Capital Magnet Fund, 12408-12421 [2010-5026]

Agencies

• Community Development Financial Institutions Fund
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 75, Number 49 (Monday, March 15, 2010)]
[Proposed Rules]
[Pages 12408-12421]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-5026]



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Part IV





Department of the Treasury





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Community Development Financial Institutions Fund



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12 CFR Part 1807



Capital Magnet Fund; Proposed Rule; Notice of Funds Availability; 
Notice

Federal Register / Vol. 75, No. 49 / Monday, March 15, 2010 / 
Proposed Rules

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DEPARTMENT OF THE TREASURY

Community Development Financial Institutions Fund

12 CFR Part 1807

RIN 1559-AA00


Capital Magnet Fund

AGENCY: Community Development Financial Institutions Fund, Department 
of the Treasury.

ACTION: Notice of proposed rulemaking with request for public comment.

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SUMMARY: The Department of the Treasury is issuing this proposed 
rulemaking, and requesting comment on this proposed rule, for the 
implementation of the Capital Magnet Fund (CMF), administered by the 
Community Development Financial Institutions Fund (CDFI Fund), U.S. 
Department of the Treasury. The mission of the CDFI Fund is to increase 
the capacity of financial institutions to provide capital, credit and 
financial services in underserved markets. Its long-term vision is an 
America in which all people have access to affordable credit, capital 
and financial services. The CMF was established through the Housing and 
Economic Recovery Act of 2008, which added section 1339 to the Federal 
Housing Enterprises Financial Safety and Soundness Act of 1992.

DATES: Comment due date: Comments on this proposed rulemaking must be 
received in the offices of the CDFI Fund on or before May 14, 2010.

ADDRESSES: All comments concerning this proposed rule should be 
addressed to the Capital Magnet Fund Manager, Community Development 
Financial Institutions Fund, Department of the Treasury, 601 13th 
Street, NW., Suite 200 South, Washington, DC 20005; by e-mail to 
cdfihelp@cdfi.treas.gov; or by facsimile at (202) 622-7754. Comments 
will be made available for public review on the CDFI Fund's Web site at 
https://www.cdfifund.gov.
    Comments may also be submitted and viewed through the Federal e-
Rulemaking Portal, https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Jeffrey C. Berg, Legal Counsel, 
Community Development Financial Institutions Fund, at (202) 622-8662 
(This is not a toll free number). Information regarding the CDFI Fund 
and the CMF may be downloaded from the CDFI Fund's Web site at https://www.cdfifund.gov.

SUPPLEMENTARY INFORMATION:

I. Background

    The Capital Magnet Fund (CMF) was established through the Housing 
and Economic Recovery Act of 2008 (the Act), Public Law 110-289, 
section 1131, as a trust fund whose appropriation will be used to carry 
out a competitive grant program administered by the CDFI Fund. Through 
the CMF, the CDFI Fund is authorized to make financial assistance 
grants to certified Community Development Financial Institutions 
(CDFIs) and Nonprofit Organizations (if one of their principal purposes 
is the Development or management of Affordable Housing). CMF grants 
must be used to attract financing for and increase investment in: (i) 
The Development, Preservation, Rehabilitation, and Purchase of 
Affordable Housing for primarily Extremely Low-, Very Low-, and Low-
Income Families; and (ii) Economic Development Activities or Community 
Service Facilities (such as day care centers, workforce development 
centers, and health care clinics) which In Conjunction With Affordable 
Housing Activities will implement a Concerted Strategy to stabilize or 
revitalize a Low-Income Area or Underserved Rural Area. This proposed 
rulemaking creates the requirements and parameters for CMF 
implementation and administration including, among others, application 
eligibility, application review, award selection, Assistance 
Agreements, eligible uses of award dollars and related funds, Awardee 
reporting, and compliance monitoring.
    On March 6, 2009, the CDFI Fund published in the Federal Register a 
Request for Public Comment, 74 FR 9869, seeking responses to specific 
questions regarding CMF design, implementation, and administration. The 
CDFI Fund seeks public comment on this entire proposed rule and the 
specific questions below. All capitalized terms are defined in the 
definition section of the proposed rule, as set forth in 12 CFR 
1807.104.
    1. This proposed rule currently defines Economic Development 
Activities as `the Development, Preservation, Rehabilitation, or 
Purchase of Community Service Facilities and/or other physical 
structures in which neighborhood-based businesses operate which, In 
Conjunction With Affordable Housing Activities, implements a Concerted 
Strategy to stabilize or revitalize a Low-Income Area or Underserved 
Rural Area'. Is this an appropriate definition? Should it be expanded 
to include working capital loans to businesses? Should refinancing of 
existing loans be a permissible activity?
    2. Should physical proximity be necessary to meet the requirement 
that Economic Development Activities or Community Service Facilities 
financed In Conjunction with Affordable Housing Activities implement a 
Concerted Strategy to stabilize or revitalize a Low-Income Area or 
Underserved Rural Area? If physical proximity is necessary, what is the 
best measure of being ``physically proximate'' with respect to projects 
undertaken in urban areas, and with respect to projects undertaken in 
rural areas?
    3. The eligibility requirements for Applicants are set forth in 12 
CFR 1807.200. Is an eligibility requirement that 33 percent of the 
Applicant's resources (measured by staff time and/or budget) be 
dedicated to Affordable Housing appropriate (12 CFR 
1807.200(a)(2)(iii))? If not, what is the appropriate percentage of 
activities, and how should this be measured?
    4. The proposed rule in 12 CFR 1807.302 sets forth a number of 
restrictions on use of CMF award funds. Are there suggested 
restrictions that will prevent the CMF from financing predatory lending 
practices that should be included in this section? Is the use 
restriction that no more than 30% of an Awardee's CMF award can be used 
for Economic Development Activities and Community Service Facilities 
appropriate (12 CFR 1807.302(d))? If not, what is the appropriate 
percentage?
    5. Is the Affordable Housing qualification that requires a minimum 
of 20 percent of units in multi-family rental housing projects financed 
with a CMF award be occupied by Low-Income, Very Low-Income, or 
Extremely Low-Income Families appropriate (12 CFR 1807.401)? If not, 
what is the appropriate percentage?
    6. As set forth in 12 CFR 1807.400 et seq., Affordable Housing is 
subject to a 10-year affordability requirement that begins at Project 
Completion? Is this 10-year affordability requirement appropriate? How 
should this be measured with respect to funds that are deployed, 
returned to the Awardee, and reinvested during the life of the 
Assistant Agreement (e.g., in the case of CMF awards that are used to 
establish a revolving loan fund)?
    7. The proposed rule sets forth record data collection and record 
retention requirements in 12 CFR 1807.902. What documentation should 
Awardees be required to retain to demonstrate compliance with (i) the 
affordability qualification requirements in 12 CFR 1807.400 et seq. and 
(ii) the leveraging, commitment and Project Completion

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requirements in 12 CFR 1807.500 et seq.?
    Simultaneously published with this proposed rule is the Notice of 
Funds Availability (NOFA) inviting applications for the FY 2010 funding 
round of the CMF.

