[Federal Register Volume 78, Number 24 (Tuesday, February 5, 2013)]
[Rules and Regulations]
[Pages 8296-8328]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-02055]
[[Page 8295]]
Vol. 78
Tuesday,
No. 24
February 5, 2013
Part IV
Department of the Treasury
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Community Development Financial Institutions Fund
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12 CFR Part 1808
Guarantees for Bonds Issued for Community or Economic Development
Purposes; Final Rule
Federal Register / Vol. 78 , No. 24 / Tuesday, February 5, 2013 /
Rules and Regulations
[[Page 8296]]
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DEPARTMENT OF THE TREASURY
Community Development Financial Institutions Fund
12 CFR Part 1808
RIN 1559-AA01
Guarantees for Bonds Issued for Community or Economic Development
Purposes
AGENCY: Community Development Financial Institutions (CDFI) Fund,
Department of the Treasury.
ACTION: Interim rule with request for public comment.
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SUMMARY: The Department of the Treasury is issuing the interim rule
implementing the Community Development Financial Institutions (CDFI)
Bond Guarantee Program, established through section 1134 of the Small
Business Jobs Act of 2010 and administered by the CDFI Fund, under
authority delegated by the Secretary of the Treasury.
DATES: Interim rule effective April 8, 2013. Comment due date: Comments
on the interim rule must be received in the offices of the CDFI Fund on
or before April 8, 2013.
ADDRESSES: All comments concerning the interim rule should be submitted
and viewed through the Federal e-Rulemaking Portal, http://www.regulations.gov. Comments may also be addressed to Lisa M. Jones,
Manager, CDFI Bond Guarantee Program, by mail to the CDFI Fund,
Department of the Treasury, 1500 Pennsylvania Avenue NW., Washington,
DC 20220; by email to [email protected]; or by facsimile at (202)
508-0090 (this is not a toll free number). Comments will be made
available for public review on the CDFI Fund's Web site at
www.cdfifund.gov.
FOR FURTHER INFORMATION CONTACT: Lisa M. Jones, Manager, CDFI Bond
Guarantee Program, CDFI Fund, at (202) 653-0421 (this is not a toll
free number). Information regarding the CDFI Fund and the CDFI Bond
Guarantee Program may be downloaded from the CDFI Fund's Web site at
http://www.cdfifund.gov.
SUPPLEMENTARY INFORMATION:
I. Executive Summary
A. Purpose of the Regulatory Action
1. The need for the regulatory action and how the action will meet
that need: The CDFI Bond Guarantee Program is authorized by section
1134 of the Small Business Jobs Act of 2010 (Pub. L. 111-240; 12 U.S.C.
4713a) (the Act), which requires the Secretary of the Treasury to
promulgate regulations to carry out that section of the Act.
Capitalized terms used herein and not defined elsewhere are defined in
section 1808.102 of the interim rule.
2. Statement of legal authority for the regulatory action: 12
U.S.C. 4713a (j)(1).
B. Summary of the Major Provisions of the Regulatory Action
1. General provisions: Subpart A (sections 1808.100-106) sets forth
the CDFI Bond Guarantee Program's purpose, summary, program
definitions, deviations, and relationship to other programs, among
other provisions.
2. Eligibility: Subpart B (sections 1808.200-202) sets forth
eligibility requirements and responsibilities for certain CDFI Bond
Guarantee Program participants, particularly the Qualified Issuer,
Designated Bonding Authority, and Eligible CDFIs.
3. Eligible activities: Subpart C (sections 1808.300-309) sets
forth the activities that are allowable under the CDFI Bond Guarantee
Program, as well as interest rates, terms and conditions for Bonds,
Bond Issues, the Risk-Share Pool, Bond Loans, Secondary Loans, and the
Relending Account.
4. Applications for Guarantee and Qualified Issuer: Subpart D
(sections 1808.400-401) sets forth the parameters of the Notice of
Guarantee Availability, the Guarantee Application (which includes the
Capital Distribution Plan), and the Qualified Issuer Application.
5. Evaluation and selection: Subpart E (sections 1808.500-504)
describes how the CDFI Fund will evaluate applications submitted by
certain interested parties.
6. Terms and conditions of Guarantee: Subpart F (sections 1808.600-
627) sets forth terms and conditions of the Guarantee, certain parties'
roles and duties, representations and warranties, covenants, and
reporting, conflict of interest, compliance, and other requirements.
II. Summary of Estimated Economic Benefits
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Discounting by 3% Discounting by 7%
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$200 million $2 billion $200 million $2 billion
issuance issuance issuance issuance
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COSTS
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Government costs................ $19.9 million..... $28.8 million..... $13.4 million..... $18.6 million.
Eligible CDFIs.................. $4.6 million...... $45.7 million..... $4.2 million...... $41.9 million.
Low-Income communities.......... n/a............... n/a............... n/a............... n/a
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TRANSFERS
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Low-Income communities.......... $200 million...... $2 billion........ $200 million...... $2 billion.
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III. Background
The Community Development Financial Institutions (CDFI) Bond
Guarantee Program is authorized by the Small Business Jobs Act of 2010
(Pub. L. 111-240; 12 U.S.C. 4713a) (the Act). Section 1134 of the Act
amended the Riegle Community Development and Regulatory Improvement Act
of 1994 (the Riegle Act) (12 U.S.C. 4701, et seq.) to provide authority
to the Secretary of the Treasury to establish and administer the CDFI
Bond Guarantee Program. Under authority delegated by the Secretary of
the Treasury, the CDFI Bond Guarantee Program is administered by the
Community Development Financial Institutions Fund (CDFI) Fund, a wholly
owned government corporation within the U.S. Department of the
Treasury. Pursuant to the Act the Secretary of the Treasury will
provide a Guarantee for the repayment of the full amount of the Bond
Issue, including the Verifiable Principal, Interest, and Call Premium,
issued to finance Bond Loans to Certified CDFIs for Eligible Community
or Economic Development Purposes for a period not to exceed 30 years.
The Bonds will support CDFI lending in Investment Areas by providing a
source of low-cost, long-term capital to Eligible CDFIs.
Consistent with the Office of Management and Budget (OMB)
[[Page 8297]]
Circular A-129 (Policies for Federal Credit Programs and Non-Tax
Receivables), Bonds issued pursuant to the CDFI Bond Guarantee Program
will be purchased by the Federal Financing Bank (FFB), a body corporate
and instrumentality of the Federal Government under the general
supervision and direction of the Secretary of the Treasury. As required
by the Act, the Guarantee will be fully assignable and transferable to
capital markets on terms and conditions that are consistent with
comparable Federal Government-guaranteed bonds and satisfactory to the
CDFI Fund, the Guarantor, and the FFB.
The interim rule creates the regulatory requirements and parameters
for CDFI Bond Guarantee Program implementation and administration
including, among others, Qualified Issuer eligibility, application
requirements, application review, selection criteria, Guarantee and
Bond Loan documentation, eligible uses of Bond Proceeds and Bond Loan
proceeds, terms and conditions, and reporting requirements. The CDFI
Fund seeks public comment on the entire interim rule.
IV. Responses to the Request for Public Comment
On July 1, 2011, the CDFI Fund published in the Federal Register a
Request for Public Comment (76 FR 38577) (the RPC), seeking public
responses to specific questions regarding CDFI Bond Guarantee Program
design, implementation, and administration. The CDFI Fund posed
specific questions regarding a number of issues, including the
following: how certain terms should be defined in the regulations; the
eligible uses of funds (specifically, whether there should be any
limitations on the types of loans that can be financed or refinanced
with Bond Proceeds); provisions of the Guarantee; the eligibility of
entities participating in the CDFI Bond Guarantee Program; and how the
CDFI Fund should determine that a Qualified Issuer has the appropriate
expertise, capacity, and experience to make Bond Loans for Eligible
Community or Economic Development Purposes.
The CDFI Fund received more than 60 comment letters in response to
the RPC. All comments have been reviewed by the CDFI Fund and have been
taken into consideration in the drafting of the interim rule. A summary
of the collective comments received in response to the RPC (as well as
the CDFI Fund's responses) follows.
A. Definitions
The Act requires that Bond Proceeds be used to make Bond Loans to
Eligible CDFIs and that those Eligible CDFIs use the Bond Loan proceeds
for Eligible Purposes. Such purposes include the various uses of
financial assistance authorized under the Riegle Act, as well as the
provision of community or economic development in ``low-income or
underserved rural areas.'' Comments were solicited as to how the CDFI
Fund should define those terms.
(1) Low-Income
With respect to defining Low-Income, the majority of comments
suggested that the U.S. Department of Housing and Urban Development
(HUD) definitions for States and Metropolitan Statistical Areas (MSAs)
should be followed, including HUD definitions that are not based on
census tracts. Other comments suggested that Low-Income should be
defined: (i) In alignment with definitions used in other CDFI Fund
programs such as the Community Development Financial Institutions
(CDFI) Program, the Native American CDFI Assistance (NACA) Program, and
the New Markets Tax Credit Program; (ii) as up to 120 percent of the
Area Median Income as defined by HUD; (iii) based upon low-income
school districts; (iv) based upon low wealth rather than income level;
or (v) using Federal banking agencies' definitions for determining
Community Reinvestment Act compliance.
The CDFI Fund's Response:
The CDFI Fund has adopted the definition of Low-Income that is set
forth in section 1808.102 of the CDFI Bond Guarantee Program interim
rule. This definition is in accordance with the Low-Income definition
found in the CDFI Program regulations at 12 CFR 1805.104(ee). The CDFI
Fund selected a definition of Low-Income that is: (i) a standardized
definition that is widely understood within the CDFI industry; (ii) a
definition that the CDFI Fund can independently verify because the CDFI
Fund has collected data under this definition over the past 10 years;
(iii) more inclusive and allows for more Low-Income areas to comply
with the CDFI Bond Guarantee Program; and (iv) consistent with the
eligibility criteria for other CDFI Fund programs.
(2) Underserved Rural Areas
Regarding the term Underserved Rural Areas, the majority of
comments suggested a definition consistent with the definition of
Investment Area or Targeted Population set forth in the CDFI Program
regulations (12 CFR 1805.104 (dd) and (kk), respectively). The majority
of comments suggested using the U.S. Department of Agriculture (USDA)
definition of Rural Areas. Other comments suggested that Rural Areas
should be defined using the Federal Financial Institutions Examination
Council definition for non-metro areas, and that the CDFI Fund should
include Colonias in the definition of Rural Areas even when they
otherwise fall within Metropolitan Statistical Areas (MSAs). Other
suggestions included using: all non-MSA or HUD Fair Market Rent areas;
the new Rural-Urban Commuting Area Codes definition established by the
Office of Rural Health Policy; or the 2008 Farm Bill definition of
Substantially Underserved Trust Areas.
The CDFI Fund's Response:
The CDFI Fund has adopted the definition of Underserved Rural Area
that is forth in section 1808.102 of the interim rule. This definition
is consistent with the definition of Investment Area as used in the
CDFI Program (at 12 CFR 1805.104(dd)) and the definition of non-
metropolitan as used in the New Markets Tax Credit Program. The CDFI
Fund selected a combined definition of Underserved Rural Area because
it is: (i) A standardized definition that is widely understood within
the CDFI industry; (ii) a definition that the CDFI Fund can
independently verify because the CDFI Fund has collected data under
these definitions over the past 10 years; (iii) more inclusive and
allows for more Low-Income areas to comply with the CDFI Bond Guarantee
Program; and (iv) consistent with the eligibility criteria for other
CDFI Fund programs.
B. Use of Funds
The Act requires that Bond Proceeds be used to make loans to
Certified CDFIs for Eligible Purposes.
(1) Eligible Uses of Bond Proceeds
The CDFI Fund requested comments regarding the authorized uses of
Bond Proceeds to finance Bond Loans. Specifically, comments were
invited regarding any limitations on the types of Bond Loans to be
financed, limitations on the percentage of Bond Loans that could be
used to refinance outstanding loans, and any other restrictions that
the CDFI Fund should impose on the Bond Loans such as interest rate and
fee restrictions.
The majority of comments were not in favor of limitations on the
types of Bond Loans that can be financed with the Bond Proceeds,
especially when the Bond Loans meet the provisions of the
[[Page 8298]]
Act and are similar in purpose to those that are permissible under
other programs, such as the Financial Assistance Component of the CDFI
Program.
The majority of comments indicated that there should not be any
limits on the percentage of Bond Loans that can be used to refinance
outstanding loans with the Bond Proceeds. A few comments suggested that
refinancing should be limited to 25 or 50 percent so as to encourage
focus on new projects. Some comments suggested that any refinanced
loans should meet minimum quality standards and should be non-
delinquent in order to be refinanced with Bond Proceeds.
The CDFI Fund's Response:
Bond Proceeds must be used by the Qualified Issuer to finance or
Refinance loans to Eligible CDFIs for Eligible Purposes as set forth in
sections 1808.301 and 1808.302 of the interim rule. The CDFI Fund will
not limit the amount of Bond Proceeds that the Qualified Issuer can use
to Refinance loans. The Qualified Issuer must have a Capital
Distribution Plan with the requisite Eligible CDFIs configured to on-
lend the Bond Loans to Secondary Borrowers. Eligible CDFIs must on-lend
the Bond Loans as Secondary Loans to Secondary Borrowers consistent
with the Secondary Loan Requirements established by the CDFI Fund and
defined in section 1808.102. The Secondary Loans must demonstrate a
repayment source and collateral provisions consistent with the
Secondary Loan Requirements.
(2) Eligible Uses of Bond Loan Proceeds
The CDFI Fund requested comments on the use of Bond Loan proceeds
by CDFIs: specifically, the authorization of revolving loan funds; the
permissibility of loan purchases with Bond Proceeds; and any other
restrictions that the CDFI Fund should impose.
The majority of comments indicated that eligible Bond Loan purposes
should include: (i) Capitalization of revolving loan funds; (ii)
capitalization of equity positions for regulated institutions; and
(iii) loan loss reserves, debt service reserves, and/or sinking funds
in support of a Federally guaranteed bond.
Comments showed unanimous support for permitting loan proceeds to
be used to purchase loans from other CDFIs. Comments also indicated
that the purchase of loans is an important liquidity and aggregation
mechanism and should be encouraged in order to increase capital flows
in the CDFI industry. Suggested restrictions included restricting
purchases to loans made after the enactment date of the Act, and
requiring that the majority of loan purchase proceeds should be used
for community development activities.
The CDFI Fund's Response:
The CDFI Fund selected eligible uses for the Bond Loan proceeds
that are consistent with the eligible uses of funds in the CDFI and
NACA Programs and the Act. Bond Loan proceeds must be used for Eligible
Purposes that include (i) The capitalization of Loan Loss Reserves in
an amount that is up to five percent of the par amount of the Bond
Loan; (ii) the financing or Refinancing for community or economic
development purposes described in 12 U.S.C. 4707 (b), which includes
community or economic development purposes in Low-Income Areas or
Underserved Rural Areas; (iii) prepaying one monthly installment of
Bond Loan payments, and (iv) paying Bond Issuance Fees. The CDFI Fund
included the capitalization of Loan Loss Reserves as an Eligible
Purpose with the provision that Eligible CDFIs must obtain a Principal
Loss Collateral Provision as collateral for this Eligible Purpose.
Additional limitations, special rules, procedures and restrictions will
be specified in the applicable Notice of Guarantee Availability (as
described in section 1808.400 of the interim rule), as well as the
Agreement to Guarantee, Bond Documents, and Bond Loan documents.
(3) Bond Proceeds Deployment; Relending Account; Risk-Share Pool
Pursuant to the Act, Qualified Issuers are required to use not less
than 90 percent of principal amount of a Bond (other than cost of Bond
Issuance Fees) to make loans within one year after the Bond Issue Date.
Not more than 10 percent of the maximum principal amount of a Bond may
be held in a Relending Account which may be made available for
additional loans for Eligible Purposes. Each Eligible CDFI must
contribute to a Risk-Share Pool equal to three percent of the principal
amount of the Bond. The CDFI Fund requested comments regarding the 90
percent loan requirement, use of the Relending Account, scope of the
Risk-Share Pool, and other measures that should be taken to minimize
the risk of loss to the Federal Government.
Commentators suggested that Qualified Issuers may face challenges
disbursing Bond Loans to CDFIs equal to 90 percent of the Bond
principal within one year. In their comments, they cited that CDFI
business models often provide binding permanent loan commitments to
small businesses and entities that engage in construction and
development financing. CDFIs lend to these entities under a total
commitment structure that includes draws on an as needed basis. In
addition, commentators indicated that a one-year deployment requirement
for 100 percent of Bond Loans would require: (1) CDFIs to have an
actual pipeline of loans; (2) immediate funding availability for the
pipeline of loans; and (3) CDFIs to close quickly on the loans.
Commenters indicated that it would be impractical for CDFIs to present
an actual pipeline as part of the Capital Distribution Plan, but to
instead require the Qualified Issuer to demonstrate a CDFI's intended
versus actual pipeline of loans. Under a one-year deployment rule,
CDFIs would face the undesirable prospect of having to develop a new
financing program hastily and then terminate it prematurely.
Commentators also suggested that most Qualified Issuers would be able
to close Bond Loan commitments within one year of the Bond Issue Date
but would require a period longer than one year, depending upon the
end-borrowers' needs, to disburse the Bond Loan funds.
The majority of commentators stated that the Relending Account
should be used to absorb and relend prepayments, permit early
refinancing, and facilitate maturities shorter than the Bond duration.
Some suggested that the Relending Account should be used for Bond
payments if a default occurs, and that the 10 percent Relending Account
should be calculated on a rolling-average basis.
Strong opinions were expressed against interest rate increases or
requiring specific restrictions, covenants, or conditions not
articulated in the statutory provisions. Some comments were in favor of
requiring a larger Risk-Share Pool. Many comments suggested a variety
of forms of supplemental credit enhancement. A ``one size fits all''
approach was not endorsed and several suggestions were made, including:
the purchase of insurance; collateral liens; increased rates on end
borrowers; and a ``repurchase structure'' where delinquent loans in an
asset-backed portfolio were replaced after 180 days. The majority of
the comments were in favor of allowing the Qualified Issuer to set
aside the three percent from the Bond Proceeds for financing of the
Risk-Share Pool. Some commentators suggested that they favored flexible
systems allowing for various funding streams, e.g., surety or escrow
from the issuer pending approval of application, third party funding,
or cash flows from investment.
[[Page 8299]]
The CDFI Fund's Response:
The CDFI Fund will require the Qualified Issuer to execute Bond
Loan agreements for not less than 100 percent of the Bond principal on
the Bond Issue Date. If the Eligible CDFI uses Bond Loan proceeds to
make Secondary Loans, the Eligible CDFI must execute Secondary Loan
documents (in the form of promissory notes) with Secondary Borrowers,
as follows: (i) not later than 12 months after the Bond Issue Date,
Secondary Loan documents representing at least 50 percent of such
Eligible CDFI's Bond Loan proceeds allocated to Secondary Loans, and
(ii) not later than 24 months after the Bond Issue Date, Secondary Loan
documents representing 100 percent of such Eligible CDFI's Bond Loan
proceeds allocated to Secondary Loans (excluding any amounts used for
payment of Bond Issuance Fees pursuant to section 1808.304(b)).
The CDFI Fund defines the Relending Account and the Capital
Distribution Plan in section 1808.102 of the interim rule.
The Risk-Share Pool, described in 12 U.S.C. 4713a(d), must be
funded by the Eligible CDFIs. The CDFI Fund will not allow the Bond
Proceeds, or funds received from other CDFI Fund programs, to be used
to fund the Risk-Share Pool. The CDFI Fund defines the Risk-Share Pool
in section 1808.102 of the interim rule.
If the CDFI Fund determines that there is a need for protections to
mitigate the risk of loss to the Federal Government, the CDFI Fund may
require in the terms and conditions of the Guarantee that the Qualified
Issuer implement various tools, in addition to the Risk-Share Pool, to
compensate for risk which may include, but not be limited to, requiring
the Eligible CDFI to provide for third-party Credit Enhancements.
C. Guarantee Provisions
The Act provides for a 100 percent guarantee for bonds issued as
part of a Bond Issue under the CDFI Bond Guarantee Program. Consistent
with the Office of Management and Budget (OMB) Circular A-129 (Policies
for Federal Credit Programs and Non-Tax Receivables), these bonds will
be purchased by the Federal Financing Bank (FFB). The CDFI Fund
requested comments regarding potential loss remedies prior to the Bond
Purchaser seeking reimbursement under the Guarantee, as well other any
other terms, conditions, or Bond structure requirements that should be
imposed to protect the taxpayer.
The majority of comments stated that the CDFI Fund should work with
the Qualified Issuer, aggregators (designated entities acting on behalf
of the Qualified Issuers), and originators and Servicers of loans to
exercise all rights and remedies available under law before calling the
Guarantee. Some comments suggested that, for non-performing assets
underlying a Bond, the CDFI Fund should consider using special
servicers to deal with these assets. Recommended remedies include the
substitution of non-performing assets, liquidation of underlying
collateral, liquidation of risk-share and supplemental credit reserves,
and the exercise of recourse.
The majority of comments stated that the CDFI Fund should not set
specific guidelines for the structure of the Bonds. It was suggested
instead that the CDFI Fund should allow the marketplace to encourage
the development of models for structuring the Bonds. Commentators
recommended that the CDFI Fund require Qualified Issuers to issue Bonds
of $100,000,000 or more, but allow them to make incremental drawdowns
of Bond Proceeds. Some comments suggested that Bonds could be issued in
smaller increments as part of one application, as long as each
Guarantee covered no less than $100,000,000 of Bonds.
The CDFI Fund's Response:
The CDFI Fund defines Verifiable Losses of Principal, Interest, and
Call Premium in section 1808.102 of the interim rule. When the
Qualified Issuer has delinquent payments, the CDFI Fund and the
Guarantor will exercise all available rights and remedies to protect
the Federal Government's interests.
With regard to the structure of the Bond, the CDFI Fund will allow
a Qualified Issuer to utilize multiple Bond Loans to CDFIs to meet the
$100,000,000 minimum Guarantee requirement of the Act. However, each
Bond Loan must be a minimum of $10,000,000.
D. Eligible Entities
The Act defines Eligible CDFI at 12 U.S.C. 4713a(a)(1) as a CDFI
certified by the Secretary that has applied to the Qualified Issuer
for, or been granted by a Qualified Issuer, a loan under the program,
and authorizes the CDFI Fund to determine which entities may serve as
Qualified Issuers and Master Servicer. The CDFI Fund requested comments
regarding the criteria that should be used to approve entities to
participate in the CDFI Bond Guarantee Program. Specifically, the CDFI
Fund solicited comments on the number of Qualified Issuers and Master
Servicers that should be approved under the CDFI Bond Guarantee
Program, as well as any eligibility criteria that should be applied to
Eligible CDFIs beyond CDFI certification.
The majority of commentators indicated that they were not in favor
of the CDFI Fund requiring only one Qualified Issuer for all Bonds
issued under the CDFI Bond Guarantee Program. Respondents stated that
this requirement would be an unnecessary limitation that would prevent
multiple CDFIs from serving as Qualified Issuers. Comments suggested,
however, that it may be effective to have one Qualified Issuer issue
most of the Bonds initially. There were mixed views regarding whether
the CDFI Fund should permit an entity that is not a Certified CDFI to
apply for CDFI certification simultaneously with submission of a
Guarantee Application and a Capital Distribution Plan. The majority of
commentators stated that only a CDFI that has been designated as a
Certified CDFI prior to the applicable Guarantee Application deadline
should be allowed to participate in the program. In contrast, some
commentators stated that the CDFI Fund should permit non-certified
entities the ability to apply to the CDFI Bond Guarantee Program while
these entities pursue CDFI certification. The majority of commentators
stated that the CDFI Fund should allow all existing CDFIs (or their
designees) that are Certified CDFIs in good standing to apply to the
CDFI Bond Guarantee Program. Respondents were consistent in stating
that a CDFI that applies to the CDFI Bond Guarantee Program should
demonstrate strong financial and capital positions, as well as a
significant and sustained track record of economic development in Low-
Income communities. Many respondents requested that the CDFI Fund
require that Eligible CDFIs be certified by the CDFI Fund for a period
of at least two to three years.
The majority of commentators indicated that CDFIs should be allowed
to service their own Bond Loans and the CDFI Fund should not require
one Servicer for all Bonds issued under the CDFI Bond Guarantee
Program. The comments suggested that the CDFI Fund should instead
choose to limit the number of Servicers in order to keep program costs
low. Comments were in favor of the CDFI Fund requiring the Master
Servicer and Servicers to have a track record of providing similar
services, and they stated that a key factor in determining CDFI Bond
Guarantee Program success will be the level and skill of the Servicers
responsible for remitting principal and
[[Page 8300]]
interest payments on the Bonds. It was proposed that the Master
Servicer should be rated by a national rating agency and should have
broad experience in servicing community development needs. In addition,
some commentators stated that the CDFI Fund should pre-qualify the
Master Servicer and make it known to CDFIs prior to submission of a
Guarantee Application. Respondents were in favor of a CDFI being
allowed to serve as its own Servicer, and they cited that the unique
asset and/or borrower characteristics provide strength to CDFIs with
respect to their loan servicing capabilities. Comments also suggested
that the CDFI Fund should recognize a consortium of non-profit
entities, led by a certified CDFI, as an eligible applicant.
