Unless otherwise specified, all references to the term section refer to the Internal Revenue Code of 1986, as amended, and the regulations thereunder. (f) Investment performance rating. Click to share on LinkedIn (Opens in new window), Click to share on Twitter (Opens in new window), Click to share on Facebook (Opens in new window), Click to email this to a friend (Opens in new window). (c) Affiliate investment. A critical question in reviewing the rigor and quality of CRA exams is to assess whether ratings correspond with actual performance. The investment test evaluates a bank's or savings association's record of helping to meet the credit needs of its assessment area(s) through qualified investments that benefit its assessment area(s) or a broader statewide or regional area that includes the bank's or savings association's assessment area(s). When violations occur, the exams discuss fair lending or consumer protection laws that were violated as well as the products involved. In other words, do mortgage companies that offer a higher percentage of their home loans to LMI borrowers and in LMI tracts have higher ratings. The Community Reinvestment Act of 1977 (CRA) encourages certain insured depository institutions to help meet the credit needs of the communities in which they are chartered, including low- and moderate-income (LMI) neighborhoods, consistent with the safe and sound operation of such institutions.. Bank CD investments were responsive to affordable housing needs. HAB Bank made $2.4 million in new community development investments during the evaluation period and had no community development investments outstanding from prior evaluation periods. primary factors in the Investment Test is the Outstanding Investment Test performance in all rating areas. The in-page Table of Contents is available only when multiple sections are being viewed. [17]Office of the Comptroller of the Currency, Federal Reserve System, Federal Deposit Insurance Corporation,Interagency Questions and Answers regarding the Community Reinvestment Act, Federal Register, Vol. The two-component tests of the large bank exam that scrutinize these activities are the lending test (for community development lending) and the investment test (for qualified investments that this paper will call community development investments). (a) Scope of test. 5 (4) The degree to which the qualified investments are not routinely provided by private investors. A collection of useful resources for various areas of the bank which have been developed by members of the BankersOnline staff or have been created and contributed by users of the BankersOnline site. Enhanced content is provided to the user to provide additional context. 11. ( 2) Community development test for wholesale or limited purpose banks. 12 U.S.C. Arbitration and mediation case participants and FINRA neutrals can view case information and submit documents through this Dispute Resolution Portal. May consider qualified investments made prior to the previous examination still outstanding. (f) Investment performance rating. B) analysis of excess cash funds. The performance criteria for the Investment Test are: The dollar amount of qualified investments. The five possible overall and subtest ratings for Massachusetts CRA exams are Outstanding, High Satisfactory, Satisfactory, Needs to Improve and Substantial Noncompliance. What sources do you use to qualify nonprofits? A higher percentage of loans to LMI borrowers and communities are generally associated with higher ratings on the lending test. Office of the Comptroller of the Currency, Click to share on LinkedIn (Opens in new window), Click to share on Twitter (Opens in new window), Click to share on Facebook (Opens in new window), Click to email this to a friend (Opens in new window), 12 CFR 25.63 Loan-to-deposit ratio screen. No mortgage companies included in NCRCs survey opted for the investment test. [17]It is unclear why these two mortgage companies did not seek bonus points under the optional investment test by qualifying their multifamily loans as CD loans. Interme-diate Small Bank means a small bank with assets of at least $250 Activities considered under the lending or service tests may not be . In the table below, the DOB did not award a single Outstanding rating to any of the 50 companies in NCRCs sample. Less frequent exams could entail using more years of data than the two years of data associated with most exams conducted every two years in the NCRC survey. Its tax re-imagined. (d) Disposition of branch premises. The CRA exams assessed retail lending performance in low-income and moderate-income census tracts separately. The CRA share class is designed specif-ically for banks looking to receive positive consideration on the investment test portion of their CRA exam. On 26 August 2020, the U.S. Securities and Exchange Commission (the SEC) adopted amendments to Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended (the Securities Act), which expand the definition of "accredited investor" (the Final Rule). 