certifying that it had not
undergone any material events that would adversely affect its strategic
direction, mission, or business operations. Some commenters asked that
the final rule be revised to require any such CDFI applicants to obtain
a re-certification from the CDFI Fund in order to be admitted to
membership, but FHFA has not included a re-certification requirement in
the final rule. As an initial matter, the Bank Act requires only that a
CDFI must have been ``certified'' by the CDFI Fund in order to be
eligible for membership, and does not speak to how long ago the
certification must have been obtained. Under the regulations of the
CDFI Fund, a certification appears to remain effective unless the CDFI
Fund rescinds the certification, such as if it finds that a CDFI no
longer meets the certification requirements. 12 CFR 1805.201(a).
Moreover, the regulations of the CDFI Fund do not provide a means by
which an entity that has been previously certified, can routinely
obtain re-certification for purposes unrelated to the CDFI Fund, such
as applying for Bank membership. There does not appear to be any way
for a certified CDFI to obtain routine re-certification; therefore FHFA
believes that requiring submission of a written statement attesting to
the absence of any material adverse events is an appropriate means of
providing some assurance that an applicant has not done anything to
jeopardize its standing as a CDFI. Indeed, in the absence of a means of
obtaining routine re-certification from the CDFI Fund, a provision
mandating re-certification as a condition of membership could
effectively frustrate the intent of Congress to allow CDFIs to become
Bank members.
Financial condition standards. Section 1263.16(b)(2) of the
proposed rule sets out four presumptive standards that a CDFI applicant
must satisfy in order to be deemed to satisfy the financial condition
requirement of Sec. 1263.6(a)(4), i.e., that an applicant's condition
is such that a Bank can safely make advances to it. The four
presumptive standards related to an applicant's compliance are net
asset ratio, earnings, loan loss reserves, and liquidity. These
provisions generated a significant number of comments and suggested
revisions, which FHFA has considered in developing the final rule. The
final rule generally retains the standards of financial condition that
were in the proposed rule, but also includes some revisions based on
the suggestions of the commenters. Each of the provisions relating to
the four presumptive standards is discussed separately below.
Net asset ratio. The proposed rule would have required that a CDFI
applicant have a ratio of net assets to total assets of at least 20
percent, with net and total assets including restricted assets, where
net assets is calculated as the residual value of assets over
liabilities and is based on the information derived from the
applicant's most recent financial statement. In the absence of
independent regulatory examinations for this group of CDFIs, the
proposed financial condition requirements for Bank membership were
based on accepted prudential standards, i.e., the net asset ratio
mirrored the ``Financial Ratios of Minimum Prudent Standards'' used by
the CDFI Fund, which prescribes a minimum net asset ratio of 20 percent
(or .20). The 20 percent
[[Page 687]]
standard also was subjected to peer benchmarking. A survey of 130 loan
fund CDFIs conducted in 2002 found that the median net asset ratio to
be .437 and the mean ratio to be .446.\2\ Similarly, the CDFI Fund
reported that during the period between 2003 and 2005, non-depository
CDFIs had a net asset ratio of ``about 40 percent''.\3\ These ratios
are higher than the 20 percent net asset ratio threshold in the
proposed rule.
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\2\ Lam, Marcus et al. ``Recommendations for CDFI Performance
Measurement.'' See Table 2.1 based on data obtained from the
Opportunity Finance Network's CDFI Project. Unpublished document,
March 2002.
\3\ United States Department of the Treasury, CDFI Fund,
``Three-year Trend Analysis of Community Investment Impact System
Institutional Level Report Data FY 2003-2005'' at 47. See http://www.cdfifund.gov/impact_we_make/ciis/CDFI3yearTrend.pdf.
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The preponderance of CDFI sector commenters objected to the 20
percent net assets ratio in the proposed rule as too high. Several CDFI
commenters called on FHFA to reduce the net asset ratio to not greater
than 10 percent. These commenters argued that a 10 percent net asset
ratio would be in line with the standards used by the Federal
regulators for a well-capitalized federally insured credit union and
suggested that FHFA adopt internal capital ratios similar to those
applicable to FDIC-insured institutions.
FHFA believes that the capital composition of CDFIs and insured
depositories, respectively, reflect different institutional models and
are not directly comparable. The variations in CDFI sources of revenue
and capital do not readily permit classifications comparable to those
used by depository institutions. For example, a CDFI's assets may
include: (1) Unrestricted net assets, which are assets available for
use by the CDFI without encumbrance; (2) designated net assets, which
have been designated by a CDFI board for a specific purpose and can
become undesignated; (3) temporarily restricted net assets, which are
assets that cannot be released without prior agreement from the donor
but can be converted to unrestricted capital upon satisfaction of donor
requirements; and (4) permanently restricted net assets that have
financial covenants that cannot be removed, except, in some cases
during liquidation of assets pursuant to insolvency.
The terms of grant and investor covenants also can affect the
permanency of capital. In addition, the components of capital will also
vary from one nonprofit CDFI to another. For example, a unique
characteristic of CDFI loan funds is their use of a debt-as-equity
instrument known as Equity Equivalent Investments or ``EQ2.'' The EQ2
represents a small fraction (5 percent) of the aggregate capital of all
loan funds.\4\ Regulated financial institutions investing in CDFIs are
attracted to EQ2 investments because regulators treat EQ2 investments
in a CDFI as eligible in meeting the requirements of the CRA. The EQ2
loans are deeply subordinated to all other debt; carry a rolling term;
limit the rights of the investor to call the investment; and, carry
interest that is independent from income. The EQ2 are included as
capital in CDFI financial statements. This treatment increases capital
ratios and enables a CDFI to access capital at lower rates.
---------------------------------------------------------------------------
\4\ CDFI Data Project 2007.
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FHFA recognizes that a CDFI's balance sheet and financial ratios
may vary depending on the line of financial products and services that
it offers. A CDFI active in lending might be more leveraged than a
service-oriented CDFI and this could result in a lower net asset ratio.
Such a finding does not by itself indicate declining financial
performance or that the financial condition of the CDFI is not
sufficiently sound to allow the Bank to safely make advances to it.
Further, the CDFI specializing in lending might have more experience in
asset-liability management. In fact, data show that as a CDFI grows and
matures it will have lower net asset ratios than those of emerging
CDFIs.\5\ It is likely that these organizations have become more active
lenders and less dependent on grants. More recently, however, there is
evidence that financial distress among CDFI investors, such as insured
depositories and grant makers, has resulted in reduced investments in
CDFIs, lowering the CDFIs' equity and thus affecting their net asset
ratios.\6\
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\5\ See CDFI Fund, Three Year Trend Analysis at 47.
\6\ See Opportunity Finance Network, ``CDFI Market Conditions
Report: Fourth Quarter 2008'', (April, 2009). See ``The Economic
Crisis and Community Development Finance: An Industry Assessment'',
Community Development Investment Center Working paper Series,
Federal Reserve Bank of San Francisco, (May 2009).
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Recognition of these varying conditions notwithstanding, FHFA is
not inclined to accept the recommendations made by the commenters that
the minimum net asset ratio should be reduced, either to equal the
capital ratios of insured depositories or to some other value between
10 percent and 20 percent. In the absence of regulatory standards and
comprehensive examinations of the CDFIs, there is no good way for FHFA
to establish the merit of one particular numerical ratio over another.
Moreover, the 20 percent net asset ratio is consistent with the
experience of the CDFI Fund, and appears well below the levels
documented in the peer benchmarking studies described earlier. In light
of those factors, FHFA decided to retain the requirement in the
proposed rule that a CDFI applicant must demonstrate a 20 percent net
asset ratio in order to satisfy the presumptive standard. FHFA
emphasizes, however, that the revisions to Sec. 1263.16(b)(1) are
intended to allow an applicant that does not meet any of the
presumptive standards, including the 20 percent threshold, to provide
additional evidence of its financial condition and have the Bank
consider that information prior to acting on the application. Moreover,
FHFA intends to monitor the Banks' implementation of this rule,
including their assessment of additional information provided by any
applicant that does not initially meet one of the presumptive
standards.
Earnings. Under the proposed rule, the applicant would have been
required to show a positive net income for any two of the three most
recent years, where net income is calculated as gross revenues less
total expenses and is based on information derived from the applicant's
most recent financial statement. Most commenters supported the standard
in the proposed rule as reasonable measure of a CDFI's earnings, but a
number of CDFIs and CDFI trade associations proposed revising this
provision to allow applicants to use a rolling three-year average to
demonstrate that they have achieved a pattern of positive net income
over that time. Those commenters favored this method because it
recognizes fluctuations on a CDFI balance sheet resulting from newly
received and expiring grants. The rolling three-year average method is
also consistent with the methods used by some grantors. FHFA believes
that these suggestions have merit and has amended the final rule to
delete the requirement that an applicant show positive net income in
two of the most recent three years and replaced it with a requirement
that an applicant have positive income on a rolling three-year average
basis.
Loan loss reserves. The proposed rule included a requirement that
an applicant's ratio of loan loss reserves to loans and leases 90 days
or more delinquent (including loans sold with full recourse) be at
least 30 percent, where loan loss reserves are a specified balance
sheet account that reflects the amount reserved for loans expected to
[[Page 688]]
be uncollectible and are based on information derived from the
applicant's most recent financial statement. FHFA proposed the 30
percent threshold, which is half the reserve requirement that applies
to depository institution applicants, in recognition of the
historically low delinquency rate among CDFI-originated loans and the
willingness and ability of CDFIs to work with borrowers to modify
loans. Generally speaking, CDFI loans have performed as well or better
than prime loans, and FHFA believed that it was appropriate for the
loan loss reserve standard to recognize that difference.
Notwithstanding that, FHFA explained its rationale for the 30
percent requirement in the proposed rule, a number of commenters
serving or representing depository institutions stated that the 30
percent figure was too low and recommended that it be increased to 60
percent, the same as it is for depositories. For the same reasons that
were cited in the proposed rule, FHFA believes that the 30 percent
figure is appropriate for CDFI applicants, and that increasing the
ratio to 60 percent would not take into consideration the default
experience for CDFI loans. One CDFI commenter recommended lowering the
reserve ratio to 20 percent, in recognition that nonprofit institutions
typically work with borrowers to modify loans. In light of current
economic conditions affecting all lenders, FHFA believes that a 20
percent reserve may be too low and is not prepared to accept that
suggestion, though it notes that any CDFI applicant not meeting the 30
percent requirement could provide the Bank additional information
demonstrating why, in the context of the business conducted by that
CDFI, its level of loan loss reserves is consistent with the concept of
operating in a sound financial condition. Accordingly, the final rule
adopts the loan loss reserve standard exactly as it was proposed.
Liquidity ratio. The proposed rule included a standard requiring a
CDFI applicant to have an operating liquidity ratio of at least 1.0 for
the current year, and for one or both of the two preceding years, where
the numerator of the ratio includes unrestricted cash and cash
equivalents and the denominator of the ratio is the average quarterly
operating expense for the four most recent quarters. FHFA believes that
this liquidity ratio provides a measure of funds available to pay
creditors by requiring a CDFI to have sufficient liquidity to cover its
average operating expenses for one quarter. The preponderance of
commenters supported the liquidity ratio in the proposed rule, and one
commenter suggested that the final rule replace the reference to
``current year'' with a reference to the ``four most recent quarters.''
FHFA agrees with that suggestion and has incorporated it into the final
rule. In all other respects, the final rule is identical to the
proposed rule on this topic.
Self-sufficiency or sustainability ratio. The proposed rule sought
comment on whether FHFA should incorporate into the final rule a
requirement that a CDFI applicant have a minimum self-sufficiency or
sustainability ratio, i.e., a ratio used to evaluate the extent to
which a CDFI can cover its expenses from earned revenue and, by
inference, the CDFI's independence from grants and loans. FHFA
acknowledged in the proposed rule that self-sufficiency ratios can be
affected by the type of services and grant programs operated by the
CDFI, and thus may not adequately portray a CDFI's financial condition.
Moreover, if a self-sufficiency ratio for Bank membership were to be
too stringent, it could conflict with the service delivery requirements
for a CDFI to become certified by the CDFI Fund. See 12 U.S.C. 4701(b).
Most of the commenters addressing this issue believed that a self-
sufficiency ratio was not necessary, though some commenters did
advocate for its inclusion. Given the above-described concerns and the
absence in the comments of any compelling reasons for adopting a self-
sufficiency requirement, FHFA does not include one in the final rule.