The CDFI Fund's Response:
The CDFI Fund has defined the criteria for Qualified Issuers and
the Master Servicer in section 1808.200 and section 1808.606,
respectively, of the interim rule. The CDFI Fund considered the
servicing capabilities of the CDFI industry when defining the criteria
for Qualified Issuers. As a result, the CDFI Fund will allow the
Qualified Issuer to provide, in its Qualified Issuer Application,
information on the proposed Servicer for each Bond Issue. In response
to commenters request to keep the program costs low, the CDFI Fund will
only allow one Master Servicer/Trustee for the CDFI Bond Guarantee
Program.
The CDFI Fund may also select a Designated Bonding Authority (DBA)
to serve as a Qualified Issuer for CDFIs seeking Bond Loans that do not
wish to designate their own Qualified Issuer and/or that cannot alone
prepare a Capital Distribution Plan that meets the requirements for
participation in the CDFI Bond Guarantee Program. A DBA will be
prequalified as meeting the requirements for Qualified Issuers by the
CDFI Fund; however, a Guarantee Application submitted by a DBA will not
receive any preference in the selection process. The qualifications for
a DBA are described in section 1808.201 of the interim rule. The DBA
will be selected in accordance with section 1808.502, which requires
interested parties to submit a Qualified Issuer Application in response
to the applicable Notice of Guarantee Availability.
Eligible CDFIs must be certified by the CDFI Fund and must meet the
requirements set forth in section 1808.202 of the interim rule.
E. Capital Distribution Plan
There were multiple recommendations as to what applicants should be
required to submit in their Capital Distribution Plans. Comments were
consistent in suggesting that the CDFI Fund should require applicants
to detail (in a Capital Distribution Plan) their fixed and ongoing
costs of deploying capital, including a detailed breakdown of the uses
of funds, which would entail the 90 percent or greater portion of Bond
Proceeds used to make Bond Loans for Eligible Purposes and managing a
multitude of CDFI entities. In addition, respondents suggested that a
detailed breakdown of uses of the remaining portion of Bond Proceeds
should be submitted. Comments stated that the CDFI Fund should not
impose a limit on the number of Bonds and Guarantees for which
Qualified Issuers are allowed to apply or qualify; however, it was
suggested that the CDFI Fund implement the CDFI Bond Guarantee Program
in a broad manner that would potentially mitigate a concentration among
too small a number of participants. In general, commentators
recommended that, in their respective Capital Distribution Plans,
applicants should demonstrate an intended pipeline of underlying assets
as well as the ability to service the Bond based on the expected terms
and conditions of the assets in the pipeline. Respondents were
consistent in stating that the CDFI Fund should not set minimum
underwriting criteria for borrowers.
The CDFI Fund's Response:
The CDFI Fund defines Capital Distribution Plan in section 1808.102
of the interim rule. The CDFI Fund will require the Qualified Issuer to
execute Bond Loan agreements for no less than 100 percent of the Bond
Proceeds on the Bond Issue Date. If the Eligible CDFI uses Bond Loan
proceeds to make Secondary Loans, the Eligible CDFI must execute
Secondary Loan documents (in the form of promissory notes) with
Secondary Borrowers as follows: (i) not later than 12 months after the
Bond Issue Date, Secondary Loan documents representing at least 50
percent of such Eligible CDFI's Bond Loan proceeds allocated for
Secondary Loans, and (ii) not later than 24 months after the Bond Issue
Date, Secondary Loan documents representing 100 percent of such
Eligible CDFI's Bond Loan proceeds allocated for Secondary Loans
(excluding any amounts used for payment of Bond Issuance Fees pursuant
to section 1808.304(b)).
A Qualified Issuer may apply for and receive more than one
Guarantee under the CDFI Bond Guarantee Program; provided, however,
that the Qualified Issuer must demonstrate in subsequent Guarantee
Applications that all prior Bonds have been issued and executed as Bond
Loans in accordance with the applicable Guarantee Application, Capital
Distribution Plan, and Bond Documents.
F. Accountability of Qualified Issuers
Comments indicated a considerable push for allowing flexibility
with regard to mandating the performance outcomes of the Qualified
Issuer. Comments were in favor of accountability measures, including
the submittal of an annual report, but did not indicate the need for
any additional reporting. In addition, commentators agreed that all
risk share, credit, and liquidity reserves should be included in
calculating the annual percentage of Bond principal used to make Bond
Loans. Comments expressed a key interest in ensuring that the CDFI Fund
shows consistency across its various program areas. Some respondents
expressed a need for the CDFI Fund to provide continuous training
opportunities on compliance and reporting requirements for the CDFI
Bond Guarantee Program.
The CDFI Fund's Response:
Subsequent to publication of the interim rule, the CDFI Fund will
provide outreach and training on the application process, compliance,
and reporting requirements as defined in subsection 1808.619 for
Qualified Issuers and Eligible CDFIs. To be eligible to participate in
the CDFI Bond Guarantee Program, the CDFI Fund will require Qualified
Issuers and Eligible CDFIs applicants that are prior awardees/
allocatees of the CDFI Fund to be compliant under their assistance,
allocation, or award agreements under all other CDFI Fund programs at
the time of submission of the Guarantee Application. The CDFI Fund will
not include the three percent Risk-Share Pool or any additional
reserves in calculating the requirements of the Capital Distribution
Plan.
G. Prohibited Uses
Commentators generally did not express a desire for additional
mandates regarding prohibited uses. Commentators did advise, however,
that the CDFI Fund adopt, as a model, the rules of the Financial
Assistance Component of the CDFI Program, which permit a wide range of
financing activities and allow for flexibility and innovation.
[[Page 8301]]
The CDFI Fund's Response:
The CDFI Fund selected Eligible Purposes that are consistent with
the eligible uses of funds under the CDFI Program, NACA Program, and
the Act. Uses of Bond Proceeds must be consistent with Eligible
Community or Economic Development Purposes defined in 12 U.S.C.
4713a(a)(2) and sections 1808.301 and 1808.302 of the interim rule.
The CDFI Fund prohibits certain uses of the Bond Proceeds as set
forth in 12 U.S.C. 4713a(c)(5) and section 1808.309 of the interim
rule. The CDFI Fund prohibits the use of Bond Proceeds to fund the
Risk-Share Pool to further incentivize Eligible CDFIs to perform
quality underwriting of Secondary Loans and repayment of Bond Loans.
Other risk mitigations include Eligible CDFIs providing collateral and
full recourse obligations to receive Bond Loans.
H. Servicing of Transactions
Commentators expressed an interest in limiting the duties of the
CDFI Fund to the general administration and management of the CDFI Bond
Guarantee Program, and stated that the CDFI Fund should not be involved
in a Bond transaction. There were split opinions regarding the
requirement that each Qualified Issuer have a designated Program
Administrator.
The CDFI Fund's Response:
The CDFI Fund addresses the aforementioned concerns in the interim
rule, which delineates the roles of the CDFI Fund, the Guarantor,
Program Administrators, and Qualified Issuers. The CDFI Fund will issue
a solicitation to select the Master Servicer/Trustee, which will serve
as a fiduciary, maintain funds and accounts, serve as the Special
Servicer, oversee the Servicers, provide loan monitoring and reporting,
and perform the duties described in 12 U.S.C. 4713a(f)(4) and section
1808.606 of the interim rule.
I. General Compliance
The majority of comments indicated that annual financial statements
and a report of asset or portfolio performance should be collected and
reviewed by the Master Servicer. A range of recommendations were made
for the types of reports that should be submitted, including:
institution level reports; disbursement reports; and a report verifying
that Bond Proceeds are used for Eligible Purposes. With respect to the
Act's mandate regarding repayment of Bonds, respondents stated that
there should be a cure period of 90 days before action is taken. After
the 90-day period, part of the Risk-Share Pool should be released to
meet Bond terms in a way that preserves the outstanding Bond
characteristics, such as coupon and term. Further, it was recommended
that the CDFI Fund should retain the right to extend the cure period as
deemed necessary and appropriate. Comments advised that before the CDFI
Fund imposes penalties on a Qualified Issuer for noncompliance, the
CDFI Fund should work collaboratively to resolve the issue and have a
menu of additional options available for resolution. Suggested options
included written notification, suspension from participation, and
requiring repayment of the Bond, depending on the seriousness of the
infraction and circumstances. These actions should be undertaken after
a 90-day cure period.
The CDFI Fund's Response:
Qualified Issuers must provide information requested by the CDFI
Fund as described in section 1808.619 of the interim rule and be
subject to periodic on-site audits by the CDFI Fund or its designee as
needed to determine compliance with the requirements of the CDFI Bond
Guarantee Program. The CDFI Fund will not exempt the Qualified Issuer
from complying with all applicable Federal, State, and local laws,
regulations, ordinances, OMB Circulars and Executive Orders. Bond
payments must be made in accordance with the terms and conditions of
the underlying Bond documents. Qualified Issuers will be required to
include disclosure statements in all Bond Loan documents that identify
the obligations of the parties to comply with the applicable statutes
and regulations.
J. General Comments
The majority of comments stated that CDFI Bond Guarantee Program
rules should be written to allow for maximum program flexibility. This
includes a wide variety of issues such as: Multiple structures (special
purpose entities and single-issuers); allowance of proceeds for lending
and equity capital, loan loss reserves, and refinancing; flexible
definitions of Eligible Purposes; allowing revolving loan funds in the
program structure that meet the 90 percent loan requirement; and
allowing for smaller tranches of issuances as part of a total
$100,000,000 package. Respondents stated that the CDFI Bond Guarantee
Program regulations should foster immediate operability in the interest
of time to expedite the issuance of Bonds. In addition, comments stated
that requirements such as reporting and eligibility should align with
other CDFI Fund programs such as the Financial Assistance Component of
the CDFI Program.
Several respondents raised a concern about the need to prepare
CDFIs for access to mainstream financial institutions and capital
markets. With respect to rulemaking, commentators stated that the
regulations should not carry limiting constraints or be unnecessarily
complicated such as requiring burdensome credit enhancements, agency
credit ratings, or preset underwriting criteria.
The CDFI Fund's Response:
The CDFI Fund agrees that the CDFI Bond Guarantee Program has the
potential to provide expansive opportunity by offering low-cost capital
to CDFIs. However, the CDFI Fund recognizes the need to balance
flexibility for program participants against the need to mitigate risk
to the taxpayer, and stay within the confines of various existing
statutes, regulations, and guidance documents including, but not
limited to, the Riegle Community Development and Regulatory Improvement
Act of 1994, the Small Business Jobs Act of 2010, the Federal Credit
Reform Act of 1990, as amended, and OMB Circular A-129 (Policies for
Federal Credit Programs and Non-Tax Receivables). The CDFI Fund will
develop and promulgate Bond Loan Requirements and Secondary Loan
Requirements.
V. Rulemaking Analysis
A. Executive Order (E.O.) 12866; Regulatory Impact Analysis
It has been determined that the interim rule of the CDFI Bond
Guarantee Program is a significant regulatory action as defined in
Executive Order 12866 in that the program will result in an annual
effect of $100 million of more on the economy. Accordingly, the interim
rule has been reviewed by the Office of Management and Budget. The
Regulatory Impact Analysis prepared by the CDFI Fund for the interim
rule is provided below.
1. Description of Need for the Regulatory Action
The CDFI Bond Guarantee Program was authorized by the Small
Business Jobs Act of 2010 (Pub. L. 111-240) (the Act), passed by
Congress and signed into law by the President on September 27, 2010.
Sections 1134 and 1703 of the Act provide authority to the Secretary of
the Department of the Treasury to establish the program by regulation,
which will be administered by the CDFI Fund, a wholly owned government
corporation within the U.S. Department
[[Page 8302]]
of the Treasury, pursuant to authority delegated by the Secretary of
the Treasury.
The Act authorizes the Secretary to guarantee the full amount of
Bonds, including the principal, interest, and call premiums, with terms
not to exceed 30 years, issued to finance or refinance loans for
Eligible Community or Economic Development Purposes. The Bond Issues
will support CDFI lending and investment in Investment Areas by
providing a source of low-cost, long-term capital to CDFIs. The Act
provides that the Secretary of the Treasury will not issue more than
ten Guarantees in any calendar year. No Guarantee amount may be less
than $100,000,000, provided the total principal amount of guaranteed
Bond Issues outstanding for any one fiscal year may not exceed $1
billion.
2. Provision--Affected Populations
The CDFI Fund was established through the Riegle Community
Development and Regulatory Improvement Act of 1994 (Pub. L. 103-325)
for the purpose of promoting economic and community development through
investment in and assistance to CDFIs. The two target populations
served by the CDFI Fund that will be affected by the CDFI Bond
Guarantee Program are (i) Certified CDFIs and (ii) rural and urban Low-
Income communities served by Certified CDFIs throughout the United
States.
Certified CDFIs are specialized, community-based financial
institutions that serve rural and urban Low-Income communities or work
in economically distressed areas, often operating in market niches that
may be underserved by traditional financial institutions. Only
financial institutions certified by the CDFI Fund can receive financial
assistance awards through the CDFI Program and the NACA Program.
Certified CDFIs include depository institutions such as community
development banks, thrifts, and credit unions; and non-depository
institutions such as loan and venture capital funds. Certified CDFIs
provide a wide range of financial products and services in Low-Income
Areas.\1\ While the types of products made available are generally
similar to those provided by mainstream financial institutions (such as
small business lending and lending for community facilities and
commercial real estate development), Certified CDFIs often lend to and
make equity investments in markets that may not be served by mainstream
financial institutions. In addition, Certified CDFIs may offer rates
and terms that are more flexible to Low-Income borrowers. Certified
CDFIs also provide services that help ensure that credit is used
effectively, such as technical assistance to small businesses, and home
buying and credit counseling to consumers.
---------------------------------------------------------------------------
\1\ The terms Low-Income and Low-Income Area are defined in
section 1808.102 of the interim rule. These definitions may be
different from those used in the economic studies cited hereafter.
For specific definitions related to the studies, please refer to the
cited articles.
---------------------------------------------------------------------------
As of April 2012, there were over 980 Certified CDFIs (including
Certified CDFI banks and their Certified CDFI bank holding companies)
that provide financial products and services to underserved populations
and distressed communities in the United States. A thorough analysis
was conducted of a subset of 904 Certified CDFIs, excluding bank
holding companies, to compile consistent asset data on this population,
which is reported below. These 904 Certified CDFIs are financial
institutions that have average total assets of $55.6 million (although
average asset size varies by institution type).
a. Community development loan funds (CDLFs) constitute about 66
percent of Certified CDFIs and have average assets of about $19.9
million. CDLFs are usually nonprofits that provide financing and
development services to businesses, organizations and individuals in
Low-Income urban and rural areas. CDLFs can be further categorized
based on the type of clients served, such as microenterprises, small
businesses, housing, and community service organizations (e.g., health
care providers, charter school operators).
b. Community development credit unions (CDCUs) constitute about 22
percent of Certified CDFIs and have average assets of $66.9 million.
CDCUs are nonprofit cooperatives owned by members that promote
ownership of assets and savings and provide affordable credit and
retail financial services to Low-Income people.
c. Community development banks and bank holding companies
constitute about nine percent of Certified CDFIs and have average
assets of $298.3 million. CDFI banks provide capital to rebuild
economically distressed communities through targeted lending and
investment and the provision of financial services to community
residents and business owners.
d. Community development venture capital funds constitute about
three percent of all Certified CDFIs, have average assets of $9.7
million, and include both for-profit and nonprofit organizations that
provide equity and debt-with-equity features for businesses in
distressed communities.
A preliminary analysis conducted by the CDFI Fund shows that
Certified CDFIs that are large enough to deploy at least $10 million in
new lending to Low-Income communities are the most likely participants
in the CDFI Bond Guarantee Program. The rationale is that only larger
CDFIs will be able to absorb and deploy $10 million in new capital. In
particular, non-profit CDFI loan funds are expected to be the primary
participants in the CDFI Bond Guarantee Program.
a. Analysis of CDFI Fund awardees. First, the CDFI Fund used its
Community Investment Impact System (CIIS), which collects data from
CDFIs that have received awards from the CDFI Fund. CDFI Program and
NACA Program awardees are required to report total portfolio and
financial data for three years. A total of 68 Certified CDFI loan funds
were identified that provided consistent data for a five year period
from 2006 to 2010 on assets, new lending, and type of lending. The
results showed that a total of 59 CDFI loan funds out of the 68
originated more than $10 million in loans. These 59 loan funds, that
annually originated more than $10 million in loans, had assets that
ranged from $25 million to nearly $400 million. As a result, a cutoff
point of a minimum of $25 million in assets was established as a
preliminary estimate of the threshold to participate in the CDFI Bond
Guarantee Program. Due to data limitations, this estimate is based on a
sample of CDFI awardees and not on the total universe of Certified
CDFIs. However, given the lack of data on non-awardee Certified CDFIs,
it is possible there are eligible CDFIs below the $25 million threshold
capable of participating in the CDFI Bond Guarantee Program.
b. Analysis of CDFI Fund Certified CDFIs. Second, the CDFI Fund
certification database was used to query the number and type of
Certified CDFIs that had assets over $25 million. A total of 243
Certified CDFIs have assets over $25 million, including 77 CDFI banks,
74 credit unions, 91 loan funds, and one venture capital fund. This
group is a sample of potential participants in the CDFI Bond Guarantee
Program.
[[Page 8303]]
Table 1--CDFIs With More Than $25 Million in Assets
--------------------------------------------------------------------------------------------------------------------------------------------------------
Share of Minimum asset Maximum asset
CDFI type Count Share % Sum of assets assets % Average assets size size
--------------------------------------------------------------------------------------------------------------------------------------------------------
Bank or Thrift........................... 77 32 $24,705,263,619 53 $320,847,579 $26,655,000 $2,144,987,000
Credit Union............................. 74 30 12,589,364,746 27 170,126,551 26,456,363 1,623,228,958
Loan Fund................................ 91 37 9,073,961,136 20 99,713,859 25,379,706 1,424,547,537
Venture Capital Fund..................... 1 0 59,151,038 0 59,151,038 59,151,038 59,151,038
--------------------------------------------------------------------------------------------------------------------------------------------------------
Grand Total.......................... 243 100 46,427,740,539 100 191,060,661 25,379,706 2,144,987,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: CDFI Fund Community Investment Impact System (CIIS) and Certification Database.
a. Targeted Populations. In general, Certified CDFIs primarily
serve Low-Income communities and Low-Income targeted populations. A
Certified CDFI's Investment Area is defined as a geographic unit
(state, county, census tract, block group, Indian/Native areas), or as
contiguous geographic units entirely located within the United States
that meets one of the following criteria:
(1) Has a population poverty rate of at least 20 percent;
(2) has an unemployment rate 1.5 times the national average;
(3) for a Metropolitan Area, has a median family income (MFI) at or
below 80 percent of the greater of either the Metropolitan or national
Metropolitan MFI;
(4) for a non-Metropolitan area, has an MFI at or below 80 percent
of the greater of either the Statewide or national Non-Metropolitan
MFI;
(5) is wholly located within an Empowerment Zone or Enterprise
Community; or
(6) has a county population loss greater than or equal to 10
percent between the two most recent census periods for Metropolitan
Areas or five percent over last five years for Non-Metropolitan areas.
Under these criteria, there are 27,275 census tracts (41 percent)
that qualify as CDFI investment areas out of 66,285 total census tracts
in U.S. Of these, 22,360 are Metropolitan census tracts and 4,915 Non-
Metropolitan census tracts. There are 269 counties that qualify as a
result of the combined impact of the population loss and outmigration
criteria. Based on the most recent three-year of reporting by CDFIs
awardees, about 20 percent of eligible census tracts are served;
however, no transactional lending and investment data is available from
Certified non-awardee CDFIs and therefore no estimates of lending in
target markets can be provided for four-fifths of Certified CDFIs.
However, it is noteworthy that CDFI investment areas and target
markets are highly correlated with the distressed and underserved areas
as defined in the Community Reinvestment Act.\2\ In general, Certified
CDFIs provide financial products and services in areas that are
historically underserved by mainstream depository institutions.
---------------------------------------------------------------------------
\2\ http://www.ffiec.gov/craadweb/naaginfs.htm.
---------------------------------------------------------------------------
b. Financial products offered by CDFIs. According to the CDFI Fund
Agency Financial Report for Fiscal Year 2012, CDFIs originated over
$1.3 billion in loans in 2011. Of these, 15.6 percent were commercial
real estate originations, which included investments in charter schools
and community facilities such as health clinics, employment and
training facilities, and centers that provide services for low-income
children and youth. In addition, 28 percent of these annual
originations supported small businesses and microenterprises, including
support for business incubators. In 2011, CDFIs also financed over
24,000 affordable housing rental units. The majority of these
investments were located in very Low-Income communities where lending
for community infrastructure is limited.
3. Description of the problem.
The availability of long-term debt and equity capital for CDFIs,
particularly non-profit loan funds, is one of the major structural
issues facing the CDFI industry. Certified CDFIs face challenges
accessing long term capital to support their lending and investment;
such challenges are related to broader structural impediments faced by
Low-Income communities in accessing affordable and appropriate
financial services.
Certified CDFIs traditionally receive grants, loans, and other
forms of financing from various sources, notably banks incentivized by
the Community Reinvestment Act (CRA). However, that capital tends to be
short- or medium-term, and expensive as compared to products non-CDFI
or for-profit lenders can obtain.\3\ Lenders and investors to Certified
CDFIs typically provide Certified CDFIs with capital that has
maturities of ten years or less. As a result, Certified CDFIs endure
asset liability mismatches when they offer longer term lending products
(i.e., mortgages) to their target borrowers.
---------------------------------------------------------------------------
\3\ Charles Tansey, Michael Swack, Michael Tansey, Vicky Stein.
Capital Markets, CDFIs, and Organizational Credit Risk, Carsey
Institute, University of New Hampshire, Durham, New Hampshire, p.
37.
---------------------------------------------------------------------------
According to an analysis by the Carsey Institute at the University
of New Hampshire, which was prepared for and funded by the CDFI Fund,
``the lack of long-term debt financing forces CDFIs to [save cash]
pushing down leverage and giving the appearance that many
underleveraged CDFIs are not lending as much as they could, thus
neglecting demand among its targeted consumers.'' \4\ Certified CDFI
loan funds are generally not well leveraged, possibly reflecting the
cost of debt available to them. Additionally, the non-profit status of
many CDFIs also means that they do not enjoy the tax benefits of debt
leverage which for-profit financial institutions are able to take
advantage of. According to the Carsey analysis, ``[p]articularly among
loan funds, a large number of CDFIs have very little leverage (i.e.,
they fund themselves mainly through net assets, not debt). The median
CDFI loan fund in 2009 was leveraged at just $1.10 in liabilities for
every $1 in net assets. About eight percent of loan funds had no
liabilities whatsoever. Banks and credit unions are typically leveraged
at a rate of 10:1 or more.'' \5\
---------------------------------------------------------------------------
\4\ Michael Swack, Jack Northrup, and Eric Hangen. CDFI Industry
Analysis, Spring 2012. Carsey Institute, University of New
Hampshire, Durham, New Hampshire, p. 15.
\5\ Michael Swack, Jack Northrup, and Eric Hangen. CDFI Industry
Analysis, Spring 2012. Carsey Institute, University of New
Hampshire, Durham, New Hampshire, p. 10.
---------------------------------------------------------------------------
The reasons behind the lack of access to long-term debt available
in capital markets are complex; however, a market-based approach
focuses on one key element: the risk of Certified CDFIs. Capital
markets typically rely on the credit ratings by rating agencies to
determine the interest rate and terms of
[[Page 8304]]
an investment. According to Tansey et al., the inability of credit
rating agencies to accurately assess credit risk of CDFIs is due to:
the absence of standardized data of risk performance; the lack of
consistent audited financials limiting the ability to discern assets,
specifically cash, available for repayment; the need for the
development of comparable ratios to analyze financial health; Certified
CDFIs' willingness to engage in non-conventional lending; and, the
perceived risk of lending to Low-Income communities. Such challenges
result in proposed investments to CDFIs that are unrated or rated as
below investment grade, thus not attractive to the capital markets.
a. Distributional issues in provision of financial services in Low-
Income Areas. The risk of lending to Certified CDFIs and ultimately to
Low-Income communities is steeped in the chronic distributional gaps in
the provision of financial services and products to Rural and urban
Low-Income Areas of the United States, thus contributing to limited
credit risk information for mainstream financial institutions to
underwrite new activity in these communities. The lack of credit
information for many Low-Income households in addition to smaller loan
sizes typical of Low-Income communities often results in higher
transaction costs for current lending. In addition, the substantial
lack of data and higher costs in serving these communities also
inhibits the access to long-term capital for CDFIs that serve these
communities.