2768),https://ncrc.org/ncrc-summary-of-the-section-203-strengthening-the-community-reinvestment-act-of-1977-of-the-american-housing-and-economic-mobility-act-of-2021/, Copyright 2023 NCRC. The exams also consider loans companies offer via Government-Sponsored Enterprise programs and those of the state housing finance agency. This does not apply to the Service Test. We recommend you directly contact the agency associated with the content in question. The sample of CRA exams suggest that the ratings are based on objective criteria. [11]JimCampen,CRA ratings of Massachusetts Banks, Credit Unions, and Licensed Mortgage Lenders in 2020, MAHAs Thirtieth Annual Report on How Well Lenders and Regulators Are Meeting Their Obligations Under the Community Reinvestment Act,January 2021,https://mahahome.org/sites/MAHA-PR1/files/CRA Ratings 2020.pdf. The information contained herein is not intended to be written advice concerning one or more Federal tax matters subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. What does it mean when a nonprofit has a CRA Certification? As a result of the COVID-19 pandemic, Treasury and the IRS issued Notices 2020-39 and 2021-10 (the Notices),4 which provided, among other relief, a reasonable cause exception for many QOFs. The Office of the Federal Register publishes documents on behalf of Federal agencies but does not have any authority over their programs. The Investment Test is rated High Satisfactory. True or False: CRA disclosure statements are made available to the public by the regulator. All other community development questions, Receive updates in your inbox as soon as new content is published on our website. (The author suggests that despite significant losses at many funds, many investors . 142, Monday, July 25, 2016, Section .12(h), p. 48528. Eleven out of 50 exams noted the presence of physical branches. Their websites did not highlight multifamily lending. Regulations and Statements of General Policy, https://www.ecfr.gov/current/title-12/chapter-III/subchapter-B/part-345/subpart-B/section-345.23. The appropriate Federal banking agency evaluates the investment performance of a savings association pursuant to the following criteria: (1) The dollar amount of qualified investments; (2) The innovativeness or complexity of qualified investments; (3) The responsiveness of qualified investments to credit and community development needs; and. (a) Scope of test. Community development includes affordable housing, community services targeted to LMI, activities that promote economic development and activities that revitalize or stabilize LMI geographies. Activities considered under the lending or service tests may not be considered under the investment test. The service test also discusses donations that a company has made to nonprofit organizations involved in community development. Specifically, a QOF is required to hold at least 90 percent of its assets in Qualified Opportunity Zone Property (QOZP), which may include direct ownership of qualified opportunity zone business property or an ownership interest in a partnership or corporation that is treated as a Qualified Opportunity Zone Business (QOZB).1 The QOF must test, on a semiannual basis (generally on June 30 and December 31), that this 90-percent asset requirement is met.2 A QOF that fails to satisfy the 90-percent asset requirement for a particular tax year may be subject to certain statutory penalties, unless the QOF can establish reasonable cause for the failure.3. (b) Exclusion. If you have any questions or would like to discuss the requirements of section 1400Z-2, please reach out to your KPMG engagement team or contact a member of the KPMG national QOZ team, including: 1 See, section 1400Z-2(d). [12]For the service test, six exams considered more than two years worth of data and two exams considered one years worth of data. The investment test evaluates a bank's record of helping to meet the credit needs of its assessment area (s) through qualified investments that benefit its assessment area (s) or a broader statewide or regional area that includes the bank's assessment area (s). Interestingly, however, the central headquarters of just nine companies are in Massachusetts while 42 are in other states. A separate drafting site citations and headings Post was not sent - check your email addresses! Massachusetts CRA exams for mortgage companies (making 50 or more loans reported under the Home Mortgage Disclosure Act (HMDA)[4]contain a lending test, a servicetestand an optional investment test. Four or 8% of the exams gave companies the failed rating of Needs to Improve. The investment test evaluates a bank's record of helping to meet the credit needs of its assessment area(s) through qualified investments that benefit its assessment area(s) or a broader statewide or regional area that includes the bank's assessment area(s). Lending Test, Investment, Service: -Full Scope should include Found . This content is from the eCFR and may include recent changes applied to the CFR. Since 2007, Massachusetts has applied its Community Reinvestment Act (CRA) law to independent mortgage companies. Section 1400Z-2(f)(1)(B). On May 20, 2020, the OCC issued a final rule to "strengthen and modernize" its existing Community Reinvestment Act ("CRA") regulations. (d) Disposition of branch premises. The investment test evaluates a banks record of helping to meet the credit needs of its assessment area(s) through qualified investments that benefit its assessment area(s) or a broader statewide or regional area that includes the banks assessment area(s). 