Section 1263.17--Rebuttable Presumptions. The membership
regulations of the Finance Board had long included a series of
presumptive standards, under which an applicant that satisfied a
particular standard would be presumed to have satisfied the underlying
statutory or regulatory requirement to which the standard related. For
example, those regulations presumed that an insurance company applicant
that was subject to inspection and regulation by a State regulator that
is accredited by the National Association of Insurance Commissioners
had satisfied the statutory ``inspection and regulation'' requirement
of 12 U.S.C. 1424(a)(1)(B). See 12 CFR 925.8. In the event that an
insurance company applicant was not regulated by an accredited agency,
and thus had failed to meet the presumptive standard, other provisions
of the regulations allowed the applicant to rebut the presumption of
non-compliance by providing the Bank with ``substantial evidence'' that
it in fact could satisfy the statutory requirement notwithstanding the
lack of accreditation for its regulator. See 12 CFR 925.17(c). In the
proposed rule, FHFA retained this framework, with certain modifications
to proposed Sec. 1263.17 to accommodate CDFI applicants. In effect,
the proposed rule would have applied the presumptive compliance and
rebuttal provisions to CDFI applicants in the same manner that they
apply to other applicants.
Certain commenters objected to this arrangement, apparently on the
mistaken belief that the presumption and rebuttal structure of the
regulation disadvantaged CDFI applicants by presuming that they had not
satisfied one or more of the requirements for membership. In the final
rule FHFA retains the presumption and rebuttal provisions as proposed.
Each of the regulation's presumptive standards for Bank membership is
linked to one of the statutory or regulatory requirements that each
applicant must satisfy in order to become a Bank member. An applicant
that satisfies a presumptive standard is presumed to have satisfied the
underlying statutory or regulatory requirement and need do nothing more
with respect to that requirement.
An applicant that does not satisfy a presumptive standard, however,
is not conclusively determined to have failed to satisfy the underlying
requirement. Instead, the regulation effectively requires an applicant
to go through a somewhat more rigorous process before a Bank can
determine that the applicant in fact has satisfied the underlying
membership requirement. FHFA believes that this level of scrutiny is
appropriate because Congress has established certain requirements for
membership that each applicant must satisfy in order to become a member
and FHFA has a responsibility to ensure that the Banks admit to
membership only those applicants that have satisfied all applicable
requirements for membership. FHFA also believes that this arrangement
ultimately works to the benefit of an applicant because it provides an
opportunity to present whatever additional documentation an applicant
believes relevant to satisfying a particular requirement for
membership. As a practical matter, FHFA also notes that the addition of
the new provisions into Sec. 1263.16(b)(1)(ii) and (b)(1)(iii), which
allow CDFI applicants to submit as part of their original membership
application whatever information they believe relevant to their
application, and gives CDFI applicants an opportunity to address any
such issues at the beginning of the application process, which should
lessen the likelihood that a CDFI applicant will need to rely on the
rebuttal provisions of Sec. 1263.17.
[[Page 689]]
D. Community Support Amendment--Part 944
Section 10(g) of the Bank Act requires FHFA to adopt regulations
establishing standards of community investment or service for members
of the Banks to maintain continued access to long-term Bank advances.
That section further provides that the regulations shall take into
account factors such as a member's performance under the CRA and the
member's record of lending to first-time homebuyers. 12 U.S.C.
1430(g)(1) and (2). In the proposed rule, FHFA stated its belief that a
CDFI member should be able to comply with the existing community
support regulations but also requested comments on whether FHFA should
develop an alternative community support regulation for CDFIs that
recognizes their unique mission and business practices. The comments
received on this issue were split, with some advocating a revision to
the community support regulations to accommodate CDFI members and
others expressing the view that most CDFI members should be able to
satisfy the requirements of the existing community support regulations.
After consideration, FHFA decided to amend the community support
regulations to add provisions in the final rule that deem a CDFI member
(other than a depository institution or credit union) to have satisfied
the statutory community support if it is certified by the CDFI Fund.
The substance of the new provisions and FHFA's rationale are set out
below.
The existing Finance Board regulations implementing the community
support requirement are located at 12 CFR part 944, and incorporate the
two factors cited by the statute, i.e., the CRA and the record of
lending to first-time homebuyers. Under these provisions, a Bank member
that is subject to the CRA is deemed to meet the CRA standard if its
most recent CRA evaluation is ``outstanding'' or ``satisfactory.'' See
12 CFR 944.3(b)(1). A member also is presumed to meet the first-time
homebuyer lending standard if its CRA evaluation is ``outstanding'' and
there are no public comments or other information to the contrary. 12
CFR 944.3(c). Members that are not subject to the CRA, such as credit
unions and insurance companies, are only required to meet the first-
time homebuyer lending standard. Id. Because the newly-eligible CDFIs
are not subject to the CRA, they too would only be subject to the
first-time homebuyer lending standard if they were to be subject to the
existing regulations. Section 944.3(c)(1) includes a non-exclusive list
of eligible activities that meet the first-time homebuyer lending
standard, such as having an established record of lending to first-time
homebuyers, providing homeownership counseling programs for first-time
homebuyers, providing or participating in marketing plans and related
outreach programs targeted to first-time homebuyers, and providing
technical assistance or financial support to organizations that assist
first-time homebuyers. See id. at 944.3(c)(1).
When the Finance Board adopted the current community support
regulations, it construed the statutory provisions narrowly and
described the references to the CRA and first-time homebuyers as
``mandatory statutory factors.'' See 61 FR 60229, 60230 (November 27,
1996) (proposed rule). At that time, however, the Bank Act did not
authorize CDFIs to become Bank members, and the Finance Board did not
consider the issue of how the community support requirements should be
applied to CDFIs, which are not subject to the CRA and may not be as
actively involved in first-time home buyer activities as are depository
institutions. In light of the HERA amendments, FHFA reconsidered that
interpretation and determined that it need not construe the references
to the CRA and first-time home buyers as ``mandatory factors'' for all
members. FHFA believes that it has the authority under section 10(g) of
the Bank Act to adopt different community support standards for
particular categories of members if it believes that the circumstances
warrant such a difference. With respect to certified CDFI members, FHFA
believes that the circumstances warrant that they be treated
differently from depository institution and insurance company members
with respect to the community support requirements and is including in
the final rule revisions to the community support regulations to deal
with certified CDFI members.
Section 10(g) of the Bank Act mandates that FHFA adopt regulations
that establish standards of community investment or service for the
members of the Banks. That mandate appears clearly intended to
encourage members to be engaged in providing community investments and
services by making their access to long-term advances dependent on how
involved they are in those activities. That approach makes eminent
sense, in the case of depository institutions and insurance companies,
because the principal focus of the business of such entities may well
involve activities that do not have a community orientation. In the
case of CDFIs, however, the principal, and in some cases the exclusive
business focus is on community oriented services and investments.
Indeed, in order to become certified by the CDFI Fund a CDFI must by
statute have a primary mission of promoting community development,
serve an investment area (which is a geographic area that meets certain
criteria of economic distress), and provide development services (which
are activities that promote community development and are integral to
lending or investment activities) in conjunction with equity
investments or loans. 12 U.S.C. 4702(5)(A). Given that a principal
reason certified CDFIs exist is to promote economic revitalization and
community development through investments and other services within
their local communities, see 12 U.S.C. 4701(b), and that certification
represents a determination by the CDFI Fund that the CDFI has satisfied
the above described statutory requirements, FHFA believes that an
entity that has been certified by the CDFI Fund may be presumed to have
satisfied the community support requirements of section 10(g) of the
Bank Act. Accordingly, the final rule includes several amendments to
the existing community support regulations to implement that
determination. The final rule also relocates the existing community
support regulations from 12 CFR part 944 to 12 CFR part 1290.
Section 1290.1 of the final rule adds several definitions to those
in the existing community support regulations and revises one existing
definition. The newly defined terms are ``appropriate Federal banking
agency,'' ``appropriate State regulator,'' ``Bank,'' ``CDFI Fund,''
``community development financial institution,'' and ``FHFA.'' The
definition of ``targeted community lending'' is revised to replace a
cross-reference to a definition from the Finance Board regulations with
the actual content of the cross-referenced definition, which does not
alter the substance of the defined term.
Section 1290.2 of the relocated community support regulations is
being revised by including in paragraph (a) (which deals with the
biennial selection of members for community support review) new
language saying that the review process applies ``except as otherwise
provided in this section.'' That new language refers to new paragraph
(e), which provides that a member that has been certified as a CDFI by
the CDFI Fund shall be deemed to be in compliance with the community
support requirements of section 10(g) of the Bank Act by virtue of that
certification and is not subject to the biennial review under paragraph
(a) of this section. This language also includes an express statement
that the
[[Page 690]]
exclusion for certified CDFIs does not apply to any members that are
insured depository institutions or CDFI credit unions. Those
institutions would continue to be evaluated under the community support
requirements that apply to all other depository institutions and credit
unions, notwithstanding their CDFI status. FHFA has excluded those
institutions because it believes that all depository institution and
credit union members should be evaluated for community support
compliance under the same regulatory standards, i.e., the CRA and
first-time home buyer standards described above.
IV. Paperwork Reduction Act
The final rule will have no substantive or material effect on any
collection of information covered by the Paperwork Reduction Act of
1995 (PRA). See 44 U.S.C. 3501 et seq. Therefore, FHFA has not
submitted this final rule to the Office of Management and Budget (OMB)
for review.
The currently approved information collection, entitled ``Members
of the Banks,'' has been assigned control number 2590-0003 by the
Office of Management and Budget (OMB). FHFA uses this information as
set forth in the existing Members of the Banks regulation.
The Community Support Statement Form contained in the currently
approved information collection, entitled ``Community Support
Requirements,'' has been assigned the control number 2590-0005 by the
OMB. FHFA uses this information as set forth in the existing Community
Support Requirements Regulation.
FHFA plans to direct the Banks to use a revised version of those
instructions, applications, and forms, which revised version will not
materially modify the approved information collections.
V. Regulatory Flexibility Act
The final rule will apply only to the Banks, which do not come
within the meaning of ``small entities,'' as defined in the Regulatory
Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance
with section 605(b) of the RFA, 5 U.S.C. 605(b), the General Counsel of
FHFA hereby certifies that the final rule will not have a significant
economic impact on a substantial number of small entities.
List of Subjects
12 CFR Parts 925 and 1263
Federal home loan banks, Reporting and recordkeeping requirements.
12 CFR Parts 944 and 1290
Credit, Federal home loan banks, Housing, Reporting and
recordkeeping requirements.
0
For the reasons stated in the preamble, FHFA hereby amends chapters IX
and XII, of title 12 of the Code of Federal Regulations as follows:
CHAPTER IX--FEDERAL HOUSING FINANCE BOARD
PART 925--[REDESIGNATED AS PART 1263]
0
1. Transfer 12 CFR part 925 from chapter IX, subchapter D, to chapter
XII, subchapter D and redesignate as 12 CFR part 1263.
0
2. Revise the newly redesignated part 1263 to read as follows:
PART 1263--MEMBERS OF THE BANKS
Subpart A--Definitions
Sec.
1263.1 Definitions.
Subpart B--Membership Application Process
1263.2 Membership application requirements.
1263.3 Decision on application.
1263.4 Automatic membership.
1263.5 Appeals.
Subpart C--Eligibility Requirements
1263.6 General eligibility requirements.
1263.7 Duly organized requirement.
1263.8 Subject to inspection and regulation requirement.
1263.9 Makes long-term home mortgage loans requirement.
1263.10 Ten percent requirement for certain insured depository
institution applicants.
1263.11 Financial condition requirement for depository institutions
and CDFI credit unions.
1263.12 Character of management requirement.
1263.13 Home financing policy requirement.
1263.14 De novo insured depository institution applicants.
1263.15 Recent merger or acquisition applicants.
1263.16 Financial condition requirement for insurance company and
certain CDFI applicants.
1263.17 Rebuttable presumptions.
1263.18 Determination of appropriate Bank district for membership.
Subpart D--Stock Requirements
1263.19 Par value and price of stock.
1263.20 Stock purchase.
1263.21 Issuance and form of stock.
1263.22 Adjustments in stock holdings.
1263.23 Excess stock.
Subpart E--Consolidations Involving Members
1263.24 Consolidations involving members.
Subpart F--Withdrawal and Removal from Membership
1263.25 Reserved.
1263.26 Voluntary withdrawal from membership.
1263.27 Involuntary termination of membership.
1263.28 Reserved.
Subpart G--Orderly Liquidation of Advances and Redemption of Stock
1263.29 Disposition of claims.
Subpart H--Reacquisition of Membership
1263.30 Readmission to membership.
Subpart I--Bank Access to Information
1263.31 Reports and examinations.
Subpart J--Membership Insignia
1263.32 Official membership insignia.
Authority: 12 U.S.C. 1422, 1423, 1424, 1426, 1430, 1442, 4511,
4513.
Subpart A--Definitions
Sec. 1263.1 Definitions.
For purposes of this part:
Adjusted net income means net income, excluding extraordinary items
such as income received from, or expense incurred in, sales of
securities or fixed assets, reported on a regulatory financial report.