In rural areas, lack of access also stems from the more limited
deal flows, limited supporting infrastructure, and the difficulty of
providing oversight for sparsely populated areas. Furthermore, CDFI
investments are often characterized by the small scale of individual
transactions and the perception of a high degree of risk.\6\
---------------------------------------------------------------------------
\6\ Michael Swack, Jack Northrup, and Eric Hangen. CDFI Industry
Analysis. Spring 2012. Carsey Institute, University of New
Hampshire, Durham, New Hampshire, p. 14. Available at http://www.cdfifund.gov/docs/CBI/2012/Carsey%20Report%20PR%20042512.pdf.
---------------------------------------------------------------------------
Using census panel data on economically distressed areas,
persistent poverty has been located in the same geographic areas for
over half a century, including the lower Mississippi Delta, areas along
the Rio Grande, and traditional Native American territories in the
West.\7\ Many households in persistent poverty counties are
``unbanked'' and have little or no credit score information because
they may operate with cash in the informal economy; many live in areas
characterized by poverty rates of more than 20 percent. About three
quarters of persistent poverty areas reflect the minority status of
their populations, showing a concentration of persistent poverty, low
incomes, and lack of financial services in minority communities.
According to the Economic Research Service (ERS) at the U.S. Department
of Agriculture (USDA), of the 442 ``high-poverty counties in 2000
(based on 1999 income), three-fourths reflect the low income of their
racial and ethnic minorities and are classified as Black, Hispanic, or
Native American high-poverty counties. In these counties, either a
majority of the poor are Black, Hispanic, or Native American, or it is
only the high incidence of poverty among these minority groups that
brings the county's overall rate above 20 percent. Of the remaining
fourth of high-poverty counties, most (91 counties) are located in the
Southern Highlands of eastern Kentucky, West Virginia, and parts of
Missouri and Oklahoma. In these areas, the poor are predominantly non-
Hispanic Whites.'' \8\
---------------------------------------------------------------------------
\7\ For a list of persistent poverty counties used by the CDFI
Fund, see http://www.cdfifund.gov/what_we_do/persistentpoverty.asp.
\8\ See http://www.ers.usda.gov/Briefing/incomepovertywelfare/povertygeography.htm.
---------------------------------------------------------------------------
b. Market failure. Rural and urban Low-Income, very Low-Income, and
persistent poverty areas are underserved by mainstream financial
institutions and lack access to investment, capital, and credit. Low
lending rates in these communities create an information deficit for
assessing risk for individual households and neighborhoods in mortgage,
business, and consumer credit markets, and contribute to higher
transaction costs. Furthermore, credit rationing can affect both Low-
Income communities and Certified CDFIs that serve this market niche.
Market failures in the provision of financial services to Low-
Income areas have been well-documented in the academic literature (see
Akerlof, Stieglitz, Klausner, Richardson, Mills and Lubuele).\9\ One
market imperfection is the inherently asymmetric information between a
lender and a borrower. Klausner notes that ``borrowers often know more
about their own risk of default than do lenders. [* * *] When a bank
makes a loan it does so based on information regarding the default risk
of the borrower.'' \10\
---------------------------------------------------------------------------
\9\ (A) Akerlof, George A. 1970. ``The Market for Lemons:
Quality Uncertainty and the Market Mechanism.'' The Quarterly
Journal of Economics. 84 (3): 488-500. Akerlof argues that
underdeveloped areas, such as Low-Income and persistent poverty
areas, may remain undeveloped due to the lack of information (such
as the lack of credit scores for households operating in the
informal economy) and the high costs of obtaining accurate
information on these credit risks. According to Akerlof, ``Credit
markets in underdeveloped areas often strongly reflect the operation
of the Lemons Principle.'' In the Lemons Principle, ``bad cars drive
out the good because they sell at the same prices as the good
cars.'' In other words, the perception of average higher risk in
Low-Income Areas may prevent deserving borrowers from accessing
credit and capital from mainstream lenders. However, non-traditional
lenders such as CDFIs are willing to conduct individual underwriting
and are able to enter these markets.
(B) Stiglitz, Joseph E., and Andrew Weiss. 1980. Credit
rationing in markets with imperfect information. Princeton, N.J.:
Econometric Research Program, Princeton University.
(C) Klausner, Michael, ``Market failure and the Community
Reinvestment Act: A market-oriented alternative to the Community
Reinvestment Act.'' University of Pennsylvania Law Review, Vol. 143,
No. 5 (May 1995) pp. 1561-1593.
(D) Richardson, Christopher, ``The Community Reinvestment Act
and the economics of regulatory policy.'' Fordham Urban Law Journal,
Vol. 29, Issue 4, 2001, Article 11. Richardson argues that ``low
levels of lending in low- and moderate-income (LMI) areas result
from the inability of rational lending decisions made by profit-
maximizing lenders to achieve a socially optimal flow of credit to
LMI areas. The market failure occurs because the marginal cost of a
single lender acquiring the information necessary to adequately
assess risk and identify profitable lending opportunities in LMI
areas outweighs the potential marginal benefit the lender can expect
to accrue. In the extreme case, if no single lender will rationally
decide to lend in the area, and no loans will be made'' (p. 1614).
(E) Mills, E.S. and L.S. Lubuele. 1994. ``Performance of
residential mortgages in low-income and moderate-income
neighborhoods.'' Journal of Real Estate Finance and Economics 9(3):
245-260.
\10\ Klausner, Michael, ``A tradable obligation approach to the
Community Reinvestment Act'' in Chakrabarti, Prabal. 2009.
Revisiting the CRA: perspectives on the future of the Community
Reinvestment Act. Boston, Mass: Federal Reserve Bank of Boston.
http://www.frbsf.org/publications/community/cra/revisiting_cra.pdf.
---------------------------------------------------------------------------
Both targeted and mainstream financial lending programs depend on
credit scores to assess risk to provide financial services to their
customers. However, credit scores are often limited in Low-Income
communities due to the low level of lending by mainstream financial
institutions in these communities and the resulting lack of information
on the risk of default for these loan products. In addition, Low-Income
households may operate in the informal economy and may not have credit
score information.
Credit rationing is likely to occur in Low-Income Areas because
generating individual credit risk scores would be too costly for
lenders. Klausner and Richardson note that because banks seek to
maximize their profit, they [and other financial institutions] may be
averse to lending to Low-Income Areas due to the low value of financial
transactions and the lack of credit score information to assess the
riskiness of loans.
[[Page 8305]]
4. Solutions to the Problem.
Through the CDFI Bond Guarantee Program, Certified CDFIs will
demonstrate the ability to successfully deploy conventional long-term
debt, with maturity dates, payment schedules, conditions, covenants,
and reporting requirements similar to those required and provided by
capital markets. The CDFI Bond Guarantee Program will require
standardized data collection and portfolio monitoring, develop a
mechanism for accurately assessing Certified CDFI credit risk, and
provide capital markets with a track record on which to base future
lending and investment. Moreover, the CDFI Bond Guarantee Program,
because of the maximum 30 year maturity, will allow Certified CDFIs to
offer a higher volume of longer term products to their borrowers as
well as manage their interest rate and duration risk because of
improved asset/liability matching. This will further close the gap in
the provision of investments in community facilities, business lending,
and financial services to rural and Low-Income residents and
businesses, addressing distributional issues in the provision of
financial services.
a. Certified CDFIs as potential solution to underserved markets and
market failure. A potential solution to distributional issues in the
provision of financial services and market failure is lending by
financial institutions such as Certified CDFIs. However, due to their
customer base (Low-Income residents and small businesses and nonprofits
serving Low-Income communities), the credit rationing that limits
access to capital for those customers also limits the ability of
Certified CDFIs to secure affordable long-term capital. Moreover, there
is no standardized data on the universe of Certified CDFIs, especially
unregulated loan funds that do not have award reporting history. The
CDFI Bond Guarantee Program would provide access to a maximum of $2
billion in 30-year long-term capital to address the distributional
effects and market failure faced by Low-Income residents and
communities as well as the inability of Certified CDFIs to secure long-
term capital to support their lending and investment efforts.
b. Lowering the transaction costs of lending to Low-Income Areas.
Transaction costs for the provision of financial services in Low-Income
Areas are often higher because many Low-Income households have no
credit score data that can be used to standardize and lower the cost of
the underwriting process. In part, this is due to the fact that many
Low-Income households do not use traditional financial institutions for
banking needs, relying on fringe banking services (e.g., check cashers,
payday lenders, etc.) to conduct financial transactions, thereby
limiting available credit histories and credit score data. The CDFI
Fund estimates that, based on credit score data at the census tract
level, a total of 27 percent of very Low-Income households are missing
credit FICO scores, compared to eight percent for higher-income areas
(see Table 2 below). These figures may underestimate the number of
households without credit scores because they are based on a sample of
households that provided data, adjusted for the population.
Table 2--Credit Score Information
------------------------------------------------------------------------
Percent
Median family income as a percent of area Population missing
income by census tract share in credit
sample % scores %
------------------------------------------------------------------------
a. <50%....................................... 5.99 27
b. 50%<80%.................................... 26.83 18
c. 80%<120%................................... 46.99 12
d. 120%<200%.................................. 18.40 9
e. >200%...................................... 1.79 8
-------------------------
Grand Total............................... 100.00 14
------------------------------------------------------------------------
Source: analysis by the CDFI Fund using Census Bureau 2000 Summary File
1 demographic data and FICO scores by census tract.
Another factor inhibiting credit provisioning is the lower
profitability associated with lower-value loans. This, combined with
expensive underwriting, make the provision of loans and services to
Low-Income populations unprofitable for mainstream financial
institutions. According to the Carsey Institute ``[t]hese transactions
costs can be high for CDFIs because CDFIs market, underwrite, and
originate smaller loans, and provide more intensive services. As a cost
driver for CDFI Loan Funds, operating expense [as a result of high
transactions costs to collect information on Low-Income communities and
to underwrite smaller value loans] is by far the largest component of
an organization's expenses, dwarfing both cost of capital and loan loss
expense.'' \11\
---------------------------------------------------------------------------
\11\ Michael Swack, Jack Northrup, and Eric Hangen. CDFI
Industry Analysis. Spring 2012. Carsey Institute, University of New
Hampshire, Durham, New Hampshire, p. 9. Available at http://www.cdfifund.gov/docs/CBI/2012/Carsey%20Report%20PR%20042512.pdf.
---------------------------------------------------------------------------
If the $200 million to $2 billion range is used to estimate the
minimum and maximum impact range for the CDFI Bond Guarantee program,
using the average loan size of $75,000 for CDFIs, a total of 2,667
loans to 26,670 loans may be issued. A share of these loans--
potentially over half--will involve detailed and costly underwriting
information at the household and firm level for loan recipients that
otherwise would not receive funding. A share of these loans will
include households and firms that do not have credit available
elsewhere from mainstream financial institutions for long-term
mortgages, community facilities such as charter schools, small business
and microloans, and financial banking services. As a result of lending
by participating Certified CDFIs, the Certified CDFIs will generate new
credit score data from the loans to such consumers, which in turn will
provide new credit information on these products and market segments,
which should mitigate the risk associated with a lack of credit data on
Low-Income and rural communities and borrowers. This information can
lower transaction costs and encourage increased participation of
traditional financial institutions in underserved areas, thereby
attracting additional capital from the private sector.\12\
---------------------------------------------------------------------------
\12\ See: ``Collaborators or Competitors? Examining the
Relationship Between CDFIs and Mainstream Banks in Lending to Small
Businesses in Underserved Markets'' by Geoff Smith, Sean Zielenbach,
Jennifer Newon and Sarah Duda, The Woodstock Institute, published by
the CDFI Fund, 2009 http://www.cdfifund.gov/impact_we_make/research/community-economic-development.
---------------------------------------------------------------------------
c. Providing long-term debt and leverage. According to the Carsey
Institute, ``[t]he availability of long-term debt and equity capital
for CDFIs, particularly loan funds, is one of the major structural
issues facing the industry. [* * *] The lack of long-term debt
financing forces CDFIs to [save cash] pushing down leverage and giving
the appearance that many underleveraged CDFIs are not lending as much
as they could, thus neglecting demand among its targeted consumers.''
\13\ The analysis by the Carsey Institute noted that Certified CDFIs
have access to short-term capital and cannot access longer-term
capital. Lenders and investors to Certified CDFIs typically provide
Certified CDFIs with capital that has maturities of ten years or less.
As a result, Certified CDFIs endure asset liability mismatches when
they offer longer term lending products (i.e., mortgages) to their
target borrowers.
---------------------------------------------------------------------------
\13\ Michael Swack, Jack Northrup, and Eric Hangen. CDFI
Industry Analysis, Spring 2012. Carsey Institute, University of New
Hampshire, Durham, New Hampshire, p. 15.
---------------------------------------------------------------------------
The analysis by the Carsey Institute also found that Certified CDFI
loan funds are generally not well leveraged, possibly reflecting the
cost of debt available to them. According to the
[[Page 8306]]
analysis, ``[p]articularly among loan funds, a large number of CDFIs
have very little leverage (i.e., they fund themselves mainly through
net assets, not debt). The median CDFI loan fund in 2009 was leveraged
at just $1.10 in liabilities for every $1 in net assets. About eight
percent of loan funds had no liabilities whatsoever. Banks and credit
unions are typically leveraged at a rate of 10:1 or more.'' \14\ The
CDFI Bond Guarantee Program, because of the maximum 30 year maturity,
will allow Certified CDFIs to offer a higher volume of longer term
products to their borrowers as well as manage their interest rate and
duration risk because of improved asset/liability matching. This will
further close the gap in the provision of services to Low-Income
residents and businesses.
---------------------------------------------------------------------------
\14\ Michael Swack, Jack Northrup, and Eric Hangen. CDFI
Industry Analysis, Spring 2012. Carsey Institute, University of New
Hampshire, Durham, New Hampshire, p. 14.
---------------------------------------------------------------------------
Finally, the Carsey analysis indicates that the average term for
credit provided to CDFIs is rarely above 15 years. When appropriately
compared based on term, the cost of funds under the CDFI Bond Guarantee
Program is significantly lower than what is currently available in the
market. The Carsey analysis notes that CDFIs typically borrow on a
secured basis at more than 100 basis points above the London Interbank
Offered Rate (LIBOR), and that this is for shorter terms than
contemplated under the CDFI Bond Guarantee Program.
5. Baseline
Currently, the CDFI Fund administers six grant and tax allocation
programs:
Table 3--CDFI Fund Award Programs
----------------------------------------------------------------------------------------------------------------
Total amount
awarded/number of Highest award
Program Type/Status Purpose awardees last amount
funding round
----------------------------------------------------------------------------------------------------------------
CDFI Program................... Grant/Annual Provides financial $149 million/144 $1.4 million.
Appropriations. assistance awards to awardees.
institutions that are
certified as CDFIs,
and technical
assistance grants to
Certified CDFIs and
entities that will
become certified as
CDFIs within three
years.
Note: The CDFI Fund
may give a financial
assistance award in
the form of a loan if
the CDFI provides a
loan as its matching
fund. Direct loans
are dictated by the
term and conditions
of the loan submitted
as matching funds.
Native Initiatives............. Grant/Annual Assists entities in $11.5 million/33 $750,000.
Appropriations. overcoming barriers awardees.
that prevent access
to credit, capital,
and financial
services in Native
American, Alaskan
Native, and Native
Hawaiian communities
(Native Communities).
The Native
Initiatives' central
component is the
Native American CDFI
Assistance (NACA)
Program, which
increases the number
and capacity of
existing or new CDFIs
serving Native
Communities.
Bank Enterprise Award Program.. Grant/Annual Provides grants to $18 million *.... $500,000 *.
Appropriations. FDIC-insured banks
for increasing their
investment in Low-
Income communities
and/or in CDFIs.
New Markets Tax Credit Program. Non-cash Tax Provides tax credit $3.5 billion in n/a.
Credit Authority/ allocation authority annual authority.
Annual Renewal. to certified
Community Development
Entities (CDEs),
enabling investors to
claim tax credits
against their Federal
income taxes. The
CDEs in turn use the
capital raised to
make investments in
Low-Income
communities.
Capital Magnet Fund............ Grant/FY 2010 Provides grants for $80 million/23 $6 million.
only. CDFIs and other non- awardees.
profits to finance
the development,
rehabilitation, and
purchase of
affordable housing
for Low-Income people.
Financial Education and Grant/FY 2009 and Provides financial $4.1 million/4 $3.15 million/
Counseling Pilot Program. FY 2010 only. assistance awards to awardees **. $400,000 **.
enable Certified
CDFIs and other
eligible
organizations to
deliver a variety of
financial education
and counseling
services to
prospective
homebuyers.
----------------------------------------------------------------------------------------------------------------
* Based on most recent funding round.
** In FY 2010, the CDFI Fund was appropriated $4.1 million for the FEC Pilot Program, of which $3.1 million was
specifically appropriated for an award to an organization located in the State of Hawaii and $1 million was
appropriated in FY 2010 for the FEC Pilot Program.
a. Size of loans under the CDFI Bond Guarantee Program greater than
current CDFI Fund programs. While valuable, CDFI Fund programs provide
limited, short-term capital for CDFIs. The increased competitiveness,
small award size, and annual uncertainty in the total amounts to be
awarded limit CDFIs' ability to plan effectively for long-term project
and capital needs. For the baseline analysis without the CDFI Bond
Guarantee Program, the CDFI Fund assumes that the above-mentioned
programs would be appropriated at historical levels and estimates that
[[Page 8307]]
Certified CDFIs would borrow and lend at current levels.
b. CDFI lending at current levels. In FY 2011, CDFI Fund awardees
reported originating 16,313 loans or investments totaling $1.2 billion,
based on their portfolio of activities in 2010. This includes $357.3
million for 5,010 home improvement and purchase loans, $296.8 million
for 5,233 business and microenterprise loans, and $289.2 million for
679 residential real estate transactions. These data on the amount and
number of loans or investments originated provide baselines for
benchmarking and targeting program performance. Under the CDFI Program,
real estate loans financed 17,778 affordable housing units, including
15,979 rental units and 1,799 owner units. CDFIs also provided
extensive financial products and services to unbanked and underserved
individuals by opening 6,537 new bank accounts and maintaining 7,007
Individual Development Accounts totaling $9,131,382 in savings. CDFIs
reported providing financial literacy counseling and other training
opportunities to 177,252 individuals. Finally, loans and investments
originated by CDFIs over the last three years were located in more than
22 percent of eligible census tracts, exceeding the target of 10
percent. Average Certified CDFI awardee loan sizes for all loan types
from 2003 to 2010 are $62,000, and the average term is 5.9 years.
Average commercial real estate loan sizes are $694,000 with an average
term of 6.4 years.
c. What would occur in the absence of the CDFI Bond Guarantee
Program. The absence of the CDFI Bond Guarantee Program limits the
ability of Certified CDFIs to provide long-term affordable loans and
investments to Low-Income borrowers, individuals, and small businesses.
Financial innovation and development of products specifically tailored
to Low-Income communities may be curtailed and the potential for
Certified CDFIs entering private capital markets would also be limited.
The CDFI Bond Guarantee Program would result in a share of lending that
would not otherwise occur in Low-Income areas, as well as leveraging
and relending which could result in potential economic benefits. The
CDFI Fund's award and tax credit programs would remain the primary
source of Federally funded programs for Certified CDFIs.
6. Time Horizon for the Analysis
The CDFI Bond Guarantee Program is authorized to guarantee up to $1
billion in Bonds issued each year through FY 2014, and the maximum
maturity of the Bonds cannot exceed 30 years. Therefore, the
appropriate time horizon for analysis is FY 2013-FY 2044.
7. Alternative Approaches Considered
To address the distributional gaps and market failure identified
above, the CDFI Bond Guarantee Program structure should allow for
participation by Eligible CDFIs that demonstrate the ability to deploy
Bond Loan proceeds within the guidelines and credit subsidy constraints
as written in the Act. The CDFI Fund has chosen to structure the
program pursuant to alternatives c and d described below.
Regulatory alternatives for the CDFI Bond Guarantee Program
considered are: (a) Requiring minimum participation size to equal $100
million per institution per Guarantee; (b) requiring a pool of CDFIs
with a minimum participation size equal to $500,000 per institution in
a $100 million Guarantee; (c) requiring a pool of CDFIs with a minimum
participation size of $10 million per institution in a $100 million
minimum Guarantee; or (d) requiring general recourse obligations by
CDFI Borrowers.
a. Minimum Bond Loan size of $100 million. This alternative would
only allow a maximum of ten Eligible CDFIs to participate in the CDFI
Bond Guarantee Program each year, limiting the ability of a significant
percentage of Certified CDFIs from accessing the Bond Proceeds and
lending them to Low-Income households and businesses in Low-Income
areas. Given the requirements of a zero-subsidy program and the debt
service burden of a $100 million liability, it is likely that only ten
or fewer Certified CDFIs would be able to participate based upon
estimates of the additional debt service burden imposed by a $100
million obligation. The reduced number of applicants would lead to a
more streamlined approval and implementation process (e.g., faster
processing, less variation in documentation) resulting in lower bond
issuance costs for the Qualified Issuers and Eligible CDFIs in the
obligation. Cumulative administrative costs for Eligible CDFIs would be
lower legal fees, and the absence of Secondary Borrower applications
that would require underwriting and due diligence. These cost
reductions would be achieved in part by reduced reliance on outside
counsel and consultants by applicants.
However, the benefits of the CDFI Bond Guarantee Program would also
be reduced due to the concentration of benefits in a handful of
Certified CDFIs. It is less likely that the funds would be disbursed
among various market segments categorized by geography, industry
sector, ethnicity, and other socioeconomic factors. This alternative is
less likely to address the credit rationing and distribution problems
and therefore yield lower social benefits. The benefit of risk
diversification would also be lessened, and could impose a greater
overall cost in terms of interest rates to Secondary Borrowers.
b. Minimum Bond Loan size of $500,000. Maximizing the number of
organizations that can participate as an Eligible CDFI by setting a low
Bond Loan limit does not result in the greatest net benefits due to the
corresponding increase in administrative costs. The CDFI Fund could set
the minimum Bond Loan size to $500,000. This number is representative
of the approximate average size of loans disbursed through the CDFI
Program.\15\ Under this scenario, up to 200 Eligible CDFIs could
participate in a minimum $100 million issuance. There is a greater
likelihood of the benefits being distributed among underserved market
segments as measured by geography, industry sector, ethnicity, and
other socioeconomic factors. Long-term capital would be provided to
many of the smaller institutions certified by the CDFI Fund, and as a
result these institutions would most likely be able to reduce asset-
liability mismatches previously described.
---------------------------------------------------------------------------
\15\ Through the CDFI Program, the CDFI Fund has made 157 loans
with an average principal of approximately $512,000 from 1996-2008.
---------------------------------------------------------------------------
Increasing the number of possible Eligible CDFIs in a single
Guarantee pool would:
(1) Decrease the likelihood of issuing the maximum number of Bonds
in a fiscal year due to the difficulty in grouping large numbers of
Certified CDFIs into homogeneous credit qualities for credit scoring
approval by the Office of Management and Budget (OMB); and
(2) for Eligible CDFIs, significantly increase costs associated
with loan documentation, legal counsel, underwriting and due diligence,
as well as ongoing compliance and loan monitoring.
The 10 basis point Agency Administrative Fee authorized by the Act
would equal only $500 per institution on an annual basis based on a
minimum participation of $500,000. This annual fee declines based upon
outstanding principal balance. Further, Eligible CDFIs participating in
the program would each incur fees associated with their own legal
counsel and possibly consulting services in addition to the 10 basis
point Agency Administration Fee. Although scale
[[Page 8308]]
effects exist, there is a minimum fixed cost of issuance associated
with such services that each individual Eligible CDFI would incur, thus
raising the aggregate total costs of issuance for Eligible CDFIs.
Therefore, this alternative is less likely to address the credit
rationing and distribution problems, and therefore does not maximize
social benefits.
c. Minimum participation size of $10 million. The CDFI Fund has
chosen to require a minimum Bond Loan size of $10 million so long as
the aggregate principal amount is at least a $100 million minimum Bond
Issue. This has been determined as the best alternative that maximizes
net benefits. The proposed structure of the CDFI Bond Guarantee Program
would allow two-tier borrowing: Eligible CDFIs would borrow at the $10
million minimum and then lend to Secondary Borrowers (in some cases
also CDFIs) in increments below the $10 million minimum. Given this
proposed structure, up to 100 Eligible CDFIs could theoretically
participate in a fiscal year; however, several dozen Eligible CDFIs may
choose to apply for larger Bond Loan amounts.
This program is not meant to be a reproduction of the CDFI Program,
which provides hundreds of Certified CDFIs awards between $100,000 and
$1,000,000 each year in an effort to support the capacity of Certified
CDFIs to build direct equity in support of their capital needs. The
minimum participation of $10 million targets Certified CDFIs that have
the financial and operating capacity to quickly deploy capital to Low-
Income communities as well as lend Secondary Loans of smaller amounts
to Certified CDFIs that are unable to absorb large amounts of debt on
their balance sheets. These Certified CDFIs will also be required to
demonstrate the capacity to track and measure performance and impact of
the Bond Loan proceeds, which will build the data needed to help
counter the distributional issues noted in the earlier sections.