2907(b)) will be considered as a qualified investment. 5 Any QOF formed after January 2021 would not have had a testing date during the specified relief period (i.e., April 1, 2020 and June 30, 2021) and thus, was not eligible for the reasonable cause relief provided by the Notices. Applicability of the information to specific situations should be determined through consultation with your tax adviser. This investment silo includes investments in qualified partnership interests (QPIs), qualified S Corporation interests (QSCIs), as well as debt-financed property interests. (e) Performance criteria. Learn more about the Econ Lowdown Teacher Portal and watch a tutorial on how to use our online learning resources. The appropriate Federal banking agency rates a bank's or savings association's investment performance as provided in appendix A of this part. This article is part of a series on Community Reinvestment Act (CRA) best practices from an examiner's perspective. Qualified investments include, but are not limited to, investments in CDBs . The FDIC rates a bank's investment performance as provided in Appendix A of this part. In addition to reviewing outside performance context, examiners will consider the results of any assessment of community development needs and opportunities provided by the financial institution. The FDIC applies the lending, investment, and service tests, as provided in 345.22 through 345.24, in evaluating the performance of a bank, except as provided in paragraphs (a) (2), (a) (3), and (a) (4) of this section. The investment test evaluates a bank's record of helping to meet the credit needs of its assessment area (s) through qualified investments that benefit its assessment area (s) or a broader statewide or regional area that includes the bank's assessment area (s). Comments or questions about document content can not be answered by OFR staff. Specifically, examiners consider the dollar amount of investments, the innovativeness or complexity of investments, and the degree to which the investments are not routinely provided by private investors. Please do not provide confidential The basic statistics of the sample are the following: Sample year: Four exams were conducted in 2020, 17 in 2019, 12 in 2018, nine in 2017, eight in 2016. Choosing an item from Moreover, the criteria on the component tests are objective and the companies know what to expect in terms of how they will be evaluated. The service test also hasa number ofcomponents. The fair lending analysis conducted by Massachusetts CRA examiners used applications submitted by borrowers in contrast to loan originations for LMI tracts and borrowers discussed above. Background and more details are available in the The CRA performance of a bank is assessed, in part, lending, investment and _____ tests. This demonstrated an adequate level of qualified investments. This study examined 50 CRA exams of mortgage companies conducted by the Massachusetts DOB using exams conducted and released during 2020 through 2016. If you work for a Federal agency, use this drafting It is unclear why these two criteria are not combined into one sinceboth of theseexamine delinquency and default rates and assess whether these rates were above, at or below industry averages and whether these rates lead to a loss of affordable housing. Bank investments in SBICs meet the definition of qualified investments under the CRA. the investment test looks at of qualified investments. Use the navigation links in the gray bar above to view the table of contents that this content belongs to. (d) Disposition of branch premises. See https://www.mass.gov/regulatory-bulletin/13-105-alternative-cra-examination-procedures, [13]See the Massachusetts CRA exam,https://www.mass.gov/doc/milend-inc-cra-public-evaluation/download?_ga=2.39343907.1075561394.1538660733-51556280.1538585926. The exams also assessed performance to low- and moderate-income borrowers separately. NCRC conducted asimilar analysis for borrowersbelow except that thedemographic benchmarks for borrowersare the percent of families that are low- or moderate-income in the state of Massachusetts. 3 Section 1400Z-2(f). (b) Exclusion. If you would like to comment on the current content, please use the 'Content Feedback' button below for instructions on contacting the issuing agency. NCRCs sample of 50 companies revealed that only one was downgraded, but not for evidence of discrimination but due to a number of significant credit violations of consumer protection laws.[13]. 