Aggregate unpaid loan principal means the aggregate unpaid
principal of a subscriber's or member's home mortgage loans, home-
purchase contracts and similar obligations.
Allowance for loan and lease losses means a specified balance-sheet
account held to fund potential losses on loans or leases, which is
reported on a regulatory financial report.
Appropriate regulator means:
(1) In the case of an insured depository institution or CDFI credit
union, the Federal Deposit Insurance Corporation, Board of Governors of
the Federal Reserve System, National Credit Union Administration,
Office of the Comptroller of the Currency, Office of Thrift
Supervision, or appropriate State regulator that has regulatory
authority over, or is empowered to institute enforcement action
against, the institution, as applicable, and
(2) In the case of an insurance company, an appropriate State
regulator accredited by the National Association of Insurance
Commissioners.
Bank Act means the Federal Home Loan Bank Act, as amended (12
U.S.C. 1421 through 1449).
CDFI credit union means a State-chartered credit union that has
been certified as a CDFI by the CDFI Fund and that does not have
Federal share insurance.
CDFI Fund means the Community Development Financial Institutions
[[Page 691]]
Fund established under section 104(a) of the Community Development
Banking and Financial Institutions Act of 1994 (12 U.S.C. 4703(a)).
CFI asset cap means $1 billion, as adjusted annually by FHFA,
beginning in 2009, to reflect any percentage increase in the preceding
year's Consumer Price Index (CPI) for all urban consumers, as published
by the U.S. Department of Labor.
Class A stock means capital stock issued by a Bank, including
subclasses, that has the characteristics specified in section
6(a)(4)(A)(i) of the Bank Act (12 U.S.C. 1426(a)(4)(A)(i)) and
applicable FHFA regulations.
Class B stock means capital stock issued by a Bank, including
subclasses, that has the characteristics specified in section
6(a)(4)(A)(ii) of the Bank Act (12 U.S.C. 1426(a)(4)(A)(ii)) and
applicable FHFA regulations.
Combination business or farm property means real property for which
the total appraised value is attributable to residential, and business
or farm uses.
Community development financial institution or CDFI means an
institution that is certified as a community development financial
institution by the CDFI Fund under the Community Development Banking
and Financial Institutions Act of 1994 (12 U.S.C. 4701 et seq.), other
than a bank or savings association insured under the Federal Deposit
Insurance Act (12 U.S.C. 1811 et seq.), a holding company for such a
bank or savings association, or a credit union insured under the
Federal Credit Union Act (12 U.S.C. 1751 et seq.).
Community financial institution or CFI means an institution:
(1) The deposits of which are insured under the Federal Deposit
Insurance Act (12 U.S.C. 1811 et seq.); and
(2) The total assets of which, as of the date of a particular
transaction, are less than the CFI asset cap, with total assets being
calculated as an average of total assets over three years, with such
average being based on the institution's regulatory financial reports
filed with its appropriate regulator for the most recent calendar
quarter and the immediately preceding 11 calendar quarters.
Composite regulatory examination rating means a composite rating
assigned to an institution following the guidelines of the Uniform
Financial Institutions Rating System (issued by the Federal Financial
Institutions Examination Council), including a CAMELS rating or other
similar rating, contained in a written regulatory examination report.
Consolidation includes a consolidation, a merger, or a purchase of
all of the assets and assumption of all of the liabilities of an entity
by another entity.
Director means the Director of FHFA or his or her designee.
Dwelling unit means a single room or a unified combination of rooms
designed for residential use.
Enforcement action means any written notice, directive, order, or
agreement initiated by an applicant for Bank membership or by its
appropriate regulator to address any operational, financial, managerial
or other deficiencies of the applicant identified by such regulator. An
``enforcement action'' does not include a board of directors'
resolution adopted by the applicant in response to examination
weaknesses identified by such regulator.
Funded residential construction loan means the portion of a loan
secured by real property made to finance the on-site construction of
dwelling units on one-to-four family property or multifamily property
disbursed to the borrower.
Gross revenues means, in the case of a CDFI applicant, total
revenues received from all sources, including grants and other donor
contributions and earnings from operations.
Home mortgage loan means:
(1) A loan, whether or not fully amortizing, or an interest in such
a loan, which is secured by a mortgage, deed of trust, or other
security agreement that creates a first lien on one of the following
interests in property:
(i) One-to-four family property or multifamily property, in fee
simple;
(ii) A leasehold on one-to-four family property or multifamily
property under a lease of not less than 99 years that is renewable, or
under a lease having a period of not less than 50 years to run from the
date the mortgage was executed; or
(iii) Combination business or farm property where at least 50
percent of the total appraised value of the combined property is
attributable to the residential portion of the property, or in the case
of any community financial institution, combination business or farm
property, on which is located a permanent structure actually used as a
residence (other than for temporary or seasonal housing), where the
residence constitutes an integral part of the property; or
(2) A mortgage pass-through security that represents an undivided
ownership interest in:
(i) Long-term loans, provided that, at the time of issuance of the
security, all of the loans meet the requirements of paragraph (1) of
this definition; or
(ii) A security that represents an undivided ownership interest in
long-term loans, provided that, at the time of issuance of the
security, all of the loans meet the requirements of paragraph (1) of
this definition.
Insured depository institution means an insured depository
institution as defined in section 2(9) of the Bank Act, as amended (12
U.S.C. 1422(9)).
Long-term means a term to maturity of five years or greater.
Manufactured housing means a manufactured home as defined in
section 603(6) of the National Manufactured Housing Construction and
Safety Standards Act of 1974, as amended (42 U.S.C. 5402(6)).
Multifamily property means:
(1) Real property that is solely residential and includes five or
more dwelling units;
(2) Real property that includes five or more dwelling units
combined with commercial units, provided that the property is primarily
residential; or
(3) Nursing homes, dormitories, or homes for the elderly.
Nonperforming loans and leases means the sum of the following,
reported on a regulatory financial report:
(1) Loans and leases that have been past due for 90 days (60 days,
in the case of credit union applicants) or longer but are still
accruing;
(2) Loans and leases on a nonaccrual basis; and
(3) Restructured loans and leases (not already reported as
nonperforming).
Nonresidential real property means real property that is not used
for residential purposes, including business or industrial property,
hotels, motels, churches, hospitals, educational and charitable
institution buildings or facilities, clubs, lodges, association
buildings, golf courses, recreational facilities, farm property not
containing a dwelling unit, or similar types of property.
One-to-four family property means:
(1) Real property that is solely residential, including one-to-four
family dwelling units or more than four family dwelling units if each
dwelling unit is separated from the other dwelling units by dividing
walls that extend from ground to roof, such as row houses, townhouses
or similar types of property;
(2) Manufactured housing if applicable State law defines the
purchase or holding of manufactured housing as the purchase or holding
of real property;
(3) Individual condominium dwelling units or interests in
individual cooperative housing dwelling units that are part of a
condominium or cooperative building without regard to the number of
total dwelling units therein; or
[[Page 692]]
(4) Real property which includes one-to-four family dwelling units
combined with commercial units, provided the property is primarily
residential.
Operating expenses means, in the case of a CDFI applicant, expenses
for business operations, including, but not limited to, staff salaries
and benefits, professional fees, interest, loan loss provision, and
depreciation, contained in the applicant's audited financial
statements.
Other real estate owned means all other real estate owned (i.e.,
foreclosed and repossessed real estate), reported on a regulatory
financial report, and does not include direct and indirect investments
in real estate ventures.
Regulatory examination report means a written report of examination
prepared by the applicant's appropriate regulator, containing, in the
case of insured depository institution applicants, a composite rating
assigned to the institution following the guidelines of the Uniform
Financial Institutions Rating System, including a CAMELS rating or
other similar rating.
Regulatory financial report means a financial report that an
applicant is required to file with its appropriate regulator on a
specific periodic basis, including the quarterly call report for
commercial banks, thrift financial report for savings associations,
quarterly or semi-annual call report for credit unions, the National
Association of Insurance Commissioners' annual or quarterly report for
insurance companies, or other similar report, including such report
maintained by the appropriate regulator on a computer on-line database.
Residential mortgage loan means any one of the following types of
loans, whether or not fully amortizing:
(1) Home mortgage loans;
(2) Funded residential construction loans;
(3) Loans secured by manufactured housing whether or not defined by
State law as secured by an interest in real property;
(4) Loans secured by junior liens on one-to-four family property or
multifamily property;
(5) Mortgage pass-through securities representing an undivided
ownership interest in[boxh]
(i) Loans that meet the requirements of paragraphs (1) through (4)
of this definition at the time of issuance of the security;
(ii) Securities representing an undivided ownership interest in
loans, provided that, at the time of issuance of the security, all of
the loans meet the requirements of paragraphs (1) through (4) of this
definition; or
(iii) Mortgage debt securities as defined in paragraph (6) of this
definition;
(6) Mortgage debt securities secured by[boxh]
(i) Loans, provided that, at the time of issuance of the security,
substantially all of the loans meet the requirements of paragraphs (1)
through (4) of this definition;
(ii) Securities that meet the requirements of paragraph (5) of this
definition; or
(iii) Securities secured by assets, provided that, at the time of
issuance of the security, all of the assets meet the requirements of
paragraphs (1) through (5) of this definition;
(7) Home mortgage loans secured by a leasehold interest, as defined
in paragraph (1)(ii) of the definition of ``home mortgage loan,''
except that the period of the lease term may be for any duration; or
(8) Loans that finance properties or activities that, if made by a
member, would satisfy the statutory requirements for the Community
Investment Program established under section 10(i) of the Bank Act (12
U.S.C. 1430(i)), or the regulatory requirements established for any
CICA program.
Restricted assets means both permanently restricted assets and
temporarily restricted assets, as those terms are used in Financial
Accounting Standard No. 117, or any successor publication.
Total assets means the total assets reported on a regulatory
financial report or, in the case of a CDFI applicant, the total assets
contained in the applicant's audited financial statements.
Unrestricted cash and cash equivalents means, in the case of a CDFI
applicant, cash and highly liquid assets that can be easily converted
into cash that are not restricted in a manner that prevents their use
in paying expenses, as contained in the applicant's audited financial
statements.
Subpart B--Membership Application Process
Sec. 1263.2 Membership application requirements.
(a) Application. An applicant for membership in a Bank shall submit
to that Bank an application that satisfies the requirements of this
part. The application shall include a written resolution or
certification duly adopted by the applicant's board of directors, or by
an individual with authority to act on behalf of the applicant's board
of directors, of the following:
(1) Applicant review. Applicant has reviewed the requirements of
this part and, as required by this part, has provided to the best of
applicant's knowledge the most recent, accurate, and complete
information available; and
(2) Duty to supplement. Applicant will promptly supplement the
application with any relevant information that comes to applicant's
attention prior to the Bank's decision on whether to approve or deny
the application, and if the Bank's decision is appealed pursuant to
Sec. 1263.5, prior to resolution of any appeal by FHFA.
(b) Digest. The Bank shall prepare a written digest for each
applicant stating whether or not the applicant meets each of the
requirements in Sec. Sec. 1263.6 to 1263.18, the Bank's findings, and
the reasons therefor.
(c) File. The Bank shall maintain a membership file for each
applicant for at least three years after the Bank decides whether to
approve or deny membership or, in the case of an appeal to FHFA, for
three years after the resolution of the appeal. The membership file
shall contain at a minimum:
(1) Digest. The digest required by paragraph (b) of this section.
(2) Required documents. All documents required by Sec. Sec. 1263.6
to 1263.18, including those documents required to establish or rebut a
presumption under this part, shall be described in and attached to the
digest. The Bank may retain in the file only the relevant portions of
the regulatory financial reports required by this part. If an
applicant's appropriate regulator requires return or destruction of a
regulatory examination report, the date that the report is returned or
destroyed shall be noted in the file.
(3) Additional documents. Any additional document submitted by the
applicant, or otherwise obtained or generated by the Bank, concerning
the applicant.
(4) Decision resolution. The decision resolution described in Sec.
1263.3(b).
Sec. 1263.3 Decision on application.
(a) Authority. FHFA hereby authorizes the Banks to approve or deny
all applications for membership, subject to the requirements of this
part. The authority to approve membership applications may be exercised
only by a committee of the Bank's board of directors, the Bank
president, or a senior officer who reports directly to the Bank
president, other than an officer with responsibility for business
development.
(b) Decision resolution. For each applicant, the Bank shall prepare
a written resolution duly adopted by the Bank's board of directors, by
a committee of the board of directors, or
[[Page 693]]
by an officer with delegated authority to approve membership
applications. The decision resolution shall state:
(1) That the statements in the digest are accurate to the best of
the Bank's knowledge, and are based on a diligent and comprehensive
review of all available information identified in the digest; and
(2) The Bank's decision and the reasons therefor. Decisions to
approve an application should state specifically that:
(i) The applicant is authorized under the laws of the United States
and the laws of the appropriate State to become a member of, purchase
stock in, do business with, and maintain deposits in, the Bank to which
the applicant has applied; and
(ii) The applicant meets all of the membership eligibility criteria
of the Bank Act and this part.