II. Responses to the Request for Public Comment (March 6, 2009)

    The CDFI Fund received comments from 22 organizations in response 
to the Request for Public Comment (RPC) that was published in the 
Federal Register on March 6, 2009 (74 FR 9869). The following 
discussion summarizes the comments and the CDFI Fund's responses, many 
of which have been incorporated in the proposed rule. Discussion is 
generally in the order in which the questions were posed in the RPC.

A. Eligible Use of Funds

    (1) What definition should the CDFI Fund use to assess what 
constitutes ``affordable housing?'' What affordability thresholds or 
restrictions (if any) should the CDFI Fund require, and for how long a 
period should these be in place?
    The majority of the commentators supported the imposition of 
affordability thresholds and restrictions compatible with the Low 
Income Housing Tax Credit (LIHTC) Program, authorized under the Tax 
Reform Act of 1986, I.R.C. section 42, and the HOME Investment 
Partnership Program (HOME Program), authorized under title II of the 
Cranston-Gonzalez National Affordable Housing Act, as amended, 42 
U.S.C. 12701 et seq., administered by the U.S. Department of Housing 
and Urban Development (HUD). Some commentators suggested that the CDFI 
Fund allow a percentage of CMF funds to be used under a modified 
version of these affordability thresholds in order to support workforce 
housing for moderate-income families. Commentators suggested that the 
affordability requirements should be imposed for a duration ranging 
from 10 to 50 years.
    CDFI Fund response: The income requirements for the CMF are set 
forth in the Definitions section of the proposed rule at 12 CFR 
1807.104(v), (hh), and (ddd); the CMF affordability requirements (12 
CFR 1807.400 et seq.) are based generally on the affordability 
qualifications for rental and homeownership properties under the HOME 
Program regulations set forth at 24 CFR 92.252-92.255. The 
affordability requirements for CMF-funded housing units apply without 
regard to the term of any loan or mortgage or the transfer of 
ownership; they must be imposed by deed restrictions, covenants running 
with the land, or other recordable mechanisms approved, in writing and 
in advance, by the CDFI Fund (12 CFR 1807.401(d) and 1807.402(a)(5)). 
CMF-funded housing units must meet the affordability requirements for a 
period of not less than 10 years, beginning after completion of project 
construction and at initial occupancy (12 CFR 1807.401(d) and 
1807.402).
    (2) Section 1131 of the Act, referencing section 1339(c) of the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992, 
requires that CMF grants must be used to attract private capital for 
and increase investment in ``the development, preservation, 
rehabilitation, or purchase of affordable housing for primarily 
extremely low-, very low-, and low-income families.'' How should 
``primarily'' be defined? What are the appropriate minimum levels of 
targeting that each project should be required to achieve?
    Several commentators proposed that ``primarily'' should mean: (i) 
At least 50 percent of units in a housing project that is funded, in 
whole or in part, with CMF funding, or (ii) 50 percent of costs 
directly traced to CMF funding in a given project. Several commentators 
suggested deeper income targeting.
    CDFI Fund Response: The proposed rule adopts the comment that 
``primarily'' means, with respect to Affordable Housing Activities 
financed with CMF funding, that greater than 50 percent of the Eligible 
Project Costs must be attributable to the support of housing units that 
meet the affordability standards (12 CFR 1807.400).
    (3) How should ``preservation'' be defined, as such term is used in 
section 1131 of the Act, referencing section 1339(c)(1) of the Federal 
Housing Enterprises Financial Safety and Soundness Act of 1992? Should 
it include the re-financing of single- or multi-family mortgages as 
eligible activities?
    Many commentators suggested broad and inclusive definitions of 
these terms. Commentators suggested definitions of preservation that 
included restoration of deteriorated properties, preventing troubled 
properties from default, refinancing of single-family and multi-family 
mortgages, and preservation of expiring-use properties with 
restrictions on tenant income and affordability under other federal 
programs that are coming to an end. Some commentators proposed using 
existing LIHTC or HUD definitions of preservation.
    CDFI Fund Response: The CDFI Fund has adopted the definition of 
Preservation that is set forth in the proposed rule at 12 CFR 
1807.104(rr).
    (4) How should ``rehabilitation'' be defined, as such term is used 
in section 1131 of the Act, referencing section 1339(c)(1) of the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992?
    Commentators suggested that ``rehabilitation'' be broadly defined 
to include promoting habitability, energy efficiency, and building code 
compliance of housing units. Commentators also suggested a minimum 
rehabilitation cost of approximately $6,000 per unit.
    CDFI Fund Response: The CDFI Fund has adopted the definition of 
Rehabilitation that is set forth in the proposed rule at 12 CFR 
1807.104(uu).
    (5) CMF grants may be used to finance economic development 
activities or community service facilities, such as daycare centers, 
workforce development centers, and health care clinics which, in 
conjunction with affordable housing activities, implement a concerted 
strategy to stabilize or revitalize a low-income area or underserved 
rural area.
    (a) What restrictions (if any) should the CDFI Fund place on the 
percentage of award dollars that an awardee may apply towards economic 
development activities and/or community service facilities?
    Many commentators proposed that the CDFI Fund place no restrictions 
on the amount of CMF funding provided for economic development 
activities and/or community service facilities in conjunction with 
affordable housing activities. Others suggested that CMF grantees be 
allowed to apply 25 to 30 percent of their award to this use.
    CDFI Fund Response: To ensure that the limited CMF funding is most 
efficiently targeted to Affordable Housing Activities, an Awardee may 
use no more than 30 percent of CMF funding for Economic Development 
Activities and/or Community Service Facilities, as set forth in the 
proposed rule, 12 CFR 1807.302(d).
    (b) Should the CDFI Fund support economic development activities/
community service facilities in conjunction with affordable housing 
activities financed by sources other than CMF grants or solely in 
conjunction with CMF grants?
    Many commentators proposed that economic development activities 
and/or community service facilities should be allowed to be undertaken 
in conjunction with affordable housing activities that are financed 
with or without CMF funding.

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    CDFI Fund Response: The proposed rule adopts this suggestion at 12 
CFR 1807.300.
    (c) How should the CDFI Fund define ``in conjunction with''?
    Several commentators suggested that ``in conjunction with'' should 
be defined as including activities that are on the same site as or 
adjacent to the site of affordable housing. Others suggested a broader 
definition, to allow for proximate activities that are not physically 
adjacent to the affordable housing activities.
    CDFI Fund Response: The proposed rule defines In Conjunction With 
to require that Economic Development Activities and/or Community 
Service Facilities must be physically proximate to Affordable Housing, 
and reasonably available to residents of Affordable Housing (12 CFR 
1807.104(aa)).
    (d) How should the CDFI Fund define ``concerted strategy''?
    Most commentators suggested that applicants identify some type of 
formal planning document to illustrate the connection between the 
affordable housing and proposed economic development activities or 
community service facilities, such as a local government's 
comprehensive housing development plan or a HUD-approved HOPE VI 
Program redevelopment plan, pursuant to section 803 of the National 
Affordable Housing Act, 42 U.S.C. 8012.
    CDFI Fund Response: The proposed rule definition of Concerted 
Strategy (12 CFR 1807.104(p)) adopts this suggestion, requiring that, 
if the Economic Development Activity or Community Service Facility is 
not located on the same premises or immediately adjacent to the 
Affordable Housing, the Economic Development Activities/Community 
Service Facilities and the Affordable Housing must be included together 
in a planning document describing the community revitalization strategy 
for the area. Such documents may include, but are not limited to, a 
comprehensive, consolidated, or redevelopment plan, or some other local 
or regional planning document adopted or approved by the jurisdiction.