By demonstrating that Low-Income households and businesses are able
to borrow and repay loans of greater amounts and tenor, the
transactional costs of lending to such borrowers will decrease over
time and the ability of the participating Eligible CDFIs to relend and
leverage those funds will increase as the loans are repaid. This
regulatory alternative is best suited to ameliorating the credit
rationing and distribution problems, and thus maximizes net social
benefits.
d. On-balance sheet, general recourse obligations. The CDFI Fund
has chosen to require general recourse obligations that will be on-
balance sheet liabilities of Eligible CDFIs. Eligible CDFIs will be
underwritten for their financial strength, management capacity, and
general probability of default based upon various factors.
Additionally, the Eligible CDFIs are required to lend funds subject to
Secondary Loan Requirements that satisfy a certain minimum recovery
rate in the case of default or temporary financial hardship by an
Eligible CDFI.
The benefits of this approach include a streamlined application
process where the Eligible CDFI is underwritten rather than each
individual asset financed by Bond Loan proceeds. Where necessary, the
Credit Enhancements required to increase an Eligible CDFI's credit
quality are more easily quantified and enforceable. Additionally, more
Eligible CDFIs may be able to participate by achieving the zero subsidy
level required of the program.
Additional costs may be incurred in order to participate in the
program, including the cost of acquiring Credit Enhancements and
documenting the Eligible CDFI's financial strength, management
capacity, and other characteristics indicative of capacity to reduce
the probability of default. Costs such as legal and consultant fees may
be reduced because each individual asset financed by Bond Loan proceeds
does not need to be underwritten.
Although difficult to estimate, it is likely that this regulatory
alternative is both the net most beneficial and least costly
alternative. This alternative also allows the CDFI industry to
demonstrate its ability to manage capital, mitigate risk, and leverage
funds long-term in a way not currently captured or adequately assessed.
This alternative is best suited to ameliorating the credit rationing
and distribution issues identified.
Therefore, the CDFI Fund has chosen to pursue regulatory
alternatives (c) and (d), above, in the design and implementation of
the CDFI Bond Guarantee Program.
8. Economic Effects of Selected Approach.
Per the Act, the CDFI Bond Guarantee Program will expire at the end
of FY 2014; therefore, in FY 2013 and FY 2014 the Secretary of the
Treasury can provide guarantees for Bond Issues with maturities up to
30 years. The CDFI Bond Guarantee Program would provide a maximum of $2
billion in long-term capital to fill the gap in mortgage lending,
consumer lending, and business lending. A summary of the projected
transfers and costs under two scenarios is provided in Table 3: One
Bond Issue per fiscal year ($200 million) and 10 Bond Issues per fiscal
year ($2 billion).
Transfers and costs have been discounted using a net present value
methodology over a 30-year period using a three percent discount rate
that reflects the cost of capital and seven percent discount value for
benefits recommended by OMB in its guidance for Regulatory Impact
Analyses. Table 3 describes the transfers and costs discounted at both
the three percent and seven percent levels.
Table 4--Potential Costs and Transfers
----------------------------------------------------------------------------------------------------------------
Discounting by 3% Discounting by 7%
--------------------------------------------------------------------------------
$200 million $2 billion $200 million $2 billion
issuance issuance issuance issuance
----------------------------------------------------------------------------------------------------------------
COSTS
----------------------------------------------------------------------------------------------------------------
Government Costs............... $19.9 million...... $28.8 million..... $13.4 million..... $18.6 million.
Eligible CDFIs................. $4.6 million....... $45.7 million..... $4.2 million...... $41.9 million.
----------------------------------------------------------------------------------------------------------------
Low-Income communities......... n/a................ n/a............... n/a............... n/a.
----------------------------------------------------------------------------------------------------------------
TRANSFERS
----------------------------------------------------------------------------------------------------------------
Low-Income communities......... $200 million....... $2 billion........ $200 million...... $2 billion.
----------------------------------------------------------------------------------------------------------------
[[Page 8309]]
a. Government costs. The estimate of the administrative costs to
the CDFI Fund (Government Costs) are based on current administrative
costs of implementation and the FY 2014 budget request for additional
Full-Time Employees (FTEs), as well as the staff required to administer
and manage the program for the remaining 30 years of the program.
Government costs may fluctuate depending on the size of the guaranteed
Bond Issues, The costs do not reflect inflation factors or the use of
non-governmental contractors to carry out administrative functions
after FY 2013 and FY 2014.
b. Eligible CDFI costs. The estimated administrative costs to
Eligible CDFIs for the CDFI Bond Guarantee Program are based on: (1)
The future costs of 10 basis points in Agency Administrative Fees of
the amount of the unpaid principal of the Bonds, up to the maximum
maturity of 30 years, for Bonds issued through September 30, 2014, the
expiration of the program, and these costs discounted back to the
present value; and (2) the Bond Issue costs through September 30, 2014,
the expiration of the program, and these costs discounted back to the
present value. The Bond Issuance Fees are estimated to be one percent
of principle value of the Bond Issue.
9. Non-Quantified and Non-Monetized Benefits and Costs
Non-quantified benefits include the reduction of information
asymmetry between Eligible CDFI and mainstream financial institutions
cited in section 3(b), above. Regulated banks, thrifts, and credit
unions are subject to intense and standard reporting requirements by
their respective regulators. However, non-regulated Certified CDFIs
frequently utilize disparate accounting methodologies and report
certain data points, such as borrower defaults and delinquencies, in
ways that are difficult to compare across organizations. Non-profit
Certified CDFIs are yet more difficult to compare due to the variety of
reporting options available to non-profit institutions under generally
accepted accounting principles (GAAP). By addressing the information
asymmetry challenge, Eligible CDFIs in the CDFI Bond Guarantee Program
may be able to provide sufficient information to traditional capital
market participants to access private sources of long-term capital.
This non-quantified benefit would further result in the amelioration of
credit rationing, thereby increasing the amount of credit information
available for traditional financial institutions.
Ancillary non-quantified benefits include additional information
that the CDFI Fund will be able to develop using standardized data
collection within the CDFI industry, creating consistent reporting
within other programs, such as the CDFI Program, and within other
related agencies and regulators that interact with Certified CDFIs. In
addition, the CDFI industry will be able to develop innovative
financial products to meet the long-term needs of their borrowers, thus
increasing the level of direct investment from the Bond Proceeds and
leveraging additional investment from the private sector. The program
may also result in standardized credit rating information on the Low-
Income communities served by Certified CDFIs. This would result in
further reductions of informational asymmetry to the benefit of both
individual borrowers and the CDFIs which serve them.
Countervailing non-monetized costs include the increased reporting
and monitoring requirements for participants in the CDFI Bond Guarantee
Program and administrative burden posed by data collection and
verification. Depending upon the structure and composition of Eligible
CDFIs that may pool together for a minimum $100 million Bond Issue,
non-monetized costs may vary greatly based on necessary legal counsel,
labor hours of staff, travel requirements, and other overhead costs.
CDFIs that are awardees of current CDFI Fund programs are already
required to provide detailed reporting on an annualized basis. In
compliance with OMB Circular A-129, the CDFI Bond Guarantee Program
will collect all necessary information to manage the portfolio
effectively, and track progress towards policy goals. Therefore, the
non-quantified costs for participants in the CDFI Bond Guarantee
Program would be the incremental burden of providing necessary
reporting for the CDFI Fund to proactively manage portfolio risks and
performance.
10. Uncertainty in Economic Impacts
The impact estimates are very dependent on a nested set of
assumptions that presuppose knowledge of which Certified CDFIs will
participate in the CDFI Bond Guarantee Program, their target markets,
and the characteristics of the typical Certified CDFI lending
portfolio. While the CDFI Fund could estimate average community and
economic impacts based on reporting awardees, the reliability of such
estimates would be misleading; econometric estimates based on awardee
reporting would be inefficient and biased since such estimates would
not necessarily reflect the subgroup of Certified CDFIs that would be
deemed eligible given the asset and underwriting requirements of the
CDFI Bond Guarantee Program.
A firm estimate of the impacts of the CDFI Bond Guarantee Program
is not feasible without understanding the costs of the assistance to
participating CDFIs, which includes the interest rate on the Bond Loans
and the costs of other terms and Credit Enhancements necessary to
result in an estimated zero subsidy cost for the CDFI Bond Guarantee
Program. The CDFI Fund intends to estimate the subsidy cost separately
for each Guarantee, to account more accurately for the differing
characteristics of each facility. Accordingly, the cost of capital to
participating CDFIs will depend on these characteristics, as will the
number of CDFIs that will participate (the take rate by type of
institution) in the CDFI Bond Guarantee Program. Certified CDFI
participation will also be affected by the cost of alternative
financing that may be available.
The Carsey Institute \16\ report indicates that CDFIs typically can
borrow, on a secured basis, on the open market at rates that are
approximately 75-100 basis points above the LIBOR. As of May 22, 2012,
the one-year LIBOR Rate was 1.05 percent,\17\ or 85 basis points above
the 0.20 percent 1-year Treasury Yield Curve Rate.\18\ Although it may
not be appropriate to extrapolate due to other factors which affect
yield spreads as duration increases, Certified CDFIs may face borrowing
costs that are 160-185 basis points above comparable Treasury
securities. It is likely that the yield spread charged on 30-year
maturities, which are not available to Certified CDFIs, would be
significantly higher due to the additional interest-rate risk inherent
to long-term debt issuances. Moreover, it is not possible to anticipate
the amount of relending that CDFIs would engage in over the course of
30 years.
---------------------------------------------------------------------------
\16\ Capital Markets, CDFIs, and Organization Credit Risk, p.
47.
\17\ http://www.bankrate.com/rates/interest-rates/1-year-libor.aspx.
\18\ http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield.
---------------------------------------------------------------------------
Uncertainty in cost estimates results from the variety and
complexity of financial structures that may be presented to the CDFI
Bond Guarantee Program during the application process. Complex legal
structures, Credit Enhancements, and tailored provisions in each
Agreement to Guarantee may result in vastly different administrative
burdens for the Eligible CDFI, as well as
[[Page 8310]]
the CDFI Fund. Depending upon the structure and composition of Eligible
CDFIs that may pool together for a minimum $100 million Bond Issue,
non-monetized costs may vary greatly based on necessary legal counsel,
labor hours of staff, travel requirements, and other overhead costs.
Further, the increased burden of compliance costs by participating
Eligible CDFIs will depend on the degree of sophistication and ability
of each organization's management, staff, and information systems to
process and submit data required throughout the life of the program.
B. Regulatory Flexibility Act
Because no notice of proposed rulemaking is required under the
Administrative Procedure Act (5 U.S.C 553) or any other law, the
Regulatory Flexibility Act does not apply.
C. Paperwork Reduction Act
The collection of information contained in the interim rule will be
separately submitted to the Office of Management and Budget (OMB) in
accordance with the Paperwork Reduction Act of 1995 (PRA) for approval
and issuance of an OMB Control Number. Under the PRA, an agency may not
conduct or sponsor, and an individual is not required to respond to, a
collection of information unless it displays a valid OMB control
number. The CDFI Fund will publish a PRA Notice in the Federal Register
to solicit comments on the information collections. In the PRA Notice
published in the Federal Register, the CDFI Fund will specifically
invite comments on: (a) Whether the collection of information is
necessary for the proper performance of the functions of the CDFI Fund,
including whether the information shall have practical utility; (b) the
accuracy of the CDFI Fund's estimate of the burden of the collection of
information; (c) ways to enhance the quality, utility, and clarity of
the information to be collected; (d) ways to minimize the burden of the
collection of information on respondents, including through the use of
technology; and (e) estimates of capital or start-up costs and costs of
operation, maintenance, and purchase of services to provide
information.
The CDFI Fund will solicit public comment on each of these issues
for the following sections of this document that contain information
collection (ICs):
1. ICs Regarding the Application Process (12 CFR 1808.401). This
section provides the requirements for the Qualified Issuer Application
and Guarantee Application. For the Qualified Issuer Application, the
estimated burden for Qualified Issuer applicants is 240 hours. The
estimated number of Qualified Issuer respondents is 10 per year. The
estimated total annual burden regarding the Qualified Issuer
Application process is 2,400 hours. For the Guarantee Application, the
estimated burden for Qualified Issuer applicants is 240 hours. The
estimated burden for Eligible CDFI applicants is 50 hours. The
estimated number of Qualified Issuer respondents is 10 per year. The
estimated number of Eligible CDFI respondents is 100 per year. The
estimated total annual burden regarding the Guarantee Application
process is 7,400 hours. These estimates may be revised in the final PRA
Notices published in the Federal Register.
2. ICs Regarding Reporting Requirements (12 CFR 1808.619). This
section provides the reporting requirements for the Qualified Issuer
and Eligible CDFI participants. The estimated burden for a Qualified
Issuer participant is 80 hours, consisting of monthly, quarterly, and
annual reporting. The estimated burden for Eligible CDFI participants
is 86 hours, consisting of monthly, quarterly, and annual reporting.
The estimated number of Qualified Issuer participants is 5 per year.
The estimated number of Eligible CDFI participants is 50 per year. The
estimated total annual burden regarding the reporting requirements is
4,700 hours. These estimates may be revised in the final PRA Notices
published in the Federal Register.
Comments concerning suggestions for reducing the burden of
collections of information should be directed by mail to the Deputy
Director, CDFI Fund, Department of the Treasury, 1500 Pennsylvania
Avenue NW, Washington, DC 20220, and to the Office of Management and
Budget, Attention: Desk Officer for Department of the Treasury, Office
of Information and Regulatory Affairs, Washington, DC 20503.
D. National Environmental Policy Act
The interim rule has been reviewed in accordance with 12 CFR part
1815, the CDFI Fund's environmental quality regulations published
pursuant to the National Environmental Protection Act of 1969 (NEPA),
which require that the CDFI Fund adequately consider the cumulative
impact proposed activities have upon the human environment. It is the
determination of the CDFI Fund that the interim rule does not
constitute a major Federal action significantly affecting the quality
of the human environment and, in accordance with NEPA and the CDFI
Fund's environmental quality regulations at 12 CFR part 1815, neither
an Environmental Assessment nor an Environmental Impact Statement is
required.
E. Administrative Procedure Act
Pursuant to authority at 5 U.S.C. 553(a)(2), the interim rule
related to loans is exempt from the rulemaking requirements of the
Administrative Procedure Act, 5 U.S.C. 551 et seq., including the
requirement to provide prior notice and an opportunity for public
comment.
List of Subjects in 12 CFR Part 1808
Community development, Guaranteed bonds, Guaranteed loans, Loan
programs--housing and community development, Reporting and record
keeping requirements.
For the reasons set forth in the preamble, 12 CFR chapter XVIII is
amended by adding part 1808 to read as follows:
PART 1808--COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS BOND
GUARANTEE PROGRAM
Subpart A--General Provisions
Sec.
1808.100 Purpose.
1808.101 Summary.
1808.102 Definitions.
1808.103 Participant not instrumentality.
1808.104 Deviations.
1808.105 Relationship to other CDFI Fund programs.
1808.106 OMB control number.
Subpart B--Eligibility
1808.200 Qualified Issuers.
1808.201 Designated Bonding Authority.
1808.202 Eligible CDFIs.
Subpart C--Interest Rates; Terms and Conditions of Bonds, Bond Loans,
and Secondary Loans
1808.300 Interest rates.
1808.301 Eligible uses of Bond Proceeds.
1808.302 Bond terms and conditions.
1808.303 Risk-Share Pool.
1808.304 Eligible uses of Bond Loan proceeds.
1808.305 Bond Loan terms and conditions.
1808.306 Conditions precedent to Bond and Bond Loan.
1808.307 Secondary Loan Eligible Purposes; Terms and conditions.
1808.308 Relending Fund; Relending Account.
1808.309 Restrictions on uses of Bond Proceeds and Bond Loan
proceeds.
Subpart D--Applications for Guarantee and Qualified Issuer
1808.400 Notice of Guarantee Availability.
1808.401 Application requirements.
[[Page 8311]]
Subpart E--Evaluation and Selection
1808.500 Evaluation of Qualified Issuer Applications.
1808.501 Evaluation of Guarantee Applications.
1808.502 Evaluation of Designated Bonding Authority Applications.
1808.503 Consultation with Appropriate Regulatory Agencies.
1808.504 Selection of Qualified Issuers; Approval for Guarantee.
Subpart F--Terms and Conditions of Guarantee
1808.600 Full faith and credit and incontestability of Guarantee.
1808.601 Assignment and transfer of Guarantee.
1808.602 Offer of Guarantee.
1808.603 Issuance of Guarantee.
1808.604 Agreement to Guarantee.
1808.605 Agency Administrative Fee.
1808.606 Program Administrator; Servicer; Master Servicer/Trustee.
1808.607 Representations and warranties of Qualified Issuer with
respect to Guarantee.
1808.608 Representations and warranties of Eligible CDFI with
respect to each Bond Loan.
1808.609 Representations and warranties of Secondary Borrower.
1808.610 Covenants of Qualified Issuer with respect to Guarantee.
1808.611 Covenants of Eligible CDFI with respect to Bond and each
Bond Loan.
1808.612 Specific financial covenants of Eligible CDFI.
1808.613 Negative covenants of Eligible CDFI.
1808.614 Covenants of Secondary Borrower with respect to Secondary
Loan.
1808.615 Negative covenants of Secondary Borrower.
1808.616 Events of default and remedies with respect to Bonds.
1808.617 Events of default and remedies with respect to Bond Loans.
1808.618 Events of default and remedies with respect to Secondary
Loans.
1808.619 Reporting requirements.
1808.620 Investments in Guaranteed Bonds ineligible for Community
Reinvestment Act Purposes.
1808.621 Conflict of interest requirements.
1808.622 Compliance with government requirements.
1808.623 Lobbying restrictions.
1808.624 Criminal provisions.
1808.625 CDFI Fund deemed not to control.
1808.626 Limitation on liability.
1808.627 Fraud, waste and abuse.
Authority: The Small Business Jobs Act of 2010, Pub. L. 111-240,
Sec. Sec. 1134 and 1703; 12 U.S.C. 4713a.
Subpart A--General Provisions
Sec. 1808.100 Purpose.
The purpose of the Community Development Financial Institutions
(CDFI) Bond Guarantee Program is to support CDFI lending by providing
Guarantees for Bonds issued as part of a Bond Issue for Eligible
Community or Economic Development Purposes, as authorized by sections
1134 and 1703 of the Small Business Jobs Act of 2010 (Pub. L. 111-240;
12 U.S.C. 4713a).
Sec. 1808.101 Summary.
This section provides a summary overview of certain key provisions
of the interim rule, the detailed requirements of which are set forth
in subsequent subparts.
(a) Guarantee. Through the CDFI Bond Guarantee Program, the
Guarantor will provide a Guarantee for Bonds issued by Qualified
Issuers as part of a Bond Issue.
(b) Bonds. Pursuant to the Act at 12 U.S.C. 4713a(e), a Bond Issue
shall comprise Bonds having a minimum aggregate principal amount of
$100,000,000 and a maximum aggregate principal amount of
$1,000,000,000. The principal amount of each Bond (or series of Bonds)
shall not be less than $10,000,000. A Bond Rate for each advance of
funds under a Bond will be established by the Bond Purchaser as of the
date of the respective advance, as provided in the Bond.
(c) Bond Loans to Eligible CDFIs. The Qualified Issuer will use
Bond Proceeds to make Bond Loans to Eligible CDFIs for Eligible
Purposes, as those terms are defined in section 1808.102. The CDFI Fund
will evaluate each Eligible CDFI using standard Bond Loan Requirements
to assess their creditworthiness and capacity to receive a Bond Loan.
Each Eligible CDFI may borrow a Bond Loan in an amount that is at least
$10,000,000. The Bond Loan Rate shall be the same as the Bond Rate on
the particular advance of funds under the Bond that funds the Bond
Loan. The aggregate of the principal amounts of the Bond Loans must not
exceed the maximum principal amount of the corresponding Bond Issue.
The Qualified Issuer must execute Bond Loan documents for 100 percent
of the principal amount of each Bond on the Bond Issue Date. Bond Loan
proceeds may not be drawn down from the Qualified Issuer until the
Eligible CDFI has an immediate use for the Bond Loan proceeds. Five
percent, or such other amount that is determined by the CDFI Fund in
its sole discretion, of Bond Loan proceeds may be used by an Eligible
CDFI to capitalize Loan Loss Reserves.
(d) Secondary Loans to Secondary Borrowers. If the Eligible CDFI
uses Bond Loan proceeds to make Secondary Loans, the Eligible CDFI must
execute Secondary Loan documents (in the form of promissory notes) with
Secondary Borrowers as follows:
(1) Not later than 12 months after the Bond Issue Date, Secondary
Loan documents representing at least 50 percent of such Eligible CDFI's
Bond Loan proceeds allocated for Secondary Loans; and
(2) Not later than 24 months after the Bond Issue Date, Secondary
Loan documents representing 100 percent of such Eligible CDFI's Bond
Loan proceeds allocated for Secondary Loans (excluding any amounts used
for payment of Bond Issuance Fees pursuant to section 1808.304(b)).
(e) Terms and conditions. Bonds, Bond Loans and Secondary Loans
shall have terms and conditions as set forth in Subpart F of this
interim rule including at a minimum, that:
(1) Each Bond shall be a nonrecourse obligation of the Qualified
Issuer, payable solely from amounts available pursuant to the Bond
Documents. Each promissory note evidencing a Bond Loan shall be a
general recourse obligation of the Eligible CDFI and secured by a first
lien on collateral. Each Secondary Loan shall be secured by a first
lien on collateral and payable solely from amounts available pursuant
to the Secondary Loan documents;
(2) The maturity date of a Bond shall not be later than 30 years
after the Bond Issue Date. The maturity date of Bond Loans and
Secondary Loans may be earlier than, but may not be later than, the
maturity date of the corresponding Bond;
(3) The Bonds shall be purchased by the Bond Purchaser on terms and
conditions that are satisfactory to the Bond Purchaser, the Guarantor,
and the CDFI Fund (under specific requirements set forth in Sec.
1808.302 and the Bond Documents); and
(4) The Guarantor shall guarantee payments on Bonds issued as part
of a Bond Issue in such forms and on such terms and conditions and
subject to such covenants, representations, warranties and requirements
(including requirements for audits) as set forth in this interim rule
in Subpart F. These requirements may be expanded upon through the
program's Notice of Guarantee Availability, the Bond Documents, and the
Bond Loan documents. The Qualified Issuer shall enter into the
applicable Bond Documents to evidence its acceptance of the terms and
conditions of the Guarantee.
Sec. 1808.102 Definitions.