(c) Action on applications. The Bank shall act on an application
within 60 calendar days of the date the Bank deems the application to
be complete. An application is ``complete'' when a Bank has obtained
all the information required by this part, and any other information
the Bank deems necessary, to process the application. If an application
that was deemed complete subsequently is deemed incomplete because the
Bank determines during the review process that additional information
is necessary to process the application, the Bank may stop the 60-day
clock until the application again is deemed complete, and then resume
the clock where it left off. The Bank shall notify an applicant in
writing when its application is deemed by the Bank to be complete, and
shall maintain a copy of such letter in the applicant's membership
file. The Bank shall notify an applicant if the 60-day clock is
stopped, and when the clock is resumed, and shall maintain a written
record of such notifications in the applicant's membership file. Within
three business days of a Bank's decision on an application, the Bank
shall provide the applicant and FHFA with a copy of the Bank's decision
resolution.
Sec. 1263.4 Automatic membership.
(a) Automatic membership for certain charter conversions. An
insured depository institution member that converts from one charter
type to another automatically shall become a member of the Bank of
which the converting institution was a member on the effective date of
such conversion, provided that the converting institution continues to
be an insured depository institution and the assets of the institution
immediately before and immediately after the conversion are not
materially different. In such case, all relationships existing between
the member and the Bank at the time of such conversion may continue.
(b) Automatic membership for transfers. Any member whose membership
is transferred pursuant to Sec. 1263.18(d) automatically shall become
a member of the Bank to which it transfers.
(c) Automatic membership, in the Bank's discretion, for certain
consolidations.--(1) If a member institution (or institutions) and a
nonmember institution are consolidated, and the consolidated
institution has its principal place of business in a State in the same
Bank district as the disappearing institution (or institutions), and
the consolidated institution will operate under the charter of the
nonmember institution, on the effective date of the consolidation, the
consolidated institution may, in the discretion of the Bank of which
the disappearing institution (or institutions) was a member immediately
prior to the effective date of the consolidation, automatically become
a member of such Bank upon the purchase of the minimum amount of Bank
stock required for membership in that Bank, as required by Sec.
1263.20, provided that:
(i) 90 percent or more of the consolidated institution's total
assets are derived from the total assets of the disappearing member
institution (or institutions); and
(ii) The consolidated institution provides written notice to such
Bank, within 60 calendar days after the effective date of the
consolidation, that it desires to be a member of the Bank.
(2) The provisions of Sec. 1263.24(b)(4)(i) shall apply, and upon
approval of automatic membership by the Bank, the provisions of Sec.
1263.24(c) and (d) shall apply.
Sec. 1263.5 Appeals.
(a) Appeals by applicants.--(1) Filing procedure. Within 90
calendar days of the date of a Bank's decision to deny an application
for membership, the applicant may file a written appeal of the decision
with FHFA.
(2) Documents. The applicant's appeal shall be addressed to the
Deputy Director for Federal Home Loan Bank Regulation, Federal Housing
Finance Agency, 1625 Eye Street, NW., Washington, DC 20006, with a copy
to the Bank, and shall include the following documents:
(i) Bank's decision resolution. A copy of the Bank's decision
resolution; and
(ii) Basis for appeal. An applicant must provide a statement of the
basis for the appeal with sufficient facts, information, analysis, and
explanation to rebut any applicable presumptions, or otherwise to
support the applicant's position.
(b) Record for appeal.--(1) Copy of membership file. Upon receiving
a copy of an appeal, the Bank whose action has been appealed (appellee
Bank) shall provide FHFA with a copy of the applicant's complete
membership file. Until FHFA resolves the appeal, the appellee Bank
shall supplement the materials provided to FHFA as any new materials
are received.
(2) Additional information. FHFA may request additional information
or further supporting arguments from the appellant, the appellee Bank,
or any other party that FHFA deems appropriate.
(c) Deciding appeals. FHFA shall consider the record for appeal
described in paragraph (b) of this section and shall resolve the appeal
based on the requirements of the Bank Act and this part within 90
calendar days of the date the appeal is filed with FHFA. In deciding
the appeal, FHFA shall apply the presumptions in this part, unless the
appellant or appellee Bank presents evidence to rebut a presumption as
provided in Sec. 1263.17.
Subpart C--Eligibility Requirements
Sec. 1263.6 General eligibility requirements.
(a) Requirements. Any building and loan association, savings and
loan association, cooperative bank, homestead association, insurance
company, savings bank, community development financial institution
(including a CDFI credit union), or insured depository institution,
upon submission of an application satisfying all of the requirements of
the Bank Act and this part, shall be eligible to become a member of a
Bank if:
(1) It is duly organized under Tribal law, or under the laws of any
State or of the United States;
(2) It is subject to inspection and regulation under the banking
laws, or under similar laws, of any State or of the United States or,
in the case of a CDFI, is certified by the CDFI Fund;
(3) It makes long-term home mortgage loans;
(4) Its financial condition is such that advances may be safely
made to it;
(5) The character of its management is consistent with sound and
economical home financing; and
(6) Its home financing policy is consistent with sound and
economical home financing.
[[Page 694]]
(b) Additional eligibility requirement for insured depository
institutions other than community financial institutions. In order to
be eligible to become a member of a Bank, an insured depository
institution applicant other than a community financial institution also
must have at least 10 percent of its total assets in residential
mortgage loans.
(c) Additional eligibility requirement for applicants that are not
insured depository institutions. In order to be eligible to become a
member of a Bank, an applicant that is not an insured depository
institution also must have mortgage-related assets that reflect a
commitment to housing finance, as determined by the Bank in its
discretion.
(d) Ineligibility. Except as otherwise provided in this part, if an
applicant does not satisfy the requirements of this part, the applicant
is ineligible for membership.
Sec. 1263.7 Duly organized requirement.
An applicant shall be deemed to be duly organized, as required by
section 4(a)(1)(A) of the Bank Act (12 U.S.C. 1424(a)(1)(A)) and Sec.
1263.6(a)(1), if it is chartered by a State or Federal agency as a
building and loan association, savings and loan association,
cooperative bank, homestead association, insurance company, savings
bank, or insured depository institution or, in the case of a CDFI
applicant, is incorporated under State or Tribal law.
Sec. 1263.8 Subject to inspection and regulation requirement.
An applicant shall be deemed to be subject to inspection and
regulation, as required by section 4(a)(1)(B) of the Bank Act (12
U.S.C. 1424 (a)(1)(B)) and Sec. 1263.6(a)(2) if, in the case of an
insured depository institution or insurance company applicant, it is
subject to inspection and regulation by its appropriate regulator. A
CDFI applicant that is certified by the CDFI Fund is not subject to
this requirement.
Sec. 1263.9 Makes long-term home mortgage loans requirement.
An applicant shall be deemed to make long-term home mortgage loans,
as required by section 4(a)(1)(C) of the Bank Act (12 U.S.C.
1424(a)(1)(C)) and Sec. 1263.6(a)(3), if, based on the applicant's
most recent regulatory financial report filed with its appropriate
regulator, or other documentation provided to the Bank, in the case of
a CDFI applicant that does not file such reports, the applicant
originates or purchases long-term home mortgage loans.
Sec. 1263.10 Ten percent requirement for certain insured depository
institution applicants.
An insured depository institution applicant that is subject to the
10 percent requirement of section 4(a)(2)(A) of the Bank Act (12 U.S.C.
1424(a)(2)(A)) and Sec. 1263.6(b) shall be deemed to be in compliance
with such requirement if, based on the applicant's most recent
regulatory financial report filed with its appropriate regulator, the
applicant has at least 10 percent of its total assets in residential
mortgage loans, except that any assets used to secure mortgage debt
securities as described in paragraph (6) of the definition of
``residential mortgage loan'' set forth in Sec. 1263.1 shall not be
used to meet this requirement.
Sec. 1263.11 Financial condition requirement for depository
institutions and CDFI credit unions.
(a) Review requirement. In determining whether a building and loan
association, savings and loan association, cooperative bank, homestead
association, savings bank, insured depository institution, or CDFI
credit union has complied with the financial condition requirements of
section 4(a)(2)(B) of the Bank Act (12 U.S.C. 1424(a)(2)(B)) and Sec.
1263.6(a)(4), the Bank shall obtain as a part of the membership
application and review each of the following documents:
(1) Regulatory financial reports. The regulatory financial reports
filed by the applicant with its appropriate regulator for the last six
calendar quarters and three year-ends preceding the date the Bank
receives the application;
(2) Financial statement. In order of preference--
(i) The most recent independent audit of the applicant conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the applicant;
(ii) The most recent independent audit of the applicant's parent
holding company conducted in accordance with generally accepted
auditing standards by a certified public accounting firm which submits
a report on the consolidated holding company but not on the applicant
separately;
(iii) The most recent directors' examination of the applicant
conducted in accordance with generally accepted auditing standards by a
certified public accounting firm;
(iv) The most recent directors' examination of the applicant
performed by other external auditors;
(v) The most recent review of the applicant's financial statements
by external auditors;
(vi) The most recent compilation of the applicant's financial
statements by external auditors; or
(vii) The most recent audit of other procedures of the applicant.
(3) Regulatory examination report. The applicant's most recent
available regulatory examination report prepared by its appropriate
regulator, a summary prepared by the Bank of the applicant's strengths
and weaknesses as cited in the regulatory examination report, and a
summary prepared by the Bank or applicant of actions taken by the
applicant to respond to examination weaknesses;
(4) Enforcement actions. A description prepared by the Bank or
applicant of any outstanding enforcement actions against the applicant,
responses by the applicant, reports as required by the enforcement
action, and verbal or written indications, if available, from the
appropriate regulator of how the applicant is complying with the terms
of the enforcement action; and
(5) Additional information. Any other relevant document or
information concerning the applicant that comes to the Bank's attention
in reviewing the applicant's financial condition.
(b) Standards. An applicant of the type described in paragraph (a)
of this section shall be deemed to be in compliance with the financial
condition requirement of section 4(a)(2)(B) of the Bank Act (12 U.S.C.
1424(a)(2)(B)) and Sec. 1263.6(a)(4), if:
(1) Recent composite regulatory examination rating. The applicant
has received a composite regulatory examination rating from its
appropriate regulator within two years preceding the date the Bank
receives the application;
(2) Capital requirement. The applicant meets all of its minimum
statutory and regulatory capital requirements as reported in its most
recent quarter-end regulatory financial report filed with its
appropriate regulator; and
(3) Minimum performance standard--(i) Except as provided in
paragraph (b)(3)(iii) of this section, the applicant's most recent
composite regulatory examination rating from its appropriate regulator
within the past two years was ``1'', or the most recent rating was
``2'' or ``3'' and, based on the applicant's most recent regulatory
financial report filed with its appropriate regulator, the applicant
satisfied all of the following performance trend criteria--
(A) Earnings. The applicant's adjusted net income was positive in
four of the six most recent calendar quarters;
(B) Nonperforming assets. The applicant's nonperforming loans and
leases plus other real estate owned, did
[[Page 695]]
not exceed 10 percent of its total loans and leases plus other real
estate owned, in the most recent calendar quarter; and
(C) Allowance for loan and lease losses. The applicant's ratio of
its allowance for loan and lease losses plus the allocated transfer
risk reserve to nonperforming loans and leases was 60 percent or
greater during four of the six most recent calendar quarters.
(ii) For applicants that are not required to report financial data
to their appropriate regulator on a quarterly basis, the information
required in paragraph (b)(3)(i) of this section may be reported on a
semi-annual basis.
(iii) A CDFI credit union applicant must meet the performance trend
criteria in paragraph (b)(3)(i) of this section irrespective of its
composite regulatory examination rating.
(c) Eligible collateral not considered. The availability of
sufficient eligible collateral to secure advances to the applicant is
presumed and shall not be considered in determining whether an
applicant is in the financial condition required by section 4(a)(2)(B)
of the Bank Act (12 U.S.C. 1424(a)(2)(B)) and Sec. 1263.6(a)(4).
Sec. 1263.12 Character of management requirement.