B. Eligible Grantees

    Section 1131 of the Act, referencing section 1339(e) of the Federal 
Housing Enterprises Financial Safety and Soundness Act of 1992 states 
that a CMF grant may only be made to: (i) A CDFI that has been 
certified by the CDFI Fund; or (ii) a nonprofit organization having as 
one of its principal purposes the development or management of 
affordable housing. How should the CDFI Fund define ``principal 
purpose,'' with respect to determining whether one of an entity's 
principal purposes is the development or management of affordable 
housing?
    For purposes of defining ``nonprofit organization'' in section 
1339(e) of the Act, several commentators suggested automatic 
eligibility for certain types of organizations, such as community 
housing development organizations (CHDOs) as defined by HUD under the 
HOME Program, 24 CFR 92.2, and rural housing developers under the U.S. 
Department of Agriculture (USDA) section 523 Program, 7 CFR part 3551. 
For purposes of defining ``principal purpose,'' a number of 
commentators proposed that 20 percent of the applicant's financial 
resources should be dedicated to affordable housing. Several 
commentators suggested a mission test, based on the applicant's bylaws 
or recognition by the Internal Revenue Service (IRS) that the applicant 
meets a tax-exempt purpose under I.R.C. section 501(c)(3); others 
recommended a track record test. Some suggested that a track record 
test could prevent desired activities in traditionally underserved 
areas.
    CDFI Fund Response: For purposes of CMF applicant eligibility, the 
proposed rule at 12 CFR 1807.200(a) states that affordable housing 
development and/or management requirements will be set forth in the 
applicable NOFA that is published for each CMF funding round, and will 
comprise track record and resource dedication criteria.

C. Applications

    (1) Are there other competitive award programs, federal or 
otherwise, upon which the CDFI Fund should model the CMF's application 
scoring and review protocols?
    A few commentators suggested model programs such as the CDFI 
Program and HUD's Community Development Block Grant (CDBG) Program, 
authorized under the Housing and Community Development Act of 1974, 42 
U.S.C. 5301 et seq.
    CDFI Fund Response: The CMF application evaluation and selection 
protocols described in the proposed rule (12 CFR 1807.800 et seq.), are 
generally modeled on existing CDFI Fund award programs.
    (2) Should the CDFI Fund divide applicants among different pools so 
that they compete only among organizations that have the same capacity 
level?
    Most commentators recommended that CMF applications should not be 
divided into different pools based upon applicant capacity levels.
    CDFI Fund Response: The proposed rule adopts this recommendation 
(12 CFR 1807.800 et seq.), thereby maintaining a single applicant pool 
in order to ensure that the highest qualified organizations receive 
funding and to ensure the efficiency of the application process.
    (3) Should the CDFI Fund accept applications on an annual basis or 
more often (e.g., twice a year)?
    Commentators recommended an annual CMF application round.
    CDFI Fund Response: Given the anticipated cycle of annual 
appropriation of CMF funding, the CDFI Fund will implement an annual 
funding round, subject to funding availability. Application 
requirements will be set forth in the NOFA that will be published for 
each funding round.
    (4) Section 1131 of the Act, referencing section 1339(j)(2)(D)(ii) 
of the Federal Housing Enterprises Financial Safety and Soundness Act 
of 1992 requires ``a prioritization of funding based upon: (I) The 
ability to use such funds to generate additional investments; (II) 
affordable housing need (taking into account the distinct needs of 
different regions of the country); and (III) ability to obligate 
amounts and undertake activities so funded in a timely manner.'' How 
should the CDFI Fund quantify each of the three priority factors? For 
each of the three factors, what should applicants be required to 
present and/or address as part of their application materials? Should 
this prioritization be incorporated into the standard scoring of the 
application (e.g., by weighting certain questions more heavily) or 
should there be separate ``priority points'' specific to each of the 
three criteria?
    Many commentators provided specific suggestions on priority points, 
including deeper affordability targeting, targeting disaster areas, 
projects with guaranteed financing, workforce housing, rehabilitation 
or repair projects, projects in strong job areas or near good schools, 
manufactured housing, projects involving partnerships with state and 
local agencies, and rural projects, among others.
    CDFI Fund Response: For the three priority factors specified in the 
Act, the CDFI Fund will not create separate priority points to be 
assigned for each. Rather, specific questions will be asked in the 
application to illustrate the applicant's strengths in each of the 
three areas, which will then be given weight in the application review 
process.

D. Geographic Diversity

    Section 1131 of the Act, referencing section 1339(h)(2)(A) of the 
Federal Housing Enterprises Financial Safety

[[Page 12411]]