For purposes of this part, capitalized terms used herein and not
defined elsewhere are defined as follows:
[[Page 8312]]
(a) Act means the Small Business Jobs Act of 2010, Pub. L. 111-240,
sections 1134 and 1703, 12 U.S.C. 4713a;
(b) Affiliate means any entity that Controls, is Controlled by, or
is under common Control with, another entity. Control is defined as:
(1) Ownership, control or power to vote 25 percent or more of the
outstanding shares of any class of Voting Securities (as that term is
defined in 12 CFR 1805.104(mm)) of any legal entity, directly or
indirectly or acting through one or more other persons; or
(2) Control in any manner over the election of a majority of the
directors, trustees, or general partners (or individuals exercising
similar functions) of any legal entity; or
(3) The power to exercise, directly or indirectly, a controlling
influence, as determined by the CDFI Fund, over the management, credit
decisions, investment decisions, or policies of any legal entity;
(c) Agency Administrative Fee means a fee in an amount equal to 10
basis points (0.1 percent) of the amount of the unpaid principal of the
Bond Issue, payable annually to the CDFI Fund by a Qualified Issuer;
(d) Agreement to Guarantee means the written agreement between the
Guarantor and the Qualified Issuer which sets forth the terms and
conditions on which the Guarantor will provide the Guarantee;
(e) Appropriate Federal Banking Agency has the same meaning as in
section 3 of the Federal Deposit Insurance Act, 12 U.S.C. 1813(q), and
includes, with respect to an Insured Credit Union (as such term is
defined in 12 CFR 1805.104(bb)), the National Credit Union
Administration;
(f) Appropriate State Agency means an agency or instrumentality of
a State that regulates and/or insures the member accounts of a State-
Insured Credit Union (as such term is defined in 12 CFR 1805.104(e));
(g) Bond means a security in the form of a draw-down bond or note
issued by the Qualified Issuer, with each advance of funds thereunder
bearing interest at an applicable Bond Rate established by the Bond
Purchaser in accordance with section 1808.300 of this part, and sold to
the Bond Purchaser, the proceeds of which will be used for Eligible
Purposes, and which benefit from a Guarantee;
(h) Bond Documents mean, for each Bond, the respective Bond, Bond
Trust Indenture, Agreement to Guarantee, Bond purchase agreement, and
all other instruments and documentation pertaining to the issuance of
the Bond;
(i) Bond Issuance Fees mean amounts paid by an Eligible CDFI for
reasonable and appropriate expenses, administrative costs, and fees for
services incurred in connection with the issuance of the Bond (but not
including the Agency Administrative Fee) and the making of the Bond
Loan;
(j) Bond Issue means at least $100,000,000, and no more than
$1,000,000,000, in aggregate principal amount of Bonds secured by a
single Guarantee; each Bond (or series of Bonds) in the Bond Issue
being in the minimum principal amount of at least $10,000,000;
(k) Bond Issue Date means the date on which the Bond is deemed to
be issued or originated;
(l) Bond Loan means a loan of Bond Proceeds by a Qualified Issuer
to an Eligible CDFI. A Bond Loan must be in an initial principal amount
that is not less than $10,000,000, and Bond Loan proceeds must be used
for Eligible Purposes;
(m) Bond Loan Payment Default Rate means, in the event of a Bond
Loan payment default, the applicable interest rate on any overdue
amount from its due date to the date of actual payment and shall be
calculated in the same manner as a late charge rate is calculated in
the underlying Bond;
(n) Bond Loan Rate means the rate of interest for each advance of
funds under a Bond Loan, which shall be the same as the Bond Rate;
(o) Bond Loan Requirements means the credit criteria, established
by the CDFI Fund, for assessing the creditworthiness and capacity of
each Eligible CDFI applicant to receive a Bond Loan;
(p) Bond Proceeds means the funds that are advanced by the Bond
Purchaser to the Qualified Issuer under a Bond;
(q) Bond Purchaser (or Bondholder) means the Federal Financing
Bank, the body corporate and instrumentality of the Federal Government
created by the Federal Financing Bank Act of 1973 (12 U.S.C. 2281 et
seq.);
(r) Bond Rate means the rate of interest for each advance of funds
under a Bond;
(s) Bond Trust Indenture means the agreement between the Qualified
Issuer and the Master Servicer/Trustee that sets forth the rights,
duties, responsibilities and remedies of the Qualified Issuer and
Master Servicer/Trustee with respect to the Bonds, to include
responsibilities regarding the management of the collateral, the
management of the funds and accounts, the repayment and redemption of
the Bonds, and the circumstances and processes surrounding any default;
(t) Capital Distribution Plan means the component of the Guarantee
Application that demonstrates the Qualified Issuer's comprehensive plan
for lending, disbursing, servicing, and monitoring each Bond Loan and
that meets the requirements of Sec. 1808.401 of this interim rule and
such other requirements as may be designated in the applicable Notice
of Guarantee Availability. The Capital Distribution Plan includes,
among other components (specified in Sec. 1808.401 of this interim
rule), a Statement of Proposed Sources and Uses of Funds, and shall
include one or more Secondary Capital Distribution Plans;
(u) CDFI Bond Guarantee Program (or Program) means the program of
providing Guarantees for Bonds issued as part of a Bond Issue by
Qualified Issuers to make Bond Loans to Eligible CDFIs for Eligible
Purposes, as authorized by subsections 1134 and 1703 of the Act (12
U.S.C. 4713a), and implemented under this part;
(v) Certified Community Development Financial Institution (or
Certified CDFI) means a financing entity that has a primary mission of
promoting community development and that has been certified by the CDFI
Fund as meeting the eligibility requirements set forth in 12 CFR
1805.201;
(w) Community Development Financial Institutions Fund (or CDFI
Fund) means the Community Development Financial Institutions Fund, a
wholly owned government corporation within the U.S. Department of the
Treasury, established under the Riegle Community Development Banking
and Financial Institutions Act of 1994 (12 U.S.C. 4701 et seq.), as
amended;
(x) Credit Enhancement means such instrument or document proffered
by an Eligible CDFI to enhance the credit quality of a Bond and/or Bond
Loan. Credit Enhancements may include, but are not limited to, pledges
of financial resources and lines and letters of credit issued by: an
Eligible CDFI; an Affiliate; a regulated financial institution; a
foundation; or another entity. The Risk-Share Pool is not a form of
Credit Enhancement;
(y) Department Opinion means an internal opinion by the CDFI Fund
regarding compliance by the Qualified Issuer with the requirements for
approval of a Guarantee;
(z) Designated Bonding Authority (or DBA) means a Qualified Issuer
selected by the CDFI Fund to issue Bonds on behalf of certain Eligible
CDFIs and
[[Page 8313]]
make Bond Loans to such Eligible CDFIs, pursuant to this interim rule;
(aa) Eligible Community Development Financial Institution (or
Eligible CDFI) means a Certified CDFI that has submitted an application
to a Qualified Issuer for a Bond Loan, has been deemed creditworthy
based on the Bond Loan Requirements, and has received a Bond Loan;
(bb) Eligible Community or Economic Development Purpose (or
Eligible Purpose) means the allowable uses of Bond Proceeds and Bond
Loan proceeds, which includes financing or Refinancing for community or
economic development purposes described in 12 U.S.C. 4707(b), including
but not limited to community or economic development purposes in Low-
Income Areas or Underserved Rural Areas, as deemed eligible by the CDFI
Fund in its sole discretion; Bond Issuance Fees in an amount not to
exceed one percent of Bond Loan proceeds; and capitalization of Loan
Loss Reserves in an amount that is up to five percent of the par amount
of the Bond Loan, or such other amount that is determined by the CDFI
Fund in its sole discretion;
(cc) Guarantee means the guarantee by the Guarantor, pursuant to an
Agreement to Guarantee, of the repayment of 100 percent of the
Verifiable Losses of Principal, Interest, and Call Premium, if any, on
the corresponding Bonds issued as part of a Bond Issue; each Guarantee
shall be for a Bond Issue of at least $100,000,000, plus the related
interest and call premiums;
(dd) Guarantee Application means the application document that a
Qualified Issuer submits in order to apply for a Guarantee;
(ee) Guarantor means the Secretary of the Treasury or the
Secretary's designee;
(ff) Investment Area means a geographic area meeting the
requirements of 12 CFR 1805.201(b)(3)(ii);
(gg) Loan Loss Reserves means the use of Bond Loan proceeds
(secured by a Principal Loss Collateral Provision) for a set aside in
the form of cash reserves that serve as a safeguard to protect the
Eligible CDFI against future losses for any loans for community or
economic development purposes described in 12 U.S.C. 4707 (b),
including community or economic development purposes in Low-Income
Areas or Underserved Rural Areas, within the Eligible CDFI's portfolio;
(hh) Low-Income means an income, adjusted for family size, of not
more than: (1) for Metropolitan Areas, 80 percent of the area median
family income; and (2) for non-Metropolitan Areas, the greater of: (1)
80 percent of the area median family income; or (2) 80 percent of the
Statewide non-Metropolitan Area median family income;
(ii) Low-Income Area means a census tract or block numbering area
in which the median income does not exceed 80 percent of the median
income for the area in which such census tract or block numbering area
is located. With respect to a census tract or block numbering area
located within a Metropolitan Area, the median family income shall be
at or below 80 percent of the Metropolitan Area median family income or
the national Metropolitan Area median family income, whichever is
greater. In the case of a census tract or block numbering area located
outside of a Metropolitan Area, the median family income shall be at or
below 80 percent of the statewide non-Metropolitan Area median family
income or the national non-Metropolitan Area median family income,
whichever is greater;
(jj) Master Servicer/Trustee means a third party trust company or
financial institution that is in the business of administering
facilities similar to the Bonds and Bond Loans, has been deemed
acceptable by the CDFI Fund, and whose duties include, among others,
exercising fiduciary powers to enforce the terms of Bonds and Bond
Loans pursuant to the Bond Trust Indenture entered into by and between
the Master Servicer/Trustee and the Qualified Issuer, overseeing the
activities of Servicers, and facilitating Bond principal and interest
payments to the Bond Purchaser;
(kk) Metropolitan Area means an area that contains an urban core
based statistical area of 50,000 or more population and is designated
as such by the Office of Management and Budget pursuant to 44 U.S.C.
3504(e), 31 U.S.C. 1104(d) and Executive Order 10253 (3 CFR, 1949-1953
Comp., p. 758), as amended;
(ll) Notice of Guarantee Availability (or NOGA) means the notice,
published by the CDFI Fund, that announces to all interested parties
the opportunity to submit Qualified Issuer Applications and Guarantee
Applications pursuant sections 1808.400 and 1808.401 of this interim
rule;
(mm) Principal Loss Collateral Provision means a cash or cash
equivalent guarantee or facility provided in lieu of pledged collateral
set forth in the Bond Documents and Bond Loan documents;
(nn) Program Administrator means the Qualified Issuer, or an entity
designated by the Qualified Issuer and approved by the CDFI Fund, that
performs certain administrative duties related to application
preparation, compliance monitoring, and reporting, as well as other
duties set forth under section 1808.606 of this interim rule;
(oo) Qualified Issuer means a Certified CDFI, or any entity
designated by a Certified CDFI to issue Bonds on its behalf, that meets
the qualification requirements set forth in section 1808.200 of this
interim rule, and that has been approved as such by the CDFI Fund
pursuant to review and evaluation of the Qualified Issuer Application;
(pp) Qualified Issuer Application means the application document
that a Certified CDFI (or any entity designated by a Certified CDFI to
issue Bonds on its behalf) submits to the CDFI Fund in order to be
approved as a Qualified Issuer prior to, or simultaneously with, a
Guarantee Application;
(qq) Qualified Secondary Loan Receivable means payment receivables
from the Secondary Loan(s) relating to the corresponding Bond Loan;
(rr) Refinance (or Refinancing) means the use of Bond Proceeds to
refinance an Eligible CDFI's or Secondary Borrower's existing loan,
which must have been used for an Eligible Purpose;
(ss) Relending Fund means the fund maintained by the Master
Servicer/Trustee to allow an Eligible CDFI to relend Secondary Loan
repayments for Eligible Purposes, not to exceed 10 percent of the
principal amount outstanding of the Bonds, minus the Risk Share Pool;
the Relending Fund will include a Relending Account for each Bond
Issue; and each Relending Account will include a Relending Subaccount
for each Bond Loan;
(tt) Risk-Share Pool means an account maintained by the Master
Servicer/Trustee throughout the term of a Guarantee to cover losses
before the Guarantee is exercised; the Risk-Share Pool is capitalized
by pro rata payments equal to three percent of the amount disbursed on
the Bonds from all Eligible CDFIs within a Bond Issue; payments must be
funded at each disbursement under the Bond and associated Bond Loan;
amounts in the Risk-Share Pool will not be returned to the Eligible
CDFIs until maturity of all of the Bonds, and termination of all Bond
Loans, within a Bond Issue;
(uu) Secondary Borrower means an entity that has made application
to the Eligible CDFI for a Secondary Loan, been deemed creditworthy by
the Eligible CDFI, meets the criteria set forth in the applicable
Secondary Loan Requirements to receive a Secondary Loan, and has
received a Secondary Loan;
[[Page 8314]]
(vv) Secondary Capital Distribution Plan means the component of the
Capital Distribution Plan that pertains to the making of Secondary
Loans, demonstrates the Eligible CDFI's comprehensive plan for lending,
disbursing, servicing and monitoring Secondary Loans, includes a
description of how the proposed Secondary Loan will meet Eligible
Purposes and meets such other the requirements as may be designated in
the applicable Notice of Guarantee Availability;
(ww) Secondary Loan means the use of Bond Loan proceeds by an
Eligible CDFI to finance or Refinance a loan to a Secondary Borrower
for Eligible Purposes, which meets the applicable Secondary Loan
Requirements;
(xx) Secondary Loan Requirements mean the minimum required criteria
used by each Eligible CDFI (in addition to the Eligible CDFI's
underwriting criteria) to evaluate a request by a Secondary Borrower
applicant for a Secondary Loan. The Secondary Loan Requirements will be
established by the CDFI Fund and incorporated into the Bond Loan
documents;
(yy) Servicer means the Qualified Issuer, or an entity designated
by the Qualified Issuer and approved by the CDFI Fund, to perform
various Bond Loan servicing duties, as set forth in this part;
(zz) Special Servicer means the Master Servicer/Trustee, or an
entity designated by the Master Servicer/Trustee and approved by the
CDFI Fund, that performs certain administrative duties related to the
restructuring of Bond Loans that are in or about to enter into an event
of default as well as other duties set forth under section 1808.606(d)
of this interim rule;
(aaa) State means any of the States of the United States, the
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth
of the Northern Mariana Island, Guam, the Virgin Islands, American
Samoa, the Trust Territory of the Pacific Islands, and any other
territory of the United States;
(bbb) Statement of Proposed Sources and Uses of Funds means the
component of the Guarantee Application that describes the proposed uses
of Bond Proceeds and the proposed sources of funds to repay principal
and interest on the Bonds and the Bond Loans;
(ccc) Targeted Population means individuals or an identifiable
group of individuals who are Low-Income persons or lack adequate access
to Financial Products or Financial Services and meet the requirements
of 12 CFR 1805.201(b)(3)(iii);
(ddd) Trust Estate means the Bond Loan agreement and promissory
notes evidencing the Bond Loan, all funds and accounts related to the
Bonds and held by the Master Servicer/Trustee pursuant to the Bond
Trust Indenture including, but not limited to, the Revenue Accounts and
the Relending Accounts (as such terms are defined in subsection
1808.606(f)), and any additional collateral pledged directly by the
Eligible CDFI;
(eee) Underserved Rural Area means an area that has significant
unmet needs for loans, Equity Investments, or Financial Services (as
those terms are defined in 12 CFR 1805.104) and is not contained within
either a Consolidated Metropolitan Statistical Areas (CMSA) or Primary
Metropolitan Statistical Areas (PMSA), as such areas are defined in OMB
Bulletin No. 99-04 (Revised Statistical Definitions of Metropolitan
Areas (MAs) and Guidance on Uses of MA Definitions); and
(fff) Verifiable Losses of Principal, Interest, and Call Premium
means any portion of required debt payments related to or arising out
of a Bond and Bond Loan, or the enforcement of either of them, that the
Qualified Issuer is unable satisfy.
Sec. 1808.103 Participant not instrumentality.
No participant in the CDFI Bond Guarantee Program shall be deemed
to be an agency, department, or instrumentality of the United States.
Sec. 1808.104 Deviations.
To the extent that such requirements are not specified by statute,
the Secretary of the Treasury in consultation with the Office of
Management and Budget, may authorize deviations on an individual or
general basis from the requirements of this interim rule upon a finding
that such deviation is essential to program objectives, and the special
circumstances stated in the proposal make such deviation clearly in the
best interest of the Federal Government. All proposals must be in
writing and supported by a statement of the facts and the grounds
forming the basis of the deviation. For deviations of general
applicability, after a determination is made by the Secretary of the
Treasury based on the deviation proposal, the CDFI Fund must publish
notification of granted deviations in the Federal Register. Any
deviation that was not captured in the original credit subsidy cost
estimate will require either additional fees, or discretionary
appropriations to cover the cost.
Sec. 1808.105 Relationship to other CDFI Fund programs.
Award funds received under any other CDFI Fund program cannot be
used by any participant, including Qualified Issuers, Eligible CDFIs
and Secondary Borrowers, to pay principal, interest, fees,
administrative costs, or issuance costs (including Bond Issuance Fees)
related to the CDFI Bond Guarantee Program, or to fund the Risk-Share
Pool.
Sec. 1808.106 OMB control number.
The collection of information requirements in this part are subject
to the review of the Office of Management and Budget (OMB).
Subpart B--Eligibility
Sec. 1808.200 Qualified Issuers.
(a) Requirements and qualifications. An applicant shall be deemed a
Qualified Issuer if it is determined, in writing by the CDFI Fund, to
meet the following criteria:
(1) The applicant must be a Certified CDFI, or an entity designated
by a Certified CDFI to issue Bonds on its behalf;
(2) The applicant must have appropriate expertise, capacity, and
experience, or otherwise be qualified to issue Bonds for Eligible
Purposes;
(3) The applicant must have appropriate expertise, capacity, and
experience, or otherwise be qualified to make Bond Loans for Eligible
Purposes;
(4) The applicant must have appropriate expertise, capacity, and
experience to serve or have identified qualified entities that will
serve as its Program Administrator and Servicer; and
(5) The applicant must meet such other criteria as may be required
by the CDFI Fund pursuant to this interim rule and the applicable
Notice of Guarantee Availability.
(b) Approval. The designation of an applicant as a Qualified Issuer
does not ensure that the Guarantor will approve a Guarantee Application
or issue a Guarantee. In order for the Guarantor to approve a Qualified
Issuer's Guarantee Application, the Qualified Issuer must meet all
applicable Guarantee Application requirements including, but not
limited to, creditworthiness and other requirements.
(c) Qualified Issuer responsibilities. The responsibilities of a
Qualified Issuer shall include, but are not limited to:
(1) Preparing and submitting the Guarantee Application on behalf of
Eligible CDFI applicants that designated it to serve as Qualified
Issuer, including providing any additional information needed for
review by the CDFI Fund;
[[Page 8315]]
(2) During the CDFI Fund's review and evaluation of the Guarantee
Application, serving as primary point of contact between the CDFI Fund
and the Eligible CDFI applicants that designated the Qualified Issuer
to serve on their behalf;
(3) Issuing the Bond for purchase by the Bond Purchaser;
(4) Making Bond Loans to Eligible CDFIs, ensuring that 100 percent
of Bond Proceeds are used to make Bond Loans;
(5) Charging interest on the Bond Loans as set forth in this
interim rule and Bond Loan documents, and providing for such a schedule
of repayment of Bond Loans as will, upon the timely repayment of the
Bond Loans, provide adequate and timely funds for the payment of
principal and interest on the Bonds;
(6) During the duration of the Bonds and the Bond Loans, serving as
primary point of contact between the CDFI Fund and Eligible CDFIs;
(7) Overseeing the work of, or serving in the capacity of, the
Program Administrator and Servicer;
(8) Enforcing the terms and requirements of the Bond Trust
Indenture including, but not limited to: ensuring the repayment of Bond
Loans in a timely manner pursuant to the terms of Bond Loan documents;
assigning delinquent Bond Loans to the Guarantor upon demand by the
CDFI Fund or the Guarantor; and ensuring that the Master Servicer/
Trustee establishes and maintains the Risk-Share Pool throughout the
term of the Guarantee;
(9) Reviewing collateral and Credit Enhancement requirements for
each Bond Loan and providing information on such collateral and Credit
Enhancement, as requested, to the CDFI Fund;
(10) Making payment of the Agency Administrative Fee to the CDFI
Fund;
(11) Submitting all required reports and additional documentation
(including reconciling financial data and Capital Distribution Plan
updates, as necessary); and
(12) Such other duties and responsibilities as the CDFI Fund, the
Guarantor, or the Bondholder may require.
(d) Bond Issuance Fees. The Qualified Issuer may charge Bond
Issuance Fees and all fees reasonable and necessary for administering
and servicing the Bonds or the Bond Loans, post issuance, to Eligible
CDFIs.
(e) Restriction. A Qualified Issuer may not receive a Bond Loan
under any Bond Issuance for which it serves as a Qualified Issuer.
Sec. 1808.201 Designated Bonding Authority.
(a) General. In its sole discretion, the CDFI Fund may solicit
Qualified Issuer Applications from entities proposing to serve as the
Designated Bonding Authority (DBA). The CDFI Bond Guarantee Program
shall only have one DBA at any given time. In order to be selected to
serve as the DBA, the entity must meet all qualifications of a
Qualified Issuer set forth in section 1808.200 of this interim rule;
additional qualifications may be set forth in the applicable NOGA as
determined by the CDFI Fund.
(b) Selection. The DBA will serve as a CDFI Fund-selected Qualified
Issuer and designated Qualified Issuer for Eligible CDFIs that do not
elect to designate another Qualified Issuer. The DBA will prepare and
submit a Guarantee Application on behalf of such Eligible CDFI
applicants, in accordance with such criteria set forth in this interim
rule, the applicable Notice of Guarantee Availability and the Qualified
Issuer Application.
Sec. 1808.202 Eligible CDFIs.
Each Eligible CDFI applicant seeking a Bond Loan must meet the
following criteria:
(a) Be certified by the CDFI Fund as meeting the eligibility
requirements set forth in 12 CFR 1805.201;
(b) Have the appropriate expertise, capacity, and experience, or
otherwise be qualified to use the proceeds of Bond Loans for Eligible
Purposes; and
(c) Meet such other criteria and requirements set forth in the
applicable Notice of Guarantee Availability, the Guarantee Application,
the Bond Loan Requirements, related Bond and Bond Loan documents, and
such other requirements of the CDFI Fund.
Subpart C--Interest Rates; Terms and Conditions of Bonds, Bond
Loans, and Secondary Loans
Sec. 1808.300 Interest rates.
(a) Interest rates. (1) A Bond Rate will be established by the Bond
Purchaser as of the date of the respective advance of funds, as
provided in the Bond. The Bond Rate for each advance of funds must be
fixed and consistent with Federal credit policies outlined in OMB
Circular A-129. The FFB, as Bond Purchaser, will set rates to the
borrower pursuant to section 6(b) of the Federal Financing Bank Act (12
U.S.C. 2285(b)) and the FFB Lending Policy. This rate will be indexed
to the appropriate Treasury rate based on the Treasury yield curve and
include a spread to be determined by the Bond Purchaser; variable Bond
Rates are not permitted.
(2) Interest on each advance of funds under a Bond shall be
computed as provided in the Bond.
(3) A principal and interest payment schedule will be determined
and provided to the Qualified Issuer for each advance of funds under a
Bond, based on the Bond Rate established for the respective advance.
The final principal and interest payment schedule for amounts due under
a Bond will be the aggregation of the individual principal and interest
payment schedules for all advances of funds under the Bond.
(4) The Bond Loan Rate shall be the same as the Bond Rate on the
particular advance of funds under the Bond that funds the Bond Loan.
(5) The rate of interest for each Secondary Loan shall be
established by the Eligible CDFI in accordance with subsection
1808.307(c), and may be subject to limitations specified in the
applicable NOGA.
(b) Bond Loan payment default interest rate. In the event of a
payment default on a Bond Loan, the Eligible CDFI shall pay interest on
any overdue amount from its due date to the date of actual payment at
the Bond Loan Payment Default Rate. The Bond Loan Payment Default Rate
shall be calculated in the same manner as a late charge is calculated
under the underlying Bond.
Sec. 1808.301 Eligible uses of Bond Proceeds.
Bond Proceeds must be used by a Qualified Issuer to finance Bond
Loans or Refinance loans to Eligible CDFIs for Eligible Purposes as
defined in section 1808.102 of this interim rule. A Qualified Issuer
that is also a Certified CDFI may not finance a Bond Loan to itself or
refinance its own loan. One hundred percent of the principal amount of
each Bond must be used to make Bond Loans. As a Bond Loan is repaid,
such repaid Bond Loan proceeds in excess of those required for debt
service payments on the Bond must be used to repay the Bond or held in
the Relending Account and used for additional Secondary Loans, to the
extent authorized under Sec. 1808.308.
Sec. 1808.302 Bond terms and conditions.
(a) Maturity date. As required by 12 U.S.C. 4713a(e)(1)(D), the
maturity date of a Bond shall not be later than 30 years after the Bond
Issue Date. The maturity date for any advance of funds under a Bond
shall not be later than the maturity date of the Bond.
(b) Nonrecourse obligation. Each Bond shall be a nonrecourse
obligation of the Qualified Issuer, payable solely
[[Page 8316]]
from amounts available pursuant to the Bond Documents.
(c) Terms. The Bonds may contain only terms that are consistent
with the lending policies and terms of the Bond Purchaser.
(d) No subordination. The Bonds or Bond Loans may not be
subordinated to any new or existing liability and effective
subordination of the Bonds or Bond Loans to tax-exempt obligations will
render the Guarantee void, in accordance with OMB Circular No. A-129
(Policies for Federal Credit Programs and Non-Tax Receivables) and
applicable provisions of the Internal Revenue Code.
(e) Other limitations. The CDFI Fund may impose other limitations
as appropriate to administer the CDFI Bond Guarantee Program including,
but not limited to, requiring Qualified Issuers to obtain Credit
Enhancement to safeguard against the risk of default.
(f) Terms for Bond issuance and disbursement of Bond Proceeds. (1)
The Qualified Issuer must execute Bond Loan documents for 100 percent
of the principal amount of each Bond on the Bond Issue Date. There will
be an annual assessment to determine whether the Qualified Issuer is
subject to the repayment provision established in 12 U.S.C.
4713a(c)(4). Terms and conditions for the annual assessment will be set
forth in the applicable Notice of Guarantee Availability.
(2) Disbursements of Bond Proceeds to the Qualified Issuer shall be
made pursuant to an advance request process established by the Bond
Purchaser and the CDFI Fund under which the Qualified Issuer shall
request an advance of funds under a Bond.