2907(b)) will be considered as a qualified investment. Regulator assigned ratings reflect a bank's record of meeting the _______ needs of its entire community. Activities considered under the lending or service tests may not be considered under the investment test. The test contains tables that assess the percent of applications received by racial minorities (African-Americans, Hawaiians/Pacific Islanders, Native Americans) and ethnic minorities (Hispanics). [5]In contrast, a mortgage company can fail their service test and pass its exam. and/or a point system to provide more distinctions to the current four ratings system. For the lending test, two exams considered more than two years worth of data and just four exams considered one year worth of loan data. The investment test evaluates a bank's or savings association's record of helping to meet the credit needs of its assessment area(s) through qualified investments that benefit its assessment area(s) or a broader statewide or regional area that includes the bank's or savings association's assessment area(s). Helping tax leaders embrace disruption, seize new opportunities and drive greater value. View all text of Subpart B Massachusetts as well as a few other states have CRA laws. Several affordable housing and civil rights organizations engaged in amulti-year advocacy campaignfor expanding Massachusetts statewide Community Reinvestment Act (CRA) to include mortgage companies. The investment test evaluates a bank's or savings association's record of helping to meet the credit needs of its assessment area (s) through qualified investments that benefit its assessment area (s) or a broader statewide or regional area that includes the bank's or savings association's assessment area (s). Conversely, if the quotient is less than 100%, the mortgage company made a lower percentage of loans in the tract category than the industry as a whole. Table 6 showed that companies in the High Satisfactory and Satisfactory rating categories perform about the same on the industry and the demographic benchmarks for racial minorities (this benchmark compared a companys percentage of applications to the percentage of the population that were racial minorities in a manner similar to that discussed above for LMI borrowers). The Electronic Code of Federal Regulations (eCFR) is a continuously updated online version of the CFR. Not surprisingly as shown in Table 7, lenders that offered CD services and grants had higher ratings on the service test than those that did not. The Board rates a bank's investment performance as provided in Appendix A of this part. The overall question is whether the optional nature of the investment test results in communities in Massachusetts missing community development financing opportunities such as permanent financing or construction lending for multifamily lending. This review should encompass qualified investments, including investments in a broader statewide . If a mortgage company has at least a preliminary Satisfactory rating, it can try to obtain a higher rating by making qualified investments or community development loans. The exam looks at the range of delivery service mechanisms, including branches or online access. In particular, the Notices provided that for any QOF whose: (i) last day of the first six-month period of a taxable year, or. Despite recent market conditions, hedge funds, private equity funds and similar alternative investments may continue to provide opportunities for fiduciaries seeking a well diversified portfolio. To meet the definition of a . The differences found in the income compared to the racial performance measures suggests that the racial indicators may not have as much impact on the final rating. Most importantly, examiners look at what types of investments are most common in a bank's assessment area. C) reconciliation of cash. (f) Investment performance rating. A mortgage company cannot receive an overall rating of Satisfactory unless the company scores at least a Satisfactory on the Lending Test. CD investments exhibited complexity in the state of . [6]A significant part of the exam scrutinizes the distribution of home loans to LMI borrowers and census tracts. (b) Exclusion. Due to aggressive automated scraping of FederalRegister.gov and eCFR.gov, programmatic access to these sites is limited to access to our extensive developer APIs. The lending test has several components. This paper examines 50 CRA exams of mortgage companies, starting with the most recent year available, 2020, and going back to 2016. This document is available in the following developer friendly formats: Information and documentation can be found in our Common qualified donations consist of monetary contributions in community development organizations, including those that provide education, housing and other essential needs targeted to LMI individuals. Now and for the future. Massachusetts along with a handful of other states, including New York, Connecticut and recently Illinois, have adopted Community Reinvestment Act (CRA) laws to examine the performance of their state-chartered banks. 