and Soundness Act of 1992 states: ``The Secretary of the Treasury shall 
seek to fund activities in geographically diverse areas of economic 
distress, including metropolitan and undeserved rural areas in every 
State.'' Section 1339(h)(2)(B) provides a list of characteristics that 
objective criteria of economic distress may include:
    (1) What objective criteria of economic distress should the CDFI 
Fund adopt based upon the language in section 1339(h)(2)(B)?
    Many commentators proposed both place- and person-based indicators 
to allow for funding to projects that seek to de-concentrate poverty. 
Some commentators suggested utilizing existing CDFI Fund indicators.
    CDFI Fund Response: In the CMF funding application, the CDFI Fund 
will set forth distress indicators that are the same or similar to 
those used in other CDFI Fund programs: Low-Income communities (less 
than 80 percent of area median income); high-poverty communities 
(poverty rate of 20 percent or greater); high unemployment rate (1.5 
times the national average). In addition, the CMF application design 
will be sensitive to varying housing need in different communities, 
such as rural areas, high cost areas, and areas of revitalization or 
housing displacement by allowing for the use of readily available 
housing-specific measures such as housing vacancy rates, proportion of 
sub-standard or demolished housing, concentration of foreclosures, or 
changes in property values. As suggested by commentators, in measuring 
distressed communities, the CDFI Fund will allow consideration of the 
level of need in the population served.
    (2) How should the CDFI Fund define ``rural areas''? For example, 
is a rural area any census tract that is not located in a metropolitan 
statistical area (MSA)?
    For purposes of defining rural, several commentators suggested 
using the USDA Rural Housing definition set forth in Section 520 of the 
Housing Act of 1949, 42 U.S.C. 1441.
    CDFI Fund Response: The proposed rule adopts a definition of Non-
Metropolitan Area, which includes rural areas, at 12 CFR 1807.104(mm) 
and a definition of Underserved Rural Area at 12 CFR 1807.104(ccc).
    (3) Should the CDFI Fund ensure that, in any given award round, 
there is a CMF-funded project located in every state? Should the CDFI 
Fund ``skip over'' otherwise higher rated applicants to ensure that 
this geographic diversity goal is met? Section 1131 of the Act, 
referencing section 1339(j)(2)(D)(i) of the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 requires that ``funds be 
fairly distributed to urban, suburban, and rural areas.'' How can the 
CDFI Fund best achieve this outcome?
    Generally, commentators did not support skipping highly rated 
applicants to achieve geographic diversity. Some commentators suggested 
giving preferences to areas or even states with particularly high 
levels of economic distress.
    CDFI Fund Response: As suggested by commentators, due in part to 
funding limitations and the unforeseeability of the applicant pool, the 
CDFI Fund will not likely be able to ensure that there is a CMF-funded 
project in every state. However, the CMF application will require 
applicants with national service areas to indicate the states in which 
they are most likely to provide Affordable Housing financing with CMF 
funding. The CDFI Fund reserves the right to adjust award decisions to 
ensure that the goal of geographic diversity is met.
    Regarding urban, suburban, and rural distribution of awards, the 
CDFI Fund will incorporate an approach similar to the New Markets Tax 
Credit (NMTC) Program, requiring CMF applicants to indicate minimum and 
maximum commitments to invest in rural areas. Based on this 
information, the CDFI Fund will attempt to ensure that at least 20 
percent of CMF funding is invested in rural communities.

E. Leverage of Funds

    (1) Section 1131 of the Act, referencing section 1339(h)(3) of the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992 
states: ``Each grant from the Capital Magnet Fund awarded under this 
section shall be reasonably expected to result in eligible housing, or 
economic and community development projects that support or sustain an 
affordable housing project funded by a grant under this section whose 
aggregate costs total at least 10 times the grant amount.'' What 
documentation should be required to demonstrate a leveraging ratio of 
10:1 of ``total aggregate costs''?
    Most commentators suggested that the leveraging requirement is a 
reporting requirement, not an application or award requirement. As 
such, they proposed that the application should not require any 
documentation, but should instead utilize projections. One commentator 
proposed requiring conditional letters of commitment to help ensure 
that leveraging will be met.
    CDFI Fund Response: In the CMF application, the CDFI Fund will 
require projections of leveraging, but will not require documentation. 
Once CMF funds have been committed to projects, information will be 
self-reported by the awardee through a standard system developed and 
managed by the CDFI Fund. Awardees will be required to retain 
appropriate documentation, such as audited financial statements, wire 
transfer documents, pro-formas, etc., and will be subject to periodic 
CDFI Fund audits to support their reports under the proposed rule, 12 
CFR 1807.902.
    (2) How should this 10:1 standard be measured (e.g., on a project-
by-project basis for each project funded, or on a collective basis for 
all projects financed)?
    Many commentators proposed that leverage should be measured on a 
portfolio or collective basis; one commentator proposed that the 
requirement should be measured for each project.
    CDFI Fund Response: The CDFI Fund notes that the statutory 
requirement is that CMF funds shall be reasonably expected to result in 
eligible housing or economic and community development projects that 
support or sustain an affordable housing project funded by a CMF grant 
whose aggregate costs total at least 10 times the CMF grant amount. The 
proposed rule adopts a 10 multiplier standard or some other standard 
set forth in an Awardee's Assistance Agreement that must be measured as 
Leveraged Costs on a collective basis for all projects financed (12 CFR 
part 1807.500).
    (3) Is there a timing consideration as to when the CDFI Fund should 
release CMF award dollars (e.g., not until all other sources of 
financing have been secured)?
    Most commentators proposed that, since the CMF funding will 
constitute a small portion of overall project costs, the funding should 
be released upon closing of the assistance agreement.
    CDFI Fund Response: The CDFI Fund has adopted this suggestion at 12 
CFR 1807.901, with CMF funding released as a lump sum payment, or in 
another manner determined appropriate by the CDFI Fund, after the 
Assistance Agreement is executed.

F. Commitment for Use Deadline

    Section 1131 of the Act, referencing section 1339(h)(4) of the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992 
states: ``Amounts made available for grants under this section shall be 
committed for use within 2 years of the date of such allocation.'' How 
should the term ``committed'' be defined, and how it can

[[Page 12412]]

be verified, for the purposes of this requirement?
    Several commentators suggested using HUD's HOME Program 
regulations, 24 CFR 92.2, to define the term ``committed.'' Others 
suggested that a legally binding agreement should constitute commitment 
for use.
    CDFI Fund Response: As described in the proposed rule at 12 CFR 
part 1807, subpart C (Use of Funds/Eligible Activities), the CDFI Fund 
will require all Awardees to allocate CMF funding for a specific 
eligible purpose, and to be able to demonstrate that these funds are so 
designated. Similar to HUD's HOME Program regulations at 24 CFR 92.2, 
CMF funds for Affordable Housing Activities, Economic Development 
Activities or Community Service Facilities must be Committed for use 
within two years of the effective date of an Awardee's Assistance 
Agreement. The proposed rule adopts a definition of Committed as set 
forth in 12 CFR 1807.104(m).

G. Prohibited Uses

    Section 1131 of the Act, referencing section 1339(h)(5)-(6)) of the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992 
lists prohibited uses with respect to grants awarded under this 
program. Are there any additional prohibitions or limitations that 
should be applied?
    Commentators did not propose additional specific prohibitions of 
CMF funding. Some commentators suggested that the CDFI Fund place a 
limitation of 10 to 15 percent on the amount of a CMF award that could 
be used for the awardee's operation costs.
    CDFI Fund Response: The proposed rule states that the applicable 
NOFA will set forth the limitation on the amount of a CMF award that 
can be used for Operations (12 CFR 1807.302(b)) as well as other 
limitations, including a 30 percent limitation on use of an Awardee's 
CMF funding for Economic Development Activities and Community Service 
Facilities (12 CFR 1807.302(d)); and a requirement that 100 percent of 
Eligible Project Costs must be attributable to housing units that meet 
the affordability qualifications set forth in 12 CFR 1807.400 for 
families whose annual income does not exceed 120 percent of the median 
income for the area, as determined by HUD.