(a) General. A building and loan association, savings and loan
association, cooperative bank, homestead association, savings bank,
insured depository institution, insurance company, and CDFI credit
union shall be deemed to be in compliance with the character of
management requirements of section 4(a)(2)(C) of the Bank Act (12
U.S.C. 1424(a)(2)(C)) and Sec. 1263.6(a)(5) if the applicant provides
to the Bank an unqualified written certification duly adopted by the
applicant's board of directors, or by an individual with authority to
act on behalf of the applicant's board of directors, that:
(1) Enforcement actions. Neither the applicant nor any of its
directors or senior officers is subject to, or operating under, any
enforcement action instituted by its appropriate regulator;
(2) Criminal, civil or administrative proceedings. Neither the
applicant nor any of its directors or senior officers has been the
subject of any criminal, civil or administrative proceedings reflecting
upon creditworthiness, business judgment, or moral turpitude since the
most recent regulatory examination report; and
(3) Criminal, civil or administrative monetary liabilities,
lawsuits or judgments. There are no known potential criminal, civil or
administrative monetary liabilities, material pending lawsuits, or
unsatisfied judgments against the applicant or any of its directors or
senior officers since the most recent regulatory examination report,
that are significant to the applicant's operations.
(b) CDFIs other than CDFI credit unions. A CDFI applicant, other
than a CDFI credit union, shall be deemed to be in compliance with the
character of management requirement of Sec. 1263.6(a)(5), if the
applicant provides an unqualified written certification duly adopted by
the applicant's board of directors, or by an individual with authority
to act on behalf of the applicant's board of directors, that:
(1) Criminal, civil or administrative proceedings. Neither the
applicant nor any of its directors or senior officers has been the
subject of any criminal, civil or administrative proceedings reflecting
upon creditworthiness, business judgment, or moral turpitude in the
past three years; and
(2) Criminal, civil or administrative monetary liabilities,
lawsuits or judgments. There are no known potential criminal, civil or
administrative monetary liabilities, material pending lawsuits, or
unsatisfied judgments against the applicant or any of its directors or
senior officers arising within the past three years that are
significant to the applicant's operations.
Sec. 1263.13 Home financing policy requirement.
(a) Standard. An applicant shall be deemed to be in compliance with
the home financing policy requirements of section 4(a)(2)(C) of the
Bank Act (12 U.S.C. 1424(a)(2)(C)) and Sec. 1263.6(a)(6), if the
applicant has received a Community Reinvestment Act (CRA) rating of
``Satisfactory'' or better on its most recent formal, or if
unavailable, informal or preliminary, CRA performance evaluation.
(b) Written justification required. An applicant that is not
subject to the CRA shall file, as part of its application for
membership, a written justification acceptable to the Bank of how and
why the applicant's home financing policy is consistent with the Bank
System's housing finance mission.
Sec. 1263.14 De novo insured depository institution applicants.
(a) Duly organized, subject to inspection and regulation, financial
condition and character of management requirements. An insured
depository institution applicant whose date of charter approval is
within three years prior to the date the Bank receives the applicant's
application for membership in the Bank (de novo applicant) is deemed to
meet the requirements of Sec. Sec. 1263.7, 1263.8, 1263.11 and
1263.12.
(b) Makes long-term home mortgage loans requirement. A de novo
applicant shall be deemed to make long-term home mortgage loans as
required by Sec. 1263.9, if it has filed as part of its application
for membership, a written justification acceptable to the Bank of how
its home financing credit policy and lending practices will include
originating or purchasing long-term home mortgage loans.
(c) 10 percent requirement--(1) One-year requirement. A de novo
applicant subject to the 10 percent requirement of section 4(a)(2)(A)
of the Bank Act (12 U.S.C. 1424(a)(2)(A)) and Sec. 1263.6(b) shall
have until one year after commencing its initial business operations to
meet the 10 percent requirement of Sec. 1263.10.
(2) Conditional approval. A de novo applicant shall be
conditionally deemed to be in compliance with the 10 percent
requirement of section 4(a)(2)(A) of the Bank Act (12 U.S.C.
1424(a)(2)(A)) and Sec. 1263.6(b). A de novo applicant that receives
such conditional membership approval is subject to the stock purchase
requirements established by FHFA regulation or the Bank's capital plan,
as applicable, as well as FHFA regulations governing advances to
members.
(3) Approval. A de novo applicant shall be deemed to be in
compliance with the 10 percent requirement of section 4(a)(2)(A) of the
Bank Act (12 U.S.C. 1424(a)(2)(A)) and Sec. 1263.6(b) upon receipt by
the Bank from the applicant, within one year after commencement of the
applicant's initial business operations, of evidence acceptable to the
Bank that the applicant satisfies the 10 percent requirement.
(4) Conditional approval deemed null and void. If the requirements
of paragraph (c)(3) of this section are not satisfied, a de novo
applicant shall be deemed to be in noncompliance with the 10 percent
requirement of section 4(a)(2)(A) of the Bank Act (12 U.S.C.
1424(a)(2)(A)) and Sec. 1263.6(b), and its conditional membership
approval is deemed null and void.
(5) Treatment of outstanding advances and Bank stock. If a de novo
applicant's conditional membership approval is deemed null and void
pursuant to paragraph (c)(4) of this section, the liquidation of any
outstanding indebtedness owed by the applicant to the Bank and
redemption of stock of such Bank shall be carried out in accordance
with Sec. 1263.29.
(d) Home financing policy requirement--(1) Conditional approval.
[[Page 696]]
A de novo applicant that has not received its first formal, or, if
unavailable, informal or preliminary, CRA performance evaluation, shall
be conditionally deemed to be in compliance with the home financing
policy requirement of section 4(a)(2)(C) of the Bank Act (12 U.S.C.
1424(a)(2)(C)) and Sec. 1263.6(a)(6), if the applicant has filed, as
part of its application for membership, a written justification
acceptable to the Bank of how and why its home financing credit policy
and lending practices will meet the credit needs of its community. An
applicant that receives such conditional membership approval is subject
to the stock purchase requirements established by FHFA regulation or
the Bank's capital plan, as applicable, as well as FHFA regulations
governing advances to members.
(2) Approval. A de novo applicant that has been granted conditional
approval under paragraph (d)(1) of this section shall be deemed to be
in compliance with the home financing policy requirement of section
4(a)(2)(C) of the Bank Act (12 U.S.C. 1424(a)(2)(C)) and Sec.
1263.6(a)(6) upon receipt by the Bank of evidence from the applicant
that it received a CRA rating of ``Satisfactory'' or better on its
first formal, or if unavailable, informal or preliminary, CRA
performance evaluation.
(3) Conditional approval deemed null and void. If the de novo
applicant's first such CRA rating is ``Needs to Improve'' or
``Substantial Non-Compliance,'' the applicant shall be deemed to be in
noncompliance with the home financing policy requirement of section
4(a)(2)(C) of the Bank Act (12 U.S.C. 1424(a)(2)(C)) and Sec.
1263.6(a)(6), subject to rebuttal by the applicant under Sec.
1263.17(f), and its conditional membership approval is deemed null and
void.
(4) Treatment of outstanding advances and Bank stock. If the
applicant's conditional membership approval is deemed null and void
pursuant to paragraph (d)(3) of this section, the liquidation of any
outstanding indebtedness owed by the applicant to the Bank and
redemption of stock of such Bank shall be carried out in accordance
with Sec. 1263.29.
Sec. 1263.15 Recent merger or acquisition applicants.
An applicant that merged with or acquired another institution prior
to the date the Bank receives its application for membership is subject
to the requirements of Sec. Sec. 1263.7 to 1263.13 except as provided
in this section.
(a) Financial condition requirement--(1) Regulatory financial
reports. For purposes of Sec. 1263.11(a)(1), an applicant that, as a
result of a merger or acquisition preceding the date the Bank receives
its application for membership, has not yet filed regulatory financial
reports with its appropriate regulator for the last six calendar
quarters and three year-ends preceding such date, shall provide any
regulatory financial reports that the applicant has filed with its
appropriate regulator.
(2) Performance trend criteria. For purposes of Sec.
1263.11(b)(3)(i)(A) to (C), an applicant that, as a result of a merger
or acquisition preceding the date the Bank receives its application for
membership, has not yet filed combined regulatory financial reports
with its appropriate regulator for the last six calendar quarters
preceding such date, shall provide pro forma combined financial
statements for those calendar quarters in which actual combined
regulatory financial reports are unavailable.
(b) Home financing policy requirement. For purposes of Sec.
1263.13, an applicant that, as a result of a merger or acquisition
preceding the date the Bank receives its application for membership,
has not received its first formal, or if unavailable, informal or
preliminary, CRA performance evaluation, shall file as part of its
application, a written justification acceptable to the Bank of how and
why the applicant's home financing credit policy and lending practices
will meet the credit needs of its community.
(c) Makes long-term home mortgage loans requirement; 10 percent
requirement. For purposes of determining compliance with Sec. Sec.
1263.9 and 1263.10, a Bank may, in its discretion, permit an applicant
that, as a result of a merger or acquisition preceding the date the
Bank receives its application for membership, has not yet filed a
consolidated regulatory financial report as a combined entity with its
appropriate regulator, to provide the combined pro forma financial
statement for the combined entity filed with the regulator that
approved the merger or acquisition.
Sec. 1263.16 Financial condition requirement for insurance company
and certain CDFI applicants.
(a) Insurance companies. An insurance company applicant shall be
deemed to meet the financial condition requirement of Sec.
1263.6(a)(4) if, based on the information contained in the applicant's
most recent regulatory financial report filed with its appropriate
regulator, the applicant meets all of its minimum statutory and
regulatory capital requirements and the capital standards established
by the National Association of Insurance Commissioners.
(b) CDFIs other than CDFI credit unions--(1) Review requirement. In
order for a Bank to determine whether a CDFI applicant, other than a
CDFI credit union, has complied with the financial condition
requirement of Sec. 1263.6(a)(4), the applicant shall submit, as a
part of its membership application, each of the following documents,
and the Bank shall consider all such information prior to acting on the
application for membership:
(i) Financial statements. An independent audit conducted within the
prior year in accordance with generally accepted auditing standards by
a certified public accounting firm, plus more recent quarterly
statements, if available, and financial statements for the two years
prior to the most recent audited financial statement. At a minimum, all
such financial statements must include income and expense statements,
statements of activities, statements of financial position, and
statements of cash flows. The financial statement for the most recent
year must include separate schedules or disclosures of the financial
position of each of the applicant's affiliates, descriptions of their
lines of business, detailed financial disclosures of the relationship
between the applicant and its affiliates (such as indebtedness or
subordinate debt obligations), disclosures of interlocking
directorships with each affiliate, and identification of temporary and
permanently restricted funds and the requirements of these
restrictions;
(ii) CDFI Fund certification. The certification that the applicant
has received from the CDFI Fund. If the certification is more than
three years old, the applicant must also submit a written statement
attesting that there have been no material events or occurrences since
the date of certification that would adversely affect its strategic
direction, mission, or business operations; and
(iii) Additional information. Any other relevant document or
information a Bank requests concerning the applicant's financial
condition that is not contained in the applicant's financial
statements, as well as any other information that the applicant
believes demonstrates that it satisfies the financial condition
requirement of Sec. 1263.6(a)(4), notwithstanding its failure to meet
any of the financial condition standards of paragraph (b)(2) of this
section.
(2) Standards. A CDFI applicant, other than a CDFI credit union,
shall be
[[Page 697]]
deemed to be in compliance with the financial condition requirement of
Sec. 1263.6(a)(4) if it meets all of the following minimum financial
standards--
(i) Net asset ratio. The applicant's ratio of net assets to total
assets is at least 20 percent, with net and total assets including
restricted assets, where net assets is calculated as the residual value
of assets over liabilities and is based on information derived from the
applicant's most recent financial statements;
(ii) Earnings. The applicant has shown positive net income, where
net income is calculated as gross revenues less total expenses, is
based on information derived from the applicant's most recent financial
statements, and is measured as a rolling three-year average;
(iii) Loan loss reserves. The applicant's ratio of loan loss
reserves to loans and leases 90 days or more delinquent (including
loans sold with full recourse) is at least 30 percent, where loan loss
reserves are a specified balance sheet account that reflects the amount
reserved for loans expected to be uncollectible and are based on
information derived from the applicant's most recent financial
statements;
(iv) Liquidity. The applicant has an operating liquidity ratio of
at least 1.0 for the four most recent quarters, and for one or both of
the two preceding years, where the numerator of the ratio includes
unrestricted cash and cash equivalents and the denominator of the ratio
is the average quarterly operating expense.
Sec. 1263.17 Rebuttable presumptions.
(a) Rebutting presumptive compliance. The presumption that an
applicant meeting the requirements of Sec. Sec. 1263.7 to 1263.16 is
in compliance with section 4(a) of the Bank Act (12 U.S.C. 1424(a)) and
Sec. 1263.6(a) and (b), may be rebutted, and the Bank may deny
membership to the applicant, if the Bank obtains substantial evidence
to overcome the presumption of compliance.