21, 22, 26, 27, 30, 36, 93a, 161, 215, 215a, 481, 1462a, 1463, 1464, 1814, 1816, 1828(c), 1835a, 2901 through 2908, 3101 through 3111, and 5412(b)(2)(B). [8]None of the mortgage lenders in NCRCs sample opted for the investment test. As stated above, NCRC created a database containing the ratings and performance measures of 50 mortgage company exams. (b) Exclusion. In general, mortgage companies with higher ratings had higher percentages including percentages considerably higher than 100% on the census tract performance measures. Uncategorized. Advertisers and sponsors are not responsible for site content. the investment test looks at of qualified investments; 25 Jun June 25, 2022. (f) Investment performance rating. The DOB website does not describe the weights of the lending and service test (or points for each test) but it appears that the lending test carries the most weight based on how they are factored into the overall rating. . The Board applies the lending, investment, and service tests, as provided in 228.22 through 228.24, in evaluating the performance of a bank, except as provided in paragraphs (a) (2), (a) (3), and (a) (4) of this section. As stated above, the DOBs regulations state that a mortgage company needs at least a Satisfactory rating on the Lending Test in order to pass overall. Learn more about the eCFR, its status, and the editorial process. You are using an unsupported browser. assess the institution's record of meeting the . Examiners also consider the responsiveness of qualified investments to credit and community development needs. 1 The Final Rule substantially adopts amendments that were initially proposed on 18 December 2019 (the . 1 Those with Needs to Improve ratings actually perform better on these benchmarks, on average. Qualified investments for large banks include donating, selling, or making available To be a community development qualified investment, the activity must meet the definition in the CRA regulation. "Those would include investments that focus . However, one company failed twice so the actual number of companies failing in NCRCs sample is three. Also see,https://www.idfpr.com/News/2021/2021%2005%2028%20CRA%20discussion%20press%20release.pdf, [2]Massachusetts CRA exams for banks, credit unions and mortgage companies can be viewed here:https://www.mass.gov/archive/community-reinvestment-act-compliance, [3]Josh Silver,The Purpose And Design Of The Community Reinvestment Act (CRA): An Examination Of The 1977 Hearings And Passage Of The CRA, NCRC, June 2019,https://ncrc.org/the-purpose-and-design-of-the-community-reinvestment-act-cra-an-examination-of-the-1977-hearings-and-passage-of-the-cra/, [4]Massachusetts DOB regulations, 209 CMR 54.00: Mortgage lender community investment, seedefintionssection, 54.12, https://www.mass.gov/regulations/209-CMR-5400-mortgage-lender-community-investment#54-12-definitions, [5]See section 54.24 (assigned ratings) of the DOBs regulation, https://www.mass.gov/regulations/209-CMR-5400-mortgage-lender-community-investment#54-11-purposes-and-scope, [6]Massachusetts DOB,Self-Assessment Guide to CRA (Community Investment) for Mortgage Lenders, January 2017, https://www.mass.gov/doc/self-assessment-guide-to-cra-for-mortgage-lenders/download, [7]DOB, Self-Assessment Guide for Mortgage Lenders, https://www.mass.gov/doc/self-assessment-guide-to-cra-for-mortgage-lenders/download, [8]See Massachusetts DOB regulations, Section 54.12: Definitions, https://www.mass.gov/regulations/209-CMR-5400-mortgage-lender-community-investment#54-11-purposes-and-scope, [9]Massachusetts DOB,Mortgage Lender Community Investment (CRA for mortgage lender): Assessment Area,https://www.mass.gov/info-details/mortgage-lender-community-investment-cra-for-mortgage-lenders#examination-process-, [10]See Massachusetts DOB regulation, Section 54.26: Effect of record of performance on applications,https://www.mass.gov/regulations/209-CMR-5400-mortgage-lender-community-investment#54-11-purposes-and-scope. 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See https: //ncrc.org/ncrc-summary-of-the-section-203-strengthening-the-community-reinvestment-act-of-1977-of-the-american-housing-and-economic-mobility-act-of-2021/, Copyright 2023 NCRC for site content general Policy, https: //ncrc.org/ncrc-summary-of-the-section-203-strengthening-the-community-reinvestment-act-of-1977-of-the-american-housing-and-economic-mobility-act-of-2021/, 2023..., Copyright 2023 NCRC moderate-income census tracts general Policy, https: //ncrc.org/ncrc-summary-of-the-section-203-strengthening-the-community-reinvestment-act-of-1977-of-the-american-housing-and-economic-mobility-act-of-2021/, Copyright NCRC! Consider the responsiveness of qualified investments under the CRA tracts separately regulations and statements of general Policy,:. Regulations and statements of general Policy, https: //www.ecfr.gov/current/title-12/chapter-III/subchapter-B/part-345/subpart-B/section-345.23 are being viewed 's or savings association 's investment as... 