H. Accountability of Recipients and Grantees

    (1) What requirements should be imposed to implement Section 1131 
of the Act, referencing section 1339(h)(8)) of the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992 which provides 
for accountability standards with respect to tracking the use of award 
dollars, as well as remedies in the event that an awardee misuses 
funds?
    Commentators proposed various forms of documentation to illustrate 
completion of projects and satisfaction of affordability requirements 
and restrictions, including certificates of occupancy, closing 
documentation, and deeds and covenants.
    CDFI Fund Response: The CDFI Fund has adopted a definition of 
Project Completion at 12 CFR 1807.104(ss) that applies when (i) All 
necessary title transfer requirements and construction work have been 
performed; (ii) the project complies with specified property standards; 
and (iii) the final drawdown has been disbursed for the project. 
Awardees will be required to report their compliance with CMF 
affordability requirements and to maintain adequate records to 
demonstrate compliance to the CDFI Fund during any audits that are 
undertaken by the CDFI Fund (12 CFR 1807.902).
    (2) What specific industry standards for impact measures (units 
produced, percentage of units affordable to low-income persons; time to 
complete; etc.) should the CDFI Fund adopt for evaluating and 
monitoring projects funded under the CMF?
    Commentators proposed various standards for impact measurements, 
including using the CDFI Fund's existing Community Investment Impact 
System (CIIS) and measures applied under USDA's Guaranteed Rural Rental 
Housing Program, 42 U.S.C. 1490p-2, as well as individual measurements 
such as affordable units produced, energy efficiency, cost per unit, 
length of time for development, project location, and others.
    CDFI Fund Response: CMF awardees will be required to report on the 
impacts of their use of CMF funds and any Leverage Costs as set forth 
in 12 CFR 1807.902(e). The specific impact measures will be 
incorporated into the Assistance Agreement as described at 12 CFR 
1807.900, and may include metrics such as the number of Affordable 
Housing units produced (including how many are affordable to Low-, Very 
Low- and Extremely Low-Income families), the ratio of leverage produced 
by the CMF award, and the deployment rate of CMF awards, among other 
measures.

III. Rulemaking Analysis

Executive Order (E.O.) 12866

    It has been determined that this proposed rule is not a significant 
regulatory action under Executive Order 12866. Accordingly, a 
regulatory impact assessment is not required.

Regulatory Flexibility Act

    This proposed rule has been reviewed with regard to the 
requirements of the Regulatory Flexibility Act, 5 U.S.C. 601-612. The 
undersigned has determined and certified by signature of this document 
that this proposed rule will not have a significant economic impact on 
a substantial number of small entities. The CDFI Fund anticipates that 
a large number of applicants under this proposed rule will be certified 
CDFIs that have received funding under the CDFI Fund's programs or 
other similar federal government programs. Thus, awardees will be 
familiar with the types of reporting requirements that the CMF will 
require and most will have the necessary processes in place to 
participate in the CMF, regardless of their size. Many, if not all, 
applicants will be reporting on information and activities for which 
they report for other federal or state programs. Thus, this proposed 
rule will not impose a significant increase in reporting, 
recordkeeping, or other compliance burdens on a substantial number of 
small entities that would have a negative impact on either small or 
large entities in an economic way.

Paperwork Reduction Act

    The collection of information contained in this proposed rule has 
been previously reviewed and approved by the Office of Management and 
Budget (OMB) in accordance with the Paperwork Reduction Act of 1995 and 
assigned OMB Control Number 1559-0036. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a valid control number assigned by OMB.

National Environmental Policy Act

    This proposed rule has been reviewed in accordance with 12 CFR part 
1815. The CDFI Fund's Environmental Regulations under the National 
Environmental Protection Act of 1969 (NEPA) 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 proposed rule does not constitute a major Federal action 
significantly affecting the quality of the human environment and, in 
accordance with the NEPA and the CDFI Fund Environmental Quality 
Regulations, 12 CFR part 1815, neither an Environmental Assessment nor 
an

[[Page 12413]]

Environmental Impact Statement is required.

Administrative Procedure Act

    Because this proposed rule relates to loans and grants, notice and 
public procedure and a delayed effective date are not required pursuant 
to the Administrative Procedure Act, 5 U.S.C. 553(a)(2).

Catalogue of Federal Domestic Assistance Number

    Capital Magnet Fund--21.011.

List of Subjects in 12 CFR Part 1807

    Community development, Grant programs--housing and community 
development, Reporting and record keeping requirements.

    For the reasons set forth in the preamble, 12 CFR chapter XVIII is 
proposed to be amended by adding part 1807 to read as follows:

PART 1807--CAPITAL MAGNET FUND

Subpart A--General Provisions
Sec.
1807.100 Purpose.
1807.101 Summary.
1807.102 Relationship to other CDFI Fund programs.
1807.103 Awardee not instrumentality.
1807.104 Definitions.
1807.105 Waiver authority.
1807.106 OMB control number.
Subpart B--Eligibility
1807.200 Applicant eligibility.
Subpart C--Use of Funds/Eligible Activities
1807.300 Purposes of grants.
1807.301 Eligible activities.
1807.302 Restrictions on use of assistance.
Subpart D--Qualification as Affordable Housing
1807.400 Affordable Housing--General.
1807.401 Affordable Housing--Rental Housing.
1807.402 Affordable Housing--Homeownership.
Subpart E--Leveraging and Commitment Requirement.
1807.500 Leveraging costs--general.
1807.501 Commitment for use.
1807.502 Assistance limits.
1807.503 Projection completion.
Subpart F--Tracking Requirements
1807.600 Tracking funds--general.
1807.601 Nature of funds.
Subpart G--Applications for Assistance
1807.700 Notice of Funds Availability.
1807.701 Application contents.
Subpart H--Evaluation and Selection of Applications
1807.800 Evaluation and selection--general.
1807.801 Evaluation of Applications.
Subpart I--Terms and Conditions of Assistance
1807.900 Assistance Agreement.
1807.901 Disbursement of funds.
1807.902 Data collection and reporting.
1807.903 Compliance with government requirements.
1807.904 Lobbying restrictions.
1807.905 Criminal provisions.
1807.906 CDFI Fund deemed not to control.
1807.907 Limitation on liability.
1807.908 Fraud, waste and abuse.

    Authority:  Housing and Economic Recovery Act of 2008, Pub. L. 
110-289, section 1131

Subpart A--General Provisions


Sec.  1807.100  Purpose.

    The purpose of the Capital Magnet Fund (CMF) is to attract private 
capital for and increase investment in Affordable Housing Activities 
and related Economic Development Activities and Community Service 
Facilities.


Sec.  1807.101  Summary.

    (a) Through the CMF, the CDFI Fund will competitively award grants 
to CDFIs and qualified Nonprofit Organizations to leverage dollars for:
    (1) The Development, Preservation, Rehabilitation or Purchase of 
Affordable Housing primarily for Low-Income Families; and
    (2) Financing Economic Development Activities or Community Service 
Facilities.
    (b) The CDFI Fund will select Awardees to receive financial 
assistance grants through a merit-based, competitive application 
process. Financial assistance grants that are awarded through the CMF 
may only be used for eligible uses set forth in Subpart C. Each Awardee 
will enter into an Assistance Agreement which will require it to 
leverage the CMF grant amount and abide by other terms and conditions 
pertinent to any assistance received under this part.


Sec.  1807.102  Relationship to other CDFI Fund programs.