(b) Rebutting presumptive noncompliance. The presumption that an
applicant not meeting a particular requirement of Sec. Sec. 1263.8,
1263.11, 1263.12, 1263.13, or 1263.16, is in noncompliance with section
4(a) of the Bank Act (12 U.S.C. 1424(a)), and Sec. 1263.6(a)(2), (4),
(5), or (6) may be rebutted. The applicant shall be deemed to meet such
requirement, if the applicable requirements in this section are
satisfied.
(c) Presumptive noncompliance by insurance company applicant with
``subject to inspection and regulation'' requirement of Sec. 1263.8.
If an insurance company applicant is not subject to inspection and
regulation by an appropriate State regulator accredited by the National
Association of Insurance Commissioners (NAIC), as required by Sec.
1263.8, the applicant or the Bank shall prepare a written justification
that provides substantial evidence acceptable to the Bank that the
applicant is subject to inspection and regulation as required by Sec.
1263.6(a)(2), notwithstanding the lack of NAIC accreditation.
(d) Presumptive noncompliance with financial condition requirements
of Sec. Sec. 1263.11 and 1263.16--(1) Applicants subject to Sec.
1263.11. For applicants subject to Sec. 1263.11, in the case of an
applicant's lack of a composite regulatory examination rating within
the two-year period required by Sec. 1263.11(b)(1), a variance from
the rating required by Sec. 1263.11(b)(3)(i), or a variance from a
performance trend criterion required by Sec. 1263.11(b)(3)(i), the
applicant or the Bank shall prepare a written justification pertaining
to such requirement that provides substantial evidence acceptable to
the Bank that the applicant is in the financial condition required by
Sec. 1263.6(a)(4), notwithstanding the lack of rating or variance.
(2) Applicants subject to Sec. 1263.16. For applicants subject to
Sec. 1263.16, in the case of an insurance company applicant's variance
from a capital requirement or standard of Sec. 1263.16(a) or, in the
case of a CDFI applicant's variance from the standards of Sec.
1263.16(b), the applicant or the Bank shall prepare a written
justification pertaining to such requirement or standard that provides
substantial evidence acceptable to the Bank that the applicant is in
the financial condition required by Sec. 1263.6(a)(4), notwithstanding
the variance.
(e) Presumptive noncompliance with character of management
requirement of Sec. 1263.12--(1) Enforcement actions. If an applicant
or any of its directors or senior officers is subject to, or operating
under, any enforcement action instituted by its appropriate regulator,
the applicant shall provide or the Bank shall obtain:
(i) Regulator confirmation. Written or verbal confirmation from the
applicant's appropriate regulator that the applicant or its directors
or senior officers are in substantial compliance with all aspects of
the enforcement action; or
(ii) Written analysis. A written analysis acceptable to the Bank
indicating that the applicant or its directors or senior officers are
in substantial compliance with all aspects of the enforcement action.
The written analysis shall state each action the applicant or its
directors or senior officers are required to take by the enforcement
action, the actions actually taken by the applicant or its directors or
senior officers, and whether the applicant regards this as substantial
compliance with all aspects of the enforcement action.
(2) Criminal, civil or administrative proceedings. If an applicant
or any of its directors or senior officers has been the subject of any
criminal, civil or administrative proceedings reflecting upon
creditworthiness, business judgment, or moral turpitude since the most
recent regulatory examination report or, in the case of a CDFI
applicant, during the past three years, the applicant shall provide or
the Bank shall obtain--
(i) Regulator confirmation. Written or verbal confirmation from the
applicant's appropriate regulator that the proceedings will not likely
result in enforcement action; or
(ii) Written analysis. A written analysis acceptable to the Bank
indicating that the proceedings will not likely result in enforcement
action or, in the case of a CDFI applicant, that the proceedings will
not likely have a significantly deleterious effect on the applicant's
operations. The written analysis shall state the severity of the
charges, and any mitigating action taken by the applicant or its
directors or senior officers.
(3) Criminal, civil or administrative monetary liabilities,
lawsuits or judgments. If there are any known potential criminal, civil
or administrative monetary liabilities, material pending lawsuits, or
unsatisfied judgments against the applicant or any of its directors or
senior officers since the most recent regulatory examination report or,
in the case of a CDFI applicant, occurring within the past three years,
that are significant to the applicant's operations, the applicant shall
provide or the Bank shall obtain--
(i) Regulator confirmation. Written or verbal confirmation from the
applicant's appropriate regulator that the liabilities, lawsuits or
judgments will not likely cause the applicant to fall below its
applicable capital requirements set forth in Sec. Sec. 1263.11(b)(2)
and 1263.16(a); or
(ii) Written analysis. A written analysis acceptable to the Bank
indicating that the liabilities, lawsuits or judgments will not likely
cause the applicant to fall below its applicable
[[Page 698]]
capital requirements set forth in Sec. 1263.11(b)(2) or Sec.
1263.16(a), or the net asset ratio set forth in Sec. 1263.16(b)(2)(i).
The written analysis shall state the likelihood of the applicant or its
directors or senior officers prevailing, and the financial consequences
if the applicant or its directors or senior officers do not prevail.
(f) Presumptive noncompliance with home financing policy
requirements of Sec. Sec. 1263.13 and 1263.14(d). If an applicant
received a ``Substantial Non-Compliance'' rating on its most recent
formal, or if unavailable, informal or preliminary, CRA performance
evaluation, or a ``Needs to Improve'' CRA rating on its most recent
formal, or if unavailable, informal or preliminary, CRA performance
evaluation and a CRA rating of ``Needs to Improve'' or better on any
immediately preceding CRA performance evaluation, the applicant shall
provide or the Bank shall obtain:
(1) Regulator confirmation. Written or verbal confirmation from the
applicant's appropriate regulator of the applicant's recent
satisfactory CRA performance, including any corrective action that
substantially improved upon the deficiencies cited in the most recent
CRA performance evaluation(s); or
(2) Written analysis. A written analysis acceptable to the Bank
demonstrating that the CRA rating is unrelated to home financing, and
providing substantial evidence of how and why the applicant's home
financing credit policy and lending practices meet the credit needs of
its community.
Sec. 1263.18 Determination of appropriate Bank district for
membership.
(a) Eligibility. (1) An institution eligible to become a member of
a Bank under the Bank Act and this part may become a member only of the
Bank of the district in which the institution's principal place of
business is located, except as provided in paragraph (a)(2) of this
section. A member shall promptly notify its Bank in writing whenever it
relocates its principal place of business to another State and the Bank
shall inform FHFA in writing of any such relocation.
(2) An institution eligible to become a member of a Bank under the
Bank Act and this part may become a member of the Bank of a district
adjoining the district in which the institution's principal place of
business is located, if demanded by convenience and then only with the
approval of FHFA.
(b) Principal place of business. Except as otherwise designated in
accordance with this section, the principal place of business of an
institution is the State in which the institution maintains its home
office established as such in conformity with the laws under which the
institution is organized.
(c) Designation of principal place of business. (1) A member or an
applicant for membership may request in writing to the Bank in the
district where the institution maintains its home office that a State
other than the State in which it maintains its home office be
designated as its principal place of business. Within 90 calendar days
of receipt of such written request, the board of directors of the Bank
in the district where the institution maintains its home office shall
designate a State other than the State where the institution maintains
its home office as the institution's principal place of business,
provided that all of the following criteria are satisfied:
(i) At least 80 percent of the institution's accounting books,
records, and ledgers are maintained, located or held in such designated
State;
(ii) A majority of meetings of the institution's board of directors
and constituent committees are conducted in such designated State; and
(iii) A majority of the institution's five highest paid officers
have their place of employment located in such designated State.
(2) Written notice of a designation made pursuant to paragraph
(c)(1) of this section shall be sent to the Bank in the district
containing the designated State, FHFA, and the institution.
(3) The notice of designation made pursuant to paragraph (c)(1) of
this section shall include the State designated as the principal place
of business and the resulting Bank to which membership will be
transferred.
(4) If the board of directors of the Bank in the district where the
institution maintains its home office fails to make the designation
requested by the member or applicant pursuant to paragraph (c)(1) of
this section, then the member or applicant may request in writing that
FHFA make the designation.
(d) Transfer of membership. (1) No transfer of membership from one
Bank to another Bank shall take effect until the Banks involved reach
an agreement on a method of orderly transfer.
(2) In the event that the Banks involved fail to agree on a method
of orderly transfer, FHFA shall determine the conditions under which
the transfer shall take place.
(e) Effect of transfer. A transfer of membership pursuant to this
section shall be effective for all purposes, but shall not affect
voting rights in the year of the transfer and shall not be subject to
the provisions on termination of membership set forth in section 6 of
the Bank Act (12 U.S.C. 1426) or Sec. Sec. 1263.26 and 1263.27, nor
the restriction on reacquiring Bank membership set forth in Sec.
1263.30.
Subpart D--Stock Requirements
Sec. 1263.19 Par value and price of stock.
The capital stock of each Bank shall be sold at par, unless the
Director has fixed a higher price.
Sec. 1263.20 Stock purchase.
(a) Minimum stock purchase. Each member shall purchase stock in the
Bank of which it is a member in an amount specified by the Bank's
capital plan, except that each member of a Bank that has not converted
to the capital structure authorized by the Gramm-Leach-Bliley Act (GLB
Act) shall purchase stock in the Bank in an amount equal to the greater
of:
(1) $500;
(2) 1 percent of the member's aggregate unpaid loan principal; or
(3) 5 percent of the member's aggregate amount of outstanding
advances.
(b) Timing of minimum stock purchase. (1) Within 60 calendar days
after an institution is approved for membership in a Bank, the
institution shall purchase its minimum stock requirement as set forth
in paragraph (a) of this section.
(2) In the case of a Bank that has not converted to the capital
structure authorized by the GLB Act, an institution that has been
approved for membership may elect to purchase its minimum stock
requirement in installments, provided that not less than one-fourth of
the total amount shall be purchased within 60 calendar days of the date
of approval of membership, and that a further sum of not less than one-
fourth of such total shall be purchased at the end of each succeeding
period of four months from the date of approval of membership.
(c) Commencement of membership. An institution that has been
approved for membership shall become a member at the time it purchases
its minimum stock requirement or the first installment thereof pursuant
to this section.
(d) Failure to purchase minimum stock requirement. If an
institution that has submitted an application and been approved for
membership fails to purchase its minimum stock requirement or its first
installment within 60 calendar days of the date of its approval for
membership, such approval shall be null and void and the
[[Page 699]]
institution, if it wants to become a member, shall be required to
submit a new application for membership.
(e) Reports. The Bank shall make reports to FHFA setting forth
purchases by institutions approved for membership of their minimum
stock requirement pursuant to this section and in accordance with the
instructions provided in the Data Reporting Manual issued by FHFA, as
amended from time to time.
Sec. 1263.21 Issuance and form of stock.
(a) A Bank shall issue to each new member, as of the effective date
of membership, stock in the member's name for the amount of stock
purchased and paid for in full.
(b) If the member purchases stock in installments, the stock shall
be issued in installments with the appropriate number of shares issued
after each payment is made.
(c) A Bank that has not converted to the capital structure
authorized by the GLB Act may issue stock in certificated or
uncertificated form at the discretion of the Bank.
(d) A Bank that has not converted to the capital structure
authorized by the GLB Act may convert all outstanding certificated
stock to uncertificated form at its discretion.
Sec. 1263.22 Adjustments in stock holdings.
(a) Adjustment in general. A Bank may from time to time increase or
decrease the amount of stock any member is required to hold.
(b)(1) Annual adjustment. A Bank shall calculate annually, in the
manner set forth in Sec. 1263.20(a), each member's required minimum
holdings of stock in the Bank in which it is a member using calendar
year-end financial data provided by the member to the Bank, pursuant to
Sec. 1263.31(d), and shall notify each member of the adjustment. The
notice shall clearly state that the Bank's calculation of each member's
minimum stock holdings is to be used to determine the number of votes
that the member may cast in that year's election of directors and shall
identify the State within the district in which the member will vote. A
member that does not agree with the Bank's calculation of the minimum
stock requirement or with the identification of its voting State may
request FHFA to review the Bank's determination. FHFA shall promptly
determine the member's minimum required holdings and its proper voting
State, which determination shall be final.
(2) Redemption of excess shares. If, in the case of a Bank that has
not converted to the capital structure authorized by the GLB Act and
after the annual adjustment required by paragraph (b)(1) of this
section is made, the amount of stock that a member is required to hold
is decreased, the Bank may, in its discretion and upon proper
application of the member, retire such excess stock, and the Bank shall
pay for each share upon surrender of the stock an amount equal to the
par value thereof (except that if at any time FHFA finds that the paid-
in capital of a Bank is or is likely to be impaired as a result of
losses in or depreciation of the assets held, the Bank shall on the
order of FHFA withhold from the amount to be paid in retirement of the
stock a pro rata share of the amount of such impairment as determined
by FHFA) or, at its election, the Bank may credit any part of such
payment against the member's debt to the Bank. The Bank's authority to
retire such excess stock shall be further subject to the limitations of
section 6(f) of the Bank Act (12 U.S.C. 1426(f)).