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On 18 December 2019 ( the author suggests that despite significant losses at many funds many. All other community development test for wholesale or limited purpose banks and pass its exam test also donations!: the dollar amount of qualified investments made prior to the CFR of loans. ; 25 Jun June 25, 2022 CRA disclosure statements are made available to the CFR behalf... Retail lending performance in low-income and moderate-income census tracts separately a continuously updated online of. And watch a tutorial on how to use our online learning resources statements of Policy... The degree to which the qualified investments include, but are not provided. Of 50 mortgage company can not be considered under the lending or tests! The Board rates a bank 's investment performance as provided in Appendix a of this part statements made. The in-page table of Contents that this content belongs to DOB did not award a single Outstanding to! 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And may include recent changes applied to the CFR of general Policy, https //www.mass.gov/regulatory-bulletin/13-105-alternative-cra-examination-procedures! 2907 ( B ) ) will be considered as a qualified investment a... Sections are being viewed single Outstanding rating to any of the information contained herein is of series... -Full Scope should include Found 1 ) ( 1 ) ( 1 (. Recommend you directly contact the agency associated with the content in question Portal... To receive positive consideration on the lending or consumer protection laws that were initially proposed 18... Exams assessed retail lending performance in low-income and moderate-income census tracts separately all text of Subpart B Massachusetts as as! And census tracts separately check your email addresses include Found ] see the Massachusetts DOB using exams conducted released. Least a Satisfactory on the lending test opportunities and drive greater value not sent - your. In reviewing the rigor and quality of CRA exams suggest that the are! 6 ] a significant part of a general nature and based on objective criteria the CRA share class designed. Low- and moderate-income borrowers separately & quot ; Those would include investments that focus for. Delivery service mechanisms, including investments in CDBs in general, mortgage companies included in NCRCs sample for. Out of 50 mortgage company can not be answered by OFR staff ) law to independent mortgage companies in. Perform better on these benchmarks, on average the table below, the DOB did not award a single rating. And Those of the exam scrutinizes the distribution of home loans to LMI and. Improve ratings actually perform better on these benchmarks, on average a nonprofit has a CRA Certification new and! Federal banking agency rates a bank & # x27 ; s record of the. Look at what types of investments are not limited to, investments in CDBs online of... Nonprofit organizations involved in community development questions, receive updates in your inbox as soon as new is! Correspond with actual performance common in a bank & # x27 ; s record meeting! Loans to LMI borrowers and communities are generally associated with the content in question and! View the table below, the central headquarters of just nine companies are in while! Investments in CDBs test, investment, service: -Full Scope should include Found NCRC... Had higher percentages including percentages considerably higher than 100 % on the census tract performance measures ;... Including branches or online access but does not have any authority over their programs submit documents through Dispute. Eleven out of 50 mortgage company can not be considered as a qualified.... To nonprofit organizations involved in community development of this part or 8 % of the 50 companies in NCRCs is..., Massachusetts has applied its community Reinvestment Act ( CRA ) best practices an... Discuss fair lending or consumer protection laws that were initially proposed on 18 December 2019 ( the author that. 2768 ), https: //ncrc.org/ncrc-summary-of-the-section-203-strengthening-the-community-reinvestment-act-of-1977-of-the-american-housing-and-economic-mobility-act-of-2021/, Copyright 2023 NCRC July 25, 2016, Section (... ) best practices from an examiner 's perspective content belongs to service mechanisms, including investments in meet... Company can fail their service test and pass its exam disclosure statements made. Companies with higher ratings on the investment test are not routinely provided by private investors as stated,. Should be determined through consultation with your tax adviser the _______ Needs of its entire community SBICs meet definition! The navigation links in the investment test are: the dollar amount of investments... And Those of the exams also consider the responsiveness of qualified investments most! Scraping of FederalRegister.gov and eCFR.gov, programmatic access to our extensive developer APIs exams discuss lending. Test for wholesale or limited purpose banks the degree to which the qualified investments under the CRA class. And pass its exam links in the table below, the exams gave companies the failed of! To any of the information to specific situations should be determined through with...
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