    A Certified CDFI will automatically be deemed to meet the eligible 
entity requirements, provided that it has been in business as an 
operating entity for a period of at least three years prior to the 
application deadline.


Sec.  1807.103  Awardee not instrumentality.

    No Awardee shall be deemed to be an agency, department, or 
instrumentality of the United States.


Sec.  1807.104  Definitions.

    For the purpose of this part:
    (a) Act means the Housing and Economic Recovery Act of 2008, as 
amended, Pub. L. No. 110-289, section 1131;
    (b) Affiliate means, any entity that Controls, is Controlled by, or 
is under common Control with, an entity;
    (c) Affordable Housing means rental or for-sale single-family or 
multi-family housing that meets the requirements set forth in Subpart D 
of this part;
    (d) Affordable Housing Activities means the Development, 
Preservation, Rehabilitation, or Purchase of Affordable Housing;
    (e) Affordable Housing Fund means a loan fund, managed by the 
Awardee, whose capital is used to finance Affordable Housing 
Activities;
    (f) 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 Insured Credit Unions, the National Credit 
Union Administration;
    (g) Applicant means any entity submitting an application for 
assistance under this part;
    (h) 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;
    (i) Assistance Agreement means a formal, written agreement between 
the CDFI Fund and an Awardee which specifies the terms and conditions 
of assistance under this part;
    (j) Awardee means an Applicant selected by the CDFI Fund to receive 
assistance pursuant to this part;
    (k) Capital Magnet Fund (or CMF) means the program authorized by 
section 1131 of the Act, Public Law No. 110-289, and implemented under 
this part;
    (l) Certified Community Development Financial Institution (or 
Certified CDFI) means an entity that has been determined by the CDFI 
Fund to meet the eligibility requirements set forth in 12 CFR Part 
1805.201;
    (m) Committed means that the Awardee is able to demonstrate, in 
written form and substance that is acceptable to the CDFI Fund, a 
Commitment for Use pursuant to Sec.  1807.501;
    (n) Community Development Financial Institutions Fund (or CDFI 
Fund) means the Community Development Financial Institutions Fund, an 
office of the U.S. Department of Treasury, established under the 
Community Development Banking and Financial Institutions Act of 1994, 
as amended, 12 U.S.C. 4701 et seq.;
    (o) Community Service Facility means the physical structure in 
which community-based programs (including,

[[Page 12414]]

but not limited to, health care, childcare, educational, cultural, and/
or social services) operate which, In Conjunction With Affordable 
Housing Activities, implements a Concerted Strategy to stabilize or 
revitalize a Low-Income Area or Underserved Rural Area;
    (p) Concerted Strategy means a formal planning document that 
evidences the connection between Affordable Housing Activities and 
Economic Development Activities or Community Service Facilities. Such 
documents include, but are not limited to, a comprehensive, 
consolidated, or redevelopment plan, or some other local or regional 
planning document adopted or approved by the jurisdiction;
    (q) Control means:
    (1) Ownership, control, or power to vote 25 percent or more of the 
outstanding shares of any class of Voting Securities of any company, 
directly or indirectly or acting through one or more other persons;
    (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 company; or
    (3) The power to exercise, directly or indirectly, a controlling 
influence over the management, credit or investment decisions, or 
policies of any company;
    (r) Depository Institution Holding Company means a bank holding 
company or a savings and loan holding company as defined in section 3 
of the Federal Deposit Insurance Act, 12 U.S.C. 1813(w)(1);
    (s) Development means land acquisition, demolition of existing 
facilities, and construction of new facilities, which may include site 
improvement, utilities development and rehabilitation of utilities, 
necessary infrastructure, utility services, conversion, and other 
related activities;
    (t) Economic Development Activity means the Development, 
Preservation, Rehabilitation, or Purchase of Community Service 
Facilities and/or other physical structures in which neighborhood-based 
businesses operate which, In Conjunction With Affordable Housing 
Activities, implements a Concerted Strategy to stabilize or revitalize 
a Low-Income Area or Underserved Rural Area;
    (u) Eligible Project Costs means Leverage Costs plus those costs 
funded directly by a CMF award, exclusive of Operations;
    (v) Extremely Low-Income means
    (1) In the case of owner-occupied housing units, income not in 
excess of 30 percent of the area median income and
    (2) In the case of rental housing units, income not in excess of 30 
percent of the area median income, with adjustments for smaller and 
larger families, as determined by HUD;
    (w) HOME Program means the HOME Investment Partnership Program set 
forth in the HOME Investment Partnerships Act under title II of the 
Cranston-Gonzalez National Affordable Housing Act, as amended, 42 
U.S.C. 12701 et seq.;
    (x) Homeownership means ownership in fee simple title or a 99-year 
leasehold interest in a one- to four-unit dwelling or in a condominium 
unit, or equivalent form of ownership (which shall include cooperative 
housing and mutual housing project). For purposes of housing located on 
trust or restricted Indian lands, homeownership includes leases of 50 
years. The ownership interest may be subject only to the following:
    (1) Restrictions on resale permitted under the Assistance 
Agreement;
    (2) Mortgages, deeds of trust, or other liens or instruments 
securing debt on the property; or
    (3) Any other restrictions or encumbrances that do not impair the 
good and marketable nature of title to the ownership interest.
    (y) Housing means single- and multi-family residential units, 
including, but not limited to, manufactured housing and manufactured 
housing lots, permanent housing for disabled and/or homeless persons, 
transitional housing, single-room occupancy housing, and group homes. 
Housing also includes elder cottage housing opportunity (ECHO), 24 CFR 
92.258;
    (z) HUD means the Department of Housing and Urban Development 
established under the Department of Housing and Urban Development Act 
of 1965, 42 U.S.C. 3532-3537;
    (aa) In Conjunction With means physically proximate to Affordable 
Housing and reasonably available to residents of Affordable Housing. 
For a Metropolitan Area, In Conjunction With means located within the 
same census tract. For a Non-Metropolitan Area, In Conjunction With 
means located within the same county, township, or village;
    (bb) Insured CDFI means a Certified CDFI that is an Insured 
Depository Institution or an Insured Credit Union;
    (cc) Insured Credit Union means any credit union, the member 
accounts of which are insured by the National Credit Union Share 
Insurance Fund by the National Credit Union Administration pursuant to 
authority granted in 12 U.S.C. 1783 et seq.;
    (dd) Insured Depository Institution means any bank or thrift, the 
deposits of which are insured by the Federal Deposit Insurance 
Corporation, 12 U.S.C. 1813(c)(2);
    (ee) Leveraged Costs means those costs as described in 12 CFR 
1807.500;
    (ff) Loan Guarantee means an agreement to indemnify the holder of a 
loan all or a portion of the unpaid principal balance in case of 
default by the borrower;
    (gg) Loan Loss Reserves means funds that the Applicant or Awardee 
will set aside in the form of cash reserves, or through accounting-
based accrual reserves, to cover losses on loans, accounts, and notes 
receivable, or for related purposes that the CDFI Fund deems 
appropriate;
    (hh) Low-Income means
    (1) In the case of owner-occupied housing units, income not in 
excess of 80 percent of area median income and
    (2) In the case of rental housing units, income not in excess of 80 
percent of area median income, with adjustments for smaller and larger 
families, as determined by HUD;
    (ii) Low-Income Area (LIA) 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) Low-Income Families means those households that reside within 
the boundaries of the United Sates (which shall encompass any State of 
the United States, the District of Columbia or any territory of the 
United States, Puerto Rico, Guam, American Samoa, the Virgin Islands, 
and the Northern Mariana Islands) meeting the criteria as set forth in 
Sec.  1807.104(hh);
    (kk) Low Income Housing Tax Credit Program or LIHTC Program means 
the program as set forth under Title I of the U.S. Housing Act of 1937, 
as amended, 42 U.S.C. 1437 et seq.;
    (ll) Metropolitan Area means an area designated as such by the 
Office of Management and Budget pursuant to 44 U.S.C. 3504(e) and 31 
U.S.C. 1104(d)