(c) A member's stock holdings shall not be reduced under this
section to an amount less than required by sections 6(b) and 10(c) of
the Bank Act (12 U.S.C. 1426(b), 1430(c)).
Sec. 1263.23 Excess stock.
(a) Sale of excess stock. Subject to the restriction in paragraph
(b) of this section, a member may purchase excess stock as long as the
purchase is approved by the member's Bank and is permitted by the laws
under which the member operates.
(b) Restriction. Any Bank with excess stock greater than 1 percent
of its total assets shall not declare or pay any dividends in the form
of additional shares of Bank stock or otherwise issue any excess stock.
A Bank shall not issue excess stock, as a dividend or otherwise, if
after the issuance, the outstanding excess stock at the Bank would be
greater than 1 percent of its total assets.
Subpart E--Consolidations Involving Members
Sec. 1263.24 Consolidations involving members.
(a) Consolidation of members. Upon the consolidation of two or more
institutions that are members of the same Bank into one institution
operating under the charter of one of the consolidating institutions,
the membership of the surviving institution shall continue and the
membership of each disappearing institution shall terminate on the
cancellation of its charter. Upon the consolidation of two or more
institutions, at least two of which are members of different Banks,
into one institution operating under the charter of one of the
consolidating institutions, the membership of the surviving institution
shall continue and the membership of each disappearing institution
shall terminate upon cancellation of its charter, provided, however,
that if more than 80 percent of the assets of the consolidated
institution are derived from the assets of a disappearing institution,
then the consolidated institution shall continue to be a member of the
Bank of which that disappearing institution was a member prior to the
consolidation, and the membership of the other institutions shall
terminate upon the effective date of the consolidation.
(b) Consolidation into nonmember--(1) In general. Upon the
consolidation of a member into an institution that is not a member of a
Bank, where the consolidated institution operates under the charter of
the nonmember institution, the membership of the disappearing
institution shall terminate upon the cancellation of its charter.
(2) Notification. If a member has consolidated into a nonmember
that has its principal place of business in a State in the same Bank
district as the former member, the consolidated institution shall have
60 calendar days after the cancellation of the charter of the former
member within which to notify the Bank of the former member that the
consolidated institution intends to apply for membership in such Bank.
If the consolidated institution does not so notify the Bank by the end
of the period, the Bank shall require the liquidation of any
outstanding indebtedness owed by the former member, shall settle all
outstanding business transactions with the former member, and shall
redeem or repurchase the Bank stock owned by the former member in
accordance with Sec. 1263.29.
(3) Application. If such a consolidated institution has notified
the appropriate Bank of its intent to apply for membership, the
consolidated institution shall submit an application for membership
within 60 calendar days of so notifying the Bank. If the consolidated
institution does not submit an application for membership by the end of
the period, the Bank shall require the liquidation of any outstanding
indebtedness owed by the former member, shall settle all outstanding
business transactions with the former member, and shall redeem or
repurchase the Bank stock owned by the former member in accordance with
Sec. 1263.29.
(4) Outstanding indebtedness. If a member has consolidated into a
nonmember institution, the Bank need
[[Page 700]]
not require the former member or its successor to liquidate any
outstanding indebtedness owed to the Bank or to redeem its Bank stock,
as otherwise may be required under Sec. 1263.29, during:
(i) The initial 60 calendar-day notification period;
(ii) The 60 calendar-day period following receipt of a notification
that the consolidated institution intends to apply for membership; and
(iii) The period of time during which the Bank processes the
application for membership.
(5) Approval of membership. If the application of such a
consolidated institution is approved, the consolidated institution
shall become a member of that Bank upon the purchase of the amount of
Bank stock required by section 6 of the Bank Act (12 U.S.C. 1426). If a
Bank's capital plan has not taken effect, the amount of stock that the
consolidated institution is required to own shall be as provided in
Sec. Sec. 1263.20 and 1263.22. If the capital plan for the Bank has
taken effect, the amount of stock that the consolidated institution is
required to own shall be equal to the minimum investment established by
the capital plan for that Bank.
(6) Disapproval of membership. If the Bank disapproves the
application for membership of the consolidated institution, the Bank
shall require the liquidation of any outstanding indebtedness owed by,
and the settlement of all other outstanding business transactions with,
the former member, and shall redeem or repurchase the Bank stock owned
by the former member in accordance with Sec. 1263.29.
(c) Dividends on acquired Bank stock. A consolidated institution
shall be entitled to receive dividends on the Bank stock that it
acquires as a result of a consolidation with a member in accordance
with applicable FHFA regulations.
(d) Stock transfers. With regard to any transfer of Bank stock from
a disappearing member to the surviving or consolidated member, as
appropriate, for which the approval of FHFA is required pursuant to
section 6(f) of the Bank Act (12 U.S.C. 1426(f)), as in effect prior to
November 12, 1999, such transfer shall be deemed to be approved by FHFA
by compliance in all applicable respects with the requirements of this
section.
Subpart F--Withdrawal and Removal From Membership
Sec. 1263.25 [Reserved]
Sec. 1263.26 Voluntary withdrawal from membership.
(a) In general. (1) Any institution may withdraw from membership by
providing to the Bank written notice of its intent to withdraw from
membership. A member that has so notified its Bank shall be entitled to
have continued access to the benefits of membership until the effective
date of its withdrawal. The Bank need not commit to providing any
further services, including advances, to a withdrawing member that
would mature or otherwise terminate subsequent to the effective date of
the withdrawal. A member may cancel its notice of withdrawal at any
time prior to its effective date by providing a written cancellation
notice to the Bank. A Bank may impose a fee on a member that cancels a
notice of withdrawal, provided that the fee or the manner of its
calculation is specified in the Bank's capital plan.
(2) A Bank shall notify FHFA within 10 calendar days of receipt of
any notice of withdrawal or notice of cancellation of withdrawal from
membership.
(b) Effective date of withdrawal. The membership of an institution
that has submitted a notice of withdrawal shall terminate as of the
date on which the last of the applicable stock redemption periods ends
for the stock that the member is required to hold, as of the date that
the notice of withdrawal is submitted, under the terms of a Bank's
capital plan as a condition of membership, unless the institution has
cancelled its notice of withdrawal prior to the effective date of the
termination of its membership.
(c) Stock redemption periods. The receipt by a Bank of a notice of
withdrawal shall commence the applicable 6-month and 5-year stock
redemption periods, respectively, for all of the Class A and Class B
stock held by that member that is not already subject to a pending
request for redemption. In the case of an institution, the membership
of which has been terminated as a result of a merger or other
consolidation into a nonmember or into a member of another Bank, the
applicable stock redemption periods for any stock that is not subject
to a pending notice of redemption shall be deemed to commence on the
date on which the charter of the former member is cancelled.
(d) Certification. No institution may withdraw from membership
unless, on the date that the membership is to terminate, there is in
effect a certification from FHFA that the withdrawal of a member will
not cause the Bank System to fail to satisfy its requirements under
section 21B(f)(2)(C) of the Bank Act (12 U.S.C. 1441b(f)(2)(C)) to
contribute toward the interest payments owed on obligations issued by
the Resolution Funding Corporation.
Sec. 1263.27 Involuntary termination of membership.
(a) Grounds. The board of directors of a Bank may terminate the
membership of any institution that:
(1) Fails to comply with any requirement of the Bank Act, any
regulation adopted by FHFA, or any requirement of the Bank's capital
plan;
(2) Becomes insolvent or otherwise subject to the appointment of a
conservator, receiver, or other legal custodian under Federal or State
law; or
(3) Would jeopardize the safety or soundness of the Bank if it were
to remain a member.
(b) Stock redemption periods. The applicable 6-month and 5-year
stock redemption periods, respectively, for all of the Class A and
Class B stock owned by a member and not already subject to a pending
request for redemption, shall commence on the date that the Bank
terminates the institution's membership.
(c) Membership rights. An institution whose membership is
terminated involuntarily under this section shall cease being a member
as of the date on which the board of directors of the Bank acts to
terminate the membership, and the institution shall have no right to
obtain any of the benefits of membership after that date, but shall be
entitled to receive any dividends declared on its stock until the stock
is redeemed or repurchased by the Bank.
Sec. 1263.28 [Reserved]
Subpart G--Orderly Liquidation of Advances and Redemption of Stock
Sec. 1263.29 Disposition of claims.
(a) In general. If an institution withdraws from membership or its
membership is otherwise terminated, the Bank shall determine an orderly
manner for liquidating all outstanding indebtedness owed by that member
to the Bank and for settling all other claims against the member. After
all such obligations and claims have been extinguished or settled, the
Bank shall return to the member all collateral pledged by the member to
the Bank to secure its obligations to the Bank.
(b) Bank stock. If an institution that has withdrawn from
membership or that
[[Page 701]]
otherwise has had its membership terminated remains indebted to the
Bank or has outstanding any business transactions with the Bank after
the effective date of its termination of membership, the Bank shall not
redeem or repurchase any Bank stock that is required to support the
indebtedness or the business transactions until after all such
indebtedness and business transactions have been extinguished or
settled.
Subpart H--Reacquisition of Membership
Sec. 1263.30 Readmission to membership.
(a) In general. An institution that has withdrawn from membership
or otherwise has had its membership terminated and which has divested
all of its shares of Bank stock, may not be readmitted to membership in
any Bank, or acquire any capital stock of any Bank, for a period of 5
years from the date on which its membership terminated and it divested
all of its shares of Bank stock.
(b) Exceptions. An institution that transfers membership between
two Banks without interruption shall not be deemed to have withdrawn
from Bank membership or had its membership terminated.
Subpart I--Bank Access to Information
Sec. 1263.31 Reports and examinations.
As a condition precedent to Bank membership, each member:
(a) Consents to such examinations as the Bank or FHFA may require
for purposes of the Bank Act;
(b) Agrees that reports of examinations by local, State or Federal
agencies or institutions may be furnished by such authorities to the
Bank or FHFA upon request;
(c) Agrees to give the Bank or the appropriate Federal banking
agency, upon request, such information as the Bank or the appropriate
Federal banking agency may need to compile and publish cost of funds
indices and to publish other reports or statistical summaries
pertaining to the activities of Bank members;
(d) Agrees to provide the Bank with calendar year-end financial
data each year, for purposes of making the calculation described in
Sec. 1263.22(b)(1); and
(e) Agrees to provide the Bank with copies of reports of condition
and operations required to be filed with the member's appropriate
Federal banking agency, if applicable, within 20 calendar days of
filing, as well as copies of any annual report of condition and
operations required to be filed.
Subpart J--Membership Insignia
Sec. 1263.32 Official membership insignia.
Members may display the approved insignia of membership on their
documents, advertising and quarters, and likewise use the words
``Member Federal Home Loan Bank System.''
CHAPTER IX--FEDERAL HOUSING FINANCE BOARD
PART 944--[REDESIGNATED AS PART 1290]
0
3. Transfer 12 CFR part 944 from chapter IX, subchapter F, to chapter
XII subchapter E and redesignate as 12 CFR part 1290.
0
4. Revise the newly redesignated part 1290 to read as follows:
PART 1290--COMMUNITY SUPPORT REQUIREMENTS
Sec.
1290.1 Definitions.
1290.2 Community support requirement.
1290.3 Community support standards.
1290.4 Decision on community support statements.
1290.5 Restrictions on access to long-term advances.
1290.6 Bank community support programs.
1290.7 Reports.
Authority: 12 U.S.C. 1430(g), 4511, 4513.
Sec. 1290.1 Definitions.
For purposes of this part:
Advisory Council means the Advisory Council each Bank is required
to establish pursuant to section 10(j)(11) of the Federal Home Loan
Bank Act (12 U.S.C. 1430(j)(11)) and part 1291 of this chapter.
Appropriate Federal banking agency has the meaning set forth in
section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. 1813(q))
and, for federally insured credit unions, means the National Credit
Union Administration.
Appropriate State regulator means any State officer, agency,
supervisor, or other entity that has regulatory authority over, or is
empowered to institute enforcement action against, a particular
institution.
Bank means a Federal Home Loan Bank established under section 12 of
the Federal Home Loan Bank Act (12 U.S.C. 1432).
CDFI Fund means the Community Development Financial Institutions
Fund established under section 104(a) of the Community Development
Banking and Financial Institutions Act of 1994 (12 U.S.C. 4703(a)).
Community development financial institution or CDFI means an
institution that is certified as a community development financial
institution by the CDFI Fund under the Community Development Banking
and Financial Institutions Act of 1994 (12 U.S.C. 4701 et seq.).