(g) Amortization of Bond. The principal amount of each advance of
funds under a Bond shall amortize in level debt service payments of
principal and interest, which payments shall be due either quarterly or
semi-annually, as determined by the Qualified Issuer and the Bond
Purchaser, and which shall begin on the first principal payment date
specified in the Bond, as determined by the Qualified Issuer and the
Bond Purchaser. Prior to the first principal payment date, interest
accrued shall be due on the payment dates specified in the Bond, as
determined by the Qualified Issuer and the Bond Purchaser.
(h) Optional prepayment of Bonds. All or a portion of any advance
of funds under a Bond, or the Bond in its entirety, may be prepaid by
the Qualified Issuer at any time. Any partial prepayment of an advance
shall be in an amount equal to at least $100,000 of principal. Each
partial prepayment of an advance of funds under a Bond shall be applied
in the manner set forth in the Bond. Any partial or full prepayment of
an advance of funds under a Bond shall be subject to the payment of a
prepayment price, as provided in the Bond Documents.
(i) Mandatory prepayment of Bonds. (1) Any Bond shall be subject to
mandatory prepayment if Bond Loans or Secondary Loans are not made in a
timely manner, as follows:
(i) On the Calculation Date (as defined in subsection 1808.308(e))
of each year, any amount retained in the Relending Subaccount that
exceeds the Relending Subaccount Maximum (as defined in subsection
1808.308(d)) by $100,000 or more shall be applied to prepay Bonds on
the next succeeding payment date.
(ii) Any amounts derived from the liquidation of collateral from
the Bond Loan and/or Secondary Loan in connection with the exercise by
the Guarantor, the Qualified Issuer or the Bondholder of remedies upon
default of the Bond Loan shall be applied, immediately upon
liquidation, in the following order (inclusive of reasonable fees and
expenses associated therewith):
(A) To the repayment of any amounts drawn under the Guarantee;
(B) To the prepayment of Bonds, in a like amount;
(C) To the replenishment of any funds drawn from the Risk-Share
Pool Fund; and
(D) To the Eligible CDFI for application in accordance with the
Secondary Loan documents.
(2) When an amount is required to be applied as a mandatory
prepayment of Bonds, the Qualified Issuer may select which advances of
funds under a Bond are to be prepaid. Any amount applied as a partial
prepayment of an advance under a Bond shall be applied as provided in
the Bond. Any partial or full prepayment of an advance of funds under a
Bond shall be subject to the payment of a prepayment price, as provided
in the Bond Documents.
Sec. 1808.303 Risk-Share Pool.
The Master Servicer/Trustee, on behalf of the Qualified Issuer and
for the benefit of the Bondholder, shall establish a Risk-Share Pool
that is funded at each disbursement of the Bond Loan proceeds by
payment from each Eligible CDFI in accordance with 12 U.S.C. 4713a(d).
The Risk-Share Pool must remain in place throughout the term of the
Guarantee. Amounts in the Risk Share Pool Fund will not be returned to
Eligible CDFIs until maturity of all of the Bonds, and termination of
all of the Bond Loans, within a Bond Issue.
(a) At each disbursement of the Bond Loan proceeds, each Eligible
CDFI shall deposit an amount that is equal to three percent of the
disbursement, for a total of three percent of the guaranteed amount
outstanding of the Bond, from monies other than Bond Loan proceeds,
into the applicable subaccount of the Risk-Share Pool Fund. Such monies
shall remain in said account throughout the term of the Bond.
(b) Any interest on a Bond Loan in excess of the Bond Loan Rate
derived by the Qualified Issuer during any period during which the Bond
Loan Payment Default Rate applies shall also be deposited in the Risk-
Share Pool Fund.
(c) The Risk-Share Pool Fund shall be applied by the Master
Servicer/Trustee to payments of debt service on the Bond Issue in the
event that the Eligible CDFI defaults in the corresponding payment of
debt service on the Bond Loan. The defaulted Eligible CDFI's deposit
shall be applied first to any such payment of debt service. After
depletion of the defaulted Eligible CDFI's deposit, each remaining
Eligible CDFI's deposit shall be applied prorata to any such payment of
debt service. Monies on deposit in the Risk-Share Pool Fund shall be
applied to such payments and shall be depleted in full prior to any
draw on the Guarantee.
(d) Eligible CDFIs (excluding the Eligible CDFI in default and
responsible for a draw) shall not be required to replenish the Risk-
Share Pool Fund in the event of a draw.
(e) The Risk Share Pool deposit shall be sufficient collateral to
secure any draw on Bond Loan proceeds related to the costs of issuance
pursuant to 1808.304(b).
(f) In the event of a payment default on the Bond Loan by an
Eligible CDFI, the Qualified Issuer shall notify the CDFI Fund and
request permission to draw from the Risk-Share Pool to cover any
default of principal and interest payments due to the Bond Purchaser.
(g) Amounts in the Risk Share Pool Fund will not be returned to
Eligible CDFIs until maturity of all of the Bonds, and termination of
all of the Bond Loans, within a Bond Issue. Upon maturity of all of the
Bonds, and termination of the Bond Loans, within a Bond Issue, the pro
rata amount of each Eligible CDFI's payments in the Risk-Share Pool
shall be returned to each Eligible CDFI; provided however, that such
Eligible CDFI has properly replenished any draws on the Risk-Share Pool
attributed to nonpayment of its Bond Loan and the corresponding Bond.
[[Page 8317]]
Sec. 1808.304 Eligible uses of Bond Loan proceeds.
(a) Eligible uses. Bond Loan proceeds shall be only used for
Eligible Purposes, to prefund one monthly installment of Bond Loan
payments, and to pay Bond Issuance Fees. As a Bond Loan is repaid, such
repaid Bond Loan proceeds must be held in the Relending Account and
used for additional Secondary Loans, to the extent authorized under
Sec. 1808.308.
(b) Bond Issuance Fees. (1) Amounts not to exceed one percent of
Bond Loan proceeds may be applied to pay Bond Issuance Fees. Bond Loan
proceeds that are used to pay Bond Issuance Fees shall be applied in
the following order of priority:
(i) To pay reasonable transaction fees and expenses of the
Qualified Issuer, its advisors and consultants, related to the Bond
issuance (but not including any salaries or administrative costs of the
Qualified Issuer unrelated to the Bond issuance);
(ii) To pay reasonable transaction fees and expenses of the Master
Servicer/Trustee, its advisors and consultants, related to the Bond
issuance; and
(iii) To pay reasonable transaction fees and expenses of the
Eligible CDFI, its advisors and consultants, related to the making of
the Bond Loan.
(2) Any fees and expenses arising out of each transaction which, in
the aggregate, exceed the one percent limit on Bond Issuance Fees
payable from Bond Loan proceeds must be paid by the Eligible CDFI from
monies other than Bond Loan proceeds.
(c) Prefunding of Bond Loan payments. Bond Loan proceeds may be
used to prefund one monthly installment of Bond Loan payments.
Sec. 1808.305 Bond Loan terms and conditions.
(a) Maturity date. The maturity date of a Bond Loan shall not be
later than 30 years after the Bond Issue Date. The maturity date of
Bond Loans may be earlier than, but may not be later than, the maturity
date of the corresponding Bond.
(b) Bond Loan general recourse obligation; Collateral. (1) The Bond
Loan shall be a general recourse obligation of the Eligible CDFI.
(2) The Bond Loan shall be further secured by a first lien of the
Master Servicer/Trustee, on behalf of the Bondholder, on:
(i) The Trust Estate;
(ii) Qualified Secondary Loan Receivables; and
(iii) Either:
(A) An assignment of the Secondary Loan collateral (other than a
Principal Loss Collateral Provision) from the Eligible CDFI to the
Master Servicer/Trustee; or
(B) Provision of a Principal Loss Collateral Provision for the
benefit of the Master Servicer/Trustee, in accordance with the Bond
Loan Requirements and the Secondary Loan Requirements, as applicable.
(3) The CDFI Fund may, in its sole discretion, approve alternative
forms of Bond Loan collateral.
(4) A parity first lien on pledged collateral may be accepted, in
the sole discretion of the CDFI Fund.
(5) If any collateral becomes non-performing during the term of the
Bond Loan, the Guarantor may require the applicable Eligible CDFI to
substitute other collateral that is of equal quality to the initial
collateral, when performing, acceptable to the Guarantor in its sole
discretion.
(6) An Eligible CDFI's parent organization, Affiliate, or an entity
that is related to the Eligible CDFI through its management structure,
may assume limited recourse obligation for the Bond Loan if it provides
Credit Enhancement and/or pledges financial resources or such other
financial support or risk mitigation that would enhance the Eligible
CDFI's creditworthiness and its ability to repay the Bond Loan, thereby
decreasing the risk underlying the Guarantee.
(c) Disbursement of Bond Loan proceeds. (1) Bond Loans shall be
draw-down loans. Disbursements of Bond Loan proceeds to the Eligible
CDFI shall be made pursuant to a requisition process established by the
Bond Purchaser and the CDFI Fund, which shall include a process by
which the Qualified Issuer shall request an advance from the Bondholder
under the Bond and a process by which the Eligible CDFI shall request
disbursement from the Qualified Issuer.
(2) Each requisition shall be accompanied by invoices and
certifications by the Eligible CDFI (and the Secondary Borrower, if
applicable) as to expenditure of proceeds for Eligible Purposes.
(3) No Bond Loan proceeds may be disbursed later than 60 months
after the Bond Issue Date. Any Bond Loan proceeds not disbursed will
have been forfeited by the Eligible CDFI.
(4) Disbursements to capitalize the Eligible CDFI's Loan Loss
Reserves shall be made pursuant to a requisition process established by
the Qualified Issuer and the CDFI Fund.
(d) Amortization of Bond Loan. Each Bond Loan shall amortize in the
same manner as the corresponding Bond; provided that principal and/or
interest on each Bond Loan shall be payable to the Qualified Issuer in
monthly installments based on the required quarterly or semi-annual
installments, as applicable, due on the corresponding Bond; provided
further, that each Eligible CDFI shall prefund one monthly payment
installment not later than the thirtieth day prior to the first payment
date of the corresponding Bond so that on the thirtieth day prior to
such Bond payment date, the Eligible CDFI shall have paid in full all
amounts due on the Bond payment date.
(e) Optional prepayment of Bond Loan. The Bond Loan shall be
subject to prepayment, in whole or in part, at the option of the
Eligible CDFI in accordance with the optional prepayment provisions of
the corresponding Bond (including the required prepayment minimums of
$100,000) and shall be subject to the payment of a prepayment price, as
determined by the Bondholder in accordance with the corresponding Bond.
(f) Mandatory prepayment of Bond Loan. The Bond Loan shall be
subject to mandatory prepayment by the Eligible CDFI in accordance with
the mandatory prepayment provisions of the corresponding Bond.
Sec. 1808.306 Conditions precedent to Bond and Bond Loan.
The ability of the Qualified Issuer to issue a Bond and make a Bond
Loan shall be subject to the satisfaction of the following conditions
precedent:
(a) Evidence satisfactory to the Qualified Issuer that the Eligible
CDFI will comply with the terms and conditions of the Bond Loan
documents, including repayment of the Bond Loan;
(b) Evidence satisfactory to the Qualified Issuer, the Guarantor,
and the CDFI Fund that the Eligible CDFI has the authority to enter
into the Bond Loan, has secured the Credit Enhancement, if any,
demonstrated a reasonable prospect of repayment of the Bond Loan, and
pledged the collateral (including executed security documents, UCC-1
financing statements or mortgages, as applicable);
(c) A Guarantee Application that has been approved by the
Guarantor;
(d) A satisfactory credit review by the CDFI Fund and in compliance
with the Bond Loan Requirements, including submission of complete and
accurate Guarantee Application materials, submitted in a timely manner,
demonstrating the Eligible CDFI's ability to repay the Bond Loan;
(e) Opinions of legal counsel to the Qualified Issuer and the
Eligible CDFI;
(f) Executed Bond Loan documents;
[[Page 8318]]
(g) Organizational documents of the Eligible CDFI;
(h) Certifications by the Qualified Issuer and Eligible CDFIs that
Bond Proceeds and Bond Loan proceeds will not be used for lobbying by
recipients of Federal loans or guarantees;
(i) A statement that no default, event of default, or due and
unsatisfied liability has occurred and is continuing with respect to
any obligations of the Qualified Issuer and each Eligible CDFI to the
CDFI Fund, the Guarantor, the Bond Purchaser, the U.S. Internal Revenue
Service, or any other agency, authority or instrumentality of the
Federal Government; and
(j) Any other conditions precedent set forth in the Bond Loan
documents, including documentation that any credit enhancements have
been secured by the Eligible CDFI.
Sec. 1808.307 Secondary Loan Eligible Purposes; Terms and conditions.
(a) Eligible Purposes. Eligible CDFIs must make Secondary Loans for
Eligible Purposes. Secondary Loan proceeds may not be used to
capitalize loan loss reserves.
(b) Making Secondary Loans. (1) If the Eligible CDFI uses Bond Loan
proceeds to make Secondary Loans, the Eligible CDFI must execute
Secondary Loan documents (in the form of promissory notes) with
Secondary Borrowers as follows:
(i) Not later than 12 months after the Bond Issue Date, Secondary
Loan documents representing at least 50 percent of the Eligible CDFIs'
Bond Loan proceeds allocated for Secondary Loans; and
(ii) Not later than 24 months after the Bond Issue Date, Secondary
Loan documents representing 100 percent of the Eligible CDFIs' Bond
Loan proceeds allocated for Secondary Loans (excluding any amounts used
for payment of Bond Issuance Fees pursuant to section 1808.304(b)).
(2) In the event that the Eligible CDFI does not comply with the
foregoing requirements of paragraphs (b)(1)(i) and (ii) of this
section, the available Bond Loan proceeds at the end of the applicable
period shall be reduced by an amount equal to the difference between
the amount required by paragraphs (b)(1)(i) and (ii) minus the amount
previously committed to the Secondary Loans in the applicable period.
Consistent with the corresponding Bond Loan, the Secondary Loans shall
be drawn down by the Secondary Borrowers upon demonstration of an
Eligible Purpose.
(c) Secondary Loan interest rate. The rate of interest with respect
to each Secondary Loan shall be determined by each Eligible CDFI in
accordance with the following limitations:
(1) With respect to each Secondary Loan, the Eligible CDFI will be
required to propose to the CDFI Fund:
(i) A minimum and maximum spread over the corresponding Bond Loan
Rate which will represent the standard minimum and maximum interest
rate (Minimum Secondary Loan Rate and Maximum Secondary Loan Rate,
respectively); and
(ii) A maximum spread over the Maximum Secondary Loan Rate in event
of a Secondary Loan default (Maximum Secondary Loan Default Spread).
(2) The CDFI Fund reserves the right to evaluate, approve, modify,
or disapprove the proposed Minimum Secondary Loan Rate, Maximum
Secondary Loan Rate, and Maximum Secondary Loan Default Spread before
approving any Guarantee Application.
(d) Secondary Loan default rate. The Eligible CDFI may charge a
default rate on the Secondary Loan so long as such rate does not exceed
the Maximum Secondary Rate, plus the Maximum Secondary Loan Default
Spread.
(e) Secondary Loan maturity. The maturity date with respect to the
Secondary Loan shall be in accordance with the requirements of the
applicable Secondary Loan Requirements. The maturity date of Secondary
Loans may be earlier than, but may not be later than, the maturity date
of the corresponding Bond.
(f) Secondary Loan collateral. (1) The Secondary Loan shall be
payable from amounts made available pursuant to the Secondary Loan
documents, and secured by:
(i) A first lien of the Eligible CDFI on pledged collateral in an
amount that is consistent with the loan-to-value ratio requirements set
forth in the Secondary Loan Requirements; or
(ii) A Principal Loss Collateral Provision for the benefit of the
Master Servicer/Trustee, in accordance with the Bond Loan Requirements
and the Secondary Loan Requirements, as applicable.
(2) Qualified Secondary Loan Receivables may be used as collateral;
provided however, that such collateral is secured by a first lien on
the Secondary Loan collateral in accordance with the Bond Loan
Requirements and the Secondary Loan Requirements, as applicable.
(3) A parity first lien on pledged collateral may be accepted, in
the sole discretion of the CDFI Fund.
(g) Commitments for Secondary Loans. Each proposed Secondary Loan
shall be approved by the credit committee of the Eligible CDFI or its
equivalent, in accordance with the applicable Secondary Loan
Requirements and the Eligible CDFI's own underwriting requirements.
(h) Disbursement of Secondary Loan proceeds. (1) Consistent with
the corresponding Bond Loan, Secondary Loans shall be draw-down loans.
Disbursements of Secondary Loan proceeds to the Secondary Borrower
shall be made pursuant to a requisition process established by the
Qualified Issuer and the CDFI Fund and shall mirror the requirements
for the disbursement of Bond Proceeds.
(2) Each requisition shall be accompanied by invoices and
certifications by the Secondary Borrower as to expenditure of proceeds
for Eligible Purposes. The Eligible CDFI must also attest that the
Secondary Loan conforms to the requirements set forth in the applicable
Secondary Loan Requirements. In the case of Refinancings, the Eligible
CDFI must also attest that the original loan was used for an Eligible
Purpose.
(3) Secondary Loan proceeds shall be disbursed in accordance with
the applicable Secondary Loan Requirements which shall set forth, among
other requirements, that Secondary Loan disbursements shall be made in
accordance with commercially reasonable standards and timeframes for
disbursement based on the nature of the Eligible Purposes. The
Secondary Loan Requirements shall also specify what constitutes a
commercially reasonable timeframe for disbursement in connection with
specific types of Eligible Purposes. Notwithstanding the foregoing,
each Eligible CDFI shall propose a timeframe for disbursement in
connection with each Secondary Loan, which timeframe shall be subject
to the requirements set forth in the Secondary Loan Requirements.
(i) Amortization of Secondary Loans. Secondary Loans shall amortize
as determined by the Eligible CDFI; provided that Secondary Loan
amortization installments shall conform to the requirements of the
applicable Secondary Loan Requirements.
(j) Prepayment of Secondary Loans. Secondary Loans shall be subject
to prepayment as determined by the Eligible CDFI; provided that the
Secondary Loan documents may provide for modification of Secondary Loan
terms (so long as such modification does not affect the corresponding
Bond or Bond Loan) and shall provide for mandatory prepayment of the
Secondary Loan from liquidation of collateral upon the exercise of
default remedies by the Eligible CDFI, the
[[Page 8319]]
Qualified Issuer or the Guarantor as required by the Bond, the Bond
Loan documents, or the Agreement to Guarantee, as applicable.
(k) Repayment of Secondary Loans. As Secondary Loans are repaid,
the Eligible CDFI may, through the Relending Fund, Refinance and
substitute as collateral for the Bond Loan other loan(s) for Eligible
Purposes that meet the required Secondary Loan Requirements, provided
that the Eligible CDFI makes Bond Loan payments as required. If the
outstanding principal balance of the Bond Loan exceeds the outstanding
principal balance of the Bond Loan in use for the Eligible Purposes,
the Eligible CDFI shall repay the difference, which shall be deposited
in the Relending Account, and credited to the corresponding Relending
Subaccount.
Sec. 1808.308 Relending Fund; Relending Account.
(a) General. As Bond Loans are repaid, such amounts in excess of
those required for debt service payments on the Bonds may be held in
the Relending Account and used for additional Secondary Loans, to the
extent authorized in this section.
(b) Application of funds to Secondary Loans. Amounts on deposit in
the Relending Account shall be applied by the Eligible CDFI to make
additional Secondary Loans, the term of which shall not exceed the
maturity of the Bond.
(c) Requirements of Secondary Loans from Relending Account.
Secondary Loans made from the Relending Account shall meet all the
requirements of the Secondary Loan Requirements, and conform to the
following additional conditions:
(1) The Qualified Issuer has received and approved a Bond Loan
commitment request submitted by the Eligible CDFI;
(2) No material event has occurred and is continuing or is
threatened at the Eligible CDFI level or Qualified Issuer level that
adversely affects the Eligible CDFI, the Bond or the Bond Loan;
(3) No Eligible CDFI event of default has occurred and is
continuing with respect to the Bond Loan;
(4) No Qualified Issuer event of default has occurred and is
continuing with respect to the Bond;
(5) There exists no unreplenished draw on the Risk-Share Pool Fund
by the Eligible CDFI;
(6) The maturity of Secondary Loans made from the Relending Fund
shall not extend beyond the maturity date of the corresponding Bond;
and
(7) Any other conditions set forth in this interim rule, the
applicable Notice of Guarantee Availability, the Secondary Loan
Requirements or the Bond Loan documents.
(d) Relending Subaccounts. The balance of each subaccount of the
Relending Fund (each a Relending Subaccount) shall not equal more than
10 percent of the principal amount outstanding of the Bond Loan, minus
the prorata share of the Risk-Share Pool, as of the Calculation Date
(the Relending Subaccount Maximum).
(e) Notification Date. For purposes of this section, Notification
Date means the date on which the Master Servicer/Trustee notifies the
Eligible CDFI that the balance in the applicable Relending Subaccount
exceeds the applicable Relending Subaccount Maximum. Calculation Date
means, following the Notification Date, the earlier of:
(1) The date on which the balance in such Relending Subaccount
becomes less than or equal to the applicable Relending Subaccount
Maximum, or
(2) Six months following the Notification Date.
(f) Mandatory redemption. Any amounts retained in the Relending
Subaccount that exceeds the Relending Subaccount Maximum by $100,000 or
more as of the applicable Calculation Date shall be transferred to the
Redemption Account of the Debt Service Fund (as defined in Sec.
1808.606(f)) to effectuate a mandatory redemption of the corresponding
Bond in accordance with the terms of the Bond Trust Indenture. The
determination of the actual amount on deposit on any Calculation Date
shall exclude amounts then obligated pursuant to any executed
promissory notes, whether then disbursed or undisbursed.
Sec. 1808.309 Restrictions on uses of Bond Proceeds and Bond Loan
proceeds.
Pursuant to 12 U.S.C. 47123a(c)(5), Bond Loan proceeds shall not be
used for:
(a) Political activities;
(b) Lobbying, whether directly or through other parties;
(c) Outreach;
(d) Counseling services;
(e) Travel expenses;
(f) For the salaries or administrative costs of the Qualified
Issuer or any recipients of Bond Proceeds, other than those costs
covered by Bond Issuance Fees;
(g) To fund the Risk-Share Pool;
(h) To pay fees other than Bond Issuance Fees; or
(i) Any other use as may be specified in the applicable Notice of
Guarantee Availability.
Subpart D--Applications for Guarantee and Qualified Issuer
Sec. 1808.400 Notice of Guarantee Availability.
Interested parties will be invited to submit Qualified Issuer
Applications and Guarantee Applications in accordance with this interim
rule and the applicable Notice of Guarantee Availability. The NOGA will
set forth application and eligibility requirements for an entity that
wishes to be designated as a Qualified Issuer (including, in the CDFI
Fund's sole discretion, the Designated Bonding Authority) and a
Qualified Issuer that wishes to be approved to receive a Guarantee. The
NOGA may also contain eligibility requirements, application procedures,
and additional terms and conditions for entities wishing to serve as
Servicers, Program Administrators, and other roles as may be determined
by the CDFI Fund. The NOGA will advise interested parties on how to
apply and will establish criteria, deadlines, and other Qualified
Issuer and Guarantee Application requirements, including specifying any
additional terms and conditions, limitations, special rules,
procedures, and restrictions for a given application period.
Sec. 1808.401 Application requirements.
(a) Qualified Issuer Application. A Qualified Issuer applicant
shall provide all required information in its Qualified Issuer
Application to establish that it meets all criteria for designation as
a Qualified Issuer and can carry out all Qualified Issuer
responsibilities and requirements including, but not limited to,
information that demonstrates that the applicant has the appropriate
expertise, capacity, and experience and is qualified to make,
administer and service Bond Loans for Eligible Purposes. After receipt
of a Qualified Issuer Application, the CDFI Fund may request additional
information and clarifying or technical information on the materials
submitted as part of the Qualified Issuer Application. The CDFI Fund
will provide the template for the Qualified Issuer Application.
(b) Guarantee Application. (1) A Qualified Issuer shall provide all
required information in its Guarantee Application to establish that it
meets all criteria set forth in this interim rule to receive a
Guarantee and can carry out all Guarantee requirements including, but
not limited to, information that demonstrates that the Qualified Issuer
has the appropriate expertise, capacity, and experience and is
qualified to make, administer and service Bond Loans for Eligible
Purposes. The Guarantee
[[Page 8320]]
Application shall include a Capital Distribution Plan and a Secondary
Capital Distribution Plan for each potential Eligible CDFI, as well as
any other requirements set forth in the applicable Notice of Guarantee
Availability or as may be required by the CDFI Fund in its sole
discretion for the evaluation and selection of Guarantee applicants.
After receipt of a Guarantee Application, the CDFI Fund may request
additional information and clarifying or technical information on the
materials submitted as part of the Guarantee Application. The CDFI Fund
will provide the template for the Guarantee Application.