[[Page 12415]]

and Executive Order 10253 (3 CFR, 1949-1953 Comp., p. 758), as amended;
    (mm) Non-Metropolitan Area means a county or adjacent counties not 
contained within either a Consolidated Metropolitan Statistical Area 
(CMSA) or a Primary Metropolitan Statistical Area (PMSA), as such areas 
are defined in OMB Bulletin No. 99-04, with respect to the most recent 
decennial census. Non-Metropolitan Counties can be identified in the 
CDFI Fund's mapping system (CIMS), and are also listed on the CDFI 
Fund's Web site;
    (nn) Nonprofit Organization means any corporation, trust, 
association, cooperative, or other organization that is
    (1) Designated as a nonprofit or not-for-profit entity under the 
laws of the organization's State of formation and
    (2) Exempt from Federal income taxation pursuant to the Internal 
Revenue Code of 1986;
    (oo) Non-Regulated CDFI means any entity meeting the eligibility 
requirements described in 12 CFR 1805.200 which is not a Depository 
Institution Holding Company, Insured Depository Institution, or Insured 
Credit Union;
    (pp) Operations means all allowable expenses as defined by Office 
of Management and Budget (OMB) Circular A-122, ``Cost Principles For 
Non-Profit Organizations,'' and OMB Circular A-87, ``Cost Principles 
for State, Local, and Indian Tribal Governments,'' incurred by the 
Awardee in the administration, operation, and implementation of a CMF 
award;
    (qq) Participating Jurisdiction means a jurisdiction designated by 
HUD, as a participating jurisdiction under the HOME Program in 
accordance with the requirements of 24 CFR 92.105;
    (rr) Preservation means:
    (1) Activities to refinance, with or without Rehabilitation, 
single-family or multi-family rental property mortgages that, at the 
time of refinancing, are subject to affordability and use restrictions 
under State or federal affordable housing programs, including but not 
limited to, the HOME Program, the LIHTC Program, the Section 8 Tenant-
Based Assistance and the Section 8 Rental Voucher programs (24 CFR part 
982), or the Section 515 Rural Rental Housing program (7 CFR Part 
3560), hereinafter referred to as ``similar State or federal affordable 
housing programs,'' where such refinancing has the effect of extending 
the term of any affordability and use restrictions on the properties;
    (2) Activities to refinance and acquire single-family or multi-
family properties that, at the time of refinancing or acquisition, were 
subject to affordability and use restrictions under similar State or 
Federal affordable housing programs, by the former tenants of such 
properties, where such refinancing has the effect of extending the term 
of any affordability and use restrictions on the properties; or
    (3) Activities to refinance the mortgages of single-family, owner-
occupied housing that at the time of refinancing are subject to 
affordability and use restrictions under similar State or Federal 
affordable housing programs, where such refinancing has the effect of 
extending the term of any affordability and use restrictions on the 
properties;
    (ss) Project Completion means that all of the requirements set 
forth at 12 CFR 1807.503 for a project supported by a CMF award have 
been met;
    (tt) Purchase means to acquire ownership in fee simple title or a 
99-year leasehold interest in a one-to-four unit dwelling or in a 
condominium unit, through an exchange of money;
    (uu) Rehabilitation means any repairs and/or capital improvements 
that contribute to the long-term preservation, current building code 
compliance, habitability, sustainability, energy efficiency of 
affordable housing;
    (vv) Revolving Loan Fund means a pool of funds managed by the 
Applicant or Awardee wherein repayments on Affordable Housing 
Activities loans, Economic Development Activities loans and/or 
Community Services Facilities loans are used to finance additional 
loans;
    (ww) Risk-Sharing Loan means loans for Affordable Housing 
Activities and/or Economic Development Activities in which the risk of 
borrower default is shared by the Applicant or Awardee with other 
lenders (e.g., participation loans);
    (xx) Service Area means the geographic area in which the Applicant 
proposes to use CMF funding, and the geographic area approved by the 
CDFI Fund in which the Awardee shall use CMF funding as set forth in 
its Assistance Agreement;
    (yy) Single-family housing means a one- to four-family residence, 
condominium unit, cooperative unit, combination of manufactured housing 
and lot, or manufactured housing lot;
    (zz) State means 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;
    (aaa) State-Insured Credit Union means any credit union that is 
regulated by, and/or the member accounts of which are insured by, a 
State agency or instrumentality;
    (bbb) Subsidiary means any company which is owned or Controlled 
directly or indirectly by another company;
    (ccc) Underserved Rural Area means a Non-Metropolitan Area that:
    (1) Qualifies as a Low-Income Area;
    (2) Is experiencing housing stress evidenced by 30 percent or more 
of resident households with one or more of these housing conditions in 
the last decennial census:
    (i) Lacked complete plumbing,
    (ii) Lacked complete kitchen,
    (iii) Paid 30 percent or more of income for owner costs or rent, or 
(D) had more than 1 person per room; or
    (3) Is remote-rural county consisting of a Non-Metropolitan Area 
that is also not adjacent to a Metropolitan Area;
    (ddd) Very Low-Income means
    (1) In the case of owner-occupied housing units, income not greater 
than 50 percent of the area median income; and
    (2) In the case of rental housing units, income not greater than 50 
percent of the area median income, with adjustments for smaller and 
larger families, as determined by HUD.


Sec.  1807.105  Waiver authority.

    The CDFI Fund may waive any requirement of this part that is not 
required by law upon a determination of good cause. Each such waiver 
shall be in writing and supported by a statement of the facts and the 
grounds forming the basis of the waiver. For a waiver in an individual 
case, the CDFI Fund must determine that application of the requirement 
to be waived would adversely affect the achievement of the purposes of 
the Act. For waivers of general applicability, the CDFI Fund will 
publish notification of granted waivers in the Federal Register.


Sec.  1807.106  OMB control number.

    The collection of information requirements in this part have been 
approved by the Office of Management and Budget and assigned OMB 
control number 1559-0036.