CRA means the Community Reinvestment Act of 1977, as amended (12
U.S.C. 2901, et seq.).
CRA evaluation means the public disclosure portion of the CRA
performance evaluation provided by a member's appropriate Federal
banking agency.
Displaced homemaker means an adult who has not worked full-time,
full-year in the labor force for a number of years, and during that
period, worked primarily without remuneration to care for a home and
family, and currently is unemployed or underemployed and is
experiencing difficulty in obtaining or upgrading employment.
FHFA means Federal Housing Finance Agency.
First-time homebuyer means:
(1) An individual and his or her spouse, if any, who has had no
present ownership interest in a principal residence during the three-
year period prior to purchase of a principal residence.
(2) A displaced homemaker who, except for owning a residence with
his or her spouse or residing in a residence owned by his or her
spouse, meets the requirements of paragraph (1) of this definition.
(3) A single parent who, except for owning a residence with his or
her spouse or residing in a residence owned by his or her spouse, meets
the requirements of paragraph (1) of this definition.
Long-term advance means an advance with a term to maturity greater
than one year.
Restriction on access to long-term advances means a member may not
borrow long-term advances or renew any maturing advance for a term to
maturity greater than one year.
Single parent means an individual who is unmarried or legally
separated from a spouse and has custody or joint custody of one or more
minor children or is pregnant.
Targeted community lending means providing financing for economic
development projects for targeted beneficiaries.
Sec. 1290.2 Community support requirement.
(a) Selection for community support review. Except as otherwise
provided in this section, FHFA shall select a member for community
support review approximately once every two years.
(b) Notice--(1) By the FHFA. FHFA concurrently shall:
(i) Notify each Bank of the members within its district that have
to submit
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community support statements during the calendar quarter; and
(ii) Publish a notice in the Federal Register that includes the
name and address of each member required to submit a community support
statement during the calendar quarter, and the deadline for submission
of the community support statement to FHFA. The deadline for submission
of a community support statement shall be no earlier than 45 calendar
days after the date of publication of the notice in the Federal
Register.
(2) By the Banks. Within 15 calendar days of the date of
publication in the Federal Register of the notice required by paragraph
(b)(1)(ii) of this section, a Bank shall provide written notice to--
(i) Each member within its district that is named in the Federal
Register notice, that the member has to submit a community support
statement to FHFA by the deadline stated in the Federal Register
notice; and
(ii) Its Advisory Council and nonprofit housing developers,
community groups, and other interested parties in its district of the
name and address of each member within its district that has to submit
a community support statement during the calendar quarter.
(c) Required documents. Each member selected for community support
review must submit a completed Community Support Statement Form
executed by an appropriate senior officer to FHFA and any other
information FHFA may require to determine whether a member meets the
community support standards.
(d) Public comments. In reviewing a member for compliance with the
community support requirement, FHFA shall take into consideration any
public comments it has received concerning the member.
(e) Community Development Financial Institutions. A member that has
been certified as a community development financial institution by the
CDFI Fund, other than a member that also is an insured depository
institution or a CDFI credit union (as defined in Sec. 1263.1), shall
be deemed to be in compliance with the community support requirements
of section 10(g) of the Federal Home Loan Bank Act (Bank Act), 12
U.S.C. 1430(g), by virtue of that certification and is not subject to
periodic review under paragraph (a) of this section.
Sec. 1290.3 Community support standards.
(a) In general. In reviewing a community support statement, FHFA
shall take into account a member's performance under the CRA if the
member is subject to the requirements of the CRA, and the member's
record of lending to first-time homebuyers.
(b) CRA standard--(1) Adequate performance. A member that is
subject to the requirements of the CRA shall be deemed to meet the CRA
standard if the rating in the member's most recent CRA evaluation is
``outstanding'' or ``satisfactory.''
(2) Probationary performance. A member that is subject to the
requirements of the CRA shall be subject to a probationary period if
the rating in the member's most recent CRA evaluation is ``Needs to
Improve.'' The probationary period shall extend until the member's
appropriate Federal banking agency completes its next CRA evaluation
and issues a rating. The member will be eligible to receive long-term
advances during the probationary period. If the member does not meet
the CRA standard at the end of the probationary period, FHFA will
restrict the member's access to long-term advances in accordance with
Sec. 1290.5.
(3) Inadequate performance. FHFA will restrict a member's access to
long-term advances in accordance with Sec. 1290.5 if the rating in the
member's most recent CRA evaluation is ``Substantial Non-Compliance.''
(c) First-time homebuyer standard--(1) Adequate performance. In the
absence of public comments or other information to the contrary, FHFA
will presume that a member meets the first-time homebuyer standard if
the member is subject to the requirements of the CRA and the rating in
the member's most recent CRA evaluation is ``outstanding.'' In
determining whether other members meet the first-time homebuyer
standard, FHFA will consider a member's description of its efforts to
assist first-time or potential first-time homebuyers or its explanation
of factors that affect its ability to assist first-time or potential
first-time homebuyers. A member shall be deemed to meet the first-time
homebuyer standard if the member otherwise demonstrates to the
satisfaction of FHFA that it:
(i) Has an established record of lending to first-time homebuyers;
(ii) Has a program whereby it actively seeks to lend or support
lending to first-time homebuyers, including, but not limited to, the
following--
(A) Providing special credit products with flexible underwriting
standards for first-time homebuyers;
(B) Participating in Federal, State, or local government, or
nationwide homeownership lending programs that benefit, serve, or are
targeted to, first-time homebuyers; or
(C) Participating in loan consortia for first-time homebuyer loans
or loans that serve predominantly low- or moderate-income borrowers;
(iii) Has a program whereby it actively seeks to assist or support
organizations that assist potential first-time homebuyers to qualify
for mortgage loans, including, but not limited to, the following--
(A) Providing, participating in, or supporting special counseling
programs or other homeownership education activities that benefit,
serve, or are targeted to, first-time homebuyers;
(B) Providing or participating in marketing plans and related
outreach programs targeted to first-time homebuyers;
(C) Providing technical assistance of financial support to
organizations that assist first-time homebuyers;
(D) Participating with or financially supporting community or
nonprofit groups that assist first-time homebuyers;
(E) Holding investments or making loans that support first-time
homebuyer programs;
(F) Holding mortgage-backed securities that may include a pool of
loans to low- and moderate-income homebuyers;
(G) Participating or investing in service organizations that assist
credit unions in providing mortgages; or
(H) Participating in Bank targeted community lending programs; or
(iv) Has any combination of the elements described in paragraphs
(c)(1)(i), (ii), or (iii) of this section.
(2) Probationary performance. If FHFA deems the evidence of first-
time homebuyer performance to be unsatisfactory, the member will be
subject to a one-year probationary period. The member will be eligible
to receive long-term advances during the probationary period. If the
member does not demonstrate compliance with the first-time homebuyer
standard before the probationary period ends, FHFA will restrict the
member's access to long-term advances in accordance with Sec. 1290.5.
(3) Inadequate performance. FHFA will restrict a member's access to
long-term advances in accordance with Sec. 1290.5 if the member
provides no evidence of first-time homebuyer performance.
Sec. 1290.4 Decision on community support statements.
(a) Action on community support statements. FHFA will act on each
community support statement in accordance with the requirements of
Sec. 1290.3 within 75 calendar days of the date FHFA deems the
community
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support statement to be complete. FHFA will deem a community support
statement complete when it has obtained all of the information required
by this part and any other information it deems necessary to process
the community support statement. If FHFA determines during the review
process that additional information is necessary to process the
community support statement, FHFA may deem the community support
statement incomplete and stop the 75-day time period by providing
written notice to the member. When FHFA receives the additional
information, it shall again deem the community support statement
complete and resume the 75-day time period where it stopped. FHFA will
have 10 calendar days in addition to the 75-day time period to act on a
community support statement if FHFA receives the additional information
on or after the seventieth day of the 75-day time period.
(b) Decision on community support statements. FHFA will provide
written notice to the member and the member's Bank of its determination
regarding the community support statement submitted by the member. The
notice will identify the reasons for FHFA's determination.
Sec. 1290.5 Restrictions on access to long-term advances.
(a) Requirement. FHFA will restrict a member's access to long-term
advances if the member:
(1) Failed to comply with the requirements of this part;
(2) Submitted a community support statement that was not approved
by FHFA;
(3) Did not receive a rating in a CRA evaluation of ``outstanding''
or ``satisfactory'' at the end of the probationary period described in
Sec. 1290.3(b)(2); or
(4) Failed to provide evidence satisfactory to FHFA of its first-
time homebuyer performance before the end of the probationary period
described in Sec. 1290.3(c)(2).
(b) Notice. FHFA will provide written notice to a member and the
member's Bank of its determination to restrict the member's access to
long-term advances.
(c) Effective date. Restrictions on access to long-term advances
will take effect 30 days after the date the notices required under
paragraph (b) of this section are sent unless the member complies with
the requirements of this part before the end of the 30-day period.
(d) Removing restrictions. (1) FHFA may remove restrictions on a
member's access to long-term advances imposed under this section:
(i) If FHFA determines that application of the restriction may
adversely affect the safety and soundness of the member. A member may
submit a written request to FHFA to remove a restriction on access to
long-term advances under this paragraph (d)(1)(i). The written request
must include a clear and concise statement of the basis for the
request, and a statement that application of the restriction may
adversely affect the safety and soundness of the member from the
member's appropriate Federal banking agency, or the member's
appropriate State regulator for a member that is not subject to
regulation or supervision by a Federal regulator. FHFA will consider
each written request within 30 calendar days of receipt.
(ii) If FHFA determines that the member subsequently has complied
with the requirements of this part. A member may submit a written
request to FHFA to remove a restriction on access to long-term advances
under this paragraph (d)(1)(ii). The written request must state with
specificity how the member has complied with the requirements of this
part. FHFA will consider each written request within 30 calendar days
of receipt.
(2) FHFA will place a member on probation in accordance with Sec.
1290.3(b)(2), if--
(i) The member's access to long-term advances was restricted on the
basis of the member's inadequate performance under the CRA standard, as
described in Sec. 1290.3(b)(3);
(ii) The rating in the member's subsequent CRA evaluation is
``Needs to Improve;'' and
(iii) The member did not receive either a ``Substantial Non-
Compliance'' CRA rating or a ``Needs to Improve'' CRA rating
immediately preceding the CRA rating on which the member's inadequate
performance under the CRA standard was based.
(3) FHFA will provide written notice to the member and the member's
Bank of its determination under this paragraph (d). FHFA's
determination takes effect on the date the notices are sent.
(e) Community Investment Cash Advance (CICA) Programs. A member
that is subject to a restriction on access to long-term advances under
this part is not eligible to participate in a CICA program offered
under part 952 of this title and 1291 of this chapter. The restriction
in this paragraph (e), does not apply to CICA applications or funding
approved before the date the restriction is imposed.
Sec. 1290.6 Bank community support programs.
(a) Requirement. Consistent with the safe and sound operation of
the Bank, each Bank shall establish and maintain a community support
program. A Bank's community support program shall:
(1) Provide technical assistance to members;
(2) Promote and expand affordable housing finance;
(3) Identify opportunities for members to expand financial and
credit services in underserved neighborhoods and communities;
(4) Encourage members to increase their targeted community lending
and affordable housing finance activities by providing incentives such
as awards or technical assistance to nonprofit housing developers or
community groups with outstanding records of participation in targeted
community lending or affordable housing finance partnerships with
members; and
(5) Include an annual Targeted Community Lending Plan, approved by
the Bank's board of directors and subject to modification, which shall
require the Bank to--(i) Conduct market research in the Bank's
district;
(ii) Describe how the Bank will address identified credit needs and
market opportunities in the Bank's district for targeted community
lending;
(iii) Consult with its Advisory Council and with members, housing
associates, and public and private economic development organizations
in the Bank's district in developing and implementing its Targeted
Community Lending Plan; and
(iv) Establish quantitative targeted community lending performance
goals.
(b) Notice. A Bank shall provide annually to each of its members a
written notice:
(1) Identifying CICA programs and other Bank activities that may
provide opportunities for a member to meet the community support
requirements and to engage in targeted community lending; and
(2) Summarizing targeted community lending and affordable housing
activities undertaken by members, housing associates, nonprofit housing
developers, community groups, or other entities in the Bank's district,
that may provide opportunities for a member to meet the community
support requirements and to engage in targeted community lending.
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Sec. 1290.7 Reports.
Each Advisory Council annual report submitted to FHFA pursuant to
section 10(j)(11) of the Bank Act (12 U.S.C. 1430(j)(11)) must include
an analysis of the Bank's targeted community lending and affordable
housing activities.
Dated: December 23, 2009.
Edward J. DeMarco,
Acting Director, Federal Housing Finance Agency.
[FR Doc. E9-31003 Filed 1-4-10; 8:45 am]
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