(2) The Capital Distribution Plan shall include, but not be limited
to, the following information:
(i) Statement of Proposed Sources and Uses of Funds;
(ii) For the Qualified Issuer and each Certified CDFI seeking a
Bond Loan, an organizational capacity statement, a plan that describes
how the proposed Bond Loan will meet Eligible Purposes, and a
description of Credit Enhancement, if any;
(iii) A Secondary Capital Distribution Plan, if applicable; and
(iv) Assurances and certifications that not less than 100 percent
of the principal amount of Bonds will be used to make Bond Loans for
Eligible Purposes beginning on the Bond Issue Date, and that Secondary
Loans shall be made as set forth in subsection 1808.307(b).
Subpart E--Evaluation and Selection
Sec. 1808.500 Evaluation of Qualified Issuer Applications.
(a) General. Each Qualified Issuer Application will be evaluated by
the CDFI Fund and, if acceptable, the applicant will be designated as a
Qualified Issuer, at the sole discretion of the CDFI Fund. The
Qualified Issuer Application review and evaluation process will be
based on established standard operating procedures, which may include
interviews of applicants and/or site visits to applicants conducted by
the CDFI Fund. Through the application review process, the CDFI Fund
will evaluate Qualified Issuer applicants on a merit basis and in a
fair and consistent manner. Each Qualified Issuer applicant will be
reviewed on its ability to successfully implement the activities
proposed in its Qualified Issuer Application and carry out the
responsibilities of a Qualified Issuer over the life of the Bond. The
CDFI Fund will periodically reevaluate the Qualified Issuer over the
life of the Bond to ensure it meets the performance standards over the
life of the facilities.
(b) Eligibility and completeness. A Qualified Issuer applicant will
not be eligible to be designated as a Qualified Issuer if it fails to
meet the eligibility requirements described in Sec. 1808.200 of this
part and the applicable NOGA, or if it has not submitted complete and
timely Qualified Issuer Application materials. The CDFI Fund reserves
the right to request additional information from the Qualified Issuer
applicant, as the CDFI Fund deems appropriate.
(c) Substantive review. When evaluating Qualified Issuer
Applications and selecting applicants to be designated as Qualified
Issuers, the CDFI Fund will apply the criteria set forth in the Act at
12 U.S.C. 4713a(a)(8), this interim rule, and the applicable NOGA
including, but not limited to, the following evaluation factors:
(1) The extent to which the Qualified Issuer Application
demonstrates that the applicant possesses the appropriate expertise,
capacity and experience, or other qualifications to manage the Bond
Issue on the terms and conditions set forth in this interim rule and
the applicable NOGA;
(2) The expertise and experience of its Program Administrator and
Servicers;
(3) The Qualified Issuer applicant's demonstrated performance of
financially sound business practices relative to the industry norm for
bond issuers, as evidenced by reports of Appropriate Federal Banking
Agencies, Appropriate State Agencies, and/or auditors;
(4) Information that demonstrates the applicant, its Program
Administrator and Servicers have the appropriate expertise, capacity,
and experience or otherwise be qualified to originate, underwrite,
service and monitor loan portfolios that serve Eligible Purposes and
are targeted toward Low-Income and Underserved Rural Areas; and
(5) Such other criteria that the CDFI Fund deems appropriate for
purposes of evaluating the merits of a Qualified Issuer Application.
Sec. 1808.501 Evaluation of Guarantee Applications.
(a) General. After being designated as a Qualified Issuer, the
Qualified Issuer may submit a Guarantee Application, seeking authority
to issue Bonds and receive a Guarantee on the proposed Bond Issue. A
successful Guarantee Application must:
(1) Demonstrate that the Qualified Issuer and the proposed Eligible
CDFIs have a feasible plan to successfully repay the Bond (including
principal, interest, and call premium) and Bond Loans according to
their respective terms, to the satisfaction of the CDFI Fund; and
(2) Meet any other requirements deemed appropriate by the CDFI Fund
and the Guarantor.
(b) Eligibility and completeness. A Qualified Issuer will not be
eligible to receive a Guarantee if it fails to meet the eligibility
requirements set forth in Sec. 1808.200 of this part and the
applicable NOGA, or if it has not submitted complete and timely
Guarantee Application materials. The CDFI Fund reserves the right to
request additional information from the Qualified Issuer, or to reject
a Guarantee Application as the CDFI Fund may deem appropriate.
(c) Substantive review. In evaluating Guarantee Applications and
selecting a Qualified Issuer to receive a Guarantee, the CDFI Fund and
the Guarantor will apply the criteria set forth in this interim rule
and the applicable NOGA including, but not limited to, the following
evaluation factors:
(1) The extent to which the Guarantee Application proposes
strategies that demonstrate the Qualified Issuer's ability to implement
the Capital Distribution Plan;
(2) The adequacy of proposed risk mitigation provisions designed to
protect the financial interests of the Federal Government based on
information that includes, but is not limited to: the amount and
quality of any Credit Enhancements; the amount and quality of any other
financial resources to be pledged or risk mitigation to be provided by
an Affiliate to the Eligible CDFI through its management structure,
that will assume limited obligation for the Bond Loan and enhance the
Eligible CDFI's creditworthiness and its ability to repay the Bond
Loan; and the provision for an orderly retirement of principal;
(3) The extent to which the Guarantee Application demonstrates that
the Qualified Issuer possesses the appropriate expertise, capacity and
experience, or other qualifications to manage the Bond Issue on the
terms and conditions set forth in this interim rule and the applicable
NOGA;
(4) The Qualified Issuer's demonstrated performance of financially
sound business practices relative to the industry norm for bond
issuers, as evidenced by financial audits and reports of Appropriate
Federal Banking Agencies, Appropriate State Agencies, independent
regulators, or auditors;
(5) Information that demonstrates that the Qualified Issuer has the
appropriate expertise, capacity, and experience or is
[[Page 8321]]
otherwise qualified to make, service and monitor Bond Loans;
(6) The extent to which the proposed Bond Loans are likely to serve
Low-Income Areas or Underserved Rural Areas; and
(7) Such other criteria that the CDFI Fund and the Guarantor deem
appropriate for purposes of evaluating the merits of a Guarantee
Application.
Sec. 1808.502 Evaluation of Designated Bonding Authority
Applications.
In addition to the evaluation criteria for Qualified Issuers set
forth above, DBA applicants must demonstrate the existence of resources
to perform functions of the DBA as set forth in section 1808.201 and
meet any other criteria set forth in the applicable NOGA and that may
be required by the CDFI Fund.
Sec. 1808.503 Consultation with Appropriate Regulatory Agencies.
In the case of any CDFI Bond Guarantee Program applicant that is a
Federally regulated financial institution (or an Affiliate thereof),
the CDFI Fund may consult with the Appropriate Federal Banking Agency
or Appropriate State Agency prior to designating the applicant as a
Qualified Issuer, Servicer, Master Servicer/Trustee, Program
Administrator or other role, making a final Guarantee commitment,
issuing a Guarantee, and/or entering into an Agreement to Guarantee.
The CDFI Fund also reserves the right, in its sole discretion, to
consult with the Appropriate Federal Banking Agency and Appropriate
State Agency with respect to any Eligible CDFI that is proposed to
receive a Bond Loan or any Secondary Borrower that is proposed to
receive a Secondary Loan.
Sec. 1808.504 Selection of Qualified Issuers; Approval for Guarantee.
(a) General. Designation of an applicant as a Qualified Issuer
shall be based on the foregoing evaluation criteria and processes, and
any other requirements or processes that may be set forth in the
applicable NOGA. An applicant may simultaneously apply for Qualified
Issuer designation and a Guarantee; however, the entity must be
designated as a Qualified Issuer before being selected to receive a
Guarantee.
(b) The Guarantor will determine whether a Qualified Issuer will be
authorized to issue Bonds and receive a Guarantee based on the
foregoing evaluation criteria and processes, and any other requirements
or processes set forth in the applicable NOGA.
(1) Not later than 30 days after receipt of a complete Guarantee
Application (or 30 days after designation as a Qualified Issuer, if
submitting simultaneous applications) by a Qualified Issuer, the CDFI
Fund shall provide an internal Department Opinion regarding compliance
by the Qualified Issuer with the requirements of the CDFI Bond
Guarantee Program.
(2) The Guarantor shall approve or deny a Guarantee Application no
later than 90 days after receipt of a complete Guarantee Application,
and all other required information by the CDFI Fund or the Guarantor
with respect to a request for such Guarantee.
(c) The Guarantor may limit the number of Guarantees made per year
or Guarantee Applications accepted to ensure that a sufficient
examination of Guarantee Applications is conducted.
(d) The CDFI Fund shall notify the Qualified Issuer in writing of
the Guarantor's approval or disapproval of a Guarantee Application.
(e) The Guarantor reserves the sole discretion to approve a
Guarantee Application for a Guarantee amount that is less than that
which is requested.
(f) In the event that there are material changes after submission
of a Guarantee Application (including, but not limited to, a revision
of the Capital Distribution Plan or a change in the Certified CDFIs
that are proposed for receiving Bond Loans) prior to or after the
designation as a Qualified Issuer or approval of a Guarantee
Application or Guarantee, the Qualified Issuer or Guarantee applicant
must notify the CDFI Fund of such material changes information in a
timely and complete manner. The Guarantor will evaluate such material
changes, along with the Guarantee Application, to approve or deny the
Guarantee Application and/or determine whether to modify the terms and
conditions of the Guarantee.
Subpart F--Terms and Conditions of Guarantee
Sec. 1808.600 Full faith and credit and incontestability of
Guarantee.
The full faith and credit of the Federal Government is pledged to
the payment of all Bonds issued as part of a Bond Issue with respect to
Verifiable Losses of Principal, Interest, and Call Premium. An executed
Guarantee shall be conclusive evidence that: the Guarantee has been
properly authorized; the underlying Bond qualified for such Guarantee;
and, but for fraud or material misrepresentation, such Guarantee will
be presumed to be legally valid, binding, and enforceable.
Sec. 1808.601 Assignment and transfer of Guarantee.
The Guarantee shall be fully assignable and transferrable to the
capital markets, on terms and conditions that are consistent with
comparable bonds guaranteed by the Federal Government and satisfactory
to the Guarantor and the CDFI Fund.
Sec. 1808.602 Offer of Guarantee.
Upon approval of the Guarantee Application, the Qualified Issuer
will receive from the Guarantor an offer of Guarantee that will set
forth certain required terms and conditions to be fulfilled prior to
issuance of the Guarantee.
Sec. 1808.603 Issuance of Guarantee.
(a) Conditions precedent. The commitment of the Guarantor to issue
a Guarantee shall be subject to conditions precedent that are usual and
customary for financings of this type or otherwise deemed appropriate
by the Guarantor including, but not limited to, the following:
(1) The conditions precedent to the Bond Issue and the making of
the Bond Loan have been satisfied, including a credit review that
indicates a reasonable prospect of repayment as demonstrated by the
CDFI Fund's analysis of the cash flow and collateral provisions of the
Eligible CDFI;
(2) The Qualified Issuer shall have submitted to the CDFI Fund a
complete Guarantee Application, containing all required information
relating to the Bond and the Bond Loan, as required by the Guarantor;
(3) There have been no material changes to the Bond and Bond Loan
documents from the forms thereof approved by the Guarantor and the CDFI
Fund;
(4) The Bond Purchaser and the Qualified Issuer shall have executed
a Bond Purchase Agreement; and
(5) Such additional information or documents as may be required by
the CDFI Fund, the Guarantor, or the Bond Purchaser.
(b) Rescission of approval. The Guarantor, in its sole discretion,
may rescind its approval of a Guarantee Application if:
(1) The Guarantor or the CDFI Fund determines that the Qualified
Issuer cannot, or is unwilling to, provide adequate documentation and
proof of compliance with paragraph (a) of this section within the time
provided for in the offer of Guarantee, or
(2) The Guarantor or the CDFI Fund determines, in its sole
discretion, that the Qualified Issuer no longer meets applicable CDFI
Bond Guarantee Program criteria and requirements.
Sec. 1808.604 Agreement to Guarantee.
(a) General. The Qualified Issuer must enter into an Agreement to
Guarantee
[[Page 8322]]
that sets forth the terms and conditions on which the Guarantor will
provide the Guarantee of the Bonds issued as part of a Bond Issue.
(b) Terms and conditions. The terms and conditions of the Agreement
to Guarantee may include, but are not limited to, the following:
(1) The form and amount of Guarantee;
(2) Any prohibited amendments of Bond Documents or limitations on
transfer of the Guarantee;
(3) Terms and conditions of the Risk-Share Pool and any Credit
Enhancement that may be required by the CDFI Fund and the Guarantor;
(4) Provisions regarding the Agency Administrative Fee;
(5) Representations and warranties of the Qualified Issuer;
(6) Pledged security;
(7) Financial covenants;
(8) Events of default and remedies;
(9) Assignment of Bond Loans to the Guarantor;
(10) Guarantor payment does not discharge Qualified Issuer;
subrogation;
(11) Undertakings for the benefit of the Bondholder including:
notices, registration, prohibited amendments, prohibited transfers, and
indemnification;
(12) Governing law;
(13) Terms and conditions of Bond Loans;
(14) Prohibition against subordination; and
(15) Such other matters as the Guarantor or the CDFI Fund may deem
necessary or appropriate.
(c) Access to funds. In the event that the Qualified Issuer does
not execute Bond Loan agreements for 100 percent of the Bond principal
on the Bond Issue Date, the Qualified Issuer will have no further
access to the amount of funds for which Bond Loan agreements were not
executed.
Sec. 1808.605 Agency Administrative Fee.
The Qualified Issuer shall pay the CDFI Fund annually a fee equal
to 10 basis points (0.1 percent) of the amount of the unpaid principal
of the Bond(s). The initial Agency Administrative Fee must be paid in
full as a condition to closing any Agreement to Guarantee, no later
than the effective date of the Agreement to Guarantee.
Sec. 1808.606 Program Administrator; Servicer; Master Servicer/
Trustee.
(a) General. Bond Loans shall be overseen by qualified Program
Administrators, Servicers, and a Master Servicer/Trustee. For purposes
of maximizing efficiencies and minimizing costs, Program Administrator
and Servicer duties may be consolidated and performed by Qualified
Issuers.
(b) Program Administrator. (1) Duties. The duties of a Program
Administrator, which may be performed by the Qualified Issuer, shall
include, but not be limited to:
(i) Approving and qualifying Eligible CDFI applications for
participation in the Guarantee Application;
(ii) Bond and Bond Loan packaging;
(iii) Reviewing and approving Secondary Loan commitments from
Eligible CDFIs for funds from the Bondholder or the Relending Account
based on the Secondary Loan Requirements;
(iv) Compliance monitoring of Bond Loans and Secondary Loans;
(v) Preparing and submitting reports required by this interim rule;
and
(vi) All other duties and related services that are customarily
expected of a Program Administrator, and as may be required by the CDFI
Fund or the Guarantor.
(2) Selection. There shall be one Program Administrator for each
Bond Issue. The Qualified Issuer applicant shall provide, in its
Qualified Issuer Application, information on its proposed Program
Administrator that demonstrates the appropriate expertise, capacity and
experience, as well as any additional information that may be required
to meet the criteria set forth in the applicable Notice of Guarantee
Availability, including, but not limited to, information on the
entity's management and organization, loan administration, and
financial capability.
(3) Fees and expenses. The Program Administrator's administrative
fees and expenses shall be paid by the Eligible CDFI in accordance with
applicable financing documents.
(c) Servicer. (1) Duties. The duties of a Servicer, which may be
performed by the Qualified Issuer, shall include, but not be limited
to:
(i) Billing and collecting Bond Loan payments from Eligible CDFIs;
(ii) Initiating collection activities on past-due Bond Loans;
(iii) Transferring Bond Loan payments to the respective funds and
accounts managed by the Master Servicer/Trustee;
(iv) Bond Loan administration and servicing;
(v) Systematic and timely reporting of Bond Loan performance
through remittance and servicing reports, and providing such reports as
may be required by this interim rule;
(vi) Proper measurement of annual outstanding Bond Loan
requirements; and
(vii) All other duties and related services that are customarily
expected of Servicers, and as may be required by the CDFI Fund or the
Guarantor.
(2) Selection. There shall be one Servicer for each Bond Issue.
Each Qualified Issuer applicant shall provide, in its Qualified Issuer
Application, information on its proposed Servicer that demonstrates the
appropriate expertise, capacity and experience, as well as any
additional information that as may be required to meet the criteria set
forth in the applicable Notice of Guarantee Availability including, but
not limited to, information on the entity's management and
organization, loan servicing, and financial capability.
(3) Fees and expenses. The Servicer's administrative fees and
expenses for each Bond Issue shall be paid by the associated Eligible
CDFIs in accordance with applicable financing documents.
(d) Special Servicer. (1) Duties. The duties of the Special
Servicer shall be performed by the Master Servicer/Trustee and shall
include, but not be limited to:
(i) Negotiating the restructuring of Bond Loans that are in or
about to enter into an event of Default;
(ii) Initiating foreclosure action and appointing a receiver; and
(iii) Enforcing deficiency judgments.
(2) Evaluation. The Master Servicer/Trustee applicant shall
provide, in its Master Servicer/Trustee application, information on its
proposed Special Servicer capabilities and experience. These
capabilities may be performed by the Master Servicer/Trustee or an
entity designated by the Master Servicer/Trustee. The CDFI Fund shall
evaluate the Master Servicer/Trustee applicant's or its designee's
ability to perform the duties of Special Servicer based on the capacity
and experience in the following areas:
(i) Restructuring, recovery, and foreclosure of loans that are
similar to Bond Loans;
(ii) Financial strength and capacity;
(iii) Managing regional or national intake, processing, or
servicing operational systems and infrastructure of loans that are
similar to Bond Loans;
(iv) Managing regional or national originator communication systems
and infrastructure;
(v) Developing and implementing training and other risk management
strategies on a regional or national basis;
(vi) Compliance monitoring and reporting; and
(vii) Such other criteria that may be required by the CDFI Fund.
(3) Fees and expenses. The Bond Trust Indenture will outline the
Special Servicer's administrative fees and expenses; these fees shall
be paid by the Eligible CDFI in accordance with the
[[Page 8323]]
Bond Trust Indenture and related documents.
(e) Master Servicer/Trustee. (1) Duties. The duties of the Master
Servicer/Trustee shall include, but not be limited to:
(i) The fiduciary power to enforce the terms of Bonds and the Bond
Loans pursuant to the Bond Trust Indenture;
(ii) Establishing and managing the funds and accounts set forth in
this interim rule;
(iii) Providing such reports as required;
(iv) Overseeing the activities of Servicers and managing loan
administration;
(v) Servicing and monitoring of Bond Issues with respect to
repayment obligations to the Bondholder and the terms of the Agreement
to Guarantee;
(vi) Tracking the movement of funds between the accounts of the
Master Servicer/Trustee and all Servicers;
(vii) Ensuring orderly receipt of the monthly remittance and
servicing reports of the Servicers;
(viii) Monitoring collection and foreclosure actions;
(ix) Aggregating the reporting and distribution of funds to the
Qualified Issuer, CDFI Fund, and the Bondholder, as necessary;
(x) Removing and replacing Servicers, as necessary;
(xi) Performing systematic and timely reporting of Bond Loan
performance compiled from Servicers' reports, and providing such
reports as required in this interim rule;
(xii) Ensuring proper distribution of funds to Eligible CDFIs,
servicing the Bonds, and repayment to the Bondholder; and
(xiii) All other duties and related services that are customarily
expected of a Master Servicer/Trustee, and as may be required by the
CDFI Fund.
(2) Selection. There shall be one Master Servicer/Trustee for the
CDFI Bond Guarantee Program. The CDFI Fund shall solicit applications
and make a selection of a Master Servicer/Trustee based on the capacity
and experience of the applicant in the areas set forth in paragraph
(a)(1) of this section and in the following paragraphs (a)(2)(i)
through (vi):
(i) Administration, servicing, and monitoring of loans that are
similar to Bond Loans;
(ii) Financial strength and capacity;
(ii) Managing regional or national intake, processing, or servicing
operational systems and infrastructure of loans that are similar to
Bond Loans;
(iii) Managing regional or national originator communication
systems and infrastructure;
(iv) Developing and implementing training and other risk management
strategies on a regional or national basis;
(v) Compliance monitoring and reporting; and
(vi) Such other criteria that may be required by the CDFI Fund.
(3) Fees and expenses. The Master Servicer/Trustee's administrative
fees and expenses shall be paid by the Eligible CDFI in accordance with
the Bond Trust Indenture and related documents.
(f) Funds and accounts. The following funds shall be established by
the Master Servicer/Trustee at the time of execution of the Bond Trust
Indenture, on behalf of the Qualified Issuer and for the benefit of the
Bondholder. On the Bond Issue Date, separate accounts shall be
established therein for each Bond and, furthermore, within each account
there shall be established a subaccount for each Bond Loan on the date
of the closing of each Bond Loan:
(1) The Project Fund, and therein a Project Account for each Bond:
All disbursements of Bond Proceeds from the Bondholder pursuant to the
requisition processes shall be deposited in the applicable Project
Account or Subaccount, and the Master Servicer/Trustee shall disburse
advances with respect to the Bond Loan to the Eligible CDFI therefrom;
(2) The Revenue Fund, and therein a Revenue Account for each Bond:
All payments of debt service or prepayments on the Bond Loan pursuant
to the Bond Loan documents, other payments by the Eligible CDFI
pursuant to the Bond Loan documents, and any investment income derived
from the corresponding accounts or subaccounts in the Debt Service Fund
shall be deposited in the accounts and subaccounts of the Revenue Fund;
(3) The Debt Service Fund, and therein an Interest Account, a
Principal Account and a Redemption Account for each Bond: Not later
than 30 days prior to a Bond payment date, the Master Servicer/Trustee
shall make the following transfers from the applicable account or
subaccount of the Revenue Fund:
(i) All scheduled payments (amortization installments or at
maturity) of principal received from the Eligible CDFI on the Bond Loan
shall be transferred to the Principal Account or Subaccount;
(ii) All scheduled payments (amortization installments or at
maturity) of interest received from the Eligible CDFI on the Bond Loan
shall be transferred to the Interest Account or Subaccount; and
(iii) All prepayments of principal, interest and premium, if any,
received from the Eligible CDFI on the Bond Loan shall be transferred
to the Redemption Account or Subaccount;
(4) The Administrative Fees Fund, and therein an Administrative
Fees Account for each Bond: All fees necessary for administering and
servicing the Bond or the Bond Loan (including the Agency
Administrative Fee and Bond Issuance Fees), payable by the Eligible
CDFI pursuant to the Bond Loan documents, shall be deposited in the
applicable account or subaccount of the Administrative Fees Fund and,
thereafter, shall be disbursed by the Master Servicer/Trustee to the
subject recipient in accordance with the terms of each such payment;
(5) The Risk-Share Pool Fund, and therein a Risk-Share Pool Account
for each Bond, in accordance with Sec. 1808.303 of this part;
(6) The Relending Fund, and therein a Relending Account for each
Bond, in accordance with Sec. 1808.308 of this part; and
(7) Such other funds and accounts as may be required by the CDFI
Fund and the Qualified Issuer in connection with a Bond Issue, Bond or
Bond Loan.
(g) Other funds and accounts. The Master Servicer/Trustee shall be
permitted to establish such other funds and accounts as deemed
necessary to administer the requirements of the Bond Trust Indenture.
Each account shall be designated by the name of the applicable Bond and
each subaccount shall be designated by the name of the applicable Bond
Loan.
(h) No commingling of funds. No commingling of monies shall be
permitted between accounts or subaccounts.
(i) Permitted investments. Monies on deposit in the Revenue Fund,
the Debt Service Fund, the Risk-Share Pool Fund, the Relending Fund, if
invested, shall be invested in U.S. Treasury securities with maturities
that do not exceed the dates on which monies will be required for
anticipated purposes and may be sold to the extent funds are needed
sooner than anticipated. All interest shall be credited to the relevant
account in the relevant fund.
Sec. 1808.607 Representations and warranties of Qualified Issuer with
respect to Guarantee.
The Qualified Issuer shall represent and warrant to the Guarantor,
at the execution of any Agreement to Guarantee to which it is a party
and thereafter at the closing of any Bond Loan and the issuance of any
Bond, the following:
[[Page 8324]]
(a) The Qualified Issuer is duly organized, validly existing and in
good standing in its State of organization with the power and authority
to enter into the agreements and consummate the transactions thereby
contemplated;
(b) The information contained in the Qualified Issuer Application
is true and correct;
(c) The Bonds, when executed, are and will be duly authorized,
executed, valid, binding and enforceable obligations of the Qualified
Issuer;
(d) Except as disclosed to the Guarantor, no claim or litigation is
pending or threatened which would materially adversely affect the
Qualified Issuer's ability to consummate the transactions contemplated
by the Agreement to Guarantee, the Bond, or the Bond Loan;
(e) The consummation of the transactions contemplated by the
Agreement to Guarantee, the Bond, and the Bond Loan will not conflict
with or constitute an event of default under any law or agreement to
which the Qualified Issuer is subject;
(f) No authorization, approval or consent of a governmental
authority is necessary on the part of the Qualified Issuer to
consummate the transactions contemplated by the Bond or the Bond Loan
which has not been obtained;
(g) No funds from any other CDFI Fund program are being used to pay
principal, interest, fees, administrative costs, or issuance costs
(including Bond Issuance Fees) related to the CDFI Bond Guarantee
Program, or to fund the Risk-Share Pool; and
(h) Any other representation or warranty deemed appropriate by the
Guarantor, the CDFI Fund or the Bond Purchaser.