Subpart B--Eligibility


Sec.  1807.200  Applicant eligibility.

    (a) General requirements. An Applicant will be deemed eligible for 
a CMF award if it is:
    (1) A Certified or certifiable CDFI. An entity may meet the 
requirements described in this paragraph (a)(1) if it is:
    (i) A Certified CDFI, as set forth in 12 CFR Part 1805.201, that 
has been in existence as a legally formed entity as set forth in the 
Notice of Funds

[[Page 12416]]

Availability (NOFA) for the applicable funding round; or
    (ii) A certifiable CDFI that has been in existence as a legally 
formed entity as set forth in the NOFA for the applicable round and, 
although not yet certified as a CDFI, has submitted a complete CDFI 
certification application as of the date set forth in the applicable 
NOFA; or
    (2) A Nonprofit Organization having as one of its principal 
purposes the development or management of affordable housing. An entity 
may meet the requirements described in this paragraph (a)(2) if it:
    (i) Has been in existence as a legally formed entity as set forth 
in the applicable NOFA;
    (ii) Demonstrates, through articles of incorporation, by-laws, or 
other board-approved documents, that the development or management of 
affordable housing are among its principal purposes; and
    (iii) Can demonstrate that at least one-third of the Applicant's 
resources (either as a portion of total staffing or as a portion of 
total assets) are dedicated to the development or management of 
affordable housing.
    (b) Eligibility verification. An Applicant shall demonstrate that 
it meets the eligibility requirements described in Sec.  1807.200(a)(2) 
above by providing information described in the application, NOFA, and/
or supplemental information, as may be requested by the CDFI Fund. For 
an Applicant seeking eligibility under subsection 1 of this Subpart, 
the CDFI Fund will verify that the Applicant is a Certified CDFI during 
the application eligibility review. For an Applicant seeking 
eligibility under subsection 2 of this Subpart, the CDFI Fund, in its 
sole discretion, shall determine whether the Applicant has satisfied 
said requirements.

Subpart C--Use of Funds/Eligible Activities


Sec.  1807.300  Purposes of grants.

    The CDFI Fund may provide financial assistance grants to 
organizations described under Subpart B of this part for the purpose of 
attracting private capital for and increase investment in:
    (a) The Development, Preservation, Rehabilitation, or Purchase of 
Affordable Housing for primarily Extremely Low-Income, Very Low-Income; 
and Low-Income families; and
    (b) Economic Development Activities or Community Services 
Facilities. With respect to an Economic Development Activity or 
Community Service Facility funded with a CMF grant, the Affordable 
Housing that it is In Conjunction With may be financed by sources other 
than the CMF grant.


Sec.  1807.301  Eligible activities.

    Grants awarded under this part shall be used by an Awardee to 
support Affordable Housing Activities, Economic Development Activities 
or Community Service Facilities, including the following eligible uses:
    (a) To provide Loan Loss Reserves;
    (b) To capitalize a Revolving Loan Fund;
    (c) To capitalize an Affordable Housing Fund;
    (d) To capitalize a fund to support Economic Development Activities 
or Community Service Facilities;
    (e) For Risk-Sharing Loans;
    (f) For Loan Guarantees; and
    (g) For the Awardee's Operations.


Sec.  1807.302  Restrictions on use of assistance.

    (a) An Awardee's activities under Part 1807.301 shall not include 
the use of CMF for the following:
    (1) Political activities;
    (2) Advocacy;
    (3) Lobbying, whether directly or through other parties;
    (4) Counseling services (including homebuyer or financial 
counseling);
    (5) Travel expenses;
    (6) Preparing or providing advice on tax returns;
    (7) emergency shelters (including shelters for disaster victims);
    (8) Nursing homes;
    (9) Convalescent homes;
    (10) Residential treatment facilities;
    (11) Correctional facilities; or
    (12) Student dormitories.
    (b) An Awardee may use up to a percentage of CMF award for 
Operations as specified in the applicable NOFA.
    (c) An Awardee shall not use CMF award to support projects that:
    (1) Consist of the operation of any private or commercial golf 
course, country club, massage parlor, hot tub facility, suntan 
facility, racetrack or other facility used for gambling, or any store 
the principal business of which is the sale of alcoholic beverages for 
consumption off premises;
    (2) Consist of farming (within the meaning of I.R.C. section 
2032A(e)(5)(A) or (B)) if, as of the close of the taxable year of the 
taxpayer conducting such trade or business, the sum of the aggregate 
unadjusted bases (or, if greater, the fair market value) of the assets 
owned by the taxpayer that are used in such a trade or business, and 
the aggregate value of the assets leased by the taxpayer that are used 
in such a trade or business, exceeds $500,000.
    (d) In any given funding round, no more than 30 percent of an 
Awardee's CMF award may be used for purposes described in Sec.  
1807.300(b).

Subpart D--Qualification as Affordable Housing


Sec.  1807.400  Affordable Housing--general.

    Each Awardee that uses CMF funding to support Affordable Housing 
Activities shall ensure that 100 percent of Eligible Project Costs are 
attributable to housing units that meet the affordability 
qualifications set forth below for families whose annual income does 
not exceed 120 percent of the median income for the area, as determined 
by HUD. In addition, greater than 50 percent of the Eligible Project 
Costs must be attributable to housing units that meet the affordability 
qualifications set forth below for either Low-Income, Very Low-Income, 
or Extremely Low-Income Families.


Sec.  1807.401  Affordable Housing--Rental Housing.

    To qualify as Affordable Housing, a multi-family rental housing 
project financed with a CMF award must have at least 20 percent of the 
housing units occupied by Low-Income, Very Low-Income, or Extremely 
Low-Income Families and must comply with the rent limits set forth 
herein.
    (a) Rent limitation. The maximum rent that is deemed to be 
affordable under the CMF is a rent that does not exceed 30 percent of 
the family's annual income.
    (b) Nondiscrimination against rental assistance subsidy holders. 
The Awardee shall require that the owner of a rental unit cannot refuse 
to lease the unit to a Section 8 Program certificate or voucher holder 
(24 CFR Part 982, Section 8 Tenant-Based Assistance: Unified Rule for 
Tenant-Based Assistance under the Section 8 Rental Certificate Program 
and the Section 8 Rental Voucher Program) or to the holder of a 
comparable document evidencing participation in a HOME tenant-based 
rental assistance program because of the status of the prospective 
tenant as a holder of such certificate, voucher, or comparable HOME 
tenant-based assistance document.
    (c) Initial rent schedule and utility allowances. The Awardee shall 
ensure that the housing adheres to the applicable Participating 
Jurisdiction's maximum monthly allowances for utilities and services 
(excluding telephone). If the Participating Jurisdiction's allowances 
have not been determined or are otherwise unavailable, the Awardee 
shall rely upon the utility and services allowances established by the 
applicable city,

[[Page 12417]]

county or State public housing authority.
    (d) Periods of Affordability. Housing under Se