Sec. 1808.608 Representations and warranties of Eligible CDFI with
respect to each Bond Loan.
The Eligible CDFI shall represent and warrant to the Qualified
Issuer, at the execution of each set of Bond Loan documents and,
thereafter, until repayment in full of such Bond Loan, the following:
(a) The performance by the Eligible CDFI under the Bond Loan
documents is duly authorized, does not require consent or approval of
any governmental authority not already obtained, does not constitute a
default of any law or agreement to which the Eligible CDFI is subject,
will not result in the imposition of any lien (other than pursuant to
the Bond Loan), and constitutes a valid, binding and enforceable
obligation of the Eligible CDFI;
(b) The information provided by the Eligible CDFI fairly represents
the financial position (in conformity with generally accepted
accounting principles), experience and capacity of the Eligible CDFI,
and there have been no material adverse changes in the Eligible CDFI's
financial condition since the date of such financial information;
(c) No claim or litigation is pending or threatened which would
materially adversely affect the Eligible CDFI's ability to consummate
the transactions contemplated by the Bond Loan, or repay the Bond Loan;
(d) No event of default or other material event which could become
an event of default has occurred and is continuing;
(e) The Eligible CDFI has filed all Federal, State and local tax
returns required and paid all liabilities in connection therewith;
(f) The Eligible CDFI has good and marketable title to the
collateral;
(g) The Bond Loan will be applied to Eligible Purposes;
(h) The information provided in the Guarantee Application is true
and accurate;
(i) No default, event of default or due and unsatisfied liability
has occurred and is continuing with respect to any obligations of the
Eligible CDFI to the Guarantor, the CDFI Fund, the Bond Purchaser, the
U. S. Internal Revenue Service, or any other agency, authority or
instrumentality of the Federal Government;
(j) No funds from any other CDFI Fund program are being used to pay
principal, interest, fees, administrative costs, or issuance costs
(including Bond Issuance Fees) related to the CDFI Bond Guarantee
Program, or to fund the Risk-Share Pool; and
(k) Any other representations and warranties set forth in the Bond
Loan documents.
Sec. 1808.609 Representations and warranties of Secondary Borrower.
Each Secondary Borrower shall make identical representations and
warranties as the Eligible CDFI and shall make specific representations
and warranties with respect to the collateral and the project that is
proposed to be financed by the Secondary Loan, upon which the Eligible
CDFI, the Qualified Issuer, the Bondholder, the Guarantor, and the CDFI
Fund may rely. These representation and warranties shall be to the
satisfaction of the Guarantor and the CDFI Fund.
Sec. 1808.610 Covenants of Qualified Issuer with respect to
Guarantee.
The Qualified Issuer shall covenant in the Agreement to Guarantee
that it will:
(a) Furnish to the CDFI Fund, at the Qualified Issuer's expense,
all annual and periodic financial reporting as described in Sec.
1808.619 of this part;
(b) Maintain books and records related to each Bond Loan, the
collateral and the project that is to be financed by Bond Proceeds, and
allow inspection thereof;
(c) Preserve its corporate existence and Certified CDFI status, if
applicable;
(d) Comply with all laws to which it is subject;
(e) Maintain its solvency;
(f) To the extent it assigns any of its obligations under the
agreement to an Affiliate, guarantee performance of such obligations;
(g) Allow audits and investigations by the CDFI Fund, the Treasury
Inspector General, the Comptroller General, or such other Federal
Government offices as may be designated by the Guarantor or the CDFI
Fund;
(h) Provide such reports as required in Sec. 1808.619 of this
part;
(i) Make, execute and deliver such instruments as the Guarantor or
the CDFI Fund may reasonably request;
(j) Sign and certify as true and correct all Bond Documents and
Bond Loan documents;
(k) Not amend or modify any agreement related to the Bond without
the consent of the Bondholder, the Guarantor, or the CDFI Fund, as
applicable;
(l) Comply with the terms and conditions of the Agreement to
Guarantee, the Bond Trust Indenture, and the Bond and Bond Loan
documents;
(m) Immediately notify the Guarantor and the CDFI Fund of any
material change or event that affects any representation, warranty or
covenant of the Guarantee, Bond or Bond Loan documents;
(n) Pay and discharge all Federal, State and local taxes;
and
(o) Comply with all other covenants set forth in the Bond Documents
and Bond Loan documents.
Sec. 1808.611 Covenants of Eligible CDFI with respect to Bond and
each Bond Loan.
The Eligible CDFI shall covenant in the Bond Loan agreement that it
will:
(a) Furnish to the Qualified Issuer, at the Eligible CDFI's
expense, certain annual and periodic financial and performance
reporting;
(b) Maintain books and records related to the Bond Loan and
Secondary Loans, the collateral and the project that is to be financed
by Bond Loan proceeds, and allow inspection thereof;
(c) Preserve its corporate existence and Certified CDFI status;
[[Page 8325]]
(d) Comply with all laws to which it is subject;
(e) Maintain insurance, as required by the Qualified Issuer,
against such risks as would customarily be maintained by commercially
reasonable companies in a similar line of business;
(f) Pay and discharge all Federal, State and local taxes;
(g) Ensure proper use of proceeds of the Bond Loan;
(h) Pay all required administrative expenses;
(i) Indemnify the Guarantor, the CDFI Fund, the Qualified Issuer
and the Master Servicer/Trustee and their Affiliates;
(j) Collaterally assign all rights, title, and interest in and to
Secondary Loan collateral to the Master Servicer/Trustee;
(k) Maintain the collateral;
(l) Enforce the covenants against the Secondary Borrowers;
(m) Be bound, to the extent applicable, to provisions of the Bond
Trust Indenture;
(n) Periodically, as directed by the CDFI Fund, furnish certain
information designed to measure the impacts of the Bond Loan and the
CDFI Bond Guarantee Program;
(o) Periodically, as directed by the CDFI Fund, furnish to the
Qualified Issuer and/or the CDFI Fund updates to the Capital
Distribution Plan; and
(p) Comply with all other representations and warranties set forth
in the Bond Loan documents.
Sec. 1808.612 Specific financial covenants of Eligible CDFI.
The Eligible CDFI shall covenant in Bond Loan documents that it
will comply with specific financial requirements as required by the
Guarantor and the CDFI Fund. Such financial requirements will be
determined based upon the quantity and the character of the existing
loan facilities of the Eligible CDFI, among other factors. The specific
financial covenants may include, but are not limited to, one or more of
the following measures: consolidated net asset ratio; consolidated
unrestricted net asset ratio; and minimum available liquidity (or, in
the case of Eligible CDFIs that are regulated financial institutions,
such ratios and information as may be required by the applicable
Appropriate Federal Banking Agency or Appropriate State Agency). The
specific financial requirements shall be measured based upon such
Eligible CDFI's financial statements prepared in accordance with
generally accepted accounting principles and consistent with
historically applied accounting policies and practices.
Sec. 1808.613 Negative covenants of Eligible CDFI.
The Eligible CDFI will covenant in Bond Loan documents that it will
comply with certain negative covenants, as required by the CDFI Fund
including, but not limited to, that it will:
(a) Not incur or issue additional long-term or short-term debt to
the extent that the incurrence of such additional debt would violate
the specific financial covenants of such Eligible CDFI under the Bond
Loan; and
(b) Not permit liens on all or any part of the Bond Loan
collateral, except as permitted pursuant to the Bond Loan documents,
and only then to the extent consistent with the applicable laws and
regulations governing the Bond Loan and as approved by the CDFI Fund.
Sec. 1808.614 Covenants of Secondary Borrower with respect to
Secondary Loan.
In addition to making specific representations and warranties with
respect to the collateral and the project being financed by the
Secondary Loan proceeds, each Secondary Borrower shall covenant in the
Secondary Loan agreement that it will:
(a) Periodically, as directed by the Eligible CDFI, furnish to the
Eligible CDFI certain annual and periodic financial and performance
reporting;
(b) Maintain books and records related to the Secondary Loan, the
collateral and the project that is to be financed by Bond Loan
proceeds, and allow inspection thereof;
(c) Preserve its corporate existence, as applicable;
(d) Comply with all laws to which it is subject;
(e) Maintain insurance, as directed by the Eligible CDFI, against
such risks as would customarily be maintained by commercially
reasonable companies in a similar line of business;
(f) Pay and discharge all Federal, State and local taxes;
(g) Ensure proper use of proceeds of the Secondary Loan;
(h) Maintain the collateral;
(i) Periodically, as directed by the Eligible CDFI, furnish to the
Eligible CDFI certain information designed to measure the impacts of
the Bond Loan and the CDFI Bond Guarantee Program;
and
(j) Comply with all other representations and warranties set forth
in the Secondary Loan documents.
Sec. 1808.615 Negative covenants of Secondary Borrower.
Any additional debt of the Secondary Borrower shall be in
accordance with the requirements set forth in the applicable Secondary
Loan Requirements and the Secondary Loan agreement, and may include,
but shall not be limited to, that:
(a) The Secondary Borrower will not incur or issue additional long-
term or short-term debt payable from and having a lien on all or a
portion of the Secondary Loan collateral that is
(1) Equally and ratably secured; or
(2) Superior or senior to the lien thereon of the Secondary Loan as
more specifically set forth in the Secondary Loan agreement; and
(b) So long as no event of default has occurred and is continuing,
the Secondary Borrower may, subject to the approval of the Eligible
CDFI, incur or issue at any time additional debt payable from and
having a lien on all or a portion of the Secondary Loan collateral that
is subordinate or junior to the lien thereon of the Secondary Loan and
enter into subordinate credit facility agreements, provided that no
events of default have occurred and are continuing under the Secondary
Loan documents or any parity senior loan documents and that such debt
meets the requirements set forth in paragraph (a) of this section.
Sec. 1808.616 Events of default and remedies with respect to Bonds.
(a) Events of default. An event of default with respect to any Bond
shall include, but not be limited to:
(1) Nonpayment of interest or the Agency Administrative Fee when
due and payable;
(2) Nonpayment of principal or prepayment price when due and
payable;
(3) The use of Bond Proceeds for any purpose other than an Eligible
Purpose; and
(4) Any other events of default set forth in the Bond or the Bond
Trust Indenture.
(b) Default of other Bonds. An event of default under one Bond
shall not constitute an event of default under another Bond.
(c) Remedies. Pursuant to the Agreement to Guarantee and the Bond
Trust Indenture, remedies upon an event of default shall include, but
not be limited to, the following:
(1) Declaring the entire amount of unpaid principal and interest on
the applicable Bond immediately due and payable; and
(2) Exercising all remedies available under the applicable
Agreement to Guarantee and the Bond Trust Indenture.
(d) Notice and comment. Prior to imposing any remedies pursuant to
this section or the Agreement to Guarantee, the Guarantor shall, to the
maximum
[[Page 8326]]
extent practicable, provide the Qualified Issuer with written notice of
the proposed sanction and an opportunity to comment. Nothing in this
section, however, shall provide a Qualified Issuer the right to any
formal or informal hearing or comparable proceeding not otherwise
required by law.
Sec. 1808.617 Events of default and remedies with respect to Bond
Loans.
(a) Events of default. The following shall constitute an event of
default with respect to each Bond Loan:
(1) Nonpayment of interest when due and payable;
(2) Nonpayment of principal or prepayment price when due and
payable;
(3) Failure of the Eligible CDFI to perform any condition or
covenant under any Bond Loan document;
(4) Any representation or warranty of the Eligible CDFI made in
connection with the Guarantee Application or the Bond Loan is false or
incorrect in any material respect;
(5) Principal or interest on any indebtedness of the Eligible CDFI
or any subsidiary of the Eligible CDFI in excess of $100,000 is not
paid when due (subject to a cure period);
(6) The holder of any junior or parity lien on collateral
institutes a proceeding to enforce a lien on the collateral;
(7) The Eligible CDFI files bankruptcy or consents to the
appointment of a receiver or trustee for itself or the collateral;
(8) Any money judgment is filed against the Eligible CDFI and
remains unvacated for a period of 60 days from filing;
(9) The use of Bond Loan proceeds for any purpose other than an
Eligible Purpose; or
(10) Any other events of default set forth in the Bond Loan
documents.
(b) Remedies. Remedies of the Qualified Issuer upon an event of
default include, but are not limited to, the following:
(1) Declaring the entire amount of unpaid principal and interest on
the applicable Bond Loan immediately due and payable;
(2) Applying for appointment of a receiver or trustee for the
collateral;
(3) At the direction of the Guarantor, terminating the Bond Loan
agreement, declaring the entire amount of unpaid principal and interest
on the applicable Bond Loan immediately due and payable; and
(4) Exercising all remedies available under the applicable Bond
Loan agreement, including declaring the Bond Loan Payment Default Rate
in effect.
(c) Enforcement rights. The Guarantor reserves all rights to
enforce remedies upon an event of default.
Sec. 1808.618 Events of default and remedies with respect to
Secondary Loans.
(a) Events of default. The following shall constitute an event of
default with respect to each Secondary Loan:
(1) Nonpayment of interest when due and payable;
(2) Nonpayment of principal when due and payable;
(3) Failure of the Secondary Borrower to perform any condition or
covenant under any Secondary Loan document;
(4) Any representation or warranty of the Secondary Borrower made
in connection with the Secondary Loan application or the Secondary Loan
documents is false or incorrect in any material respect;
(5) Principal or interest on any indebtedness of the Secondary
Borrower or any subsidiary of the Secondary Borrower in excess of
$100,000 is not paid when due (subject to a cure period);
(6) The holder of any junior or parity lien on collateral
institutes a proceeding to enforce a lien on the collateral;
(7) The Secondary Borrower files bankruptcy or consents to the
appointment of a receiver or trustee for itself or the collateral;
(8) Any money judgment is filed against the Secondary Borrower and
remains unvacated for a period of 60 days from filing; or
(9) Any other events of default set forth in the Secondary Loan
documents.
(b) Remedies. The Qualified Issuer and the Guarantor will reserve
certain rights to enforce (or direct enforcement of) remedies upon an
event of default under the Secondary Loan documents.
Sec. 1808.619 Reporting requirements.
The Bond Documents and Bond Loan documents shall specify such
monitoring and financial reporting requirements as deemed appropriate
by the CDFI Fund including, but not limited to the following:
(a) Data--General. As long as the Bonds remain outstanding, a
Qualified Issuer shall provide such reports and shall maintain such
records as may be prescribed by the CDFI Fund that are necessary to:
(1) Disclose the manner in which Bond Proceeds are used, including
providing documentation to demonstrate proceeds of the Bond Loans were
used for Eligible Purposes;
(2) Demonstrate compliance with the requirements of this part and
the Bond Documents;
(3) Evaluate the impact of the CDFI Bond Guarantee Program;
(4) Ensure the Qualified Issuer meets the performance standards
over the life of the facilities; and
(5) Accomplish such other purposes that the CDFI Fund may deem
appropriate.
(b) Customer profiles. The Qualified Issuer shall require each
Eligible CDFI to compile such data on the gender, race, ethnicity,
national origin, or other information on individuals and entities that
utilize its products and services as the CDFI Fund shall prescribe and
as is permissible under applicable law. In general, such data will be
used to determine whether residents of Investment Area(s) or members of
Targeted Population(s) are adequately served and to evaluate the impact
of the CDFI Bond Guarantee Program.
(c) Audits; Access to records. (1) The CDFI Fund may, if it deems
appropriate, audit Qualified Issuers, Eligible CDFIs, Program
Administrators, Servicers, and/or the Master Servicer/Trustee, or
provide for or require an audit, at least annually. Portfolio
management and loan monitoring will also employ risk-based, on-site
verification of the Eligible CDFI's lending activities to Secondary
Borrowers and compliance with the terms in Secondary Lending
Requirements.
(2) Qualified Issuers, Eligible CDFIs, Program Administrators,
Servicers, the Master Servicer/Trustee, as applicable, must submit such
financial and activity reports, records, statements, and documents at
such times, in such forms, and accompanied by such reporting data, as
required by the CDFI Fund to ensure compliance with the requirements of
this interim rule and to evaluate the impact of the CDFI Bond Guarantee
Program.
(3) The Federal Government, including the U.S. Department of the
Treasury, the Comptroller General, and their duly authorized
representatives, shall have full and free access to such entities'
offices and facilities and all books, documents, records, and financial
statements relating to the Guarantee and may copy such documents as
they deem appropriate
(4) The CDFI Fund, if it deems appropriate, may prescribe audit and
access to record requirements for Eligible CDFIs and Secondary
Borrowers.
(d) Retention of records. Qualified Issuers, Eligible CDFIs,
Program Administrators, the Master Servicer/Trustee, and Servicers
shall comply with all record retention requirements as set forth in OMB
Circular A-110 (as applicable).
(e) Data collection and reporting. Qualified Issuers, Eligible
CDFIs, the
[[Page 8327]]
Program Administrator, the Master Servicer/Trustee, and Servicers, as
applicable, shall submit to the CDFI Fund, monthly, quarterly, and
annually, as specified in the Bond Documents, and as long as the Bond
shall remain outstanding, such information and documentation that will
permit the CDFI Fund to review compliance with the Capital Distribution
Plan and the terms and conditions of the Bond Documents, and to perform
adequate portfolio management and loan monitoring. The information and
documentation may include, but not be limited to, the following:
(1) Financial statements, including but not limited to:
(i) Annual financial statements for the Qualified Issuer and each
Eligible CDFI that have been audited in conformity with generally
accepted auditing principles; and
(ii) With respect to any nonprofit Qualified Issuer and any
Eligible CDFI that is required to have its financial statements audited
pursuant to OMB Circular A-133 Audits of States, Local Governments and
Non-Profit Organizations, annual A-133 audited financial statements.
Non-profit Qualified Issuers and Eligible CDFIs that are not required
to have financial statements audited pursuant to OMB Circular A-133
must submit to the CDFI Fund a statement signed by the Qualified Issuer
or Eligible CDFI's authorized representative or certified public
accountant, asserting that a single audit pursuant OMB Circular A-133
is not required;
(2) Pro forma projection of the Qualified Issuer's and Eligible
CDFI's respective balance sheet, income statement, and statement of
cash flows over the ensuing five years, or such other time period as
specified by the CDFI Fund;
(3) Such institution-level and transaction-level reports as may be
required by the CDFI Fund;
(4) Information necessary to measure the financial condition of the
Eligible CDFI. This includes, but is not limited to, measuring solvency
by collecting data on fixed charge coverage, capital adequacy, debt
coverage, and measuring liquidity by collecting data on core financial
ratios, including current ratios, quick ratios, working capital, and
operating liquidity ratio. This will also include credit reporting,
financial statement analysis, trend analysis of financial conditions,
market valuation, loan performance (30/60/90 payment history) of Bond
Loans and Secondary Loans, valuation and eligibility of Secondary Loan
collateral, and management and organization changes;
(5) Information necessary to assess Program impact performance and
outcome measures, including information necessary to evaluate the
credit-worthiness of loan applicants; and
(6) Other such information and reports as may be requested by the
CDFI Fund.
(f) Qualified Issuer reports. Qualified Issuers are responsible for
the timely and complete submission of all required information and
reports, even if all or a portion of the documents actually are
completed by the Eligible CDFI. The CDFI Fund reserves the right to
contact the Qualified Issuer or Eligible CDFI and require that
additional information and documentation be provided.
(g) Regulator information. The CDFI Fund's review of a regulated
Qualified Issuer's or regulated Eligible CDFI's performance or
compliance with the Bond Documents may also include information
provided by the Appropriate Federal Banking Agency or Appropriate State
Agency, as the case may be.
(h) Public inspection. The CDFI Fund shall make reports described
in this section available for public inspection after deleting any
materials necessary to protect privacy or proprietary interests
pursuant to all applicable laws and regulations.
(i) Availability of referenced publications. The publications
referenced in this section are available as follows:
(1) OMB Circulars may be obtained from the Office of
Administration, Publications Office, 725 17th Street NW., Room 2200,
New Executive Office Building, Washington, DC 20503 or on the Internet
(http://www.whitehouse.gov/omb/grants_circulars/); and
(2) Government Accountability Office materials may be obtained from
GAO Distribution, 700 4th Street NW., Suite 1100, Washington, DC 20548.
Sec. 1808.620 Investments in Guaranteed Bonds ineligible for
Community Reinvestment Act Purposes.
Notwithstanding any other provision of law, any investment by a
financial institution in Bonds shall not be taken into account in
assessing the record of such institution for purposes of the Community
Reinvestment Act of 1977 (12 U.S.C. 2901). Other forms of participation
by financial institutions in CDFI Bond Guarantee Program transactions
may be eligible for inclusion in Community Reinvestment Act records to
the extent permitted by the Appropriate Federal Banking Agency.
Sec. 1808.621 Conflict of interest requirements.
(a) Provision of Bond Loans or Secondary Loans to Affiliates. (1) A
Qualified Issuer or Eligible CDFI that is not regulated by an
Appropriate Federal Banking Agency or Appropriate State Agency may not
use any Bond Proceeds or Bond Loan proceeds to make any Bond Loans or
Secondary Loans available to an Affiliate unless it meets the following
restrictions:
(i) The loan must be provided pursuant to standard underwriting
procedures, terms and conditions;
(ii) The Affiliate receiving the loan shall not participate in any
way in the decision-making regarding such loan;
(iii) The board of directors or other governing body of the lender
shall approve the extension of the loan; and
(iv) The loan must be provided in accordance with a policy
regarding credit to Affiliates that has been approved in advance by the
CDFI Fund.
(2) A Qualified Issuer or Eligible CDFI that is an Insured CDFI, a
Depository Institution Holding Company or a State-Insured Credit Union
(as such terms are defined in 12 CFR 1805.104) shall comply with the
restrictions on insider activities and any comparable restrictions
established by its Appropriate Federal Banking Agency or Appropriate
State Agency, as applicable.
(b) Standards of conduct. Qualified Issuers, Eligible CDFIs,
Program Administrators, the Master Servicer, and Servicers shall
maintain a code or standards of conduct acceptable to the CDFI Fund
that govern the performance of employees engaged in the awarding and
administration of any loan. No employee of a Qualified Issuer, Eligible
CDFI, Program Administrators, the Master Servicer, and Servicer shall
solicit or accept gratuities, favors or anything of monetary value from
any actual or potential borrowers for such loans. Such policies shall
provide for disciplinary actions to be applied for violation of the
standards by employees.
Sec. 1808.622 Compliance with government requirements.
In carrying out its responsibilities pursuant to any agreements
associated with the CDFI Bond Guarantee Program, all Qualified Issuers,
Eligible CDFIs, Program Administrators, Servicers, and the Master
Servicer/Trustee shall comply with all applicable Federal, State, and
local laws, regulations, and ordinances, OMB Circulars, and Executive
Orders, including restrictions on lending to entities with delinquent
Federal debt.
[[Page 8328]]
Sec. 1808.623 Lobbying restrictions.
No fees or funds made available under this part may be expended by
a party to pay any person to influence or attempt to influence any
agency, elected official, officer or employee of a State or local
government in connection with the making, award, extension,
continuation, renewal, amendment, or modification of any State or local
government contract, grant, loan or cooperative agreement as such terms
are defined in 31 U.S.C. 1352.
Sec. 1808.624 Criminal provisions.
The criminal provisions of 18 U.S.C. 657 regarding embezzlement or
misappropriation of funds are applicable to all CDFI Bond Guarantee
Program participants and insiders.
Sec. 1808.625 CDFI Fund deemed not to control.
The CDFI Fund shall not be deemed to control a CDFI Bond Guarantee
Program participant by reason of any Guarantee provided under the Act
for the purpose of any applicable law.
Sec. 1808.626 Limitation on liability.
The liability of the Federal Government arising out of any fees or
funds obtained by a CDFI Bond Guarantee Program participant in
accordance with this interim rule shall be limited to the amount of the
fees or funds obtained by the CDFI Bond Guarantee Program participant.
The Federal Government shall be exempt from any assessments and other
liabilities that may be imposed on controlling or principal
shareholders by any Federal law or the law of any State. Nothing in
this section shall affect the application of any Federal tax law.
Sec. 1808.627 Fraud, waste and abuse.
Any person who becomes aware of the existence or apparent existence
of fraud, waste or abuse of any Guarantee, Bond, Bond Loan or Secondary
Loan provided under this interim rule must report such incidents to the
Office of Inspector General of the U.S. Department of the Treasury.
Dated: January 24, 2013.
Donna J. Gambrell,
Director, Community Development Financial Institutions Fund.
[FR Doc. 2013-02055 Filed 2-1-13; 8:45 am]
BILLING CODE 4810-70-P